Making Globalization Work for Workers--Address by Michel Camdessus

IMF News, December 2, 1997

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Making Globalization Work for Workers--Address by Michel Camdessus

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• Published: December 2, 1997

Globalization: scope and effects

• Globalization is the continuation of greater international economic integration over the last fifty years; markets are larger, more complex, and more closely integrated.
• Private flows to developing and transition economies reached a record high of $235 billion--that is, two hundred thirty-five thousand million dollars--five times the level in 1990.
• Benefits noted:
  • Accelerated investment and growth in an ever larger number of developing countries.
  • Investors earned higher returns and could diversify portfolios.
  • More efficient allocation of resources and faster world growth.

Impacts on working people: regional differences and examples

• Asia:
  • More jobs in the formal sector and rising standards of living.
  • Indonesia: percentage of the population living below the poverty line declined from 60 percent in 1970 to 10 percent last year.
  • Korea: literacy rate increased from around 30 percent in the mid-1950s to over 95 percent today.
• Advanced economies:
  • Globalization created buoyant export markets for capital goods and advanced technology, and many new jobs in those sectors.
  • Pension funds benefited from global financial markets.
  • Emerging market dynamism helped cushion global recessions (example: 1991-93).
  • Europe maintained a trade surplus in manufactured goods of about 2 1/2 percent of GDP in 1994, roughly the same as in the late 1960s and early 1970s.
• Emerging market economies and poorest countries:
  • Asia still has nearly one billion people living in poverty despite rapid growth.
  • Working conditions and labor rights often fall short of ILO standards.
  • Protectionism in advanced countries risks job losses in emerging markets and can push workers into the informal sector.
  • Vulnerability to capital outflows highlighted by Mexico 1994-95 and east Asia crisis.

Causes of adjustment pressures

• Structural change, especially technological progress and increased industrial productivity, is a primary driver of declining industrial employment in advanced economies—not primarily trade.
• Technological change increases demand for skilled labor, contributing to widening wage gaps (example: United States); in markets with less flexible wages, this can translate into higher unemployment (example: much of Europe).
• Deficient education and training systems are emphasized as major contributors to skill mismatches and unemployment.

Policy prescriptions and "second generation" reforms

• Overarching message: do not resist globalization; enable workers to adapt through policy.
• For advanced economies:
  • Provide opportunities for workers to adapt to shift from manufacturing to services.
  • Promote more flexible labor markets allowing mobility and portable pension rights.
  • Improve education and technical training.
  • Conceive and implement proactive policy in a tripartite context (government, employers, unions).
• For emerging markets and poorest countries:
  • Maintain sound macroeconomic policies and promptly correct macroeconomic imbalances.
  • Strengthen domestic financial systems and undertake structural reforms to sustain high-quality growth.
  • Avoid protectionism; instead improve domestic environment for productive long-term investment.
• Examples of policies IMF opposes as harmful:
  • Monopolies and special protections benefiting a few.
  • Irresponsibly lax credit policies leading to banking crises (banking crisis in Chile exceeded 30 percent of GDP; the one in Venezuela, 20 percent).
  • Financial institutions channeling low-cost resources to cronies whose losses are borne by the national budget.
  • Unproductive spending (unnecessary military spending or "white elephants").
• Four important areas for reform (elements of the "second generation"):

1. Ensure the rule of law; make the judicial system independent, professional, and accessible to all. 2. Dismantle monopolies; establish simpler, more transparent regulatory systems equitably enforced to promote equality of economic opportunity. 3. Increase transparency generally, especially in banking systems; provide the public with full information about policies and economic performance to reduce policy mistakes and crisis spillovers. 4. Improve the quality of public expenditure by reducing unproductive outlays and prioritizing spending on health, education, vocational training, and basic infrastructure.

• Fifth area:
  • Labor market reform to expand employment, particularly among the less skilled, by encouraging mobility, keeping labor costs in line with productivity, and sustained skill-improvement efforts.
• Political economy note: these reforms face powerful vested interests and require active government support and explanation to workers; unions’ active contribution is welcomed and seen as essential.

Good governance and public-sector roles

• Strengthen transparency, public accountability, and refocus state activities on tasks that build investor confidence:
  • Provide reliable public services.
  • Simplify regulatory frameworks.
  • Guarantee judicial professionalism and independence.
  • Enforce property rights.
• Welcome OECD commitment to criminalize bribery of foreign officials and end tax deductibility of foreign bribes.

IMF role and evidence of social outcomes

• IMF asserts it puts people at the center of economic policies and increasingly focuses on education and health in surveillance, technical assistance, and lending.
• Sample of 27 countries with SAF- and ESAF-supported programs most recently analyzed:
  • Average spending on education increased by 5 percent per year in real terms, or by more than 2 percent on a per capita basis, over the life of these programs.
  • Real expenditure on health increased by 7 1/2 percent per year on average, or by over 4 1/2 percent on a per capita basis.
• Social indicators averaged improvements during these programs:
  • Illiteracy rates declined by 3 percent per year.
  • Primary and secondary school enrollments increased by over 1percent per year.
  • Infant mortality declined by 2 percent per year.
  • Life expectancy increased by 1/2 percent per year.
  • Access to health care improved by nearly 10 percent per year.
  • Access to safe water improved by over 5 percent per year.
• Note data gaps: lack of data on social spending and its impact hampers policymaking; Fund staff will work with member governments and the World Bank to improve this.

Outcomes and medium-term prospects for poorest countries

• Sub-Saharan Africa: average annual growth reached 4 1/2 percent last year and is expected to remain close to that level over the medium term.
• Heavily indebted poor countries (HIPCs) and the least developed countries: each recorded average growth of 5 1/2 percent last year--levels they are expected to maintain over the medium term.
• Strategy for poorest countries: reestablish macroeconomic equilibria, complete structural reforms, deepen "second generation" reforms, pursue civil service reform to secure a smaller, better paid, and more efficient public sector, and free resources for health, education, retraining, and infrastructure.
• Advanced countries are urged to support these efforts by opening markets to agricultural products and other goods from developing countries and by making room for larger official development assistance.

Final assessment

• Good policies are rewarded with greater access to international capital markets, higher investment, more jobs, and stronger growth, benefiting workers when supporting policies are in place.
• Poor policies risk financial crisis or marginalization with negative consequences for workers.
• The IMF’s role is to help countries make the right policy choices; ultimately choices rest with governments, labor unions, and citizens. Unions are urged to help transform globalization into an opportunity to improve living standards and prospects for future generations.

Address by Michel Camdessus to the 24th Congress of the World Confederation of Labor, Bangkok, Thailand, December 2, 1997.

References

• Indonesia and the IMF
• Republic of Korea and the IMF
• Thailand and the IMF
• Speeches
• PRESS CENTER
• https://www.imf.org/en/home