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Governing Body

GB.274/3
274th Session
Geneva, March 1999

THIRD ITEM ON THE AGENDA

Date, place and agenda of the 89th Session (2001)
of the Conference

Contents

Date

Place

Agenda

Date

1. In accordance with the provisions adopted by the Governing Body at its 254th Session (November 1992),(1)  it is proposed that the 89th Session (2001) of the International Labour Conference should open on Tuesday, 5 June 2001.

Place

2. It is proposed that the session be held in Geneva.

Agenda

3. The Conference will have before it the following standing items:

4. The agenda of the 88th Session (2000) of the Conference, as determined by the Governing Body at its 271st Session (March 1998), includes the following four items:

5. The Programme and Budget proposals for the 2000-01 biennium, for budgetary purposes and without prejudging the Governing Body's decision, foresee that a total of three technical items may be placed on the Conference agenda in 2001. As a second discussion is due to take place in 2001 on Safety and health in agriculture, the Governing Body would at its present session have to choose two technical items to complete the agenda of the 89th Session (2001) of the Conference.

6. At its 273rd Session (November 1998), the Governing Body examined the portfolio of proposals for the initial discussion on the Conference agenda for the year 2001.(2)  It selected a short list of items for more in-depth discussion at the present session, and decided to request law and practice reports, or more detailed proposals, on nine subjects:

7. It will be recalled that items 2, 3, 4, 5, 6(a) and (b) and 8 were the subject of previous proposals made to the Governing Body at its 271st Session (March 1998).(3)  Each of these contributions has been modified to update it and included in the present document.

8. In accordance with various requests made during the discussions in the Governing Body, the above list of items does not predetermine the type of action that could be taken on them at the Conference in 2001. However, as indicated above, items 1, 4, 6(a) and (b) and 7 are submitted with a view to standard setting, and items 2, 3, 5, 8 and 9 are submitted for general discussion.

9. Further research. During the examination of the portfolio at the 273rd Session (November 1998), several members of the Governing Body expressed the wish that the Office should accelerate its research work on some of the subjects in the portfolio, in particular that on the ILO's contribution to peace-building operations, the informal sector, working and employment conditions of ageing workers and better collaboration and coordination with United Nations' agencies in the field of working life. It should also be recalled that the Office is called upon to place on the agenda of the Conference the question of a possible adoption of international instruments for the protection of workers in the situations identified by the Committee on Contract Labour no later than four years from 1998, i.e. at the International Labour Conference in 2002.(4)  In addition, as regards the prevention of sexual harassment at the workplace, the Office will continue to study the issue, including the possibility of taking into account other forms of harassment, as suggested during the discussions in the Governing Body in November. If the Governing Body so wishes, the Office will submit more detailed proposals on these items in November 1999.

10. Classification of the items proposed for the agenda of the Conference. The presentation of the items proposed for the agenda of the Conference is based on the classification of international labour standards as approved by the Governing Body. During the discussions on the portfolio a few members of the Governing Body proposed to classify the proposals thematically reflecting the strategic objectives that underlie the Programme and Budget proposals for 2000-01. If the Governing Body so wishes, the portfolio of proposals for the agenda of the Conference to be examined by the Governing Body at its 276th Session (November 1999) could be reclassified accordingly.

11. Modified timing of decisions to place items for general discussion on the agenda of the Conference. At its 273rd Session (November 1998) the issue was raised in the Governing Body whether items for general discussion could be placed on the agenda of the Conference closer in time to the holding of the actual discussion in order to permit the choice of items which were more topical. According to article 11ter of the Standing Orders, one of the procedural requirements for preparing items for general discussion is the elaboration by the Office of a report on the question for general discussion which must reach the governments no later than two months before the opening of the session of the Conference at which the question is to be discussed. With respect to items for standard-setting, in accordance with article 39, paragraph 1, of the Standing Orders, the required law and practice report and the questionnaires must reach the member States no less than 18 months before the opening of the session of the Conference at which the question is to be discussed. In the latter case, the Office must also have sufficient time to prepare the full law and practice report and questionnaire. At present, decisions to place both types of items on the agenda -- standard-setting and general discussion items -- are taken at the March sessions of the Governing Body, i.e. 26 months before the discussion at the Conference. There is thus no procedural obstacle in taking decisions to place items for general discussion on the agenda of the Conference closer in time to the holding of the actual discussion. This being so, any reconsideration of the current procedure raises a series of other complex issues involving political, legal and logistical considerations. One issue relates to the implications for the placing on the agenda of the Conference an item for a preliminary discussion on a potential standard-setting subject. Another issue is whether, and to what extent, the modification of the timing would restrict the range possible choices of items by the Governing Body. It should also be recalled that at its 276th Session (November 1999), the Governing Body will examine the question of how to enable the Conference to effectively integrate decisions to revise Conventions resulting, inter alia, from the work of the Working Party on Policy regarding the Revision of Standards. Against this background, the Governing Body is invited to revert to this issue at a later stage.

* * *

1. New measures concerning discrimination
in employment and occupation
 

Summary

In its Special Survey of 1996 on the Discrimination (Employment and Occupation) Convention, 1958 (No. 111), the Committee of Experts found that a number of grounds on which discrimination is prohibited in other ILO standards, in other international standards, and above all in national legislation, are not covered by this Convention. Convention No. 111 is, however, the ILO's principal instrument against discrimination. It therefore is recommended that the Governing Body consider the adoption of a Protocol, which would not revise the Convention as such, but which would allow countries ratifying it to accept formally additional grounds on which discrimination would be prohibited. This would consolidate the ILO's protection against discrimination, and bring the ILO into closer harmony with more recent international human rights instruments adopted by other organizations and with developing national practice.


Introduction

12. In its 1996 Special Survey on the Discrimination (Employment and Occupation) Convention, 1958 (No. 111), the Committee of Experts on the Application of Conventions and Recommendations recommended that consideration be given to adopting a Protocol to the Convention that would provide additional grounds on which discrimination would be prohibited under the Convention, taking account of changes which have taken place in this field and are reflected in national law, as well as incorporating prohibited grounds of discrimination already covered in other ILO Conventions.(5) 

13. The Committee of Experts did not propose revising the Convention, but rather suggested adding a Protocol that could be ratified in addition to the Convention, either by countries that had already ratified it, or at the time of ratification of the Convention. Convention No. 111, one of the ILO's fundamental Conventions, would remain unmodified. There appears to be general agreement that the approach to consolidate and extend the grounds on which discrimination should be prohibited in employment and occupation would be the preferred one should the subject be dealt with.

The situation in national law and practice

14. Convention No. 111 requires ratifying States to take action against discrimination in employment and occupation on the basis of race, colour, sex, religion, political opinion, national extraction and social origin. The Committee found, however, that there was sufficient indication in national laws on discrimination, or in other ILO Conventions, to merit the adoption of a Protocol that would allow States to undertake additional obligations in respect of some or all of the following criteria (listed in alphabetical order): age, disability, family responsibilities, language, matrimonial status, nationality, property, sexual orientation and state of health. Indications are given below of how these criteria are addressed in national law and practice.

Age

15. New legislation frequently makes specific reference to age among the grounds of discrimination. In New Zealand, for example, it is mentioned in section 21 of the Human Rights Act of 1 February 1994; in Croatia, it appears in section 2 of the 1995 Labour Law; article 23(3) of the new Constitution of Ecuador, adopted on 5 June 1998, provides for equality of rights and opportunities, and the freedoms that are recognized for all individuals, without discrimination inter alia on the basis of age; age is also mentioned as a criterion in section 5 of the June 1996 Labour Code of Niger, section 26 of the 1997 Labour Law of Venezuela, section 4 of the Labour Code of Cτte d'Ivoire and section 246 of the Labour Code of Chad. In France section L.122-14-11 of the Labour Code stipulates that any provision providing for automatic termination of a contract when an employee reaches a certain age or is entitled to draw an old-age pension is null and void. A similar situation exists in the United States by virtue of court decisions, later codified into law. According to the Government's reports on the application of Convention No. 111, Australia is considering the possibility of excluding any discrimination based on age.

State of health

16. A worker's state of health should not be an acceptable motive for refusing to employ or for dismissing him or her, unless there is a very strict relationship between the worker's present state of health and the normal occupational requirements of a given job. A variety of measures have been adopted in this regard in different countries:

Disablement

17. More and more countries have adopted measures to protect the disabled and promote equality of opportunities between disabled and other workers. Chapter 5 of the Labour Code of Gabon, which entered into force in 1995, contains a series of provisions for protecting disabled workers, for example. Other countries have also adopted legislation specifically protecting the rights of disabled workers. In New Zealand legislation of 1960 and 1975 contains measures aimed at protecting the employment of disabled persons. Poland similarly has an Act of 1991 concerning employment and vocational rehabilitation of the disabled. Several countries, including Ecuador, Kuwait, Niger, Spain and Sweden, have legislation prohibiting discrimination in employment and occupation based on disablement.

