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"A Role for Labor Standards in the|
New International Economy?"
Seminar and Panel Discussion
2:40 p.m., Wednesday, September 29, 1999
Hampton Room, Omni-Shoreham Hotel
PROCEEDINGSMR. FISCHER: Thanks very much for coming to this event. I would like to start, since we have a full agenda on the question of a role for labor standards in the new international economy. We are very glad to be cooperating with the AFL-CIO, with David Smith and his colleagues, and the World Bank, in organizing this program.
The issue of the role of labor standards in the evolving world economy has attracted increasing attention. Members of the Fund have talked repeatedly with officials from the ILO, and have attended the ILO meeting in March. Mr. Lee from the ILO is with us for this occasion as well.
In the general ongoing work on standards in the world economy, the Fund is producing, or has produced, a set of standards on data, on transparency in fiscal accounts, and on transparency in monetary and financial systems. We are also working closely with the Basel Committee on the monitoring of the Basel core standards for the banking system.
As you well know, the standards initiative is part of the attempt to reform the international financial system by setting objective standards for behavior in a variety of areas. At the most recent count, we had 48 international standards, not all of the same import, but some extremely important. Accounting standards, the standards of the International Organization of Securities Commissions, which are about stock markets; bankruptcy standards; standards for corporate behavior being developed in an effort between the World Bank and OECD; and many, many more.
What is the idea? It is two-fold. One, that countries will have an idea of what is regarded as good, if not necessarily best practice, in various areas--and they will need to be able to strive to attain those standards--and secondly, it is hoped that investors will take the observance of those standards into account in their decision-making.
Now, it is still a matter of discussion as to how precisely those standards are going to be monitored. The IMF and the World Bank and others--and the Financial Stability Forum is involved in this effort--are creating a compendium of international standards. It will not be a hard-bound book but a loose-leaf folder into which the various standards will be placed, and then a compendium for each country on how it is performing in relation to the standards.
We don't know exactly how to monitor the observance of those standards yet. There are certain areas in which the Fund has expertise--the ones I mentioned, where we will do the monitoring--and certain areas in which the Bank has expertise, and they will do the monitoring.
But there is opposition to the idea that we should be a rating agency. In fact, there is strong resistance to that in the Fund's Executive Board. Nevertheless,we need to find some ways of indicating how countries are obeying standards or meeting standards.
There is a move for self-assessment. Some countries argue they should announce their own views as to whether they're meeting those standards. That is certainly a method, perhaps not the most convincing, unless the question is a very cut-and-dried one, for example, as to whether particular laws existing or particular standards are being met.
The Fund has experimented with so-called transparency reports. We have written a few of them, reports on how countries are doing in meeting various international standards, and we will continue to experiment with our colleagues in the Bank and in other institutions. I believe that, in the long run, the creation of the standards will be a very helpful way for countries to improve the quality of, in the first instance, their data--and the Fund's special data dissemination standard is working quite well in that regard--and then in later instances other aspects of transparency.
It is necessary to recognize differences in the readiness of countries, and in the case of the data standards, as many of you may know, we have something called a special data dissemination standard, which is a fairly advanced standard which 46 countries have agreed to observe. It is now going into effect and can be accessed via the Internet.
We have also something called the general data dissemination standard (GDDS). This relates to statistics. It is not a standard but a process. In the GDDS we work together with countries to agree on a process of technical assistance and other assistance that will help bring their statistics up to a level where they meet the standard. So it is not a standard, but a process to help them raise their level, and something like this possibly could be done in other areas.
Now, there is a question, of course, which I have already been asked since coming into this meeting by at least one well-known journalist, which is, in essence, "What the heck is the IMF doing in these areas? Why don't you guys stick to your knitting?" That's a fair enough question because we have a primary role--to promote macro-economic stability and structural reforms that would achieve sustainable growth and macroeconomic stability.
But it has become clearer and clearer, as the Asian crisis has proceeded, and as we consider what we're doing, that the international institutions, as a group, cannot insist on a clear difference and a clear distinction between the various aspects of social well-being that are associated with the development of macroeconomic stabilization and growth.
I believe there is room both for the Fund to concentrate on what it is doing and should be doing, and to take an important role in monitoring and encouraging developments in areas that are not in its area of primary expertise or specialization.
This point was made recently clearly in the Managing Director's speech yesterday. When it comes to surveillance of what countries are doing, I do expect that the Fund will analyze or present the analysis of others with regard to how the country is doing and what deficiencies there might be in a variety of areas, including social welfare systems, the environment, and labor standards, which I will come to in a moment.
But we will not have the expertise, nor should we seek to develop the expertise, to tell countries how to fix those problems or to undertake programs to fix those problems. For that, we have, and are grateful to have, the cooperation of the World Bank and of many other international agencies.
It would be a mistake for every agency to try to do everything. But it is not a mistake for us to take an interest in important issues that our colleagues in the World Bank are equipped to handle, and to share with them the responsibility for organizing a division of labor that ensures that the important topics are covered. That is clearest, possibly, in the new HIPC Initiative, where the creation of the poverty reduction strategy paper is intended to provide a comprehensive framework in which both institutions will operate, each dealing with their own area of expertise, but each ensuring that what is done in their area of expertise is reflected appropriately in the actions and the policy areas that the other is interested in.
If, as is likely in many countries, the Fund should be supporting more expenditure on various aspects of poverty systems, or indeed, on education, then that should be reflected in the macroeconomic framework. By working together with the Bank, the country itself, and civil society in the country at the beginning, as well as with bilateral donors and other institutions, to create an overall framework, we should ensure that we can each contribute what we should contribute to that effort.
Now, let me come at last to the consideration of labor standards. We have talked about this with Mr. Somavia on several occasions. He has made clear the following: that he hopes that his effort to get core labor standards adopted voluntarily will be strongly supported by other institutions, not the least the Fund and the Bank. And that we will do and have done, and in some cases, where it was particularly important, we have pushed that agenda very, very actively.
We believe that anyone who looks at the core labor standards, who might have reservations about various aspects of very strong unionization that might keep workers out of jobs and so forth, e.g. the issues related to insiders and outsiders,that are real issues that concern macroeconomists, that anybody who looks at the core labor standards is not going to get terribly worried about these issues. There is a basic set of principles that I think most reasonable people could subscribe to in those standards.
We are certainly willing--and I'm sure Mr. Holzmann will speak for the World Bank--to try to encourage the observation of labor standards in member countries, and they will, I'm sure, in due course, after we've digested how to do it, become part of the corpus of standards that is now being developed.
Mr. Somavia has also made it clear that he does not want labor standards to become an object of Fund conditionality. He wants countries to be encouraged to adopt this, but he doesn't want us to require it as part of our normal conditionality. It would be going beyond areas in which we normally have expertise, and that's an issue that I expect we will be discussing today.
But we are working more and more closely with the ILO. The ILO is now an observer in the Interim Committee, recently renamed just a few days ago to be the International Monetary and Financial Committee, and we expect that the interactions between us and the ILO will continue to expand.
What we would like to do today is to consider where we stand on different initiatives, especially on the social front, to analyze the economic arguments for and against the adoption of core labor standards and what they can contribute to economic growth, and human well-being, and to consider how they fit into this approach to remodel the new architecture.
Well, we are very fortunate to have the panel of experts here sitting in front of you. We will start immediately with Mr. Robert Holzmann, who is Director of Social Protection in the World Bank. We will then turn to David Smith, who is the Director of the Office of Public Policy in the AFL-CIO to make the economic case for international labor standards, and we will then, before coffee, turn to Jagdish Bhagwati, who needs no introduction to anyone here.
I represent the World Bank, and Mr. Fischer has already surveyed many of those areas of joint work, and we'll see how well our cooperation is going on in this area, but also the cooperation with the ILO we had over the last year.
Let me give you some background before I address the issue. The World Bank has always been involved in social policy, but the particular emphasis started out in the '80s when the social consequences of adjustment programs were brought closer to our attention, and we started for the first time to think more thoroughly about it.
A second element happened at the time of helping transition economies in Eastern Europe to cope with the large but often dysfunctional social protection systems. At this time, the social policy competence of the IMF was already high because I used to work there at this time. And a more recent focus, of course, took place when the Asian financial crisis forced international institutions, governments and also other development agencies concerned, to re-examine the key elements of the development doctrine.
As you know, prior to this crisis, the region has astonished the world with the important progress in development characterized by falling poverty rates and increasing access to the main social programs in health and education. But with the onset of the crisis, we found out we had to do more, and we also got an encouragement, because the Development Committee, last year, asked the World Bank, together with the UN Institutions and the Fund, to write a paper on general principles and good practice in social policy.
The paper was delivered at the Interim Committee and Development Committee, and we found that it's good to have general principles, but we have to go beyond and look into the best practice. And this was done for this Development Committee meeting. The Bank produced a publication called "Managing the Social Dimension of the Crisis, Good Practices and Social Policies." And this document is drawing and applying lessons of best practice and implementation, especially in relation to the core objectives of poverty reduction, which is the objective of the Bank.
But the Bank also stepped up its effort in core labor standards, which are standards which are produced by a different institution, by the ILO, and we also stepped up our work and interaction with the trade unions as an important element of the civic society in our client countries.
