… the United Nations shall promote: (a) higher standards of living, full employment, and conditions of economic and social progress and development;
- Charter of the United Nations, Article 55
The principal political institution at the heart of global governance, the United Nations General Assembly, at its Special Session on Social Development held in Geneva in the last week of June 2000, agreed unanimously, without qualification and after considerable debate, on the radical decision to invite the International Labour Organisation to 'elaborate a coherent and co-ordinated international strategy on employment.'1 This was an important expression of the commitment in the UN Charter to full employment.
Preparation for that Special Session had begun by reaffirming the Declaration and Programme of Action agreed at the World Summit for Social Development held in Copenhagen in March 1995 (the Social Summit).2 The first of the Copenhagen commitments is to create an enabling economic, political, cultural and legal environment for social development. The second relates to the eradication of poverty. The third is 'To promote the goal of full employment as a basic priority of our economic and social policies, and to enable all men and women to attain secure and sustainable livelihoods through freely chosen productive employment and work.' Under that commitment the Geneva Resolution outlines many initiatives that would have to be part of an international strategy on employment.3
This paper explores essential elements of an equitable international employment strategy. The paper is based on empirical research presented at an ILO conference on globalisation, employment and poverty held in October 2002, but also draws extensively on other recently published research and analysis.
The paper discusses ten areas of policy relevant for such a strategy: the choice of goals and priorities; human rights and international labour standards; changing public and private sector responsibilities; macroeconomic policy; external financing; improving technological capabilities; trade; sectors offering prospects of employment growth; the interplay of equity and work; and governance and political incentives.4 It concentrates on the international dimension of these issues, including the policies of international economic, financial and trade organisations, but it is impossible to do so without also commenting on many aspects of national policies. In such a short essay, only a selection of major issues are addressed: many others are also important and some of these are discussed in ILO's Global Employment Agenda, the World Employment Reports and several recent books published by the ILO and edited or written by Auer, Betcherman and Islam, Khan and Maqtada, Richards, and Standing. 5
The paper discusses one central theme, which is that committed, intentional adoption of the goal of decent work by governments, corporations, unions, and communities often requires redefinition of international and national policies, and in corporate, organizational, community and individual attitudes and practice.
1. The achievement of decent work has become one of the central priorities for national and international economic and social policy. The Director-General of the ILO, Juan Somavia, has articulated this primary goal as being 'to promote opportunities for women and men to obtain decent and productive work, in conditions of freedom, equity, security and human dignity.'6 Growth of opportunities for wage employment and self-employment are centrally important to reducing poverty, increasing personal and national economic security, increasing efficiency - not least by reducing the waste of unemployment - improving equity and to strengthening social integration.
At the end of 2002, 180 million people were openly unemployed. In addition, about 550 million male and female workers were unable to earn enough to keep themselves and their families above the US $1 a day poverty line. Over the next eight years there will be some 400 million new, young job seekers.7
A necessary condition for adequately addressing this challenge is recognition of the capacity for powerful action.
Unemployment is not a natural disaster like a hurricane or an earthquake - something that happens to us out of the blue that society then deals with badly or well, as the case may be. Rather, unemployment is a social phenomenon. Millions of people out of work means, quite simply, that we have failed to organize our society in such a way that full employment is secured. Because it is a problem of our making, not a natural condition, there must be a solution, if only society is willing to take the steps necessary to find and implement it.8
Yet, for more than a quarter of a century, the conventional strategy adopted by developed and developing countries alike, and required by the international public and private financial institutions as a condition for lending, involved relegating employment growth to a subsidiary place after control of inflation and the current account balance. 9The superficial mantra that inflation was most damaging to the poor was ritually repeated to justify policies that tightly constrained economic and employment growth. The economic retardation resulting from the severely contractionary structural adjustment policies of the International Financial Institutions (IFIs) in the eighties and early nineties is now recognized by many of their staff.10 Without such restrictive policies, not only the developing world but also the developed countries could, arguably, have had considerably higher incomes now. In addition, such policies were compounded by the liberalisation of international capital markets which began in the late 1970s, and which also contributed to greater financial volatility, higher interest rates and slower economic growth.11
Since the mid-nineties a broader view has gathered strength, giving greater attention to the importance of employment growth and poverty reduction. For example, the European Union launched the European Employment Strategy at its jobs summit in Luxembourg in 1997, and that includes preparation of annual national action plans based on European Commission guidelines and of a joint employment report.12 The World Bank and to some extent the IMF and the regional development banks report that they have eased and diversified their previously tight, uniform structural adjustment policies. The Millennium Declaration agreed by 147 heads of state and government at the UN Millennium Assembly in September 2000 expresses a broader and more equitable approach to development and the Millennium Development Goals (MDGs), derived from it are being embedded in national and international strategies. 13 Employment growth has a more prominent place in some national Poverty Reduction Strategy Papers - though there is still some resistance to that from within the World Bank and IMF. Market fundamentalism remains influential, however, in financial markets and institutions, in some governments and most finance ministries and amongst cadres in the international financial institutions (IFIs).
