Transcript Responding to Global Crisis and Decent Work

Responding to Global economic crisis,
Decent Work and challenges before TUs
Global economic crisis
- What caused it ?
- Who is paying for it?
- How are govts addressing the issues?
-What can we learn from it?
Causes- Sub prime housing loans?
Crisis erupted when housing interest rates were raised in
Aug 2007, housing loan defaults started, housing market
crash & securities based on house loans became
worthless…
banks & insurance Cos. fail  liquidity crunch  real
economy faces credit squeeze  consumption, building
activity & cash flows reduce  US recession + globalization
 global troubles
Causes
• Crisis of over production/over capacity, erosion of
profitability and income inequalities and imbalances in the
distribution of global wealth within and among countries that
limit purchasing powers and markets???
• lack of regulation of financial markets & institutions ‘markets know the best’ philosophy – greed & speculation de-regulation of economy & labour markets
A look at the past
• 1945 -1970s: welfare state, keynesian economic policies,
strong unions, rapid economic growth – this period came to
end in late 1970s due to - increased global competition,
tremendous rise in productive capacities (Germany, Japan,
Taiwan, Korea, Brazil), reducing profitability – on top of this
process came oil price shocks
• Post 1970s - Reaganism & Thatcherism: privatisation &
structural adjustment (1980s) - redistribute incomes
towards the rich on the theory that rich invest & that will
promote economic growth – have these policies worked?
Global Economic Growth
Source: Wall Street Meltdown Primer – by Walden Bello, published on Friday, Sept 26, 2008 by Foreign
Policy in Focus
The world at the turn of the century
• Richest 20% pocket 86% of the world’s GDP; and the
poorest 20% mere 1%.
• 200 richest people in the world had combined wealth of over
$1 trillion, equal to the combined annual income of 41% of
the world's people (2.5 billion)
• 1.3 billion people — over one-fifth of the world’s
population— live on less than one dollar a day & lack
access to clean water;
• Over 2 million workers die from occupational accidents or
work-related diseases every year.
Unequally placed World (2002, in %)
• Share in World
Income/GDP
HIC (80.5), MIC (11.5), LIC
(2), China & India (6)
• Share in World
Trade
HIC (72.9), MIC (15.6), LIC
(2.7), China & India (8.7)
• Share in FDI
HIC (76.6), MIC (12.5), LIC
(1.1), China & India (9.8)
Source: ILR, 2004/1-2, Vol 143, ILO, Geneva
…then came Globalization
• Integration of China, India, Brazil, Russia, & many other
emerging market economies – as production centres,
markets, sources of cheap labour, raw materials
• Almost 40-50% of the profits of US corporations come from
their operations & sales abroad now, especially in China.
• But - Globalization increases the problem of over-capacity,
which depresses prices & profits
Rise of Financialization
• Declining profits in industry & agriculture gave spurt to
financial sector investments
• Financial sector creates profits but it doesn’t create new
value
• Growth of trading in derivatives (Value of credit derivatives
market is estimated at more than 8 times the global GDP)
Financialization of Economy
• Growth of (unregulated) private equity capital/hedge funds
and their operations in mfg sector - profits are made by
selling-off assets of companies, downsizing, reducing
investment in plant & equipment, shutting down mfg
operations, outsourcing production, share buy backs – all in
the name of maximizing share-holder value
• Even mfg companies play markets rather than produce
(Ex GE, GM, Porsche) – even social security funds
Volatility of financial sector
• financial crises since capital markets were deregulated &
liberalized in the 1980s
- Japan in 1989-91
- Finland, Italy, UK, Sweden in 1992
- Mexican financial crisis in 1994-95
- Asian Financial Crisis in 1997-98
- Russian Fin Crisis in 1998
- Argentine Fin collapse in 2001-02
- US technology stocks crash in 2000-01
Outline of 1997 Asian Financial Crisis
First - capital account & financial sector liberalization