Sexual orientation

18. Member States are increasingly adopting legislative measures specifically protecting workers who are vulnerable to discrimination on the basis of their sexual orientation. Some constitutions expressly prohibit discrimination based on sexual orientation, for example the Interim Constitution of South Africa, and both the Brandenbourg Constitution and the Thuringia Constitution in Germany. Section 23(3) of the new Constitution of Ecuador, adopted on 5 June 1998, provides for equality of rights and opportunities, and the freedoms recognized for all individuals, without discrimination inter alia on the basis of sexual orientation. Denmark, France and New Zealand also have legislation explicitly prohibiting discrimination based on sexual orientation. In the Netherlands the legislation has strengthened penal sanctions, inter alia, against public acts of hatred or discrimination on grounds of sexual orientation. In Australia the Industrial Relations Act of 1988 expressly mentions the need to prevent and eliminate discrimination on the basis of sexual preference.

Coverage in other standards

19. The Committee of Experts also devoted considerable attention in the Special Survey to the additional grounds of discrimination that are covered in other ILO standards. Even though Convention No. 111 is the ILO's principal instrument on the prevention of discrimination, it does not cover many of the areas on which ILO standards offer the strongest -- and often the only -- protection in international law. This includes age,(6)  nationality,(7)  trade union membership,(8)  disability(9)  and family responsibilities.(10)  The adoption of a suitable Protocol would allow the consolidation of protection, and added coherence in the ILO's advisory and supervisory efforts on the subject. This may be a particularly important point in the context of the ILO's work in revising its body of standards and rendering them more coherent.

20. For example, Convention No. 158 on Termination of Employment, 1982, adopted after Convention No. 111, prohibits termination on grounds, inter alia, of race, colour, sex, marital status, family responsibilities, pregnancy, religion, political opinion, national extraction, social origin or absence from work during maternity leave. Convention No. 156 on Workers with Family Responsibilities calls for persons to be protected against discrimination, as defined in Convention No. 111 on the basis of their family responsibilities.

21. Finally, human rights standards adopted by other international organizations since the 1958 ILO Convention, have further expanded the protection offered in international law against discrimination, without all these grounds being covered in the ILO's most important Convention on this subject.(11)  The Committee of Experts stated that, "with a view to the coherence of international human rights law, it would be desirable to take these into account in considering the present Convention". Of these other instruments, the International Covenant on Economic, Social and Cultural Rights, and the International Covenant on Civil and Political Rights, both adopted in 1966 and now widely ratified, both contain the following passage:

On the regional level, the Committee of Experts noted also the European Convention on Human Rights, adopted in 1950, which in its Article 14 prohibits discrimination on the basis of "sex, race, colour, language, religion, political or other opinion, association with a national minority, property, birth or other status".(12) 

Conclusions

22. The Governing Body is therefore invited to give further consideration to the proposal by the Committee of Experts to examine a Protocol to Convention No. 111 on possible additional grounds of discrimination. The Committee recommended that the Governing Body and the Conference consider two alternative solutions in this respect. The first would be to allow States to ratify the Protocol and to choose which of the additional grounds listed in it they would wish to accept as additional obligations under the Convention (see the indicative list above). The second possibility would be to adopt a list of "core" grounds that would have to be accepted when ratifying the Protocol, and allowing States to decide to accept others from the list as well, and this solution has been favoured by most of those who have referred to it in previous consultations. The Committee considered that this should be done with no modification to the existing instrument, but simply by the adoption of a Protocol that could be ratified on a voluntary basis.

23. The Committee of Experts also pointed out that a provision already exists in Convention No. 111 allowing governments to undertake obligations in regard to grounds other than those detailed in the Convention. Article 1(1)(b) states that the definition of discrimination can be modified to include any other distinction, exclusion or preference which may be determined by the government of the ratifying country after consultation with representative employers' and workers' organizations. While some stated in previous consultations that this route should be pursued, the Committee of Experts suggested the Protocol as a better way of allowing States to extend the grounds covered by the Convention. It may also be noted that suggestions by the Committee of Experts to governments that they have recourse to Article 1(1)(b) have not yet met with a positive response.

24. It may be expected that this Protocol would have several important differences from Article 1(1)(b). It should be noted that the text of the Convention provides no very clear indication of how such a determination should be made or communicated to the Committee of Experts, unlike a Protocol, which is clearly open to explicit ratification. Upon adoption, a Protocol would have to be submitted to the competent authorities of all member States in the same manner as Conventions and Recommendations, and would therefore have to be considered formally by governments. There is no obligation on governments which have ratified the Convention to undertake any formal consultation on the grounds of discrimination under Convention No. 111, and they do not appear in fact to carry out consultations in this regard.

25. Ratification of the Protocol would constitute an international obligation as well as a public commitment to the grounds specified by the government ratifying it, providing a rallying point for action concerning the prevention of discrimination in employment and occupation. Depending on national legal systems, it would embed the grounds selected in national law as well as in international commitments, in a way that a voluntary declaration under Article 1 of the Convention would not. Finally, there is no contradiction between the approach of ratifying an additional Protocol and that of making additional declarations under Article 1 of the Convention -- they would be compatible and could be complementary if governments were to begin using the procedure allowed for in the Convention.

* * *

2. Investment and employment
 

Summary

Globalization has strengthened the importance of private investment at the national level. Globally, foreign direct investment (FDI), which companies make to only a limited number of countries, has largely replaced public investment, such as development aid. The share of portfolio investments has increased. These trends have a considerable impact on the level and structure of economic growth, employment and income distribution.

As was made clear in the conclusions of the report submitted to the International Labour Conference in 1996 on "Employment policies in a global context", investment is a crucial element in the process of employment generation and output growth. Since then, concern has only intensified about how labour markets that remain local are affected by capital markets that are increasingly global.

Governments, trade unions and employers' organizations have several means to encourage investments in general, especially those with positive employment effects, even though the role of a state as an investor and provider of finance for investments has decreased radically. Changes in the composition, location and sources of finance for investments have affected the selection of available means to influence the investment decisions that are taken primarily in enterprises.

The discussion of investment and employment is motivated by the underlying question of how more and better jobs can be generated from investment in the changing context of decision-making, especially in areas where they are needed most: in least developed countries; in less developed regions within countries; and in smaller enterprises.


The State's role as an investor and contributor to investments

Areas of concern

26. There is a global trend away from state ownership to private ownership, and from monopoly toward competition. Large-scale privatization of state property has occurred in most parts of the world. Consequently, the State's role as an owner of production facilities has declined and its role as an investor has changed.

27. Until the mid-1980s, private and public investment tended to move together. Since then, the level of private investment has risen. As industries have been transferred to the private sector, deregulation and economic stabilization have increased growth opportunities, and new sectors such as infrastructure have opened to private investment.

28. The State's role as an investor now lies increasingly in social services and especially in human resources. Development of human resources provides excellent investment opportunities in terms of its contribution to sustainable economic growth. There is a strong positive association, for example, between school enrollment and average rates of growth. An educated population is the key to long-term growth and employment. In spite of this, education and training have been among the main targets for cuts in public expenditure in many developed countries.

29. The State's role has shifted from that of an investor to a promoter of private investments: even where a telecommunications network and service are provided by private companies, the government is expected to play a promotional and developmental role to facilitate and ensure the flow of investment funds to the sector. This role consists in research and development, pilot networks, purchasing policy, basic infrastructure, etc. Telecommunications is a good example of an industry that is a prerequisite for a modern network enterprise, and, at the same time, a business which itself requires developed infrastructure starting from the raw physical connectivity. A network enterprise is the actual unit of business operation, made up of different companies, or segments of companies, and of consultants and temporary workers attached to specific projects. The agents of the business project form, for each project, an enterprise that is defined by the task and the performance, not by its legal boundaries.

30. States allocate public funds also to the private sector's own investments, both in the national framework and international framework. Usually there is some conditionality involved in such funding, for example in the form of adjustment programmes.

31. At the national level, various investment incentives are tied to employment expansion: a grant or credit of a certain amount is provided for investments in businesses that commit themselves to increase net employment by an average of a certain number of full-time positions during a fiscal year. Although the short-term positive result is evident -- new jobs -- these types of incentives have been questioned. They are relevant if a company cannot otherwise afford an investment that would truly improve its performance.