The empirical evidence for the success of various strategies in increasing employment in a variety of countries is not always clear. The standard definition of employment as including anyone who has an hour of income-generating work a week conceals the extent of enforced underemployment and indicates too little about the adequacy of the available work for provision of minimal essentials.14 Nevertheless, there does seem to have been a significant improvement in the availability as well as the productivity of work during the last quarter century in countries as different as Australia in the 1980s,15 China,16 Costa Rica,17 Ireland,18 Korea,19 Mauritius,20 the Netherlands in the nineties,21 Singapore,22 Slovenia and the United States during the nineties.23 Most of these countries and all others still have significant levels of unemployment, but there have been significant achievements in each, and in others from which those seeking examples might well be able to learn, and which are reflected in this paper. It is worth noting, for example, that within the EU, 12 million new jobs were created between 1996 and 2002. The Union is likely, however, to miss the employment targets of jobs for 67 per cent of people of working age by 2005, and of keeping 50 per cent of older workers (55 - 64 years) in the work force by the end of the decade.25
One of the lessons is that a search for policy coherence is a mistake if that means uniformity. One size does not fit all. Global coherence of goals is worth seeking because it requires political negotiation and also because, when achieved, it might well lead to mutually reinforcing national strategies. Any attempt to use this to impose one approach, be it described as capitalist, mixed capitalist, social democratic or socialist would involve rejection of the rich variety of national values, cultures, institutions and requirements for development.
2. The ILO Convention 122 Concerning Employment Policy of 1964, which has received 92 ratifications, states the goal of full employment clearly (though not in gender neutral terms) in Article 1:
With a view to stimulation of economic growth and development, raising levels of living, meeting manpower requirements and overcoming unemployment and underemployment, each Member shall declare and pursue, as a major goal, an active policy designed to promote full, productive and freely chosen employment.
The global framework of human rights, of which ILO Conventions and Recommendations are a vital part, is an especially important expression of internationally agreed goals and standards. The 1948 Universal Declaration of Human Rights is not only about freedom of speech and belief, but also of freedom from fear and want. Though it is remembered by many for the political rights it expresses, it is also an expression of economic and social rights, such as the right to work, the right to education and social security, the right to an adequate standard of living for health and wellbeing, and the right to rest and leisure for both women and men. It also includes the right to form and join trade unions. As well, Article (28) states that 'Everyone is entitled to a social and international order in which the rights and freedoms set forth in this Declaration can be fully realised.'25
The framework of international labour standards in the 184 ILO Conventions is being steadily improved and extended. For example, the Declaration on Fundamental Principles and Rights at Work was prepared to highlight core labour standards, as identified at the Social Summit, and to promote respect for them amongst states that have not ratified the relevant conventions, as well as those that have. The ratification and implementation of international labour conventions not only improves labour standards but also contributes to better worker morale, reduction of absenteeism and accident rates and so to higher productivity. By August 2002, there were a total of 7075 ratifications of ILO Conventions by the 175 member states of the Organisation.26 Although the enforcement mechanisms relating to these conventions and other human rights instruments are criticised for their weakness, there is a growing tendency to include a human rights perspective in the development agenda.27
For example, an OECD survey has shown that low-standard countries do not enjoy better export performance than high-standards countries. There is 'a positive association between successfully sustained trade reforms and improvements in core standards' and the observance of worker rights 'may work as an incentive to raise productivity through investment in human and physical capital.'28 An ILO study on labour costs and foreign direct investment (FDI) found 'no solid evidence in support of the conventional wisdom that foreign investors favour countries with lower labour standards, with all the evidence of statistical significance pointing in the opposite direction.'29
3. Globalisation is influencing the balance of public and private sector responsibilities. Most employment is in the private sector, so a central issue is what the state can do to stimulate, facilitate and create an enabling environment for private sector employment growth. One question is the extent to which globalisation is undermining the capacity of governments to influence employment? Growing global integration increases the dynamism of those countries with sufficiently strong and diverse economies to rapidly increase their exports and attract investment. On the other hand, growing interdependence also reduces the policy autonomy of all countries. An attractive metaphor suggested by Disney is that globalisation is like a river.
Like a river it can bring substantial economic, social and environmental nourishment to those who are in a position to benefit from it. But it can erode, devastate and overwhelm if it rushes too fast or spreads too far. Like a river, it is a natural force. But it cannot override all other natural forces and should not be encouraged to do so. Like a river, it can be so ruthlessly exploited by narrow and short-term economic interests that even its economic value is destroyed over the longer term. Restraint and guidance are often necessary to maximise its benefits and minimise its costs.30
Several responses are required. No government is powerless and there has been a tendency to exaggerate the constraints of international competitive forces on their actions. Although these are certainly powerful, and also governments that borrow from the IFIs are constrained by conditionalities, all still have capacity to influence the amount of revenue they receive through the tax structure, to change the composition of public outlays and to shift those in directions that will maximise the benefit to the rate of economic development and employment growth. They can increase education and health expenditure, build infrastructure and reduce military outlays - and that applies to developed as well as to developing and transitional countries - and initiate national and local policies and programmes. All governments can adopt reforms aimed at improving the quality and efficiency of governance, including reduction of corruption.
