Sharan Burrow: Address to ILO Cyclical Review 2010
03 June, 2010 | Speeches & Opinion
Sharan Burrow: Address to ILO Cyclical Review 2010, Geneva, 2 June 2010
Trends and challenges in promoting full, decent and productive employment in the context of shaping a fair globalisation
All of us have watched with horror the threat to the global economy, to national economic stability, to the security of workers’ job and income security, and to employers’ businesses that has occurred since 2008 when the ILO constituents adopted the Social Justice Declaration in the context of already prevailing concerns about all of these matters and more. Now we face the added dangers of attacks on sovereign wealth by non discriminatory financial markets. We face the challenges of decent work, sustaining enterprises, stemming unemployment and a fairer globalisation. Nevertheless the SJD still provides a guiding framework for both the constitutional mandate and the aspirations of the ILO.
Thus the purpose of our discussion is, as laid out in the Social Justice Declaration:
1) To understand better the diverse realities, needs and challenges of Members with respect to each strategic objective; respond more effectively to them, using all the means of action at its disposal, including standards-related action, technical cooperation, and the technical and research capacity of the Office; and to adjust its priorities and programs accordingly.
2) Assess the results of ILO’s activities to date with recommendations that inform program, budget and other governance decisions.
The promotion of the interaction and integration of all four strategic objectives and of synergies among them is also an important objective of the discussion.
At the time of adoption of the SJD in June 2008 it was - which was several months prior to the start of the GFC, a global recession that precipitated a crisis in unemployment - we were as I indicated already deeply concerned about widening income inequalities and decent work deficits within and between countries. We were also concerned about the consequences of financial market deregulation and unbalanced trade liberalisation. We pointed to the lack of policy coherence among the international institutions guiding globalisation.
As a result, we decided unanimously, to re-endorse the mandate provided to the ILO through the Philadelphia Declaration of 1944 and additionally to recognise the international dimension. We stated that that “the Declaration of Philadelphia continues to be fully relevant in the twenty-first century”. And we explicitly recalled that the Philadelphia Declaration “provides the ILO with the responsibility to examine and consider all international economic and financial policies in light of the fundamental objective of social justice”.
Conference delegates, those decisions we took in June 2008 were profound and very timely. Just four months later - in October 2008 - the global economy entered a recession. The folly of unregulated financial markets and the extreme greed of those controlling and profiting from these markets became apparent to all. The financial crisis destroyed trust and confidence. Financial markets froze. Investors withdrew. Trade flows stalled. Consumers stopped spending. Workers were sacked or lost hours of work and precarious employment deepened, particularly for women and young people. Increased discrimination against migrants was shocking. Developing countries suffered a further crisis not of their making and had their opportunities to better access to the global economy slashed. For several months capitalism was on the brink of collapse.
Fortunately many public policy markers responded with courage and a deep sense of economic history. For the most part Central Bankers and Finance Ministers recalled the lessons of the 1930s and responded with an extraordinary package of monetary and fiscal stimulus packages. Even those schooled in neo-classical economics realised that Keynesian policies were called for in these exceptional circumstances.
These policies were sufficient to stop the recession turning into another Great Depression. By the second half of 2009 economic output was starting to recover, thanks largely to a strong rebound in the largest developing and emerging economies. But the recovery in output has remained fragile and very uneven.
Unfortunately this pick-up in output was patchy and did not translate into a jobs recovery everywhere.
Despite saving some 20 million jobs, another 34 million jobs were lost as global unemployment and underemployment continued to rise throughout 2009 and during the first half of this year. Long term unemployment is again on the rise. There is a great risk that cyclical unemployment in too many countries will become structural and therefore long lasting.
Meanwhile, even in the early months of this year when national accounts and indicators were starting to signal that economic activity was beginning to rebound, the possibility of a W-shaped or “double-dip” recession remained. The key issue by then had become the timing of exit strategies. It was imperative that governments maintained their fiscal and monetary stimulus measures long enough to ensure the recovery in private investment and consumption was strong enough to sustain the recovery.
