Will Asia and the World Waste the Crisis? –
Policy Coherence and Social Protection for All[1]
Rene E. Ofreneo, Ph.D.
Professor XII
University of the Philippines
02 October 2009
Crisis, G20 Responses and Protective Labor Institutions
An old Chinese saying states that a crisis is also an opportunity. This is so only if the lessons on why a crisis has come about are used not only to avoid a repeat of the crisis but also, and more importantly, to rise at a higher level of human existence and development.
Unfortunately, this does not seem to be the case in the present global financial crisis (GFC). In their April meeting in London this year, the G20 leaders – virtually the new executive committee for the global economy — talked of the importance of financial regulations and yet managed to agree only on two things: how to monitor the tax havens used by the unaccountable global speculators and how to increase the capitalization of an increasingly irrelevant IMF[2]. There were no decisive measures on how to reverse two decades of global financial deregulation and stop the bubble-creating speculative activities of a greedy few, both of which are at the roots of the GFC.
In their September summit this year at Pittsburgh, the G20 leaders pushed for additional financial reforms such as an agreement to limit bankers’ pay and bonuses, expand the voting rights of China and other developing economies in the IMF, and increase investments in food and agriculture as proposed by the World Bank[3]. These measures, laudable though they may be, still do not go deep enough to prevent another GFC in breaking out in some distant future. For instance, the United States should have made a pledge to enact another Glass-Steagall Act[4] which put speculative investment banking under the strict supervision of financial regulators.
More significantly, the G20 leaders have either failed to grasp or deigned to ignore the central reality under globalization – the huge imbalances in global trade, development and wealth distribution, all of which have contributed to the making of the GFC (see discussion in the next section). This failure or avoidance is vividly illustrated in the resolution of the G20 goading the members of the World Trade Organization (WTO) to conclude the Doha Development Round (DDR) based on an agenda of deeper liberalization across all economic sectors – industry, agriculture and services, including financial services. They seem oblivious of the fact that the neo-liberal formula of liberalizing markets for liberalization’s sake is a formula for wealth creation for a few to the exclusion of the many who are too weak to play the globalization game. And yet thePittsburgh’s “Statement of Leaders” talks of burying an “era of irresponsibility”, which is really deeply rooted in the mindless liberalization mania of the last three decades.
In contrast, seven decades ago, in response to a similar global crisis spawned by an unregulated free-wheeling capitalist order, the United States and Europe embraced not only Keynesian-prescribed government interventionism in the economy to spur aggregate demand but also the institutionalist view on the positive role of trade unions, guaranteed hours of work, minimum wages and other protective labor institutions in stabilizing and sustaining the growth process. These labor institutions help fuel higher demand for goods and services as well-paid workers become good-spending consumers, a process which naturally sustains the growth momentum. This is the reason why industrial relations as a discipline developed in the 1920s and 1930s. It was also in this period that the International Labor Organization or ILO was formed and got institutionalized, ironically with the help of big employers like John Rockefeller (For a detailed discussion of the evolution of labor institutions, see Kaufman, 2004).
After World War II, these protective labor institutions, together with a comprehensive system of social security, were institutionalized inGermany,Scandinaviaand other European countries under a “social market economy” arrangement. This has given birth to “welfare capitalism”, which is really a fusion of Keynesian/institutional economics and protective labor institutions. Politically, this welfare capitalism served as a barrier to the expansion of the Soviet-style socialism during the Cold War era of the l950s and the l960s. Economically, this welfare capitalism helped transformWestern Europe,CanadaandJapaninto modern capitalist states with a strong social and labor base.
This paper, however, is not a call for a mechanical replication of the post-World War II European experience in welfare capitalism.
Rather, this paper is an appeal to governments and civil society movements in Asia-Pacific to be more audacious and far-seeing by using the GFC as an opportunity to institute bolder social and economic reforms similar to what their predecessors did in the 1930s and after the end of World War II. Given the realities of a globalized and interconnected world, such social and economic reforms are, of course, complex, numerous and multi-dimensional. Necessarily, they have to be undertaken at the national, regional and global levels.