Governments can also act together to reduce international threats of volatility, instability, inefficiency and inequity. One of the necessary responses to growing global integration is that more of the standards and infrastructure of international exchange must be provided by countries acting together, if they are to operate efficiently. The norms and structures of trade and finance, communication and travel and some aspects of public health and crime prevention, and even international labour standards, must be universal if they are to be fully effective. The principle of the global organisation of the provision of certain types of public goods was accepted well over a century ago, when the first international regulatory agencies were established. Now international co-ordination of such global public goods as postal and telecommunications, civil aviation, weather monitoring and labour standards, controlling the manufacture and use of ozone-depleting substances and concerted action to control certain pandemics, are settled parts of the international infrastructure. Collaboration on other issues such as reduction of the risk of instability in financial markets, restraining international competition over tax rates, constraining global warming and stimulating economic development is still only at an embryonic stage. The debate as to which public goods would be most effectively provided globally, and of how to co-ordinate, manage and pay for them is relevant to the framework for a strategy for decent work.31
A concrete example directly relevant to this subject is Berman and Machin's recommendation on the importance of upgrading data collections on the impact of global integration on labour markets. 'An international repository of national micro data would be a global public good, and one which neutral international institutions like the ILO are exceptionally well suited to provide.'32
Recent exposure of major market failure through corporate fraud, especially in the US, suggests the need for some strengthening of the role of the state. The deceit, manipulation and exploitation by companies such as Enron and the failure not only of their accountants and auditors to evaluate their activities accurately, but also of their boards, industry supervisors or shareholders to scrutinize them rigorously, have highlighted the need for radical reform of corporate governance. Increasing attention is being given to codes of conduct and to corporate social responsibility in many parts of the private sector, making those who neglect these issues even more culpable. Strengthening regulatory and standard-setting institutions is an essential response but so too is greater involvement of shareholders, employees and the community in corporate governance. A more active role for public policy is only part of the solution: employers and unions, consumers and the community in which enterprises are located, all share an ethical responsibility to contribute to strengthening corporate social responsibility.33 & 34
These are complex issues and the circumstances of every country differ, but the essential requirement is that each country review its policies pragmatically, free of the ideological blinkers of either market fundamentalism or of a romanticised view of government. A more balanced national strategy is required in many countries, which recognises both the importance of efficiently functioning markets and of the role of government in offsetting market failure and delivering public goods. This will often involve carefully judged reaffirmation of the role of the state as well as constant and determined commitment to improving the effectiveness of government.
4. The refocusing of national goals to give decent work a central place has many implications for macroeconomic policy. The Geneva Special Session of the General Assembly made a commitment to 'Ensuring that macroeconomic policies reflect and fully integrate, inter alia, employment growth and poverty reduction goals.'35 It was recognized that this would require countries to 'Reassess, as appropriate, their macroeconomic policies with the aims of greater employment generation and reduction in the poverty level while striving for and maintaining low inflation rates.'36 A serious commitment to such coherence of goals would cause the macroeconomic policies of many countries, not to mention the policy advice of the IMF, to evolve considerably. Macroeconomic conditions are one of the most powerful influences on employment.
The ILO estimates that the rate of economic growth per capita that would be necessary to halve both unemployment and the number of working poor by 2010 globally would be over 2 per cent, compared with the average of 1 per cent during the nineties. In some regions the growth would have to be 3 to 6 per cent per capita.37 This would clearly be a striking change of trend. It also suggests that major changes of strategy are required if the rate of growth of employment is to increase sufficiently fast to meet the MDGs and other international and national targets.
An essential component of such a change is a more sophisticated balance between economic goals, including aiming for simultaneous reduction of unemployment and low inflation. This is more feasible at the beginning of the twenty-first century than for the previous quarter century, because some inflationary forces are less strong. The 'non-accelerating inflation rate of unemployment' (the NAIRU) has fallen in the US and probably in other developed countries.38 Globalisation intensifies international competition, reducing the capacity for enterprises to administer prices. Wage aspirations have declined, partly because of demographic changes, partly because of increased worker insecurity, partly because of weakening of trade unions - though greed for exorbitant executive salaries has intensified. Labour productivity rose faster in the latter half of the nineties. In this situation, where national inflation rates are low and in which there is a serious risk of deflation in Japan (and perhaps in other developed countries), economic growth-enhancing policies are essential. This requires stimulating aggregate demand especially through increased investment.
Liberalisation of financial markets has been the most influential change in the macroeconomic environment during the last thirty years. National authorities weakened or abandoned regulation, limiting central banks ability to influence financial markets to only the supply side, resulting in higher and more volatile money supplies and interest rates. Financial volatility increases risk and the cost of investment and sometimes leads to financial crises. There have been 100 episodes of systemic financial sector crises over the last two decades, with fiscal burdens often exceeding 20 to 30 percent of GDP.39 The human, social and economic cost of these crises has been enormous, with the loss of employment and the increase in poverty lasting long after the financial effects have eased.40 & 41
Reduction of financial instability is vital for, as Cornia notes - supported by Taylor - 'this has been the single most important factor responsible for the rise of within-country income inequality of the last twenty years.'42 Santarelli and Figini show that financial openness appears to be correlated with higher levels of poverty, especially relative poverty.43 As well, the power of short term capital flows in liberalised financial markets to destabilise economies ensures that the preferences of financiers are constantly in the minds of national economic policy makers, skewing economic and social priorities towards reduced expenditure.44 This means that financial liberalisation can be doubly damaging, causing both increased poverty and reduced capacity of governments to ease the pain of the poor and others paying the cost through active social programmes.
The obvious approach for those countries that have not yet comprehensively liberalised is to exercise more caution about the extent and sequencing of financial liberalisation. A moderate policy of neither repression nor full liberalisation seems wise. Much developing country experience suggests that carefully judged capital management techniques could have a useful place.45 For those countries that have liberalised, as Taylor remarks, the issue is how to escape from the vicious circle of strengthening supervision or selective re-regulation without increasing the risk premium on their bonds.
