International Confederation of Free Trade Unions
and Executive Directors and Staff of the World Bank
The Role of Trade Unions in a Global Economy
1. The ICFTU and its affiliates have campaigned for many years for a social dimension to structural adjustment and have been particularly active over the last eighteen months in promoting dialogue between unions and the Bretton Woods institutions over the policy response to the crisis. One of the issues most prominent in this dialogue has been the role of core labour standards in development, social policy and good governance. This discussion paper therefore focuses on how core labour standards should fit into overall social policy guidelines within the emerging new architecture for the global economy and the changing responsibilities of the World Bank and the IMF, and how the promotion of the new ILO Declaration could become part of the programmes of the Bank and the Fund.
2. Trade unions are the largest independent democratic non-governmental organisations in most countries of the world. They are structured to represent their members and working women and men generally at the workplace, by industry, sector and occupation, on a national scale, and regionally and internationally. The trade union movement in different countries has developed historically in many different ways depending on a variety of factors including the structure of employment, the political environment and, fundamentally, the priorities decided by their members. However a common feature of their work is the goal of improving the conditions of work and life of working people. The means of achieving this goal include collective bargaining with employers at various levels, influencing government policies that impact on conditions of work and life, and providing direct services to members through the representation of grievances, legal assistance, and social welfare programmes. Perhaps the simplest way to describe the role of trade unions is that they aim to get the fears and aspirations of people whose voice in society would otherwise not be heard, understood and addressed.
3. The range of issues taken up by unions can be very broad. Although they use many methods of advocacy, their strength derives from the fact that they are economic as well as social organisations. Organised around the process of work, the most basic of economic activities, they aim to exert a bargaining power on the contract of employment and the factors that affect it, so as to ensure that working people are treated with dignity and justice. Their goal is to counter-balance the inherently unequal relationship between individual workers and employers, thus enlarging citizens' freedom to influence a key determinant of their lives. In doing so they are expressing interests which can conflict with those of powerful groups in society but which can be resolved to mutual advantage and in the public interest where effective processes of industrial relations are built up. To quote from the 1995 World Development Report, " the probability of governments passing inefficient labour legislation may be higher when workers' right to representation is not protected. Empirical analysis finds that political liberties, which almost always go hand in hand with the freedom of unions to organise, are associated with less dualism in labour markets and a larger formal sector."
4. From its foundation in 1919 and especially since its relaunch in
Philadelphia in 1944, the ILO has sought to develop standards in the
social and employment field which reflect the interest of all nations in
social progress and the development of institutions which enable social
problems and conflicts to be resolved. Its standards take the form of
principles to be applied in national law and practice. They thus provide a
framework which is clear in terms of objectives but provides sufficient
flexibility to be adapted to national circumstances.
In recent years, as
the interdependence of the world economy accelerated and respect for
democratic forms of governance spread, the ILO was able to develop a large
degree of consensus over the universal applicability of seven of its most
basic Conventions. The ILO Declaration on Fundamental Principles and
Rights at Work and its Follow-up, adopted by the International Labour
Conference in June 1998, sets out the commitment of the international
community to establish a social minimum at the global level which responds
to the realities of globalisation. The seven Conventions specified in the
Declaration are core labour standards which, where properly observed,
create the foundations for a sound system of industrial relations in which
trade unions, together with employers and governments, can play a
constructive role in working to ensure that social progress goes hand in
hand with the progressive opening of markets to international trade and
investment.
World Bank/IMF Development Committee, October 1998
" the Committee agreed that, beyond responding to the immediate crisis, and in parallel with ongoing efforts to improve the international financial architecture, concerted actions were needed to help countries bolster their structural and social policies and institutions. These include strengthening the financial sector; establishing a sound business environment; improving public and private sector governance, particularly transparency and accountability; and strengthening social protection. Ministers noted that the primary role of the World Bank was to help eliminate poverty and improve social well-being, in line with international development goals. They therefore encouraged the World Bank to work with the United Nations, the Fund and other partners to develop general principles of good practice in structural and social policies (including labor standards)."