While the Workers’ Group strongly supported the stimulus measures we are certainly wary of mounting fiscal deficits and what this means for government debt repayments in the future, and thus the scope for future social expenditure by governments. For these reasons, we understand the need for fiscal consolidation where necessary but timing is everything and rash action without a growth plan will both waste the investment to date and impede growth and employment for decades to come. While nations like China, Australia, other Asian and some Latin America countries are now in a position to sustain fiscal and monetary consolidation without killing growth, this is not the case everywhere. In particular, it is not the case in those economies were private sector growth remains extremely very weak – which is the case throughout most of Europe.
Yet what we have witnessed in recent weeks is one after another European government being forced into a premature and suicidal rush to implement austerity measures to pacify reckless and non-discriminatory financial markets. The emergence of the sovereign debt crisis in Europe - starting in Greece but spreading rapidly to Portugal and Spain – and driving not isolated country action but it would appear Europe-wide fiscal consolidation that will risk deflation, slash demand and again put jobs and businesses on the line. It also means that the possibility of a double-dip recession has now become a probability. Workers know and are angry that they will pay one more time.
Why have now returned to the brink of economic disaster just when most respected economic forecasters were starting to see light at the end of the tunnel? There can only be one major reason for this rapid reversal: key national policy makers have lost their nerve in the face of bond market demands – our economies are again being driven by the failed market principles that drove us to the brink in the first place. Having implemented the right macroeconomic strategy, governments have failed to move urgently to the next important task which was financial market re-regulation and curbing the power and insider relationships that exist between the largest banks, financial institutions, rating agencies, and the largest equity and bond investors.
Instead we have seen this insidious group of insiders re-establish and re-assert their political and financial power in the last year. First, we saw these institutions rapidly push up their customer charges so that their profits and bonuses paid to top executives in financial institutions approaching ridiculous pre-recession levels. Second, we saw them utilise their power with the international media to launch a scare campaign about the implications of re-regulation for economic efficiency, stability and growth – to whom only the US economy has to date stood up to with new laws. Third, we saw them implementing their divide and rule tactics whereby they threaten governments tempted to re-regulate their financial markets that they would lose market share to other countries that decide to be “free riders” and not impose necessary regulations.
Finally, we have seen them again misuse their power to punish elected governments whose policies or politics they dislike.
That a country like Spain which recorded a fiscal surplus in 2007, 2006 and 2005 and fiscal deficits of less than 2 percent of GDP in the first 5 years of this decade has been the subject of speculation and intense pressure in the bonds markets over recent weeks is the clearest indication that financial markets retain the power to implement policies that are definitely against the public interest. In the case of Spain, the fiscal deficit did increase significantly in 2009 when the private property bubble - financed by excessively risky bank lending practices - collapsed and tax receipts diminished. But even after this happened the ratio of public debt to GDP in Spain stood at 65.9% which is lower than Austria, France, Germany, Belgium and the United Kingdom. It is nothing like the comparable figures for Greece or Italy which significantly exceed 100 %. To be fair, Spain does have a relatively high total foreign debt to GDP ratio but the vast bulk of that debt is in private hands, and particularly in the hands of the corporate sector. Slashing wages and jobs, therefore impeding growth, will further risk private sector debt defaults
The economic crisis in Spain is a private sector induced and fuelled crisis. It has very little to do with inappropriate government policies. Despite this in the last month or so the Government of Spain faced increasing difficulties in selling bonds and raising revenue in capital markets to cover the necessary roll-over of public debt. Sovereign spreads increased significantly. Towards the end of last month, in an effort to calm the markets, we saw the European Union and the IMF join forces to guarantee lines of credit to countries like Spain and Portugal which were in this situation. They did so after significant loans and austerity measures in Greece had failed to restore order to the bonds markets.
But in return for this promise of support if required, the Government of Spain has had to introduce a series of dramatic austerity measures. The magnitude of the fiscal consolidation and time frame of the contraction is extreme. The public expenditure cuts and tax increases will result in a 10% of GDP reduction in the primary fiscal balance from 2009 to 2013.
In commenting on these measures the International Monetary Fund, stated on May 24 at the conclusion of their Article 4 review of Spain:
“We fully support this package. It significantly strengthens and front loads the envisaged adjustment and enhances credibility by taking concrete and bold measures, such as cutting public sector wages.”