Major international co-operative action is also essential, as argued by Taylor. 'Timid steps towards reform of international financial architecture have been taken, including the establishment of the Financial Stability Forum and the revision of capital adequacy standards. However national governments acting alone do not have the capacity to adequately reduce the risks to which their economies are exposed. Greater collaborative international regulation is required.'46 Ocampo authoritatively explains proposals for reform of the international financial architecture.47
Stiglitz raised another important question relating to the institutional context for monetary policy in his keynote address to the ILO's World Employment Forum in November 2001, (held to fulfil the request of the UNGA Special Session for such a world employment forum). Stiglitz said that an emphasis on the independence of central banks, on the ground that monetary policy is a technical issue, misrepresents the nature of their decisions, because monetary policy has a political component.48 Independent central banks have tended to be preoccupied with reducing inflation and to give less weight to the impact of their policies on employment. Two improvements would be: first, for those central banks that have the goals of economic and employment growth amongst their purposes to take them more seriously, and for those which do not, to have them added to their articles; and secondly, to ensure that central bank boards are representative of the various sectors of the community and are therefore more likely to be attentive to the interests of all and not just those of financial markets.
For many countries monetary policy is tightly constrained: US interest rates, often mediated through those in Europe, influence every country. One of the major factors causing the lost decade for development in the eighties and the relatively slow growth of most countries for much of the nineties was the high level of real interest rates. For similar reasons, the reduction in US and Japanese interest rates to cope with the economic slowdown at the beginning of the twenty-first century is a positive element in the external financial environment for all countries. European and developing countries would benefit from a relaxation of the European Central Bank's preoccupation with the acceptability of their policies to financial markets and greater consideration of their impact on economic and employment growth.
A faster pace of accumulation is an essential component of employment creation everywhere. It is scarcely possible to overestimate the importance of the availability of credit at manageable interest rates to entrepreneurs in small and medium enterprises. Any country seeking growth of productive work could well examine the scope for easing access to credit and reducing interest rates.
Both the stance of fiscal policy and its composition are influential. Yet the IMF is still finding reasons for requiring countries embroiled in financial crises to act pro-cyclically and to reduce expenditure during depressions. More pragmatic fiscal policies are appropriate in both developed and developing countries. The arbitrary deficit limits set by the Stability and Growth Pact of the European Union should be re-evaluated and should at least be made more flexible, to recognise the impact of cycles. Employment growth can be encouraged cost effectively by well-chosen expenditure increases aimed directly at equitable improvements in services for all, especially education, training, health and housing, and at income maintenance for the unemployed.
There is a striking correlation between international average incomes and government revenue as a proportion of GDP. In 1991-96 in low-income countries, current revenue averaged 13 per cent of GDP; in lower middle-income countries it was 18 per cent; in upper middle-income countries 20 per cent; and in high-income countries 30 per cent.49 This relationship and the factors underlying it suggest that developing countries might well benefit from aiming to improve their expenditure capacity by increasing revenue. Growth of public outlays is clearly essential in most if not all developing countries. Santerelli and Figini suggest that social spending can be particularly important for lowering levels of absolute poverty.50 Such spending is essential to achieve universal access to not only for basic education and health and minimal infrastructure, but also for other programmes that make improvements in technical capacity possible. Increased public investment in these services as well as infrastructure generally improves productivity and so raises private profitability.
Revenue increases are quite feasible for most countries through changes to the tax base and improving the efficiency, comprehensiveness and honesty of tax administration. Technical assistance to improve tax administration is a particularly cost effective form of development co-operation. A potentially effective means of international support for domestic revenue collection would be to increase international tax co-operation. Governments are limited by international competition in both the forms of tax and the tax rates they can apply. There is also an urgent need to reduce opportunities for evasion and avoidance and to minimise the danger that countries will strive to increase their revenue in ways that deplete the global commons. There is a growing imperative to improve arrangements for co-operation between national tax authorities and to strengthen their capacity for efficient and equitable tax administration.51 Establishment of an international tax agency would facilitate such co-operation and fill a serious gap in the framework of global public goods.52
An additional arm of macroeconomic policy that is commonly neglected is social dialogue leading to the negotiation of a national economic and social strategy by the social partners - business, unions, government and civil society. This approach has been a valuable instrument in many countries including Australia in the 1980s, and in four European countries, Austria, Denmark, Ireland and the Netherlands.53 It can also be a significant means of increasing participation in political processes, so contributing to the accountability and transparency of governments.54
5. All developing countries would benefit from increased external finance for development to fund the investment, infrastructure and services that are essential for growth of employment. Without major external assistance, countries in which 70 per cent of people are impoverished, that are paying 60 per cent of their budgets in debt service, in which over 20 per cent of the adult population have HIV/AIDS, or where the national income has fallen by 30, 40 or even 50 per cent during the nineties, do not have the capacity to get even close to the MDGs by 2015.
Yet one implication of several of the papers at the conference is that most developing countries can expect relatively little assistance from foreign direct investment (FDI). Most international financial flows are concentrated in developed countries - in 1999 and 2000 over 60 per cent of global financial flows were sent to the US alone - and less than a dozen large middle-income countries receive most of the FDI in the developing world.55 The preliminary statistics show that FDI in developing countries declined even further in 2002 than in 2001.56 Also countries with relatively sophisticated capital markets are able to set up swap arrangements that relieve them of the opportunity cost of keeping large reserves.