Then came - foreign funds (seeking quick & high returns)

over investment in real estate & stock markets - prices fall

About 100 billion flees out of the East Asian countries within
few weeks

economic collapse  recession in the real economy
IMF bails out FIIs BUT opposed the national govts when they
wanted to impose controls & implement measures that US,
Europe & other countries are doing today.
Impact of Crisis
• 212 mn jobless worldwide in 2009 (ILO) – crisis added 34
mn additional unemployed since 2007
• 633 mn workers & their families living on below $ 1.25/day
in 2008 – about 215 mn additional workers were living on
the margin and at risk of falling into poverty in 2009
• Abt 40% drop in FDI in 2009, with more than a 50% drop in
some developing countries (UNCTAD). International trade
volume fell by 15% in 2009
• Impact of economic slow down & fall in govt revenues on
social welfare expenditures???
Impact on Asia
• Outflow of capital from Asia (>100 billion $$$ in 2008) –
what was its impact on Asian economies, stock markets &
currencies?
• Impact of recession in western markets on Asian production
employment & economic growth
• Impact of credit squeeze on domestic investments, industry
& jobs
• Remittances, foreign aid, govt revenue – all go down
Impact on Workers
• Job losses (migrants, youth, women)
• Implications for collective agreements & industrial relations
(wage cuts, wage freeze, higher work loads, forced unpaid
leave, default on social security contributions, rise in casual
unprotected work, violations of FoA – all these are decent
work deficits)
• Impact of job losses on family welfare: nutrition levels,
children education (girl child), burden on woman,
alcoholism, housing
• Workers pension funds - globally pension funds lost over 5
trillion $ between 2007 & 2008) – in some countries where
pensions were privatised (ex in Latin America), they lost
more
Impact on Social Security
• SS revenues & reserves fell - due to fall in contributions &
investment incomes, decline in govt subsidies & through
rising non-compliance
• Public social security funds lost over $ 225 bn in 2008 - for
some funds, the loss represents as much as 5 five years of
investment income
• Loss in private pension assets in 2008: $ 5.4 trillion (as per
OECD estimate)
This loss has been followed by rising social security
expenditure due to increased demand for benefits for
unemployment, housing & social assistance.
Responding to Crisis
Measures to stabilize financial markets & preserve lending
to enterprises & households & hence employment and
incomes - included
• Central banks cut interest rates, expanded money supplies
& eased requirements on collateral for refinancing
operations by central banks
• Governments enacted large fiscal stimulus packages, by
borrowing & spending to offset the reduction in private
sector demand caused by the crisis
• Govts bailed out a variety of Banks & firms thru loans, asset
purchases, guarantees, and direct spending
• Establishment or enhancement of bank deposit guarantees
• But many countries with large levels of foreign debt, high
inflationary pressures and facing massive capital flight could
not take counter cyclical measures (Hungary, Ukraine,
Latvia & other CIS countries) – to avoid depreciation of
currencies & increasing debt servicing costs – these
countries had to take loans from IMF and implement
austerity measures – to build confidence in the financial
markets BUT these had negative impacts on employment,
wages and investment.
China’s response
• RMB¥ 4 trillion (US$ 586 billion) stimulus package
announced by the government on 9 November 2008
• Funds to be invested in areas such as housing, rural
infrastructure, transportation, health and education,
environment, industry, disaster rebuilding, income-building,
tax cuts, and finance – 38% of the stimulus package spent
on public infrastructure projects (1.5-trillion yuan)
• Chinese economy doing better than expected but the
country's exports are still down, as the rest of the world
struggles with the global recession.
Actions being thought about
but not taken so far
•
•
•
•
•
Series of proposals for regulating banks and financial
markets have been put forward but not implemented so far:
regulation of the shadow banking system & derivatives
market
Re-instate the separation of commercial (depository) and
investment banking
Break-up institutions that are "too big to fail" to limit systemic
risk
Restrict the leverage that financial institutions can assume
Require executive compensation to be more related to longterm performance
