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International labour standards
and economic interdependence
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International
labour standards
and economic
interdependence
Edited by Werner Sengenberger
and Duncan Campbell
International Institute for Labour Studies Geneva
Copyright © International Labour Organization (International Institute for Labour Studies) 1994
Short excerpts from this publication may be reproduced without authorization, on condition that
the source is indicated. For rights of reproduction or translation, application should be made to
the Editor, International Institute for Labour Studies, P.O. Box 6, CH-1211 Geneva 22.
ISBN 92-9014-533-1
First published 1994
The responsibility for opinions expressed in signed articles, studies and other contributions rests
solely with their authors, and publication does not constitute an endorsement by the
International Institute for Labour Studies of the opinions expressed in them.
Copies can be ordered directly from: ILO Publications, International Labour Office, CH-1211
Geneva 22 (Switzerland).
Preface
In. publishing this reader, the International Institute for Labour
Studies is following the good tradition of the ILO to use important anniversary years for review, reflection and assessment, for looking backwards
and forwards. Labour standards were always a focal theme in these
reviews. When the ILO reached the age of ten, a number of its eminent
officials around Albert Thomas, the first Director-General, described and
evaluated the progress the Organization had made since, in Thomas'
words, that moment of "daring and adventure" at the close of the First
World War that gave birth to the ILO. The silver jubilee of the
Organization in 1944 was again an occasion for revisiting accomplishments and considering challenges. It led to a broadening of the ILO's
mandate as promulgated in the Declaration of Philadelphia. The "golden"
anniversary in 1969, a year in which the ILO was awarded the Nobel
Prize lor Peace, gave occasion for reviews and evaluation. Finally, the
"diamond" age of 75 prompted the Director-General to put before the
International Labour Conference this year the issues raised for the
Organization by the challenges of increasing economic interdependence.
The opening of national economies to outside influences, and the
intensified competition which this entails, provokes debate on the role
of labour standards and the impact on standards. A freer flow of capital,
goods and people across borders can raise awareness of mutual economic
and social dependence and be a catalyst for progressive change. At the
same time, it can exert pressures that threaten existing social standards.
The aim of this volume is to present opinions and views on the contemporary challenges and issues posed for international labour standards,
and perspectives and directions for dealing with them. The contributors
are drawn in part from the groups constituting the ILO, i.e. governments, employers and workers and their organizations, and in part from
the academic world. We have deliberately sought to get a wide spectrum
of views, a breadth inherent in the work of the ILO over its 75 years.
We have also endeavoured to achieve a broad geography of views by
attempting to strike a good regional balance among contributors. The
aim has been to construct an international barometer of informed
opinion on the relationship between social justice and the market. The
distribution of the authors in this volume perhaps reflects more than
VI
International labour standards and economic interdependence
anything else the present preoccupation with the themes in their
respective countries and from their respective, professional vantage
points.
Werner Sengenberger
Duncan Campbell
September 1994
Table of contents
Part 1: Introduction
.
1
International labour standards in a globalized economy:
The issues
Werner Sengenberger
3
Part 2: A historical review
17
The Declaration of Philadelphia and the Global Social Charter
of the United Nations, 1944-45
John D. French
19
Part 3: The economic rationale for
labour standards
27
international
International labour legislation in the light
of economic theory
Herbert Feis
29
Labour market theories and labour standards
Adolfo Figueroa
57
The importance of international labour standards
in a more competitive global economy
Ray Marshall
65
A hard-headed look at labour standards
Richard B. Freeman
79
Part 4: Challenges for labour standards
from globalization and economic interdependence
93
Post-post-modernism and international labour standards:
The quest for a new complexity
Philip Alston
95
viii
Contemporary challenges for labour standards resulting
from globalization
Hassan A. Sunmonu
105
The impact of globalization on labour standards
in Latin America
Daniel Funes de Rioja
113
Equality: A global labour standard
Bob Hepple
123
The other side of the coin: Globalization, risk
and social justice
Ulrich Muckenberger
133
Part 5: Universality and flexibility
in international labour standards
143
Labour standards across countries with different levels
of development
G. Chike Okogwu
145
By-passing the rules: The dialectics of labour standards
and informalization in less developed countries
Alejandro Portes
159
International labour standards and developing countries
Trilok Singh Papola
177
Macro-sweating policies and labour standards
Alice H. Amsden
185
Workers' rights in the global village:
Observations of an American trade unionist
Thomas R. Donahue
195
Part 6: Labour standards in particular
and countries
regions
Contemporary challenges to labour standards resulting
from globalization: The case of Korea
Young-Ki Park
205
207
Table of contents
ix
Regulation of the labour market in the globalized economy:
The case of working time reduction in Japan
Kazuo Sugeno
219
Down under against the tide: Mainstreaming equity
and creating an open Australian economy
Grant Belchamber
231
Labour standards, global markets and labour laws in Europe
Lord Wedderburn
245
International labour standards in Central and Eastern Europe
Laps He'thy
273
The ILO and current trends in the principles of labour law
in Argentina
Juan Carlos Fernandez Madrid
Part 7: Labour standards and international trade
28f
295
Labour standards and international trade
Guy Caire
297
Contemporary challenges for labour standards
resulting from globalization
Louis Emmerij
319
Labour standards in the globalized economy
and the free trade/fair trade debate
Brian A. Langille
329
The ILO in the cross-fire: Would it survive the social clause?
Hans-Goran Myrdal
339
International labour standards, the global economy and trade
Edward E. Potter
357
The social foundations of international trade
Stephen K. Pursey
367
Part 8: Epilogue
379
International labour standards and economic interdependence:
The problem of renovating the social pact
Duncan Campbell & Werner Sengenberger
381
Part 1:
Introduction
in a globalized economy: The issues
Werner Sengenberger
Head, New Industrial Organization Programme
International Institute for Labour Studies
Geneva
Switzerland
I. International labour standards and competition
For three-quarters of a century the ILO has been engaged in setting
and supervising the application of international labour standards. The
Conventions and Recommendations of the ILO, which together form the
"international labour code", may be seen as a device to channel behaviour
in the labour market, both within and across nations.
Various arguments have been advanced over the years in support of
international labour standards. They include: international competition;
contribution to the consolidation of peace; social justice; social and
human objectives of economic development; international movement of
workers and goods; consolidation of national labour legislation; and
source of inspiration for national action [Valticos, 1979, pp. 20-26].
While this volume touches on several of these purposes of standards,
it addresses above all the role and impact of standards in regulating
international competition. In this respect, international labour standards
may be seen as having the twin function of:
(a) preventing destructive competition, by protecting particular groups of
workers and setting minimum terms for pay and working conditions
that resist the fluctuations of the labour market;
(b) and, concurrently, eliciting and promoting constructive competition,
by ensuring rights of collective organization and worker participation in decision-milking, improving the productivity and motivation of workers, raising aggregate demand by increasing labour
4
incomes, and promoting employment creation, active labour market
policy and socially desirable forms of adjustment.
The capacity of the international labour code to serve as a regulatory
instrument depends on the extent of ratification by national authorities;
the actual enforcement and application of the norms; the sanctioning
power in case of non-compliance; and the degree to which the norms
match national and local circumstances. To be effective, labour standards
have, inter alia, to be co-extensive with labour, product and capital
markets. All actual or potential labour suppliers and demanders have to
be covered to prevent the undercutting of standards by competitors.
The argument that for social progress all competitors have to obey
the same rule has a long history. For example, Jacques Necker, the Swiss
Finance Minister of the French King Louis XVI, was aware that the
practice of work on Sundays could not be unilaterally abolished in
France, but required parallel action of other European trading countries.
Conversely, if a country were to abolish the weekly day of rest, it could
gain an advantage only if others did not follow suit.
F r o m the very inception of the ILO, the link between competition
and labour standards played a role in its standard-setting policy. For those
who worked to get the first ILO Convention adopted, which provided
the 8-hour day and the 48-hour week, it was clear that this standard
could only be observed if all trading countries ratified and applied it. It
was argued that if some competitors failed to do so, this would handicap
others by increasing — at least temporarily — their relative costs. In the
section on "Labour" in the Covenant of the League of Nations, which
inaugurated the ILO, it is explicitly stated "that fair and humane
conditions of labour should be applied, both at home and in individual
countries to which their commercial and industrial relations extend", and
"...the failure of any nation to adopt humane conditions of labour is an
obstacle in the way of other nations which desire to improve the
conditions in their own countries".
Making the geographic reach of labour standards congruent with the
extension of markets may also be seen as a prerequisite for achieving the
other principal objectives of the ILO (laid down in the ILO Constitution), namely avoiding "injustice, hardship, and privation" of large
numbers of workers, and attaining "lasting peace through social justice".
Thus, there is an inner coherence in the key elements that form the
philosophy of the ILO.
Werner Sengenberger
5
II. The progressive internationalization
of the economy
The foundation of the ILO in 1919 came at the end of an expansionary wave of international trade spanning mainly the industrialized
countries in Europe and N o r t h America. The volume of commerce
between the trading nations increased from roughly 4 billion US dollars
in 1850 to about 20 billion dollars in 1900, and 40 billion dollars in 1913.
During the two World Wars the international trading system was
naturally in disarray but, even in the period of peace between the two
wars, the rise in trade was slow. During the 1930s' depression, trade
volumes actually shrank. A fresh acceleration in the volume of
commodity exchange came after the Second World War. Between 1950
and 1990, largely due to the stability created by the Bretton Woods
organizations and tariff reductions under the General Agreement on
Tariffs and Trade (GATT), world output grew at an average annual rate
of 3.9 per cent, and world trade grew at an average annual rate of 5.8 per
cent [ICitson & Michie, 1995]. That was a threefold increase in real terms,
amounting to a value of trade of about 4 trillion US dollars at the
beginning of the 1990s. This growth rate was unmatched by any previous
period. The rate of growth of trade in manufactured goods was about
three times faster than the growth of production, leading in many
countries to much higher shares of exports in gross national product, and
greater interpenetration of national product markets.
Initially, most of the trade was "classic" in the sense that all or most
of the value-added of goods was produced within a country. The final
products were exported, and finished foreign-made products were
imported. More recently, trade patterns have changed as a result of
increased international sourcing and subcontracting, and the relocation
of stages of production in line with local cost levels, local opportunities
and other features of the business environment. Thus, today, an increasing proportion of trade is intra-firm trade. It consists of the cross-border
shipping of intermediary rather than finished goods. Multinational
enterprises (MNEs) shift production and employment to wherever the
production context (taxes, wages, laws and procedures, industrial
relations, etc.) is most suitable and the markets provide the greatest
opportunities. To do so requires open capital and financial markets for
the easy transfer of earnings, fast means of transport and new information and communication technology facilitating high-speed data transmission. Over the last two decades, the number of MNEs has risen
enormously to 37,000 in 1992. The stock of foreign direct investment
6
(FDI) reached $2,000 billion in 1992, when MNEs' total sales outside
their home country were $5,500 billion. MNEs now control about onethird of the world's private productive assets [UNCTAD, 1993].
The rise in the volume of trade and FDI since the end of the Second
World War also reflects the increased number of nation states — more
than half of the existing nation states are less than 40 years old — and the
number of countries participating in the international economy. The
member states of GATT, originally 27, now amount to 130.
Despite the growth in the number of trading countries, and the
advent of newly industrializing economies (NIEs), the regional distribution of trade and investment has remained highly uneven. The bulk of
commercial exchange occurs within the Northern Triad (the United
States, the European Union and Japan). Large parts of the South, and
especially sub-Saharan Africa and Latin America, play a subordinate role
in the global economy. The share of inward investment in the developing
countries has fallen to 24 per cent in the early 1990s from 27 per cent in
the mid-1980s. From this angle, it is doubtful whether we can truly speak
of "globalization".
A second reservation regarding the thesis of globalization concerns
economic "regionalism". Rather than an increasingly borderless worldwide economy we see freer circulation of capital, goods and labour
within regional groupings of countries such as the single European
market, and free trade zones such as the ones covered by the North
American Free Trade Agreement (NAFTA), the Mercado del Sur
(MERCOSUR) in South America and the Asian Pacific Economic
Cooperation (APEC). It remains to be seen to what extent these regional
common markets and free trade areas become part of an open global
economy or turn into closed fortresses.
III. Challenges posed to labour standards
by globalization
While the economy has grown increasingly international and partly
global, labour institutions and labour market regulation remain largely
constituted on the national and sub-national level. Labour standards are
legislated and controlled by national authorities. Even though the setting
of national standards may be in conformity with ILO Conventions and
Recommendations, and hence may attain a degree of international universality, the nation states remain sovereign in enacting their labour laws.
Cooperation with the HO is voluntary. There is no international labour
Werner Sengenberger
7
law in the strict sense, i.e. one that is entrusted with the authority of
enforcing the norms throughout the world.
But legal sovereignty does not mean that nations are autonomous in
their choice of social policy. The increased mobility in the capital and
product markets severely constrains this choice. O n the assumption that
the introduction and application of labour standards are costly — think,
for example of the cost of job security, social security and active labour
market policy — or infringe on the freedom of firms in using labour,
governments are reluctant to push forcefully for higher standards. They
may even choose to reduce or dismantle standards, in order to remain
"attractive" to domestic and foreign investors, and thereby retain or gain
employment.
The opening of the national economies to outside influences, and the
intensified competition which this entails, provokes debate on the role
of labour standards. A freer flow of capital, goods and people across
borders can raise awareness of mutual economic and social dependence,
and be a catalyst for progressive change. At the same time, it can exert
pressures that threaten existing social standards. Workers, and occasionally also employers and governments, are led to raise charges of
"unfair competition", and "social dumping". It is argued that low wages,
the absence of social security provisions and the denial of worker rights
are used to gain economic advantages vis-a-vis countries that respect
standards. If a country fails to live up to international labour standards,
the effect is to force other trading nations to follow suit and reduce their
own workers' rights. This could incite "a race to the bottom", a vicious
cycle of social retrogression in all trading nations, which can be
prevented by action ensuring the observation of standards among all
competitors.
The spectre of a downscaling of labour conditions is not caused by
the open economy as such, but by the substantial cross-national disparities in labour costs and other terms of employment. Based on official
exchange rates, the average level of wage costs in the O E C D countries is
many times higher than in the developing countries. With trade and
foreign direct investment increasing and spreading, the former competitive advantage of the industrialized countries is being diminished. The gap
in technology and productivity and also the differences in skill levels
between the N o r t h and the South is shrinking. In this situation, protectionism becomes a less effective instrument in the developed countries
because it cannot prevent, and may even spur, the outflow of capital.
The international disparities in labour costs give rise to intense international controversy. There are those who wish to see a harmonization
of labour standards across competing countries, for example through
8
social clauses in trade agreements. Others argue that the poorer countries
should not be called upon to raise their standards, and must retain the
labour cost advantage for their further development. Advocates of free
trade have argued that international cost differences are the very cause of
trade and hence the standardization of costs would destroy the motive for
it.
Labour standards have been on the agenda of multilateral trade negotiations for some time (in parallel with environmental policies). The
governments of some industrialized countries, the International Confederation of Free Trade Unions (ICFTU) and some of its sectoral
members, have called for the inclusion of a clause in GATT that would
restrict or halt the trade in goods whose production was not in conformity with basic labour standards, and ensure that the liberalization of
markets is accompanied by improved rather than deteriorating conditions
of work. Governments of developing countries, on the other hand, have
opposed the incorporation of social clauses into GATT. They have been
afraid that these would diminish their competitive advantage vis-a-vis the
developed countries, and amount to disguised protectionism on the part
of high-cost countries. At present, the debate is stalemated. In April 1994,
eight years of negotiation in the Uruguay round of GATT concluded
without a social clause. There is merely a provision that the issue will be
discussed again in the World Trade Organization which will absorb
GATT.
In his report to the International Labour Conference in 1994, the
Director-General of the ILO claimed a role for the ILO in this debate,
and provided a policy framework within which a solution to the issue of
trade and labour standards may be sought. Reaffirming the principles of
multilateralism, voluntarism and cooperation, he said the ILO should not
endeavour to legislate the equalization of labour costs, but should expect
countries to improve their labour protection from the additional wealth
generated by the growth of trade. In essence, a quid pro quo between the
North and the South in this matter could include the renunciation by the
North of unilateral trade restrictions in return for the commitment of the
South to make progress on essential labour standards. For the latter, the
ILO could provide technical assistance and financial support could come
from international trade itself [ILO, 1994].
In discussing the validity and significance of the notion of social
dumping, three sets of interconnected questions need to be addressed.
First, what is the actual importance of wages and other components of
(nominal or unit) labour cost for a country's or region's international
competitiveness? What is their weight relative to other factors, such as
labour force quality, the physical infrastructure, social and political
Werner Sengenberger
9
stability and other "created assets"? Second, what is the impact of labour
standards on economic performance? It would certainly be misleading to
consider only the cost of standards. To come to a realistic assessment, the
costs of standards have to be balanced against their benefits. There is
reason, to believe that the net effect of standards is beneficial to
productivity, competitiveness and adjustment [Sengenberger & Campbell,
1994]. Depending on how the "economics" of standards is perceived and
understood, globalization can have positive or negative effects on the
further spread of standards. If it is believed that standards simply add to
local production costs and deter investors, they are likely to be curtailed.