This paper, however, focuses on only one major socio-economic reform – “social protection for all”, as raised by the ILO in its Decent Work Agenda (DWA). One must be reminded that social protection is a fundamental human right that must be enjoyed by every human being in accordance with the 1948 UN Declaration on Human Rights – in crisis and non-crisis times. It is the basic and mandatory obligation of every government to ensure that every citizen is able to enjoy minimum standards of social protection.
This paper argues that extending social protection for all is not possible if there are no radical changes in the architecture of or rules in the global financial and economic order. These changes require social and economic policy coherence at all levels. In fact, the challenge of meeting such coherence and full social protection for all provides a good means of fostering policy coherence.
The race to the bottom: the roots of the GFC
The GFC presents the world an opportunity to find long-term global solutions to the cycle of unsustainable global imbalances, financial bubbles, economic crises and weak social protection for the majority who are affected by these imbalances, bubbles and crises. These imbalances, bubbles and crises are directly traceable to the reality of a global race to the bottom. In turn, this race to the bottom is facilitated and fuelled by the neo-liberal ideology that has become ascendant everywhere, starting in the l980s with the World Bank prescribing its structural adjustment program (SAP) for heavily indebted economies and the Reagan’s America and Thatcher’s United Kingdom embracing the ideology of “privatization”.
Some explanation on this global race to the bottom is in order.
Simply put, the race to the bottom means the efforts of big firms, the transnationals (TNCs) in particular, to ignore global labor, social and environmental standards in their blind pursuit of global profit-making activities. Such a race to the bottom explains the terrible weakening of the labor movement almost everywhere as global capital flies in and out of deregulated national markets in search for the cheapest production platforms, which include union-free export processing zones (EPZs). This has even pitted host countries against each other in their frenzied drive to attract global capital by sacrificing global and national labor, social and environmental standards.
In Asia, this race to the bottom is illustrated by the rise of Factory Asia (Baldwin, 2007), or the chain of production activities organized or outsourced by the TNCs in different sites in Asia, primarily in EPZs or enclave areas where unionism is held at bay. Among the leading products of Factory Asia are electronics, auto parts, garments, textiles, furniture, toys, watches, household appliances and other labor-intensive products that are retailed by Wal-Mart and other big transnational retailers.
This race to the bottom took definite shape in the 1980s when the Reaganite/Thatcherite “privatization” program swept the OECD countries. At about the same time, the World Bank and the IMF imposed on heavily-indebted countries their SAP, which pushed for privatization, economic deregulation and trade and investment liberalization as the uniform solutions to underdevelopment. Both the Reaganite/Thatcherite privatization program and the World Bank’s SAP were inspired by the ideas of the so-called “Chicago school” of economics led by Milton Friedman, who believed in liberalized or “unfettered markets” as the panacea to almost every economic problem.
The labor economists in the World Bank and other think tanks seized the neo-liberal Friedmanesque thinking by declaring unionism, collective bargaining, social security and other protective labor institutions as “rigidities” in the labor market, or as unwelcome interference in the free interplay of supply and demand in the labor market (see, for instance, the neo-liberal arguments in Harrison and Revenga, 1998; World Bank, 1995). Thus, under the neo-liberal interpretation of how the labor market should behave, a strong interventionist labor movement is blamed as the cause of unemployment in a given society. Accordingly, job-creating capital does not come in when wages do not go down due to institutions of unionism and collective bargaining.
In industrial relations terms, this neo-liberal treatment of the labor market has been translated by CEOs and human resource managers into “strategic HRM” or personnel policies supportive of lean-and-mean business operations without regard to the welfare and social needs of the workers. This strategic HRM is part of the radical change in the teaching of business management which swept the MBA schools in the 1980s and 1990s. This change ignores the social dimension of business and expounds single-mindedly on the supposed primary mission of the managers, which is to increase the “shareholder value” of the business owners at all cost, including competition with their own suppliers, customers, regulators and, yes, employees. This effectively freed the MBA students or the new generation of would-be managers from any sense of moral responsibility in the conduct of business (Goshal, 2005).