What I would like to do now, given the 15 minutes restriction, is that I will skip over the social principles, because there what has happened is, after some thinking within the Bank, is to turn towards the Copenhagen Declaration and then place those principles laid out on social policies, and concentrate in the aftermath more on the good practice of managing the social dimensions.
This paper, as I told you, was just delivered to the Development Committee; it groups the best practices in six areas. It looks into the macroeconomic policy, safety nets, education, and housing and labor market policies, but it also looks into the role of correct and timely information, where the Bank also, together with the Fund, has an important role.
Here, I only want to mention three areas: macro policies, safety nets and labor markets as an example of the thinking there. The first thing which comes out is that good macroeconomic policies and the prevention of crisis is not only a concern, obviously, for the Fund in its typical role, but it's also a concern for the Bank and increasingly for the labor movement, because preventing a crisis is perhaps the best social safety net, and I'm happy to see that this year the newly elected Director-General of the ILO has been participating as an observer at the Development and Interim Committees.
The question, of course, that arises is, what can one do during a macroeconomic crisis when it emerges? What are the kind of policies from the expenditures/revenue side we, the Bank, would support very much, and in our experience, think are the best ones? And in particular, how to protect important expenditure items like access to basic social services, access to basic social health, what should or what should not be done with regard to these policies?
The second item which is covered is the social safety net. Here it is possible to say that a good safety net has to be in place before the crisis hits. After the crisis materializes, and we found this out very recently in East Asia, it's very difficult to establish it. But what is a good social safety net like? What are the kind of things we would like to have there? In particular, what are the areas of targeting, to what extent targeting can help during the crisis, but also after the crisis? And also what we found out in our best practices work is monitoring, that knowing exactly what one is doing is extremely useful and necessary, but on the other hand, also very difficult to achieve.
Finally, an area I want to stress out of this, is the question of the labor market and what is the best way we can guide and help the government and the labor market to work. And here the recent crisis, but also the experience of Latin America, have shown that labor market flexibility is important, so the adjustment of the wages to prevent helps to limit redundancies. Here the question comes in, what are the best instruments to help workers during periods of low wages or perhaps unemployment, to help with collecting income? And one of the elements we also found out is that in this respect, unemployment insurance may help under some circumstances, but there's a whole array of other programs available, which should be taken into consideration.
Let me turn to something which is one of the core issues in the discussions we had with the ILO, we have with the ICFTU, but also starting now with AFL-CIO, is on the core labor standards. Core labor standards have also gradually emerged in the World Bank thinking, and a first attempt was made to deal with it with the World Bank Development Report, 1995, which looked at the workers in the trading world. This was a first stand.
But more recently, the limitats on the Bank to advocate core labor standards has been a source of contention inside and outside the Bank. Inside the Bank, because there are some countries which won't ask the staff to do more, and outside, ILO and the trade union movement believe that we should use our conditionality in order to enforce core labor standards. I'm happy to hear now that after the discussion we had with the ILO over the last few years, that the new Director-General now moves from asking us to impose core labor standards, and is moving more toward a promotional role. This is exactly what we had proposed from the very beginning. But while we proposed it, this was not a personal rejection of those core labor standards. It had more to do with--and this I will explain shortly--the legal limitations under the Bank and also the Fund work, namely our articles of agreement. Our constitution, makes two strong statements. The first one is that the Bank is prohibited from taking political considerations into account in its lending operation. And the second one is that the objectives of economic development have to be fulfilled with what they are doing.
And on both accounts we have a problem with some of the core labor standards, in particular, one which deals with the freedom of association, which concerns an important human right which has economic effects, but most importantly, also has a political dimension. This political dimension, which prevents us from simply using it as an instrument during our programs and to impose it on countries, because this would be considered as a breach of our rules.
The second one has to do with the economics of core labor standards, in particular again, this freedom of association, because while there are studies out--and we agree with them that trade union movements may have a strong and good role in economic development--there are studies out that also show that this depends. So the freedom by itself does not guarantee that the positive economic effects are achieved.
For this reason we have currently in the Bank a view that out of the labor standards, prohibition of forced labor, equal opportunity and child labor is embraced. We have already operational directives, and what we certainly do now to insure that none of the Bank's lending operations involve it, and the country has to respect these rules.
With regards to the freedom of association standard, here--we have given this legal background--the position that we promote core labor standards, and we do many things in this direction, but we don't use it as a conditionality in our lending.
But having said this, there are many actions going on within the Bank in order to help with the promotion of core labor standards. One has to do with our IDA lending. There the new IDA lending regulations say quite clearly that we should survey and encourage the government to respect this. What we also do, is that we have stepped up our cooperation with the ILO with regard to technical advice, and the recent Bank study currently in development recommends Bank staff to emphasize labor-friendly development policies, and work with client governments to improve the capacity to support core labor standards.
A third element to understand is that we started this year with special training for Bank staff to understand trade unions, so that they are willing and able to engage in a productive dialog. When I joined the Bank two and a half years ago, my understanding was that most Bank staff did not engage with the trade unions because they didn't know what they are, what they are standing for, and for this reason they were reluctant. It was not a bad will, simply developed knowledge of this area.
Number four is that we started research in order to better understand the economic inter-links between core labor standards and economic development, and we have now work under preparation, which we gladly share for discussion with AFL-CIO, the findings on the economic impact.
And last, but not least, the Bank has encouraged, over the last two years, strong interaction with the trade unions inside and outside. This is not the only and first encounter with trade unions. We have continuously seminars for trade unions from countries. We met the AFL-CIO this year, that plan to repeat it next year.
Summing up, the Bank, I think, has come a long way, and I think more recently has covered quite a distance. It has embraced the UN social principles. It has formulated the first good practice and social policies. It has started to promote core labor standards, and it has deepened its interaction with the trade union.
The next speaker is David Smith. David has been instrumental in generating a very helpful dialogue between the AFL-CIO, including Mr. Sweeney, with the Fund. And we're very grateful that he is going to give a paper on the economic case for international labor standards. David, please.
It's inconceivable that this conversation could have occurred even as recently as two years ago, with the kind of attention and consideration that both Stan and Bob talked about at the Bank and the Fund, the increasing attention to the work of Mr. Lee and his colleagues at the ILO. Bob is absolutely right, this is a journey. We have made some progress. I will argue this morning--or this afternoon--that we haven't had enough progress, but I do want to express my appreciation, particularly to Stan and his colleagues for not only putting this afternoon's seminar together, but for their work with us and other trade unions from the international community over the last couple of years.
Let me begin with something that may not be necessary in this room. Mr. Fischer said that when one looks at what the core labor standards are, it's inconceivable that one would not have strong agreement. And in fact, the more likely response is that we would embrace them as obvious expressions of our belief in human dignity and human rights. I believe he's absolutely correct about that.
But let me just remind us what the core labor standards are. And to characterize them first, they are not quantitative. There often are accusations that those who promote core labor standards wish to export the American minimum wage, or the European Social Clause, or the prescriptions of the Occupational Health and Safety Administration. Nothing could be further from the truth. The core labor standards are expressly qualitative, and they speak to rights and a process, and to procedural rights. They are, simply put, a prescription against discrimination, primarily with respect to gender, but more generally, a prescription against forced labor, a prescription against exploitative child labor, an affirmation of the right to freedom of association--and as Mr. Holzmann mentioned, that one can be particularly contentious--but when we think about it in human rights terms, it's unlikely that any of us would argue that the right of men and women who work together to associate in the work place, ought to be proscribed; and lastly, an affirmation of the right of those men and women to collectively bargain. That's what under discussion here, and we should be clear about that.
The human rights case for core labor standards, it seems to me, stands on its own. I won't belabor it, but I will remind you that the UN Copenhagen Declaration, the Declaration of the Ministers at the Singapore Ministerial of the World Trade Organization, and the ILO, and all of--or virtually all of its member countries, in the spring of 1998, all affirmed the fundamental and universal character of these five rights.
We want to argue that the international financial institutions, in doing their job of promoting sustainable economic development, ought to insist on adherence to these standards, not for human rights reasons, but precisely for the reasons that Mr. Holzmann mentioned: that they are consistent with, and reinforcing of, and I will argue, necessary to, the promotion of the Bank and the Fund's fundamental objective, which is to create sustainable economic development. Therefore, they ought to embrace economically justified measures.
Let me begin by reminding us of the history of developed countries, and the process of the development of these standards in various forms and with various particulars in what we now see as the advanced and richer countries. The 19th century was marked by enormous struggle over precisely these issues. The development of modern industrial capitalism was marked by political struggles, struggles within the workplace, over whether or not there ought to be regulations that establish some parameters around what the nature of work was, the nature of compensation was, the rights of workers. And the outcome of that struggle is embodied in things like the European Social Clause or the American Fair Labor Standards Act, which in a slightly different formulation, expressed the same principles that are recited in the core labor standards and in the ILO's Declaration of Fundamental Rights at Work.
