ILO External relations and partnerships

Statement by John Langmore,
Director, ILO Liaison Office with the United Nations, New York

Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment.

Universal Declaration of Human Rights

The Millennium Development Compact as described in the 2003 Human Development Report is a refreshing, succinct and well-judged summary of crucial elements of national development strategy. The focuses on poverty reduction and on each of the policies described are vital. It is a substantial advance on the conventional approaches of the past couple of decades, not least for its recognition of the importance of such areas as rural production, special industrial development policies, the importance of technological dynamism and the necessity of increasing external financing.

Yet the chapter mentions employment only in relation to gender bias, and the value of microfinance schemes and work only once, with a reference to the critical role of the private sector in creating jobs. This may not be a vital matter since the importance of employment is implied in a number of other ways, including through the emphasis on raising the productivity of small farmers and on the benefit of public investment in human services in increasing skills and productivity.

However, it is interesting to consider for a few minutes whether explicit discussion of employment would add value to the Compact. Of course an eleven-page essay cannot say everything, so the question is partly whether more attention to employment would be likely to add sufficient value to warrant completing the remainder of the eleventh page?

1. The goal of the right to work in the Universal Declaration of Human Rights draws attention to one of the fundamental human needs. The opportunity for productive work is as vital to human survival, security and dignity as food, water and shelter. Self-employment and wage employment are centrally important to reducing poverty, increasing personal and national economic security, increasing efficiency – not least by reducing the waste of unemployment – improving equity and strengthening social integration. Growth of total employment is a necessary condition for growth in the employment opportunities for youth.

At the end of 2002, 180 million people around the world were openly unemployed. 1 In Africa the estimated rate of open unemployment increased from 13.7 per cent in 2000 to 14.4 per cent in 2002. In addition about 550 million male and female workers were unable to earn enough to keep themselves and their families above the US $1 a day poverty line, and a billion of so more earned less than $2. Over the next eight years some 400 million new, young job seekers will be added to the world’s work force.

In a sense it is more constructive to advocate the goal of work for all than elimination of poverty because it is a positive and somewhat more operational target – addition rather than subtraction is being sought. It also draws attention to several further areas of policy and modulates some of those already mentioned in the Compact.

2. The refocusing of goals to give employment growth a central place has implications for macroeconomic policy. The Geneva Special Session of the UN General Assembly in June 2000 made a commitment to "Ensuring that macroeconomic policies reflect and fully integrate, inter alia, employment growth and poverty reduction goals". 2 It was recognized that this would require countries to "Reassess, as appropriate, their macroeconomic policies with the aims of greater employment generation and reduction in the poverty level while striving for and maintaining low inflation rates." 3 It is striking that many of the PRSPs still do not mention employment amongst the goals of macroeconomic policy, including, for example, the generally excellent Ethiopian paper.

The ILO estimates that the rate of economic growth per capita that would be necessary to halve both unemployment and the number of working poor by 2010 globally would be over 2 per cent compared with the average of 1 per cent during the nineties. In some regions the growth would have to be 3 to 6 per cent per capita. 4 This would clearly be a striking change of trend. It also suggests that major changes of strategy are required if the rate of growth of employment is to increase sufficiently fast to meet the MDGs and other targets.

In many countries monetary policy has been too tightly constrained during the last couple of decades. One of the major factors causing the lost decade for development in the eighties and the relatively slow growth of most countries for much of the nineties was the restriction of credit and the high level of real interest rates. It is scarcely possible to overestimate the importance of the availability of credit at manageable interest rates to entrepreneurs in small and medium enterprises.

Both the stance of fiscal policy and its composition are influential. More pragmatic stances of fiscal policies would commonly be appropriate - in both developing and developed countries. Employment growth can be encouraged cost effectively by well-chosen expenditure increases aimed directly at equitable improvements in services for all, especially education, training, health, housing and infrastructure.