5. The economic and financial turmoil of the last eighteen months which started in South-East and East Asia and spread to affect nearly all countries, has served to highlight the need for a new architecture to govern world financial markets. Its severe social impact on the most affected countries has also drawn attention to the difficulty of achieving financial stability without also ensuring social stability and progress, and vice versa. The quotations in boxes in this paper illustrate, the broadening agreement on the need to include alongside a stronger set of international disciplines on key elements of the international financial system, strengthened international mechanisms to address the problems of poverty, unemployment and equitable social development. In its recent statement the G7 called on the World Bank to develop social policy guidelines as mandated by the October meeting of the Development Committee.
Core Labour Standards in the Global Market
6. Structural adjustment is a constant process which describes the way that production of goods and services in both the public and private sectors changes to meet economic pressures, increasingly transmitted through the global market, and social goals. The structure of employment and conditions of employment are thus also in constant flux affecting the lives of working women and men in both positive and negative ways creating increasing uncertainty about future job and income security. The pace, direction and content of adjustment is therefore a major concern for unions. The key demand of unions is that basic rights to representation, non-discrimination and the free choice of employment are respected so that they are able to work out solutions, which take account of the concerns of working women and men, to the problems and opportunities change at work present.
7. Social stability cannot be modelled on a computer. Statistical tools for measuring social inequity and the efficiency of various policy instruments are of course very important to the work of trade unions, the Bank and other development agencies in advancing social equity. But as well as suffering from an appalling lack of data, they cannot capture people's sense of fairness. Addressing that issue requires the creation of representative, independent, democratic, "free" institutions amongst which trade unions are important.
ILO High-Level Tripartite Meeting on Social Responses to the Financial Crisis in East and South-East Asia, Bangkok, April 1998
"... It is only in the context of sustained economic growth that durable solutions to social problems are to be found. A major element of this reform process will involve the correction of policy and institutional deficiencies, These reform processes can provide a foundation for the development of efficient and equitable economic and social policies. This is especially true with respect to the development in some countries of adequate systems of social protection which are essential for coping better with problems of economic restructuring and possible future crises. In this context, respect for basic international labour standards provides fundamental enabling conditions for independent, strong and representative worker and employer organisations to develop productive social partnerships."
8. Unions organise at and around the workplace. Their primary objective is to improve the contract of employment. And that contract is different from all others because it defines directly the relationship between citizens and the now global market as well as determining people's main source of income, sense of identity, and role in society. A well functioning system of industrial relations thus provides a mechanism for resolving some of the most fundamental causes of social tension.
9. What unions are saying is that to get out of the crisis and prevent future ones, governments, employers and international institutions need to focus attention on building the laws and institutions needed to regulate labour markets and build social partnership, as well as those governing financial markets. Furthermore, so that countries can both compete and co-operate with each other, these institutions need to be built on common international principles.
10. The crisis has exposed the weaknesses of existing state mechanisms of social protection and the tremendous strain placed on families and in particular on women who carry the main burden of caring for the most vulnerable - the young, the old and the sick and disabled. When the working generation cannot, for reasons beyond their control, meet their family responsibilities, because they cannot find work, tremendous damage is done to people's lives and sense of self-esteem. The effects of the current crisis in terms of falling school enrolment, increased child labour, falling levels of nutrition, increased crime and substance abuse, will be felt for years.
11. Capital flight and riots on the street are two sides of the same coin:- a failure to develop institutions to reconcile economic and social pressures and develop some consensus on how to move ahead. Korea was further advanced in this process of institutional development when the crisis hit than Indonesia, and despite all its problems is moving ahead, while Indonesia is having to rapidly develop its social and financial institutions in the midst of the fastest, steepest and deepest economic collapse ever seen. Some of the most important institutions in a market economy are free trade unions. In Korea they were strong enough to play a part in managing the crisis. In Indonesia they were not, primarily because of decades of military/party control and repression.