Likewise, the US Federal Bank chief, Alan Greenspan, used the same neo-liberal thinking by helping repeal in 1999 the Glass-Steagall Act, a Depression-era law regulating operations of commercial banking and separating it from investment banking (Mah-Hui Lim, 2008). This financial deregulation and the general hands-off policy of Greenspan in the “excessive financialization” in Wall Street are at the roots of the so-called financial bubbles which burst into a costly and painful American financial meltdown and global economic recession. Sadly, the mass media have simplified the explanation for this financial meltdown into a case of “greed”, that is “excessive greed” by a few financial speculators bringing the financial house down. This, of course, is true only up to a point.
For the bigger picture is that this excessive speculation-financialization phenomenon is the natural outcome of the global and regional race to the bottom, which is facilitated by the neo-liberal SAP program of market deregulation or the worship of unregulated “free markets” dubbed in the 1990s as the “Washington Consensus”. This race to the bottom has caused a disequilibrium in the global market, or an imbalance in the global supply and global demand. There has been a global “overproduction” of goods, especially those produced by the TNCs under their Factory Asia in Chinaand other countries. At the same time, there is growing global “underconsumption” of the same goods because the workers and farmers producing these goods have declining wages and incomes under an unequal and unjust race to the bottom. This global overproduction-underconsumption pattern engendered by the race to the bottom is easily validated by the widening gap in many countries between rising labor productivity and labor compensation in the l980s up to the 2000s, as shown for example in the case of the United States itself. A recent ILO global wage report also shows that between 1995 and 2007, global wages global wages grew by 0.75 per cent annually versus a GDP per capita growth of one (1) per cent annually. Moreover, in this period, the share of profits in the global GDP had been going up, the gap between the top wage earners and those in the bottom had been widening and collective bargaining coverage had been going down.
In the meantime, the TNCs able to accumulate super-profits from their global production and service chains also increasingly turned to financialization and financial speculation in the neo-liberal decades of the l980s up to the 2000s. General Electric and the big auto makers such as Ford and Toyota expanded their corporate earnings by going financial, while hedge funds, private equity companies and investment banks used the global financial and market deregulation to create speculative bubbles in the stock markets, currency markets, credit markets, housing markets, commodity markets and futures markets. EvenChina, after accumulating around US$3 trillion savings invested a trillion of its dollar savings on theUSfinancial market, the world’s biggest, and bought into Blackstone, the world’s leading private equity company.
East Asia, of course, had a bitter experience with these bubbles in 1997-98. This is the reason why Asian unions, AMRC and academics opposed to neo-liberal globalization have been calling – since the Asian crisis — for the monitoring of these non-regulated speculative financial operations, especially those undertaken by the hedge funds and private equity companies. They have also raised a number of times the dislocating impact on employment and society of these speculative activities, which often lead to job-displacing MACs (mergers-acquisitions-consolidations), union-subverting corporate reengineering exercises, and the erosion of job, union and income security of workers.
Joblessness, unequal growth and flexibilization in Asia
One outcome of the global race to the bottom is a pattern of a jobless and unequal growth, which is amply illustrated in the Asia-Pacific region.
Asia’s labor market before the GFC
Before the global financial meltdown, Asia-Pacific was hailed as the model region of globalization, reported as the fastest-growing as a result of rapid economic liberalization and integration in the global economy. And yet, the UNDP’s Human Development Report (2006) noted the great social and economic contradiction when it asked rhetorically: Asia has embraced free trade, but has free trade embracedAsia’s poor?
In terms of the labor market, the UNDP’s answer is largely negative. Yes, around 250 million living on less than a dollar a day were lifted out of poverty through more and better jobs between 1990 and 2001. However, majority of these jobs were generated inChina, the world’s work shop. In the rest ofEast Asia, especiallySoutheast Asia, growth was jobless as indicated by the fact that 337 million jobs were created in the l980s but only 176 million jobs in the 1990s. Also, the UNDP noted the deepening inequality inChinaand the rising number of unemployed youth in this country.
