The adjustment policies designed by the International Monetary Fund, IMF, for the so-called “peripheral or emerging economies”, never lack the flexibility of the labor market, arguing that the distribution of wealth in favor of households with less savings capacity impacts in a negative way investments.
The organism argues that a legal framework that protects profits affects the amounts in the companies' portfolio for possible investments, which, for the IMF, means the creation of fewer jobs that end up affecting the same workers.
In its own way, the institution argues that, in a flexible labor market, entrepreneurs can accumulate higher income and profits that will eventually be invested with the consequent generation of more production and sources of employment.
It's the glass of water theory. The body proposes to wait for the profits to spill over and start creating new businesses and jobs. Meanwhile, workers have to work in fragile conditions of stability, rights and income.
But it turns out that the theory thus applied to countries with peripheral or emerging economies, as they say, has not yielded the results expected by the IMF itself.
A first obstacle imposed by reality is that workers with low purchasing power have weak muscles to stimulate new investments that generate more production. They demand few goods and services and that makes it difficult to generate new and more supply.
In addition, low purchasing power becomes a factor that discourages investments, as entrepreneurs reconsider the possibility of investing after perceiving that there will not be the desired demand for their future merchandise.
Other. In the absence of economic and even political conditions, it frequently happens that the money that should be invested, on the contrary, is taken from the countries via capital flight, either towards speculative markets or towards investment in countries where workers they do have demand power.
The trend takes hold when economies are oligo and monopolistic and make competition and the creation of new companies difficult. The measures adopted end up favoring the dominant emporium, even more so in the face of a weak State due, among other reasons, to the reduction of its power to the extent that it is pushed aside by the flexibilization of the labor market.