Report of G7 Finance Ministers to Birmingham Summit, May 1998
"Sound policies need to tackle structural economic issues so that sufficient provision is made for the poorest sections of society and other vulnerable groups, development is sustainable and living and working standards for all are improved. This is also key to securing the support needed for successful economic reform. In this respect we also encourage the IMF and MDBs to work with the ILO to promote core labour standards and with the competent international institutions to promote sound environmental standards."
12. Looking beyond the crisis, the ICFTU strongly believes that comparative advantage will lie with those countries that have a stronger social cohesion built on investment in education and training, health-care and a sound industrial relations system, founded on core labour standards. The most successful countries, both developed and developing, will be those with institutions that are able to balance and rebalance constantly the market pressures of flexibility and dynamism with the social pressures for security and dignity. The suppleness of a country's institutions will be the key.
13. The ILO is playing a vital role in promoting its new Declaration which should be actively supported by the World Bank and the IMF. Starting from respect for fundamental rights at work, a sound industrial relations system comprises the strengthening of trade unions and employer organisations, the promotion of collective bargaining, dispute settlement procedures, the establishment and development of tripartism, and the involvement of unions and employers in programmes to build up training, job placement and social security.
Tackling Social Inequality with the Participation of Unions
14. New World Bank guidelines on social policy should be based on the conclusions of the Copenhagen Summit. The current crisis has accentuated the need for support to national efforts to maintain and strengthen policies to ensure universal access to primary health-care, schooling for all up to the minimum school leaving age and improved social protection policies to ensure the realisation of basic needs such as food, shelter and clothing.
15. The goals of social development policy agreed at the 1995 Copenhagen Social Summit are eradication of poverty, creation of employment and building social solidarity. Bank programmes should therefore address both the quality of government programmes and the resources, both national and international, devoted to these priorities. Emergency assistance should contribute to the establishment of a medium to long term strategy with clearly defined goals. One of the key questions is the design of social safety nets to prevent those unable to find productive employment from becoming trapped in a cycle of poverty.
16. A number of the countries worst affected by the crisis are in a position to establish broad based social security systems to provide incomes to the unemployed, the sick and disabled, and the elderly. They also face the challenge of replacing traditional systems based on extended family networks living in rural communities which are breaking down as people have moved off the land to urban jobs. Such broad based social security systems are usually based on contributions paid by workers and employers supplemented by state contributions from general tax revenues to ensure that those with a weak or no contribution record a re guaranteed a minimum income. They often include a mix of a state and private provision. Emergency support should therefore take the form of "kick starting" schemes which can be expected to become self-financing as the worst affects of the current recession wear off. Furthermore, contributory schemes create investment resources which can broaden and deepen capital markets reducing dependency on volatile flows of international finance, including the holdings of national elites.
17. Experience shows that not only do workers expect the right to a say in how social protection systems are managed, a participative approach to the design and management of social security also helps to ensure that resources are efficiently used. The World Bank should draw on the experience of the ILO in the field of the tripartite management of social security systems and encourage governments to consult trade unions and employers on the design of its support programmes.
18. The provision of primary health-care and basic education are widely recognised as one of the most effective means of tackling poverty and reducing gender inequality. Such services are also employment intensive and often create job opportunities attractive to women who have been amongst the hardest hit by the crisis. The skills and experience of health and education workers are an invaluable resource to policy planners both in government and the Bank but their unions are rarely consulted and involved in making decisions. As a result they are often so poorly remunerated that it affects their ability to do a decent job, understaffing undermines the quality of services and the commitment and initiative of public service workers to improving the delivery of services vital to national development is ignored and wasted.
19. Construction workers are frequently the first to lose their jobs in a
time of crisis, yet there are unmet needs for the improvement of the urban
and rural infrastructure through the building of low-cost housing, clean
water and sewage disposal systems, and transport networks.