As those standards became adopted--and this was partly a struggle led by trade unions, partly a struggle led by legislators; it found its way into parliamentary debate as well as collective bargaining. What we found was that economic development and broadly shared economic development was enhanced by the broad enforcement and requirement to adhere to these rights. Minimum wages were developed. Proscriptions against overtime were developed. Prohibitions against exploitative child labor, mechanisms to insure that for development reasons, as well as for human rights reasons, kids were in school, not in factories and at looms. This contributed to the development of a broad middle class, and workplace standards contributed to the development, precisely because it created a domestic consumption base, where domestic demand led the process of development, created more sustainable, less prone to crisis, less prone to disruption economic situations.
We think about this as the process of national economic integration. The continental economy of the United States was characterized by struggles over precisely these issues. If that problem defined the 19th century and much of the 20th century, the problem that we now face is how to learn the lessons of those struggles and extend it on a global basis to our increasingly integrated global economy, learn from the efforts to build sustainable economies, including respect for worker rights, and figure out in precisely the ways that Mr. Holzmann and Mr. Fischer described their institutions as struggling with, figure out how to incorporate them into our every day behavior.
Let me just go quickly through some economic arguments here. The discrimination argument is obvious. When we say to slightly more than half the world's population, "You have fewer rights in the workplace than the majority of males do", we're robbing ourselves of an enormous rich resource that can contribute to productivity growth, to the development of strong, stable household incomes, and consequently to the development of kids--getting to the next point, the prohibition of child labor--to the development of a social system where children are where they belong, and in being where they belong, themselves are contributing to the development of a stable economy as their human capital is increased.
The case, it seems to me, for freedom of association and collective bargaining is equally strong. Freedom of association and collective bargaining are a way of talking about unions, or rather, associations in the workplace, where workers, who are weaker individually, come together and negotiate with employers about the terms and conditions of employment and the compensation of it. The simple observation here is that this produces a better distribution of income. It furthers the development of strong domestic markets, and development of domestic demand-led growth in contrast to export-led growth, which has characterized so much of both the buildup to and the exit from the crisis that Stan and Bob talked about.
Danny Rodrick makes the simple observation, which is closely correlated to this argument, that democracies pay higher wages. They do. And work by my colleague Tom Palley, which many of you have picked up in the back of the room, finds the same positive association between the adoption of core labor standards and other rights in the workplace, and higher levels of growth in the medium term.
At the end of the day, the observance of decent labor practice promotes deeper, more sustainable development. It also clearly contributes by providing an additional check on crony capitalism, on corruption, on the other aspects of the crisis which have received so much attention. The development of broad, popular democratic institutions, like trade unions, not limited to trade unions, but including trade unions, creates an important countervailing force, another "arguer" in the debate for transparency and a counterweight against corruption.
The problem of export-led growth is a problem which people in this room are enormously familiar with. It may work for one country, but it is inconceivable that it can work for all of us at the same time. The fallacy of composition suggests that if all of us try to export our way out of trouble, we will end up creating an unnecessary downward spiral, where the only way to hold on to our privileged position and export markets, or our share of export markets, is through policies such as decreasing domestic demand, squeezing wages and benefits, forfeiting the kinds of investments in human capital and infrastructure development, which are necessary for sustained development in the long run, and also by pitting workers against each other. One of the arguments that is often made is that this argument for core labor standards, particularly when it comes from people like the AFL-CIO, is simply an argument to protect our privileged position, the privileged position of workers in the developed world, and that we fear being victims of the success of workers in other places. Nothing could be further from the truth. The real victims of the race to the bottom that happens as developing countries compete with each other for exports are workers in those countries. It's coal miners in India, who have been able to collectively bargain and find themselves in a situation where decent wages are paid, who are most threatened by the denial of those same rights to Indonesian coal miners. It's not American coal miners.
The declining terms of trade that come with that spiral, I think we're beginning to see substantial evidence of it. Again, it is good for the international economy to foster development country by country with demand-led growth at home, rather than the race to the bottom, which is a necessary outcome of export-led growth.
Let me end with a few thoughts, and perhaps trying to pick up specifically on what Mr. Holzmann said, a few thoughts specifically about what the Band and the Fund could do within their existing charter, understanding the political difficulties that were raised, but I think attempting to argue in the contrary about the legal difficulties.
The Article IV reviews that are sort of standard "let's take a look at what's going on" process that the Fund engages in, ought to--as Stan indicated, they're beginning to think about ways to do this--ought to routinely and regularly, and certainly with the help of the ILO, report on the status of adherence to and enforcement of labor standards. The enhanced Structural Adjustment Facility, loans are funded by a trust, but to get those loans, countries must adhere to IMF standards. You've heard us before, and many of you me before, argue that if conditionality can include measures to increase flexibility in labor markets, as it often does, or as it did, for instance, in the case of Croatia--even suggesting the voiding of a collective bargaining agreement--then there is no reason to argue that that conditionality can't also apply to an obligation to adhere to and enforce core labor standards as we've described. The same logic applies to access to SBAS.
The Bank's country assistance strategies, which are developed in careful detail, looking at a range of measures, macroeconomic measures, as Bob talked about, social safety net measures, ought to routinely apply to core labor standards as well. Loans today, after a long struggle and many of the same both political and legal objections that were talked about with respect to core labor standards, now routinely include an environmental assessment. After the same kind of consideration and struggle that led to that outcome, we'd argue that the Bank's loans ought to be subject to a core labor standards assessment.
In conclusion, let me just repeat my argument. One could make, on simple moral grounds, and our mutual and often-acknowledged commitment to maintain human dignity and extend basic human rights, one could make a compelling case on that front alone. One could also make a case on economic grounds. I've tried to sketch that case. Work that many of you have done, and all of you are familiar with, makes that case even better.
Let me end by making a last observation. It's also a political imperative that we pay attention to these questions. We run the risk of stalemating the effort to increase the quality and the quantity of global integration if we don't pay attention to the kinds of concerns that have been raised, not simply by workers in the developed world, but by trade unions and working people who aren't represented by trade unions all over the world. The International Confederation of Free Trade Unions, representing workers from 138 countries, two-thirds of them less developed countries, shares the AFL-CIO's views on these matters precisely. And the kind of opposition--we see opposition in the developed countries, in this one and the EU, but we're also seeing opposition in Korea, in Indonesia, in Malaysia, throughout Latin America, to the process of growing global integration, growing global cooperation.
The international institutions, beginning with the Bank and the Fund, including the ILO and the World Trade Organization, have a fundamental political obligation to address these concerns as they pursue their work.
We'll now turn to Jagdish. I have to warn you that the lack of time has ruled out the coffee break, so we've made something available in the back. I think it's coffee. And anybody who needs coffee, should hop along and go and get it while Jagdish is talking.
But let me first begin by quoting Professor Myrdal who always told me, whenever I was in any group with him, that you must put your value judgments on the table. In this particular case, I put them down in order to defend myself in light of what I'm going to say--particularly with David Smith and the AFL-CIO very much visible here--that I have never crossed a picket line. It's not because I never encountered one; that could be a possibility, of course, but just a couple of years ago we had a strike at Columbia and I did not cross it.
Two, I do believe in the right of unions, to pick out that one from the core labor standards, to unionize, particularly in poor countries. Just like we, they have real sweatshops, not just low-wage factories and so on. We do have a bargaining problem to worry about, particularly when people are extremely poor, but I don't see unionization as necessarily a very effective way. It needs to be supplemented by NGO awareness and NGO formation, political parties. I mean, in India, certainly the fact that you can have a political party as democracy takes hold after several decades, that's also transforming the ability to translate what power you have, because you can have unions which are really "paper tigers", like in this country more or less.
You know, less than 14 percent of the labor force is unionized. I often say to my friends, that if you really mean labor standards and right to unionize, maybe we should apply the standards which some of my friends in the USTR want--I've not many friends left in USTR, but the ones who are there would like to apply to Japan, namely results oriented.
Don't tell me that in this country there is not an anti-union sentiment and actions continuously. So if, in fact, we want to apply these standards in a meaningful way, rather than just paper fashion, for little developing countries, the first country, Australia, would probably want to stop, if you want to apply sanctions of the beloved United States of America.
But anyway, having made that point, let me just say that there are, in fact, complexities in this area. If it comes to just stating aspirations or core labor standards, which includes gender discrimination, all trade would cease if it was applied by Somavia, which he doesn't, to any kind of gender discrimination. There is no country that would pass, including ours here. So you would have to suspend everything. So you again have to raise these questions.
Like even in the core labor standards, why do we pick on some as ones we go for immediate action on, like exploitative child labor, by which is usually meant certain industries where we don't want them, and for the rest I've never been sure as to what exactly is the definition. But we are willing to suspend trade immediately. Why don't we go on something other a little faster? So I would come back to that.
I am in support of these aspirations, okay? I am delighted that the Bank and the Fund are taking an interest in these. But I want to raise a few rather pointed questions, about how we do it, how do we really actually make progress given the complexities.
It is very easy to have formed one's being wedded to these standards--I would rather call them "rights", actually, because they're really rights. It's not really standards that we are talking about. That sort of raises the question of why these rights? Why not a whole set of them? Why do we pick on these, and why do we go around certain ones. That, in turn, links up with globalization, competitiveness, self-interest, rather than altruism, et cetera, et cetera. So one has to really get behind what's going on and try to really get at these issues in ways which are truly going to advance them, without favoring one group as against another, or the powerful countries against not powerful countries.