International capital markets are in transition. Not only is the US sucking up a high proportion of global saving, but also it has become a major debtor. This could well motivate pressure for changes to rules, perhaps opening opportunities for a more effective international financial architecture.
All this, combined with the concentration of production described by Lall, and the attractiveness of large markets mentioned by Campiglio, means that most developing countries will continue to remain unattractive to potential foreign investors other than those in industries producing basic consumer goods.57 There might therefore be net costs for them in hopelessly attempting to fit into the 'golden strait-jacket' of policies, said to be attractive to financial markets and foreign investors, though of course some of those policies such as the rule of law, transparency, bureaucratic effectiveness and regulatory simplicity are useful whether or not they attract FDI. Recognition of the improbability of significant FDI for most developing countries would require the World Bank and the IMF to abandon that as one of the principal foci of their policy advice.
The alternative is more domestically self-reliant policies combined with increased concessional external finance. Domestic saving will continue to be the major source of private and public funds for investment. The rapidly growing East Asian countries, including China, have demonstrated that the boom in domestic investment, especially reinvestment by businesses small and large, triggered the real economic miracle.58
The World Bank estimates that additional external financial assistance totalling in the order of $35 - $76 billion will be required each year until 2015 to even just enable countries to reach the MDGs.59 The funding needs for universal primary education for all, including all girls, will be at least $10 billion a year and could be as high as $30 billion; the health related goals such as reduction of infant mortality and infectious diseases require between $20 and $25 billion a year; and universal access to water and sanitation and of 'secure land tenure and upgrading in slums' a further $5 to 21 billion. The Bank reports that such increases in aid would still on average bring recipient countries to only a third of their aid absorptive capacity. Assistance for these purposes would directly increase employment, improve productivity and so speed up the rate of economic growth. Donors promised at Monterrey to increased Official Development Assistance by a total of over $12 billion during the next three years, leaving in the order of $23 - 64 billion still to be found.
One promising possible innovative source for filling the massive financial assistance gap would be establishment of the International Financing Facility being proposed by the UK Chancellor, Gordon Brown. This Facility would use guarantees of grants to leverage commercial borrowing, enabling aid expenditure to be brought forward in order to contribute to achieving the MDGs.60
Another possibility is to restart regular issues of Special Drawing Rights and for developed countries to voluntarily reallocate them to developing countries on terms that entailed no net recurrent cost to them.61 (Clark and Polak have recently published an IMF discussion paper presenting the case for the regular annual allocation of relatively moderate amounts of SDRs.)62 SDRs received in this way would be free of interest as long as they were held as reserves, so reducing the opportunity cost of holding reserves, but equivalent to low interest loans when they were drawn down. Countries with 75 per cent of the votes at the IMF supported such an issue in 1997. The extended period of slow growth of the global economy in the early 2000s suggests that this would be as good a time as any for an injection of such liquidity.
The issue of new and innovative sources of financing is within the category of domestic revenue since only national governments have the power to tax. Many other possibilities are available, including a carbon tax and a currency transaction tax (the Tobin tax).63 Both of these are technically feasible. The question is whether there will ever be sufficient concern about global economic, social and environmental security to introduce them.
6. Political economists of all persuasion would readily accept the recommendation made by Sanjaya Lall, Berman and Machin and others about the importance of improving technological capabilities.64 It is crucial that governments properly support education and training in the use of the new technologies that are becoming central to industrial skill formation and the nature of work.65 One difficulty with that goal is in finding the most effective combinations of education, training, work experience, public and policy-supported private research and development within the human and financial capacity of each country. The universal commitment to basic education for all is clear, but the appropriate extent of expenditure on secondary, technical, tertiary and adult education is more difficult to judge, not least because in some developing countries this has to be balanced with the fact of relatively high unemployment amongst the well educated. Yet increasing employability involves much more than basic education for all and must include not only secondary and technical training but, now more than ever before, life-long education, for women as well as men. The explosive growth in the international availability of distance learning opportunities contributes to reducing some costs. These are issues to which both the ILO and UNIDO are increasing attention.66
Lall notes that 'Technological competence, skills, work discipline and trainability, competitive supplier clusters, strong support institutions, good infrastructure and well-honed administrative capabilities are the new tools of comparative advantage.'67 There are high rates of return for countries that build up their national capacity for research, development and innovation. Not only does this reduce dependence on tightly controlled, expensive foreign owned technology, but it also reduces the leakage of payments for intellectual property. Income from intellectual property accrues overwhelmingly to the developed countries. It is estimated that industrialised countries hold 97 per cent of all patents and that global corporations, overwhelmingly based in developed countries, hold 90 per cent of all technology and product patents.68 Countries are better off generating technology domestically rather than importing it, to the extent that is possible.
