02/21/2014 04:21 pm ET Updated Apr 23, 2014

G20 Finance Ministers in Need of Some Old 'Know-how': Jobs and Decent Wages

Listening to optimistic talk of an economic recovery among the world's financial elites is a bit like hearing a smoker describe their latest heart attack as they light up another cigarette.

As G20 Finance Ministers and Central Bankers responsible for 85 per cent of the global economy prepare to meet in Sydney this weekend they must confront the underlying problems that still stymie growth and prosperity for all.

The talks have been characterised as traditional, with no new "know-how" from policy makers.

Investment in infrastructure, adequate training, an end to precarious work, and reforms such as social protection, minimum wages and collective bargaining, are concrete steps governments must take to narrow the growing gap between the haves and have-nots.

Anything else is merely a continuation of the complacency and fanciful thinking that characterised the World Economic Forum in Davos last month.

At that event, in the rarefied air of the Swiss Alps, the widening gulf between rich and poor was lamented - after all, those present made up almost two-thirds of the world's wealth. There was even some recognition that such obscene inequality could put economies and democratic institutions at risk, though there was little or no discussion of how to set a new course.

Pundits suggested the United States and United Kingdom economies were rebounding strongly, and that even the sick economies in Europe were finally on the mend. There were confident predictions the global recovery would strengthen significantly in 2014.

Such forecasts gloss over the massive backlog of unemployment and stagnant worker incomes, which restrict consumption and represent a drag on aggregate demand. Data suggesting that deflation in Europe remained a distinct possibility were also ignored.

Now just a few weeks later the official outlook appears far less rosy. Emerging markets are struggling to contain capital flight and their currencies are under attack despite the best efforts of central bankers to prop them up. Confidence in several large emerging economies has been shaken by a sharp slowdown in growth, concerns over political stability, the outlook for commodity prices and confirmation that the days of cheap and plentiful dollars are drawing to an end.

The causes of this new crisis can be traced to deregulated global financial markets, which create boom and bust cycles for capital movements. After several years in which the emerging economies had to absorb massive inflows of capital from speculators seeking higher returns than they could expect at home these flows are suddenly reversed as foreign investors race for the exit, causing panic as they leave.

In our globalised economy the consequences of these recent events in emerging markets will not be easily contained. They have already impacted on equity prices in advanced economies. The risks are particularly acute for the fragile southern European states that need to compete for tourists alongside emerging economies. In emerging economies large currency depreciations have just made these countries bargain destinations for holidaymakers. While prices in Greece, Spain and Portugal are edging upwards as the Euro strengthens.

At a minimum, a real and enduring recovery will require re-regulation of financial markets and policies to correct the explosion in income inequality. These issues are now openly -- though superficially -- discussed, but no one is taking responsibility for implementing reforms that will reduce risk in markets or restore the middle class.

Talk of policies that might actually help shift the massive income and power imbalances in our societies was confided in secret to the few representatives of civil society and trade unions at Davos. These were the subjects for stage whispers or quiet corners.

Instead of dealing with rising income inequality in developed economies we can now expect pressure for reforms in emerging and developing nations that will exacerbate the already high levels of income inequality in these regions. Whenever there is a currency or financial crisis developing countries are told they must implement reforms to help attract foreign direct investment and capital inflows. Often this is accompanied by demands for further reductions in wages and labour costs.

Workers and the poor are invariably expected to bear the weight of rectifying the results of poor economic management.

During the economic upswing in emerging market,s workers in most countries did not receive their fair share of the gains in productivity or prosperity. This is why income inequality increased dramatically in many parts of Asia, Africa and Eastern Europe. In a few Latin American emerging countries income inequality did marginally diminish, but this was from unacceptably high levels.

Now as emerging economy currencies fall, the price of imports will increase rapidly and the cost of living for the poor will jump. It is the poor who suffer in these circumstances. They are the ones who cannot protect themselves and in a further economic tragedy more jobs might disappear.

One clear step governments and central banks must take in Sydney is the introduction of country-by-country tax reporting by multinational corporations. In this way the G20 can show their resolve to end the complacent, business-as-usual approach and give meaning to the OECD Action Plan on "Base Erosion and Profit Shifting" endorsed at last year's summit in Saint Petersburg.

If we are committed to strong, sustained and balanced growth lets forgo for once, asking the poor and the working class to carry the full burden of adjustment. Instead let us focus on protecting their jobs and real living standards.

To the surprise of economists and policy makers, it might just work