If they are viewed as an asset, they are likely to proliferate. Third, even
if labour standards were not "economic", should they not still take
precedence over purely economic aims, or should there not be at least a
"balancing" of economic and social progress? Are standards not a means
of "civilizing" production and markets?
IV. Collateral challenges to labour standards
Globalization is not the only contemporary challenge posed to
labour standards. Moreover, the actual impact of globalization is by no
means fixed or pre-determined, but is contingent on other features which
characterize the present international economic and social setting.
Among the factors which constitute challenges for labour standards,
and at the same time are linked to the process of globalization, are the
following:
(a) high and rising levels of unemployment and underemployment in
many parts of the world;
(b) rapid growth of the informal sector, not only in the developing
countries but also in the industrialized countries;
(c) increasing inequalities, both within and between countries;
(d) a. strong wave of neo-liberal economic policies;
(e) structural adjustment policies which are seen by many as being
inimical to labour standards;
(f)
the decline and weakening of trade unionism in many quarters;
(g) the spread of an individualist ethos and a pluralism of life-styles,
partly related to increased inequality in the distribution of income,
both within and across nations.
10
All these interconnected trends pose, in one way or another, serious
challenges to the viability, and the further development, of labour
standards. For instance, large and increasing cross-national disparities in
productivity, income and wealth make it impractical, or at least difficult,
to impose worldwide uniform substantive standards, such as a common
minimum wage, minimum age for employment, minimum standards of
safety and health, and maximum hours. At the same time, elementary
labour standards, such as effective organizations of workers and
employers, collective bargaining, tripartite consultation and concertation,
active employment and labour market policy, etc. are important vehicles
for diminishing the disparities. Obviously, we face a dilemma: a problem
of circular and self-reinforcing causation of the lack of common
standards, and unequal development.
V. Social justice and the market
The collapse of the communist world was interpreted by some
observers as the "end of history". In this view, the systems contest
between centrally planned economies and Western market economies
ended in favour of the latter.
The question that remains is what we mean when we talk about the
"market". Basically, two opposite concepts of the market are available:
(i) the unregulated or self-regulating, laissez-faire notion of the market
governed by the unfettered forces of supply and demand, and motivated
by the fear of hunger and the hope of monetary gain; and (ii) the
regulated, socially constrained or controlled notion of the market which
requires institutions to make it work and function properly, and maintain social cohesion. The dichotomy between "free trade" and "fair trade"
can be seen as variants of these two concepts of markets.
The debate about the market is of critical importance for the
assessment of the role and impact of labour standards. Its outcome will
be decisive for answering the question whether standards, and labour
institutions in general, are seen as a "help or hindrance" to economic
development [Freeman, 1992]. A good deal of the criticism of standards
is informed by orthodox economic theory which has enjoyed a renaissance during the 1980s. From the perspective of this orthodoxy, standards
are viewed as an interference in the (natural) market process, leading to
distortions in the price-setting and market-clearing mechanisms, impeding
efficiency, creating suboptimal allocation of labour and other production
factors, the waste of resources through rent-seeking, the stifling of
Werner Sengenberger
11
competition, the deterrence of investment and constraints to economic
growth and the expansion of employment. Consequently, labour market
deregulation through the relaxation or elimination of standards should
remedy the improper functioning of markets.
The alternative view holds that the market is inexorably embedded
in the larger society [Polanyi et al., 1957], and hence there will inevitably
be values, norms, rules and customs linked to the market. F r o m this
angle, there is no labour market without rules, and the critical issue is
not whether to have rules but what kind of rules and who creates them.
H o w democratic is the rule-setting and rule-application? Are they subject
to joint agreement or unilateral imposition? Are they created on an individual. basis or a collective one?
Ii: follows that there is room for labour standards only within the
institutional concept of the market. There is no basic conflict between
social objectives, such as social justice, and economic development;
moreover, there is no primacy of economic policy over social policy.
Many witnesses can be called to testify to this, starting with Albert
Thomas, the first Director-General of the ILO, who stressed that the
social realm would have to take precedence over the economic [ILO,
1931, p. 12]. The Declaration of Philadelphia of 1944 states the principles
that all human beings have "the right to pursue their material well-being
and their spiritual development in conditions of freedom and dignity, of
economic security and equal opportunity", and that all economic and
financial policies have "to be examined and considered in the light of this
fundamental objective". Moreover, the Declaration reconfirmed the
notion tht labour is not a commodity and the labour market does not
function like a commodity market. More recently, under the impact of
intensive international competitive pressure, we have been reminded that
free trade is not an end in itself, but a means to raising living standards
worldwide.
VI. Is there a cycle of progress
in international social policy f
The opposition between "market-centred" forces and "social-minded"
forces existed throughout the nineteenth century, and continues up to the
present day, with the relative strength of the two varying over time. For
the creation of the ILO and the setting of international labour standards
a comprehensive coalition of interests, a broad consensus, was required.
In IS'19 there appeared to be one of those great moments in history
12
which achieved a broad-based consensus among conflicting groups. The
ideas and principles that were written into the "labour" part of the
Treaty of Versailles had gradually been conceived in the course of the
nineteenth century by a rather diverse constituency. In the main, it
comprised the emerging labour movement, far-sighted employers, and
social philosophers and lawyers, in the then newly industrializing
countries of Europe and N o r t h America. The motives behind these
impulses were certainly different. There were those for w h o m better
working and living conditions of the working class constituted a value in
itself, and hence needed no further justification; those who saw in
improved labour conditions an economic utility, such as better
performance and higher returns to capital investment, or an easier, or
more effective, way of resolving industrial conflicts; for others, the
dampening of the worst excesses in working life was a prerequisite for
preventing social unrest and social upheaval; and finally, there were those
w h o saw in labour agreements a means of stabilizing the existing political
order, and the prevailing distribution of power.
While the coincidence of such motives was sufficient to produce
protective labour legislation on the national level, still another ingredient
was required for bringing about a social pact at the international level.
That was the "insight" into the "interdependence" of the economic
development and prosperity of nations. Again, the intellectual and
institutional antecedents of this notion date back to the nineteenth
century, but it was only after the First World War that they led to the
moment of "daring and adventure" [Thomas, 1921, p . 11] that gave birth
to the ILO. "Many states were obliged, under irresistible pressure, to
adopt laws like the eight-hours law, which before the war was almost
universally declared impracticable..." [ibid.]. Thomas also describes how,
fairly soon after the spell of euphoria for social conciliation and generous
reforms at the first ILO conference in Washington in 1919, a period of
backlash set in, dampening the chances for ratification and implementation of the first standards. Thus, in relation to the eight-hour day, the
fear of production losses and of a consumer boycott in protest against
standard-induced high product prices deterred national decision-makers
from putting the n o r m swiftly into practice.
Another period favourable for standard-setting was after the Second
World War when, with the depression of the 1930s and the political
disaster of the war fresh in mind, policy-makers were ready to join
together in order to contain destructive competitive forces. By contrast,
for the last 15 years we have witnessed a slow-down in the process of
ratification of ILO Conventions and serious abuses of standards. In the
anniversary year 1994, the Committee on the Application of Standards
Werner Sengenberger
13
expressed its great concern about the gravity of failures on the part of a
growing number of countries to respect constitutional obligations dealing
with labour standards. On the other hand, it was encouraging to hear
many Ministers of Labour at the 1994 International Labour Conference
pledge to pursue their countries' support for ILO standards.
The particular historical moments of progress provoke the question
whether it takes "common suffering" from social or political catastrophe
to generate the level of awareness and readiness for action in the field of
international social policy. Do things have to become so bad, or — in the
language of the economist — do negative external social effects of
economic activities have to accumulate to a point where social explosion
or implosion occurs or becomes imminent, to bring the actors to reason
and make them agree on social accords? Or is it conceivable, and under
what preconditions is it likely, that preventive action could be taken? Is
there a cycle of political-economic forces at work which fosters standards
in some historical phases more than in others? Do periods of intensified
competition caused by waves of internationalization of the economy lead
businesses and politicians to take a more short-term, cost-centred,
parochial posture, thus creating a climate inconducive to international
agreement and cooperation in social policy? And does this proceed up to
the point of damage when the tide turns again in favour of international
agreement?
While these questions merit careful study, it seems clear that
international social policy is highly "demanding" in the sense that it
simultaneously requires social consensus and cooperation within and
across national borders. If there is some truth in the cyclical nature of
advancement in labour policy we may expect that, from the present drive
of globalization forces, a period more conducive to labour standards
could emerge. Presumably, the new setting will not be like the status quo
ante prior to the onslaught of the present internationalization, but will
look rather different. The idea is to prepare ourselves for that event, and
develop ideas and directions for the development of labour standards that
will be congenial to the new environment.
VII. The organization of the volume
The volume is structured in the following way. This introductory
chapter is followed by a historical review of the Declaration of
Philadelphia and the new momentum it provided for international social
policy (Part 2). In Part 3, four essays written by economists address the
14
question why we should have labour standards and how they can contribute to economic development. Whilst three of the papers reflect
contemporary economic thought, one of them dates from 1927. We
included this to demonstrate that at that time the economic problematique behind labour standards was not altogether different from what it
is today. Part 4 presents papers that provide an account of the nature and
latitude of challenges for standards which observers note in view of
increasing global economic interdependence. Under the heading of
"universality and flexibility" we group, in Part 5, those contributions
which focus primarily on the question whether the setting and
application of standards should be different in developed and developing
countries. Labour standards in selected regions and countries are analysed
in Part 6. The essays portray the diversity, but also common policy
issues, across vastly different states of development and institutional
arrangements. Part 7 contains essays on the theme of labour standards
and international trade which reflect the main arguments put forward by
employers, workers and academics for and against a social clause in trade
agreements. Finally, in Part 8, the editors of the volume have written a
brief epilogue that highlights some important messages and recommendations embodied in the essays.
Bibliographical
references
Freeman, Richard B. 1992. "Labour market institutions and policies: Help or hindrance
to economic development?" in Proceedings of the World Bank Annual Conference on
Development Economics, Washington, DC, World Bank, pp. 117-156.
ILO. 1931. The International Labour Organization — The first decade, London and Boston,
George Allen & Unwin Ltd and World Peace Foundation.
—. 1994. Defending values, promoting change. Social justice in a global economy: An ILO
agenda, Report of the Director-General to the 81st Session of the International Labour
Conference, Geneva, International Labour Office.
Jenks, Wilfred. 1969. Social justice in the law of nations. The ILO impact after 50 years,
London-Oxford-New York, Oxford University Press.
Kitson, Michael; Michie, Jonathan. 1995. "Trade and growth: A historical perspective",
in Michie, Jonathan; Smith, John F. (eds.): Managing the global economy, Oxford,
Oxford University Press.
Polanyi, Karl, et al. (eds.). 1957. Trade and market in the early empires, Chicago, Gateway
edition.
Sengenberger, Werner; Campbell, Duncan (eds.). 1994. Creating economic opportunities.
The role of labour standards in industrial restructuring, Geneva, International Institute
for Labour Studies.
Werner Sengenberger
D
Thomas, Albert. 1921. "The ILO — Its origins, development and future", in International
Labour Review, January-March.
UNCTAD. 1993. World investment report 1993: Transnational corporations and integrated
international production, New York, United Nations Conference on Trade and
Development, United Nations Publications.
Valticos, Nicolas. 1969. "Fifty years of standard-setting activities by the International
Labour Organization", in International Labour Review, Vol. 100, No. 3, Sept.
—. 1979. International labour law, Kluwer, Deventer, The Netherlands.
Part 2:
A historical review
The Declaration of Philadelphia
and the Global Social Charter
of the United Nations, 1944-45
John D. French
Professor of History
Duke University
Durham, North Carolina
USA
I. Introduction
On 10 May 1944, the General Conference of the International
Labour Organization adopted the justly-famous Declaration of Philadelphia that catalogued the promises that had been made to the world's
peoples by the Allied leaders during the Second World War. The framers
of the Philadelphia declaration gave comprehensive form to the principle
set foith in the 1941 Atlantic Charter signed by Winston Churchill and
Franklin Delano Roosevelt. Post-war government policies, the British and
United States leaders had pledged, would be aimed at "securing for all
[countries and peoples], improved labor standards, economic advancement, and social security... [as well as] freedom from fear or want".
The Philadelphia declaration, which set the ILO on a new path, was
adopted at a time when the universality, legitimacy, and even the survival
of the ILO were open to serious question. In defining the mission of a
renewed ILO, the Philadelphia declaration adopted a far more daring and
ambitious set of objectives for the organization than had been the case in
the inter-war years. The ILO's new look in 1944 was not, however,
simply a gamble in the dark. At the end of the Second World War,
organized labour and its allied political parties, whether socialist,
communist, democratic or labourite, enjoyed an unprecedented degree of
social., economic and political power and influence. Labour's enhanced
legitimacy and moral authority stemmed, in large part, from the disasters
20
wrought by unrestrained capitalism, colonialism, militarism and fascism
over the three decades that followed the outbreak of the First World
War.
Like the leaders of the ILO, in 1944 trade unionists possessed an
expansive and ambitious vision of their future role. In the 16 months that
followed the Philadelphia ILO meeting, top labour leaders held two
international conferences in an effort to shape the post-war world.
Uniting across a multitude of barriers, the trade unionists who gathered
in London and Paris in 1945 were acutely aware of their historical
responsibilities: to convert the United Nations' promised global social
charter into the reality of a better life for the world's working people.
II. Setting the stage: Labour as a global actor (1945)
The year 1995 will be the 50th anniversary of the end of the Second
World War. The defeat of the Axis powers by the Allies in this cataclysmic conflict established the diplomatic, intellectual, political and
discursive contours of the world we knew until the break-up of the
Communist bloc between 1989 and 1991. The years from 1944 to 1946
were a hopeful, even Utopian time, in which expectations were high for
the establishment of a new, more just, world order.
The signs of change were everywhere in the aftermath of the Second
World War. Racism and anti-semitism stood discredited in the cold,
blinding light of Auschwitz and Buchenwald. The principle of conquest
with its "natural" corollaries of colonial expansion and imperialistic
exploitation seemed grotesque, dangerous and inhuman after Hitler's
New Europe and Japan's Asian Co-Prosperity Sphere. Stripped of its
moral sanction, the centuries-old system of European colonialism entered
its final crisis with weakening mother countries facing a rising tide of
struggle in the colonies. At long last, the peoples of the colonial and
dependent countries were coming into their own in the world arena.
Moreover, the Second World War had followed on the heels of the
Great Depression. This had further shaken the philosophical and political
foundations of the magical elixir of laissez-faire capitalist progress already
challenged by the First World War and its sequel in the Russian
Revolution of 1917. In 1945, capitalism seemed far from an unalloyed
success after the economic failures of the 1930s. Few were willing to
resign themselves to capitalism's "natural" side effects such as boom and
bust cycles, unemployment and underemployment, lack of social pro-
John D. French
21
tection, exploitation of the weak by the strong, and national, racial and
class oppression.
Nor did capitalism seem the economic system best adapted for political democracy, given the partiality to fascism shown by so many of the
rich mid powerful before the war. Hatred of trade unions and leftist and
working class parties, whether social democratic or communist, seemed
the path to dictatorship in the light of the experiences of Italian fascism,
Germ;ui Nazism and Japanese militarism. In the emerging century of the
common man, talk of socialism and communism no longer seemed so
unrespectable nor so extreme.
The Second World War was also the culmination of a series of
innovations in governmental practice with the forging of an expanded
role lor the state in social and economic spheres. This new vision of
statecraft was accompanied by the elaboration of a doctrine of rights that
was radically different from nineteenth century liberal capitalist notions.
What had been viewed as the fundamental right in the nineteenth
century, the right to private property, was now at best equal to a newlyenshrined concept of human rights.
To the purely negative freedom of classic liberal capitalist theory,
freedom from the state, was added the freedom to certain rights and
human entitlement gained through the state. Nor were such rights conceived strictly as individual in nature. Increasingly, human rights took on
a collective or general character and were no longer seen as purely
political or procedural in nature. Even in capitalist countries, statesmen
pledged themselves to provide a broad range of social and economic
rights and guarantees, an "Economic Bill of Rights" as they were called
by Roosevelt in his January 1944 State of the Union address.
The shift to the left was clearly reflected in the two unprecedented
world labour conclaves of 1945 that brought together the top union
leaders from 53 countries and dependencies, from colonies and mother
countries, from the USSR, Great Britain and the United States, and from
Communist-led, avowedly Christian and even pro-capitalist trade union
movements.
Even a perfunctory reading of the verbatim debates of these meetings
offers fascinating insights into that world and ours. The meeting was full
of subtle and not-so-subtle conflicts: tensions between Arab and Jewish
labour in Palestine; between African delegates and South African
representatives; between British colonial subjects in India and the West
Indies and their British "class brothers"; between the pro-Soviet Lublin
Poles and their anti-communist opponents; between the minority of
women delegates and their male compatriots; between peoples of colour
and the dominant whites; and between the representatives of the
22
"undeveloped" world and the "developed" world, as they were called at
the time.
