THE SOCIAL DIMENSION OF GLOBALISATION

 

 



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THE SOCIAL DIMENSION OF GLOBALISATION


TUAC Discussion Paper
For Consultations with the OECD Liaison Committee
12 December, 1997


"... The most serious challenge for the world economy in the years ahead lies in making globalisation compatible with domestic, social and political stability ... in ensuring that international economic integration does not contribute to domestic social disintegration." D. Rodrik (1)


INTRODUCTION

1. Globalisation - the accelerated integration of economic activity across national or regional boundaries - has become the catchword dominating economic and social policy discussion at the end of the 20th century. Despite the debate as to the extent and effects of globalisation, it is more or less irrefutable that there are a series of interconnected developments at work (2) which are profoundly affecting all OECD economies and societies:-

- the growth of foreign direct investment has outpaced the growth of trade, which itself has outpaced the growth of domestic production leading to increasing penetration of multinational companies into domestic economies;

- the removal of national capital controls and deregulation of the financial sector in the 1980's has encouraged the growth of global financial markets. This has reduced national sovereignty, shifted power from governments to financial markets and made all markets susceptible to global developments. The crisis in Asian financial markets in October 1997 and its spread worldwide is a graphic illustration of this;

- the shift in the development and diffusion of technology to a global level and the appearance of a "global information society" is having a radical effect on the organisation of the production and distribution of goods and services;

- the crisis of Taylorist systems of mass production and the appearance of "post fordist"and "flexible" forms of organisation has implications for the "competitive strategies" to be adopted by OECD countries;

- the policy shift to deregulation starting in the late 1970's has been both a stimulant of the globalisation process and a policy reaction to it;

- there has been an opening of non OECD countries to this "global market system". The formerly centrally planned countries of Central and Eastern Europe and the former Soviet Union are to varying degrees privatising, liberalising and deregulating their economies.



THE IMPACT ON LABOUR

2. The extension of globalisation is having a significant impact on labour markets. The combination of the effects of growing trade and technological change has reduced the demand for low-skilled workers in OECD countries, and is one of the factors behind rising wage inequality (3). When capital becomes more mobile and labour is not the mere threat of delocation reduces labour's bargaining power. Workers compete for their jobs as opposed to companies competing with each other. The share of taxation on capital falls and on labour increases (4).

3. At the same time the ability of governments to manage the social consequences of these changes is reduced. Globalisation is frequently cited as the reason for the inability of governments to fulfil tasks they are elected to fulfil - setting tax rates and financing social insurance, economic policy management, interest rate policy or exchange rate policy (5).

4. In addition over the 1980's key OECD countries pursued policies which reduced the role of government and diminished social obligations. It has been convenient for some to exaggerate the loss of local or regional sovereignty so as to "lock in" countries to policies of "rolling back the state" and reducing workers' security. This has produced a dangerous climate of "deresponsibilisation" of policy making.

5. This is at least a partial explanation of the asymmetry between economic efficiency and social progress, which is putting at risk political stability and itself risks leading to a popular backlash against globalisation, which was correctly identified in the OECD Secretary-General's policy framework for the future orientation of the OECD (6).

6. It is not sufficient for the OECD to decry some of the reactions to this situation as "protectionist", or to feel impelled to "explain" to the public the benefits of more of the same policies. Public concerns must be taken seriously and problems, including income distribution and unemployment must be tackled at their roots.

7. If public opinion is not to react against the multilateral system with highly unpredictable and potentially damaging consequences, governments must stop pleading that they face "policy paralysis". Markets need regulation to function and global markets need global regulation (7). They must also be embedded in networks and social institutions that encourage long-term relationships. Extending market mechanisms to all domains of society and institutions has the potential to destroy society. A spectrum of mechanisms for governance is available with, at one end of the spectrum a set of "hard" international regulations covering specific fields (e.g. WTO); in the middle, looser policy coordination (e.g. G7, OECD, IMF); regional integration (e.g. European Union); continuing national policy and regulation; and more loosely regional or district level policies. Whilst binding, "hard" mechanisms of regulation at a global level will only be able to cover a limited number of areas, and they are therefore not an alternative for the looser forms of coordination and cooperation in other areas.


