The Impact of Globalization on Workers and Their Trade Unions -- Address by Michel Camdessus

June 26, 1996

96/13 Address by Michel Camdessus
Managing Director of the International Monetary Fund
at the Sixteenth World Congress
of the International Confederation
of Free Trade Unions (ICFTU) Brussels, June 26, 1996

Mr. Chairman, your organization's report, "The Global Market Trade Unionism's Greatest Challenge," lays out an impressive agenda for trade unions in a rapidly changing globalized world. It speaks on behalf not only of your immense membership but of all humanity when it says "mass unemployment and poverty are an intolerable waste of resources and a dangerous threat to social cohesion." Yes, we are confronted with the hard challenge of turning a grim picture into one where opportunities could overcome the risks. Your unions have an outstanding record of such fights and successes in adverse conditions, not the least in defense of trade union rights, which so frequently go hand in hand with democracy itself. And I have no doubt you will remain faithful to such tradition.

But this is a call to action for all. Indeed, the first Article of the IMF's Articles of Agreement mandates the Fund to "facilitate the expansion and balanced growth of international trade and to contribute thereby to the promotion and maintenance of high levels of employment and real income...." This is the agenda for the Fund to complete and we are far from being there.

Mr. Chairman, we agree on the diagnosis and we agree on a common objective. I would like to offer you then our views on some of the methods to be used in reducing unemployment and poverty and, in so doing, minimizing the risks of globalization and maximizing its positive potential. But let me start by stating that this would hardly be conceivable without the active contribution of vigorous and responsible trade unions; and let me add that I feel privileged to have this opportunity this afternoon, an opportunity many of you have already given me when I visited their headquarters in their countries.

Now let us start with a look at the advantages and disadvantages of globalization. In concluding your speech this morning, Mr. Chairman, after listing the problems of the global market, you mentioned "the tremendous opportunities for working benefit also" from it. So let's take a look at the positive side:

  • Trade liberalization can be a positive sum game: everyone can gain. The movement to lower trade barriers and open world trade has undoubtedly increased world growth in goods and services; it has increased incomes and raised standards of living globally, which doesn't mean, unfortunately, for each individual.
  • This has happened throughout the world, but it is clear that, so far, the countries that have entered thoroughly and positively into this freeing of trade have gained the most. And the entire world has benefited from their gains. Suffice it to remember that without the buoyant activity of around forty developing countries that have accepted the discipline of an open economy, the entire world would have experienced a true recession rather than a growth rate a little higher than two percent, when in 1991-93, the major countries—the U.S., Japan, France, and Germany— experienced a recession. In fact, the recession in the major countries was less severe because of their exports to these developing countries. Those countries—on the contrary—that have been reluctant to liberalize have, on the whole, done less well: the extreme example being the previously centrally planned economies with their closed trading system. There is no doubt that no one envies the plight of—as you say—the 5 percent of the world's workers who, perhaps, by the turn of the century will be living in the very few remaining "closed door" countries.
  • Originally the globalization of trade involved, principally, trade in goods; but now we have an explosion of trade in services, telecommunications, financial services, computer and information technologies, creating industries and frequently better paid jobs of a nature and on a scale undreamt of twenty years ago.
  • Capital markets also are truly globalized. Foreign investment is increasingly important in the creation of jobs and improvement of living standards in developing countries. More generally, it allows companies to position themselves in an increasingly competitive world through geographical diversification. Individuals, companies, investment trusts, mutual funds, and pension funds seek returns on capital throughout the world on a scale and with investment instruments unknown twenty years ago. Those capital markets that have the ability to adapt will gain the greatest advantages. And it is those investors that diversify internationally that will best limit investment risks.

Now, one can see dangers in this. First, that capital moving overseas represents lost output, trade, and employment at home. Second, that foreign investment can be volatile and robs countries of their sovereignty. As I see it, it is quite the reverse. Careful studies show that companies that invest in plants in developing countries generate increased demand for parts and inputs from the developed countries where the investment originated.

