Countries should apply socially aware policies to avoid another crisis: UN body

="LTR"> Promoting inclusive development that boosts demand sustainably is the way to break the vicious cycle of economic growth that is accompanied by inequality, the latest policy brief by the United Nations Conference on Trade and Development (UNCTAD) indicates.

The policy brief, titled "Breaking the cycle of exclusion and crisis," calls for adjusting economic policies to depend on "real wage increases and improved social security provision, rather than through speculation or bubbles in credit and asset markets."

It explains the problem as follows: Those higher up the income ladder have a relatively low propensity to consume therefore the skewing of the income distribution can lead to a drop in aggregate demand. Those with lower incomes, accordingly, turn to credit to fund their spending, creating "debt-driven growth." This growth pattern will create a fragile financial system setting the stage for meltdowns similar to that witnessed in 2008.

Inequality, the brief published on Friday explained, generates macroeconomic instability and crises and undermines growth prospects.

"A policy shift is needed to reignite growth, with renewed attention to employment, income distribution and social protection," the brief says.

It adds that inequality is created and promoted by free capital movements, deregulation of financial markets, regressive taxation and the retrenchment of social programmes. Such policy-lines, the brief explains, are the "defining features of what UNCTAD has termed 'finance-driven globalisation' (FDG)."

The brief calls for a coordinated drive within and across countries to promote inclusive development.

It draws upon the experiences of Latin American countries in the past decade to reduce inequality and sustain a more inclusive growth.

Those experiences include a hallmark of policies inspired by Keynesian economics; raising questions on fiscal suitability given the debt crisis overwhelming Europe.

The UNCTAD suggests lowering interest rates, increasing public investment and social spending, supported by more progressive taxation to maintain a more equitable growth. It indicates that enacting labour-market policies to raise wages and improve social protection.