THE POLICY RESPONSE

"We're looking for a theory of a society which is a globalising society, where market forces are very important, but can be reconciled with social cohesion and a measure of social justice as well as with an open, cosmopolitan community". A Giddens (8)


Guarantee Core Labour Standards in Trade and Investment Agreements

8. Governments are extending their systems of national laws governing intellectual property and investor rights to the global level. They must also guarantee basic labour and human rights worldwide. Core labour standards must be guaranteed in trade and investment agreements. There is agreement on the definition of core labour rights. The ILO has stated:- "The list of these rights seems no longer open to dispute" (9). The World Trade Organisation's (WTO) December 1996 Singapore Declaration highlighted:- freedom of association and protection of the right to organise, the right to organise and bargain collectively, freedom from forced or compulsory labour and the abolition of forced labour, freedom from child labour, and equal remuneration for men and women and freedom from discrimination in respect of employment and occupation. The OECD Study on Trade, Employment and Labour Standards has shown that there can be a positive two-way relationship between core rights and open-trading policies. The issue of enforcement however remains. In export processing zones, as well as elsewhere, trade union rights are increasingly violated. In Korea the government's and employers' attempt to further restrict freedom of association as a response to global competition was rejected by Korean workers.

9. The "Singapore declaration" provided a mandate for further work on labour standards by the WTO and ILO, which must be followed up. The ILO should accelerate moves to strengthen its machinery for the ratification and supervision of core labour standards. The WTO's Trade Policy Reviews should report on violations of core labour rights. The dialogue between the WTO and the ILO has to become meaningful so as to prepare the May 1998 WTO Ministerial Council. Regional trade agreements must include labour rights clauses. The World Bank and the International Monetary Fund should integrate obligations of respect for core labour standards into all their lending and structural adjustment policies.

10. The OECD must develop its monitoring and peer group pressure system for the respect of core standards in Member countries and ensure Korea's early implementation of the commitments given. The OECD's Multilateral Agreement on Investment must incorporate the OECD Guidelines for Multinational Enterprises and include a binding labour clause on observing internationally recognised core standards and on the non-lowering of domestic standards. The OECD must follow up the mandate it has to work further on labour rights issues.

11. The OECD will in 1998 undertake a review of the working and effectiveness of the OECD Guidelines for Multinational Enterprises. The proliferation of voluntary codes of conduct by multinationals is recognition of the fact that in a global world firms no longer sell just goods or services, they sell their image and reputation. But as the OECD concluded "private codes are unlikely to provide a general solution" (10) to the problem of promoting labour standards in multinational enterprises. Against such a background the Guidelines could play a key role as a common and enforceable body of good practice. However, in reality they risk falling into disuse, due to lack of commitment to implementation and follow-up (11). The Review gives an opportunity to change this. It should focus primarily on re-dressing the criticisms made of the Guidelines, and develop the necessary mechanisms to fully implement and promote them. Taken seriously the Guidelines would then have the potential to take on the nature of a universal code of conduct for multinational enterprises.


Reconciling Competitiveness and Social Cohesion - Creating Quality Jobs

12. Guaranteeing core workers' rights will not remove the competitive advantage of developing countries in terms of wages and working conditions. Nor will it remove the necessity for OECD countries to innovate and adapt. This must not be on the basis of a degradation of broader conditions of work and life. "Moving down market" is not a viable strategy for OECD economies as a whole. Obsession with downsizing and outsourcing and deregulating labour markets does not provide an environment in which people can face change with confidence. The OECD must therefore assist its members in developing strategies which produce "high performance" workplaces, firms, districts, regions and economies which are both competitive and socially acceptable.

13. The results of some existing OECD work point in this direction:- the need for investment in lifelong education and training as agreed in the conclusions of the Education Ministers' Meeting of 1996 and the Labour Ministers of 1997; work on the flexible enterprise and high trust / high skill workplace (12); partnership for sustainable development and workplace health and safety issues (Environment); partnership for managing public sector change (PUMA); and globalisation and local employment creation (Territorial Development Service).

14. Together these areas of work present a very different model (13) for managing change in labour markets and in organisations, from that which has been given predominance in the Country Specific Recommendations of the Jobs Study. They should be blended to present a new vision for managing change and developing adaptable labour markets. In sum they have a common feature of empowering individuals in their working lives thereby giving them "confidence in change" rather than "fear of change".


An International Economic Policy Framework for Growth to Create Jobs

15. Sustained faster growth and buoyant economic conditions are essential for creating well paying jobs. The deficiency in the mechanisms governing policy formation have to be overcome. Currently there is an incentive for individual governments to pursue policies of austerity that give them an individual advantage in world bond markets. When all countries pursue such policies the result is a profound deflationary bias to economic policy.

16. Over and above the reaction to the current financial crisis, genuine macroeconomic coordination is needed to raise growth. In Japan domestic demand must be expanded. In the United States an expansionary monetary policy has shown that growth can be sustained. There is room for Europe to grow much faster without inflation. Concerted action is needed to ensure low real interest rates in Europe and an effective post-EMU framework for growth and employment has to be put in place to meet the employment targets agreed at the Luxembourg European Union Summit on Employment.


