Informal technical Consultations on Policy Coherence
Consultations held in Geneva from 2-3 November 2004 to discuss recommendations of the World Commission on the Social Dimension of Globalization in order to launch a series of policy coherence initiatives on the subject of growth, investment and employment.
Informal Technical Consultations on Policy Coherence,
Geneva, 2-3 November 2004
1. These consultations were a follow-up to the exploratory meeting held on the 26th of May to discuss the recommendation of the World Commission on the Social Dimension of Globalization that organizations within the multilateral system should launch a series of Policy Coherence Initiatives (PCI) to achieve greater policy coherence. The Commission had recommended that the first of such initiatives should be on ‘Growth, Investment, and Employment’ and the May meeting was designed to examine the merits of this recommendation. Although there was no agreement to proceed with the recommendation as formulated by the Commission, there was nevertheless ‘agreement that employment issues needed to be addressed and that there were a number of aspects on which further analysis was required.’ It was also acknowledged that in view of the inherent synergies between them, a coherent approach towards labour market institutions, social expenditures, the investment climate and economic performance was desirable. A thematic framework for exploring this issue that appealed to most participants was ‘Enhancing the Employment Impact of Globalization’. There was also ‘agreement that these ideas would be examined in greater depth by the relevant technical departments in each agency’ and that ‘this would provide a substantive basis for follow-up directed at agreeing core issues to be addressed.’ It was also understood that once these issues were agreed upon further work would be based on in-depth research and the discussion of the outputs of this research.
2. The present meeting was convened on the basis of this broad understanding and was designed as a substantive technical discussion to identify key areas for future collaborative work, without implying any commitment to the Policy Coherence Initiative (PCI). Participating agencies1 had been invited to prepare papers in advance of the meeting to facilitate this discussion, and IFAD, the World Bank and the ILO did so.
3. The paper by IFAD focussed on rural poverty reduction and accelerating rural development by creating conditions in which poor rural producers could increase their productivity, incomes, and output. It noted that as a result of liberalization and globalization they were now exposed to greater volatility in both domestic and international prices. Hence policy coherence at both the national and international level was now becoming more and more important. It then highlighted the changes required in national and international policies to improve productivity and incomes in the rural sector. This recognized the importance of promoting employment in the rural and informal sectors.
4. The World Bank note described its research and policy work on growth and employment. This consisted of work in four broad areas:
- Core labour standards; labour market institutions; social protection; and skills development;
- Promoting employment creation through economic growth;
- The employment elasticity of economic growth;
- And, the inequality impact of growth.
5. The ILO paper argued that that high unemployment and underemployment remained serious problems in many parts of the world and that globalization had given rise to new stresses in labour markets. It stated that there had been no discernible improvement in the global employment situation over the past two decades of globalization. In view of this the current benign neglect of the employment objective in international and national policies had to be redressed. If the employment objective were given more serious attention there were reasons to presume that significant improvements could be achieved over the current situation. It then outlined a number of inter-related problem areas that deserved closer attention from this perspective. These were:
- Global Growth;
- The external environment of developing country growth;
- Constraints on macroeconomic policies in developing countries;
- The informal and rural economy;
- Labour market policies;
- And, social security and social protection.
6. The discussion revealed differing views on some key points that had been made in the ILO paper. The representative of DESA supported the case for greater policy coherence. The representative of UNCTAD highlighted several key problems of current international policy that hampered growth, investment, and employment creation. The expert nominated by the ILO’s Workers’ group stressed the importance of striving for greater policy coherence, urging the participating agencies to break away from a narrow focus on their own mandates and to begin a process of dialogue.
7. Others, however, had doubts over the desirability or feasibility of achieving greater coherence in international policies. While acknowledging that better coordination of policies was desirable the IMF representative argued that pushing for coherence through a PCI was not the answer. The issues involved were not at all straightforward; even academic opinion was seriously divided. As such there was a need for different views and analyses. A World Bank representative cautioned that neither the mandate nor the resources were present to undertake the mammoth effort of coordination implied by the PCI. The expert nominated by the ILO’s Employers’ group felt that policy coordination was not feasible and that it would be better for each organization to stick to its own comparative advantage.
8. There was also a lively debate over whether it was indeed true that the global employment situation had shown little improvement over the past two decades of globalization. The IMF representative stated that there were many cases of successful employment performance. The World Bank representative said that the available data showed that the global employment performance had improved during the past two decades. The IFAD representative noted that economic growth has had different impacts on employment creation and poverty reduction across countries and that these diverse experiences included a significant number of success stories. There was broad agreement that these different perceptions of what the global employment performance has been should be resolved through a re-examination of the data.