An expansionary macroeconomic setting is normally a necessary accompaniment to effective technological upgrading, for adoption of new technology requires investment. 'Under conditions of rapid capital accumulation both trade and technology can reinforce a virtuous circle of economic growth, job creation and productivity increase.'69
7. In his analysis about trade, Lall also highlights many implications for the policies especially of the WTO and also for national governments. He reasonably argues that 'in the presence of market failure Â… free trade and import liberalisation may not be the best policy for developing countries Â… The design of liberalisation has to take account of the extent and type of market failure.'70 Technological upgrading is hindered by market failures (increasing returns, externalities, linkages, cumulative effects) that are harder to overcome in a free trade environment. Recognition of this reality by the WTO as well as by the World Bank and the IMF would involve substantial modification of each Organization's pattern of conditionality that puts such strong emphasis on free trade everywhere.71
It is not even clear whether greater openness to trade increases employment, though it may contribute to reducing absolute poverty. Spieza found that neither exports nor imports are positively correlated with labour intensity of production. In about half a sample of 39 developing countries, increasing economic integration resulted in a reduction in demand for labour.72 Many other researchers have reached similar conclusions.73 Santerelli and Figini conclude that trade openness seems to be associated with lower absolute levels of poverty but does not significantly affect relative poverty, though even that mildly positive conclusion cannot be asserted with confidence as a result of the empirical work of Rodrik and Taylor, for example.74 As in other areas of policy, national trade strategy for each country should be decided in relation to its circumstances and characteristics. 'It isn't at all obvious ... that further external liberalisation ('open-ness') is now in every country's interest in all dimensions.'75
Not only is the extent of market failure neglected in the foundations of work at the WTO itself, but, as Shukla argues, the Organisation has also become a vehicle for developed countries to force open developing country markets for their multinational enterprises.
The compelling functional requirement of transnational corporations is the need for deeper integration, and the economic-theoretic construct of 'internationally contestable markets'76 seeks to rationalise this requirement. It is argued that such markets, because they would ensure more efficient production, would be welfare enhancing. But this reality overlooks the existence of vast multitudes of people with little or no ability to participate in market processes. The distributive implications of these processes have also been ignored, as have the adverse effects for employment, Â…In effect, the legislative power of a country is transferred to the invisible control of the transnational corporations who have vested interests in creating 'internationally contestable markets'. In this sense, the process of deeper integration is anti-democratic. Â… National norms and standards established through democratic procedures by sovereign parliaments are being trumped by global standards set at the behest of powerful transnational corporations ... the WTO's 'democratic deficit' is burgeoning.77
The agreement on Trade in Intellectual Property Rights (TRIPS) was an early example of damaging deeper integration, for weaker members were denied many opportunities including the chance to manufacture cheaper generic substitutes. The hypocrisy in this area is clear to all, with the major industrial powers urging free trade on everyone, but rigidly maintaining or even strengthening trade restrictions and subsidies when the interests of particular industries in their own countries are threatened. As Cornia notes in his chapter, '... developing countries exporting to rich-country markets face tariff barriers that are four times higher than those faced by rich countries.' Both theory and historical experience show clearly that infant industries - broadly defined - need opportunity and time for establishment. Comparative advantage must be treated as dynamic, and allowed to evolve. It is striking, for example, that it was only when there were a sufficiently large number of American writers asking for protection that Congress passed an International Copyright Act at the turn of the last century.78 The ambiguous General Agreement on Trade in Services is another potentially anti-democratic, as well as anti-social and inequitable, agreement.
The Seattle ministerial meeting halted this relentless process of deeper integration, but resuscitation was resumed at Doha, and in preparation for the Cancun meetings. In addition the powerful US is using bilateral trade agreements to leverage concessions from much weaker countries. Many economists concerned with development would agree with Helleiner that what the WTO requires is 'not an attempt at a new round of 'global' negotiations ... [but] rather ... a pause in current processes - to permit reconsideration, even a formal redefinition, of the fundamental purposes of the organisation.' 79
Since the deeper integration process is so inequitable, developing countries must strengthen their negotiating capacity in every possible way.80 First, strengthening the political solidarity of the G77 group is vital, as is upgrading technical assistance for training trade policy and negotiating staff, and engaging the best legal counsel for especially significant cases. Second, there should be a standstill or rollback in the process, preventing extension of the WTO's mandate into any new subjects, and allowing developing countries an exit option from compliance with agreements such as TRIPS, so avoiding the automatic signing up to 'single undertakings'. No new agreements that are binding on all members should be made. The voting structure of the WTO, in which developed countries have only 24 per cent of the vote, has the potential for fairer political processes than in the IFIs: this capacity must be realised.
Some countries and trade unions argue that the mandate of the WTO should be expanded to include international labour standard conditionality, as this would enhance their potency. My own tentative view is that it is better to retain the current division of labour between the WTO and ILO, and attempt to find ways of strengthening the existing enforcement system of ILO Conventions and Recommendations. The impact of the existing system of scrutiny, review and publicity (involving potential shaming) may be under-estimated, and in any case could be strengthened. In any case, there is clearly a case for attempting to strengthen the incentives for ratification and compliance. Some developed countries, notably the US, which is one of the strongest advocates of making labour standards a condition of reduction in trade protection, have ratified very few conventions. If they simply set a better example, the application of labour standards would improve.
Equity and democracy would be facilitated by the three-tiered structure suggested by Shukla: with the least developed countries entitled to the full benefits of the system without being required to take on obligations; a second tier assured that deeper integration is optional and with entitlements and obligations consistent with each country's stage of development; leaving a third, the industrial countries, free to strengthen deeper integration amongst themselves.81 Such approaches would allow trade policy to be the servant of employment creation and poverty reduction strategies rather than its enemy.