Foreign investment is only volatile if it is under threat. It is a positive and stable contribution under a well-run and well-defined legal system of guaranteed ownership of assets and profit repatriation, and above all with safeguards for transactions and people. Most important of all, if economic policies are sound, the investment will remain and expand. If macroeconomic policies are ill-judged and put economic and civil order at risk, then clearly capital may leave. This unsurprising fact puts the onus on governments to behave responsibly.

Let us now consider what these negative aspects are. They can be encapsuled in the twin evils of exclusion for individuals and marginalization for countries.

Put bluntly, the greatest fear is that a global labor market allows extremely low paid workers in developing countries to undercut the wages of the less skilled workers in developed countries. Undoubtedly, in the last twenty years, there has been a marked increase in unemployment of the low skilled in most developed countries. There is also evidence in some developing countries of a large class of low skilled, usually poorly educated, workers employed at very low wages. But this is not exclusively related to an excessive globalization of trade. As the products traded change, with more skill-intensive exports expanding from developed economies and less skill intensive ones from developing economies, the industries of both sets of countries must adapt. That change in production can involve major changes in investment and in worker skills. It is really traumatic when workers through lack of the ability or means to learn new skills, or because they are too old to change, lose their jobs. Trade unions have a role to play to help workers re-train, ensure that social entitlements are fulfilled and are maintained at an adequate level, and that pensions are transferable. This must be part of the tripartite dialogue on which I will comment later.

Is this the whole story? Hardly. In addition to structural unemployment, the rise in unemployment in many developed countries is also associated with the low rates of growth in those economies. So, part of the solution must be to raise growth rates to sustainable levels and to reduce the range of fluctuations and the financial instability—which is made more dangerous by globalization—that have reduced firms' willingness to invest and employ more workers. Better international cooperation in macroeconomic policy design and structural policy reform must help. This is another area of primary Fund responsibility through our surveillance, and our not much publicized, but intense, discussions with all major trading nations, particularly the G7 countries. Indeed, this reminds me of my busy agenda for tomorrow and the days after.

A third reason is suggested to explain the rise in unemployment. People point to technology, especially the applications of computers, as pushing the non-numerate, non-literate to the sidelines of employment. The speed of technological change, the speed at which production techniques become obsolete, at which products are replaced, materials altered, new patents filed, all contribute to an increasing feeling of insecurity even amongst those who are fully employed. Who can be confident that skills learnt today will be relevant in 10 or 20 years? What we need is security of "employability." Society reaps the benefits of technology and has the corresponding responsibility to ease the adaptations required through better education and job training to ensure continuing employability.

Lastly, there is another explanation for global unemployment and poverty which is frequently advanced, and which, you will not be surprised, I reject: structural adjustment policies promoted by the IMF and the World Bank! This was mentioned in the preparatory papers of your congress. I presume, at least in part, to offer me an opportunity to take exception to it! There are, it is true, human costs of adjustment. All the higher, when adjustment is postponed and the therapy, which could have relied on two tablets of aspirin at an early stage, calls for surgery. It is our common task to reduce the human costs of adjustment, and I will come back to that later; but allow me to tell you my conviction rooted in 50 years of IMF experience with a worldwide membership: nothing causes higher human costs than the refusal to adjust, as it leads, sooner or later, to the collapse of economies and societies. As a matter of fact, I am convinced that structural adjustment and globalization, far from being the main sources of unemployment, can be taken advantage of in a strategy for better growth and employment. The remarkable example of those 35 to 40 countries, which are now the world growth locomotives and saved the world from recession, amply demonstrates—as so many of them worked with us in structural adjustment programs—how such programs, applied with perseverance, can contribute to improving human living standards. But such improvement will never be an automatic result of a miraculous economic model; similarly, we cannot expect an economic model to prevent the major plagues of our societies. And here I have in mind the growing distortions in the distribution of incomes at the expense of the poorest, the risks of growing poverty, corruption and criminality, the risks to the environment and cultural differences. These major plagues cannot but worsen, unless governments have their priorities right, and accept to complement the structural adjustment program by a major effort at reforming the state, including, in particular, reducing unproductive spending, collecting properly the taxes from those who can pay, and allocating them more efficiently to key social priorities. Please do not accept the populist propaganda of those governments that so easily make the World Bank and the IMF the scapegoats of their own unacceptable negligence. What economic models cannot deliver, it is the imperative task of governments to provide; and no government will accomplish this task, except under the pressure of public opinion, particularly the permanent pressure of strong trade unions in the framework of the tripartite dialogue, and within a context of strengthened international cooperation, because it is only in a context of international solidarity, and with the support of strong multilateral institutions, that the other major risk of globalization—marginalization of countries—can be resisted.