But the IMF went much further urging the Government of Spain to implement what they described as “bold pension reform”. The IMF also focused their attention on the labour market, the system of collective bargaining, labour legislation and employment protection legislation. The IMF urged the Government to rapidly implement radical reforms across all these fields. The IMF stated:
“Ideally the social partners will quickly deliver such an overhaul, but if not, the government will need to follow through on its commitment to take action itself, including on collective bargaining”.
This sounds very much like the worst of the stabilisation and structural adjustment programmes that were implemented during the 1980 and 1990s at the height of the Washington consensus. We are now asking ourselves several questions.
First: Have all the lessons of this period been forgotten so quickly?
Second: Why has the IMF reverted to its discredited “knee jerk” reactions to blame labour markets and punish the workers when the problems in Spain clearly started with their own advice to deregulate the financial sector which produced an unsustainable surge in private borrowing and a destructive housing credit bubble?
Our chair will have a country perspective from Romania that can also inform us of the pressure that countries are feeling.
The Director-General’s words of this morning provide a guiding path for us. He says “pressure from financial markets has caused a number of European countries to announce deficit reduction more quickly that deemed wise a few weeks ago. Looking forward,” he says, “we must assume our ILO responsibility to identify risks ahead for all regions from the perspective of the real economy you represent.”
In this context it is important to ask if the ILO has been assisting Spain or other European nations with the mandate of responsibility to examine and consider all international economic and financial policies in light of the fundamental objective of social justice.
- Was the ILO consulted by the IMF on their recent Article 4 Report on Spain?
- If so, what advice did the ILO give to the IMF particularly in respect of the size and timing of the fiscal expenditure cuts, wage reductions for the public sector, pension reform, labour market reform, labour legislation and the system of collective bargaining?
- If the IMF did not consult with the ILO has the Office implemented its own independent assessment of the situation in Spain and the appropriate policy response?
- Finally, what do these recent events in Spain and other southern European countries reveal about the value of ILO involvement in the G20 process and the commitments by the UN/G20/Bretton Woods institutions to increased policy coherence at the international level?
The dysfunction of the financial sector has already costs us trillions of dollars, how much more will it cost us next time if we fail to head the words of the Swiss president and the French chair and be audacious in our actions.
Martin Wolf, a leading commentator from the Financial Times, said last week in response the OECD’s prescription for cutbacks and monetary tightening in the UK, that in a weak economic context, the idea that a government should lose sight of the recovery to invest in its “credibility” with the markets was beyond his understanding. As he fittingly concluded: “I have lost faith in the view that giving the markets what we think they may want in future should be the ruling idea in policy”. We could not have said it better.
There is no escaping the fact that if we are to ever get macro-economic policies geared toward full and decent employment, financial markets will need to be reined in. But this can only be done through collective action at the international level and refocus on development.
It will require not only the policies that are laid out in the Global Jobs Pact, the Global Employment Agenda and the Social Justice Declaration, but also the collective will to change the financial rules of the game. In particular we need levies on short-term financial transactions, a financial transaction tax, to help temper non-productive, purely speculative transactions.
The way forward
The global economy, our domestic economies - workers, employers and governments - we are at a critical juncture not only in the recovery efforts, but also in the debate about how to fast track development, how to promote a wage-led growth and how to sustain growth and employment in the face of fiscal consolidation.
With the Social Justice Declaration, the Global Employment Agenda and the Global Jobs Pact, the ILO has the tools to be at the heart of policy coherence, strategic planning and implementation, both at the multi-lateral and the national level, but we must use this cyclical review to drive a sharper focus on targeting priorities and identifying resources and expertise that will live up to the challenge.
The ILO itself must also strive for policy coherence and while each of the sessions will allow the parties to articulate specific priorities, as we engage in the debate over the next few days, there is a need to maintain an overview and to ensure an integrated outcome.