Because human rights are supposed to be symmetric, universal. We don't throw stones at other people's glass houses, or shouldn't, while building walls around our own. So that's a point I'm going to come up to.
First on the realities. Take the unions. There are good unions and bad unions. There is good union practices and bad union practices. So just to say we must have unionization is fine. I mean, I do think it's important. But it has to go with a whole slew of things which we need to worry about.
I say this because we know the unions in Argentina. Mr. Blair would not want to bring them back into modern Britain in the same form. In India, where unions really say you can't even do anything to a worker, even if he or she never turns up and has another job. These are not particularly conducive to well-being, because it undercuts your ability to grow, and particularly in poor countries, to pull people into gainful employment.
So we have to go into what Mr. Holzmann might call "best practice". Those are issues we really need to discuss. Therefore, ILO is very important, as is the World Bank, too, because they have expertise, or at least they can bring to bear different types of possibilities, experiences which they can study, and really look at it in a much more sophisticated way. That is, in fact, very necessary today, and we do have a great deal of experience.
I think Stanley also mentioned the insider outsider problem. Typically, in countries like India, some of my development economist friends worry about the fact that unions are very small in number. A lot of the workforce is actually in agriculture. I mean, landless labor is not unionized, and if you actually managed to get high wages, for example--and let's assume at least--a lower growth rate, all right? You can build any models you want, but let's stick with this one. That would then mean you're going to grow less fast and put fewer people into gainful employment. So you really have an insider/outsider problem in a development context.
So I'm talking about consequential ethics, not about rights, the right to unionize, which is, of course, a good thing; but at the same time its consequences from a utilitarian point of view, the social well-being of a whole lot of even poorer people is compromised.
This is the kind of thing we need to worry about. I'm just simply saying that rights are fine, and I would like to endorse them, but it does mean we've got to think about how exactly they're going to be played out. That means really getting to the nitty-gritty and so on.
Then the North/South does come in, actually, because if we're worried about competition a great deal and we force specific rights to the forefront, out of a whole slew of rights--and, I mean, I've read, you know, the human rights, civil and political covenant. I read the Covenant, much of which, or parts of which we haven't signed in the United States, for reasons which are again, in turn, complex. We are picking out a few which we have turned into core labor rights just now, or core labor standards.
It does suggest, to me anyway, in terms of exclusion, you know, why these happened to get selected. It's not just because they're the only ones that appeal to us. I agree with Stanley, that they do appeal to us, to modern sensibility. But there are a whole lot of them, if you read them, which also appeal to you.
But why did we turn this into a core? There political economy has to come in, of who is powerful, who is not, who is pushing it, and why and so on. So I don't want to be cynical in relation to human rights, but let's sit back as analysts and see why it is that certain things happen to get pushed and in which particular context.
Of course, a lot of it did come up originally in relation to the trade context, making it a part of the trade agenda, the WTO social clause, and there I think the very fact that it was trade-oriented meant that the selection bias was in terms of fear about competition. And I don't blame the unions that they're frightened about the effects on workers wages and so on. It's a desirable objective, even if the unions were not behind it. As a human being, you would want to worry about income distribution. The workers are, in fact, among the poorer lot. So you would want to worry. I'm a Democrat and I would want to worry about it.
But that translates into worrying about child labor, as against, say, labor rights in Georgia of migrant labor, or worrying about sweatshops. One thing which really bothers me is the very context in which this is defined. I mean, there were a couple of kids who are part of the sweatshop, who were handing out literature. Of course, I picked it up. They were, of course, interns during the summer, with the AFL-CIO.
They were talking about El Salvador and Guatemala, sweatshops there. I pulled out my subway pass, just to be mischievous, and I said, "Look, why don't you take the subway down to the garment district. You will find real sweatshops down there, which are violating minimum wage laws" and so on and so forth. It hadn't even occurred to them that we have sweatshops.
The point is that people were worried about competition, really. They were not thinking in broader terms, in my judgment. So there is a North/South context, a developing rich/poor country context, which really overweighs this sort of thing.
So, in light of these general reality checks, as it were, let me say how do we still advance agendas like this, which I do buy. We do need to worry about the rights agenda, and human rights much more broadly, in my view.
There are two points which David also mentioned, about basically the race to the bottom, which is inside the ILO. I mean, do we need to worry about people reducing their labor standards simply with a view to attracting capital, attracting multinationals and so on? If we do worry about that--and I don't have time to go into that--there isn't too much evidence in the environmental literature, and there isn't too much evidence in the development literature, that this kind of race is actually being played. And part of the reason, of course, is vigilance. Part of it is monitoring and so on. So that prevents people from actually playing that game and saying, "Look, come in, and we'll let you exploit our labor, do unspeakable things to our environment".
Usually the race to the bottom seems to work more in terms of essentially giving tax breaks of one kind or another. It works on the fiscal dimension as far as one can tell, but this doesn't mean that just because we haven't found too much to the race to the bottom, that it doesn't really exist in practice, because economists do have limitations, even the smart ones, and the ones employed by the Bank and the Fund, Stanley.
I don't find it too compelling on the basis of current evidence, so I don't think this is important. I do believe there must be diversity, even within the human rights, because of sequencing. I mean, if there are negative rights, then that's fine, but when it comes to positive rights, like doing something for people, by social indicators and so on, then it takes resources sometimes. That gives you priorities.
In different countries they go in different sequence. They may have different cultural constraints--gender gap, for example. The Islamic countries would probably find it more difficult to move on that and so on. So I think you have to allow, within the broad definition of even selected human rights, a freedom to do the sequencing and work it out in that way.
My own model of how one wants to do this is essentially not to do it through sanctions. Which is what Juan Somavia, an old friend of mine from 40 years ago, when we used to work on world order problems, and hide it from other people--you were supposed to be soft in the head if you did that--so he really doesn't want sanctions. But that doesn't mean that other people don't want sanctions, or to put it another way, I don't think Mr. Smith would want them. But I won't get into that now, since that seems to be agreed to, at least among ILO and us.
I would say that that is a powerful instrument, because I think most union friends of mine are worried that there's no teeth. You know, all you do is debate or discuss these things, the modalities and so on. But I'm an optimist. I do believe that in the modern civil society, with guilt and shame being possible instruments, if you have a good practice, like unionization, or doing something good for women, for children's rights and so on, you have a big force on your side.
But that was moral suasion, or immoral suasion, you might say. I do believe, as I said, in the power of morality, if you've got a good cause. I do believe the unions have a good cause. I do believe that the five standards, and many more, are actually good things. It seems to me that, if you could have something like we have in the trade policy review mechanism at the WTO, where you have impartial and sharp analysis of every country's conformity, or lack of it--say to free trade in the case of WTO, and the obligations there. If you have such reviews, which, of course, ILO has, but it hasn't been all that effective. That needs to be strengthened.
You know, they don't have economists beyond a very limited number, and the most distinguished one is sitting at this table, but you need many more economists there to provide these jurors with the kind of expertise which is necessary to evaluate the conformity of members and nonmembers on non-ratified conventions. They can actually provide that.
Then NGOs can take over from that and really work with it, right, because these are impartial reviews. This is not just the State Department looking at other people's violations of human rights and not looking at our own violations. That doesn't carry much weight, except in Congress. But if you have really symmetric, impartial reviews, but properly done--and this is where the IMF, the World Bank, also would be able to help, you know, by providing that kind of input and so on. That, I think, is a very powerful force, and it really would work, I think, over time.
Because we're in a very different world today, where the civil society interacting with impartially functioning international institutions, DPRM style, can really do an enormous amount of good, far more than if you start using sanctions against certain practices.
Then people say, "Ah, ha, what about your own?" Then it is immediately devalued. The morality of it is devalued, in my judgment. People immediately raise these questions. But they don't raise these questions when it comes to institutions like Amnesty International and human rights. What they are doing is symmetrical and they're not associated with one particular country or being partial to one country. They are really universal.
The other thing is I think individual countries can do a great deal. Just like with the Sullivan Principles, except they were optional. If you could just say, look, you're multinationals, which are really the major actors on this, why don't they act abroad the way they have to act at home, by whichever rules--and not your minimum wage, because wages are different across countries. But everything that's decent and human in your own system, just adopt it as an obligation.
You know, you don't cease to be an American as a legal firm just because you're operating abroad. If you really want to operate like impossible foreigners who are not implementing these rights, then you're free to go to the Bahamas, okay? Then you won't get the rights of being an American firm, either, and all the protections and so on.
Now, I'm told deal with the French firms and you will lose a comparative advantage. Well, I don't think so. You have to look at it as a process. You go across the Rio Grande and there's the Mexican sea, Mexican NGO sea. The French firms behaving badly, vis-a-vis the American ones, you can be sure that that's going to work. You bring pressure on them and, in turn, it will spread.
I did confess I was an optimist, but I do think that once you look at all these possibilities, you will have a way out of the compulsory approach to these problems and maintaining the morality of what you're doing and not creating problems on the receiving end.
And there are voluntary codes, like SA 8000, which is a social label. I'm on the board of that, and that is the world's leading social labelling agency. That's purely voluntary. You can put in whatever you like, and firms are free to sign on to it. They have adequate monitoring and so on. So that's another instrument. They have a lot of things that you would like from the AFL-CIO, including sort of living wages and so on.
