INTERNATIONAL ECONOMIC GOVERNANCE
IN A CHANGED WORLD

TUAC DISCUSSION PAPER

For Consultations with the OECD Liaison Committee

(16 November 2001)

1. The tragic events of September 11th and their aftermath have produced a situation of extraordinary political and economic uncertainty. The OECD governments have the central responsibility for minimising the economic and social damage from the crisis. But over and above the immediate economic measures that are required to stave off a recession and meet humanitarian needs it is essential that governments use the current situation to reflect on globalisation and confront issues of global governance. Terrorism does not only challenge open societies and democracy, it challenges the capacity of governments to respond at the international level to agree and sustain policies and actions over a long period of time. This re-examination of globalisation and the need to regulate the process, if it is to be effective and coherent must tackle the fundamental issues of rights, poverty and injustice.

2. The world’s largest economies were experiencing slowing growth even prior to 11 September, and the shock of these events threatens to worsen the world economic outlook. No one can accurately predict the medium term implications; however, the forecasts of global economic growth have been revised downwards, and there have already been several high profile bankruptcies and hundreds of thousands of layoffs. In some countries more “flexible” labour markets mean more rapid firing. The World Bank has announced that it expects the number of those living in extreme poverty to increase by an additional 10 million people and tens of thousands more children to die world-wide. The three major industrialised economic regions risk a synchronised recession. The downward spiral in the US continues and will surely accelerate in the coming months. Europe is on the edge despite the sanguine statements of the European Central Bank, while Japan is locked in stagnation. Unemployment is rising across the OECD as a whole for the first time since 1993. 

3. The immediate economic challenge facing OECD policy makers must be to undertake concerted economic measures to ensure that the world does not tip further into recession. Concerted expansionary monetary policy must continue. Finance ministers must work with central banks to respond to the crisis with a coherent strategy. A co-ordinated and concerted fiscal policy response should be based on programmes that can be speedily implemented, assist workers specifically affected, have long-term positive structural effects and are targeted at those most in need. Wage negotiations can also support purchasing power and job creation. The co-ordination of these policies can increase sorely needed consumer confidence and ultimately productive investment.

4. Secondly now is the time to put in place a new development agenda to eradicate world poverty, based on partnership between industrialised and developing countries. This must embrace comprehensive development policies, debt write-off, reform of the International Financial Institutions (IFI’s), an issue of special drawing rights, significant increases in bilateral aid, a new initiative on health and education. The new agenda must meet the objectives of poverty reduction in developing countries while ensuring that the rules of the global trade and investment systems give market access, boost development prospects, and reinforce the work of the ILO to guarantee core labour standards.

5. Thirdly Governments must develop more effective international economic governance to manage and humanise the globalisation process. This is one lesson that should not be forgotten from the events surrounding the Genoa summit. A significant theme of the 2000 OECD Ministerial Council was “shaping globalisation”. The OECD can directly contribute to the creation of the necessary international rules to manage global markets. The developments around the WTO Ministerial meeting reinforce the need for a rules based multilateral system based on universally accepted social and environmental norms and standards. The effective implementation and enforcement of the OECD Guidelines for Multinational Enterprises must be a priority. The OECD work on combating tax havens, eliminating money laundering and fighting corruption must now be reinforced.
 

An Economic Stimulus to Counter the Recession and Deflation

6. While there is debate around the depth and breadth of the needed policy response, it is noteworthy that many governments and some central banks have already responded actively. The immediate policy priority must be to ensure that economic and employment growth returns to the world economy. Governments and central banks must be ready to undertake further concerted monetary and fiscal expansion where necessary to respond to any worsening of the economic and social outlook. The US Federal Reserve has already responded. The ECB must follow that lead. In Japan an anti-deflation target is needed, and it must be backed by appropriate monetary expansion. Reform of the banking system is also a key component of any co-ordinated recovery package for Japan. 