One explanation for the jobless growth phenomenon inAsiais the low employment elasticity in many Asian countries as documented by an ADB research team (Felipe and Hasan, 2005), meaning fewer jobs are being created despite higher level of investments and higher economic growth indices. This means the increasing application of technology and productivity upgrading schemes. This is not bad per se except that part of the productivity enhancement could be due to work intensification via multi-tasking arrangements which is happening across industries. Another explanation is the consequent dislocation or destruction of domestic industries and farms (and subsequently, of jobs and incomes) as a result of the transnational domination of the local economies, facilitated by the neo-liberal trading policies which have put local producers at a disadvantage in their own markets. This “hollowing out” phenomenon is observable in middle-level countries such asIndonesia,Philippines,Thailandand many South Asian countries. A third explanation is, of course, the devastating impact on East Asia of the 1997-98 Asian financial crisis, which is the regional forerunner of the present global financial meltdown, which has now become the Great Recession.
InSouth Asia,Indiais projected as another miracle economy under globalization. And yet, the high GNP growth registered byIndiain recent years still has to filter down to the masses. Yes, the “sunshine” IT and IT-enabled sectors (IT services, BPOs and call centers) have created around four (4) million jobs. However, this is a drop in the 400-million-strong labor market bucket ofIndia. In fact,Indiahas one of the highest rates of informal employment, estimated to be as much as 93 per cent of the total employed work force (Ofreneo, 2008). Its neighbors –Pakistan,Sri Lanka,BangladeshandNepal– also have similarly high informal employment rates. Even the garments industry, the region’s leading employer, is partly done through an intricate system of informal subcontracting, which makes union formation difficult.
Globalization has also failed to reduce the size of the informal economy, where jobs are generally precarious. As documented by the ILO, informal employment inAsiawas around 65 per cent of total non-agricultural employment in the region (for a regional and country-by-country report on informal employment, see AMRC, 2008 Labor Law Report).
To make matters worse, the formal sector, puny as it is in most Asian countries, is being subjected to massive “informalization” or “flexibilization”. Despite their differing levels of development, virtually all Asian countries are moving towards “external flexibility” (Ofreneo, 2008), meaning HR managers have been resorting to the increased hiring or utilization of “short-term workers” variedly called as “dispatched workers”, “non-standard workers”, “agency workers”, “casuals”, “irregulars” and so on. InJapan, the country of “lifetime employment”, the ratio of the “non-standards” to the regulars rose from 1:3 in the 1990s to 1:2 by 2003. InKorea, the “irregulars” began outnumbering the regulars after the 1997-98 Asian financial crisis, which was used as a justification by policy makers to “deregulate” the labor market. InChina, the old “iron rice bowl” job security disappeared with market reforms, which, in turn, paved the way for the rise of a large “floating population” of rural migrants and displaced workers from the crumbling state-owned enterprises. The same phenomenon happened inVietnam, where the old concept of “bien che” or work for life has also disappeared. In the other Asian NICs (Singapore,Taiwan,MalaysiaandHong Kong), flexibility comes in the form of increased utilization of foreign migrants assigned to do the 3-D jobs (dirty, dangerous and difficult). In the rest ofAsia, flexible labor is the norm in the formal sector under various hiring arrangements.
To sum up, globalization has succeeded in creating good quality jobs for a few, especially in new growth sectors such as the IT and IT-enabled sectors. However, the overall labor market picture is not exactly attractive. Before the GFC, the labor market of Asia had the following characteristics: deepening inequality in China and other “winners” of globalization, jobless growth in many Asian countries, a large and growing informal economy in developing Asia, and massive informalization or flexibilization in the formal sector in virtually all countries, both developed and developing. Such features of the labor market make any labor organizing a daunting task and the campaign for “decent work” sound hollow.