So my view is basically that there are multiple instruments we can use which actually the Fund and the Bank and a variety of international institutions can really interact with the social, provide the experience and knowhow and support and so on.
Finally--I did write a couple of days ago a letter to Mr. Wolfensohn, which some of you might have seen in the Financial Times. I said there's something called appropriate governance. Everybody should not be wanting to do everything. But that is true in the sense that you don't want to take over. The IMF cannot possibly be taking over the ILO's task. The IMF cannot be taking over UNICEF's task on promoting better children's rights, all of them, including juvenile, capital punishment being barbaric, but which is not treated in this country as barbaric. But there is a variety of such things.
So we should really have those institutions dealing with it. I don't see what Mr. Holzmann can contribute to those kinds of things, and that is not the agenda of the World Bank, per se. It would be nice to have someone as brilliant as Mr. Holzmann contributing some ideas to the thing, but I think you have to have different institutions dealing with it.
I know a little bit of physics, but God forbid that I lecture in physics to my students. I would be better off doing whatever I do know. So I think in that sense that my feeling is that we do need input--and that's what I've heard, and I approve of--from Stanley, but not that you take over that thing from the appropriate institutions. We do need coordination in the sense of exchange of information, experiences. But the responsibility really has to be with the appropriate institutions. I think they can do the kind of job which I was suggesting, and advance these agendas, which I think the AFL-CIO, et cetera, should like.
It gives me even greater pleasure than it would have three months ago to introduce our next speaker, who will comment briefly on the presentations so far. That is Eduardo Aninat, who goes under the title of Minister of Finance of Chile. He is also, as most of you know, Deputy Managing Director designate of the IMF and will be joining us in mid-December.
We are delighted that he will speak here possibly in both your roles, Eduardo, although he takes care to emphasize, whenever I try to persuade him that he's partly in the IMF, that he is totally a Chilean Finance Minister at this moment.
Still being a designate, I was tarred by a very slight complaint. One of the occasionally cumbersome things about International Monetary Fund conditionality is the imposition on the usage of time and I wonder how many people in the room would really have liked to have that coffee before.
Second, I will confess a sin, given that Jagdish, my very close friend from the MIT-Harvard years, confessed his own ideology before giving his talk. I have, although very, very, very infrequently, crossed picket lines, and I've done it for very, very good reasons, as well.
In fact, the last time I crossed one was a year-and-a-half ago. It was a picket line in my own ministry, the one I head, the Treasury, and the reason was clear-cut. I had to cross it because the sherpas from the same union of civil servants were waiting for me inside the building in separate rooms in order to start some informal conversations. So, I had to cross the picket line and see where it was going and it went, in fact, very well. So, I confess my sins.
MR. ANINAT: On a serious vein, I am very happy to have the opportunity to comment briefly on this very important topic. I would prefer to follow a pattern of only commenting about the issue of labor rights and standards, and not refer on this occasion to social policies or policies regarding the social arena.
And I think that that as a question of methodology, they are slightly or more than slightly very different areas. One can discuss at length, and I think both the World Bank and the International Monetary Fund and certainly the ILO in a way have done very good work focusing on the benefits of policies that relate on the expenditure side to housing, education, health, and those areas. But simply in my view that is not the topic today.
I am glad to be here with David Smith. He is a close friend of the Federation of Central Unions in Chile called CUT and he might know altready the sad news; two days ago, our former main leader of CUT, Manuel Bustos, died. Today, in fact, I am missing his funeral services. Manuel Bustos was a long-time fighter for democracy in the difficult years of the 1970s and 1980s. And he was very respectful leader in the lower House in Congress, and I dealt many times with him both on the bargaining table and as a legislator watching over our proposed legislation in the social arena or the labor arena.
I think that I would also join in regarding it very positive that attention has been devoted to the subject, and also that more needs to be done, and that some progress is on the way and is being achieved.
But, at the same time, I would also subscribe fully to David Smith's announcement, that AFL-CIO or other organizations are not looking for quantitative, specific rules regarding these labor standards, these labor principles. He also mentioned the fact as an example in comparing minimum wage laws. Just to give you an example. In spite of our government efforts, and I would say also my role for 6 years as Finance Minister, at improving minimum wage legislation and having consistently but gradually raised the level of minimum wages in the country, the size and the state of the economy and the type of labor markets and the lack of capital of my small country, Chile, is still rsulting in something which goes in the order of $20-to-$25 as a minimum wage per month and not $9-or-$10 an hour, like you have in many cases in the U.S. or Europe.
If we look at the ILO conventions--and here I have to make another acknowledgement--we are very proud as Chilean citizens that our fellow citizen, Juan Somavia is now the chairman of the ILO. And I have known him for a long time. If we look at the conventions it is very reasonable and who would object to promoting and supporting freedom of association, and the right to organize or promoting collective bargaining convention or conventions regarding minimum pay and related matters to child work?
In fact, in my own country, on an institutional basis, we have worked on this for more than 10 years after the recovery of democracy to promote the institutional and legal framework, and I underline framework, so as to have a larger percentage of workers, if they wish, to freely associate in unions and go into collective bargaining. In fact, today we have about 16 percent of the active labor population involved in collective bargaining which, from my recollection, is a figure higher than the U.S. and many or several European countries.
Then when the issues become, in my view, more polemic or open to discussion is in the following sense: first, the so-called incidence and aftermath of export led growth. I do not know whether I come from a country which might be different. I believe not, because I find many of those characteristics also present in some of our neighboring countries in Latin America, in the Caribbean and in many places of East Asia.
If I look at the, for example, unemployment rates--and if we had the time, if we could quote also the movement of average wage rates for employed people so as to also have that assessment--I would say that the dynamics of the labor markets in my country have been quite strong, and very positive during precisely the years where we have been maturing and reaping the benefits of a greater openness in the economy regarding exports, regarding imports, and regarding also the regime for direct foreign investment at home and direct foreign investment by Chileans abroad.
Prior to the decade we are closing, we used to have unemployment rates, depending on the year--there is the cycle--of course, of 10, 13, 15, 16 percent. If we look from 1988, 1989, up to last year, the unemployment rate, well-measured in my country, has moved between 5.5 to 6 percent to 8, 8.5 percent. Of course, this year it is higher, because we are getting a very special adjustment process given the cycle abroad and given our own domestic problems at home. By the way we are getting out of that.
So, the mechanics and the arithmetic and the modeling of the effects of export-led growth on labor markets, I think has to be tackled more thoroughly and more precisely because the sketching of some growth hypothesis here I think is simply not enough and does not work to give us guidance on where to go.
Let us broaden the subject, and Jagdish has spoken a little bit on this. We had for many years strong advancement in many regions regarding the mobility of goods, of physical goods, of transportation. Slightly more recently, the mobility and openness to services, now, very strongly, not in all but in many areas of the world, the mobility of financial capital which is so associated to globalization. But we have little, if any, mobility in the area of across border migration or immigration or flows, up and down, all across, regarding, for example, professionals, elite professionals, elite technicians. Some of that, yes, we have. And we have zero mobility of workers across borders, even in neighboring countries, with the sole exception now of the European Union.
So, here where do we stretch the limit? Is that also a right that workers, non-trained, semi-trained, only semi-skilled, could cross borders, even within similar language areas, extensive for other subregions, without further request except a promise to keep the constitutional and the laws where they live. So, this is a way.
Second passer, and this is a very practical one. Suppose we were going to move from the very general, very good norms, and principles which I fully share as stated here, into a second stage? And I believe that these meetings are taking place now, and have been organized so as to take place more intensively and extensively, there might be a second and third stage in progress later on. That is the purpose of this.
Suppose then we would move to more specific regulations or to some indicators or some concrete standards to be even measured perhaps quantitatively, although today we've heard that that is not the intention, then what happens to the other condition all workers, at least workers with employment have? That is, they carry some rights and accrue some benefits from regular social policies, but also rights stemming from to their own savings funds. And let me give you a concrete example in this area, in my country's experience.
Sorry for speaking too much about Chile. I will change the subject starting in December of this year. The pension fund reform. We have had for decades and decades a terrible, lousy system, specifically given the demographics of my country. This has been changed now from a pay as you go to a capitalization system, a real account system fully working for over 15 years. And whatever the polemics of how we do it, or how we didn't do it, and the imperfections of it, we have today the equivalent of half of our gross domestic product as a net portfolio of workers savings accounts. That is to say, that is the net wealth of workers for their own pension retirement.
True, it is forced savings, because the contributions are still forced. But true, there is extreme and very useful competition between the administrators, the type of portfolio there is so that this system goes into a pro-market, capitalization scheme.
Suppose we were to impose a very strict quantitative matrix type considerations of sound or good labor practices, unsound or bad labor practices? What would the workers representatives on those boards of the pension fund systems vote for when choosing the shares, and the bonds, and the convertible bonds from the private sectors and enterprises which they are investing into, half the GDP of the country? Would they only want to select those portfolios organized and the shares which have very strict, rigorous, quantitative regulations regarding minimum wages, contracts and so forth and so on, or would they stick to core human decency principles regarding the non-employment of child labor or non-discrimination, as we all agree in this table.