32. It has been increasingly recognized that the capability of small and medium-sized enterprises to compete and survive is crucially affected by the quality of inter-firm and firm-institution networks in which they are embedded. Much policy attention is therefore directed at the needs of clusters of firms, rather than at individual firms. Firms may collaborate on such issues as product upgrading or training, and the initiative may come from the firms themselves, from a government agency, from a local training institution or, as with Garment Industry Development Corporation in New York, from a tripartite body. Such firm clusters are by their nature regional or subregional, and encouraging cluster development can aid local development, investment and employment.

33. At the international level, grants and credits are parts of adjustment programmes. The selection of instruments for promoting growth and employment is an important consideration in the design of adjustment programmes. Adjustment programmes have increased growth in some of the countries where they have been effectively implemented, but in many regions only the numbers of the poor continue to grow, even in countries with strong adjustment programmes. Adjustment policies have been criticized for not taking into account local circumstances and traditions: in Africa the programmes have often failed to pay attention to the fact that most people live in rural areas and are self-employed smallholders, and adjustment programmes that move the terms of trade in favour of the rural sector and focus on broad-based growth in agriculture consequently offer the most immediate opportunity for alleviating poverty and promoting economic growth.

Points for discussion

34. Points for discussion might include --

Targeting of investments

Areas of concern

35. The globally prevailing trend is away from labour-intensive production and towards capital-intensive production in almost all industries.

36. Technological advances have made it possible to develop technical solutions for various kinds of tasks that were formerly handled manually. The unpredictability of the economic context where many firms operate has made them more circumspect about employing workers.

37. The employment decision is similar to the investment decision for a firm, where it is desirable to hire a worker only when the net current value of the hiring decision is positive. A firm must compare the cost of investing in workers with that of investing in machines and equipment. In many cases, a worker is more flexible than a machine. Rising unit labour costs contribute to the erosion of competitiveness.

38. The key issue in the discussion on labour costs has been flexibility: employment security regulations affect labour-market flexibility; in general they reduce numerical flexibility, but promote functional flexibility.

39. The degree of employment security that firms are willing to provide depends partly on the extent of their existing investment in staff. The firm calculates that providing employment security will also increase the return on the firm's investments in labour force training and skills development, both specific and general. Consequently, low-skilled employees are more vulnerable in times of economic downturns in the business concerned and in the region.

40. In addition to labour laws and collective bargaining, tax laws also affect labour costs and employment. The taxation of labour is often heavier than that of capital. Employee and employer payroll taxes -- from which various social transfers are covered -- have been at the centre of the discussion on the relationship of taxation to employment creation. Payroll taxes raise the relative cost of labour, creating a disincentive for firms to create jobs. Moreover, as payroll taxes are not profit-based, they put pressure on firms during cyclical downturns.

41. High labour costs in developed countries have been cited as an argument for investing in labour-saving, capital-intensive technology and outsourcing to countries where production is less expensive. This has had an impact by raising structural unemployment, and the associated costs have added to the fiscal burden. This in turn has necessitated higher tax rates, which have further discouraged investment and, consequently, job creation.

42. Small and medium-sized enterprises account for a large share of employment, but for a much smaller share of investment. This is inevitable given that capital-intensive industries are likely to be large scale. However, many small and medium-sized enterprises need a higher level of investment in order to expand, to raise product quality and to compete more effectively. With greater investment, some of the inefficiency and waste generated by enterprise failure can be avoided, and with better-quality equipment workers with a higher skill level can be taken on, thus contributing to the development of a broad-based training culture in the economy. Small and medium-sized enterprises clearly suffer from a number of constraints on their expansion and potential for increased profitability, such as problems of marketing, purchasing and location, etc.

43. Employer payroll taxes are likely to affect small businesses differently than large businesses, for several reasons: payroll taxes constitute a much larger proportion of total taxes for small businesses; administrative costs are higher; smaller businesses tend to be labour-intensive and to hire more low-income, low- skilled employees; short-term market adjustment effects can have a heavier impact on cash flow for small businesses; and payroll taxes are not sensitive to profit.

Points for discussion

44. Points for discussion under section might include --

Location of investments

Areas of concern

45. Investment and production decisions are now made by companies on a global basis. Investors base decisions concerning capital expenditure on potential sales volumes, raw materials potential, proximity to clients, customers' demands, market and cost structures and the prevailing political and legal conditions.

46. Globalization offers investors in the international capital markets a wider range of investment opportunities, higher returns on savings and greater portfolio diversification. For the global economy as a whole, globalization promotes the more efficient allocation of resources worldwide and thus greater world growth, investment and employment.

47. Investments -- including foreign direct investment (FDI) which contributes directly to employment -- are distributed unevenly among the regions and countries. Countries and regions that are unable to participate in the expansion of world trade or to attract significant amounts of private investment run the risk of being left behind by the global economy. The countries and regions at greatest risk of being marginalized are precisely those most in need of the trade, investment and growth that globalization could bring.

48. Developing countries as a whole received 37 per cent of FDI inflows in 1997, compared to 17 per cent at the beginning of the decade. However, among developing countries, FDI inflows are concentrated in a small number of countries and regions. The main recipient regions are East Asia and the Pacific, Latin America and the Caribbean. Compared with other parts of the world, the overall volume of FDI in Africa remains low, and is thus a source of concern. Between 1991 and 1996, Africa attracted less than 5 per cent of total FDI flows to developing countries.

49. The reasons for lack of FDI are varied, and the relationship between them is not fully understood. In addition to economic, there are also political reasons, which are in turn related to other economic considerations. Political instability and lack of confidence in governments are regarded as the ostensible culprits. Investors may perceive that reforms have not yet been firmly rooted in a given country, or that private investment does not enjoy the full commitment of the government as an objective, and they are thus hesitant. Some observers allude to the fact that there is little by way of an organized private sector in such countries. Finally, the risks to foreign investors are relatively high, while the rewards are low.

50. Although the merits of globalization and foreign direct investment are recognized, globalization has also evoked fears. It has been argued that multinational enterprises have exported jobs from developed countries to developing countries through foreign investment and export production in special economic zones, and that through trade liberalization, governments have encouraged the replacement of domestically produced goods by goods produced abroad.

51. Special economic zones belong to the numerous incentives that governments use in order to attract foreign direct investment. Basically, a special economic zone -- giving free-trade status to exporters -- is a practical intermediate step for countries that cannot make the move to free trade quickly. Free trade zones (FTZs) and export processing zones (EPZs) are sites where foreign or domestic merchandise may enter without formal customs clearance or the payment of customs duties or government excise taxes. EPZs are dedicated to manufacturing for export, whereas FTZs also handle imports. But attitudes toward them vary considerably. Where they been successfully applied, as in East Asia, the schemes have made a big contribution to the success of manufactured exports. Furthermore, export success has led not only to economic growth but also to generating the momentum for trade liberalization. On the other hand, operators of special economic zones have been accused, inter alia, of violations of human rights.

52. For the governance of globalization, a great number of regional organizations aimed at ensuring economic integration have been formed. As regards regional integration, three trends are visible: Free trade areas develop into areas involving deeper economic integration. Either organizations are replaced with new ones, or new elements are added to existing organizations. Economic integration areas continue to enlarge, either by mergers of organizations or the admission of new members to existing organizations. Cooperation agreements between regional groups are increasing.

Points for discussion

53. Points for discussion under this section might include --

Funding of investments

Areas of concern

54. In most developing countries, both public and private savings rates are far too low to finance the targeted levels of investment.

55. Private capital has displaced official development finance as the main source of external financing for developing countries, accounting for 85 per cent of the total in 1997, compared to only 41 per cent in 1990. Between 1990 and 1997, disbursements by official aid agencies declined from nearly 60 per cent of net long-term resource flows to developing countries, representing a reduction of 15 per cent. There has also been a decline in absolute terms. This decline reflects better access to capital markets by an increasing number of developing countries as well as decreasing demand for official assistance in financing public sector investment, such as infrastructure projects.

56. However, private FDI flows are heavily concentrated on a narrow range of countries, sectors and borrowers: 75 per cent of net private capital flows go to a dozen countries, which include the largest developing countries. This leaves over 100 developing countries with little access to private financing. Even among countries that receive private capital, borrowing is limited to a small set of top-tier countries, and is mainly targeted at extractive industries, infrastructure and the financial sector.

57. This concentration suggests that multilateral development banks (MDBs) should play a more selective role in financing development in the 21st century, focusing on areas not adequately financed from other sources. This poses a dilemma for the MDBs, since the findings on aid effectiveness suggest that to achieve greater impact they must concentrate assistance on countries where policies and institutions are reasonably supportive of development. These are also likely to be the countries that are the most attractive to private investors. This raises the question of whether developing countries with good access to private finance should graduate from MDB borrowing. On the other hand, the point at which they should do so is likely to be difficult to define, as disparities in the level of development and access to financing can be as great within countries as between them: for example, there is a huge gulf between living standards in coastal China and those in the interior, or between Sγo Paolo and Manaus.

