The IFIs and Labour Standards

1. The IFIs and Labour Standards Presentation by Peter Bakvis, Director ITUC/Global Unions – Washington Office to Civil Society Workshop on “Labour standards, human rights, democracy: Role of the IMF and WB” Washington, 12 April 2007

2. 2. Summary of presentation The IFIs and Labour Standards (The Good, the Bad and the Ugly) • Labour standards and their relevance to poverty reduction and broadly-shared development: the ILO’s Core Labour Standards (CLS) • Evolving attitude at IFIs to labour standards • Recent developments regarding observance of CLS in World Bank operations (the Good) • An anti-labour standards approach: the World Bank’s Doing Business (the Bad) • IMF/WB involvement in labour market reforms • Country-level IFI intervention on labour law reform (one Ugly example) • Recommendations

3. 3. Labour standards and poverty • A majority of the world’s extreme poor are “working poor”; 60 per cent of working poor are women • Countries characterized by “severe-to moderate poverty [more than half population less than $2 a day] have some of the highest labour force participation rates in the world” (ILO, Key Indicators of Labour Market) • Elimination of child labour over twenty-year period would result in net increase of global gross national income by 22%, Sub-Saharan Africa GNI by 54% (ILO, Investing in Every Child) • In most cases, labour is poor people’s principal or only asset • “Labor markets generally are not competitive … lead to unfair and inefficient outcomes when the bargaining power of workers is weak. … Employers may underpay workers …, force workers to work in hazardous conditions or discriminate against vulnerable groups” (WB, WDR 2005: Equity and Development)

4. 4. The Core Labour Standards (CLS) • CLS based on 8 ILO conventions (out of total of 187), considered fundamental rights conventions: • Elimination of forced labour (C. 29 & C. 105) • Elimination of discrimination in respect of employment (C 100&111) • Abolition of child labour (C 138&182) • Freedom of association and right to collective bargaining (C 87&98) • CLS promoted by international trade union movement for many years, first official forum to endorse CLS was World Summit on Social Development (Copenhagen, 1995) • ILO made observance of CLS a de facto condition of ILO membership in 1998: ILO Declaration on Fundamental Principles and Rights at Work adopted by ILO conference

5. 5. Significance of Core Labour Standards • CLS are defined as “enabling standards” that do not directly set specific norms (e.g. maximum hours, minimum wages) but enable workers to push for improvement of income, safe and healthy working conditions, adequate social protection laws • In most cases, countries that engage in violation of CLS also engage in violations of other human rights • Struggle for democracy in the workplace often leads to broader struggle for democratic rights: Key role played by trade unions in democratization in Poland (1980s), Brazil (1970s-1980s), South Africa (1980s-1990s), Guinea (2006-07), Zimbabwe (currently)

6. 6. IFIs and Core Labour Standards (i) • 1999: World Bank endorses three of four CLS “that have been shown to consistently accord with economic development. …On freedom of association and collective bargaining [FOA/CB]… the Bank is currently undertaking analysis work ” • 2001: “FOA/CB have political as well as economic implications [and] evidence about their economic benefits is mixed” (WB Social Sector Strategy) • 2002: “the Bank supports the promotion of all four CLS but does no apply conditionality on these standards in its lending” (WB president); similar declarations by IMF’s MD • 2003: WB publishes Unions and Collective Bargaining, which finds that FOA/CB in general have a neutral impact on growth but also reduce earnings inequality

7. 7. IFIs and Core Labour Standards (ii) • Sept 2003: IFC’s executive VP states that IFC will make CLS a requirement of all IFC clients after loan safeguards revision process • 2004-05: After including a CLS condition in a loan, 300 Haitian garment workers are rehired after being dismissed for trying to form a union; collective agreement signed in Dec 2005 • Feb 2006: IFC board adopts introduction of CLS requirement for all IFC borrowers; enters into effect May 2006 • Dec 2006: WB president announces that CLS will be introduced into WB-funded procurement of works contracts (infrastructure construction); new measure should take effect May 2007