Employment-intensive public works schemes must be part of the social and
economic development strategies promoted by the Bank. However, such
schemes should be part of a longer term strategy for the construction
industry. All too often major Bank projects contribute to a boom and bust
cycle in the industry which leads to the creation of a large pool of often
poorly trained migrant labour (both within and between countries)
vulnerable to exploitation by contractors.
The Bank should insist that
where it is funding projects, tenders should be based on acceptance by
contractors that they will respect core labour standards and the terms of
ILO Convention 94 on public procurement. Bank funded employment intensive
public works schemes should also be worked out in consultation with
construction unions to ensure a minimum level of job and income security.
20. Governments also need to develop active labour market policies to promote training and retraining, and the mobility of labour within and between sectors and regions. The costs of unemployment both to individuals and society can be substantially reduced by public policies to smooth changes in the structure of employment and deduce resistance to change. For example the IMF and the Bank in particular are promoting programmes which are having a major impact on employment in the finance sector but little attention has been paid to the problems faced by redundant workers who in many countries receive little or no help in finding new employment.
21. There is growing evidence of increasing child labour in the countries worst-affected by the crisis as unemployed parents resort to supplementing family incomes with the meagre earnings of children they can no longer afford to send to school. In all too many cases children are left to wander the streets and fall prey to criminal gangs involved in the sex and drugs industries. Tackling child labour requires a three-pronged approach to improve the earning and employment opportunities of parents, access to school places and the implementation of minimum age for employment laws based on ILO convention 138. The ILO's International Programme for the Eradication of Child Labour, which involves governments, employers, unions and NGOs, is making some progress on this immense problem and should be actively supported by the World Bank.
The Contribution of Core Labour Standards to Economic Development
22. The elimination of child labour is one of the most important core labour standards for achieving economic development of any country. At the same time, the elimination of child labour has been probably the most controversial of the core labour standards. Certain observers argue that child labour is an endemic problem of poverty for developing countries, which can only be resolved by economic development. However, on the contrary, decisive action to help the 250 million children who have been driven onto the labour market would actually provide many countries with the key to achieving economic development.
23. This is so, firstly, because of the high positive returns from good education, as evidence from the World Bank, among others, has demonstrated and which child workers are denied access to. According to the World Bank, in Korea, annual GDP growth was 1.4% higher between 1960 and 1985 purely as a result of the spending on education over that period. Evidence from all over the world shows that getting children out of work and into school is a prerequisite for sustainable, equitable economic development. If instead of being educated, children are at work, in the majority of cases, they just end up swelling the vast ranks of the young unemployed in the informal sector of impoverished suburbs and shanty towns surrounding major cities. If those young people had been educated and so they were literate and numerate and had skills, they would not be unemployed but they would be working and contributing to their countries' development. Therefore the toleration of child labour is a major handicap for the countries as well as the individuals concerned.
24. Secondly, child workers often undergo severe physical and mental hardship and as a result have their life-long earnings abilities severely impaired. One large-scale ILO survey in the Philippines found that more than 60 per cent of working children were exposed to chemical and biological hazards and that 40 per cent experienced serious injuries or illnesses. In Pakistan, in the carpet sector, a 1991 ILO report estimated that approximately half of the 50,000 young child workers would never reach the age of 12; they would die beforehand from malnutrition and disease. Children at work are also very vulnerable to sexual abuse, particularly girl workers. In other words, in many cases the work carried out by children is immensely negative to children's health, even their prospects of life itself. In both social and economic terms, the impact of this reduction in health and in life is clearly immensely negative and cannot be tolerated.
25. Thirdly, no country is too poor to make a major effort to end child labour. In this regard, the example of the Indian state of Kerala is very instructive. Kerala was just as poor as the other states in India when, several decades ago, it began spending a consistently high share of its budget on education, well above the average level in India. Nowadays Kerala has achieved spectacular successes in terms of the highest school retention rate in India; by far the lowest gender disparity; almost double the national figure for literacy; high economic growth; and a far lower work participation rate of children, at less than one third the average level for India. Therefore, while accompanying transitional measures are always needed to help families and children adjust to the loss of income and international assistance should be increased to the poorest countries to build up the anti-poverty and education programmes and the labour inspection services that are needed, even the least developed countries can start to implement measures today to tackle child labour which will bring long-term economic benefits for their countries.