58. Demand for policy-based lending, which remains one of the World Bank's major capabilities, is likely to continue to fluctuate. The size of rescue packages has increased in recent years with each major crisis. With further liberalization might come even greater volatility. Thus, MDBs may retain a role as a lender of last resort to countries, even where their role in financing investment has ceased.

59. The structure of private financing of investments has changed radically in recent years. Traditionally, dealings between borrowers and savers occurred through banks and securities firms, with banks lending depositors' funds direct to firms, and securities firms providing the distribution of new issues of debt and equity to individual investors, pension funds, and insurance companies. Two notable trends have eroded this traditional view of financial intermediation.

60. First, from the supply side, non-bank financial institutions have been slowly challenging banks' traditional assets, by facilitating the securitization of finance and by offering financial services that have historically been provided almost exclusively by banks. Investment banks, securities firms, asset managers, mutual funds, insurance companies, specialty and trade finance companies, hedge funds and even telecommunications, software and food companies are starting to provide services not unlike those traditionally provided by banks.

61. Secondly, on the demand side, many households have bypassed bank deposits and securities firms in order to hold their funds with institutions better able to diversify risks, reduce tax burdens, and take advantage of economies of scale. The result has been a dramatic growth in the size and sophistication of institutions that specialize in investing money, increasingly on a global basis, on behalf of households.

62. Non-bank financial sectors in the major advanced economies are very large. In the G-7 countries, insurance companies, pension funds, investment companies and other non-bank institutional investors managed assets totalling more than US$ 20 thousand billion ($20,000,000,000,000) in 1995. To put this figure in perspective, this amounts to some 110 per cent of the GDP of all the G-7 countries; it is more than half the value of all bonds and equities outstanding in these countries; and it represents 90 per cent of all assets in the banking systems in those countries. International financial capital movements have expanded enormously under the combined impact of financial deregulation and innovation. For example, cross-border transactions in bonds and equities soared in major industrial countries, from less than 10 per cent of GDP in 1980 to between 150 and 250 per cent in 1995.

63. Although portfolio investments can make an important contribution to the financing of equity capital for local companies, concerns have been expressed by host countries, particularly regarding the volatility of these flows and their effect on exchange and interest rates. Tax policies have frequently supported the increasing share of portfolio investments.

64. The abundance of sources tempts companies to use outside equity sparingly. Investment levels are kept high, even when the profitability is relatively low.

65. Increasing the profitable investment of public-sector revenues has recently been under debate in many developed countries. The discussion has focused in particular on the funds of various social insurance programmes, especially social security funds. Traditionally, these funds have been placed only in areas regarded as safe investments, such as government securities, which are mainly long-term bonds. However, the funds could obtain a much higher return by investing the money in equities. There are, at least theoretically, also other options: governments -- or whoever is to decide -- could finance investments that have an employment- generating impact.

Points for discussion

66. Points for discussion under this section might include --

* * *

3. Youth employment
 

Summary

Young people often encounter difficulties in entering productive employment, and youth unemployment is chronic in many member States. With a few notable exceptions, throughout the world the rate of unemployment among young people is much higher than among adults. An overview of the problem is presented here. This is followed by a summary of recent ILO work on the question, which has identified a number of elements that might contribute to an effective response to the problem. Among these, attention should be paid to the overall economic and employment situation; youth employment policies need to be administered in an integrated framework which also takes into account educational policies; and programmes should be carefully targeted, and, in particular, more attention needs to be paid to the situation of those with lower levels of education and skills. In many countries there is also a dearth of adequate and up-to-date labour market information that would help in the design of policy and provide better information to young people themselves on available opportunities. Similarly, programmes are often implemented without adequate mechanisms for monitoring and evaluation, which is of fundamental importance in identifying which schemes work and why. Research has demonstrated that the involvement of employers' and workers' organizations in the design and implementation of policy and programmes improves their effectiveness.

Issues for discussion are suggested, including which types of programmes are appropriate in which circumstances; the question of sub-minimum wages for young people and whether young people may be paid lower training allowances in exchange for high-quality training from employers; which mechanisms are appropriate for the involvement of the social partners; the role of compulsory schooling; whether training should take place in schools or the workplace or both; the role of vocational guidance and counselling; the question of the quality, in addition to the quantity, of jobs for young people; the question of whether schemes should be compulsory; and the role of self-employment initiatives.


Background

67. Young people often encounter difficulties in entering productive employment and youth unemployment is chronic in many member States. With a few notable exceptions, throughout the world the rate of unemployment among young people is much higher than among adults. Recent ILO estimates suggest that at least 60 million young people are unemployed worldwide. These estimates also suggest that, on average, youth unemployment rates are three times as high as adult rates.

68. In OECD member countries, the unemployment rate of the 15-24 age group in 1996 was 13.6 per cent. This is more than twice as high as the comparable figure for adults which stood at 5.9 per cent. This means that more than 11 million young people are unemployed in OECD member countries.

69. In developing countries, figures are less widely available. However, existing data suggest that the gap between youth and adult unemployment rates is even wider than in industrialized countries. For example, in Indonesia the female youth unemployment rate in 1994 was 12.5 per cent, compared to 2.2 per cent for adults. The comparable figures for males were 11.9 per cent and 1.6 per cent respectively. Youth unemployment rates in Zimbabwe in 1993 stood at around 21 per cent for males and 11 per cent for females, compared to overall male and female unemployment rates of 9.5 and 4.5 per cent respectively. The female youth unemployment rate in Jamaica in 1995 stood at 43.9 per cent, and that for males at 25 per cent, while adult rates were 14.7 per cent for females and 5.5 per cent for males. Furthermore, in developing countries the problem of open youth unemployment is compounded by the existence of substantial levels of underemployment and poor-quality informal sector employment. The widespread existence of both phenomena suggests that the problem of the integration of young people into the labour market in developing countries is even more serious than is suggested by an examination of open unemployment rates.

70. In transition economies, youth unemployment also has a similar pattern. Given the substantial reductions in output in many transition economies, the problem is even more serious than in many industrialized countries. For example, despite a partial recovery of output, youth unemployment in Poland in 1997 was 24.7 per cent against an adult rate of 8 per cent. Similarly, in Hungary in 1997, the rate of unemployment for youths was 16 per cent against 7.5 per cent for adults. As a result of the process of rapid transition to a market economy, recent years have witnessed the emergence of sizeable groups of young persons who are detached from the economic mainstream in these countries.

71. The problem of youth unemployment and underemployment is a serious one. Although youth unemployment tends to be of shorter duration than adult unemployment, patterns of behaviour established early in life are likely to persist throughout a person's "working" life. Unemployment early in a career increases the likelihood of further and more prolonged spells of unemployment later in life and permanently affects employability. Similarly, underemployment and low-quality informal sector employment are likely to be self-reinforcing, condemning young people to a lifetime of insecure and poor-quality marginal employment. Lack of productive and freely chosen employment early in life is also associated with other social problems such as crime and drug abuse, which may become very hard to alter later in life.

72. The question also arises of which groups of young people are of special concern. The UN defines young people as those between 15 and 24 years old. However, the problems facing young people are not constant across the age group. In particular, the labour market experiences and problems of teenagers (15-19) are likely to be quite different from those facing young adults in the 20 to 24 age range.

73. Furthermore, a number of subgroups within the category of young people merit special attention. For example, young women experience either higher unemployment rates or have lower labour force participation rates than their male counterparts. Ethnic minorities also often face greater difficulties in entering productive employment, as do those with lower levels of education and skills. Many developing countries are confronted with the problem of the "educated unemployed". However, these represent a fairly small group in numerical terms. Taking into account levels of underemployment and poor-quality informal sector employment, the more serious problem lies with those poorly equipped to enter productive employment, particularly those with low levels of education and skills.

The international policy context

74. Many member States are concerned with the integration of young people into working life and the quality of the work they take up. From its very beginning, the ILO has adopted Conventions and Recommendations relevant to improving the lot of young people. The Night Work (Women) Convention, 1919 (No. 4), the Minimum Age (Industry) Convention, 1919 (No. 5), and the Night Work of Young Persons (Industry) Convention, 1919 (No. 6), contain provisions for the protection of working young people. More recently, attention has turned to the effective integration of young people into working life. Of relevance in this regard is the report to the 72nd International Labour Conference in 1986 and the subsequent resolution concerning young people.(13)  In 1996, the 83rd Session of the International Labour Conference adopted the Conclusions concerning the achievement of full employment in a global context: The responsibility of governments, employers and trade unions.(14)  These conclusions included the affirmation that countries should design and implement special measures to enhance the employability of vulnerable groups such as young workers. At the International Labour Conference in 1998, the ILO adopted a resolution concerning youth employment.(15)  The resolution calls on member States, and where appropriate, employers and workers and their respective organizations, inter alia:

The resolution also calls on the Governing Body of the International Labour Office to consider including, as soon as possible, an item for general discussion on the issue of youth employment on the agenda of the International Labour Conference.

