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Conference on Organized labour

Responses to the Conference Paper 

John Evans
Trade Union Advisory Committee to The OECD (TUAC-OECD) 

13 Jul 1998 

Further to the ICFTU message about you project, I am attaching a paper which is relevant to the globalization section of your paper.

Economic Globalization: The Need For A Social Dimension

Introduction

This paper is intended to give an impression of the current debate in OECD countries on the orientation of public policy in response to the increasing integration of economies internationally. It makes some comments on the analysis of "globalization" and then examines the "social" agenda in four areas:- trade, investment and labour standards; reconciling equity and efficiency in the labour market; international economic coordination; and policy towards the public sector. These were some of the priority areas that have been identified as comprising part of the "social dimension" of globalization (1). Progress or regression in these areas is measured against OECD policy developments. 

Globalization - myth or reality

Globalization - the accelerated integration of economic activity across national or regional boundaries - has become the catchword dominating economic and social policy discussion at the end of the 20th century. Despite the debate between academic economists and commentators as to the extent and effects of globalization and as to whether this is a new phenomenon , it is more or less irrefutable that there are a series of interconnected developments at work (2) which are profoundly affecting all OECD economies and societies:-

Whatever the macroeconomic significance of the "globalization" process it has penetrated very extensively the micro level relations between trade unions and employers. Increasingly trade unions are finding that international factors arise as a constraint in their relations with governments and in their relations with the employers. 

Government action whether it be in setting tax rates, economic policy management, interest rate policy or exchange rate policy, international constraints are increasingly cited as reasons for inability of government to fulfil the tasks that they are elected in democracies to fulfil. The attitude of employers towards labour unions generally including attitudes to union recognition, their policy towards labour costs and their attitude to technological change and work organization are again increasingly dictated by international competitivity and international "fashions". The threat of relocation to an offshore site has become the standard play in negotiations and in some cases it has become the reality. These pressures are greatest along the three North/South, East/West "frontiers - Mexico/US, Central/Eastern Europe, China/East Asia. The perception is therefore of a footloose international production system where capital is mobile and labour is not. This is contributing to the imbalance of relative power of unions and employers in the labour market at the same time many of the policies to which we looked to governments to fulfil are being undermined. 

For the two ends of the political spectrum this perception may have its advantages.

For the "free market" right this is a wholly desirable situation and it is convenient to exaggerate the loss of local or regional sovereignty. It allows a "deresponsibilisation" of the elites from the results of their actions. Globalization is being used as catalyst for a new round of policies to "roll back the state" at a time when the enthusiasm for the Reagan and Thatcher supply-side revolutions of the 1980's has clearly flagged. It is argued that the full benefits of the "reforms" of the last two decades will only be felt when all economies and sectors are fully opened up to international competition and "market contestability". Thatcher's "there is no alternative" has now become "la pensée unique". The conservative government in Britain (1979-97) was one of the most vociferous in arguing for the need to conform to a model of competitiveness existing in some unspecified place in East Asia. Yet, at the same time the Kim Young Sam government argued that South Korea has to lower its labour standards to stop Korean firms from moving to Scotland and South Wales. 

At the same time for some on the "left" globalization represents a convenient opportunity to rediscover a capitalist conspiracy or reassert the concept of "socialism in one country" or at least "protectionism in one country". But a populist reaction is dangerous terrain. In Europe it is firmly occupied by the National Front in France or concepts such as the Austrian extreme right's notion of a "Europe of Fatherlands".

The real "conspiracy" is not globalization, it is to argue policy paralysis as a result of it. A spectrum of mechanisms for governance is available with, at one end of the spectrum a set of "hard" international regulations covering specific fields (e.g. WTO); in the middle, looser policy coordination (e.g. G7, OECD, IMF); regional integration (e.g. European Union); continuing national regulation; and more loosely regional or district level policies. Whilst binding, "hard" mechanisms of regulation at a global level will only be able to cover a limited number of areas, and they are therefore not an alternative for the looser forms of coordination and cooperation in other areas.

The "social" agenda:-

Achieving a "hard" regulation is still some way off and there is even some criticism (6) from within the labour movement on the single minded pursuit of a "Social Clause". Nevertheless, it must be pursued. Achieving other goals will be difficult as long as core labour rights can be easily denied. Functioning civil society is necessary to build up a momentum for satisfactory governance of global markets. Moreover, given the fact that the world trading system has moved to guarantee the rights of intellectual property, investors rights, and even environmental standards, it will become increasing difficult to deny human rights.

