Growth with Social Justice: lessons from global economic crisis

Globalization How is it changing the world of work? Participants views… Picture Source: Kate Raworth, Oxfam presentation on Trade & Human Development,

Global economic crisis -What caused it? -Why did it affect Asian countries? - What can we learn from it?

Implications of current development policies  Shift from development cooperation to free trade - Open markets for trade, investment & capital flows;  More competition between Unequals - High income countries have more than 80% of the world incomes, receive more than 3/4 th of the foreign investment and 3/4 th of the world trade is between them. Equality of “access” does not mean equality of “opportunity” - unequal capabilities lead to unequal outcomes  Withdrawal of ‘State’ from its economic & regulatory role; (markets Know the best, will self regulate)  Strain on international labour solidarity

Root Causes of Crisis  Result of ‘liberalization’, speculation & greed - ‘markets know the best’ philosophy (in the context of declining rate of profits & financialisation of economy)  Widening Inequalities – between K & L, between countries, between regions  Wages lag behind productivity declining share of wages in value added & GDP (why this decline?) – debt financed consumption  Consequences of inadequate or lack of social protection on growth & recovery  Export dependence of Asian Countries

Globalization & Inequalities  Theory: Rich invest, poor consume – so redistribute income towards the rich to promote growth - and rising tide will lift all boats (shift of incomes/value added towards K through privatization, restructuring, technology, labour and tax policies), But what has happened?  Growth yes but widening inequalities (Ex. India, China & Indonesia – fastest growing economies in Asia)  Decline in labour’s share of GDP

Population & Wealth Shares by Region (2000)  the richest 10% own 85% of the global assets (2000).  50% of the world population owns less than 1% of the global assets. Source: UNU-WIDER

Asia: State of the Workers Asia: State of the Workers : Decent Work Decade for A-P region - BUT  Extreme poverty reduced, still about 73% of the world’s working poor are in Asia - 60% of the region’s workers (abt 1.1 billion), are in vulnerable employment (low-paid, insecure work with poor working conditions); {South Asia: 77%, South-East Asia: 62% & East Asia: 51%} 63% of women & 58% of men are in vulnerable employment  Gini-coefficient (measure of inequality) rose from 38 to 47 in the past two decades  Child Labour: About 114 m (2008), 48 m in hazardous conditions  566 million people are malnourished, 469 million lack access to safe water and 1.8 billion people have no access to sanitation  Over 213 m jobs need to generated between 2010 & 2020 to keep pace with labour force growth - in addition to jobs for the 94 m currently unemployed people.

Contribution Rates for SS Programs in selected Asian countries 2008 (%) A-P spends about 5.3% of GDP on public health and social security –lower than other regions

Over dependence on Exports Pre-crisis: Almost 60% of final demand for Asian goods came from developed countries. Exports accounted for about 47% of developing Asia’s output - In Indonesia, Korea, Taiwan and Thailand exports contributed over 60% to growth - Exports contributed about 50% to income growth of China (pre-2008) (Source: )

Distribution of the wealth generated in export sector  Output per worker in Asia grew on average by 4.1% p.a. between 2000 & 2009, much higher than in the rest of the world (0.4%) East Asia: averaged 8.3% p.a., followed by South Asia at 3.9% & South-East Asia at 3.0%. BUT average real wages grew by only 1.9% per year  In Export Sectors, what has been the share of wages? (In China 2/3 rd of the income in Export sector goes to capital (a good part of it to foreign capital), less than 20% goes to labour) – in many countries share of wages in export sector is lower than that for the economy as a whole.

Few lessons from ‘crisis’  Shift from export-led to domestic consumption led growth  Address unequal income distribution between capital & labour - one of the root causes of global economic crisis, social conflicts & obstacle to countries’ growth.  Need for wage policy and labour standards to ensure that wage share in the GDP does not go down & prevent debt financed consumption – Role of right to organize, collective bargaining & social security So, how to do this?

 Sources of growth in economy - Pvt & Public Consumption (C), Investments (I) & Exports (E)  If I > C, then dependence on foreign markets (E) is the only way out to maintain growth – but can Asian countries continue to export at the same rate as in last decade?  Lessons from the ‘crisis’ – raise domestic consumption  Wages - main source of domestic consumption - but wages lagging behind productivity & it share in GDP & in value added has been declining plus no social security for the majority So, what policies can help to raise wage share & disposable incomes?

Limitations of Export led model  Requires becoming internationally competitive by keeping wages low, suppressing domestic consumption & keeping exchange rate undervalued (weakening of domestic currency)  Employment does not increase much since domestic demand and domestic market remain limited. Gains from growth are invested abroad (often)  Since all countries are becoming export oriented, competition increases, prices keep falling & gains start declining.

Wages & labour standards led model  Requires wages to grow along with labour productivity – increases domestic demand and domestic market  When wage employment increases, the self-employed also enjoy an increase in demand for their products  Same effect on the economy if labour standards are ensured - since standards enable sharing in gains of growth & spread of purchasing powers.

FoA & Collective Bargaining  Asia has the lowest ratification of the Convention 87 (19) and Convention 98 (25).  Important countries like China, India, Iran, Korea, Burma, Thailand, Vietnam, etc have not ratified these conventions although FoA & Right to collective bargaining exists in some form or the other.  In practice, little or no respect for workers right to form unions, to union recognition & to negotiate collective agreements - (TU density & CB coverage range between 1-19%).

Why Labour Standards?  Are labour standards only a question of ‘rights’ of workers?  Voice, representation & participation  What role do FoA, Collective Bargaining, Social Security & safe & healthy working conditions play in economic development?

ILO’s Response

 Global Jobs Pact adopted in June 2009 – a framework for Decent Work led policies aimed at economic recovery with job creation and the provision of social protection to working people & families at its core  Process: Tripartite dialogue with social partners for addressing the crisis & developing national policy response  Focused on promoting use of wage policy tools, social protection and employment-led development policies with respect for workers rights

Policies required  Right to Organize  Promote Collective bargaining: makes wages more responsive to economic growth, reduces wage inequalities & improves social security levels  Pro-active Minimum Wage policy: to be reviewed & adapted thru tripartite social dialogue - helps to promote wage floor – ensures sharing in growth – links to social security  Enforce labour contracts & labour law  Social security for all – C 102 as a guide - social protection floor key to addressing crises and social instability  Training policies

Shifting towards domestic market requires also  Human Resource policies to facilitate industrial restructuring from export led to domestic consumption led growth (domestic market)  Factors of production & investment cannot be easily shifted –role of State in allocation of investment and skills towards areas that need to expand to meet higher domestic consumption.  Increased public social welfare expenditure on health, education, social protection, especially in rural areas – this would reduce precautionary household savings and increase disposable income.

Tax Policies  If share of K in value added /GDP is going up, then tax policies need to be used to ensure that this increased wealth contributes to improving social infrastructure and working conditions  Who contributes most to direct taxes?  Improve the taxation system, and reduce the burden on low income groups – reform tax incentives to corporate sector.  Improve the social security coverage in urban and rural families – use tax revenues & dividends of SOEs for social transfers & social investments.

… therefore need for Decent Work