8. Sectoral issues. Crucial to employment strategy is forecasting which industries have greatest scope for employment growth. In many developing countries agriculture, often for subsistence, continues to be the activity on which most people work. In contrast, in the US, employment is growing most rapidly in such services as information and communication technology, the health sector and fast foods.82
Globally the largest group of workers are in the informal economy - around a billion world-wide - in increasingly complex types and varieties of work, most self-employed and working outside formal regulation and protection. Of 42 developing countries for which information is available, 17 had more than half of their total employment in the informal economy.83 It is difficult to define the nature of the employment relationship for many agricultural workers, home workers, street vendors, casual workers and labourers in building and construction and municipal waste disposal and especially for people who are working on several jobs or several industries within short periods.
Important goals are to find ways of enabling people in the informal economy to have more control over their own lives, to have greater security and capacity to cope with risk and to earn higher incomes. This will not be achieved unless the productivity of large proportions of people working in the informal economy is increased, basic services made universally available to them and the quality of those services increased. The best hope for informal workers is through what they do for themselves, and the best means of assisting them is by providing an enabling context within which they can take entrepreneurial initiative, organise participatory self-help programs and campaign for social justice.
Possible steps for governments and all concerned people and corporations include: recognition of informal work, not least in national income accounting; improving access to credit at interest rates as low as possible and to microfinance and microinsurance - which can be especially valuable to women84; improving transport and communication access to markets and services for those in rural areas - using labour-intensive methods of construction; tackling the inaccessibility as well as poor quality of education and health services; supporting local authorities in improving housing, water, sewerage and waste disposal; strengthening the legal structure so as to encourage asset ownership, not least to provide collateral for borrowing; and assisting in the organisation of child care.
The aims of improving provision of microcredit as well as of access to social protection are attractive reasons for workers in the informal economy to organize - in unions, cooperatives and local committees - for all of these are means for giving voice, improving representation and so strengthening self-confidence and power. Subsidies from development co-operation can be a cost effective means of supporting the growth of microfinance and other organisations of informal economy workers. Adult and technical education and agricultural and industrial advisory services are obvious means of encouraging productivity growth.
Education, health services, childcare and care for the aged are themselves important sources of employment. The size and importance of the service sector is commonly neglected by policy makers and even by scholars. Services account for well over 60 per cent of world GDP.85 From 1980 to 1998 the services share of world GDP rose by five per cent, and the corresponding increase for low and middle-income countries was nine per cent. In 1998 services were estimated to account for 38 per cent of GDP in low-income countries, 56 per cent in middle-income countries and an average of 65 per cent in high-income economies. In developed countries most employment growth is in services.
As incomes rise, the demand for human services increases more than proportionately, and human services are labour-intensive - they are face to face.86 One of the best hopes for increasing income-generating work everywhere is to move towards meeting the demand for education, health, personal care for the old, the young and the disabled that are often provided through the public and not for profit sectors; and through expansion of private sector services such as retailing and finance, travel and eating out, personal, professional and technical services and sport and culture. All the services connected with information technology and the collecting, processing, distributing and storing of information have been a major source of employment growth and offer more potential to developed and developing countries alike, for both domestic consumption and export.87
In the industrial sector, the recent evidence suggests that developing countries are diverging rather than converging in terms of output, export and technological upgrading performance - and so in the extent of employment growth in manufacturing. In the industrial sector, the ability of countries to generate and sustain employment depends on their capacity to promptly gain access to, efficiently use, and keep up with new technologies. This needs new sets of skills, organisational relations and infrastructure. In turn, this requires constant technological effort, and active industry policy.88
9. Cornia shows that there has been an increase in the income gap between developed and developing countries and a widespread increase in within-country inequality during the last twenty years.89 Financial instability has been one powerful cause and others have included all the reasons for slow growth - the vicious cycle of poverty, poor education, inadequate infrastructure and weak institutions. Vivarelli confirms the results of previous empirical research in finding no significant relationship between liberalisation of trade or inflows of FDI and within-country inequality.90 Within-country inequity has increased partly because of skill-biased, labour-saving technological change and slow aggregate employment growth, and also because of cuts to social services and social protection, reductions in the progressiveness of tax systems, and political and cultural factors that have allowed increases in income differentials to occur.91
For example, the average annual salary in America, expressed in 1998 dollars, rose from $32,522 in 1970 to $35,864 in 1999. That's about a 10 per cent increase over 29 years - progress, but not much. Over the same period, according to Fortune magazine, the average real annual compensation of the top 100 CEO's went from $1.3 million - 39 times the pay of the average worker - to $37.5 million, more than 1,000 times the pay of ordinary workers.' 92 Unfortunately, this has set an example of exploitation of power and unfairness to the rest of the world, which has been compounded by regressive tax cuts. It is unpersuasive to expect wage restraint from workers, or income restraint from other elites in developing and developed countries alike, when executives in rich countries are receiving such massive annual increases in their remuneration, and their extortion is entrenched by government policy. The strategic shifts in market power - the global glut in the low skilled labour market, enlargement of the rentier class and the decline in the wage share - transform the distributional pressures and therefore the capacity to implement redistributional measures.93
The ways to address these injustices are implicit in the analysis: minimise unemployment and poverty through economic and employment growth and the other strategies discussed in this chapter; improve social services and social protection; strengthen the progressivity of tax systems; and implement national and international redistributive measures. Entrenched gender and race-based inequalities require comprehensive and rigorous application of policies embodying equity, anti-discrimination legislation, active affirmative action and many other incentives.94
There is now general acceptance of the necessity for social protection to compensate those forced into unemployment and damaged in other ways by financial and other economic turbulence.95 The importance of providing minimal security from the other life risks of ageing, disability, sickness and so on is now widely recognised. Yet there is controversy in many countries about how extensive and substantial social protection should be and how it should be financed. The point to be made here is that no country is so poor that it cannot develop at least embryonic forms of social protection which can be extended as income and capacity permit.96 This is another task to which international development cooperation could appropriately contribute. Lee has effectively argued in his review of the Asian financial crisis that countries should adopt such redistributive policies before they liberalise - if they liberalise.97
10. Political incentives and institutions: Some of the strategies and policies mentioned in this paper may well be regarded as currently unfeasible. Yet, given the enormity of the task, it is not surprising that major changes are required. It is reassuring to know that, if there were sufficient concern amongst electorates and the governments who represent us, and amongst companies, unions and civil society, it would be possible to organise our societies and international relations in ways that could ensure access to work with dignity.