We have been working more on the institutional framework on this, rather than on establishing damaging, perhaps damaging restrictions and rigidities in labor regulations, as well as regarding contracts. We have, for example, promoted through Congress several laws which not only protect and promote the right to free association in unions, but also who devise even with fiscal affirmative policy the right of workers to build up special funds so as to help them in their occasional unemployment periods.
We have today a law in the Senate now, called Protract, whose purposes is that workers who wish voluntarily put their funds, or part of their funds or wages in this new savings account that can be drawn upon when they search for new employment or they change jobs. Even we, the public sector, which I still represent, can put in money in order to make this search process more fluid through time. This is to provide for security in dynamic labor markets, given that we all recognize the need of active safety nets.
And, finally, two reflections, two ideas. I would say also that this topic is useful, relevant and needs to be addressed further. On that I fully agree with comments made here, that it has to be tailored in sort of what I would say operational definitions or a framework which can build rational approaches to it, and perhaps more rational than sentimental approaches to it. One core factor why I'm saying this, is because of the kind of change we're getting in the world of today given globalization forces, and this should not be ignored by the World Bank, the ILO, the International Monetary Fund, especially by unions, by trade union movements, by the political spheres.
What we are seeing here a second industrial revolution, in my own view much more powerful than the old industrial revolution started in England some centuries ago. This is a silent revolution, but it is changing the way we travel, we communicate, the language of firms, of employers, of employees, the velocity and pace of technological change in all sectors of the economy, especially in the information and services sector. Therefore, and here I put on a strict economist jacket, workers of the world beware! The factor of substitution, the elasticity of substitution, of traditional work habits and traditional work contracts as regarding this new, very difficult to grasp input called technological change is getting higher and higher, and its speed is producing more and more impact.
So, here, what amount of flexibility do we want to tackle with this revolution? What amount of rigidity do we want to inherit from the past, and how much do we want to pretend that this revolution will stop, or will not go through many more stages than the ones we've seen. I think we're just seeing the tip of the iceberg! So, this issue about capital/labor, substitution forces have to be taken care and accounted for in very careful ways.
And, finally, I have taken too much time, sorry for my disorganized notes, but there is the classic public finance issue. Whenever the first economist or economist- thinking man was born, the issue of who bears the cost and who gets the benefits arises immediately in the discussion, both implicitly and explicitly.
It is the subject which all classical economists always put their minds to, and have had strong, strong polemics. And here we have the issue of the side effects of the sectoral policies, or of the kind of rigidities or non-rigidities you would want to push into contracts in the labor markets of the world, and the way you put them in. And the side effects are called non-organized workers, informal labor markets. We may not like them, but they exist. When I was a student I had to read enormous amounts of quantitative information about various areas, from places such as India or from Africa or from Brazil, where such informal markets do exist and still exist and mean something for self-employment and self-reliance. But especially, and I take this as the finance minister, sorry for that, especially the issue of income distribution at the core. And this means the relative and absolute level of the poor.
The poor, those that do not get jobs, those that are deprived, those that are still very far away from the threshold of formal labor markets are, by definition, nonunionized. So, the question is, that we also have to bring in their voices, because they are anonymous, they do not have these rights yet. They should have them, we should bring their voices and their considerations into the picture so as to really make the sound decisions in the longer term.
I think I shall use my five minutes just to reiterate what I think are some important points rather than to get into specific points of debate. I think there are quite a few points which I disagreed with, but perhaps one might be able to come up to, take them up in the panel discussion period.
I think the first point I would like to make is that in terms of the topic of the symposium today, The quesiton of a role for international labor standards, I think the answer, of course, is a clear cut, yes! I think that it's hardly a point of discussion that there is a role, there has been and there must be a role for international labor standards in the new global economy. And I think the strong basis for that is in terms of the political legitimacy for such a role. I think we've not only had it in the long history of the ILO and its conventions which have been adopted over the years: there has been a recent impetus from the Social Summit in Copenhagen in 1995, when the biggest gathering of heads of states in their declaration, in the plan of action adopted, referred to the core ILO conventions and the strengthening of the observance of these standards, which are featured in the commitments adopted in Copenhagen.
And, of course, more recently last year, in the international labor conference, this has been reinforced by the adoption of the Declaration of Fundamental Principles and Rights at Work. So, I think that role for international labor standards is there.
And I think many points have emerged as to why, quite apart from political legitimacy, why in many ways, why it is essential. I think David has mentioned in his presentation a lot of economic arguments. There are other reasons in terms of rights, which I've referred to. And I think that we can see that quite apart from the political benefits there are a number of economic benefits which are essential, I think, if you want to achieve some of the noble goals which you've heard articulated in the last few days.
For example, I think that we have heard many times the reference to humanizing globalization,or globalization with a human face. I think it's inconceivable that one can move towards that objective without the strong role for labor standards in the governance structure.
And I think even in terms of some of the new highlights which emerged in terms of the renewed emphasis to poverty reduction both in terms of the HIPC Initiative, in terms of the poverty reduction and growth facility, it is I think in practice would be very difficult to give substantive content to this new emphasis on poverty without a parallel support for labor rights. So, I think that one of the aspects of the new approach to poverty is a strong emphasis on participation on the involvement of civil society. And I think that, clearly, you can't have that without strong support for labor rights.
The emphasis of improved governance, I think is a clear link between freedom of association, the right to collective bargaining. I think that is one of the cornerstones of building democratic societies and moving towards greater transparency in poverty.
And, of course, that even on the more recent concerns in terms of the social impact of the Asian crisis, in terms of the whole subsequent work on principles and good practices in social policy, I think we would argue that full respect for core labor standards has an important contribution to make, firstly, in promoting true democratic pressure, a stronger provision for social protection in societies, and also in terms of handling the impact, coping with the adverse effects of crisis and bringing about greater public support and a great, true, a more equitable sharing of the burden.
The other point I would like to address is, of course, how do we move to get stronger enforcement of it. And I think that here, I suppose, I was pleasantly surprised that there does not seem to have been very much disagreement in terms of the desirability of moving towards better observance of these labor standards. And I think that in Professor Bhagwati's presentation, he mentioned a lot of other alternative ways of doing this, but as some of those of you who were there in yesterday's discussion on market-driven initiatives, I think the important point here is that there is really no conflict or contradiction in either choice between various means.
For me, for us in the ILO, the cornerstone, of course, is the system of international labor standards, the long established supervisory machinery of the ILO, and that has been reinforced in the case of these core labor standards after the adoption of the Declaration last year.
So, the main features of this, the two main aspects of this, would be that these conventions now, the surveillance or the observance of these conventions, applies to countries which have not actually ratified the conventions, whereas previously there was no mechanism for doing this. And secondly, there will be additional instruments for surveillance, particularly the production of a new global report on country performance in meeting these core conventions.
And parallel to that, of course, there will be increased technical assistance to support countries who are committed to these conventions, but who do face genuine difficulties in meeting the standards prescribed.
So, I think that one significant step forward would be the strengthened surveillance mechanisms under the ILO's Declaration and its existing instruments. And, certainly I think some of the developments in terms of private sector initiatives are potentially complementary. I would not see them as a substitute, because there are several arguments of why private initiatives on their own cannot be a substitute for international public action. But in many instances, I think that properly handled, some of these voluntary efforts can be complementary to the basic supervisory machinery.
And I think the other point which Professor Bhagwati emphasized is impartial review. I think that, to a large extent, already exists under existing procedures and I think that with the additional elements of surveillance there is every reason to believe that the ILO's traditional standards of impartiality will be observed, and that one can hope to see a significant improvement.
Finally, why have we been talking to the International Monetary Fund and the World Bank about labor standards? Certainly, I think we would be the last persons to want to see the International Monetary Fund and the World Bank take over surveillance of labor standards, because that would mean the end of a role for us.
But the point really is that the way we see it, there has been actually a very welcome change in the sense that I can say,even 4 or 5 years ago,it would not even be--one would not have been able to talk about these things because there would be a total lack of interest and it could not have been conceived that we would be having such a seminar, organized by the IMF.
And I think it's important really from the point of view of coordinating our actions and most importantly, to avoid, as in some cases in the past, where we have been working, inadvertently sometimes, in ignorance and at cross-purposes. I think that this sort of dialogue clears the air,and can make a difference in that sense.
And certainly I believe that it could lead to practical coordination of activities. For example, where surveillance timetables coincide, there is a lot which can be done in terms of the exchange of information. And, so, even without at all getting to the question of adding it in conditionality, I think that there a lot of benefits from this improved dialogue, improved exchange of information and we look forward to continuing and intensifying that.
We are supposed to have a discussion among the people at the table but we will end at 5, so, rather than do that, let's turn to the floor for questions. And then we will give each panelist a moment or two to comment on the whole discussion just before the end, and then I will try to sum up. Although I won't sum up our last questions. But let us now turn to questions.
The first observation is to just quote, with considerable support, from the annual meetings speech that Jim Wolfensohn just gave yesterday. He says when quoting the results of a survey of 60,000 people in developing countries about their aspirations, "What is it that the poor reply when asked what might make the greatest difference to their lives, they say organizations of their own, so they may negotiate."