26. Fourthly, as with all the core labour standards, use of child labour by any one country puts all other countries under pressure to repress workers' rights also, with the worst effects for developing countries which have the least resources to resist such pressure. For example, the use of child labour undoubtedly makes a contribution to the price of India's exports in some sectors, creating difficulties for countries competing with India. A recent example is the severe damage done to the carpet industry in Nepal by competition with carpets from India produced with a high degree of child labour. Therefore those countries which are making efforts to tackle child labour would be assisted by international disciplines to prevent competitor countries undermining them by allowing the continued exploitation of children.
27. Core labour standards regarding discrimination and freedom of
association are equally important to achieving development. The more that
women's employment conditions are equal to that of men, the more women are
provided with the job opportunities, remuneration and prospects to realise
their fullest potential and so make informed choices about their lives -
including, especially in developing countries, about family planning.
This requires active government policies in the labour market. Governments
must implement specific policies to eliminate discrimination in wages and
improve job security. Positive action programmes should be promoted to
improve access of girls and women to education, literacy courses and
training - one telling example from the World Bank showed that each
additional year at school for girls brings about a 5% reduction in the
birth rate - and to promote equal opportunities in formal employment
including job training and credit schemes, health-care for pregnant women
and day-care facilities. Setting and enforcing adequate labour standards
for women at work increases both motivation and remuneration of the
individuals concerned and so achieves productivity increases across the
board.
28. Respect for freedom of association is central to the attainment of economic development and sustainable growth. The evidence from many industrialised countries - France, Germany, Japan, Norway, etc - indicates the positive link between increasing wages and obtaining better productivity by improving the motivation of workers. Higher wages also act as a spur to productivity improvements by obliging employers to try harder to make economies on other elements of their costs, so increasing the efficiency of the production process. Furthermore, setting higher social standards often forces employers to upgrade and so results in more efficiency and higher growth in the long run. Conversely much evidence from developing countries also shows that lowering wages is associated with lower productivity, in the worst cases because workers are spending most of their time engaged in informal sector activities to augment their formal incomes (e.g. Tanzania, Congo-Kinshasa, etc).
29. Trade unions play an essential role in the development process by achieving a sustainable distribution of income and wealth. Unions have played a crucial role in improving the wages and working conditions, so ensuring that the benefits of productivity growth are not confined to a small elite but are distributed more widely over the whole population. Productivity, growth and development all depend upon a generalised perception that the labour market is equitable. Where this does not exist, the consequence has either been stagnation - shown by the below-average long-term performance of many Latin American economies with extreme income and wealth inequality - or social and political instability which has undermined development efforts. This latter situation is well shown by Africa, and more recently Indonesia, where dissatisfaction has tended to burst out in damaging and recurrent confrontations which have jeopardised previous development gain-s and acted as a serious disincentive to further investment, whether by individuals, companies or governments. If, on the other hand, people are generally satisfied with labour market outcomes, stability is much greater and productivity is likely to be increased.
30. The existence of independent workers' organisation, operating within a framework of sound industrial relations legislation, provides one of the best possible guarantees that outcomes will be more equitable. This is generally achieved through raising incomes for workers. It can also be achieved in a time of economic hardship by ensuring that workers are not unduly penalised by change. There are various examples of unions' preparedness to negotiate "solidarity pacts" with government and sometimes employers that involve some degree of income restraint by all groups of the population.
31. When workers do enjoy the right to freedom of association, they will generally use that right to form or to join trade unions. Their basic motivation is that only through the collective strength of the union will they have some influence on their working lives, whether the issue is remuneration, workplace procedures, conditions of employment, grievances or health and safety. Much evidence demonstrates that consultation of workers, through collective bargaining with their own freely chosen representatives in the form of trade unions, results in much higher motivation, continuous feedback for the enterprise on means of improving its production processes and, as a result, higher productivity.
