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The Priority of Growth and Jobs -- the IMF's Dialogue With the Unions

While the IMF and the labor movement might have some differing views, our goals are ultimately the same -- standing against narrow domestic interests, against nationalism, against war. And standingbetter living standards for all, andpeace.
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I had the pleasure of addressing the 2nd World Congress of the International Trade Union Confederation (ITUC) in Vancouver a couple of weeks ago, and participating in a panel debate. I also met privately with some key union leaders.

For me, three main points emerged.

First, I was confirmed in my belief that, for the IMF, our interaction with the labor movement is extremely valuable. We make it a point to meet with unions, including in the context of our lending programs. Over the past few years, I have personally met international trade union leaders four times -- on the eve of important G-20 meetings -- as well as with individual union leaders. So the labor movement has a lot of influence on the way we work -- even if they do not always think so.

As an example of how the labor movement has influenced our thinking, I mentioned in Vancouver our strong support for the fiscal stimulus back in 2008, especially geared toward measures that would create jobs.

We also talked about the IMF's more recent approach to country lending programs -- which has changed in a number of important ways. For a start, we understand the importance of setting realistic targets for reducing deficits. A target that demands too much too soon can damage the economy; it can also damage prospects for success.

In our recent lending programs too, we have been pushing for what I call "social conditionality"--specific measures to protect the most vulnerable from the tough medicine that is often needed.

It is also important to share the burden of adjustment equitably -- as a country has a far better chance of pulling through a crisis if there is a sense of fairness in the program and a spirit of national solidarity.

The second message that came out in Vancouver was that the labor movement has a major role to play in supporting continued economic cooperation across the world. Collaboration is really the great legacy of this crisis, as countries came together to face common problems with common solutions. Because of it, we avoided a second Great Depression. Now more than ever, the world needs a renewed unity of purpose. The labor movement needs to keep pressing this point -- as do we at the IMF.

What does cooperation mean in concrete terms? Well, in the IMF's analysis for G-20 leaders in Toronto, we showed that with even greater policy cooperation, world growth could be boosted by 2½ percentage points over five years -- creating 30 million new jobs.

To get there, all countries need to do their bit. Fiscal consolidation in advanced countries is unavoidable. They need to put credible fiscal adjustment plans in place now, mostly starting in 2011, as the recovery is still fragile. At the same time, economies with surpluses need to boost internal demand, by spending on social safety nets, improving infrastructure, and allowing exchange rate flexibility.

Fundamentally, growth is the answer -- for jobs, for debt sustainability. That means unlocking productivity potential, innovating in areas like "green technology", and making sure that all who want jobs can find jobs.

Financial sector reform is also crucial -- and on this issue too, I believe we are on the same page as the labor movement. Excessive risk-taking -- often fueled by greed -- threatened the entire world economy and pushed millions into unemployment and poverty. We need to put the financial sector back in the service of the productive economy. This is why we support tougher and better regulation, especially to build capital firewalls against future crises. We also think that financial sector taxation can help reduce the likelihood and cost of future crises. Here, we have some differences with the ITUC -- they support a financial transactions tax while we prefer a tax on profits and remuneration. But while we may differ on the means, we are united by the common goal of ensuring a fair and substantial contribution from the financial sector.

In fact, I believe the IMF and the labor movement share a number of important goals -- and this was my third take-away in Vancouver. The goal of the IMF is global macroeconomic and financial stability. This is ultimately the best guarantee of steady employment growth and job security. But it's more than that.

The IMF was founded after the Second World War, and our founders were determined never again to repeat the mistakes of the past -- an economic nationalism that led to devastating war. Today, our overarching goal is bringing about better relations between countries, avoiding the economic roots of instability, social unrest, and conflict.

So while the IMF and the labor movement might have different views on different topics, our goals are ultimately the same -- standing against narrow domestic interests, against nationalism, against war. And standing for better living standards for all, and for peace.