75. Several initiatives have been launched recently that are of special relevance to the ILO's work on youth and employment. The first is the World Programme of Action for Youth to the Year 2000 and Beyond, which was adopted by the UN General Assembly in 1995. The implementation of this programme involves many parts of the UN and specialized agencies, including the ILO. At the first World Conference of Ministers Responsible for Youth, held under the auspices of the Portuguese Government in August 1998, the Lisbon Declaration on Youth Policies and Programmes was adopted. The Declaration recognizes, amongst other things, "the urgency of creating more and better jobs for young women and young men and the central role of youth employment in facilitating the transition from school to work, thereby reducing crime and drug abuse and ensuring participation and social cohesion". In the section on employment, signatories committed themselves, inter alia, to --

The Conference also declared 12 August as International Youth Day.

76. Commitment 3 of the Declaration adopted by the World Summit for Social Development in March 1995 also makes explicit reference to the problems of young people, stating that "special attention" should be given to "the problems of structural long-term unemployment and underemployment of youth".

77. In November 1997, at the Kobe Jobs Conference, the Chairperson's conclusions affirmed that "the promotion of youth employment through appropriate policies is crucial", and that "achieving a smooth transition from school to work is the key to addressing the youth employment problem". The Chairperson suggested that measures should include "the provision of work experience both at school and off the school curriculum, access to career information, counselling, [...] effective job placement and vocational training".(16) 

78. In November 1997, the European Commission adopted the 1998 guidelines for employment policy which state that "Member States will ensure that every unemployed young person is offered a new start before reaching six months of unemployment, in the form of training, retraining, work practice, a job or other employability measure". On 14 October 1998 new guidelines were adopted for 1999 in Brussels. These reiterated the commitment to offering placements to unemployed young people but also turned to the problem of young people with low levels of educational achievement. Thus the guidelines call on Member States --

In regard to the involvement of the social partners in youth policies, the 1999 guidelines also urge them to "conclude as soon as possible agreements with a view to increasing the possibilities for training, work experience, traineeships or other measures likely to promote employability". Many EU countries have introduced measures in accordance with the guidelines, either in response to or in anticipation of them.

79. The OECD has also undertaken several initiatives related to the question of youth and employment. At present, the OECD secretariat is in the process of completing the first stage of a "Thematic Review of the Transition from Initial Education to Working Life" which formed the basis of a conference in February 1999 in Washington as well as a high-level meeting on "The Problem of Youth and Employment" to be held later in 1999.

Action Programme on Youth Unemployment

80. During the 1996-97 biennium, the ILO undertook an Action Programme on Youth Unemployment. The principal objectives of the action programme were: (i) to raise awareness among constituents of the problems associated with the entry into the labour market of young people; (ii) to improve their understanding of the advantages and disadvantages of the principal policy and programme options for tackling the problem of youth unemployment; and thus (iii) to enhance the capacity of member States to design and implement policies and programmes for promoting youth employment both at the macroeconomic and micro-economic levels.

81. The action programme comprised a series of country case-studies as well as analyses of specific policy issues aimed principally at addressing questions concerned with the nature of youth unemployment and the effectiveness of different types of potential solution to this problem. On the basis of the action programme a series of studies looking at the experiences in different countries as well as studies of specific issues such as the role of minimum wages in determining youth unemployment have already been published.(17)  The principal output of the action programme, a detailed comparative report on national policies and experience, has been completed and will shortly be disseminated. This report addresses issues relevant to the promotion of the quantity and quality of youth employment.

Action Programme on Strategies to Combat Youth
Marginalization and Unemployment

82. The objective of this action programme, being implemented in the 1998-99 biennium, is to develop a coherent and systematic method of intervention for developing countries that can be adapted to national situations and integrated into employment policies in order to combat the social exclusion and unemployment of young people. The resulting ILO perspective on effective policies and programmes to combat the marginalization of youth will be set out in a practical strategy for use by constituents and the multidisciplinary advisory teams in the development of national programmes.

The causes of youth unemployment

83. ILO research has shown that, in most cases, while youth unemployment is almost everywhere significantly higher than adult unemployment, changes in youth unemployment are more or less proportionate to variations in adult unemployment.(18)  A second important issue regards the relative importance of different factors in causing youth unemployment. What role does the economic context play, and is this more important than other factors such as the size of the youth population and the level of wages paid to young people in relation to adult wage rates? A recent ILO study has shown that youth unemployment is principally related to the level and growth rates of aggregate demand, which outweigh the influence of the relative size of the youth population.(19)  Therefore, an adequate employment-intensive economic growth performance will significantly help in alleviating the problems associated with expanding youth populations. The study also found that the wages of young people relative to adults played little or no role in determining the level of youth unemployment. In addition to more formal evidence, this is demonstrated by the fact that in most OECD countries youth unemployment has continued to increase in the 1990s despite falls in the youth/adult relative wage in those countries.

Elements of an effective response

Economic conditions

84. The overall implication of the analysis of the causes of youth unemployment is that any policy for promoting youth employment should take into account the current state of the economy. Promoting youth employment should be part of an overall strategy of employment creation through the promotion of employment-intensive economic growth and the creation of an economic environment that encourages investment and business growth. Recent ILO reports have suggested that an investment-led strategy remains a viable option.(20) 

Wage policies

85. ILO research has found that the relative wages of young people had a relatively small (if any) role to play in determining youth unemployment. Similarly, there is little evidence that sub-minimum wages or the exemption of youth from statutory minimum wages would lead to improved employment. The negative effects of minimum wages on youth employment where they are found to exist are relatively small compared to other factors. Indeed, more recent studies have often found such effects to be non-existent or even positive.(21)  If one adds to this the positive role that higher wages play in increasing the quality of employment there are few grounds for promoting a policy of reducing the wages of young people as a means to combat youth unemployment. However, lowering the remuneration of young people while they are undergoing training may in some circumstances be justified and may promote the introduction of training by firms by splitting the cost among employers (where relevant), the State, and individuals.

Role of the social partners

86. Much research has shown that the effectiveness of youth employment policy may be enhanced when employers' and workers' organizations are effectively involved in its design and implementation. The involvement of employers' and workers' organizations would help identify the appropriate forms of training and employment programmes for job opportunities. It also means that these organizations are stakeholders in the whole process and are therefore committed to its success. For example, Germany has managed to maintain levels of youth unemployment, and in particular teenage unemployment, below those of their adult counterparts. One of the key features of the German system is the involvement of both employers' and workers' organizations in the development and implementation of youth employment policy.

Education and training systems

87. The key to resolving or relieving the youth unemployment problem lies in adopting policies which ease the transition from school to work. Some forms of education and training systems are more successful than others in easing this transition. In particular, countries which have adopted the dual form of apprenticeship training have much lower rates of youth unemployment in comparison to adult rates. Although, in the context of a general recession the education and training system is not in itself able to resolve the youth unemployment problem, the system of basic vocational education and training operating in a country clearly has a fundamental role to play in easing the transition from school to work.

Education and employment policy

88. In this regard, youth employment policies and programmes are likely to be more effective if they are integrated with educational policies. One step in this direction has been taken by some member States, for example in the United Kingdom, with the unification of the Department of Employment and the Department of Education and Science into the new Department for Employment and Education. This may help avoid the development of education and employment policies that are effectively in competition with each other. Moreover, the educational curriculum should, at least to some extent, take into account the vocational needs of young people. In a number of countries it has been suggested that educational policies are too theoretically oriented. School curricula should to some extent reflect the requirements of young people when they enter the labour market.

Integrating different employment programmes

89. Furthermore, within the realm of youth employment policy, efficiency may be enhanced if different programmes are integrated with each other. In many developing countries, there are numerous small-scale schemes and programmes for promoting youth employment. However, these programmes require careful coordination: often there are no real links between them. For example, it has been suggested that lower level prevocational programmes providing basic education should be linked to the more advanced vocational training schemes. This would ensure effective use of resources and encourage greater complementarity between programmes.

Training versus work experience

90. The relative usefulness of different types of policy measures, such as employment subsidies and training programmes will also depend on general economic performance. Vocational training programmes do not necessarily create post-programme employment opportunities. Employment subsidies and public works schemes may be equally successful in maintaining the labour market attachment of participants. However, these measures are less likely to inculcate in participants' unrealistic expectations of long-term job opportunities. On the other hand, it may be advantageous for firms to use periods of reduced demand to increase and upgrade the skills of its existing workforce so as to be ready for increased production when the economy does pick up. Government support for such skills development would help avoid lay-offs during recessions.