32. This relationship is set to increase in importance. In a rapidly changing world, collective bargaining provides the main means of action by which employment, systems of work and the skills of the labour force can be continuously adapted while taking account of the need for equity and efficiency. Together with mechanisms for tripartite consultation, it reinforces the institutions of democracy by creating mechanisms for the resolution of social and economic problems which might otherwise provoke political tension.
Social Policy and the Governance of the Global Economy
33. The Bretton Woods Institutions have been called upon to rethink their policies and to work with member states and key parts of the international community including the unions and civil society, to define a new architecture for the global governance of the world economy. Trade unions affiliated to the ICFTU have made a concerted effort world-wide and particularly in the front-line crisis countries, to engage governments, employers and the international institutions in a dialogue aimed at finding a consensus on policies to alleviate the effects of the crisis and build the foundations for early and swift recovery.
Declaration of G7 Finance Ministers and Central Bank Governors, October 30, 1998
"We agree that more attention must be given in times of crisis to the effect of economic adjustment on the most vulnerable groups in society. We therefore call upon the World Bank to develop as a matter of urgency general principles of good practice in social policy, in consultation with other relevant institutions. These should be drawn upon in developing adjustment programmes in response to crises."
34. One of the most important steps forward in that dialogue is a growing understanding that financial and social stability are closely interlinked. Stabilisation policies that exacerbate social tensions are self defeating, as is a resort to the printing presses of central banks as a means of postponing tough choices about the budget. No markets work well without an appropriate degree of regulation by democratically accountable governments, but financial and labour markets are particularly prone to abusive and destructive behaviour. And since it is now more than evident that in a global market a failure to regulate adequately in one country can have profound effects on trading and investment partners, there is an urgent need to agree on strong universal standards to measure national policies.
35. Financial stability is an important prerequisite for development but too often has been pursued by the blunt tools of austerity. Social dialogue between governments, trade unions, employers and other representative bodies is also necessary to build consensus over national social and economic development goals and means of action. Strong social institutions, including free trade unions, are vital to the development of human resources and the mediation of disputes about the allocation of resources.
36. Looking beyond the crisis, the ICFTU strongly believes that comparative advantage will lie with those countries that have a stronger social cohesion built on investment in education and training, health-care and a sound industrial relations system, founded on core labour standards. The most successful countries, both developed and developing, will be those with institutions that are able to balance and rebalance constantly the market pressures of flexibility and dynamism with the social pressures for security and dignity. The suppleness of a country's institutions will be the key.
37. The first link in the chain of contracts which make the global market function is the employment contract. The workplace is where the pressures of the market impact on people's aspirations for respect and fair treatment. If governments are to mould globalisation into a force that enables people to achieve their aspirations and allay their fears, they must secure their rights to a say on their terms and conditions of employment. Adopted at the 86th International Labour Conference in June 1998, the ILO Declaration on Fundamental Principles and Rights at Work is an important building block in the construction of a more humane and less volatile global market.
38. The ICFTU urges all governments to give the new Declaration their
full and active support not only at the ILO but in other international
bodies which can make an effective contribution to its implementation. It
must be part of the new architecture for governance of the global economy
providing a basis for mechanisms for the involvement of trade unions at
national and international levels.
Within the new architecture of global
governance of international trade and investment, a much higher priority
is needed for social development. At the UN's Social Development Summit in
Copenhagen in 1995 more than one hundred heads of state and governments
signed up to a very comprehensive anti-poverty, anti-unemployment, anti
social exclusion strategy and programme of action. Similarly the UN's
Beijing Women's Conference marked a major step forward in establishing a
platform for action on equality. These unprecedented agreements should be
fully integrated into the new architecture. As a first step the IMF and
the World Bank should incorporate the national action plan's for the
follow-up of the Social Summit into their policy and lending instruments,
including the Country Assistance Strategies and Policy Framework Papers.
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