So, for all these reasons, and to respond to the people's worries about globalization and its possible effects on employment, trade unions and the Fund have crucial roles to play in ensuring that globalization is for the benefit of all. Let us look at these roles a little further, starting with your own struggles in various continents.

Trade unions in many developing countries, especially in Asia, welcome the opportunities globalization creates for new jobs, greater output and higher incomes. However, as your own congress report reminds us, there are still over one and a half billion people in the Indian sub-continent, China and Indonesia who survive on less than a dollar a day, and trade unions in many Asian countries have great difficulty in establishing workers' rights to organize. Your report places great emphasis in this respect on the role of the ILO, and I join you in your tribute to our elder sister in the family of the United Nations. The IMF entirely agrees with this, and Michel Hansenne and I have given detailed instructions to our staffs to cooperate throughout the world, particularly at the field office level, to ensure that each organization complements the other and its policies.

In Latin America a couple of weeks ago, I had discussions with trade union leaders in Argentina, Bolivia, Haiti, Paraguay, and Venezuela. They expressed concern at the implications of trade liberalization for workers and their trade unions. I must tell you what I told them. I said globalization offers many rewards but also imposes many challenges; to compete, countries need to adapt to the reality of the market place. This calls for flexible economic structures and monetary and fiscal discipline. I also said that merely nominal increases in wages or pensions are a cynical and duplicitous bargain when inflation erodes both incomes and pensions at an ever increasing pace. Social benefits and incomes, even when enshrined in legislation, do not exist in reality when they are not paid due to resource constraints, or equally bad, when they are paid by printing money "en monnaie de singe," as we say in French, and "en ZOREILLE BOURRIQUE," as they say in Haiti. And let's not forget that resource constraints often stem from misappropriation of workers' contributions by an incompetent, free-spending, selfish state.

I must also tell you that many complained about the privatization of public enterprises. I agreed that private ownership per se was not the exclusive goal, but that the historical record of public sector industry in both developed and developing countries was, alas, frequently disappointing. Competition must apply to state-owned industry to produce efficiency, and in the case of privatization, state regulation has a role in ensuring that we do not simply replace a public monopoly with a private monopoly.

Among industrial countries, workers are confronted with no less demanding challenges. The United States, with fewer labor market rigidities than Europe, has a significantly lower rate of unemployment. But, precarious social and working conditions frequently contribute to the emergence of what Secretary Reich calls a new "anxious class." Also, governments, particularly in Europe, that levy heavy taxes on wages increase the marginal cost of employing labor and discourage new hirings. Also, at times—and here will perhaps take exception—the increases in, or even the maintenance of, favorable scales of pay or working conditions and the very rigid regulation prevailing in the labor market, add to the disincentives to new hirings. And beyond that, they are faced with the challenge of helping an anemic economy recovery. These are important questions for trade unions, employers, and governments to confront and debate, and for which they can only propose realistic solutions together.

What is the general response of the IMF to this panoply of problems? It is very different from the one which would consist of giving the exclusive and final word to the markets for goods and services and to the markets for capital and labor. Markets cannot have the last word. Of course, we recognize the importance of Adam Smith's "invisible hand." However, we also need a second strong and not so invisible hand—that is, the hand of justice guaranteed by the State. This sets the framework under which markets can work reliably and efficiently, including the rules governing workers' rights. An independent and objective judiciary, in particular, is a complementary necessity for efficient markets. Last but not least, the state must put in place the proper macroeconomic framework to optimize the growth potential.