While the world argues about the risks and responsibilities of the financial sector - hopefully regulating, downsizing and disempowering the speculative aspects - and while governments debate within other parts of the multi-lateral system measures to enhance public revenue through increased taxes on private wealth and high incomes, progressive taxation, a financial transaction tax, climate financing, closing tax havens and so on, here in the ILO we can intensify our work to assist with macroeconomic policy and trade, industrial and investment policies that can be demonstrated to maximise decent and productive employment. The ILO has agreed policy and standards to assist with:
- strategies to avoid wage deflation and ensure sustained demand through wage-productivity links, social protection, minimum wage mechanisms and effective systems of collective bargaining;
- possibilities for generating public investment that maximises productive and decent employment outcomes;
- the role of MNE's and mature systems of industrial relations, procurement and productivity to enhance the sustainability of businesses' in the supply chain;
- maximising the number of sustainable businesses and reducing the informal economy through approaches that support licensing of small and micro enterprises, develop co-operatives and target key sectors of the social economy;
- advice with regard to eliminating capacity contraints for businesses and generate opportunities for workers through investment in skills and social and physical infrastructure; and
- and much more.
The world knows that the current production pattern with high value-added production in industrialised countries and specialisation in low value-added activities in most developing countries is not only unsustainable but also unjust and that an appropriate regulatory framework and incentives to promote competition that is wealth enhancing instead of merely redistributing income from working people to capital is needed. We also need innovation, skills, technology and effective work practices with quality and productivity increases through these means to be the driving forces of competition not exploitative labour practices.
We all accept the ILO mantra that "labour is not a commodity", yet greater labour market flexibility which works for employers but not workers, increased precarious employment, underemployment, the weakening of collective bargaining resulted in a declining wage share, all contributed to growing inequality before the crisis. The lack of aggregate demand that followed from these dysfunctional developments translated into massive export surpluses in some countries and debt financed consumption in others. Both trends proved unsustainable. Independently from its negative social outcomes also, economically labour market deregulation proved to be part of the problem and not part of the solution.
Clearly the core of this house, labour standards, play a key role. The Global Jobs Pact sets us up for a coherent policy response to avert a downward spiral of wages, working conditions and social protection measures complemented by proven strategies to drive growth and employment. A set of labour standards are recognized as central tools for the Global jobs Pact. Similarly the Social Justice Declaration relies on CLS, governance standards, other international labour standards, and emphasises the value of all four equally important strategic objectives - employment, social protection, social dialogue and standards - which are inseparable, interrelated and mutually supportive.
This Organisation must live up to the challenge. In March and again in his address to the Conference, the Director-General has called for a refocus of macroeconomic policies on employment-oriented growth and for making decent and productive employment creation a priority macroeconomic goal. This is a clear message coming from the Director-General and must be heard in the employment sector who in turn must work with other sectors of the house to maximise an integrated approach – the systemic integrated capacity called for by the DG this afternnon.
In addition to the specific details that we will discuss under each of the sessions the workers will argue that we must ensure focus on five strategic areas of work:
1. Strengthening the macro-economic policy expertise, research, data collection, employment and labour market analysis of the Office in an integrated fashion that avoids duplication, drives policy coherence within the Office, enhances the ILO's role and visibility in the multi-lateral system and ensures confidence from governments and social partners in national implementation of strategic priorities.
2. Build up a critical mass of recognised global experts in different disciplines to assist with crisis and development responses in countries where requested. Such a team could also assist in development and oversight of priority GJP implementation in support of regional and country teams in the most vulnerable nations
3. Promote and implement relevant international labour standards as tools for decent work, economic stability, social cohesion and employment growth.
4. Work to support the development of a new instrument to build policy coherence at both national and international level through an integrated approach to maximise employment outcomes of economic policies. Such a recommendation would enhance the stature of the ILO to work with countries and enable a transparent and evaluative outcome from a focused peer review mechanism to be developed as part of the instrument.
5. Step up work to formalise the informal economy by using an integrated approach that promotes sustainable enterprises, addresses precarious employment, targets the procurement principles of governments and multinational enterprises, builds investment in infrastructure, promotes and enhances the social economy and public services and supports social and economic development.
The ILO has to urgently refocus, build its capacity in the area of priorities we identify this week, work in an integrated fashion in the sprit of the SJD to assist constituents, and continue to build authority in the multi-lateral area.