Global Policy Forum

By Larry Elliot

A subtle shift has occurred in the lexicon of globalisation over the past 12 months. Prior to Seattle, it was assumed that there was an inexorable logic to the process and that, despite the objections, the market supremacist model would benefit rich and poor alike. This line of argument was, of course, particularly attractive to those doing rather well out of globalisation, which - surprise, surprise - just happened to be the wealthy and the powerful. In other words, the same people who had done rather well out of the policies favoured by right-wing governments in the 1980s and 1990s and could not see why people were making such a big fuss about mass unemployment and rising inequality.

Since Seattle, the mood has changed. Globalisation is no longer viewed as a force of nature, rather like the weather, but something that can and must be shaped by human endeavour and ingenuity. It has been recognised that there are inherent problems in a system where capital calls all the shots and has total freedom of movement, while labour is voiceless and has to stay where it is.

The release of the British government's White Paper on globalisation earlier this month is a step in the right direction, as is its title - Eliminating World Poverty: Making Globalisation Work for the Poor. Clare Short, the British international development secretary, rightly says in the foreword: "Cynicism and negativism are the enemies of progress. It is when people see that progress is possible that the demand for reform and advance is energised."

Making globalisation people-friendly requires two things - a closing of the yawning democratic deficit and a rebalancing of the lopsided relationship between labour and capital. One proposal is that any future trade deals should contain a commitment to abiding by core labour standards, with sanctions against those countries that breached the global code. Unsurprisingly, poor countries are extremely hostile to this idea, seeing it as a back door form of protectionism, which it is. As Ajit Singh and Ann Zammit argue in a paper written for the South Centre - an intergovernmental organisation of developing countries - there is a better way.

The paper's argument is fairly straightforward. Labour standards improved in the West as countries became richer not because draconian conditions were imposed on them from outside. The main factor preventing labour standards from improving in the developing world is poverty and economic hardship, not the wickedness of governments. Moreover, it says that "adopting measures which are tantamount to forcing compliance with ILO [International Labour Organisation] core labour standards will not achieve the declared objective of raising labour standards in the South. Indeed, this would be quite the wrong way to go about achieving improved labour standards, both core and otherwise, in developing countries."

Even so, there may be some in the North who would say that workers in developed countries deserve to be protected, whether labour standards improve in the developing world or not. In fact, there is not much evidence that this would happen even if goods from developing countries were priced out of Western markets. Why? Because the most severe competition for advanced countries comes from the small number of newly industrialising countries whose productivity growth rate is much faster than that of advanced countries, not from those countries that would become the targets of trade sanctions.

Singh and Zammit say that in recent years there has actually been greater slippage in labour standards in the North than in the South. But they argue that the main cause of this malaise "lies in the current processes of economic globalisation, which emphasise free trade, free movement of capital, and labour market flexibility within national economies. Most analysts will agree that the last two characteristics disadvantage labour, North and South, and favour capital."

This is not the perception in the North, particularly in those industries, such as textiles, which are threatened with extinction by cheap imports. The lack of Western-style labour standards is seen as leading to greater import penetration, undermining efforts by Northern trade unions to improve the terms and conditions of work and providing incentives to shift production to the South. But while exports from developing countries have been growing rapidly, most manufacturing trade of the advanced countries takes place between these countries themselves and only a small fraction - 1,5% excluding China - is with developing countries.

In the circumstances, Singh and Zammit say it is difficult to argue that this has been the cause of huge shifts in income inequality and mass unemployment in the West, particularly since the rapid growth of Japanese exports to the developed world in the 1950s and 1960s (when Japan was essentially a developing country) was accompanied by full employment and rising real wages in the United States and Europe. The main difference between then and the more recent period is the fact that in the earlier period advanced economies were growing at about 5% a year compared with half that long-term rate since 1973. As such, imposing labour standards on developing countries would at best be an irrelevance and at worst positively harmful.

For the really poor nations, a code backed by sanctions would choke off export growth, worsening the balance of payments, and force growth rates to be lower to keep the current account in equilibrium. The experience of the Asian tigers is that this would slow up the pace of structural change and hinder the improvement in working conditions. Real wages grew 5% a year between early 1980s and mid-1990s in East Asia and South-East Asia, countries that were repressive of trade unions in their early stages of development.

But the pace of growth led to the expansion of the formal economy at the expense of the informal sector, leading not only to better labour standards but a very considerable expansion of unionisation. India had better core labour standards than Korea in the 1950s; but the situation has been turned on its head as a result of much slower growth in India ever since. Singh and Zammit say that higher labour standards in the South would require faster economic growth and structural change, which would involve measures to reduce poverty and inequality that would include labour-market policies. Such a process would be helped if advanced countries themselves were growing faster which, inter alia, would help improve labour standards in those countries.

"Faster economic growth is feasible - both because of the unrealised potential of the information and communications technology revolution and the catch-up possibilities of developing countries. However for this potential to materialise, a trend increase in the long-term rate of growth of real world demand is needed, which ... would in turn require new institutional arrangements for a people-friendly globalisation. Specifically, this entails among other things close cooperation between leading economies, so that international demand expansion is not thwarted by coordination failures and balance of payments disequilibria."

Their solution, in short, is one where the burden of economic adjustment falls on creditor as well as debtor nations, where developing countries are given special and preferential treatment in trade agreements, where a floor is put under commodity prices and where controls on the free movement of capital permit more rapid economic expansion. Those who have read the final volume of Robert Skidelsky's magisterial three-part biography of John Maynard Keynes (Fighting for Britain, Macmillan) will know that such a scheme was proposed in the build-up to the Bretton Woods conference in 1944, but was rejected in favour of the more limited, and harsher US alternative. There is, undoubtedly, a route to people-friendly globalisation but there is a long struggle ahead. As Keynes found, having the right answers is not enough, because while Britain had the arguments, the Americans had the power. And that is what counts.

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