But there is a "third hand" which is needed that I might call the hand of social solidarity. Clearly, within each country, we have a responsibility to help promote fair income transfers, from the rich to the poor, the healthy to the sick and from employed to the unemployed. There is also an international dimension to solidarity, particularly, through monetary cooperation, development aid, and aid to countries in transition. This solidarity is the glue that binds society and the international community together. And with growing competition it has become increasingly indispensable.

The international dimension of solidarity must grow stronger with the growing interdependence that globalization generates. I am deeply concerned that in certain fields, we witness the opposite. The Fund reacts to that with all its energy, trying to make sure that the three hands work together permanently. At the national level, the Fund recognizes the social costs of adjustment and works with the authorities to review the budgetary provisions for social transfers to protect the most vulnerable members of society. We recognize that the costs of adjustment are too often borne by those least able to do so, and we try to help design social safety nets that are well targeted and cost-effective. As you know, we also press governments to set military spending no higher than required by the objective security conditions of the country. You know our efforts in this domain, and we have recently assessed the outcome. Military spending in countries with Fund programs dropped from 5.3 percent of GDP in 1990 to 2.2 percent in 1995. Of course, this is due in no small part to the end of the cold war, but it appears that countries with longer IMF program experience reduced military spending more sharply than others, and there is also evidence that these reductions allowed countries to increase social spending in the face of cuts in total spending. You will be interested to know that in a group of countries with IMF programs that we have carefully reviewed recently, the share of military expenditures in total public spending was reduced by 3 percentage points during the period 1985-92, while social expenditures was increased by more than 4 points. This is only an example of what we are trying to do—and to my judgment not yet fully satisfactory—in the framework of the programs of structural adjustment.

At the international level, and particularly in Africa, we spare no effort to design and put in place effective new instruments to help the poorest—for instance, by putting our instrument for making loans at a 0.5 percent interest rate on a permanent footing, and—together with the World Bank—by finding a way to help reduce the burden of multilateral debt. But in order to ensure that the international contribution is sufficient to contain the risks of marginalization, we do need your active support, and I salute the high priority this objective has always had in your activities.

However, the key point is that the three hands must be interlinked; no one of them is efficient acting alone. A harmonious society requires the appropriate degree of emphasis on the market mechanism, on the role of the state, and on internal and external solidarity; a right emphasis which can better derive from another tripartite approach—this time, one of dialogue between employees, employers, and government. This tripartite structure, as we know, also faces new challenges stemming from globalization, and I note with pleasure that trade unions, no less than employers, are re-assessing their role, as you are doing today. As we have seen, markets are ruthless and will challenge vigorously those that do not adapt. The world's common good will be greatly helped by the unions using their strength and their place at the table to help workers adapt and to engage employers and governments in dialogue to ensure—inter alia—that those who are unemployed through structural change are helped to retrain, to find new jobs, and to carry their entitlements from job to job.

We have noted that the unemployed and poorly paid are often those who have difficulty learning new skills. It is particularly shocking when these are young people whom the educational system has not prepared for this new world. The Fund, the World Bank, and the regional development banks are all pressing governments to put education high in their spending priorities. As your own congress report states, the growth of youth unemployment across the world is a "criminal waste" of young ambitions, talents, and hopes. Trade unions have a responsibility to see that their members enter the work force with credentials that give them a reasonable chance of success. This, and particularly the education of girls, is one of our biggest challenges to meet the changes demanded by globalization.

Mr. Chairman, this is only another example of the many urgent and indispensable tasks that must be undertaken for the world and our societies to adjust properly in the face of globalization. I could also mention the need to integrate the informal sector of our economies and so many other tasks. We all have the responsibility—and it is a grave and weighty responsibility—to use our influence to ensure that all sections of society understand the need for adjustment. This task is too critical for rhetoric. For the Fund, it is a daily preoccupation, as it is for you. No doubt, this is a demanding task but we cannot settle for less, and I know that together we can advance further as we build on the mutual respect and trust we have already established to continue carrying out these far-reaching responsibilities.


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