Targeting

91. Programmes should be carefully targeted for two reasons. First, on the grounds of efficiency: many studies have shown that more closely targeted programmes are more successful. Secondly, on the grounds of equity: particularly when there are clear cases of labour market surplus, social justice suggests that those young people who are most in need of help should be aided. The experience of most countries with youth employment programmes is that, very often, they have benefited principally those people who were already in a position to help themselves even without the aid of programmes. More attention might be given to those young people who are the least likely to succeed on the labour market without outside intervention.

Labour market information

92. Many developing countries also share the problem of lacking up-to-date and accurate labour market information. Better information on the labour market situation of different types of individuals would allow for more appropriate targeting of policies and programmes. Also, better information on the requirements of employers would aid in the design of vocational training and other programmes. Better labour market information may also help young people make informed choices concerning their working lives bringing their expectations more into line with the practical opportunities offered by the labour market.

Monitoring and evaluation

93. Monitoring and evaluation is a fundamental requirement for the effective implementation of policies and programmes for promoting youth employment. While monitoring and evaluation is fairly common in industrialized countries, in transition and especially developing economies relatively little attention is paid to this. Monitoring serves the basic function of ensuring that programmes are actually implemented as planned. Evaluation combined with monitoring can serve the purpose of refining programmes and identifying where and why programmes succeed or fail. It may be argued that such monitoring and evaluation should be built in at the programme design phase.

Policy issues for discussion

94. If selected as a topic for general discussion, the Conference may find it appropriate to discuss some of the following issues:

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4. Promotion of cooperatives
 

Summary

It is proposed that new standards concerning cooperatives should be developed. The Co-operatives (Developing Countries) Recommendation, 1966 (No. 127), concerning the role of cooperatives in the economic and social development of developing countries, is the only ILO standard addressing cooperative issues in a comprehensive manner. The political, economic and social conditions which prevailed at the time Recommendation No. 127 was adopted in 1966 have changed fundamentally. The new standards could embed these changes in the equally evolved cooperative principles and values. In particular, they could aim at promoting autonomous cooperative enterprises and limit state intervention. The scope of the new instruments should be universal, not confined only to developing countries, as new universally applicable standards in this area could enable self-help organizations to fully unfold their potential and thus help solve unemployment and social exclusion. The proposal traces the evolution of the cooperative movement in industrialized countries, former socialist countries and developing countries; outlines the new scope and universally applicable content that standards could have in this field; and concludes with a summary of the preparatory work already undertaken by the Office.


Background

95. Paragraph 12.1(a) of Recommendation No. 127 defines a cooperative as "... an association of persons who have voluntarily joined together to achieve a common end through the formation of a democratically controlled organization, making equitable contributions to the capital required and accepting a fair share of the risks and benefits of the undertaking in which the members actively participate". This definition is universally accepted. Cooperatives play an important role in the economic, social, cultural and political development of most countries. Cooperatives significantly contribute to national economies and societies. They promote self-employment and entrepreneurship, and indirectly secure employment in other types of enterprises which are buyers or suppliers of cooperative goods and services. Cooperatives are active in all branches of the economy and can be found among all professions. They are also concerned with the social well-being of their members, and that of non-members, by being active in the fields of housing, health care and care for the elderly, and in education, mainly at the primary level. These services are often provided for, on the initiative of, or in close collaboration with, employers' and workers' organizations which share these social and economic concerns with cooperatives.

96. Some 800 million people around the globe are members of cooperatives. A further 100 million people are employed by cooperatives without being members. If one adds to these figures the numbers of persons who are economically dependent on those involved in cooperative business, one realizes that a considerable proportion of the world's population satisfies its needs at least partly by or through cooperatives.

97. Despite these positive facts, it is felt that the self-help potential of cooperatives remains underutilized, even though economic and social challenges in many countries require the mobilization of all potential available.

98. Since the time of the adoption of Recommendation No. 127, political, economic and social changes have affected the situation of cooperatives throughout the world. While cooperatives seem to have a new role to play both in industrialized countries and in the former socialist countries, the focus of Recommendation No. 127 is limited to developing countries. New universal standards in this area could help enable cooperatives to develop more fully their self-help potential, placing them in a better position to meet a number of current socio-economic problems. It is therefore time to establish new international standards based on modern cooperative principles and values for the promotion of cooperatives.

99. As far as developing countries are concerned, Recommendation No. 127 mirrored the development concerns of the 1960s, especially in its approach to the role of governments and cooperatives in the development process. Today, development is not conceived as a process to imitate already industrialized countries, nor are cooperatives seen as a means in the hands of governments. In accordance with universally recognized cooperative principles, they are perceived as a means for their members to achieve their common goals.

100. In former socialist countries cooperatives were an integral part of the political system, a means of centralizing land use, employing agricultural labour and distributing consumer goods. The current privatization of the former socialist economies reaches beyond the land reform referred to in Recommendation No. 127: it involves the privatization of manufacturing facilities and service infrastructures, and involves the growth of worker-owned enterprises in all sectors of the economy. Some socialist-type cooperatives have been transformed into genuine cooperatives, while others have been bought out by individuals or by former members jointly. The ILO is receiving an increasing number of requests from developing countries and from countries in transition for assistance in cooperative organization, training and policy and legislative reform, since cooperatives have to assume an increasingly important role as a consequence of the liberalization and privatization of trade and services. The Office needs direction in the form of new standards to be able to respond to these requests.

101. In industrialized countries it is the changing structure of cooperatives and new forms of cooperatives that call for the application of new standards to this category of countries as well. The traditional structure of cooperatives is currently evolving to cope more effectively with competitive pressure from other forms of business organizations. On the other hand, the cooperative model of joint ownership and management is increasingly being used by employees to buy out their own enterprises in the transport, service and manufacturing sectors as a means of protecting and generating jobs in an era of continued downsizing resulting from globalization and technological change. At the same time, these workers increase their stakeholding in society.

102. In many countries, political, economic and social changes in general have put pressure on governments to limit their involvement in economic and social affairs. The core idea of structural adjustment programmes is a shift from public to private initiative, financing, management and responsibility. Subsequent monetary and fiscal stabilization programmes, institution building, privatization and liberalization require civil society to take a more active role in economic, social and political affairs. The State's role is increasingly limited to that of providing the political, legal and administrative framework for the development of private organizations, including cooperatives, which in turn strengthen democracy. There have been calls for new standards in this area from member States.

National law and practice

103. In a series of studies on "creating a favourable climate and conditions for cooperative development", the Office has documented national law and practice in different parts of the world outside the industrialized countries.(23) 

104. In developing countries, cooperatives have in the past been confined to geographical areas coinciding often with administrative and district boundaries. Membership has at times been compulsory to carry out economic activities and governments have intervened in the organization and management of cooperatives by convening general assemblies and board meetings, by seconding government staff to these bodies, by taking decisions on behalf of cooperatives, by supervising employees and even elected office-bearers, by replacing them with state commissions, by defining the objectives of cooperatives, by assigning tasks, by subjecting investment and surplus distribution to their approval, by freezing cooperative bank accounts, by having the control and promotional function exercised by a government service, by creating and running secondary and tertiary cooperative organizations, by merging, dividing and dissolving cooperatives and by settling disputes without allowing appeals to ordinary courts of justice. On the other hand, governments have tended to grant to cooperatives tax privileges and easy access to credit. In general, and in accordance with the current spirit of Recommendation No. 127, cooperatives have been used as agents of government development offices, to organize production, to administer land reforms and to manage irrigation and credit schemes.

105. In the former socialist countries, there was no clear distinction between the private and public sector in economic affairs. Accordingly, cooperatives were then organized as part of the state economic and administrative structure. They were used as an instrument to implement state economic plans and in an effort to create a socialist society.

106. In industrialized countries, cooperatives exist in large numbers and are fully integrated into the private sector, where they have gained considerable market shares in agricultural marketing and supply, financial services, consumer goods distribution, housing, etc. Moreover, cooperatives play, in partnership with all social partners, a significant role in the provision of social services. In an environment characterized by increased competition and globalization, cooperatives are enhancing their competitive edge by laying more emphasis on the fundamental values of cooperation, such as concern for community and the environment. Many small and medium-sized enterprises operating in the same economic sector are establishing cooperative networks in order to generate economies of scale without losing their independence. In this way they utilize the cooperative concept as an attractive alternative to franchising and market concentration. Nevertheless, the search by cooperatives for increased competitiveness, mainly through mergers and acquisitions, by changes in capital structure and by adopting management styles common to stock companies, has in many cases jeopardized the character of cooperatives as member-managed business enterprises.

