Labor Standards, Human Rights, Democracy: The Role of the IMF & World Bank

1. Labor Standards, Human Rights, Democracy: The Role of the IMF & World Bank Thomas I. Palley Economics for Democratic & Open Societies Washington DC www.thomaspalley.com

2. Framing the Debate World Bank/IMF What are they doing? What should they be doing?

3. What are Labor Standards? • Qualitative rules (principles)  (1) Freedom of Association. (2) Ban on forced labor. (3) Ban on discrimination. (4) Ban on exploitable child labor. • Not “quantitative” rules – e.g. fixed minimum wage or maximum work hours. • Qualitative rules apply regardless of stage of economic development. • Quantitative rules are contingent on stage of development.

4. Labor Standards: Protectionism or Tool of Development?. • Accused of being Northern protectionism. • Reality = both “means” & “end” of development. • Means significant economic & political benefits at (1) national level, (2) international level, & (3) good for N & S. • End goal in themselves; share much in common with basic human rights... Especially freedom of association.

5. The Case for Labor Standards & Democracy - 1 • National benefits: • Reduce labor exploitation = economically inefficient & unethical. • Raise wages  helps develop domestic demand-led growth & reduces Export-led growth. • Does so in decentralized (efficient) way via workplace bargaining • Standards promote democracy & vice-versa  check on corruption & lock-in to destructive policies.

6. The Case for Labor Standards & Democracy - 2 • International benefits: • Puts a floor to the global economy  limits race to-the bottom competition (N vs. S & S vs. S) • Reduces S – S competition  helps global South capture increased share of value they produce.

7. Source: Palley.T.I., “Labour Standards, Democracy and Wages: Some Cross-Country Evidence,” Journal of International Development, 17, 883- 898 (2006)

12. The IMF, The World Bank & Labor Standards - 1 • IMF/WB have both been resistant to incorporating labor standards in their work. • Argument = (a) Political issue, (b) Not part of their mission. • Labor standardsalso viewed as an “economic distortion” by neo-classical economists. • Facts speak otherwise  labor standards consistent with the promotion of development.

13. The IMF, The World Bank & Labor Standards - 2 • Globalization suffering from failure to include social dimension need to incorporate. • Calls for a new model of global governance Existing “silo” model has institutions institutions acting alone.  Need “matrix” model where institutions reinforce each other.

14. The IMF, The World Bank & Labor Standards - 3 • Implications = IMF & WB must support other institutions • ILO responsible for labor stds. IMF & WB must officially commit to supporting ILO’s mission. • (1) Do not promote economic reform undermining stds. (2) Policy advice s/encourage stds. (3) IMF Article IV country reviews s/spotlight country failures. (4) Borrowers s/be screened for compliance, non-compliers require special approval & strategy for future compliance.

15. Conclusion • Opportune moment to do reforms. • IMF undertaking deep reform owing to failure of its business model. • WB seeking 15th IDA replenishment. • Labor & social issues have been left on the globalization table • Now is a good time to put them back on • IMF/WB are good place to start.