Labour at the World Economic Forum

Here is the trade union statement to the World Economic Forum, which begins today:

A New Reality for Workers?

Statement of Labour Leaders to the World Economic Forum

Davos, Switzerland, 26 – 30 January 2011

Introduction

1. During 2010, the world economy continued its uneven recovery from the economic crisis. While economic growth has resumed, it is painfully slow in many countries and unemployment remains unacceptably high. The International Labour Organisation’s recent Global Wage Report confirms that workers’ pay has stagnated. The shift toward fiscal austerity – especially in Europe – threatens to further weaken the recovery, worsen unemployment and aggravate downward pressure on wages. Recent unrest in Tunisia reflects a failure to promote inclusive growth and create job opportunities for young people.

2. Labour’s main message is that policymakers must stay focused on stimulating enough economic demand to achieve full employment. The ultimate solution to government budget deficits is more employment, higher wages and hence increased tax revenue. While benefits for unemployed and retired workers often represent a fiscal cost for governments, they are also a vital source of consumer spending and social stability for the wider economy.

3. The overarching theme of this year’s World Economic Forum is Shared Norms for the New Reality. To promote inclusive growth, perhaps the most important shared norms are international labour rights and social-protection standards. Labour rights allow workers to increase wages along with productivity, ensuring sufficient consumer demand to sustain economic growth. Social protection ensures that people can live with dignity, supports additional consumer demand, and provides an automatic stabilizer against future downturns.

WEF Sub-Theme 1: Responding to the New Reality

4. Unfortunately, the new reality looks very similar to the old reality. The root causes of the crisis remain largely unaddressed. Significant portions of global financial markets remain unregulated. Indeed, not long after being bailed out by governments, financial markets are again dictating government policy. A new reality should include a reregulation of international finance to limit purely speculative activity and facilitate its only reasonable function: the intermediation of real economic activity.

5. Governments have returned to the pre-crisis focus on international “competitiveness” against other countries. Economic policymakers, especially those at international institutions, should recognize that not all countries can grow by running trade surpluses simultaneously. Competitiveness in export markets is a zero-sum game. The priority should be to expand the world economy by bolstering demand in all countries.

6. Another way in which the world economy has gone “back to the future” is the recent surge in food prices. Taking account of exchange rates and general inflation, food prices are still below their 2008 peaks in most developing countries. But if current trends continue, higher food prices could significantly worsen global poverty. Climate change threatens to aggravate this problem by disrupting agricultural production.

7. Several responses are needed to the looming food crisis. Regulators should limit financial speculation in commodity markets, which has contributed to food-price volatility. Policies to reduce greenhouse-gas emissions and limit climate change are urgently needed. Governments should redistribute income so that all people can afford to eat, even given somewhat higher prices.

WEF Sub-Theme 2: The Economic Outlook and Defining Policies for Inclusive Growth

8. The economic recovery is fragile and partial. With private consumption and investment still below pre-crisis levels in many countries, public investment in infrastructure and services remains an important driver of economic growth. Stimulus programs should be continued, but also evaluated and revised to ensure that they support the maximum amount of employment. Public investments can and should also address longer-term challenges, such as building a low-carbon economy.

9. In addition to physical infrastructure, governments should invest in social infrastructure. Expenditure on education and training contributes to future growth. Even in the short-term, it adds to aggregate demand, directly creates jobs, and can engage those workers who remain jobless. Periods of high unemployment are the best time for workers to participate in formal education and training programs outside the workplace.

10. For growth to be inclusive, workers must have the right to join unions and bargain collectively. Labour rights allow workers to negotiate a fairer share of the fruits of growth. Enabling wages to rise along with productivity is not only a matter of fairness, but also the only sustainable way of ensuring that consumer demand keeps up with productive capacity.

11. Governments should not simply tolerate existing trade unions and labour-market institutions, but actively encourage collective bargaining and social dialogue. In particular, governments should work with the labour movement to promote union representation for the growing number of agency and precarious workers such that they can meaningfully negotiate with their ultimate employers.

12. Rising minimum wages can ensure that workers receive at least a minimum share of economic growth, whether or not they are unionized. Even Hong Kong, long touted by free-market fundamentalists for having no minimum wage, recently legislated one. In addition to helping low-wage workers, minimum wages place a floor under the broader labour market and provide a safeguard against deflation.