Asia’s jobs market under the GFC
With the GFC and the slow global economic recovery for the real sectors (industry and agriculture), the jobs market in Asiahas become dire. A comprehensive region-wide compilation of data on the impact of the global crisis on the different Asian economies and their labor markets is still difficult to find. An economic team from the ADB (James et al., 2008) pointed out that the exposure of Asian banks and financial institutions to the USsub-prime/credit crisis is limited, with Japanese banks incurring US$10.8 billion losses, or less than 3 per cent of estimated global losses, and China’s banks, US$2.8 billion losses. Most of the Asian banks also have higher percentages of capitalization and have understandably been able to withstand the global financial meltdown and the herd-like pressure for a bank run. This was obviously a result of the bank re-capitalization program in many Asian countries following the l997-98 Asian crisis.
However, the more worrisome effect of the global crisis is on its adverse and domino-like impact on the “Real Economy” of Asia as a result of the contraction in global trade, flow of foreign direct investments (FDI) and migrant remittances as pointed out by the ADB team and the ILO Regional Office (2009). For 2009, global trade is projected to contract by around 10 per cent and FDI flows to emerging economies by over 80 per cent. First to be hit by this global contraction are the export dynamos ofAsia, namely:China,Japan,Taiwan,Korea,MalaysiaandSingapore. In early 2009,Chinareported around 20 million factory workers displaced from their jobs, whileSingapore, a relatively stable but trade-dependent economy, suffered a double-digit recession in 2008. The electronics and auto export sectors piloted byJapan,TaiwanandKoreaalso dropped precipitously in 2008, resulting in massive job cuts and factory shutdowns in their overseas assembly plants inChina,Indonesia,Philippines,ThailandandVietnam. The same pattern obtains in the case of the garments, textiles, furniture and other labor-intensive export industries based on the transnational production chain system dubbed by an ADB economist as “Factory Asia” (Baldwin, 2007).
In many Asian countries, the negative job impact of the contraction in global trade, investment flows and migrant remittances is being felt only in 2009 because of the time lag in the effect of these changes on domestic employment, consumption and other economic activities. For example, the Philippines, which proudly proclaimed itself as immune from recession in 2008, is now on the World Bank’s 2009 list of recession-prone countries. ThePhilippineshas 10 million overseas workers and immigrants remitting over US$15 billion a year to their families at home. These remittances sustain the country’s expanding service industries. With the exception ofJapan, the Asian NICs andBrunei, all countries inEast AsiaandSouth Asiahave high dependence on migrant remittances and are vulnerable to global migrant remittance slowdown.
Overall, the features outlined earlier in the pre-crisis period are now becoming even more pronounced. Increased joblessness and job dislocations in the formal sector and in the overseas labor market mean more informal and vulnerable employment, more informalization and flexibilization in the hiring arrangements in the formal sector, and increased poverty everywhere. All this are leading to a deepening crisis in industrial relations and a tougher environment for union organizing and bargaining. For many Asian workers, the problem is compounded by the absence of a reliable system of safety nets for the adversely affected outside the usual extended family system.
When the Great Recession was officially admitted by the OECD in the second half of 2008, the ILO estimated the global job losses would reach over 20 million. This number was quickly dumped as the number of the displaced workers in theUnited StatesandEuroperapidly rose by the millions and the total for the officially dislocated inChinaalone reached 20 million. Thus, in January 2009, the ILO raised the projected total job losses to reach over 50 million worldwide under a “scenario 3” (deep recession). In June 2009, the ILO mentioned that more job losses are forthcoming and that the jobs crisis is likely to persist for some time (ILO, 2009; ILO/ILS, 2009). Also, another looming problem is the rising number of young labor entrants who can not find jobs. Globally, there are around 45 million new labor entrants a year.Asia, the world’s most populous region, accounts for a large percentage of the young labor force and the displaced work force of the world. Chinaalone graduates over six (6) million college students a year.
The biggest worries of many workers inAsiaare how to not to lose a job or how to find one. InJapan, some commentators refer to the present job situation as the “Ice Age” (Asia News Network, 2009). As it is, the icy bearish jobs market is also increasingly being felt in the service sector – finance, commerce, banking, telecoms, education, tourism, and entertainment and so on. For some countries, this is triggered by the decline in migrant remittances. For others, it is simply the consequence of falling consumer demand, due to falling incomes and rising fears about the economy.