The second quote from the speech is equally interesting. Again, the aspirations of the poor. "A system that gives them equity and voice. And if they cannot have this through the ballot box or through government, they want it through informal organizations outside government."
So, my question is--and it falls against the background, I think, of Mr. Lee's comments--given the broad trend in the World Bank as the leading development institution towards public participation, inclusion, empowerment, listening to the voice of the people and so forth--I wonder how that comports with a rather narrow, as I heard it, definition of the limitations to the World Bank arising from the Articles of Agreement with respect to political considerations? And it seems to me that it's worth looking, I think, a little bit more closely at how gray that area actually has become.
MR. HOLZMANN: Okay. Better? Good. The question is on operations, what the Bank has been doing, is envisaging to do to encourage the observation of core labor standards. As a first element, we have encouraged staff going out to see countries, to work on country system strategies, to engage in a dialogue with the trade unions. So, in principle, every mission going out and working in these areas is encouraged to meet with the trade unions, and as always the best thing is to lead. So in the countries I am visiting,I am certainly making sure that the trade unions are there.
Secondly, there's a whole range of elements we are currently discussing how the Bank could be involved in it. Starting out with, as I mentioned, the training of the Bank staff itself, in order to understand it, up to thinking where there are areas where the Bank can, for example, through lending operations, support trade unions, support non-corrupt trade unions, compared to let's say, a very monopolistic and corrupt trade union representation.
And in between we have many of the other areas where the Bank can be protective. This is a continuing discussion, and we had a first draft discussed at our OPC. I was asked to return to the blackboard to design it, and I envisage to bring it up again to the OPC next year.
A QUESTIONER: My question is to all speakers. What do you think about the developing countries' position of not necessarily opposing the core labor standards but keeping them within the ILO and specifically not directing them to the next trave liberalization round.
I comment only on the first part. From a very pragmatic point of view, as well, not from a theoretical point of view. You know, we tried for many years, and unfortunately it will not come true this year--but I am hopeful that in the next coming years it will be a reality-- we tried to establish a free trade accord with the U.S. We have one NAFTA type agreement with Canada, and we have one NAFTA type with Mexico, and we have signed about 57 bilateral trade accords with MERCOSUR and many other countries that are interested in opening up in a rather rational, consistent basis.
And I still recall my long conversations with Micky Kantor, who was the head of USTR then. I was the counterpart for Chile. And, so, the question was in the end for the vote on Capitol Hill and fast track, which is another conversation. But in the conversations, he was always stating very forcefully that labor clauses should be in, and whether we had or did not had problems with the labor clauses in the agreement signed by the U.S. and Canada and by the U.S. and Mexico. And I always replied very forcefully that if you put exactly those same chapters or annexes, in each case it was a different status, on my side, I will sign them immediately. So, if that is your restriction, I am ready to go. So, we have to proceed on the other subjects: Agricultural policies, services, banking, intellectual property rights, and the like.
And the conversation always got bogged down because somehow I had the feeling and I am a close friend to Micky Kantor, still in spite of not having had the chance of getting agreement on this, the conversation also on my side had the feeling that there was something more, an upper stage that was coming into this labor process tied to trade agreements.
And there, my answer was, you know, I was taught my economics in the U.S., and I read for many years only U.S. economic textbooks or papers or papers done by very prestigious academics, but working always in the U.S. And I am sorry to say that it doesn't seem to be economically right, from an economic point of view but very crucial in a developing country like mine--which is not yet developed--to tie in very intricately in complex and regulated ways trade and labor regulations, exporting standards from very rich developed countries to middle-income or small, still developing countries.
Because I was taught the other way around. I was taught that open free trade was going to equalize wages in time, and not that imposing each other's standards on wages, themselves, was going to equalize or help trade. After all, trade is an instrument for something else: human development, social conditions, income opportunities, a good distribution of wealth and so forth and so on.
Therefore, on a very practical basis, yes, we should do some linkage between opening trade and WTO practices and membership there regarding exactly the norms and principles laid today, as we have them now in ILO. But I would be very hesitant, and somewhat suspicious, that this would be carried too far in very specific, concrete regulations, limitations--impositions, let me call them--on the developing world. Because we are going to get less equality and much more misery throughout the world if we close our trade, because we want to set on countries at different stages very specific and very welcome, but very different regulations, as you have in most of the large developed countries.
MR. SMITH: Let me begin by commenting on Eduardo's response. As you can imagine, we were also involved in conversations with Mickey and others about either a bilateral arrangement with Chile, or perhaps Chile's ascension to the North American Free Trade Agreement.
We said, and have said to Eduardo in both of his roles, to President Frei and to Mickey Kantor, we would welcome an agreement with Chile which included only the qualitative standards that Eduardo has said he would sign in a minute. We have for several years precisely taken the same position, that it is inappropriate to try to export, directly or indirectly, quantitative standards. But it is entirely appropriate and necessary to insist on meeting norms of behavior as defined in the ILO standards.
As to linkage, it will come as no surprise. Our view is that linkage is appropriate in the ways that I described in my earlier remarks with respect to the Fund and the Bank, and similarly, as we have argued at the World Trade Organization, in order to advance precisely the objectives that I believe everyone on this panel shares. We want to promote a more integrated, global economy that promotes better living standards for working people everywhere. That, we believe, that is best accomplished by insisting on adherence to norms, transparency norms, as Stanley has described, social welfare norms and social welfare instruments as Mr. Holzmann has described, and basic standards of protection of labor rights as Eddy Lee has described.
The way to get that, I have much less faith than Professor Bhagwati in guilt and shame. It seems to me that a more appropriate set of tools might be rules and power. We would prefer rules rather than power. The trading system, the international financial system, need to be rules-based, and those rules need to go beyond the current framework and extend to issues that I think all of us have talked about. If guilt and shame were going to get us there, it would have already done so.
Just lastly, the last question you raised, the immigration question, the freedom of movement as an aspiration, it seems to me, is a very important one. What's going on now in Europe is an important step. As you know, immigration in this country has both become a cultural and political issue of enormous tension, and I believe that will continue to be true here and elsewhere. But we shouldn't think about freedom of movement across borders, even if we were to get there, as an alternative to broadly-based, deep and sustained development, which will allow people to make decisions about where they wish to live based on something other than the absence of economic opportunity in the place where they begin.
MR. LEE: Thank you. Just a brief comment on the linkage. Even within the ILO, there is this deep mutual suspicion, which is reflected within our organizations. So it seems to me quite a difficult prospect in terms of any change in the basic position which has been adopted up to now.
But I would like to just point out that we are, in fact, in a trial situation, where the agreement which has been reached in Singapore, in terms of keeping it within the ILO, that is on trial now. In a sense, I think the developing countries also have a particular interest in seeing that this system works. I am basically optimistic that it can, through a combination of positive, intensive, technical cooperation, through promotional activities.
A QUESTIONER: This question is for you, Mr. Fischer. Mr. Smith voiced a proposition that the Article IV reviews could regularly report on the status of and adherence to core labor standards. I know there's been some concern expressed that, within the Article IV reviews and extended arrangements, that some proposals for labor market reform, in a particular labor code reform, are not consistent with respect for core labor standards.
So my question for you is, is there currently, or do you anticipate there will be discussion within the Fund about ensuring that proposals for labor market flexibility in the Article IV discussions do not contravene fundamental ILO conventions and are, in fact, operationalized in such a way that they're consistent with core labor standards?
There is a potential conflict, and it's one we see in many cases in countries with very strong unions. I think it's the point that was raised by Jagdish, of what is the impact of particular types of unions.
We see cases where we believe that the outcome of the bargaining process is one in which very substantial numbers of people are denied employment. The question is--and it's one that we're going to have to discuss--how to combine respect for the core labor standards without condoning in every case the outcome with regard to what happens to, say, the wage level and the employment level. That, it seems to me, is a fundamental issue.
But I would not believe that, as of now, nor in the long run--and this is a serious issue--that the Fund should accept that, whatever the outcome of a bargaining process, it is something on which we are not at liberty to propose alternatives to achieve what looks like a more equitable and efficient outcome.
I don't know if it is, indeed, the case that core labor standards not only require the right of free association, but also require that we accept whatever comes out, something we're not doing, for instance, in the area of the financial markets. If there were the requirement that we not comment on, make recommendations, about every outcome of every negotiation, then I think we would have a great deal of difficulty. But that seems to me to be one of the "core", if I may use that term, questions which we're going to have to address in our organizations.
We've got ten minutes left. What I would like to suggest is that we now ask each participant to comment, if he would like, on the discussion and remarks made by the others, or anything else they want.
MR. LEE: Yes. I suppose one particular point I would like to address is Robert Holzmann's comments about the freedom of association--I mean, while acknowledging that--and I think that relates also to what you, Mr. Fischer, were commenting about, outcomes of collective bargaining.
I think it's important to just keep the distinction very clear, that when we talk about freedom of association, it is a right, and that it is wrong to condition the access to that right in terms of consequential arguments about how unions would evolve and what economic effects they have. I think, by analogy, one would not deny the property rights and freedom to form corporations, because you do have problems with corporate governance.