13. Social protection is needed to ensure that growth is inclusive of everyone regardless of employment status. The crisis has underscored the importance of social safety nets to protect people from economic circumstances beyond their control. Continuing high unemployment should prompt improvements in the accessibility, level and duration of unemployment benefits. More poverty should prompt stronger income-support programs. The widespread loss of private savings during the stock-market crash should prompt enhanced public pension benefits.

14. Unions, collective bargaining, minimum wages and social protection are particularly beneficial to women and other groups that often face discrimination in the labour market.

WEF Sub-Theme 3: Supporting the G-20 Agenda

15. The question for trade unionists is, “Which G-20 agenda?” The G-20 summits in London and Pittsburgh in 2009 played a key role in coordinating the international response to the economic crisis. They helped ensure that almost all major economies contributed to monetary and fiscal stimulus, rather than trying to free-ride on each other’s efforts. The labour movement supported that cooperative agenda and would like to build upon it.

16. However, the G-20 has drifted away from a coordinated focus on jobs and growth. The Toronto and Seoul summits in 2010 were dominated by talk of “exit strategies” and competitiveness. But international coordination is not needed to encourage countries to pursue austerity or engage in a competitive race to the bottom.

17. Unions welcomed the recommendations of last year’s G-20 Labour and Employment Ministers’ conference. We propose the formation of a G-20 Working Group on Employment to assist governments in implementing those recommendations. We also seek confirmation that the G-20 Labour and Employment Ministers’ conference will become a regularly-scheduled annual event.

18. The Seoul G-20 Declaration referred to “fulfilling the Official Development Assistance commitments  by advanced countries.” In fact, plans to achieve the Millennium Development Goals are far off track. Yet recent bailouts demonstrate that governments have the capacity to provide huge amounts of financing when the political will exists. Reviving the Millennium Development Goals should be a major priority for the G-20.

WEF Sub-Theme 4: Building a Global Risk Response Mechanism

19. Unemployment should be viewed not only as an ongoing social problem, but also as an economic risk. Not only has the crisis increased the number of workers who are unemployed, but many are now unemployed for longer periods of time. The longer a worker is unemployed, the more his or her skills may deteriorate or become outdated. The risk is that cyclical unemployment from the recession could become long-term structural unemployment. Rather than accepting a higher “natural rate of unemployment,” policymakers should make determined efforts to get people back to work – or at least into training programs with income support – before structural unemployment sets in.

20. Climate change is among the greatest risks facing the world. However, responding to it is also an opportunity to create green jobs and build a more energy-efficient economy. An important principle is that society must provide a Just Transition for workers and communities disrupted by policies to reduce greenhouse-gas emissions.

21. In addition to responding to risks, policymakers should try to avoid them. A financial transactions tax would help reduce the risk of financial collapses by dampening speculative activity before bubbles are created. The tax rate would be set so low as to not affect transactions needed to finance real economic activity. However, even at a fraction of one percentage point, the tax would deter destabilizing activities like high-frequency trading and currency speculation that rely on huge numbers of low-margin trades. A financial transactions tax would also generate substantial revenues that could fund quality public services, international development and environmental initiatives.

12 comments

  • Assuming higher employment, higher wages and better working conditions are the primary interests of labour unions (and hence the Labour Leaders at the WEF), it seems to me as though this statement provides more of an idealist laundry list than a statement with concrete policy relevance concerning the concrete steps to be taken to address lingering economic issues exacerbated by the recession, particularly in developing countries. This could be merely be a reflection of the western-bias in the WEF’s Labour Leaders group (apart from perhaps the ITUC) or a sign that only grad students and economists still read the policy-relevant work of leading economists. I’m thinking of Dani Rodrik’s “One Economics, Many Recipes” in this instance.

    Rather than set out a list of all that’s wrong with the global economy, or the economy of a particular country, Rodrik emphasizes that concrete analysis needs to be undertaken to determine which issues, if tackled first by government(s), will have the most profound positive effects, bearing in mind of course that neo-liberal economic principles can only be effectively translated into policy if one takes into account the economic, political and social contexts of the country/region where it will be applied. Although the Labour Leaders get off to a good start in emphasizing economic growth through government efforts to boost domestic demand as a solution to unemployment, the domestic and/or international steps to get there appear off the mark (at least from the initial impressions of this lowly grad student).