ILO standards and practice

107. The only comprehensive international standard on cooperatives is Recommendation No. 127. Also of relevance are the Rural Workers' Organisations Convention, 1975 (No. 141), and Recommendation (No. 149); the Employment Policy Recommendation, 1984 (No. 169); and the Indigenous and Tribal Peoples Convention, 1989 (No. 169). These standards give examples of how specific groups may organize, including in the form of a cooperative, to what ends cooperatives may be used by their members, or they emphasize that groups living according to cultural traits which are not the ones of the majority of society should be protected in their way of organizing self-help associations, including cooperatives.

108. The ILO recognizes the importance of cooperatives in article 12 of its Constitution, which provides for consultation with cooperators -- besides employers and workers -- through their recognized international organizations. In accordance with this provision, the ILO has promoted the development of cooperatives, mainly through technical assistance and information, and has advised governments, and workers' and employers' organizations, on their role in this area. It has the largest programme of technical cooperation within the UN system for this purpose.

Purpose of new standards

109. The main purpose of new standards would be to elaborate standards of universal scope and to promote cooperative principles worldwide as a means of empowering civil society to reach social and economic goals through self-help. At a time when the changing role of governments coincides with the globalization of capital and the increasing internationalization of enterprises, it is necessary to reinstate the role of the individual in decision-making. Cooperatives serve as a model of enterprise which is member-centred, oriented towards members' needs and has a specific mechanism for the distribution of surplus. Furthermore, the purpose of the new standards would be to focus on the autonomy of cooperative enterprises and to limit state intervention.

Contents of new standards

110. The new standards should have universal scope, since the consequences of economic, political and social changes have a bearing on all countries. For example, a common concern shared by all countries is the declining capacity to create formal wage and salary employment and to prevent social exclusion. In developing countries, structural adjustment has continued to have a negative impact on unskilled workers and low-income groups. In many instances, social exclusion and poverty have accelerated. In economies in transition, the process of privatization combined with the lack of social safety nets has been accompanied by rising unemployment, lower incomes and lower social standards. In industrialized countries, slower economic growth combined with a shift towards the technologically advanced service industries, has resulted in growing economic and social exclusion, mainly among lower skilled workers in traditional industries.

111. The new standards, besides addressing governments and workers' and employers' organizations, could also address cooperatives, their unions and federations. The reference to the social partners is to emphasize their interest and responsibility for the promotion of cooperatives, while the inclusion of the cooperatives with their vertical structures is to underline their own responsibility. This responsibility includes the financing and management of their own support services, including audit and control, management training and membership education. This would better reflect the very nature of cooperatives as autonomous organizations.

112. The new standards should espouse the cooperative principles of:

113. The new standards could also place emphasis on the necessary complementarity between cooperative principles, cooperative law, and corresponding structures. Thus, for example, cooperative development presupposes an adequate administrative, banking, insurance and judicial structure and support from professional organizations. The new standards should strengthen the autonomy of cooperatives and address areas of common concern to the State and to cooperatives. The role of the government should be limited to legislation, registration, deregistration and enforcement. The management, autonomy and business viability of cooperatives have often been hampered by their being forced to join general development programmes for which they do not have the financial or human resources. Cooperatives should be allowed to develop their self-sufficiency and undertake obligations as decided by their members only. Larger goals with regard to general economic and social policy, as incorporated in Recommendation No. 127, would not be included in new standards, and all forms of discrimination against or in favour of cooperatives should be excluded. Therefore, they should be obliged to compete on an equal footing with any other form of private enterprise. A distinction could be made between different types of cooperatives to include organized structures governed by the defined cooperative principles and other non-organized structures based on solidarity.

114. The importance of cooperative law for the development of cooperatives could be stressed. A distinction between the matters to be included in the law and those that may be regulated by administrative bodies could be added. Beyond any kind of separation of powers on which a political system may be based, it is important to cover basic cooperative matters by law in order to protect them from frequent political changes. Furthermore, law and administrative regulations could allow substantial issues to be regulated by cooperative members through their by-laws or statutes as an expression of their autonomy.

115. The specification of the basic issues that any cooperative law must address contained in Recommendation No. 127 could be broadened in a way that brings out the distinctive features of cooperatives as opposed to other forms of business organizations and enterprises. This concerns management, inter alia, and hence management qualifications, capital structure, the role of capital, democratic decision-making -- regardless of the size of the cooperative, and the rights and obligations of cooperative unions and federations. In this way the attention of legislators can be drawn to the need to reflect the specificities of cooperative law in other forms of legislation such as taxation, competition and labour law.

116. The new standards could embody a wider concept of cooperative human resource development and take account of the need for greater involvement of cooperative movements in planning, implementing and monitoring training programmes. Education and training could be directed towards business efficiency and skills and knowledge of cooperative principles in order to preserve cooperative identity.

117. The new standards would change the approach to governmental financial assistance, which has frequently encouraged government control of cooperatives. At the time of the adoption of Recommendation No. 127, governments were expected to exercise a predominant role in the channelling of national and international financial support to cooperatives. Today, structural adjustment programmes have led to a reduction of public financial assistance and subsidies. Cooperatives are therefore intensifying their efforts to mobilize and manage their own credit and savings schemes and their own commercial relations with other cooperatives in the free market economy -- both domestically and internationally -- and to set up a system for the mutual exchange of technical cooperation through cooperative networks. Financial support should be restricted to indirect measures, such as participation in credit guarantee funds.

118. The new standards could take into consideration the self-auditing capacity of the cooperative movements. The establishment of sound auditing practices could be advocated and supported.

119. The new standards could encourage cooperative movements and academic institutions to support research on cooperative issues and make the results known through new information technologies. The collection of reliable and standardized statistical data is also essential.

120. Finally, past experience with Recommendation No. 127 suggests ways through which the ILO would be able to monitor the implementation of new standards. The experts attending the Meeting of Experts on Cooperative Law in 1995 were of the opinion that a body should be established to foster the rights of freedom of association for cooperative members.(24) 

Nature of new standards

121. The experts attending the ILO meetings on cooperatives in 1993 and 1995 were not unanimous as to whether a Recommendation or a Convention would be the appropriate instrument. The adoption of a Convention, possibly supplemented by a Recommendation, was considered in order to give binding force to the updated basic cooperative principles. It was suggested by others, however, that the new standards envisaged should take the form of a Recommendation. In the latter event, it is suggested that a new comprehensive Recommendation should be adopted rather than a partial revision of Recommendation No. 127. Not only is a partial revision more difficult because the coherence of the existing standard would be difficult to maintain, but more importantly, the proposed new standards are intended to express a change in basic logic.

Preparatory work

122. The ILO held a Meeting of Experts on Cooperatives in 1993 whose agenda included an item concerning an assessment of the impact of Recommendation No. 127, for which a resource paper was prepared.(25)  This Meeting was followed by the Meeting of Experts on Cooperative Law in 1995, mentioned above, during which this was further discussed. The Office issued a number of working papers in conjunction with the two meetings. These include a series on factors leading to a favourable climate for cooperative development in Africa (1993), Asia (1994), Latin America (1996) and Central and Eastern Europe (1996); a report on the relationship between the State and cooperatives in cooperative legislation (1993); structural changes in cooperative movements and consequences for cooperative legislation in different regions of the world (1993); a review of the impact of Recommendation No. 127 (1993); a report on the impact of labour law and industrial relations on cooperative law (1995); a report on cooperative law and the regulatory role of the State (1995); a report on cooperative structure and competition law (1994); and studies on labour law and cooperatives (1995).

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5. New trends in prevention and resolution
of labour disputes
 

Summary

A general discussion is proposed on the subject of alternative forms of labour conflict resolution with a view to guiding future initiatives and programmes on the prevention and settlement of labour disputes as the cornerstone of sound industrial relations and in creating the proper climate for economic growth and social progress. The present proposals take off from the previous proposals under the heading "The settlement of labour disputes" which have been revised and updated.

The importance of preventing, minimizing and resolving labour conflicts in a globalized economy and the transition to a market economy in many countries marked by intense competition, financial turmoil and social inequalities appears to be more widely recognized. As now formulated, the proposals have duly taken into account the major trends and developments on the subject in the age of globalization, reflecting the emphasis being given to prevention, the application of various alternative forms of conflict resolution, and the reinvention of traditional systems and methods in the context of the differences in legal systems, customs, culture and traditions prevailing in each country. The emergence of new and innovative tools, strategies, techniques and models to negotiation, conflict resolution and joint problem-solving, including various proactive and creative measures and programmes to guide the parties from a relationship of antagonism to one that is based on reconciliation, teamwork and cooperation, have been noted.