8. 8. Contradictory message on CLS • WB tells China to view “so-called ‘labor standards’ ” as “threats” to export capacity and to comply with them only to minimum necessary to avoid “provoking protectionism” (WB, Essay on Economic Reform and Social Change in China, Nov 2006) • WB’s annual Doing Business (highest volume WB publication), which scores countries on investment friendliness, gives “best performer” status to Palau (2006) and Marshall Islands (2007), countries that have not ratified a single ILO convention, for their (absence of) labour regulations • DB gives perfect score to Saudi Arabia for ease of hiring/firing (unions are outlawed & women barred from some professions), but bad score to South Africa because of affirmative action rules • DB labour market flexibility indicator used in many IMF/WB country-level recommendations and conditions and used to calculate CPIA country scores

9. 9. IFI involvement in labour market reforms • WB’s stated philosophical approach on labour market reform: “Protect the worker, not the job”, • i.e. make employment protection rules that may discourage investment more flexible, but improve social protection such as income support and universal health care so that workers and families don’t fall into poverty as they search for new jobs • In many developing/transition countries, trade unions have been willing to engage in tripartite dialogue on such an approach • However, Bank’s practice on the country level is usually “Decrease job protection now, maybe we’ll support improved social protection later”

10. 10. IFIs and labour market deregulation • Relative country ranking of Doing Business hiring and firingindicators are often the basis of IMF/WB proposals to deregulate labour markets • No assessment is made of why the regulations exist, what benefit they may have or costs of removing the regulations • There is generally no proposal to accompany the deregulation with compensatory mechanisms • The result is often a loss of jobs or other benefits for workers (e.g. loss of health care, pensions), as protection is removed • These measures are put forward as policy advice, for example in WB CEMs or IMF Article IVs, or made loan conditions • Often the measures lead to major social upheavals • Seven specific country cases documented by ITUC in 2006

11. 11. One example: World Bank and labour market reform in Nepal (i) • January 2005: Nepalese trade unions, employers, government, supported by the ILO, agree on labour law reform process through tripartite negotiations • Process would make job termination rules more flexible and concomitantly establish a social security system, improve health and safety standards and ratify ILO conventions • February 2005: King seizes absolute power, suspends civil rights, outlaws assemblies, imprisons unionists and suspends tripartite labour law reform process • March-May 2005: Unions/CSOs urge WB to pressure king to re-establish democratic rule, not impose unilateral labour reform • Mid-2005: WB encourages king to decree labour reform that reduces protection against dismissal, curtails scope of collective bargaining and restricts trade union action

12. 12. WB and labour market reform in Nepal (ii) • January 2006: WB’s Nepal country director writes letter saying that rapid adoption of labour law reform will “determine HMGN’s ability to access budget support from the World Bank” • March 2006: King decrees labour ordinance designed by WB • March 2006: Nepalese unions join mass demonstrations to overthrow king’s absolute rule and restore democracy • April 2006: After hundreds of additional detentions and several deaths, king gives up dictatorial rule, restores parliamentary rule • May 2006: New government withdraws king’s labour ordinance, proposes restoration of tripartite reform process • March 2007: Tripartite agreement in principle on labour law reform package accompanied by improved social protection

13. 13. Recommendations concerning IFIs’ involvement in labour issues • WB should take labour regulations out of the mandate of the Doing Business team • WB/IMF should support processes for reform of national labour regulations through tripartite dialogue, with input from the ILO • Proposed changes to employment regulations must not be assessed only on impact for business investment, but also costs in terms of immediate job losses, increased poverty among unemployed and certain vulnerable groups, etc. • Changes to statutory employment regulations must only be considered jointly with improvements to social protection regimes and promotion of collective bargaining agreements • WB should ensure that CLS are fully applied in project lending and also observed in activities financed through policy loans, e.g. ensure that workers in restructured sectors have freedom of association and right to collective bargaining