9. The statement that insufficient attention was being given to the employment objective in the formulation of international policies also provoked a lively exchange. The representative of DESA agreed with this position and felt that it was worth examining whether current policies were really consistent with the employment objective. However, the IMF representative said that his organization did have a strong concern for employment issues. All its work – crisis prevention, crisis resolution, surveillance – helped to enhance employment and social outcomes, since a crucial prerequisite for high employment levels is the safeguarding of financial stability. Discussions in the IMFC often dealt with the need to improve longer-run structural policies and labour market institutions in order to increase employment. Similarly, a World Bank representative stated that his organization recognized that employment was necessary, though not sufficient, for achieving the overriding goal of poverty reduction. He also pointed out that the Bank was undertaking a substantial amount of work on employment even though this was not reflected in its public rhetoric.
10. There was also a divergence of views on the scope of any possible collaborative work on employment. Several ILO representatives argued that it was important to deal with the broad range of international and national policy issues set out in their paper in order to have a significant impact on employment. The representatives of DESA, UNCTAD and IFAD were broadly supportive of this position. However, the IMF representative reiterated his institution’s position that macroeconomic issues should not be included except when limited to certain aspect of counter-cyclical policy such as the role of social protection system as an automatic stabilizer. He felt that the primary focus of any future work on employment should be on labour market institutions, especially how they should be adapted to face the challenges that follow from globalization. The employer expert agreed, noting that talk of macroeconomic policy was often just a ploy for dodging the difficult challenges of structural adjustment.
11. In spite of these differences, there was general interest in several important aspects of the employment issue that emerged during the discussion. Aside from the different views of employment performance in the global economy over the past two decades, everyone acknowledged that there were serious employment and labour market problems that had to be faced. Similarly, everyone recognized that employment performance had varied across countries and that it was important to derive policy lessons from these contrasting experiences. In this context there was particular interest in the issue of what determined the variations in the relationship between growth and employment creation across countries and over time.
12. There was also an extensive discussion of various aspects of labour market policy. There was general agreement on the importance of labour market policies and institutions in promoting growth and employment and in providing social protection in the face of globalization. In this context there was also general acknowledgement that there were serious gaps in the knowledge base required for designing labour market reforms in developing countries. Similarly, everyone agreed on the importance of more effective policies for employment promotion in the rural and informal sectors.
13. In the concluding session an ILO representative recognized the difference of views on some important issues but nonetheless felt that there remained ample ground for a useful further round of discussion. He noted, however, that such a discussion had to be based on papers that presented rigorous analyses and empirical evidence. He proposed that papers could be prepared on two themes on which there had been widespread interest during the meeting, acknowledging that views on them diverged. These were: -
i. The Relationship between Growth and Employment
This relationship is central to employment outcomes but has not been systematically analysed in recent times. It has varied across economic sectors within countries and between countries as well as over time. The ways in which this relationship between growth and employment has been affected by various aspects of globalization is still poorly understood. There is much that could be usefully learnt about the policy and institutional determinants of the differential impact of growth on employment. The paper would also provide a means for undertaking a thorough examination of the empirical evidence on the relationship between growth and employment in the context of globalization.
ii. Labour market institutions and policies and employment performance
This would zero in on a key aspect of how to enhance the employment benefits of globalization while coping with associated problems of labour market adjustment. There is a huge knowledge gap on what labour market policies and institutions would work best in developing countries, both from the standpoint of maximizing their contribution to growth and employment creation as well as to providing essential levels of social protection. The paper would focus on developing countries and would also address issues related to the rural and informal economies.
14. There was broad support for this proposal. An ILO representative felt that dealing with both issues made it possible to cover concerns of all participating agencies. The representative of IFAD supported the proposal and noted that both studies were complementary. He also suggested that the issue of remittances should be addressed given its importance for the rural and informal economies. The representative of the IMF and the employer expert considered that the first paper should not cover issues of macroeconomic policy and that any future work should concentrate on labour market policies and institutions. However, views were divided. The representative of UNCTAD felt that the growth and employment nexus was an important one and that there should be a focus on the role of public and private investment. The representative of DESA also supported the proposal and felt that the growth and employment relationship could be studied without infringing on IMF core concerns. The World Bank representatives were also supportive of the proposed papers but made it clear that this did not necessarily imply any commitment to engage in joint work. They proposed that there should be a process of sharing the preliminary results of on-going research work in these areas and that there should be a meeting to do this in March 2005.
15. The ILO undertook to circulate draft outlines of the two papers for consideration by participating agencies. Once the outlines were agreed, the ILO would take the initiative to prepare the papers for substantive discussion in Spring 2005. There might be contributions by other organizations to these papers, or additional papers drawing on the work of other participating organizations, the details of this to be worked out in the course of the work.
1 List of participants is annexed.