Rise of the “vulnerables”
With the wage labor market in both the industrial and service sectors shrinking, the “vulnerable” labor market, consisting of the low-value-added self-employed sector and unpaid family work, is correspondingly expanding. Over one (1) billion workers or roughly 60 per cent of the work force in the Asia-Pacific region belong to the vulnerables, with South Asia having the highest share (75 per cent) followed by East and South East Asia (60 per cent). Under a deep recession scenario, the ILO estimates that over 60 million will be added to the ranks of the vulnerables 2009 (ILO Regional Office, 2009). With huge job losses in the formal sector already occurring in China, India, Indonesia, Malaysia, Philippines, Thailand, Vietnam and other countries, this scenario is not a far-fetched possibility.
Timid global solutions from the G20
In the light of the foregoing, the results of the G20 meeting in April and September 2009 and the ensuing anti-recession initiatives by the major economies are clearly limited and woefully weak. Thus far, the boldest measures undertaken by the major economies are huge fiscal stimulus packages now amounting globally to over US$3 trillion dollars and the institution of tighter financial regulations in a number of countries. However, the stimulus spending inAmericahas come under severe criticism because the stimulus appears directed to “socializing” the losses of the big banks, insurance companies and corporations while passing on to the tax payers the cost of the huge bailouts. The overall logic is that these giants are “too big to fail” and that allowing them to go under would precipitate a system collapse. It appears that theUSgovernment, bent in preserving its privatization policy, has ended up providing “corporate safety nets” for its financial giants instead of “social safety nets” for millions of unemployed Americans (Stiglitz, 2009).
In contrast, a number of East Asian countries, principallyChina,Singapore,India,IndonesiaandJapan, have intensified stimulus spending by focusing on job generation through increased consumption at home via programs such as consumer discount coupons, buy-local campaigns, etc. This, of course, is a deviation from the old export-or-perish thesis, which reduces job creation to export drive promotion.
Will there be then a complete overhaul of the Washington Consensus and a non-recurrence of a recession-bound financial meltdown?
The answer to both is a sad no.
As mentioned earlier, the reforms in the financial sector in the leading countries have not gone far enough. These are timid reforms: higher capital reserve requirements for the banks, improved financial supervision and closer monitoring of futures and derivatives markets. The central issue of returning banking to its original mission of serving as a financial mediator between savers and producers, not as a facilitator of speculative financial transactions, has remained largely untouched.
More importantly, there are no reforms in the global production and trading systems that have been advanced. In short, there have been no efforts to arrest the race to the bottom, which is at the roots of the present global crisis as outlined above. In particular, there are no labor reforms being discussed as solutions to the crisis. This is why even Nobel Prize economists such as Joseph Stiglitz, Paul Krugman and Amartya Sen wrote papers reminding the policy makers that part of the Keynesian reform package in the 1930s came in the form of labor reforms such as the legal recognition given to unionism and collective bargaining as well as the enactment of social security and other safety net measures. All these protective labor institutions, including the subsequent unemployment and health insurance scheme, have become the material base of the welfare state and a powerful platform of productive growth for Western Europe from the end of World War II up to the early 1970s (Kaufman, 2004).
Towards social and economic coherence: putting people at the center
In the context of the present global crisis, similar 1930s-type labor reforms would have helped restore the much-needed equilibrium in the global economy, specifically in balancing global supply and global demand for goods. But then this would mean reversing the race to the bottom and institutionalizing bold changes in the global economic architecture and the way it is governed, be it at the financial sector, production system and trading system.
A guiding reform principle should be how to put people at the center of development. This means officially abandoning the neo-liberal Friedmanesque framework of economic programming that literally worships on the abstract altar of free trade, on the so-called free interplay of global market forces unmindful of the impact of such interplay on people’s lives and jobs. Putting people at the center means there should be policy coherence in terms of economic, social, labor and, yes, environmental policies. Putting people at the center means there should be policy coherence at the national, regional and global levels. For example, global labor, human and environmental standards should be enshrined in regional trade agreements like the ASEAN + 3 (ten ASEAN countries plusChina,JapanandKorea) or ASEAN +3 + 3 (includingAustralia,New ZealandandIndia). These standards should have enabling national laws and programs in the individual countries.