Although the language differs, it is remarkable how the issues
debated by these labour leaders in 1945 are still relevant today. The
discussions were permeated by debates, open and concealed, over the
relationship between national and social liberation and between formal
and substantive equality. H o w do we guarantee democratic control over
transnational actors such as the "international trusts and cartels"? H o w
do we prevent wars of aggression and punish those who wage them?
What is required to make rights secure? What is democracy itself? And
what should be the attributes of a democratic state as opposed to a fascist
or Nazi one?
The debates made clear the immensity of the challenge facing any
effort to unite organized working people on a world scale. H o w are
national interests to be interpreted in the light of global or international
interests? Does the working class have an international commonality of
interest? Can one be forged? And if so, how? H o w were such common
interests to be determined across ethnic, religious, racial, regional,
national and ideological boundaries? Recognition of the difficulties was
tempered, however, by the certainty that the stakes were too high in
1945 to allow failure. Indeed, the conviction that conflicts must be
conciliated was central to the unitary dynamic that marked the meetings
and the struggle against the Axis powers.
Debate at the London meeting in February 1945 centred around the
advisability of setting up a united world labour body. With a key role
being played by United States leaders of the Congress of Industrial
Organizations, the conference agreed to found a World Federation of
Trade Unions later in the year. In the interim, they set out to win a
formal role for the world trade union movement in the post-war
institutional order of the soon-to-be-founded United Nations.
Yet, labour's ambitions met with an unexpected rebuff at the
founding conference of the United Nations in San Francisco in May
1945. In the first sign of the undercurrents that would soon rip apart the
Big Three, the request for a formal union role in the Economic and
Social Commission was rejected by Great Britain and the United States.
It was unnecessary, they argued, since. the tripartite ILO, the only
surviving institution of the League of Nations system, could take the
place of direct labour participation.
Although checkmated in San Francisco, the vast majority of the
world's union leaders were unwilling to give up their dream of labour
unity and went on to found the World Federation of Trade Unions in
Paris in October 1945. The W F T U soon split apart under the pressures
John D. French
23
of the Cold War, but the 1945 meetings that led to the original WFTU
made a major contribution to strengthening the International Labour
Organization. Labour's demand for direct representation in the internationd system helped not only to guarantee the ILO's survival but
served to deepen and broaden its mandate and functions in the late 1940s.
Indeed, ILO Convention No. 89, on Freedom of Association and Protection of the Right to Organize, was adopted in 1948 as a direct result
of efforts by the "rump WFTU" and its Soviet backers to force labour
rights on to the agenda of the United Nations.
III. The Pope's divisions:
On the role of ideas in history
Although the Second World War was called a people's war, it
remains unclear what importance, if any, we should accord to such ideas
in understanding the conflict. We thus return to the perennial debate
about the role of ideas in history. In the nineteenth century, it was
generaJly agreed that history was determined by great ideas that motivated great deeds undertaken by great men. In this model of historical
explanation, the formal political discourse that characterized an era was
given pre-eminence along with the men who created and/or acted upon
those ideas. In the twentieth century, by contrast, the role of ideas and
individuals has been downgraded to at best secondary importance in
favour of a new emphasis on the broad social, economic and political
tendencies and structures that are believed to express themselves through
the thoughts and deeds of men and women, both famous and obscure.
Yet the debate about the importance of ideas in history is far from
over: should ideas be viewed as everything or nothing in explaining
human history? An exchange between Winston Churchill and Joseph
Stalin at the Potsdam conference in August 1945 can serve to illuminate
the issues under debate. Discussing the territorial contours of post-war
Europie, Winston Churchill is said to have remarked that the Pope would
not be happy if Catholic Poland fell into Communist hands. To this,
Stalin replied with a query: "How many divisions does the Pope have?"
This anecdote about the Pope's divisions is an expression, in its
crudest form, of the proposition that the ideas and words of historical
actors lack substance as causal factors in history. Intangibles such as
discourse, it is argued, matter little if at all in a hard-nosed calculus of the
"real lectors of power". With its icy realism, Stalin's quip continues to be
credible because it speaks to our recognition that too often power in its
24
most naked form is the supreme determinant of historical outcomes and,
sadly enough, of that which comes to be viewed as "right" and "truth".
Thus, in 1945, the moral authority and popular legitimacy of the
Catholic faith in Poland counted for little in determining the fate of
soon-to-be sovietized Poland. Yet the comparison between the Pope's
lack of coercive power and the might of Stalin's Red A r m y clearly looks
different since the fall of communism in Poland in 1989. In this context,
the debate about the importance of ideas appears to have been resolved
with a triumphant demonstration of the enduring power of Catholic
faith, of right over might, of "mere ideas" over brute power.
Before coming to any premature conclusions, however, it behoves
us to examine the origin and historical ramifications of the anecdote
about the Pope's divisions. As far as can be determined, the exchange is
Apocryphal and entered the historical record as an improvised oral
comment by President Harry Truman during a speaking engagement in
late 1948. Indeed, the attribution of this quote to Stalin at Potsdam has
been denied, privately at least, by a leading United States participant in
the conference.
Thus, the anecdote owes its origin and initial popularity to the
polemical exigencies of waging the Cold War. Stalin's alleged comment
was used to epitomize the crude materialist calculation that was thought
to characterize the atheist Soviet Union and its Marxist-Leninist leaders.
Yet even the Communist tradition, however much attuned to power, had
always viewed "ideology" as the supreme political weapon. Lenin, for all
his materialist orthodoxy, wrote that "ideas become a material force in
history when grasped by the millions". Given the high value Marxists
attach to "materialist" factors, Lenin's statement clearly demonstrates that
he, too, recognized that ideas were a fundamental factor in modern mass
politics.
As the example of Poland in 1945 or 1989 suggests, we tend simultaneously to undervalue and overvalue the power of ideas on a purely ad
hoc, case-by-case basis. By failing to distinguish degrees or circumstances,
we miss the point being made by Lenin and a host of other twentieth
century observers: that ideas play their largest role in historical periods
marked by intensified mobilization on a mass scale. A successful revolution or victory in a modern "total war" depends upon setting in motion
tens of millions of people. Although coercion is fundamental under such
conditions, naked force is insufficient if not accompanied by compelling
discourse that captures the hopes of millions. Only in this way can
leaders justify the monumental sacrifices being demanded of the population. To do so, the official discourse must make present suffering
inseparable from a compelling vision of a better future world.
John D. French
25
It true, one can then grasp the challenge that the Second World War
presented to governments on all sides. A truly global disaster, the war
was a massive world-wide slaughter that was made possible only by
humankind's most treasured advances in scientific and technological
knowledge and organization. Far surpassing the 20 million lives lost in
the First World War, the Second World War cost 50 million lives, onehalf of them civilians: 20 million deaths in the USSR, 5.8 million in
Poland, 4.5 million in Germany, 3 million in China, 2.3 million in Japan,
1.5 million in Yugoslavia, and more than a half million each in seven
other European countries. The United States, perhaps the only true
"winner" of the war, lost only 330,000 lives, fewer than the Russians who
died during the German siege of Stalingrad alone.
Twice in a little over a quarter-century, the self-proclaimed centre of
world civilization had destroyed itself in a paroxysm of violence and
destruction. Is it any surprise that exaggerated claims made on behalf of
the modern, scientific and industrialized world rang so falsely not only
to Europeans but to the world's "backward peoples"? Asked by an
English reporter for his opinion on western civilization, Gandhi paused
for a moment's reflection and replied, "That would be a good idea".
The political imperatives were especially strongly felt because the
Second World War was a "total war" in which entire societies, civilians
and non-civilians, were pitted against each other across the globe. Under
such conditions, the mobilization of intellectual, moral and spiritual
resources was fundamental to victory, in addition to the more obvious
material and economic factors. To achieve this, propaganda was carried
out by all sides on a scale and with an intensity never before seen. Unlike
in previous wars, governments now had at their disposal the tools of
mass communication, especially radio, which made it possible to reach
hundreds of millions, both the literate and the illiterate.
Given the events that followed 1945, it is worth considering whether
talk oi: the Second World War as a people's war against fascism and for
democracy was mere propaganda and demagoguery. Yet promises and
ideas themselves have an impact if enough people act upon them. In
other words, there are consequences that flow from the fact that so many
tens ot millions of working and middle class people believed in 1945 that
the war had in fact been a people's war for a more humane and social
world. Under such conditions, their dreams had the potential of
becoming a powerful material force in politics. The end of the Second
World. War, in other words, was a moment when the possibility of a
better future lay buried in the heart of the present.
In a very real sense, the Cold War was designed to check this
momentum for change. And the story of the Cold War era, which has
26
now thankfully come to an end, is one in which the promises made so
solemnly in 1945, at a moment of horror, tragedy and possibility, were
broken harshly and categorically by all sides. The world's peoples, in
other words, were robbed of the world we were owed. To understand
this unfulfilled social contract is a key to self-knowledge and to changing
the fate of our world in the future.
IV. Fighting for the ideals of the United Nations
The Second World War and its immediate post-war sequel must be
examined as an exceptional period that contained other futures besides
the Cold War. Freed from the exigencies of that conflict, it should no
longer be necessary to view this brief moment of hope merely as an
illusory interlude before things returned to their "normal" state of
ideological, diplomatic and military conflicts between East and West. In
other words, we should reject the convenient excuses that were seized
upon by leaders of both sides during the Cold War to justify their
thoughtless squandering of the opportunities 1945 offered to the world's
peoples.
We should start fighting to regain the ground won in 1945 and lost
thereafter. In the view of the common dangers facing the world today,
we need a spirit of struggle based upon an acceptance of pluralism and an
appreciation of the powerful impact of unity. To quote Frederick
Douglass, the great nineteenth century Afro-North American abolitionist
and former slave, we must remember that "the whole history of the
progress of human liberty shows that all concessions yet made to her
august claims have been born of earnest struggle... If there is no struggle,
there is no progress. Those who profess to favor freedom, and yet
deprecate agitation, are men to want crops without ploughing up the
ground, they want rain without thunder and lightning. They want the
ocean without the awful road of its many waters".
Part 3:
The economic rationale
for international labour standards
International labour legislation
in the light of economic theory
Herbert
Feis
Professor of Economics
University of
Cincinnati
USA
Abstract
The subject of Professor Feis's article is given an especial interest by
its close connection with the question whether the regulation of labour
conditions by international action is either legitimate or desirable. In
recent years comment has often turned on the apparent contradiction
between the object of such regulation and the conclusions of the "classical" economic theory. If, as the current economic doctrine teaches, the
standard of living in any country depends upon a series of influences
which, are essentially national in origin, is there in fact any reason to
suppose that the conditions of life and labour of the working classes can
be improved by some form of joint international action? Is there any
possible way of reconciling the two conflicting points of view — the one
holding that international competition is the essential lever for raising
each country to its highest level of prosperity, the other that international competition depresses labour conditions and creates hardships
which can only be remedied by international action?
I:n. trying to answer these questions the author examines, in the light
of the classical theory, the intrinsic value and possible effects of the
principles laid down in Part XIII of the Treaty of Versailles. The analysis
is marked by freedom from preconceived ideas and dogmatism in any
form; the comparison of the two seemingly contradictory opinions provides an opportunity for a kind of stock-taking of the whole question,
1
This is a slightly abridged and edited version of the original article, published in the
International Labour Review, Vol. XV, No. 4, April 1927.
30
covering all its aspects and its nearer and remoter forms. The result is
neither a defence nor a criticism, and still less a system; it is simply the
outcome of the reflections of an impartial economist on the numerous
questions which have presented themselves for solution. The aim of the
article is not so much to reach a clear and decisive conclusion as to show
the complexity of the problem and stimulate the reader to devote further
thought to it himself.
I. Introduction
The economic theories presented in the "classical" texts explain that
the workers of different countries receive very different wage returns in
some countries from those in others, and that the conditions in which
they work and live also vary greatly. The existence of these differences
of income and condition emphasized in these texts is undisputed. It is
also a part of the generally accepted body of economic theory that the
conditions of the work and life of the wage earners in any country
depend primarily upon the real income of the country; that even making
allowances for possible variations in the sharing out of the product
within any country, hours of work will be long, wages low, and the conditions burdensome if the total real income of the country is low in
relation to the number of inhabitants, and that the opposite conditions
will prevail when the economic effort of the country is more effective.
In short, economic theory presents and strives to account for a great
contrast in the economic lot of the workers of different countries, and
regards this contrast as in the main ineradicable.
The movement to improve conditions of labour on an international
scale by international action appears in some respects to run counter to
these conclusions. That movement, as represented by the work of the
International Labour Organization, is engaged in an effort to stimulate
national action, in accord with international agreements, towards the
achievement of a universal minimum standard of satisfactory labour conditions. Or, as stated differently by the Director of the International
Labour Office:
The new feature introduced by the Peace Treaties consists in the fact that
equitable labour conditions established by national law or adopted by means of
International Conventions are henceforward to constitute an inevitable condition
and a natural necessity with which industrial employers must reckon in the same
way as they reckon with geographical factors.
Herbert Feis
31
This purpose of creating a minimum world-wide standard of satisfactory labour conditions inspires the work of the Organization. It is
implied in the Preamble to the Constitution of the Organization, and
certainly both employers and trade unionists in the countries where
labour conditions are better than elsewhere customarily hold the view
that substantial uniformity or equality of conditions forms the only just
terms of international competition, and seek to create that uniformity by
international action.
77. The economic doctrine
about competition and trade
Tliis paper is written to examine a set of closely connected questions;
(a) whether this difference of doctrine between widely accepted eco
nomic theory and the effort to regulate labour conditions by
international action is a real or only superficial difference;
(b) to explain how such difference as may be real has arisen;
(c) to examine in the light of both sets of doctrines the possible
economic gains and losses which may result from such action;
(d) to indicate the problem by which countries possessing different
conditions of labour are faced by projects of international labour
regulation, and the benefits and losses they must calculate;
(e) to analyse briefly the efforts of the International Labour Organization to take into account the possible losses and difficulties that
might arise from its action, and still to carry out its main purposes.
These purposes require first of all a brief restatement and reconsideration of certain relevant economic doctrines which bear upon the
problem raised by international action for the purpose of improving
labour conditions. The restatement will be brief, and run in accordance
with the system of assumptions and ideas as presented, say, in the books
of Alfred Marshall (and to be understood, therefore, as presented by him,
as only an introduction to the complex actuality of contemporary society). It is limited to those points of economic theory which present
themselves only when international action is under consideration, as
apart from those which present themselves when the contemplated action
is only on a national scale. Thus, for example, it does not touch the
controversies bearing upon the value of legislation as a means of regu-
32
lating labour conditions; for these arise whether action is on a national
or an international scale.
The established economic doctrine holds that the productive activities of the people of each country are, under conditions of economic
freedom, devoted to those industries and occupations which will yield the
largest volume of valuable goods and services. This conclusion is expounded by its authors only as a rough approximation to the truth, and
should not be taken as a defence of complete laisser faire. A grave
modification arising out of the inequality of wealth and income in each
country is always admitted, as well as many other qualifications arising
out of special circumstances. But the main argument remains and is, for
one thing, the centre of the free trade position; advocates of economic
regulation have to prove that regulation is necessary to overcome some
obstacle to effective production, or that some important non-economic
end must be served, as, for example, when a country subsidizes its
merchant marine.
This economic theory can be explained simply. There is a strong
tendency for those who direct industry, who have land and capital, and
employ labour, to use them in the ways which promise the greatest
return. Further, in any particular use of these means of production two
forms of competition must be met — internal and external. The internal
competition is that of different industries and enterprises seeking the use
of the limited supplies of land, labour, and capital. The highest bid for
each tends generally to prevail, and the highest bid, the doctrine runs,
comes from those who can employ the desired means of production in
directions yielding the largest volume of valuable goods and services.
External competition tends to extend the same effect further. As a result
of this competition, in the absence of tariffs and other obstacles, the
economic energies of each country are used in those industries which are
carried on with the "greatest comparative advantage" as compared with
the same industries in other countries. Such goods (and, to a much lesser
extent, services) as can be procured more cheaply abroad than at home
are imported, and paid for by exports requiring smaller outlay than the
goods procured. Hence it is concluded that international competition, by
leading to international specialization, increases the real income of all
peoples. This is the result indicated by general economic analysis; it will
therefore have to be enquired at a later point why the opposite opinion
is so strongly held — the opinion that international competition is injurious to the economic life of a country and depresses labour conditions,
and therefore creates a need for international regulation of these
conditions.