There is a striking correlation between average incomes and government revenue as a proportion of GDP. In 1991-96 low-income countries’ current revenue averaged 13 per cent of GDP; in lower middle-income countries, 18 per cent; in upper middle-income countries, 20 per cent; and in high-income countries, 30 per cent. 5 This relationship and the factors underlying it suggest that developing countries might well benefit from aiming to improve their expenditure capacity by increasing revenue. Revenue increases are feasible for many countries through changes to the tax base and improving the efficiency, comprehensiveness and honesty of tax administration. Technical assistance to improve tax administration is a particularly cost-effective form of development cooperation.

3. The Compact emphasizes the fundamental importance of increasing external concessional finance to fund the investment, infrastructure and services that are essential for poverty reduction through employment growth. Yet increased ODA alone is highly unlikely to be adequate, so mention of some additional sources is necessary. Amongst the most feasible are the proposals to: bring forward the availability of ODA through an International Finance Facility; reduce the opportunity cost of holding foreign reserves by starting the regular issue of Special Drawing Rights; and improving international tax cooperation so as to attack tax evasion. Other possibilities would be technically feasible but are politically difficult at present. 6

4. Liberalization of financial markets has been the most influential change in the macroeconomic environment during the last thirty years. Many governments weakened or abandoned regulation, limiting central banks ability to influence financial markets to only the supply side, resulting in more volatile money supplies and interest rates. Yet financial volatility increases risk and the cost of investment and sometimes leads to financial crises. There have been 100 episodes of systemic financial sector crises over the last two decades, with fiscal burdens often exceeding 20 to 30 percent of GDP. 7 The human, social and economic cost of these crises has been enormous, with the loss of employment and the increase in poverty lasting long after the financial effects have eased. 8, 9

In addition, the power of short-term capital flows in liberalized financial markets to destabilize economies ensures that the preferences of financiers are constantly in the minds of national economic policy makers, skewing economic and social priorities towards reduced expenditure. This means that financial liberalization can be doubly damaging, causing both increased poverty and reduced capacity of governments to ease the pain of the poor and others paying the cost through active social programmes.

The obvious approach for those countries that have not yet comprehensively liberalized is to exercise more caution about the extent and sequencing of financial liberalization. A moderate policy of neither repression nor full liberalization seems wise. Much developing country experience suggests that carefully judged capital management techniques could have a useful place. 10 For those countries that have liberalized, the issue is how to escape from the vicious circle of strengthening supervision or selective reregulation without increasing the risk premium on their bonds.

Major international cooperative action is also essential. "Timid steps towards reform of international financial architecture have been taken, including the establishment of the Financial Stability Forum and the revision of capital adequacy standards. However, national governments acting alone do not have the capacity to adequately reduce the risks to which their economies are exposed. Greater collaborative international regulation is required." 11

5. Focusing on employment growth leads to strengthening the attention that must be given to secondary education and technical training as well as basic education. Rapid expansion of the supply of skilled people is a necessary condition for the strengthening of technological dynamism, growth of productivity in every area and improvements in the quality of services.

One difficulty with this goal is in finding the most effective combinations of education, training, work experience, and public- and policy-supported private research and development within the human and financial capacity of each country. The universal commitment to basic education for all is clear, but the appropriate extent of expenditure on secondary, technical, tertiary and adult education is more difficult to judge, not least because in some developing countries this has to be balanced with the fact of relatively high unemployment amongst the well educated. Yet increasing employability involves much more than basic education for all and must include not only secondary and technical training but, now more than ever before, life-long education, for women as well as men. "Technological competence, skills, work discipline and trainability, competitive supplier clusters, strong support institutions, good infrastructure and well-honed administrative capabilities are the new tools of comparative advantage." 12

6. A particularly clear example of the value of giving greater emphasis to employment is in mentioning the value of employment-intensive rather than capital-intensive techniques of infrastructure construction. There are many types of infrastructure where the use of locally available labour and materials offers efficiencies. Feeder roads, drainage, sewerage and water supply systems, forestry, soil and water conservation, land development, small-scale building and irrigation can all be examples. ILO experience shows that employment-based approaches:

Amongst crucial elements of an employment-intensive approach to infrastructure construction are: a tendering and contracting system that favours local, small enterprise; and the provision of training for government officials concerned and for small enterprises wishing to tender for contracts and to work safely. There is an excellent programme using this approach in Ethiopia funded and sponsored jointly by the World Bank and the ILO.