A central concern is the need for reforms in labour law and procedures and the introduction and strengthening of systems and mechanisms which ensure easy accessibility, efficiency, fairness and the trust and confidence of the parties. The need for training, information-sharing, studies and research on best practices and their wide diffusion and adaptation in various countries have also been emphasized. The proposals consist of a brief explanation of concepts, prevailing practices and new developments under the following sub-topics: categories of disputes, prevention of disputes, procedures for the settlement of disputes (conciliation, mediation, arbitration, adjudication and alternative dispute resolution), industrial action, international labour standards, and the prospects for general discussion. Some issues are raised under the various sub-topics. The last paragraph suggests the main points which can be discussed in the consideration of these proposals.


123. The proposals on this subject under the original title of "The settlement of labour disputes" as presented to the Governing Body at its 261st, 262nd, 267th, 268th and 273rd Sessions have been duly modified and updated, in line with the request of the Governing Body for more detailed and updated proposals which should be submitted to it at its succeeding session. The proposals are being submitted with a view to a possible general discussion.

124. The new workplace and economic environment in a globalized economy and the transition to a market economy in many countries have had far-reaching effects on labour-management relations in general and on the level and nature of disputes as well as the way they are managed in particular. Many countries are experiencing a decline in the number of labour disputes and strikes, which can, however, turn out to be more adversarial, complex, lengthy and intractable. In others, the incidence of labour disputes is becoming more manageable and usually accompanied by important inroads to make labour-management relations more collaborative and cooperative. Labour disputes occur at national and local levels in both unionized and non-unionized sectors of the economy involving issues which range from the traditional subjects of wages, fringe benefits and termination of employment to new ones such as mass lay-offs and job security arising from deregulation, downsizing, mergers, relocation, restructuring and bankruptcies.

125. The effective prevention and settlement of labour disputes remains a cornerstone of sound labour relations and in creating the proper climate for economic growth, efficiency and equity, since labour disputes and conflicts are inherent under all labour relations systems. It is essential in this regard to establish and maintain appropriate mechanisms to prevent and settle labour disputes. It is important to note, however, that the incidence and nature of labour disputes and how they are handled, actually vary from country to country based on the particular legal system, culture, tradition and other related factors. In the face of the divergent models of procedures, systems and practices that exist in various countries, what can ultimately be important is the recognition of the need to study and to understand labour disputes and their underlying causes under various conditions and consequently prevent, minimize and settle them as promptly and as fairly as possible.

126. The need to establish, improve and strengthen systems and procedures for the prevention and settlement of disputes with the participation of the social partners is generally recognized. The aim is to ensure that systems and procedures that are efficient, accessible and enjoy the trust and confidence of the parties are in place. The role of dispute settlement institutions and the traditional methods employed in the past are, however, being challenged to adjust to the changed situation and new realities. More than simply reacting by settling disputes as they arise, the new expectations include, for example, the ability to guide the parties from a relationship of antagonism to a relationship of reconciliation, teamwork and cooperation and to take into account a variety of key considerations such as making collective bargaining work, genuine negotiations and communication, consensus decision-making and team-building, profitability, competitiveness and stability of the enterprise and productivity and job security.

127. While collective bargaining, conciliation, mediation, arbitration and adjudication continue to be the principal methods of dispute settlement, new and innovative tools, techniques and models to negotiation, conflict resolution and joint problem-solving are now being developed, studied and applied. The current methods for resolving disputes range from the traditional means characterized by the "firefighter" or "crisis" approach which are generally on the decline, to new more proactive and creative approaches. Some of the important developments include the emphasis being given recently to the prevention of labour disputes through various new approaches such as the application of "win-win" and "mutual gains" negotiation techniques (for example in the United States) together with various forms of alternative dispute resolution (ADR). Many countries are engaged in major debates regarding the future of the dispute resolution system (as in Australia), a continuing reassessment of the existing traditional structures and approaches (as in the United States), and labour law reforms (as in Asia and Central and Eastern Europe).

128. An overall review and assessment of existing systems, methods, laws and practices, including new and innovative strategies and techniques, the prevention and settlement of both collective and individual labour disputes including in-depth studies, collection, diffusion and exchange of information on best practices, appears to be long overdue. A general discussion of the subject could represent a major step in that direction.

129. These proposals contain a brief explanation of concepts, prevailing practices, new developments and issues on various aspects of resolution under the following sub-topics: categories of disputes, prevention of disputes, procedures for the settlement of disputes (conciliation and mediation, arbitration, adjudication and alternative dispute resolution), industrial action, international labour standards, and the prospects for general discussion.

Categories of disputes

130. Most countries have made a distinction between several types of labour disputes, and have established separate procedures for dealing with them. Such a distinction usually reflects the particular historical development of each country's labour relations system. Classifying the wide variety of labour disputes from a global viewpoint can therefore be difficult. In general, labour disputes arise from disagreements as to the terms of collective agreements, alleged violations and erroneous interpretation of laws, regulations or agreements, grievances, unfair labour practices, and union recognition. Currently, some of the most common and often difficult labour disputes relate to issues of wages, fringe benefits, termination of employment and job security. There are suggestions that the common definitions of labour disputes may no longer be adequate and that a broad working definition may be needed as the boundary lines between the common categories of labour disputes may have already changed in many countries.

131. The two most generally applied distinctions of labour disputes are between rights disputes and interest disputes, and between individual and collective disputes. The distinction between disputes over rights and disputes over interests characterizes the dispute settlement machinery of many countries. Disputes over rights arise over the application or interpretation of an existing provision in a contract of employment, a collective agreement or legislation while disputes over interests relate to the establishment or modification of rights or obligations, primarily in the context of collective bargaining and as a result of the failure of the parties to reach an agreement on conditions of employment. A distinction is often made between individual and collective disputes with respect to rights disputes, whereas interest disputes are generally only collective. An individual dispute typically involves the interpretation of an individual contract of employment or legislation concerning employment. Collective rights disputes include those arising over the interpretation or alleged violation of the procedural provisions of collective agreements (e.g. those providing for peace obligation during the life of a collective agreement) and of legislation (e.g. provisions concerning representative bodies of workers within undertakings).

132. The distinction between various types of disputes is far from universal, and even where it is made it is often blurred. Thus, the distinction is of very limited relevance in the United Kingdom, where the processes for making and interpreting rules in collective bargaining are so intricately intertwined that a dispute about "rights" can easily be turned into a dispute about "interests". Many countries in Asia and Africa that have inherited from the United Kingdom the broad concept of the "trade dispute" or the "industrial dispute" covering all forms of labour disputes still rely on dispute procedures that basically cover both interest disputes and rights disputes. Some of these countries however have attempted to introduce such a distinction with more or less success (e.g. Bangladesh and Pakistan in 1969) while some others have set up special procedures for dealing with individual disputes over termination of employment (e.g. in Sri Lanka since 1957 and Malaysia since 1969). In other countries, such as France and French-speaking African countries, the basic distinction is between individual disputes involving rights issues and collective disputes covering both interest and rights issues. In many developing countries, various restrictions imposed on the exercise of the right to strike tend to diminish the significance of a distinction between interest disputes and rights disputes, considering that the possibility of industrial action is normally taken into account under the procedures for the settlement of interest disputes, in contrast with those for rights disputes.

133. Other types of labour disputes are subject to special procedures for their settlement in many countries. These include disputes over trade union recognition and disputes over "unfair labour practices", e.g. disputes related to the exercise of trade union rights. In most Western European countries, and in a number of developing countries, trade union recognition does not give rise to serious problems, primarily because employers voluntarily recognize the bargaining authority of unions, or recognition is mandated by law. In some other countries, however, unions' claims for recognition can meet particularly strong resistance from employers, often resulting in bitter and protracted conflicts. For this reason, legislation has been adopted in some countries to place the questions of trade union recognition and trade union multiplicity under far more detailed regulation. The basic principle underlying the United States and Canadian systems of recognition is that the union selected by the majority of the workers in a given bargaining unit shall be the exclusive representative for all the workers in the unit and shall be so recognized by the employer. This approach has influenced the systems of a number of developing countries particularly in Asia and the Caribbean.

134. A number of countries have also established special procedures for settling unfair labour practices. Although definitions vary, unfair labour practices usually relate to the exercise of trade union rights or disputes arising from alleged acts of anti-union discrimination in respect of employment. In some countries, they also cover other forms of discrimination (e.g. South Africa) as well as an employer's refusal to negotiate or to bargain in good faith including certain actions by unions vis-ΰ-vis employers and the union's failure to represent workers fairly. In the United States, a special administrative agency is entrusted with the task of resolving such disputes while in other countries, such as Japan and Canada, specialized quasi-judicial bodies deal with these disputes.