Herbert Feis
33
Plow great the total volume of valuable goods and services secured
by the inhabitants of any country may be in relation to the number of
inhabitants, the same body of economic doctrine goes on to explain,
depends on many things. Chief among these are the natural resources of
the country, its supply of capital and the human energies, talents, organization., and technique possessed and used in production. The volume of
production and standard of living in any country depend upon the
mingled effects of all these influences. The part played by any one cause
or circumstance is always impossible to measure. Who can tell, for
example, whether the high level of production and real incomes in the
United States arises most from its varied, rich, and accessible natural
resources, its immense domestic market, the mastery of machine technique, or the hopefulness, boldness and energy common among American
workmen and businessmen, to mention only a few of the contributory
causes!' Since this is so, any explanation and judgement of the causes of
the actual difference of productive effectiveness between different countries must be tentative and incomplete, and vary from instance to
instance. Among these causes of difference a line is commonly drawn
between those arising out of natural and physical conditions and those
connected with human character, habits, and abilities. The significance of
this line of division has been changed by the constant increase in human
knowledge and changes in industrial technique. It is natural to believe
that differences of productive effectiveness traceable to variations in
humsm qualities, habits, and knowledge can be modified more easily and
quickly than those due to variations in natural resources. Yet that has
become by no means certain in many cases and instances. Both sets of
causes are complex and infinite in variety. Some are immutable, some
may be modified with relative ease. Correct and confident judgement in
any case requires more knowledge and acumen than most men have;
hence the constant conflict of opinion and prescription. Efforts to
improve industrial conditions in any country are always at work. In view
of the constant growth of population the struggle is one of life and death.
The difference in the productive effectiveness attained in different
countries (I am still summarizing the "classical" economic doctrines) is
the primary cause of the contrasts in the conditions of life and labour of
the wage earners in these countries and is, indeed, ordinarily measured by
these; contrasts. The relation between production and standards of living
and work is evident and important. But it is not fixed or automatic; it is
impossible to tell, within limits which may differ from time to time and
from country to country, just what standard of working-class living can
be attained under any given state of productive effectiveness. The
question of what set of labour conditions may be maintained within any
34
country is therefore always a matter of some difficulty to determine, and
can only be settled by a course of bargaining and experiment. The
process of sharing out the product of industry in every country always
involves such bargaining and experiment, and sometimes industrial conflicts. The custom and morality of our industrial system leaves it open to
each individual or group to secure as great a return in the form of conditions or income as their position in the work of production and their
bargaining strength make possible. In each country, whether economic
effort results in the making of many goods or few, whether the goods be
rice grains or electrical refrigerators, all groups carry on a continuous
effort to maintain or improve their income and conditions. The assertions and demands which are the most highly organized and dramatic are
those of the industrial workers' whose effort in most countries has
developed into broad political and economic programmes designed to
modify economic institutions and practices. The state, when it intervenes
to regulate labour conditions, thus steps into an involved situation in
which it is impossible to tell just what conditions may be supported by
its industry, and can only hope to make a roughly correct judgement of
the possibilities.
So much by way of restatement of the general conclusions of economic theory concerning the use and distribution of the economic
energies of each country, and of the matters which determine existing
conditions and standards. It is, of course, incomplete, and gives no
attention to the numberless shades of difference of opinion on many of
the points considered. Still it may serve as a restatement of "classical"
economic doctrine upon the salient points of the economic situation in
the midst of which the effort is being made to improve conditions of
labour throughout the world by international action.
III. The purpose of international labour legislation
Joint international action for the improvement of labour conditions
is being carried on by the International Labour Organization. This institution was created by the Treaty of Versailles and its constitution is
contained in Part XIII of that Treaty. The first section of the Preamble
indicates the reasons for its creation:
Whereas the League of Nations has for its object the establishment of
universal peace, and such a peace can be established only if it is based upon
social justice;
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35
And whereas conditions of labour exist involving such injustice, hardship
and privation to large numbers of people as to produce unrest so great that the
peace and harmony of the world are imperilled; and an improvement of these
conditions is urgently required: as, for example, by the regulation of the hours
of work, including the establishment of a maximum working day and week, the
regulation of the labour supply, the prevention of unemployment, the provision
of an adequate living wage, the protection of the worker against sickness, disease
and injury arising out of his employment, the protection of children, young
persons; and women, provisions for old age and injury, protection of the
interests of the workers when employed in countries other than their own,
recognition of the principle of freedom of association, the organization of
vocational and technical education and other measures;
Whereas also the failure of any nation to adopt humane conditions of
labour is an obstacle in the way of other nations which desire to improve the
conditions in their own countries;
The High Contracting Parties, moved by sentiments of justice and humanity as well as by the desire to secure the permanent peace of the world, agree to
the following: ...
It may be observed in passing that the creation of a permanent institution to concern itself with labour conditions on an international scale
was the product of experience which seemed to indicate its need, and not
the product of theory. Those interested in the improvement of industrial
conditions in various countries had more than once found that a desired
change in labour conditions was hindered by the possibility that the same
industry in some other country might secure a competitive advantage as
a result of the change. This possibility is always present when the
contemplated improvement involves a possible increase in production
costs. The idea of resorting to joint international action is, therefore,
natural in such contingencies. That is the train of thought which led to
the creation of the International Labour Organization. Its connection
with the League of Nations lies in the fact that differences in conditions
of labour have been in the past a source of international antagonism. We
are familiar, for example, with the mingled fear and dislike invoked
among the workmen of the United States and Europe by the bugaboo of
the competition of the work of the Far East carried on under much
poorer conditions. H o w often still, for further example, are the workmen
of French, British, Italian, and German export industries confronted with
each other's conditions as; the chief reason why some desired improvement: could not be attained. Such is the competitive experience which
went to the making of Part XIII of the Peace Treaty. By the workman
36
and often by the employer, international competition is usually regarded
as a force depressing his conditions.
But the preceding economic reasoning indicates that this view cannot
be accepted as an accurate and complete statement of the effects of international competition. The general analysis, on the contrary, tended to
indicate that international competition and exchange was an important
means of increasing the real income of the nations engaged in it; it
emphasized the fact that international competition tended to bring it
about that the economic energies of each country were turned in the
directions that would yield the greatest volume of valuable goods and
services. The difficulties encountered by countries arising out of changes
in the international competitive situation are regarded as only transitional, and incidental to the attainment of a new position of equilibrium
by which all countries will benefit. That doctrine, when rigidly stated in
the classical texts, further implies that the more advanced standards of the
more productive countries cannot in the long run be affected deleteriously by the competition of countries having lower standards — the
standard of each resting upon the productive effectiveness of each
competing country.
Can these opinions be reconciled? I believe so. The first view is that
naturally entertained by particular groups of workers and employers as
producers; they see their jobs or their economic power often menaced by
foreign competition. The second view is the natural one when thinking
of the people of a country as consumers, to w h o m international competition and exchange bring goods and resources on better terms than if no
such competition occurred, and thus increase their real income. In the
classical doctrine it is this viewpoint which is maintained and put in the
forefront. That classical analysis assumed, for the purposes of its enquiry,
that the workmen and capital within a country could quickly change
their occupation, quit an industry where foreign competitors were
proving able to undersell, and enter another industry which possessed a
greater comparative advantage — the whole benefiting by the change. The
opposition to international competition, the desire to regulate by international action the labour conditions in which it takes place, arises from
facts and tendencies contrary to that assumption. It is dominated by the
fact that within highly industrial countries the mobility of labour and
capital — their capacity to shift themselves about from one industry to
others under the pressure of competition — is slow, painful, and incomplete. Whole masses of men seem either unwilling or unable to shift
their occupations in the older industrial countries in which few valuable
natural resources remain unexploited. O n l y in countries undergoing rapid
industrial expansion does a great shift in the employment of the means
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37
of production occur without serious difficulty. Despite all obstacles those
influences which are recognized and summarized in the "principle of
greatest comparative advantages" tend to assert themselves, but only
slowly, overcoming the inertia of human beings, and bringing direct
suffering in their courses. A n example of all these difficulties, exceptional
in intensity, is to be found in the coal industry in recent years. That vital
industry has been characterized by overproduction since 1921 and the
situation, instead of remedying itself in accordance with the main anticipations of classical doctrine, has grown worse. There has been little
shift of men or resources into other industries, but instead an intense
international combat in which each nation has tried to hold its place by
specid. means.
The British tried a subvention. The Dutch, who were losing a florin a ton,
immediately exacted a subsidy from their Government... In Germany, Belgium,
Yugoslavia, and Czechoslovakia the Governments lowered their freight rates or
applied discriminating tariffs to foreign coal. Holland, Poland, and Spain have
tried tax exemptions, export bounties, and state purchase at high figures
[Eastman, 1926].
Under these conditions, somewhat different from those contemplated
by the main body of economic theory, and viewing the matter from the
point of view of the workers as producers and receivers of pay for production, international competition — and particularly shifts in the terms
of international competition — may be and often is a force which tends
to lower real wages and depress the conditions of labour in particular
industries over considerable periods of time. This result ultimately ceases.
A shifting of men and resources from the depressed industries to other
industries ultimately results. And all the while, this international
competition may be of benefit to all consumers not affected by the
depression. But under existing circumstances, with organized working
men slow to move, with huge quantities of capital fixed in form, these
international adjustments are slow and carry serious consequences,
amounting at times to industrial disorganization, as in Great Britain in
1926. T o those directly affected it appears, and with considerable truth,
that their wages and conditions are governed not so much by the level
of industrial effectiveness within the country, as by the fluctuations in
the terms of international competition to which they are subject. Their
loss — in its direct and indirect effects — seems to, and sometimes may
actually, outweigh the consumer's gain.
The effects that may be produced in a period of unusual tension and
fluctuation in industrial competition are exemplified by the course of
wages in different British industries between 1914 and the end of 1925.
38
Percentage increase of weekly time wage rates on 31 December 1920
and 30 June 1925, as compared with August 1914
Industry or occupation
Time wages per cent of wages in August 1914
31 December 1920
30 June 1925
Exporting industries
Coal mining:
Yorkshire
South Wales
Iron mining:
Cleveland
Cumberland
Iron and steel smelting, rolling, etc.:
North of England
Scotland
South Wales
Pig iron manufacture:
Cumberland
Cleveland and Durham
Engineering:
Ironmoulders
Labourers
Shipbuilding:
Platers
Labourers
Cotton industry
Wool textile industry:
Time workers
Chemical manufacture:
Labourers
Boot and shoe manufacture:
Men (heel building, etc.)
175
190
65
58
200
200-300
30-40
35-43
241
242
Varied
62
55
21
300-350
225-300
50-85
40-85
123
210
44
76
123
208
160
35
68
61
216
90
224
115
127
111
152
225
84
106
126-130
215-247
85-95
126-153
140
157
94
106
162
107
135
88
Sheltered industries
Building:
Carpenters
Labourers
Railway service:
Engine drivers
Goods porters
Tramways:
Drivers
Conductors
Printing:
Hand compositors
Baking:
Fore hands
Herbert Feis
39
This extract from the Report of the Committee on Industry and
Trade gives the rate of percentage increase of weekly time wages in t w o
groups of industries — the first group directly subject to international
competition, the second group largely protected from it [Survey of
industrial relations, 1926]
The incidence of international competition since 1920 is apparent.
The comment of the Committee on this question [ibid., pp. 14-15] is
pertinent to our subject and in accordance with the general trend of the
preceding analysis:
The figures quoted tend to show not only that money rates of wages in the
so-called "sheltered" employments exhibit a greater percentage increase since
1914 than in the exposed trades, but that the average levels of wages in many of
those employments, both for skilled and for unskilled workers, are now
materially higher than those generally prevailing in occupations which most
nearly correspond to them in the more exposed trades... Broadly speaking, it
may be said that no industrial occupation is wholly "sheltered" in the sense that
the remuneration appropriate to such occupation is in the long run independent
of the world forces of supply and demand. Even if its products are not in direct
competition with those of other countries, there are other channels, direct or
indirect, through which competitive forces will make themselves felt... But these
levelling forces require a comparatively long period to produce their full effect,
whereas in trades directly exposed to foreign competition the price at which the
competing article will capture or fail to capture the market imposes immediate
and obvious limits on the prices which can be charged and consequently on the
resources available for wages and profits... An exposed industry responds
immediately to changes of economic conditions; in the case of a "sheltered"
industry there may be a "lag" of months or even years between such changes
and the eventual readjustment... In ordinary times the difficulty is but a limited
one, but in times of great and sudden changes of prices and conditions... the
want of proportion between the remuneration of the exposed and "sheltered"
industries may be and has in fact been substantial.
It is out of these circumstances that the support, theoretical and
actual, comes for the regulation of international competition by international agreement upon labour conditions. Countries find that they
cannot face the misery and disorganization that arise from an unfavourable shift in their competitive position, and the organized workers strive
to combat the worsening of their conditions. A measure of stability is
sought by means of international agreement. It may be argued with force
that the countries should, on the contrary, strive to encourage and aid
mobility of their labour and capital within their boundaries. There can
be no doubt that countries in which great mobility exists are better off.
But the older industrial countries and the over-populated countries find
this a. counsel of perfection. For them it is virtually impossible to find
40
fresh employment quickly for the tens or even hundreds of thousands of
workers that may be engaged in a single industry. Besides, in most
countries, circumstances have compelled the enactment of unemployment
insurance and other legislation which tends to lessen the shifting of
workers, and brings a fresh problem to the budget when serious unemployment occurs.
It is in these important differences of circumstance, prevailing rather
than exceptional as far as post-war Europe is concerned, that a reconciliation with the classical economic theories must be sought. Under these
conditions the gains and losses from unrestricted international competition are not so simply assessed; and likewise the good and bad results
of interfering with that competition by means of international labour
agreements are not to be judged simply and solely in the light of the
unqualified conclusion that "in the long run" unrestricted international
competition leads to the production of the largest possible volume of
valuable goods and services in each country. They are to be judged by
weighing a more complex set of possible good and bad results.
IV. Expected gains and losses
from international labour legislation
The prevention of misery and the avoidance of industrial disorganization, which under existing conditions in many industrial countries
would not bring its own quick end in accordance with the classical
theory, are the economic ends sought in international action dealing with
labour conditions. This effort thus becomes, in my interpretation, above
all an effort to secure some measure of stability in relative labour
conditions. Some economic loss may — nay, it can be said, will — result
from this regulation of international competition. This loss may be in
several directions: first, many consumers may have to pay somewhat
more for certain products; secondly, the workers and capitalists of certain
countries where the general level of industrial effectiveness is low may
find themselves unable to enter certain industries which they could carry
on under unrestricted international competition and which would yield
higher returns than some already in existence; thirdly, the lack of
freedom to revise standards may produce unemployment in some directions and countries, while avoiding it in others. These losses may be
serious. But considering the present conditions of industry the gains may
sometimes outweigh them — gains in the way of protection of the higher
standards already obtained in some countries, in the partial stabilization
Herbert Feis
41
of the conditions of competition, in the creation of the necessity of
finding new means of competitive effectiveness, in the possible avoidance
of industrial strife. It is to be expected that the losses would be minimized. by the anxiety of each country to guard its own interests before
entering any international agreement.
The correctness of this opinion becomes more likely when it is
reflected that in the absence of all international agreement it is possible
for a temporary change in circumstances in any one country, say a temporary industrial depression, to affect seriously the standards in competing industries in other countries. The trade unions of each country,
in particular, feel that the conditions which they have secured are always
in danger of destruction even by the temporary difficulties experienced
in other lands, even by the fluctuations in trade union strength abroad.
Hence their firm support for international action and their tendency to
disregard the economic losses they may suffer as consumers — and in
some cases, if the terms of the Conventions do not fall within the
productive capacity of their country, as producers.
I wish to develop somewhat further the possible losses and gains —
dangers and advantages — of international labour legislation. A number
of possibilities, half in the realm of fact, half in the realm of policy,
require consideration. First, it must be observed that if a country
establishes a minimum standard of labour conditions as part of a joint
agreement, it thereby becomes more difficult for any new industry to
arise within that country merely because it happens that it can benefit by
conditions of labour especially low even for that country. In other words,
it may help to prevent "sweating": it makes it more difficult for an
industry to arise in a country merely because it can take advantage of the
bargaining weakness of particular bodies of workers; it stimulates the
effort to employ the same labour more advantageously and with better
methods of production. In the event, however, that no adequate alternative employment exists for the groups of workers affected, the result will
be unemployment.
The preceding line of thought may be carried a step further and
applied to the competitive relations of different countries. If international
agreements establishing minimum conditions of labour are ratified by
those countries in which conditions are now very much poorer than in
the more effective industrial countries, the result will be to prevent the
further expansion of industry in these countries unless and until they can
meet this standard. The countries where conditions are poorest have as
yet relatively few industries competing in the international market. By
international action terms would be created for the possible future
growth of competition with those countries where higher standards have
42
already been achieved. That, in my opinion, is an advisable step for the
world, although certain immediate economic losses will result, and these
losses might fall most heavily on those countries in which conditions are
already poorest.
So much by way of estimating the differences of doctrine between
orthodox economic theorists and advocates of international labour legislation, as regards the effects of unregulated international competition.
Another point of difference between the two schools lies in their difference of emphasis upon another set of possibilities. This set of
possibilities is represented by the belief that joint action through a
permanent organization such as the International Labour Organization,
in the work of which governments, workers, and employers participate,
might in itself do something to create the economic conditions making
an improvement of labour conditions possible. There has been the hope
that continued discussion and effort carried on through the International
Labour Organization would sharpen the consciousness of labour conditions, arouse greater cooperative effort within each country to improve
them, and, by improving industrial relations and encouraging thought
and action, produce an increase of productive effectiveness within each
country. The possibility cannot be weighed apart from the whole state
of industrial relations and methods existing at any given time and place.