The clearest reason for hoping that policies such as these will be introduced is that they are generally what electorates want. Almost everyone would like decent work for all, and no one likes the waste of unemployment and the threat of exclusion in their society.98 One necessary condition for realization of those preferences is electoral equity in an effectively functioning democracy. Another is that policy be prepared within the framework of economic, social and environmental priorities determined by governments. National ownership involves governments in determining whatever combination of security, freedom, justice, social vitality or other goals being sought by their voters and what strategy is best suited to achieving them. The MDGs seem to be a close approximation to the minimal wishes of many electorates.
This requires that economic officials, both national and international, be expected to recognise the political implications of their theories, neo-classical or otherwise, and of the policies they conventionally recommend. Their role is to advise governments about alternative methods of dealing with technical constraints, rather than to implicitly determine priorities.
A major gap exists in the structure of international economic, social and environmental institutions for discussion of the central issues of global political economy. The existing institutions are either exclusive - such as the G8 and the OECD - biased in favour of the industrial countries - such as the IFIs - or insufficiently decisive, such as the UN Economic and Social Council.99 The UN Secretary-General's high-level Panel, chaired by Ernesto Zedillo, argued that 'Despite recent worthy efforts, the world has no fully satisfactory mechanism to anticipate and counter global economic shocks.' Further: 'Â…global economic decision-making has become increasingly concentrated in a few countries. Tensions have worsened as a result. For a range of common problems, the world has no formal institutional mechanism to ensure that voices representing all relevant parts are heard in the discussion.'100
The Zedillo Panel proposed creation of a global council 'at the highest political level to provide leadership on issues of global governance. Â… through its political leadership it would provide a long-term strategic policy framework to promote development, secure consistency in the policy goals of the major international organisations and promote consensus building among governments on possible solutions for issues of global economic and social governance.'
One method of creating such a global council would be for the President of the General Assembly to invite heads of government from member states of the General Committee of the General Assembly to attend a meeting at the beginning of the Assembly session in September. The General Committee is regionally representative, each of the permanent five members of the Security Council is a member, and it has 28 members. It is therefore small enough to have decisive discussions. The current purpose of the General Committee is strictly organisational - it has no political function. However, if its structure was accepted as representative, the President of the GA could call a meeting of the Committee as a Global Council, without the need to change the Charter.
The effectiveness of the existing Economic and Social Council could also be readily upgraded by strengthening the focus of its agenda and meeting more regularly. It could discuss issues such as the reform of the architecture of global economic and financial institutions and norms, increasing the effectiveness of global macroeconomic management, meet more regularly, and particular issues or crises. It could meet for two or three days, whenever economic or social circumstances suggested that would be useful. For example, ECOSOC is an obvious forum to discuss the shortfall of finance needed for achievement of the MGDs.
To conclude, moving beyond stoicism about unemployment to a strong commitment to the goal of decent work for all and action to implement the means is possible. The constraints are not as severe as many current policy advisors would have us believe, but where they are powerful we have to think laterally and find ways around them. In a rapidly integrating world this means giving more attention to the complex task of increasing global co-operation. The importance of increasing employment is one strong motive for strengthening global governance, increasing finance for development and establishing and strengthening the provision of global public goods.
In any case there is significantly greater scope than is generally recognised for employment generating policies and practices through independent action by countries, companies, communities and concerned individuals. The principal requirement is determined, sustained commitment to the goal of decent work for all. Every concerned individual, every community organisation, every government and every international organisation has the opportunity for a role in creating the climate of opinion that encourages acceptance of that goal and in the action that implements the strategies necessary for its achievement.
John Langmore is the Director of the New York Liaison Office of the International Labour Organisation to the United Nations, a former member of the Parliament of Australia, and a former memeber of the executive committee ofthe Evatt Foundation. This paper is adapted from the final chapter for a book entitled Understanding Globalization, Employment and Poverty Reduction, being edited by Eddy Lee and Marco Vivarelli and published by the International Labour Organisation. The author is grateful for many valuable comments on a draft by discussants at an ILO seminar on Globalisation, Employment and Poverty and by Peter Auer, Carmelina Bonavia, Anthony Clunies-Ross, Susan Davis, Ana Maria Hermoso, Inge Kaul, Fiona Kilpatrick, Eddy Lee, Caroline Lewis, Ana-Teresa Romero and Marco Vivarelli. While the discussion is an attempt to explore the implications of ILO goals, research and experience for international employment strategy, the conclusions are those of the author and should not be regarded as ILO policy. John Langmore can be contacted at email@example.com.