7. Co-ordinated fiscal expansion will deliver more than unilateral government action. The primary objective should be to support demand by focusing on citizens who are at greatest risk. Any tax cuts must be targeted at families most in need who will also be more likely to increase consumption. A major increase in spending on welfare and active labour market policies is needed, particularly in the US where the failings of welfare cuts are now being exposed. Programmes that provide longer-term structural benefits must be prioritised. Increased government investment can help offset the fall in private business investment. Unmet needs exist that require investments in infrastructure: transportation, public health care, education systems, and environmental clean up – all of which will increase employment and speed recovery. EU governments must allow the automatic stabilisers to function and implement a co-ordinated European package of economic and employment measures equivalent to one per cent of GDP. This should be compatible with the so-called stability pact which must live up to its proper name and become a real “Growth and Stability Pact”. 
 

A New Development Agenda to Eradicate Poverty

8. Now is the time to forge ahead with a new development agenda that focuses on the concerns of the poor, the unemployed and those who toil on the margins of society as “informal” or unprotected workers. The goal must be to ensure that all can participate in the development process. Development must be based upon transparency, democracy, good governance and respect of basic rights. The OECD countries must support this by taking decisive action to implement the poverty alleviation and qualitative development goals they have adopted especially the aim of halving world poverty by 2015. The fact that the number of poor has continued to increase indicates that a much more substantial change in policies is necessary. 

9. There must be a further round of debt relief to increase the number of countries eligible for HIPC assistance and to augment the level of debt write-off provided to such countries. Debt relief must not be at the expense of Official Development Assistance which needs to be expanded. The OECD countries, pitifully few of which have reached the UN recommendation of allotting 0.7% of their GDP to ODA, must work towards attaining and even surpassing this goal. It is significant that the OECD’s Poverty Reduction Guidelines now include the need to enforce core workers’ rights included in the ILO Declaration on Fundamental Rights at Work and make clear commitments to the ILO’s objective of “decent work”. The international institutions must work together in a coherent way on a poverty eradication agenda.
 

Improving Economic Governance and the Regulation of Global Markets

10. Beyond these immediate points the policy setting agenda of the OECD must be developed in the following key areas.

11. The strengthening of the Financial Action Task Force housed at the OECD and the new focus of immediate action to track and block the funding of terrorists are welcome. There should be a stronger strategic link with this work and the OECD work to eliminate tax havens and harmful tax practices. In addition to the damage done in undermining tax bases of other countries through illegitimate competition, the status of tax havens encourages money laundering. Tax havens are also the home of regimes operating Flags of Convenience (FOCs) within the shipping industry. FOCs are undermining shipping standards, endangering the lives, and health and safety of mariners, while contributing to environmental disasters. It has also emerged that FOCs may have been used as a front to register ships used to transfer terrorist weapons and personnel around the world. The International Transport Federation is working with TUAC and able to co-operate with the OECD in bringing a halt to the worst excesses.

12. The events surrounding the WTO Ministerial meeting have shown that there will be little public support for any negotiations if the agenda places the interests of commerce ahead of the protection of core labour rights and the environment. OECD governments must address a question that is more fundamental than a launching of a Round and that is the need to restore public faith in the multilateral system. Slowing growth, stunted development prospects, the violation of workers’ rights, rising inequality, and continuing financial instability have given far too many of the world’s citizens little reason to believe that greater global integration improves their, or their nation’s prospects. Global markets need enforceable rules and those rules must include core workers’ rights as defined by the ILO. Governments must build into the WTO a formal structure to advance trade and core labour rights based on close co-operation with the ILO and other international institutions. The WTO must also play a formal and active role in the ILO’s work on the social dimension of globalisation. The OECD has an important role to play through its Export Credit Group to contribute to this and the broader question of sustainable development.