Akin to this possibility is another which undoubtedly has figured in the
thoughts of the labour supporters of international action. That is the
possibility that the promotion of joint action by such a body as the
annual Conference of the International Labour Organization would give
moral strength and prestige to the workers of each country in their effort
to secure as large a share of the product of industry as possible; in other
words, that joint action may be an aid to securing conditions really permitted by the general productivity of a country, but not established until
forced by events. On this possibility, also, generalization is of practically
no value. The result may be economically sound or unsound according
to circumstances. In one direction, however, it has considerable importance. Economic history tends to show that when the conditions of labour
within a country are extremely poor, they tend to perpetuate themselves.
This may be traced to a number of causes — the force of tradition, the
weak bargaining power of extremely poorly paid workers, the deterioration of strength and character, the tendency towards poor management
of a cheap labour supply, the extent of family labour, and the high birth
rate characteristic of poorly paid industrial wage-earning groups. Joint
action seeking to create a world-wide minimum standard of conditions
may act as a counter force and be the beginning of an effort to overcome
the self-perpetuating situation. This result is not by any means assured —
Herbert Feis
43
but it is among the possibilities. The necessary increase in human effort
and cooperation may or may not be forthcoming under compulsion. The
size of the population may or may not continue to grow at so rapid a
rate compared with natural resources as to defeat all effort at improvement — huge masses seeking work at any price, and the habitual
economic misery such as exists in the Oriental countries. But international action is one of the few available means of stimulating the effort.
The main body of economic theory does not contemplate it, does not
recognize it as among the basic influences which may determine standards
of work and living in the long run; on the other hand, it does not
completely reject the possibility.
V. Consequences of international labour legislation
Some further possible consequences of international labour legislation are revealed by considering the position in which countries
possessing at present different standards of labour conditions find
themselves placed in the face of international action designed to establish
a universal minimum standard.
The position of countries in which the conditions of labour are
already better than elsewhere is a simple one (at least as regards those
particular questions in which this established superiority is clear and
permanent). They anticipate a protection of their relative position in
international competition. They should tend, furthermore, to become the
promoters of an international interest — real or presumed. That international interest is based on a humane, semi-ethical judgement that there
is a standard of working conditions and welfare which is necessary in the
modern world for the proper development of human character and satisfaction of basic human wants; it is defended by the conviction that
wherever such a standard has been attained it should be protected, and
that where it has not been attained it should be developed. This judgement as to international interest therefore holds that those countries
which have attained higher standards should not be compelled to sacrifice
them to a competition which is effective merely because it is based on
very poorly paid labour working under very poor conditions — as has
already been stated, this result could only be temporary, but nevertheless
serious. It asserts that countries where standards are poor should carry
the burden of improving them before they enter into international competition, that industries and industrial activity should not be permitted
to migrate to places where conditions are poorest. Naturally this
44
reasoning tends to be congenial to trade union organizations throughout
the world.
In support of this judgement the parallel of national legislation,
creating minimum standard conditions throughout the whole of a
national territory is often cited. But this parallel has little force. For
within any one country there are neither customs barriers nor immigration restrictions, and there is a much freer movement of goods,
capital, and labour than between countries. All parts of a country may
therefore be required to meet a minimum standard with less fear of
economic suffering or less chance of injustice than in the case of
international action. And, on the contrary, the existence of tariff and
immigration laws greatly weakens the moral argument for the international observance of minimum standards. It weakens the moral duty
imposed upon the countries where conditions are poorest to meet some
world standard since they enter into international competition. O u r
general reasoning indicates that these countries may sometimes risk an
economic loss to themselves if they do participate in joint action. O n the
other hand, such joint action may act as a moral, social, and technical
spur to these countries, helping them to improve their conditions of
labour.
The difficulties facing those countries which, in order to participate
in any joint effort, are called upon to modify their standards (as
embodied in legislation) more than other countries, are apt to be genuine
and serious. Great and permanent improvement of conditions must
mainly rest upon an improvement of industrial effectiveness. The need
of paying for purchases made abroad will constantly defeat the effort to
improve labour conditions beyond the levels permitted by this industrial
effectiveness — difficult as these may be to determine in theory.
Obviously, the disposition and ability of each of these countries to undertake such changes will be determined largely by the economic fortunes
of the country — by whether their workmen are fully employed,
industry growing in effectiveness, industrial leadership energetic and
progressive, or the contrary, trade unionism strong or weak. We have
observed the numberless combinations of causes, human and physical,
circumstantial or immutable, which account for the lowness of their
existing standards. A n improvement of these standards may sometimes
be undertaken with relatively little fear if the facts be correctly judged;
the economic position may be prepared for it or easily improved by
determination and industry. At other times such countries may face
well-nigh unconquerable obstacles to the successful maintenance of higher
standards, to the attempt to approach the better conditions prevailing in
other countries; any effort may be doomed to failure by causing un-
Herbert Feis
45
employment, by non-observance of enacted legislation, by worsening the
lot oi: some groups of wage earners in the effort to improve that of
other.;. The economic limits are ever present and important; a loss not
only to these countries but to the countries which sell to them will result
from attempts to ignore them.
It is not necessary to go over again the grounds on which the
opinion is based that the effort to improve conditions should be made
whenever a reasonable chance of successful achievement exists — the
possibilities of making industry more effective or increasing the share of
the product going to the workers without doing corresponding economic
harm elsewhere. These are important possibilities in this rapidly
changing, complex economic world, in which we are all conscious of the
fact that our technical knowledge and human talent is enough to make
production so much more effective than it is at present. Yet they are
often only vague and frequently turn out to be visionary. Still, it is
within the domain of these possibilities that the hopes of those lie who
believe it possible gradually to create by international action a general
minimum standard of conditions, good enough to satisfy to some extent
the aspirations embodied in Part XIII of the Peace Treaty — even in
countries where conditions are now poorest. The economic limitations
are to be tested. Because of them the work of the International Labour
Organization must become an educative, conciliatory influence, adding
to practical knowledge, moulding human attitudes and relations, if the
Organization hopes to make any progress in its aims. If it turns into a
mechanical Convention-dragging agency it will be dead.
VI. Issues of choice for international legislation
In the existence of economic obstacles, in fact, is to be found a great
part of the explanation of some features of the agreements formulated by
the International Labour Organization up to the present. The States
Members, even if their action is not made cautious by the caution of the
employers, even if the will exists to participate in international action
dealing with labour conditions, must feel their way slowly about the
economic difficulties they may face. Gathered together in conference the
representatives of governments, workers, and employers of each country
always find that they have numerous courses of action open to them,
each course of action shading into the next by small degrees. The time
of the Conference is spent chiefly in trying to decide which course of
action, shall be undertaken. It is possible to indicate only a few of the
46
broader types of possibilities. The Conference majority of two-thirds may
endorse terms which represent conditions better than those prevailing
even in the countries where economic effort is most effective — terms
designed to satisfy social ideals at once; if that is done it is very likely
that the resulting agreement will secure extremely few ratifications and
have no effect. Or the terms embodied in the Draft Convention may
represent some improvement over existing conditions in countries where
they are poorest, but not mark any improvement in most countries; in
which case the process of ratification will probably move smoothly in
most countries, but the conditions established still fall below the minimum expectations of the workers in the more industrially effective
countries. Or the Conference may after many meetings contrive to find
a compromise between the two types of agreement — a constant compromise of detail, which should mark, if put into force, some improvement
of conditions in almost all countries, yet not be such as to exclude
completely the ratifications of countries where existing conditions
approach the poorer levels. Such is usually the course pursued. Most of
the draft agreements formulated by the Conference propose some
improvement of existing conditions in most countries, perhaps even in
all countries — still, only a small improvement; most of them also, as we
shall see, leave the way open for exceptions and hold over the hope of
agreement upon many points where the difference of economic conditions in different countries proves too great an obstacle. These agreements are almost always opposed with determination by the employers'
representatives, and supported by the workers' representatives as being
much below their wishes but the best immediately attainable. These
opposed views find expression in opposite theories of the aims of the
Conference. This process of compromise may he regarded as exploratory
manoeuvres carried on within the area of uncertainties left by economic
observations. They are the push and tug of opposed interests and hopes,
of caution and of boldness.
VII. Should international action be aimed
at uniform standards?
If the preceding examination of the economic problems brought up
by international action dealing with labour agreement, and of the
methods by which the attempt to reach agreement is carried out, is
correct, it is plain that the establishment of a uniform standard of
conditions is unattainable; or rather, it is plain that the only uniform
Herbert Feis
47
standard that might be attainable would have to be within reach of those
countries where the level of production is extremely low, and such
standards will never find embodiment in international agreements. It may
be asked, therefore, whether the attainment of uniformity is essential to
the achievement of the aims of international action, and whether that is
the only just basis of agreement. A natural assumption to that effect is
often made in conference discussion. There would seem to be no sound
economic or ethical basis for that opinion. The economic results of such
a policy have already been discussed; and (since national barriers such as
tariff and immigration laws are enforced, and as long as it is generally
held that a country's economic policy should be based first of all on
national interests irrespective of international effects) only an extremely
weak ethical duty can be assigned to those countries where the standards
are lowest, except the duty of these countries towards their own workers.
Economic analysis reveals no essential need for uniformity; nor will
the absence of uniformity in itself defeat the aims of joint action. Even
if uniformity of minimum standards were attained, the difficult situations
sometimes created by international competition would not necessarily be
less thin they would otherwise be. What is needed, and what may not be
out of the range of achievement, is, first, a tendency towards general
improvement, a tendency on the part of each country to improve conditions of labour as much as its industrial effectiveness may permit;
secondly, substantial equality and stability of minimum conditions as
between countries where the levels of industrial effectiveness are
substantially equal; and thirdly, the gradual pressure on States where
conditions are poorest to approach the standards existing elsewhere, so
that industrial activity may not gradually shift into the areas where
conditions are worst. In some such moderate policy as this lies the hope
of avoiding some of the worst effects of international competition, while
preserving most of its gains.
VIII. Universality versus particularity of standards
If it were possible, it would be illuminating to study the history of
the action of the States Members of the International Labour Organization in regard to the projects for agreement which have been before the
annual meetings of the Conference, and the Conventions and Recommendations adopted by the Conference. That study would throw light
upon the economic calculations of each State, and reveal clearly how the
effort: has been made by each State to participate in joint action for the
48
improvement of labour conditions and yet to avoid the economic difficulties. It would show why and where the effort has been made to limit
or stabilize the force of international competition, and how difficult and
even inadvisable that is in many circumstances. But that would be a task
of difficulty and endless complexity. Only one phase of it can be
attempted now. It is possible to trace out roughly and generally the way
in which the States Members have tried, in framing their agreements, to
find terms of agreement which represent some improvement of conditions in many countries and some modification of the rigour of
international competition, within the limitations of economic facts and
frequently conflicting national interests. That study shows that the rule
of uniformity of conditions has been found partially applicable, especially
as between the chief competing countries in Europe, and that, on the
other hand, other rules and arrangements have been substituted for it in
many instances. 2
In the third paragraph of Article 405 of Part XIII of the Peace
Treaty, the following paragraph is to be found:
In framing any recommendation or draft convention of general application
the Conference shall have due regard to those countries in which climatic
conditions, the imperfect development of industrial organization, or other special
circumstances make the industrial conditions substantially different, and shall
suggest the modifications, if any, which it considers may be required to meet the
case of such countries.
Article 421 of the same Part of the Treaty reads as follows:
The Members engage to apply conventions which they have ratified in
accordance with the provisions of this Part of the present Treaty to their
colonies, protectorates and possessions which are not fully self-governing:
(1)
Except where owing to the local conditions the convention is inapplicable,
or
(2)
Subject to such modifications as may be necessary to adapt the convention
to local conditions.
Article 427 of Part XIII may also be quoted in this connection:
The High Contracting Parties, recognizing that the well-being, physical,
moral and intellectual, of industrial wage earners is of supreme international
2
A useful distinction may perhaps be drawn between matters of principle (e.g.
freedom of association, existence of social insurance plans) and matters of direct economic
measurement and actual standards (e.g. hours of work). The principle may be universally
applicable, the standard not so — but the reverse is also possible. I owe this distinction
to J.R. Richardson of the International Labour Office.
Herbert Feis
49
importance, have framed, in order to further this great end, the permanent
machinery provided for in Section I, and associated with that of the League of
Nations. They recognize that differences of climate, habits and customs, of
economic opportunity and industrial tradition, make strict uniformity in the
conditions of labour difficult of immediate attainment. But, holding as they do
that labour should not be regarded merely as an article of commerce, they think
that there are methods and principles for regulating labour conditions which all
industrial communities should endeavour to apply, so far as their special circumstances will permit.
In these texts there appears adequate constitutional recognition of the
fact that uniform conditions may in many cases be inadvisable and
impossible of attainment. To learn what has actually happened, it is
necessary to enquire what process has taken place under these constitutional texts.
First, as has been stated, serious controversy has arisen at each
Session of the Conference over the precise standard of conditions to be
embodied in the proposed agreement under discussion. It was to be
expected that it would often be debated whether the conditions provided
should be actually or very nearly within immediate attainment on the
part of countries having comparatively poor conditions, or so decidedly
above existing conditions in those countries as to make their acceptance
and enforcement a considerable risk and strain, though still below the
conditions prevailing in the countries of greater industrial effectiveness.
The decision in many instances runs in the latter direction. But in many
instances, also, the controversy has concerned itself rather with the
question whether the conditions prescribed should not mark an improvement over existing conditions even in the countries of comparatively high
existing conditions, such as those of Western Europe. That is due to the
comparatively great strength and prestige of the trade union movements
in those countries. These trade unions have been most reluctant to see
standards embodied in Conventions that did not mark decided improvement over the conditions under which they, themselves, were working.
These trade union movements have held the hope of procuring the ratification of their own countries, even though the countries where existing
conditions were comparatively low could not be expected to ratify. In
short, the labour representatives of the various countries have not often
been afraid of tipping the balance of international competition against
themselves. This attitude is based partly on the deeply held trade union
conviction that it is virtually always possible for workers to receive a
larger share of the product than they are actually receiving without doing
economic harm. In short, labour representatives have wanted the Conventions to be of assistance to them in their distributive contest, and have
50
been willing to rest on the hope that similar improvements of industrial
conditions in other countries would keep the international competitive
position unchanged. The economic hazards of realizing this programme
have already been discussed. The employers' representatives of each
country have usually taken a position of opposition to the labour
demands and views, and have tended to seek conditions relatively easy of
establishment which also might improve their competitive position.
Sometimes they have supported a small measure of improvement, sometimes declared that economic difficulties made any improvement
impossible.
A tendency towards group feeling and cooperation within the
Conference has probably led the employers' representatives of some
countries to oppose terms which might not have caused any serious
additional production expense to them, but might have that effect in
other countries. Behind such action lies the hope of reciprocal support.
The same tendency to group support and bargaining exists among the
workers' representatives. The result of the whole process is compromise
under influence of the government representatives, sometimes on terms
little or no better than the existing situation in many Member States,
sometimes better than those in most or all Member States. To try to
describe fully and accurately the level reached would require an immense
detailed investigation. Seldom or never have the terms of agreement
passed by the Conference majority (two-thirds) been pitched down to the
lowest range of those existing. But no guarantee of ratifications exists, of
course, and the process of ratification in many instances has made difficult progress.
Certain other features of the agreements reached by the Conference
require consideration as part of the same subject. In the case of several
important Conventions a special standard lower than the main standard
is provided for countries which could not possibly reach the main
standard. The debates of the Conference show that this arrangement was
made only with reluctance. An instance of such special provisions is to
be found in the Hours of Work Convention of 1919, wherein a special
regime different from the general one of the Convention is specified for
Japan and British India, and it is furthermore provided that "The
provisions of this Convention shall not apply to China, Persia and Siam,
but provisions limiting the hours of work in these countries shall be
considered at a future meeting of the General Conference". Special
provisions of a similar character to that of the illustration just given are
to be found in the Conventions concerning the employment of women
during the night, the minimum age for admission of children to industrial
employment, the night work of young persons employed in industry,
Herbert Feis
51
and the minimum age for the admission of young persons to employment
as trimmers and stokers.
All the differences of regime specified in the Conventions up to the
present apply only as between certain countries of the Far East and the
other Member States. The general idea that all the other Member States
must and can prove themselves capable of having minimum conditions
equal to those of the Conventions has prevailed. Smaller differences were
involved. Still, the attainment and enforcement of the general terms of
these Conventions will mean a different measure of change in different
countries. A real economic problem may be involved with the possibility
of genuine economic loss; it will be solved only if and as the countries
with the relatively poor conditions improve their productive effectiveness.