    Take climate change policy for instance. Arguing that governments need to do ‘something’ is insufficient. While Rodrik’s assertion that government can play a role in subsidizing the first explorer-entrepreneur in a particular industry in order to offset distortions preventing investment (such as a lack of access to capital, inappropriability of returns to name a few) is valid and perhaps applicable in this instance at first glance, renewables won’t be economically viable unless the price of oil is higher than the running costs of renewable energy industries. So while there was a surge in investment in renewable energy during the skyrocketing oil price period from 2007-2009, the drop in price has been matched by a drop in R&D and investment in this sector. To work Canada a little more into this discussion, the Tar Sands thus present a double problem, being both a huge carbon emitter and reducing the viability of sustainable energy alternatives by driving down the price of oil.

    In the realm of education, despite recognizing that current global economic problems mainly derive from the demand side (and lack thereof) it is not acknowledged in this statement that substantial portions of the unemployed youth, especially in developing countries, are reasonably well-educated. While improving education is a worthwhile endeavour on moral, political and long-term economic grounds, it does not seem to me to be one of the first issues that need to be tackled by individual governments or in global concert to address struggling economies.

    Food price volatility is one important issue to tackle first considering reforming agricultural policies, either domestically or through international negotiation, will certainly be more effective in the aggregate than income redistribution in the face of higher food prices as emphasized in this statement. Of course, agricultural reform, especially in the developed world, is near political suicide keeping in mind the strength of farmer coalitions and interest groups and was almost seen as DOA at the start of the current DOHA round of global trade talks. Canada’s hands are sullied in this regard as well, having strongly pushed for liberalization in certain agricultural markets (such as wheat) in the Cairns group during the Uruguay Round while simultaneously defending supply-management policies in the dairy and poultry sectors. If only CETA could act as a springboard for more wide-ranging agricultural-liberalization efforts. (I don’t want to be too pessimistic, but don’t even get me started on the CAP …)

    Domestic coalitions need to be organized against the concentrated interests of farmers in protected industries. The politics of coalition-building and reaching concrete agreements are unfortunately areas in which Rodrik doesn’t provide us with as concrete a guide. And unfortunately at this stage neither can I. All I hope is for more relevant questions to be asked and a more concerted effort made to develop the hard but contextually-relevant and effective policy decisions needed to ensure lasting, inclusive and sustainable growth.

  • It seemed as if you had an interesting point to make, but I’m afraid I tuned out of your comment after
    “bearing in mind of course that neo-liberal economic principles can only be effectively translated into policy if . . . ”
    Neo-liberal economic principles are bogus and pernicious. Nobody should have as a goal translating them into policy in the first place. The more effectively it is done, the more poverty and stratification will result. Thoughtfully considering how best to apply those principles in a more nuanced way misses the point.

    The question for me is more, what is labour doing at the WEF in the first place? This is much like the US labour movement’s constant wasting of large portions of its money backing Democrats on the understanding that the Democrats will back certain labour-friendly legislation, only to find that they never do. The WEF is anti-labour, get used to it and move on.

  • I think your attitude towards neo-liberalism is precisely what Rodrik is trying to tackle (and deconstruct) in this book.
    There’s a difference between the Washington Consensus and neo-liberal principles. I can’t see how neo-liberal economic principles: protection of property rights, market-based competition, appropriate incentives, sound money etc. are the cause of “poverty and stratification”. Policies are much easier to target and criticize, especially if they don’t properly acknowledge the context in which policies are being implemented. The Washington consensus, promoting liberalization at virtually all costs, is thus a set of policies worthy of criticism. If, now that neo-liberalism and the Washington Consensus have been separated, you still see a concrete problem with neo-liberal principles, I’d be glad to hear them.

  • You’d be glad to? OK.

    Protection of property rights as a key agenda is dangerous and based on misunderstandings. That is, assuming you are referring, as neoliberals generally are, solely to private property rights. The relentless drive to remove common property and public rights is useful for private accumulation, but bad for the general good. This is particularly sharply seen right now in the realm of so-called “intellectual property”, where scientific and technical progress is significantly threatened by the expanding application of patent law, and the general good is impaired by the lengthening and deepening of copyright law–the erosion of “fair use” rights and so forth.

    Market-based competition is a simpler issue. It is worth promoting market-based competition only if neoclassical theories of efficient markets are true or nearly so, capable of relevance in the real world, and any resulting “Pareto optimality” actually involves something close to optimality not just in terms of dollars but of utility. None of these things are in fact true, or even very close to true. Therefore, market competition cannot in general be a primary goal to strive for–there may happen to be cases in which it turns out to be useful, but that would have to be established case by case. In the real world, pushes for “market-based competition” are advanced largely by the very rich, the largest corporations, and the lobbyists, think tanks, politicians, and journalists that they fund or own; this is not a co-incidence, it is based on what is to the advantage of that particular group rather than to the general population.