I think the idea there is that institutions evolve in different ways. There are dysfunctional developments which have to be dealt in. In much of our work in dealing with unions, we devote considerable resources to trying to deal with some of the negative aspects through mechanisms like workers' education, through promoting internal democracies in union, through--an important thing--encouraging the whole pattern of tripartite discussions and dialogues. I think the point is to accept the right, and then to deal with it like any other economic institution.
MR. ANINAT: I will say just three sentences. I think the topic being discussed today is of high relevance, but we should move to further stages of setting broad limits and being more careful about definitions and implications.
Second, I love the slogan by which Juan Somavia came as chairman of ILO. He simply said, "I want to promote decent work, decent working conditions." I think this is both powerful and at the same time appealing, in the kind of discussion we've been having here, but it needs to move on.
Third, I would encourage a lot of carefulness in all institutions regarding the links between the kind of movements one would wish or may aspire to regarding labor regulations, labor markets, labor norms, and the trade export-growth linkages, because I think there we need to learn a lot more before reaching conclusions.
MR. HOLZMANN: Just two comments. The first one is linked with the question from the lady from the Labor Department, because this has been an issue of discussion with the ILO for some time, and also a difference of interpretation. I think all of us agree to the human right aspect of core labor standards, and all of us want to promote this one. The question is, what are the structural implications of different implementations, in particular freedom of association and collective bargaining rights.
One interpretation is what Mr. Lee has just referred to. It's a right, and once you have it, you say IMF and World Bank, you have no right to make your recommendations. Here I say as an economist, the freedom of association and collective bargaining involves and wants to correct market imperfections, so that the work in a second-best role. We in the Bank want to conserve the right to make comments, both with regards to the way labor markets are structured and with regards to the way labor markets are functioning.
But going further, I think the main important question is how to further the objectives of core labor standards, and see them as instruments, not as objectives on their own. Here the discussion came out quite clearly, I think by most discussants, that there are multiple ways in order to promote them, on the one hand as a legal right, and try to convince governments to observe them, but secondly, also through ways of supporting market-drive initiatives.
Yesterday we had a seminar on labor standards, complementing public standards, this market-driven initiative, and two observations to that. The first one, the paper which was given to Professor Seibel was not commissioned by the World Bank, and so some of his conclusions I disagreed with. Most importantly, he made it as an either/or. For me, private initiatives are a complement, not a substitute, to public standards.
Secondly, also to say I see a huge role for labor movements, for employers, but also the government, to further this private initiative. I consider this very much in synch with problems emerging from the global economy. If it can use consumer risk, if it can use the devaluation of firms through financial markets, according the two with labor rights, I think that's the best way in order to use the forces of globalization for the benefits of the workers.
MR. FISCHER: David?
MR. SMITH: Thank you, Stan.
Let me try to be very brief. I agree with Robert, that the question of voluntary measures and public measures are not substitutes for each other. Let me simply observe in that regard that a right can't be voluntarily conferred. It belongs to individuals. It's the duty of the state to protect those rights, and we should encourage, as Robert argues, corporations to do the right thing, but not in lieu of.
Three other brief comments. Jagdish enjoyed tweaking me about the shortcomings of American labor policy. He was absolutely right. We make that argument as often and with as much intensity as we make this argument, and we would welcome the help of the international community in making it even more loudly.
Eduardo talked about what we have learned from eminent economists and what he had learned, as sort of a contradiction of what he's now hearing from his American friends. I would simply point out that, after roughly three decades of a project of expanded openness, expanded reliance on market-driven forces, the evidence is ambiguous. Growth was slower in the Nineties than in the Eighties, and slower in the Eighties than in the Seventies. Not everywhere, but on balance.
The shocks to the international economy seemed to me to have been more frequent and had greater intensity. Post-NAFTA income distribution is less equal in Mexico than it was before. Median incomes for working people are lower in Canada, in the United States and in Mexico than they were in 1989.
The evidence here suggests that perhaps we need to revisit what some of the economists taught us, and consider how that revisiting ought to modify our policies.
Lastly, one final comment on the development model. Rights are good for income distribution, and more equitable and more solidaristic income distribution is good for development. That is why we have been emphasizing the economic linkage between increasing sustainable domestic demand, empowering working people so that wages do rise, andincomes are more equitably distributed. This is a better and more sustainable development model than one that requires the potential of the race to the bottom and competing with other developing countries for scarce export markets.
MR. FISCHER: Thanks very much, first to the panelists for participating, and particularly to the World Bank and the AFL-CIO for co-sponsoring this event with the Fund. I found this very useful.
Let me just make a few concluding comments, but they're more in the way of questions than comments.
There is an issue of whether these standards are worthy of support. Question one is the basic moral argument that relates more to the rights aspects of it, and then there's a second one, what are their effects, or what is the incidence of the implementation of the standards. There's a paper by Thomas Palley, which should be available in the back there, that addresses some of these issues. And some of the effects may be good and some of them aren't. That's really worthy of debate, discussion, analysis. It's an important point.
The AFL-CIO tried to present evidence, and I think that evidence ought to be taken up, analyzed, in order to get the debate going on what are the effects, what is the incidence of the implementation of labor standards.
Now, there is a second issue which is partially related, and that is what are the arguments that are being deployed in favor or against these standards? It's interesting. I believe that export-led growth is a very good way to grow. It doesn't affect my view that core labor standards are, subject to the question raised by the person from the Labor Department, something we ought to be supporting.
But what I suspect--and I think this was in the back of Eduardo's mind-is that there is a sense that there's another agenda here, and perhaps that is in some of David's most recent remarks about globalization being a failure.
I don't see that you have to reject financial sector globalization, liberalization, in order to accept labor standards. They happen to be arguments which are being deployed to that effect. It doesn't seem to me that, if I were David, that I would be making those arguments. But again, David is way ahead of me in thinking about these things and he may well be right.
The third issue is, if we accept them, are they to be voluntary or not. There really is an interesting difference--and we see it in our Board all the time--between the views of developing countries and industrialized countries on these ones. You heard Eduardo's views, which I believe were the views of the Finance Minister of Chile, that there is a reluctance to have these standards and others imposed on a country in one way or another. It's perfectly reasonable to present them. It's perfectly reasonable to urge their acceptance, but not reasonable to require them, in the view of developing countries, as an element of conditionality. It's a very tough issue, and I'm not sure that we have in the Fund a perfectly consistent doctrine about what it is that is the subject of conditionality and what isn't.
I listened to the question asking the World Bank how it should interpret its articles of agreement. We have benefitted from observing our articles of agreement pretty closely over a long time, and I hope we continue to do so. I don't think in our case that it's obvious, one way or the other, what that would say about core labor standards.
I could imagine, in an egregious case, that without requiring adoption of core labor standards the Fund could ask in a program, or informally--as happened in the case that many of you know about, in the case of Indonesia--for certain labor practices to be amended before we have a program. But a systematic procedure for adoption of core labor standards as an element of conditionality strikes me as unwise.
We do not do it in most other areas. It will be required with regard to data, but that seems to me to be a rather different thing. It will not be required in several other areas that we are monitoring and where standards are being set up.
There is a fourth issue, monitoring and how to do it. We are not for other standards necessarily monitoring them via the Article IV process. There will be developed a compendium of standards and reports on the observation of those standards. So we're still thinking about how to do this whole thing.
I was first told about Article IVs by Morris Goldstein, who has strongly promoted the creation of what are now the 25 principles of banking behavior, that he regards what the Fund does on surveillance as pointing the public finger of shame. It is important--I missed, unfortunately, the voluntarism discussion yesterday, and I don't know enough about this. But I am impressed, and now that we're going to publish Article IVs on a voluntary basis for a while, and I hope more broadly later, when there are egregious problems, I think publication would make a difference.
The fifth issue is why these and not others? That's part of the same question that we struggle with in the IMF, what are the subjects of our conditionality, what are the subjects we report on. We don't have a very good limiting principle. I think this debate ought to go on.
I personally would not regard this as out of line, if they were these and not some others, like basic human rights, but I could again see, in a country that does not obey basic human rights, that the Fund and the Bank would not operate. So there is an element of conditionality in those cases, too.
Finally, I think most important is the question raised by the person from the Labor Department, which is, can we find ways of advancing this discussion? There are potential problems, I think mainly in the collective bargaining sector, where I'm not sure that Eddy Lee meant quite what Robert Holzmann interpreted him as saying, that we're not allowed to comment on the outcome of the collective bargaining process, but I suspect there may be a more general set of principles that can be developed, that seek to deal with these complications.
It is just a fact, and I know important countries where there are huge social problems because of the way the collective bargaining process worked out for historical, political reasons. I suspect that if David and we sat down, we could actually find a way of solving those problems consistent with a basic right to collective bargaining, but not saying that whatever happens is optimal.
I thought David made a very important contribution here to this discussion by saying we are talking about qualitative, not quantitative, principles.
So let me thank everybody here. I found this very interesting, very constructive. I hope we will keep the discussion going with our colleagues from the ILO, other organizations, and of course with the Bank we're in constant touch, and with the AFL-CIO. We have been in touch with the ICFTU as well frequently.
Thank you all very much for coming.
[The seminar concluded at 5:05 p.m.]
IMF EXTERNAL RELATIONS DEPARTMENT