A Framework for Global Financial Markets

17. Global financial markets oil the wheels of the multilateral trading and investment system. Yet policy makers have put the whole system at risk by freeing the financial markets from any framework of control. The Asian financial crisis has brought home the need to "throw sand in the wheels of international finance" (14), before more damage is done to long-term employment growth and the real economy.

18. The TUAC statement to the 1996 OECD Ministerial Council and Lyon G7 Summit set out a range of national and international level measures to create a new framework to restore the balance between the real and financial economies. These require new rules and better functioning institutions to govern financial markets. Progress has been made, however haltingly to draw up guidelines for derivatives trading, and to improve the early warning systems on financial market instability. But, the current situation highlights the fact that the regulatory framework must go much further. Now is the time for the BIS, the IMF and the OECD to cooperate to implement:- an international tax on foreign exchange transactions, the certification of financial markets with acceptable risks and prudential controls and the extension of transparency, disclosure and satisfactory reserve requirements of financial institutions.


Reducing Tax Competition

19. Governments must maintain a sound tax base for public finances against a background of globalisation. The failure to tax adequately multinational corporations and capital income and profits has led to an erosion of the tax base and a disproportionate shift of the tax burden onto labour. The shift from income to consumption taxes has made systems more regressive. International agreements are needed to ensure balanced taxation of capital and profits, whilst public support for fair tax systems must be built up. The OECD must play a pioneering role in preventing harmful tax competition as mandated by the Denver G8 Summit.


 

CONCLUSIONS:-The Role of the OECD

20. Over the past two years in discussions with the OECD, TUAC has repeatedly said that the OECD, against a background of globalisation, must "prove itself as an organisation capable of relinking social and economic progress". That statement remains just as relevant now. Meetings of Labour Ministers and Social Ministers have given and will give opportunities to make progress in meeting this goal. But the objective is broader than Labour and Social Ministers, it must encompass all OECD work areas.

21. The Report of the Secretary-General's High-Level Advisory Group on the Environment (15) has made a series of recommendations for integrating sustainable development objectives horizontally into the work of the Organisation. More generally a parallel but similar approach could be seen for the integration of the social objectives of the OECD horizontally throughout the Organisation. The recommendations of the Group include the Secretary-General himself acting as a "chief sustainable development officer of the OECD" with a Management Committee and small support unit. The Group also recommends the creation of a "stakeholder forum" on sustainable development. TUAC will be submitting its comments in detail on the Group's recommendations, but the early establishment of such a stakeholder group on sustainable development could be a useful pilot project to make a direct input to the 1998 Meeting of OECD Environment Ministers.


Notes:


. "Has Globalisation Gone Too Far ?", Dani Rodrik, Institute for International Economics, Washington, 1997.

2. "Policy Challenges of Globalisation and Regionalisation", Charles Oman, OECD Development Centre Policy Brief, 1996.

3. "Globalisation, Technology and Jobs", Kumiharu Shigehara, OECD, speech to "Japan Society", London, July 1997, and OECD Employment Outlook, July 1997, Chapter 4.

4. "Think Global - Act Local", OECD Territorial Development Service issues paper for LEED seminar, 24 November, 1997.

5. Dani Rodrik, op.cit.

6. Strategic Objectives of the OECD quoted in OECD Annual Report, 1996.

7. "Globalisation in Question", Paul Hirst and Graham Thompson, Policy Press, London, 1996.

8. Anthony Giddens, Director, London School of Economics quoted in the "New Statesman", 31 October, 1997.

9. International Labour Organisation, ILO Director-General's Report to the 1997 International Labour Conference (page 12).

10. "Trade, Employment and Labour Standards", OECD, 1996.

11. "Trade, Employment and Labour Standards", OECD. op.cit. The Report noted that the Guidelines have a role to play to promote reasonable behaviour by multinational enterprises, and that this role would be enhanced if countries made it known that foreign investors would be expected to follow the Guidelines, which in turn would be a clear message of the importance that OECD governments attach to the Guidelines.

12. "Changing Workplace Strategies: Achieving Better Outcomes for Enterprises, Workers, and Society", Report of OECD/Canada Conference, Ottawa, December 1996.

13. "Achieving Efficiency and Social Equity in the Labour Market", (forthcoming) Report of OECD Labour/Management Meeting (forthcoming), Mary Gregory, Saint-Hilda's College, Oxford.

14. "The Tobin Tax: Coping with Financial Volatility", Mahbub ul Haq, Inge Kaul, Isabelle Grunberg, Oxford University Press, 1996.

15. "Guiding the Transition to Sustainable Development: A Critical Role for the OECD", the Report of the High-Level Advisory Group on the Environment to the Secretary-General of the OECD, November 1997.

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