13. For too long the international “consensus” on corporate governance promoted by the OECD was synonymous with privatisation, de-regulation, and liberalisation. The work of the OECD Public Management Committee (PUMA) has replaced de-regulation with the notion of quality regulation and even re-regulation which is a positive change and should lead to an improvement of public services. PUMA’s work should be promoted more within and outside the Organisation. It should also be extended to include the issue raised by TUAC and the Public Services International (PSI) on the new emerging forms of public sector ownership and control, such as, not for profit stakeholder trusts. The OECD Principles of Corporate Governance, which include a chapter on the role of stakeholders, were welcomed by TUAC as a platform upon which to build. Subsequent work by the OECD and the World Bank to follow-up on, and to promote the Principles has involved trade unions. This has provided fora within which to conduct a constructive policy debate. Work to revise the Principles is set to begin. A dedicated and resourced work programme to extend and deepen the stakeholder chapter, with the full involvement of the TUAC can play a key role in ensuring that the constructive framework for discussion and debate continues. At the same time work is scheduled to begin on the development of a set of corporate governance principles for state owned assets. This work must take account of the needs of employees and their trade unions. It should be informed by PUMA’s work on modern regulatory structures and reform programmes. 

14. OECD work on bribery and corruption both concerns corporate accountability and the role of law as well as the intergovernmental framework of governance. Where basic rights are denied and legal structures are weak, bribery and corruption can easily flourish. TUAC, BIAC, the International Chamber of Commerce and Transparency International have reached agreement on the modalities of our engagement in the national level consultations taking place to ensure the OECD Anti-Bribery Convention is applied in practice. TUAC, in combination with our global union partners has created an international trade union network to fight corruption. This network is working on a web of initiatives, including the protection of “whistleblowers” who expose corporate and public sector corruption. An OECD work programme on this topic is urgently needed to prepare the way for the eventual incorporation into the OECD Convention of a clause to protect “whistleblowers”. 

15. The follow-up work on the OECD Guidelines for Multinational Enterprises is at a crucial point as regards the credibility of the Organisation. Global unions are actively promoting the Guidelines as an instrument of dialogue between trade unions and corporations. Trade union sponsored conferences and seminars have been held or are planned world-wide. We have sought to ensure the effective enforcement of the Guidelines, and our affiliates have brought cases to NCPs. We have also requested the CIME to hold discussions on “horizontal” issues such as the role of the Guidelines in giving effect to the ILO Resolution on Burma. TUAC has produced a “User’s Guide” on the Guidelines for trade unions. This may also be helpful for NGO’s and others interested in using the Guidelines. Some OECD governments are taking seriously their individual responsibilities regarding the promotion and enforcement of the Guidelines. However, too many remain inactive. Real progress remains to be made in using the Guidelines to support the ILO Resolution on Burma. And tangible progress also remains to be made on national and international efforts to link the Guidelines to the granting of public subsidies, including export credits. 

16. If stable and sustained long-term growth is to be realised changes must be made to the financial market architecture. Global unions have put forward over the last five years a range of measures designed to establish better regulation of international financial markets. These include: 

- Improved fiscal and monetary policy co-ordination between the emerging reserve currency blocks of the Dollar, Yen and Euro in order to generate more stable parities, along with the progressive removal of large long-term current account deficits and surpluses;

- Recognition of the right of states to control short-term foreign capital inflows and outflows in the interest of domestic macro-economic stability;

- Binding international standards for the prudential regulation of financial markets covering capital reserve standards, limits to short-term foreign currency exposure, controls and certification on derivatives trading and other forms of leveraged investment built in credit;

- Ensuring that banking systems are transparent and bound by effective disclosure criteria;

- Improved information on currency flows, private debts and reserves;

- Serious examination of the implementation of an international tax on foreign exchange transactions, more commonly known as the Tobin Tax, as recommended by the UN “Copenhagen + 5” Conference (June 2000), and more recently by some European governments. This could be linked to a possible increase in Special Drawing Rights for developing countries.

17. For too long the debate over financial market reform has been held behind closed doors by bankers and finance ministry officials. This has prevented the voices of trade unions and the public in general from being heard. The institutions charged with developing financial market reforms remain closed to discussion with the labour movement and civil society, though there are some tentative signs of opening from the new managing director of the IMF. Labour must have a “place at the table” in these debates. The OECD should work as a “bridge” to make this happen.