Putting people at the center means the development of minimum ethical standards of behavior for the global corporations, or all those with a cross-border capacity to ply in their trade or set up plants or businesses in two or more countries. Part of a minimum code of behavior is the prohibition on speculative non-productive investment. Another is respect for the labor, human and environmental rights of the people as reflected in the UNDP’s “Global Compact Initiative”. The challenge to the UN system is how to make this GCI universal and enforceable.
Putting people at the center means the global and regional financial institutions such as the World Bank, IMF and ADB should likewise change their lending policies by adopting the above principles as lending guidelines. Lending should be in support of people’s development and capacity building, not lending to squeeze developing countries further through onerous debt obligations and policy conditionalities. Likewise, there should be bolder and more pro-people reforms in the financial system at the national, regional and global levels. The primary purpose of financial institutions must be to provide responsible and sustainable financial services for society, not to make profits for shareholders. This means bringing back the original purpose of banking as a mediator of financial service in support of productive consumption, production and circulation in the economy. There should be greater transparency in the operations and supervision of financial institutions, which can be achieved at minimal cost if the financial employees and their unions are mobilized for this purpose. One approach is the taxation of short-term selling as such activity is obviously speculative and subversive of economic stability; on the other hand, society can provide incentives to investments that are truly directed towards job-creating productive activities.
Putting people at the center means reforms in the global and regional trading system. The WTO, APEC, AFTA, SAFTA and other similar trading agreements or bodies should abandon the one-size-fits-all liberalization model in favor of a more pragmatic and flexible system of trade policy calibration based on a society’s level of development and capacity. In short, the full operationalization of the principle of “special and differential treatment”, which is stated over a hundred times in the WTO’s multiple agreements, including its Preamble. The SDT principle should be complemented by programs supportive of the labor, human and environmental rights of the people. In fact, the present global crisis is an opportunity for the WTO to launch a truly developmental multilateral trading arrangement based on the principles of equity, reciprocity, justice and solidarity.
Extending lifelines for all, promoting social protection for all
Finally, putting people at the center means extending lifelines to all, in particular social safety nets to the unemployed, displaced and the vulnerables and informals, all of whom are the leading victims of the present global crisis. The primary contents of any economic stimulus package should not only be economic revival measures (which can be jobless) but also the formal recognition and extension of minimum social protection for all.
In this context, it should be made clear to all sectors of society, including domestic and foreign investors, that there should be a new system of doing business and work – away and distinctly different from the disastrous race to the bottom. There should instead be a Race to the Top based on the virtuous circle of stronger labor-management cooperation and partnership leading to higher productivity and competitiveness, which, in turn provides greater spaces for higher growth, employment and development for society.
Asiashould heed the ILO call for decent work for all. By definition, decent work is “productive work” obtained “in conditions of freedom, equity, security and human dignity”. In concrete terms, decent work happens when
n basic labour rights are respected,
n fair and life-sustaining wages are given,
n humane conditions of work are provided, and
n job holders are assured of social and economic stability today and tomorrow.
The problem, as outlined earlier, is that under globalisation, decent work is a vanishing reality in many Asian countries. ILO’s decent work programme is a sisyphus-like undertaking, for the general trend is towards a race to the bottom, which makes jobs less decent and decent jobs more and scarcer.
Yes, the ILO has a program propagating decent work through its Decent Work Agenda (DWA). Briefly, it means the promotion of core labor standards, social dialogue, employment creation and social protection for all. Unfortunately, many countries tend to equate the DWA mainly to the promotion of core labor standards in the narrow formal sector where clear employer-employee relations obtain and where labor enforcement is easier to monitor.
Clearly, the challenge is how to create more decent jobs, on one hand, and how to make existing jobs in the large informal economy decent, on the other. This is what the G20 leaders, WTO ministers and governments all over should be debating.