  • I am inclined to agree with you on these issues. There is obviously a role for the state in the economy above and beyond ensuring the rule of law and protection of private property. Public goods are a solid case in point, as are instances of market failures (natural monopolies and so forth). This obviously implies that market-based competition is not without caveat.
    But at the same time, the re-nationalization of private property by the state such as in Bolivia and Venezuela in years past is certainly not the way forward is it?

  • Thanks for your detailed critique of the statement. Here are responses in the three areas you criticized.

    Climate Change

    The statement does not present a policy program for combating climate change and neither do you.

    Education

    You are rightly skeptical of the conventional economic argument that more education is needed to alleviate an alleged shortage of educated workers. However, the statement argues that education spending is also a source of demand. You should welcome that argument if you agree that the problem is on the demand side.

    Food Prices

    You contend that western agricultural policies are the problem. A tariff on food imports into a developed country increases food prices in that country, but slightly decreases them in the rest of the world. Similarly, agricultural subsidies increase global food production and hence decrease global food prices. So, how would removing such policies in developed countries lower food prices in developing countries?

  • “All I hope is for more relevant questions to be asked and a more concerted effort made to develop the hard but contextually-relevant and effective policy decisions needed to ensure lasting, inclusive and sustainable growth.”

    No actually we also need to work at changing the rules of the game and that requires not being a slave to short term pragmatism. It is precisely because the too big to fail banks in the US knew that they would never be nationalized but bailed out that they behaved the way they did.

    Nationalization works wonders when it is a credible threat. For it to be a credible threat it has to be done every now and again when warranted.

    Now that I might suggest, is some long term, pragmatic, contextually relevant advice.

  • I do somewhat agree with Mr. Zannis on food. It seems to me that dumping of heavily subsidized EU, US and Canadian food on third world markets causes far more problems than their low prices ever alleviate. I dunno if we need food tariffs, but many e.g. African countries probably do. Mexico certainly does. International rules and pressures keep third world countries from maintaining their own agricultural sectors and emphasizing food self-sufficiency. Subsidized competition drives peasant farmers off their land. This leads to widespread poverty and unemployment and causes or worsens famines. It also makes people’s lives deeply vulnerable to the actions of international commodity speculators. Meanwhile here at home, the subsidies don’t even get us a healthy agricultural sector, but rather benefit agribusiness behemoths and the monstrous externalities they create of pollution, unsafe, unhealthy food and impoverished workers–at the expense of more sustainable smaller-scale farming.

    “But at the same time, the re-nationalization of private property by the state such as in Bolivia and Venezuela in years past is certainly not the way forward is it?”

    Why not?

  • I certainly agree that western agricultural policy harms agricultural producers in developing countries by lowering prices. Maybe the net effect on developing countries is negative.

    But I thought Alex was arguing for eliminating those policies as a solution to high prices. Or maybe I am misunderstanding this sentence: “Food price volatility is one important issue to tackle first considering reforming agricultural policies, either domestically or through international negotiation, will certainly be more effective in the aggregate than income redistribution in the face of higher food prices . . .”

  • Looking at it more closely, I have to admit I’m not quite sure what he’s advocating. I’d assumed that his objection to price volatility implied a desire to control speculation and manage markets in some way, but then he says “if only” about market liberalization. He objects to Canada taking one approach internationally and another domestically, which is probably reasonable if one values consistency, but I’m not clear which of those approaches he disagrees with.

  • Yep agricultural policy is seriously un-balanced we retain supply management at home while demanding open markets in the south. So you get Ethiopia which imports cooking oil which was initially protected then dismantled to let cheaper cooking oil in and now cooking oil prices have gone up and Ethiopians do not have any (short term) capacity to produce cooking oil so the government resorts to price controls. And this is across a range of basic foodstuffs. Politically Ethiopia is on the knife edge of stability and food inflation is hurling towards the brink.

    As an aside, I wonder how much of the North African unrest is explained by food prices.

  • Purple Library Guy has understood me here. I wasn’t advocating agricultural reform as a solution to high prices, rather the negative effects of developed world protectionist agricultural policies.

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