All that is being suggested here is that at the point on page 17 of the HDR chapter, where there is a reference to labour-intensive exports, labour-intensive infrastructure construction should also be mentioned.

7. Crucial to employment strategy is forecasting which sectors have greatest scope for employment growth. As emphasised in the Compact, agriculture, often for subsistence, continues to be the activity on which most people work. Globally, the largest group of workers are in the informal economy – around a billion worldwide – often in agriculture but also in increasingly complex types and varieties of work, most self-employed and working outside formal regulation and protection. The best hope for informal workers is through what they do for themselves, and the best means of assisting them is by providing an enabling context in the ways outlined in the Compact within which they can take entrepreneurial initiative, organize participatory self-help programs and campaign for social justice.

As incomes rise, the demand for human services increases more than proportionately, and human services are labour-intensive – they are face to face. 13 So one of the most effective ways of increasing income-generating work everywhere is to allow the demand for education, health, personal care for the old, the young and the disabled to be met. They are often provided through the public sector and by civil society. As incomes rise, demand for the expansion of private sector services also rapidly increases, in industries such as retailing and finance, travel and eating out, personal, professional and technical services and sport and culture. All the services connected with information technology and the collection, processing, distribution and storage of information have been a major source of employment growth and offer more potential for both domestic consumption and export.

In the industrial sector, the recent evidence suggests that developing countries are diverging rather than converging in terms of output, export and technological upgrading performance – and so in the extent of employment growth in manufacturing. In the industrial sector, the ability of countries to generate and sustain employment depends on their capacity to promptly gain access to, efficiently use, and keep up with new technologies. This needs new sets of skills, organizational relations and infrastructure. In turn this requires constant technological effort and active industry policy. 14

8. Focusing on employment also offers insights into aspects of the goal of improving governance. For example, it focuses attention on the framework of human rights, including international labour standards, as bases for important parts of national law and justice. It can also be a reminder of the value of social dialogue, not only as an arm of macroeconomic policy but perhaps more importantly as a style of governance designed for consensual, participatory decision-making, so contributing to the accountability and transparency of governments.

The most powerful reason of all for focusing more attention on employment is that this is often the goal most sought by voters. Almost everyone, everywhere would like employment for all, and no one, except economists and our ilk, is satisfied with the waste of unemployment and the threat of exclusion from society that it embodies. One necessary condition for the realization of those preferences is electoral equity in an effectively functioning democracy. Another is that policy be prepared within the framework of economic, social and environmental priorities set by governments. National ownership involves governments in deciding what combination of security, freedom, social justice, vitality or other goals is sought by voters and what strategy is best suited to achieving them. The MDGs seem to be a close approximation to part of the minimal wishes of many electorates.

To conclude, these notes are intended to suggest ways of enriching an already excellent strategy, by making more explicit and concrete the centrality of opportunities for work and employment, not only for income generation but also because of their fundamental importance to human well-being and dignity. They address aspects of each of the four common elements that the Secretary-General’s High-Level Panel on Youth Employment have identified as top priorities: employability; equal opportunities; entrepreneurship; and employment creation.

The global UN conference scheduled for 2005 to review implementation of the MDGs may well provide an opportunity to rectify the lack of reference to employment by including employment amongst the goals.

The comprehensiveness and effectiveness of the Compact would be increased by adding sections on macroeconomic policy and international financial stability, by suggesting additional external sources of concessional finance and by strengthening references to post-primary education and training, use of labour-intensive techniques, the employment potential of the services sector and the electoral importance to good governance of increasing employment opportunities.

13. This phenomenon was analysed in the sixties by William Baumol. He argued that if productivity grows more slowly in the services sector than in other sectors such as manufacturing, and it is desired to maintain output in the services sector, it is necessary that resources should be progressively transferred towards the services sector. Baumol, 1967.

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