On the creation of more and better jobs, it is abundantly clear that there are no hard and fast rules. However, it is also abundantly clear that the world must be prepared to accept that the one-size-fits-all liberalization formula is no development formula and should be abandoned. The world should cast aside the neo-liberal ideology of unregulated markets in favor of a more flexible, balanced and calibrated program of liberalization and protection in the economy on a sector-by-sector basis as needed. This, in essence, is the meaning of the “special and differential treatment” (SDT), a proviso in the WTO repeated nearly a hundred times in the founding document. SDT means not all countries are created equally and each has the right to pursue and plan development based on one’s level of development. This means trading arrangements should be concluded based on the principle of mutually beneficial exchanges, not an abstract free-trade system or an inflexible zero-for-zero tariff system which benefits mainly the big and powerful. This also means investment programming and campaign for FDI should be based on a country’s real development needs for technology, market, value addition, etc.
Towards an Asian and global social protection floor
As to social protection, the European and global experience shows that comprehensive social protection schemes serve as stabilizing as well as sustaining factors in the growth process, as discussed earlier. In crisis times, they become natural counter-cyclical economic programs which help arrest the fall in the aggregate demand.
However, the question often asked is: can developing economies afford universal social protection? CanAsiaafford it?
First, it should be pointed out that a system of universal social protection means a system which recognizes that no citizen should be allowed to fall in society because of deficiency in income, food, shelter, education and health, especially in times of adversity like accidents and job dislocations (ILO, 2008). Social security is a universal human right.
Second, different societies have a plurality of social security systems, which include high-end voluntary insurance schemes for the more financially capable, mandatory contributory social insurance for the wage workers in the formal sector, community-based mutual assistance schemes and government-assisted social assistance schemes. The challenge for many government is multi-pronged – how to monitor and regulate the private insurance industry (which is prone to engage in speculative investments), how to strengthen the mandatory social insurance system (in particular how to safeguard the funds of members and how to provide non-pension services such as unemployment insurance), how to help upgrade the work of community-based solidarity groups and how to sustain social assistance projects (which target the numerous poor based on limited resources or budget).
A recent ILO study (Social Security Department, 2008) shows that six percent of a country’s GDP is needed to meet the basic nets of security – essential health care, basic child benefits, universal old-age and disability pensions and at least 100-day employment a year – for all citizens of a society. InAsia, the ILO modeling study coveredBangladesh,India,Nepal,PakistanandVietnam.
The whole point is that no country is too poor not to be able to provide social security for all. In fact, history shows thatEuropeembraced the concept of universal social security right after World War II, when most of them were in shambles.
Of course, a social security floor, monetary-wise, has to be determined nationally. But the general principles have to be universal.
There should also be a continuous program of sharing good practices. For example, in the case of universal health care, a key to the effective health service delivery and universality of coverage is a system of preventive health care programs and facilities involving people participation at the community or grassroots level.
To conclude, an Asian social security floor is indeed affordable, if Asian governments have the political will. The comprehensive social security proposal of AROSS – universal social assistance for the poor, a universal flat rate pension at 20 per cent replacement value, and workmen’s compensation, minimum wage and unemployment insurance for all – is timely and should enjoy the support of all in Asia. This is the right step in reversing the Asian and global race to the bottom.
References
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[1] Keynote paper for the “Asian Regional Roundtable on Social Security (AROSS)”, Hong Kong, October 8-10, 2009. Conference organizers: Asia Monitor Resource Center (AMRC), Center for Social Policy Studies of Hong Kong Polytechnic University, Hong Kong Social Security Society and the Social Welfare Practice and Research Center of the City University of Hong Kong. The paper draws heavily from a background paper prepared by the author for the Regional Conference of the Union Network International/Asia-Pacific.
[4] This law, enacted in the Depression years of the 1930s to rein in free-wheeling speculative investment banking, was repealed in l999, at the height of the era of financial “irrational exuberance” under US Fed Chairman Alan Greenspan (Mah-hui Lim, 2008).
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