Over the last three years, there has been perceptible progress in shifting "conventional economic wisdom" to seeing core labour rights as "good thing" economically and socially as opposed to either an irrelevancy or a market distortion. Focusing on core standards (cf.:- freedom of association, rights to collective bargaining, freedom from forced labour or prison labour, freedom from child labour exploitation and non-discrimination) has allowed pretty universal acceptance of them as inviolable human rights in a way that the listing of 170 ILO Conventions would not. The empirical and theoretical analysis of the OECD (7) and World Bank (8) now regards core standards and by virtue of this trade union recognition as at least neutral in their economic effects, and at best positive. The mainstream thinking of those involved in development assistance has also shifted to see core labour rights as a part of "participatory development and good governance" strategies (9).

Five years ago, far more countries and commentators would have argued that authoritarianism and free markets were the necessary routes to achieving economic lift-off. Now they tend to remain silent. The fact that in January 1997 the OECD was ready to censure the Republic of Korea - a new Member - for not living up to commitments on freedom of association and collective bargaining given when it joined the Organization, is highly significant. It did not happen in the case of Mexico's membership of the OECD and would have been unthinkable even five years ago.

The debate has therefore moved on to enforcement mechanisms. The "stand off" on labour standards at the WTO Ministerial Council between the United States and the majority of EU countries on the one hand and India, ASEAN, the UK, Australia and New Zealand on the other, leaves no one in any doubt about the difficulties of getting the issue into the WTO mechanism. There is visceral hostility amongst many trade officials about the issue. But despite their efforts to treat it as a "non-issue" labour standards dominated the media coverage for the whole of the WTO Conference. The "'Singapore declaration" may yet lead to openings in the WTO. 

Urgent follow up has to focus on the need to :-

The process of European political and economic integration has of course allowed cross- frontier regulation of labour standards to move well beyond the guarantee of core workers' rights. For many on the centre-left in Europe, the European Union's "Social Dimension" is the response to globalization (11). The European trade union movement has sought:- to establish a framework of minimum standards to stop "social dumping"; to establish consultation, information and negotiation rights with multinational companies at a European level; to expand the structural funds of the European Community. One of the most significant developments in this process has been the passing of the European "Work's Council" Directive, requiring multinational companies with more than one thousand employees to establish consultative machinery for their workforces at European level.

It should also be mentioned that irrespective of mechanisms of global governance given their national characteristics MNC's do still open themselves up to points of leverage. At the same time some international trade union company campaigns are becoming more targeted and sophisticated.

Within the OECD, there are two quite divergent analyses of labour markets which have crystallized in the debate over European unemployment. The conventional "neoclassical" wisdom of the majority of Finance Ministries in OECD countries is that the origin of the problem lies in the inability of the labour market to adapt to macro economic shocks over which governments now have little control. The focus of policy is therefore to reduce "natural" rates of unemployment through a search for labour market flexibility. This has been behind the recommendations in the OECD Jobs Study (12) to decentralise collective bargaining systems; remove administrative extensions to agreements; weaken minimum wage regulation; and to use competition in product markets to keep downward pressure on nominal wages. Restriction of unemployment benefits goes in the same direction. The UK and New Zealand are praised as successful models for reform and the US held up as being a model of success due to already flexible labour markets. 

Few OECD Finance Ministers would strongly dissociate themselves from such a position, it represents "la pensée unique". However, there is strikingly little empirical support for many of the policy elements described and short of "something turning up" little confidence can be given to such policies reducing unemployment through high-quality employment creation. The "unemployed poor" risk being transferred into "working poor" with the same social consequences. These doubts were echoed by the OECD itself in the 1996 OECD Employment Outlook (13) which honestly reviewed the evidence on wage dispersion and employment creation. Moreover, countries as such as the Netherlands, Ireland and Denmark have all succeeded in combining strong economic performance and equity by not following the "Anglo-Saxon" model. It is also significant that OECD Labour Ministers in October 1997 have now recognised the problems associated with low paying jobs.

A very different view of the policy options emanates from work being carried out in the OECD with regard to:- technological change; the nature of "flexible organizations"; skill acquisition and education policy; and corporate governance issues. The changing strategies of firms to the global market are seen to be a key factor. One interpretation of this work is that firms in the OECD area are becoming polarised. On the one hand there are those trapped in Taylorist forms of production having to compete in an ever tougher global market with low wage competition from non-OECD countries. Increasingly it is not the firms themselves which have to compete but the workers in different countries bidding for their jobs with the same employers. On the other hand there are firms who have shifted to new forms of work organization in which a high premium is given to the flow of knowledge and innovation. These "high skill - high trust" organizations compete in a different and clearly more benign world than their Taylorist rivals.