The specification of exceptional terms for certain countries is not the
only way in which heed has been taken of the differences in economic
position which form an obstacle to uniformity. The Conference under
its constitutional powers is authorized to embody its agreements in either
of two forms or instruments, for submission to the judgement of the
competent authorities of the States Members. These two forms are
known as Conventions and Recommendations. Conventions, once ratified, are strict documents: a ratifying country gives a pledge that its
national law will be brought into conformity with the terms of the
Convention and so maintained for the period of the Convention. Recommendations, on the contrary, never become international treaties, and do
not require that States give any international pledge. Each State Member
is under the same obligation to submit Recommendations to the competent authority for such action as that authority may decide to take, as in
the case of Conventions. But no international obligation is assumed. Each
country may carry out the terms of a Recommendation piecemeal and
partially rather than completely, and remains legally free to change its
legislation as and when it pleases. Furthermore, the terms of a Recommendation are usually drawn very broadly, and leave open a broad field
of discretion as to the standard to be established, in contrast to the main
principle of a Convention. The Conference has put its agreements in the
form of Recommendations when dealing with matters in which joint
action is necessary, but in which (a) the obstacles to uniformity of
standards are so great as to make even near approach to uniformity
unrealizable; (b) the alternative means of carrying out a given purpose are
numerous and traditionally different in different countries; for example,
as regards the organization of factory inspection. Because of the characteristics of Recommendations, this form of agreement raises far less serious
economic problems than do Conventions. But they are a very weak form
52
of joint action, amounting at most to a moral stimulus to action and, at
worst to a pious wish. For they offer no such guarantee and security as
is found by States Members in the relative precision and irrevocability of
Conventions.
It is important to observe, however, that even in the Conventions
it has often been found necessary to avoid the insertion of precise and
rigid terms on many points if any real hope of ratification was to be
entertained. O n various points of the matters covered by the Conventions, no precise standard is defined within the Conventions. The method
used is to provide that the conditions to be established as regards the
point in question are to be decided in accordance with national legislation. This procedure was followed, for example, in the matter of
determining the rates of compensation for industrial accidents and
occupational diseases. This leaves the way open for States Members to
ratify the Convention, though the conditions established in some respects
or parts may differ from those maintained in other countries. It leaves
these points to be decided by each country. O r in other words, when this
formula is used, the States Members of the Conference virtually agree to
disagree.
Lastly, it should be observed that up to the present no attempt has
been made to secure international action dealing with wages. It has been
tacitly recognized that the differences between the productive effectiveness and economic condition of the States Members, and the complexity
of the subject, make it impossible to formulate internationally any general level — not even a low minimum. For these same reasons any future
agreement reached will have to be in very general terms and weak form;
for example, a recommendation to States Members to establish machinery
to determine minimum wages for the poorest paid occupations.
These have been the main methods by which, up to the present,
economic difficulties have been reckoned with in the effort to reach
international agreements, by which the attempt is being made to limit the
possible downward pressure of international competition without sacrificing its advantages. T o try to measure the success of this effort is
beyond the scope of this paper.
IX. Conclusions
The preceding analysis does not lead to many clear-cut conclusions.
But a few tentative and general ones may be drawn.
Herbert. Feis
53
(1) The conclusion of economic theory, that the main effect of international competition is beneficial to all countries affected by it, is
sound. Its main constantly working effect is to increase the income
of all countries participating in it.
(2) The general doctrine does not give proper weight to certain effects
of international competition which may be destructive and serious.
These arise from the fact that the basic assumptions of economic
theory do not always correspond closely to some of the existing
fa.c;ts of economic life. Many of those industries which are most
subject to international competition operate on an immense scale,
have great fixed plants, and employ up to hundreds of thousands of
workers who can find employment in other directions only with
difficulty and when the country is in a state of industrial activity or
expansion. Hence shifts in the competitive situation of different
countries may produce serious depression in labour conditions,
particularly in the export industries, below the standards supportable
by the productivity of some or all of these countries. These effects
may be of considerable duration, and indirectly may prove a serious
sei:-back of the whole industrial situation within a country.
(3) Such agreements may be a means of securing important economic
gains for all concerned:
(a) They may prevent a depression of working conditions and
industrial disorganization, especially in the export industries,
from being produced by temporary circumstances and fluctuations in one country.
(b) They may prevent such depression of standards resulting from
the fact that in one or several countries particular grades of
labour are "sweated", taking into account the level of industrial
effectiveness within these countries.
(c) They may prevent a drift of industry to those places where
labour conditions are poorest, at the cost of great readjustments
in those countries where they are better; they may lead to the
establishment of certain minimum required standards in the
creation of future industrial communities.
(4) On the other hand, such agreements may entail certain economic
losses:
54
(a) By hindering certain basic changes in the conditions of
competition between countries from working themselves out,
they may produce higher prices than would otherwise prevail.
(b) They may make it more difficult for countries where conditions
are poorest to advance industrially.
(c) The welfare of particular groups of workers and capitalists in
industries in particular countries may be adversely affected by
the lack of freedom to revise standards downwards so as to
meet either temporary or permanent changes in their competitive situation.
(5) The soundness of international labour legislation cannot be judged
solely by weighing the preceding possibilities of loss and gain. Some
broader considerations must also be taken into account:
(a) The fact that there often is a genuine possibility of increasing
industrial effectiveness within a country by determination, intelligence, and common effort is a sound basis for the opinion that
countries have a duty to cooperate in international action in
this field; it also is the basis for the further opinion that a
particularly serious duty rests on those countries where conditions are unusually low to approach the more general standard.
(b) If in any country the product of industry is being shared out so
that the workers are not receiving in the way of income or
conditions approximately as large a part of the product as might
be paid to them without doing injustice to the other participants, and without reducing future production by discouraging investment and business leadership, this tends to
produce a similar result in other countries because of its effect
upon comparative costs. Bargaining weakness may produce this
result; international action might overcome it without a shift in
the competitive conditions.
(c) The inability or unwillingness of some countries to improve
labour conditions may act as a drag upon the efforts at
improvement in other countries — as indicated in the preceding
headings. This check can only be temporary, but is, nevertheless, of consequence.
Certain further pertinent conclusions indicated in the preceding
analysis may also be summarized here.
Herbert Feis
55
(6) Substantial uniformity of labour conditions, even as a legal minimum, is never to be expected. Nor is there any economic reason for
believing that a condition of uniformity established by legislation
will result in the greatest total economic good for all countries
concerned, or avoid, to the greatest possible extent, economic
misery.
(7) It is in the essential nature of the aims of the International Labour
Organization that it will for ever be faced with intricate conflicts of
interests between workers and employers, and between different
countries. It can do little more than achieve a delicate and constantly
renewed balance of these interests on changing grounds, a reconciliation of them on the basis of some improvement of labour
conditions wherever the economic circumstances make improvement
possible.
(8) Substantial and permanent progress towards the aims of the International Labour Organization must come through uniting workers
and employers in a common duty, in the determination to make
improvement of conditions possible by making industry more
productive. Its work must be, in that sense, primarily educational.
Bibliographical references
Eastman, Mack. 1926. "A survey of coal crises literature", in International Labour Review,
Vol. Xm, No. 5, May, pp. 623-624.
Survey of industrial relations, 1926. London, HM Stationery Office, pp. 88-91.
Labour market theories
and labour standards
Adolfo Figueroa
Catholic University of Peru
Lima
Peru
L Introduction
Which are the labour standards that would emerge from the
functioning of labour markets? Is there a trade-off between labour
standards and unemployment? Why is state intervention needed? These
questions lead us, necessarily, to discuss the nature of the labour market.
This essay attempts to provide answers from the theoretical point of
view. The cases of advanced and Third World economies are distinguished, and some basic facts adduced to aid empirical consistency of the
theories under discussion.
In order to simplify matters, I will conduct the analysis in terms of
real wages and unemployment, instead of labour standands and unemployment. Hence, other components of labour standards, such as work
conditions, will be assumed to be complementary to, and not substitutes
for, real wages.
77. Conventional theories of labour markets
What the three main economic paradigms have said on labour
markets is well known and may be summarized as follows. Neoclassical
theory treats the labour market as equivalent to the potato market or the
fish market, which are Walrasian markets. Labour markets always clear:
no workers willing to work at the prevailing wage will be unable to find
58
a job. The basic problem with this formulation is that it cannot explain
unemployment, which is a noticeable characteristic of observed labour
markets.
Keynesian theory seeks to explain unemployment. For this purpose,
it treats the labour market as a fixed-price market, that is, with "sticky
wages". Nominal wage rates are set by institutional factors, and the
quantity of employment by the level of effective demand. Although this
theory is able to explain unemployment, excess labour supply is not a
necessity for the working of the market system. Labour markets may
operate with unemployment.
Classical theory has treated the labour market as any other market
within its paradigm: the price (real wage-rate) is determined by the cost
of production (or reproduction in the case of labour); the quantity is
determined by demand. Unemployment is the result of adding the
assumption of over-population. Hence, unemployment does not arise as
a logical necessity.
Under these three paradigms, labour markets would have the following characteristics: (a) unemployment is not logically necessary for the
operation of capitalist society; (b) there are no lower limits to real wages,
except in the classical theory. The first outcome is clearly inconsistent
with the fact that all capitalist societies operate with unemployment. As
Garraty said, "unemployment [is] a kind of disease of capitalism" [1978,
p. 129]. As to the second point, the theory suggests that workers will
perform their jobs with the same effort and discipline independent of the
real wage they get. But this is clearly inconsistent with the observed fact
that firms use resources to supervise their workers.
III. Modern theoretical formulations
More recent theoretical developments attempt to solve those
empirical inconsistencies. Neoclassical theory has now included a new
axiom: a firm will pay above the opportunity cost of the worker in order
to induce greater effort in the workplace [Shapiro & Stiglitz, 1984]. If
workers shirk they will be fired and will suffer an economic cost. If all
firms do the same, the market wage-rate will be above its shadow price
and, hence, unemployment will be created. Thus, unemployment operates
as a device for disciplining workers, providing an incentive not to shirk.
This makes labour markets different from the potato and fish markets.
Seeking to explain sticky wages and persistent unemployment,
Keynesian theory has now embraced the concept of "efficiency wages".
Adolfo Figueroa
59
A firm knows that labour productivity depends on the real wages paid
because workers have some control over their own productivity [Solow,
1990]. The economic logic for the firm will be to set a minimum wage,
which will prevent workers reducing their productivity below a desired
level. If all firms do this, the efficiency wage must be set above the
shadow price of labour as a means of providing workers with an incentive to perform well on the job.
Why do not unemployed workers seek to undercut this wage by
offering to work for less than those with jobs? Why do not employers
actively seek such workers? Solow [1990] suggests that social norms may
also help explain sticky wages and persistent unemployment: a norm
among workers against bidding against their fellows for jobs and a norm
among employers against seeking to undercut the wages of their workers.
Finally, the Classical theory is now considering a new axiom: the
extraction of labour surplus is not costless [Bowles, 1985]. The power of
capital over labour requires that workers suffer an economic loss if they
resist the work intensity established by the firm. This logic implies that
firms pay wages above the opportunity cost of labour.
According to these new axioms, what do employers and workers exchange in the labour market? What is the nature of the labour market?
The exchange does not seem to be money today for work today, as a
Walrasian market assumes, but rather a promise of money and certain
working conditions for a promise of work with a maximum degree of
effort. Labour costs would then have two components: (a) the cost to hire
labour as stock, or as a fund of services; (b) the cost to obtain the needed
effort from the worker as labour power. Wages, search costs, labour
standards and social benefits belong to the first category; surveillance and
firing costs belong to the latter. The first cost reflects market relations;
the second, relations within the firm. This dual nature of labour markets
is what lies behind modern economic theories on them.
According to this view, the competitive labour market would
operate as follows: three equations are needed to solve the three
endogenous variables (the wage-rate, employment and unemployment).
So to the conventional supply and demand equations, one additional
equation must be added. It shows that the proportion of the labour
supply that, firms consider, would be willing to meet the required
intensity of work is a positive function of the wage-rate. This equation
is called the effort-extraction function in Neoclassical theory, efficiencywage function in Keynesian theory, and labour-surplus extraction function
in Classical theory. Although all theories establish the same equations,
these differ in the underlying economic logic and in the exogenous
variables.
60
In sum, modern economic theories of labour markets coincide in the
following results: (a) market real wages are set above the shadow price of
labour; (b) unemployment is logically necessary for the functioning of the
capitalist system, because it operates as a worker discipline device. These
results are logically consistent with the nature of the labour market.
Accordingly, unemployment cannot be eliminated through the application of policies. Garraty's statement, "unemployment is a kind of disease
of capitalism" now has analytical support.
The trade-off between real wages and the level of unemployment
will depend on the particular exogenous variable. For instance, in all
theories, changes in labour demand would not generate such a trade-off.
An increase in labour demand would result in a higher real wage and a
lower level of unemployment; symmetrically, a fall in labour demand (a
recession) would have the effect of reducing real wage-rates and raising
the unemployment rate.
IV. Labour markets in the Third World
How do labour markets operate in the Third World? Lewis [1954],
in a well-known article, proposed an explanation which may be summarized as follows. The opportunity cost of wage labour would be the
income from self-employment in the "subsistence sector". This sector is
constituted by the peasantry in rural areas and the petty production units
in urban areas. Market real wages must be higher than the opportunity
cost of labour. This gap is necessary to secure workers' discipline and
loyalty to the capitalist firm. Moreover, income in the subsistence sector,
which is constant due to constant returns, determines real wages. In this
sense, there is an "unlimited labour supply" or excess supply of labour.
However, Lewis's model could not predict unemployment. The excess supply of workers could always find a livelihood in the subsistence
sector. This is an inconsistency with the observed facts in the Third
World, where unemployment is significant, particularly in urban areas.
The source of the inconsistency lies in his assumption that constantreturns prevail in the subsistence sector, implying that this sector has an
unlimited capacity to generate income.
By substituting the assumption of constant returns by diminishing
returns, it is possible to derive a model that is able to predict unemployment [Figueroa, 1992]. Under this new model, the subsistence sector
would have a limited capacity to generate income. So of the excluded
Adolfo Figueroa
61
workers from wage employment, part would stay unemployed and part
self-employed in the subsistence sector.
How are wages and employment determined in this context? The
new labour market theories discussed above may also be adapted for this
case. The nature of labour markets would be the same in both the
advanced economies and in the Third World. However, in the Third
World the supply function would depend, among other things, upon the
income that workers could make from self-employment in the subsistence
sector. Hence a new exogenous variable appears in the determination of
wages and employment in the labour market, namely, the productivity
of the units producing in the subsistence sector. Clearly, a rise in productivity levels in the subsistence sector would reduce labour supply.
Thus, for a given productivity schedule in the subsistence sector, the
workings of the economic system would determine: wages and employment in the labour market; income and employment in the subsistence
sector; and the level of open unemployment. In this context, both
unemployment and the lower income per worker in the subsistence
sector operate as the worker-discipline device in wage employment.
Hence, unemployment is not necessary for the operation of the labour
markei:., The system could function even with a rate of unemployment
equal to zero.
This solution implies income inequality among workers: wage
earners., with relatively higher incomes, the self-employed in the subsistence sector, and the unemployed. If we include the inequality between
workers and the capitalist class, then overall income inequality will
become even more significant. The workings of the labour market in a
context of over-population would then explain the observed higher
degree of income inequality in the Third World relative that in advanced
capitalist economies. I could then say that, to paraphrase Garraty, income
inequality is a kind of disease in the Third World.
With the use of modern theories of labour markets and the introduction of a new axiom, by which workers excluded from wage employment decide between self-employment and unemployment by evaluating
the expected income from looking for a job and the income from selfemployment, Figueroa [1993] has constructed a new theoretical model for
the analysis of labour incomes and employment structure in the Third
World. According to this model, an increase in labour demand would
have the following effects: (a) a rise in real wages and wage employment;
(b) an increase in income and a fall in employment in the subsistence
sector; and (c) a fall in unemployment. All workers would then benefit
from an increase in labour demand. Just the reverse effects would result
62
if labour demand decreased. No trade-offs would arise. These predictions
seem, in general, consistent with the observed facts.
V. Labour market interventions
In the case of advanced economies, if labour demand rose continuously, real wages would increase and unemployment would decline.
Why then would state intervention be required in the labour market?
What is the need for legal minimum wages and unemployment insurance?
One reason for these measures may be the fact that capitalist economies
are subject to periods of recession. Hence, protection of workers would
seem in order. But, according to the new theories, labour markets set
endogenously their own minimum wages. Why are legal minimum wages
needed? Is it because the market minimum wage is too low, or because
the market does not set lower limits? If so, the theories are simply false.
If current legal minimum wages were eliminated, what would be the level
of the market minimum wage?
Because unemployment would rise in recession, intervention in the
labour market byway of unemployment insurance programmes is totally
justified. Otherwise, unemployment rates may go beyond what is socially
tolerable.
In the Third World, a fall in the demand for labour (a recession)
reduces both real wages and wage employment in the labour market,
increases unemployment, and reduces income per worker and raises
employment in the subsistence sector. State intervention usually includes
the setting of legal minimum wages designed to protect workers in
periods of recession. Again, the necessity of a legal minimum wage is not
clear. In some cases it is not even relevant. In Honduras, for example,
nearly 40 per cent of wage-earners received amounts below the legal
minimum wage in 1990-92.
In some Latin American countries where hyperinflation occurred in
the 1980s and 1990s, legal minimum wages could not stop the tremendous decline in real wages. From this experience, it is clear that in
periods of hyperinflation, the theory that the labour market sets
endogenously its own minimum real wage is empirically false. There may
be other situations as well in which the theory does not work successfully.