Actions being thought about
but not taken so far
• Tobin Tax – tax financial transactions – Ex. 0.005% tax on
currency exchanges & derivatives trading would raise £100
billion ($150 billion) a year globally
• Financial Transaction Tax (FTT) - at an average rate of
0.05% a FTT, applied globally, could raise as much as $400
billion (£250 billion) a year.
• Require financial institutions to maintain sufficient
"contingent capital“
• Impose haircuts on bondholders and counterparties prior to
using taxpayer money in bailouts
“The current recovery plans are necessary, but insufficient.
It is not enough to inject money into the economy, we need
to change its principles to make sure it generates social
justice, development for all, equity, stability and long-term
prosperity,” – says international labour movement.
Union view
• Regulate Global Finance - such as hedge funds & private
equity funds;
• Create a financial transaction tax – to dampen speculation &
raise funds for development – Ex: 0.005% tax on just
currency exchanges & derivatives trading would raise £100
billion ($150 billion) a year globally
• Regulate executive & shareholder bonus & remuneration –
to discourage short term view of financial investments;
• Close down tax havens;
What should be the objectives of International financial
markets ? expand the casino in more orderly fashion OR to
channel resources into real economy? Regulate financial
markets so that these serve the objectives of real economy
Union view
• End deregulation of employment market & ensure respect
for fundamental rights of workers (FoA & CB rights)
• Ensure basic social security for all (effective social
protection measures would have minimized ‘impact of
economic crisis’ and assisted in improving effectiveness of
stimulus/recovery packages - worries about economic
insecurity lead to people postponing decisions regarding
consumption or investment)
• What else???
ILO Approach
• Tripartite dialogue with social partners - should play
a key role in addressing the economic crisis &
developing policy responses at national level.
Pre-condition for effective social dialogue: ???
• Global Jobs Pact – a decent work response to
crisis.
Global Jobs Pact
• "Global Jobs Pact“ was adopted during the ILC on
19 June 2009, following the ILO Summit on the
Global Jobs Crisis (which was attended by the
heads of state & governments, ministers of labour,
workers' & employers’ representatives)
• GJP places decent work at the heart of the global
recovery measures and is aimed at stimulating
economic recovery, job creation and the protection
of workers and their families.
ILO’s Global Jobs Pact
Framework for national & international policies aimed at:
– A global economic recovery with job creation and the
provision of social protection to working people and their
families at its core;
– Stronger regulatory framework for the financial sector;
– Efficient and well-regulated trade and markets;
Policy options identified include:
– Employment incentive public investment;
– Special employment programmes, training, skills
– Support for enterprises
– Broadening social protection and minimum wages
Atleast one lesson for Asia
• Over dependence on exports & western markets
Almost 60% of final demand for Asian goods comes from
developed countries. Exports account for about 47% of
developing Asia’s output
• For economic & social stability at home - Asian countries
need development & expansion of domestic markets – this
implies Decent Work & respect for fundamental labour
standards.
Sources & further readings
•
Wall Street Meltdown Primer – by Walden Bello, published on Friday, Sept 26,
2008 by Foreign Policy in Focus
• Talking Points: Economic Meltdown – by Chuck Collins, Oct 27, 2008, Institute
for Policy Studies (www.ips-dc.org)
• How bailouts Dwarf other global crisis spending – by Andersen, Cavanagh &
Redman, Institute of Policy Studies, Nov 24, 2008
• Voices from the South – Impact of the financial crisis on developing countries –
Institute of Development Studies, Nov 2008 (www.ids.ac.uk/go/financial-crisisimpact)
• ILO Global Employment Trends Report 2009
• IUF (www.iuf.org): The G20 and After–Questions for Labour, 15 Dec 2008
• Source: Financial Times, Asia and the crisis: Unlucky numbers By David Pilling,
February 9 2009 http://www.ft.com/cms/s/0/65599c38-f6e1-11dd-8a1f0000779fd2ac.html
• RECOVERING FROM THE CRISIS: A GLOBAL JOBS PACT http://www.ilo.org/wcmsp5/groups/public/---ed_norm/--relconf/documents/meetingdocument/wcms_108456.pdf
• For FTT, see- http://www.tuc.org.uk/economy/tuc-17566-f0.cfm
Group Work