The policy implications of this are that governments can move their economies onto higher growth paths by encouraging technological diffusion, innovation, "good practice" management techniques and the development of appropriate infrastructures for the "information society". "Learning societies" and knowledge-based firms are the key to success. In this scenario labour market deregulation is not a central issue. Internal functional flexibility of workers in line with changing work organization is much more important to firms. Flexibility to "hire and fire" looks at best irrelevant and at worst could encourage the low wage/ low skill route to competitiveness. The challenge for OECD countries is how to move the whole of their societies and not just an elite onto a "high route" to competitiveness.

Many of the same issues arise in the parallel debates taking place on corporate governance around the issue of "stakeholder capitalism"; on strategies for regional, district or community level development strategies; and on the development of sustainable consumption and production.

Establishing a "new paradigm" in this area is not a question of "hard" international regulation, it is a question of shifting attitudes and winning the arguments and shaping the strategies of different levels of government and firms.

Diverging priorities in macroeconomic policy have to some extent replaced the supply-side consensus of the 1980's, but they have prevented a coordinated policy response coming from the G7. Despite differing emphasis within the Clinton Administration, the broad approach has been to "keep growth going" until inflationary constraints really do appear. The success of the fall in measured unemployment to below previously stated "natural rates", remains clouded by the prevalent growth in poverty, declining real wages and insecurity but nevertheless has reflected an accommodating monetary policy. Japan has also shown itself ready to intervene through traditional public work programmes when faced by genuine recessionary fears. It is in Europe where Finance Ministers and Central Banks continue to inflict "monetary masochism" or more accurately "monetary sadism" on their populations. The battle is now being fought for the economic architecture and hence priorities of the post Economic and Monetary Union period. The central issue must be to shift policy to a less deflationary stance. In most of Europe, real interest rates have started to rise before expansion has even begun, the scenarios for fiscal contraction to meet Maastricht targets in many cases are completely inappropriate given the conjunctural situation. Even the OECD has warned of the dangers of the timing of fiscal restriction, though of course it does not disagree with the goal (15).

Given the power over monetary policy now vested in independent central banks, it is clear for the need to "reform the objectives of central banks so they will support a pro-growth regime instead of thwarting it" (16). The one dimensional pursuit of price stability has now to give way to approach which now does allow decisions to be made on the balance of risks and trade-offs between the objectives of employment and inflation. The theoretical battle is being fought around whether or not monetary policy does affect the real economy in the longer term. Many of the features of this current debate don't look particularly new, they mirror very closely the policy debate of the 1920's in Europe and the United States. By the 1930's it is significant that the conventional wisdom had shifted to being concerned at falling prices and deflationary expectations rather than inflationary expectations. Policy shifted to putting floors in markets rather than de-regulating them.

The Asian financial crisis has brought home the need to "throw sand in the wheels of international finance". This is now recognised not just by Keynesian Nobel laureates such as James Tobin (17), but more dramatically by speculators such as George Soros. "Bond market vigilantes" contribute to the deflationary overkill of real interest rates, unwarranted currency fluctuations wipe-out years of efforts to manage structural change in the real economy. The unsustainable growth of derivative markets raise major problems of the adequacy of prudential rules for dealing with systematic risk. The G7 has asked the Bank of International Settlements (BIS) to monitor these issues. What is needed however is a cooperative framework of action between the BIS, the IMF, the OECD and European Institutions mixing national and international measures. They should include the following:-

National Level Initiatives:

The "governance" debate does provide a framework which allows a non-ideological debate on the role of the public sector. A "social" agenda must on the one hand espouse the need to change the management of public services and administration to make them responsive to the public and not just to save money. "Partnership" approaches to change do work. On the other hand, the pressures of ageing and health care costs, together with the delivery of lifelong learning are going to dominate the debates on resource allocation at the start of the next millennium. This will be a global debate and the US health care reform stalemate was salutary. The dangers of the US lobby for health insurance succeeding in "cherry picking" elements of other health care system are real.

Conclusions

The response of the trade union movement to globalization cannot be to bemoan changes or react defensively. It must be to respond and manage them. To fulfil the legitimate aspirations of consumers, employees, investors, markets require effective governance, whether or not they are organized on a national, regional or global scale. Against a background of globalization it is the forms of governance that have to change not the principle. The challenge is to shape that debate.