Why is not unemployment in the Third World covered by insurance, as is the case in advanced countries? Clearly, other adjustment
mechanisms are applied. One is legislation to restrain labour displace-
Adolfo Figueroa
63
merit, or increase the cost of displacement. The other is overemployment
in the public sector, through an increase in the size of the bureaucracy
or through public works. (Hence, the size of the bureaucracy is endogenous). But this mechanism is limited by the fact that government
revenues also fall with economic recession. Economies in recession
simultaneously increase the demand for unemployment protection by the
State and decrease its ability to respond. Under a fiscal crisis, the
adjustment comes through lower real wages in the public sector together
with some displacement of workers.
A common argument is that self-employment in the subsistence
sector is the basic adjustment mechanism. But, as argued above, this
sector has a limited capacity to generate income and employment. In the
end, the adjustment comes through lower incomes per worker in the
subsistence sector together with higher rates of unemployment. State
intervention in the labour market thus has a logical inconsistency. It trie.*
to protect real wages but does nothing to protect the larger number o
workers who, as a result, will be excluded from wage employment. Thf
first measure will increase the need for the other.
In sum, in periods of economic recession, all workers in the Third
World, lose. No trade-offs arise.
By now it is clear that markets need institutions. As Coase has said:
"... without the appropriate institutions no market economy of any
significance is possible" [1992, p. 714]. This proposition implies that the
way in which labour markets operate depends, among other factors, upon
the prevailing institutions. But the arguments presented here suggest that
the relationship may go in the other direction as well: labour institutions
may be the result of the manner in which labour markets operate. The
nature of the labour market is such that wage employment will always
be below the quantity supplied. According to the recent theoretical
developments, this excess supply is logically necessary for the functioning
of the; capitalist system. So interventions directed to protect workers
from excess supply are endogenous.
Some people argue as if interventions in labour markets were purely
exogen.ously determined; that is, independently of how labour markets
operate, policies could be designed and applied, and governments could
decide the labour standards they want. The argument of this essay
challenges that view. Clearly, a more balanced approach would recognize
endogenous and exogenous components of labour standards. But we need
to know more about the way labour markets and labour institutions
interact. The wage and unemployment rates we observe in the Third
World are, undoubtedly, the outcome of this interaction. So are labour
standards.
64
International
labour standards and economic
interdependence
Bowles, S. 1985. "The production process in a competitive economy: Walrasian, NeoHobbesian, and Marxian Models", in American Economic Review, Vol. 75, No. 1,
March, pp. 16-36.
Coase, R. H. 1992. "The institutional structure of production", in American Economic
Review, Vol. 82, No. 4, Sept., pp. 713-719.
Figueroa, A. 1992. Teorias economicas del capitalismo, Lima, Catholic University of Peru.
—. 1993. La naturaleza del mercado laboral, Working Documents Series No. 113, Lima,
Department of Economy, Catholic University of Peru.
Garraty, J. 1978. Unemployment in history, New York, Harper Colophon Books.
Lewis, A. 1954. "Economic development with unlimited supplies of labour" in Manchester
Papers, Vol. 22, May, pp. 329-402.
Shapiro, C ; Stiglitz, J. 1984. "Equilibrium unemployment as a worker discipline device",
in American Economic Review, Vol. 74, No. 3, June, pp. 433-444.
Solow, R. 1990. The labour market as a social institution^ Cambridge, Basil Blackwell.
The importance of international labour
standards in a more competitive
global economy
Ray Marshall
Former US Secretary of Labor
Audrey and Bernard Rapoport Professor of Economics
Lyndon B. Johnson School of Public Affairs
University of Texas at Austin
USA
I. Introduction
The internationalization of global economies has increased the
importance of labour standards as a component of national and international economic policies for those countries that wish to maintain
democratic institutions and prosperous economies. This essay will first
examine the nature of the economic and technological changes that have
eroded the effectiveness of traditional economic policies and then make
the case for labour standards as a component of high-wage national and
international economic policies.
Changes in the nature of markets and production systems significantly alter the conceptual underpinnings for economic policy. Failure
to acknowledge these changes leads to important policy confusions, as
policy makers and economists attempt to apply theories and policies
rooted in earlier conditions to a different reality. For example, discussions
of international economic agreements are based largely on the theory of
comparative advantage, which considered international transactions
mainly in terms of the sale of final goods and services. However,
comparative advantage is a static short-run concept based on voluntary
exchanges of goods and services. Such transactions are naturally plus-sum
processes: all parties gain or the transactions would not take place. Since
the principle of comparative advantage assumes technology and other
66
factors of production to be relatively immobile, it cannot readily assess
the impact of international economic strategies where all factors except
labour are highly mobile. As discussed later, the principle of competitive
advantage — a more dynamic, long-run concept — is more appropriate
for this purpose.
Similarly, competitiveness discussions often equate "competitiveness"
with international trade, and therefore minimize the extent to which it
is a problem [for an example, see Krugman, 1994]. However, internationalization has increased competitiveness in domestic markets, not just
in international trade. And, far from being "a dangerous obsession", it is
absolutely essential to maintaining and improving incomes. Internationalization undermines the whole basis of domestic governance systems, and
combines with innovations in information and transportation technologies to produce less regulated, more competitive, markets. The future
development of information technologies and integrated networks has
profound implications for economic activity.
II. Global competition
and high-performance work organizations
By the end of the 1960s, there were growing signs of trouble in the
traditional economic systems in the developed countries. The main forces
for change were technology and increased international competition,
which interacted to weaken the mass production system and its supporting institutions. These changes also dramatically altered the
conditions for economic viability. In a knowledge-intensive global
economy, the keys to success are human resources and effective production systems, not natural resources and traditional economies of scale.
While economies of scale are still important, they must be considered in
a global context and are needed to recoup more extensive research and
development costs. Although no consensus has formed for a new economic policy paradigm, two things are clear: the policies that supported
the old economy are obsolete and human capital must become the centrepiece for economic success. Since effective theories or conceptual
frameworks are necessary for sound economic policies, we must develop
new paradigms to replace those that no longer fit economic realities.
Technology makes possible new organizations of production, but
competition makes them essential to maintain and improve incomes
[Piore & Sabel, 1984; Zuboff, 1988]. For public policy purposes, the most
significant changes brought about by internationalization are that
Ray Marshall
67
nations! governments have less control over their economies; national
companies have less control over markets; and labour organizations and
traditional industrial relations systems have less control over working
conditions. A country no longer can maintain high wages and full employment through traditional combinations of monetary-fiscal and
international trade policies, administered wages and prices, and fixed
exchange rates. Keynesian policies, which had contributed significantly
to prosperity in the industrialized countries, were inadequate for dealing
with inflationary pressures induced by external supply shocks during the
1970s. They also had almost nothing to say about productivity, the main
determinant of economic success in a more competitive global economy.
Thus, with the internationalization "of economies, countries,
companies and people must yield to the imperatives of global competition. The most basic imperative is that we can compete in only two
ways: by reducing wages and income; or by increasing productivity and
quality. We can no longer rely on natural resources and economies of
scale by oligopolistic firms in domestic markets insulated from international competition and sustained by macro-economic policies.
Most high-income industrial countries have either implicitly or
explicitly rejected the low-wage option because it implies lower and more
unequal wages — which is exactly what most United States workers have
experienced in the last 20 years. According to United States census data,
the median hourly wage of men was 14 per cent less in 1989 than it was
in 197'9. Only college-educated workers' incomes have increased since
1979, while young male high-school graduates' earnings dropped 26.5 per
cent from 1979 to 1991. Among all male four-year college graduates,
earnings increased only for those with advanced degrees; young male
college graduates actually earned 5.1 per cent less in 1991 than in 1979,
with most of the drop coming after 1987 [Mishel & Bernstein, 1992].
The United States experience illustrates why most other industrialized countries have rejected the low-wage option — they see that lower
and more unequal incomes threaten their political, social and economic
health. The only way for those following this option to improve total
incomes is to work more, a reality that clearly limits economic progress. 1
The high-wage, high-productivity option, by contrast, could create very
steep learning and earning curves, thus rapidly increasing personal,
organizational or national advancement.
1
According to Juliet Schor, the average American worker works about one month
more mow than in the 1960s for about the same real wage [Schor, 1991].
68
What must we do if we want to pursue the high-productivity
option? Worldwide experience suggests that we must first develop
national consensus to follow that option and then support policies and
strategies to achieve it. National policies should encourage companies to
organize for high performance and discourage the low-wage alternative.
In general, high-performance organizations stress quality, productivity and flexibility rather than economies of scale achieved through large
bureaucratic organizations where work fragmentation requires most
workers to have very limited thinking skills. High-performance organizations develop lean, participative governance structures that decentralize
decision-making, develop and use leading-edge technology, and stress
continuing education and training for all workers — not, as was the case
in the mass production system, almost entirely for managers and professional workers.
One of the most controversial aspects of high-performance production systems is the role of labour organizations. My own view is that,
because of the fundamental nature of the employment relationship, the
right of workers to organize readily and bargain collectively is an
important requirement for a high-performance system. It is difficult to
forge cooperative relationships between parties of unequal power.
Cooperation is weakened when the stronger party makes unilateral
decisions, forcing the other party to seek countervailing power. And
workers are unlikely to go "all out" to improve productivity and quality
unless they have an independent source of power to protect their
interests in the process. Moreover, the relationships between workers and
managers are inherently adversarial as well as cooperative. Indeed,
adversarial relations are functional because they provide processes to
resolve differences. The challenge, of course, is to maximize common
interests and prevent conflicts from becoming "functionless" by making
all parties worse off. That challenge is unlikely to be met unless workers
have an independent source of power to protect and promote their
interests in these adversarial relationships.
III. Labour standards and economic performance
Internationalization has undermined the ability of trade unions,
governments and workers themselves to protect traditional labour
standards from competitive market forces. New policies and institutions
are consequently required, though whether or not — and how — workers
should be protected in international transactions is very controversial.
Ray Marshall
69
I believe, however, that labour standards are critical components of
more effective economic policies, just as they were vital elements of the
policies and institutions industrialized democracies adopted to produce
the longest period of relatively equitably-shared prosperity in history
between 1945 and 1973. Labour standards (whether enforced by government regulations or collective bargaining) improved economic efficiency
by removing worker (or public) subsidies to firms that could not provide
acceptable working conditions. In forcing companies to compete by
increasing efficiency rather than by reducing labour standards, this, in
turn, shifted resources to more efficient uses and allowed countries to
protect: and develop human resources — their most valuable assets.
Similarly, while it has become very difficult to stimulate demand
within a country through traditional macro-economic policies, a global
expansion of demand is absolutely essential to the restoration of an open,
expanding, sustainable and just world economy. It is highly unlikely,
though, that adequate aggregate demand will come entirely from an
expansion of trade or development in or between the developed countries
alone [Sewell & Tucker, 1988]. With the right policies and arrangements,
major opportunities for global expansion could come from a restoration
of growth levels in the developing countries achieved in the 1970s.
Indeed., the slowdown in the developing countries' growth during the
1980s was an important reason for economic stagnation in the developed
countries [Marshall, 1988].
This means, of course, that global policies are needed to maintain
sufficient economic growth to prevent rising unemployment in both the
developed and developing countries. In the developed countries, joblessness will result from economic rationalization as companies and
economies restructure for a more competitive global economy, while at
the same time maintaining adequate social safety nets to support highwage development strategies and prevent the costs of adjustment from
being borne inordinately by the low-income workers or families.
Countries can lower unemployment by reducing income support systems,
but only at the cost of lower real wages and more unequal incomes.
This does not mean, however, that traditional social support systems
should be continued. In the developed countries, these systems were
partially justified by Keynesian policies when the main economic
problem was to stimulate enough demand to overcome massive cyclical
unemployment. The main challenge today is to maintain aggregate global
demand and to improve flexibility and productivity growth to maintain
high and rising incomes and relatively low unemployment rates. These
objectives require social programmes which are developmental as well as
supporting those who cannot or should not work. For example, labour
70
market policies should emphasize education, training, labour mobility
and job creation, and not just income support. In other words, social
programmes should be coordinated with economic and labour market
programmes, all of which can be made more efficient through the use of
information technology and high performance organizations. More
efficient labour market, social support and education programmes can
improve the performance of macro-economic policies by overcoming
product and factor market bottlenecks and achieving a better balance
between demand and supply in labour markets.
Developing countries increasingly need to provide sufficient economic growth to offset rapid increases in working-age populations. If
they are to pursue high-wage economic policies, as I think they should,
developing countries need to rationalize industries they have protected
from import competition. Industrial rationalization will, however, create
less employment in industries where demand is insufficient to absorb displaced labour.
These changes in many developing countries are unlikely to generate
enough growth to prevent rising joblessness, thus leading to emigration
pressures which will create additional problems for high-wage developed
countries. Without labour standards, immigrants with limited skills, low
wage expectations and limited legal protection will not only displace
workers and suppress wages in the developed countries, but will also
perpetuate marginal industries that can only compete with low wages.
What is required, of course, are policies to foster complementary and
cooperative relationships between developed and developing countries. If,
for example, the developed countries have adequate adjustment and
human resource programmes, relatively full employment, legal protection
for immigrants and high and rising wages, there will be less opposition
to eliminating trade barriers that prevent low-wage industries from
shifting to the developing countries.
Achieving complementarity, growth and high-wage economic policies will require the elimination of trade barriers and the creation of
coordinated international policies to stimulate global growth. These
policies, in turn, must include labour standards in rules for international
transactions. Clearly, we are unlikely to achieve an open and expanding
global economy without rules, but they must be expanded beyond trade
in goods to include basic labour standards, among other things.
Ray Marshall
71
IV. The labour standards debate
Policy-makers in the United States and other developed countries
therefore should work with the developing countries to strengthen the
basic international labour rights that have been overwhelmingly accepted
by the international community. There is no legitimate objection to such
basic labour standards as freedom of association and collective bargaining
or restrictions on trade in goods produced by forced labour, under
discriminatory conditions, by the exploitation of young children, or
under unreasonable working conditions (especially violations of
minimally acceptable health and safety conditions or wages limited only
by market forces). These standards therefore should be included in
international economic rules and enforced in the same manner as trade,
investment or other rules.
Labour standards should, however, avoid any suggestion of a universal minimum wage level. Wage differentials are far too great to make
that idea practical. In the short run, low wages are the main competitive
advantage of the developing countries. Low wages alone, however, rarely
constitute the basis for economic development, as suggested by the fact
that there is no correlation between international wage levels and rates
of economic growth. While having low wages because of underdevelopment is legitimate, strategies to gain competitive advantage by suppressing
wages and labour standards are not. Workers must be able to organize
and bargain to improve their conditions on terms compatible with their
countries' economic development.
It is commonly argued that free labour movements are incompatible
with balanced economic growth, but this is a highly questionable
assumption. Democratic societies are not likely without free and
democratic labour movements. Moreover, free and institutionally secure
labour movements in the developing countries would give at least as
much priority to economic growth as other economic and political
interests. There is, moreover, little risk that free and democratic labour
movements will impede economic development, since joblessness (ordinarily 40 to 50 per cent) and international competition limit their ability
to increase labour costs faster than their economies' ability to pay higher
wages.
The moral and economic rationale for international labour and environmental standards is thus the same as for enforceable labour or
environmental protection in domestic markets [Charnovitz, 1987]. This
is to encourage enterprises to be more efficient, by internalizing costs and
preventing health, environmental or safety problems and by shifting
72
resources to more productive uses. Critics argue that the campaign to
make workers' rights a part of such economic compacts as the North
American Free Trade Agreement (NAFTA) is an arrogant attempt by
labour movements and inefficient industries in the developed countries
to impose their labour standards on other countries or, to cite one
particularly vitriolic critic, "little more than an attempt to justify
protectionism under the guise of concern for workers' rights" [Stell, 1994,
p. 14]. With respect to the first charge, it should be stressed that almost
all countries, including the United States, Canada and Mexico, are
members of the International Labour Organization and therefore subscribe to its purposes. Moreover, on paper Mexico's labour laws are in
many ways superior to those of the United States, and Mexico has
adopted more ILO Conventions than Canada or the United States.
Actually, in a more competitive global economy, failure to adopt
enforceable standards will, by default, allow countries that permit
companies to exploit their workers to impose their standards on others.
Put another way, we cede the right to set our own standards if we fail to
regulate the goods coming into a country because a basic principle of
highly competitive markets is that bad standards tend to drive out the
good. Competitive markets make it difficult for employers who want to
have good standards to do so, even though in the long run good labour
practices enhance economic efficiency. Except for those who subscribe to
laissez-fairetricHe-dov/n theories, the "beggar-thy-neighbour" threat in the
1990s is at least as likely to be low-wage economic strategies as international trade rules.
Some critics argue that labour standards are unnecessary because
increased trade and economic development automatically will improve
labour standards. In a general and long-term sense the evidence supports
this case, but there are several things wrong with the argument. First, the
costs of adjustment could be borne inordinately by low-income people
who can least afford it and whose development would be stifled. There
are important prerequisites for economic development in a global
information economy that not even the staunchest free market advocates
believe will be produced by competitive market forces alone; these
include education, health, justice and basic scientific discoveries. Second,
market forces operate slowly and unpredictably, as was clear from the
wide variations in economists' estimates of NAFTA's impact on United
States employment [Hufbauer & Schott, 1992; Faux & Lee, 1992;
Marshall, 1993]. Enforceable labour standards therefore could improve
market performance by helping to avoid negative outcomes and
encourage positive ones. Moreover, it is fairly clear that NAFTA will
accelerate wage inequalities in the United States — high-income groups
Ray Marshall
73
will gain and low-income groups will lose [Gutfeld, 1992; United States
Congress, 1992; Hufbauer & Schott, 1992, p . 112, Table 6.3].
Economists who admit that relying on market forces alone will
widen income distributions sometimes defend inequality as necessary for
economic development. This idea was basic to "trickle-down" economics
in developed as well as developing countries, especially during the 1980s.
It was reasoned that inequality, whether induced by tax cuts like those
in the United States during the 1960s, or "market forces" like those in
Mexico and other developing countries, would stimulate investment by
the wealthy which would trickle down to middle and lower-income
groups. While this idea never made much sense to those who believe that
the growth of income in low and middle-income groups is the best way
to stimulate investment and economic development, a growing body of
economic research demonstrates the fallacy of "trickle-down" policies.
This research has noted that, in Asia's rapidly growing economies, the
incomes of workers and peasants have grown faster than those of executives and entrepreneurs. By contrast, in slower growing or stagnant Latin
American and African economies, plunging incomes of low-wage workers
have widened income inequalities, as have low-wage economic policies in
the United States. The Asian countries also heavily emphasize universal
education and human resource development. Research on Asian economies <;uggests that greater income equality "may actually stimulate
economic growth", a conclusion that surprises these researchers who
found that "reducing by a third the gap between the richest and poor
households... could add seven-tenths to the growth of per capita income.
Most countries' per capita income rises less than 2 per cent a year"
[Nasar, 1994]. N o t surprisingly, the way income inequalities are reduced
makes a difference; it is much more effective to narrow the gap by
boosting low incomes through human resource development and employment strategies than merely to transfer income from the more affluent to
the poor. In their research on this issue, Nancy Birdsall, David Ross and
Richard Sabot list three positive outcomes of greater income equality: it
stimulates economic growth because low-income people can invest in
education and health, investments as vital as those in machinery and
plants;; it increases the rewards for staying in school, working hard or
taking risks; and it leads to political stability [Birdsall et al., 1994].
74
V. Labour standards and employment:
The United States versus Germany
Another objection to labour standards, as well as to high-wage
development strategies in general, is that these policies will lead to the
high unemployment that has plagued Europe since the late 1980s. On this
view, labour protection, by creating greater labour market rigidities and
higher costs, has reduced competitiveness more in Europe than in the
United States, which had much faster jobs growth in the 1970s and 1980s.
It is difficult, however, to compare one country with all of Europe,
because of great differences between countries. It is more appropriate to
compare the United States with major countries like Germany. Critics
argue that Germany is suffering rigidities and high and rising unemployment because of its high income supports, especially generous unemployment compensation, rigorous labour standards and worker participation
at every level in big companies.
However, the evidence shows the German case to be more complicated. Germany has slower jobs growth partly because its workforce has
grown less rapidly than that of the United States. There is evidence,
moreover, that jobs growth in the United States is related more to
demographics than to economic policies [Barnet, 1993]. Nevertheless, if
we use the same definitions of unemployment, the latest US Bureau of
Labour Statistics data show that West German unemployment was lower
than that of the United States for most years between 1972 and 1993, and
has been lower in every year since 1990:
Year
1990
1991
1992
1993
West Germany
%
United States
%
5.0
4.4
4.7
5.9
5.5
6.7
7.4
6.8
There has been a gradual upward trend in German and United States
unemployment rates, suggesting some common labour market developments. Economists do not understand these trends very well, but
evidence suggests the following:
(a) Generous social benefits probably account for a small part of the
increase in German unemployment. The main causal factors relate
to labour market and economic developments, not social benefits. In
Ray Marshall
75
particular, the absorption of East Germany has created major
problems for West Germany. And comparisons with the United
States are distorted by the fact that West Germany is in a different
phase of its business cycle. If social benefits were a major cause of
unemployment, United States rates should be lower than Germany's,
which is not the case.
(b)
Much of the recent rise in United States and European unemployment rates is due to the almost universal shift to tight macroeconomic policy in reaction to the inflation caused by the second oil
price shock in 1979. Germany has had stricter macro-economic
policies than the United States because of its greater concern over
inflation.
(c)
Joblessness in Europe is different from that in the United States in
that it is longer term, while most United States unemployment is of
shorter duration. In Europe, over half of the unemployed have been
out of work a year or more, whereas in the United States, following
two years of unemployment rates which reached almost 10 per cent,
the median unemployment duration in 1993 was only ten weeks.
Robert Solow, MIT Nobel laureate, suggests that longer-term
unemployment induced to fight inflation is converted to structural
unemployment because:
... if higher unemployment is allowed to persist for any length of
time, the bearers of that unemployment lose their connection with the
Labour market [Solow, 1994, p. 11].
Solow advocates, I believe correctly:
... a concerted steady expansion of aggregate demand in Europe, aimed
at eliminating a substantial margin of unemployment, perhaps as much as
5 or 6 percentage points. In the course of that exploration, we would no
doubt discover just how big that margin actually is. Europeans would be
in a better position to think intelligently about the proper scope for the
welfare state for guarantees of job security [ibid.].
Solow adds:
The... belief that the only good labour market is a dog-eat-dog jungle
strikes me as both socially wrong and economically unproductive [ibid.].
(d)
There is a correlation between long-term unemployment in Europe
and the duration of unemployment benefits and the magnitude of
severance payments, though causation is unclear [Bosworth, 1994].
'Whilst correlations do not prove causation, it can be argued that
longer-term income supports than are available in the United States
76
are a factor in the reluctance of European workers to take marginal
low-wage jobs.
(e)
Katherine Abraham and Susan Houseman, who have studied carefully the impact of German labour market policies and the adjustment process, discount the argument that these policies make the
German labour market more rigid. They conclude:
In fact, US and German companies, faced with similar declines in
sales, make very similar labour cuts. The difference is that US firms lay off
workers immediately, while German companies reduce workers' hours
[Abraham & Houseman, 1993, p. 35].
In fact, there is considerable merit in Abraham and Houseman's
contention that the United States should move toward the German
system. If we did, they argue:
... we can curtail excessive layoffs and strengthen workers' job
security. Not only will such steps increase economic equity, they also will
increase economic efficiency.
These scholars add:
Overall, we conclude that German policies have been fairly successful
in giving workers more stable employment without inhibiting labour
adjustment and without imposing burdensome costs on employers [ibid.,
p-4].
(f)
In Europe, as in the United States, there have been significant
adjustment problems resulting from relatively rapid changes in
technology and the organization of work to meet the needs of a
more competitive, knowledge-intensive global economy. These
trends have contributed to increased demand for more highly-skilled
workers and a decline in demand for unskilled labour, especially in
the United States and other developed countries [Sewell & Tucker,
1988; Bound & Johnson, 1992; Lawrence, 1994].
VI. Conclusions
It therefore is in the best interests of the United States and other
countries to adopt high-wage economic strategies that incorporate labour
standards. The European Community has done more than the United
States to develop such strategies, and evidence suggests that it is achieving
convergence, mainly by raising wages and working conditions in low-
Ray Marshall
77
wage European countries, not by reducing wages and working conditions
in the high-wage countries.
There has, however, been considerable support for higher labour
standards and a high-wage development strategy in the United States,
which included labour standards in every major trade act of the 1980s, as
well m; in the NAFTA, which became effective in January 1994. The
United States had, in addition, taken the lead to include labour standards
in the World Trade Organization (WTO). Critics argue, I think
correctly, that the NAFTA provisions do not provide adequate enforcement provisions. The major challenge of the 1990s therefore will be to
strengthen enforcement processes in NAFTA and the WTO. Another
challenge will be to overcome the fears of the developing countries that
labour standards in international economic rules are designed to inhibit
their development by protecting high wages in the developed countries.
The main thrust of a high-wage strategy should be macro-economic
policies to reduce cyclical unemployment — as suggested by Solow —
active labour market and adjustment programmes, policies to strengthen
competitive markets and social safety nets, and improvements in worker
education, training, and participation in workplace decisions. There can
be little doubt, however, that labour standards can make national and
international economic policies much more beneficial to most people
everywhere.
Abraham, Katherine; Houseman, Susan. 1993. "Job security in America", in Brookings
Review, summer.
Barnet, Richard J. 1993. "The end of jobs", in Harpers, September.
Birdsall, Nancy et al. 1994. "Inequality and growth reconsidered", presentation to
American Economics Association, Boston, Mass., January.
Boswoith, Barry. 1994. "Unemployed in Europe versus poor in America", in
International Economic Insights, March/April.
Bound, John; Johnson, George. 1992. "Changes in the structure of wages in the 1980s: An
evaluation of alternative explanations", in American Economic Review, June, pp. 371392.
Charnovitz, Steve. 1987. "The influence of international labour standards on the world
trading regime", in International Labour Review, Sept./Oct.
Faux, Jeff; Lee, Thea. 1992. The effect of George Bush's NAFTA on American workers:
Ladder up or ladder down?, Washington, DC, Economic Policy Institute.
78
International
interdependence
Gutfeld, Rose. 1992. "Free trade accord may hurt workers in US, study says", in The
Wall Street Journal, 1 October, p. B-6.
Hufbauer, Gary; Schott, Jeffrey. 1992. North American free trade: Issues and
recommendations, Washington, DC, Institute for International Economics.
Krugman, Paul. 1994. "Competitiveness: A dangerous obsession", in Foreign Affairs,
March/April.
Lawrence, Robert Z. 1994. "Rude awakening: The end of the American dream", in
International Economic Insights, Jan./Feb., pp. 2-6.
Marshall, Ray. 1988. "Jobs: The shifting structure of global employment", in Sewell,
John; Tucker, Stuart (eds.): Growth, exports and jobs in a changing world economy:
Agenda 1988, Washington, DC, Overseas Development Council.
—. 1993. "The North American Free Trade Agreement: Implications for workers", in
Fernandez de Castro, Rafael et al. (eds.): Sectoral labor effects of North American Free
Trade, Austin, Texas, The University of Texas at Austin, pp. 3-33.
Mishel, Lawrence; Bernstein, Jay. 1992. "Declining wages for high school and college
graduates", Economic Policy Institute Briefing Paper, 14 May.
Nasar, Sylvia. 1994. "Economies of inequality: A new view", in New York Times, 8 Jan.,
p. 26.
Piore, Michael; Sabel, Charles. 1984. The second industrial divide: Possibilities for prosperity,
New York, Basic Books.
Schor, Juliet. 1991. The overworked American: The unexpected decline of7ew«re, New York,
Basic Books.
Sewell, John; Tucker, Stuart (eds.). 1988. Growth, exports and jobs in a changing world
economy: Agenda 1988, Washington, DC, Overseas Development Council.
Solow, Robert. 1994. "Europe's unnecessary unemployment", in International Economic
Insights, March/April.
Stell, Benn. 1994. "'Social correctness' in the new protectionism", in Foreign Affairs,
Jan./Feb.
United States Congress. 1992. U.S.-Mexico trade: Pulling together or apart?, Washington,
DC, Office of Technology Assessment, US Government Printing Office, October.
Zuboff, Shoshona. 1988. In the age of the smart machine, New York, Basic Books.
A hard-headed look at labour standards
Richard B. Freeman
Harvard University
Programme Director, National Bureau
of Economic Research
Cambridge, Ma., USA
I. Introduction
The concept of labour standards — minimal rules for workplace
conditions and outcomes imposed by legal mandate — typically invokes
one of two reactions.
To some, standards are an institutional intervention in competitive
markets that impairs the workings of the Invisible Hand. Standards, the
argument goes, reduce efficiency, increase the cost of labour and lower
the employment of those affected, to the benefit of higher-cost competitors. Adherents to this view stress that trade unions in advanced
countries lead the fight for domestic or international labour standards not
so much to benefit workers in non-union domestic firms or in foreign
countries as to limit the ability of those firms/workers to compete in the
market-place.
To others, standards lie at the heart of governmental or collectively
bargjuned policies to preserve or raise living conditions and maintain
social justice. Societies regulate many things, from food and drugs to
security markets, and have developed international conventions to protect
endangered species, be they turtles, owls, whales, rhinoceri, or such.1
Why not apply standards to protect the working lives of our own
species? Adherents to this view stress the danger that bad standards will
drive out good standards, and thus the need for regulations that affect all
1
In 1994, the United States Government has imposed trade sanctions against Taiwan
for the sake of one such set of animals.
80
firms and countries: "the failure of any nation to adopt humane conditions of labour is an obstacle in the way of other nations which desire to
improve the conditions in their own countries." (Preamble to the I L O
Constitution)
These reactions make the argument about labour standards one of
a set of running battles between those who believe the unfettered market
can do no wrong and those who believe governmental regulations can
make things better. If you like standards, trot out the (usual) arguments
about market imperfections, externalities, unequal bargaining power,
prisoners' dilemma or coordination games, etc. If you don't like
standards, trot out the (usual) arguments about the wonders of the
Invisible Hand, the ineffectiveness of governments to act in the public
interest, rent-seeking, etc. The debate is long on ideology and rhetoric
and short on analysis and evidence.
To give the "hard-headed" look at labour standards promised in m y
title, I step back from the debate to focus on the fact that, merits aside,
a sizeable proportion of citizens want some labour standards in their own
country and also want some standards in the production of goods
imported from other countries, just as they want TVs, doughnuts or perfumes. Treating labour standards as a normal consumer good rather than
as something extraneous to the economic system illuminates the underlying demand for standards; directs attention at the market and
regulatory mechanisms that can supply standards to meet this demand,
at the incidence of the benefits and costs of standards; and provides a
vantage point for assessing whether standards should be part of global
trade agreements.
77. Standards as an economic commodity
Everyone, or nearly everyone, wants some labour standards. Most
countries, including the United States, enact labour standards for their
citizens, and nearly every country has ratified some of the Conventions
of the International Labour Organization (6,000 ratifications of 174
Conventions at the latest count) [ILO, 1994]. Among the ILO Conventions most commonly ratified are those on forced labour, freedom of
association and the right to organize, collective bargaining and discrimination. The United States is a signatory to Conventions on hours
worked and occupational health and safety, though it has not signed as
many Conventions as other advanced countries. In the European Union
Richard B. Freeman
81
(Common Market) all countries save the United Kingdom at this writing
accept the Social Charter, with its labour standards.
To evaluate your (mine, society's) demand for standards, consider
two T-shirts, identical in quality and with the same cool logo. One was
manufactured by... Bosnian Serbs in an "ethnically cleansed" village...
political prisoners in a labour camp... sexually harassed women in a free
trade zone on a Caribbean island... Chinese convict labour... Indonesians
whose efforts to unionize are suppressed by army brutality... Americans
in a sweat-shop in New York or N o r t h Carolina or Los Angeles... whatever grabs you the most. The other was manufactured by Americans...
Indians... Malaysians... Costa Ricans... Canadians... Dominicans ...
Chinese — name your favorite group — working under normal conditions with or without an independent union, whose employers treat them
as human beings under "reasonable" standards, and whose government
protects their basic human rights. The products are the same. The price
is the same. Which would you buy?
N o w , the vendor raises the price. The T-shirt produced by workers
under better standards costs... 50 cents, $1.00, $2.00 — fill in the number
— more than the T-shirt produced under poorer standards. Which would
you buy? At the same price, most consumers would choose the shirt
made under better working conditions. Most would pay a modest premium for that shirt. But as the premium rises, the number willing to do
so will fall. This gives us the demand curve for labour standards — the
additional amount consumers would pay for products made under
"decent conditions".
Ii: this example does not convince you that there is genuine consumer demand for labour standards, consider slavery. Announce that the
cheaper shirt is made by slave labour, and see what happens: sales will
fall; stores carrying slave-produced products will be boycotted, and so on.
In biblical days, in ancient Greece, in the early days of the United States,
slavery may have been an acceptable form of labour arrangement. But no
longer. Most, if not all of us, do not want to be part of a market transaction. where the commodity is produced by slave labour, and would pay
to avoid such.
Abolition of slave labour is a standard on which nearly everyone
agrees. There are other labour conditions about which there is less
unanimity: use of prison labour, child labour, hazardous work, freedom
of association, hours of work, minimum wages. Some ILO Conventions
refleci: standards that involve basic human rights. Others may seem trivial
or unnecessary interventions in labour contracts, or cost more in terms
of reduced flexibility or lost jobs than they are worth in benefits.
82
Treating standards as a (by-)product for which consumers are willing
to pay money parallels Alfred Marshall's treatment of working conditions
as a product for which employees are willing to sacrifice pay, through
compensating differentials. In Principles of economics, Marshall differentiated between the bricklayer, who cares whether he works in a palace
or a sewer, and the maker of bricks, who couldn't care less if the bricks
are used for the palace or the sewer. The bricklayer's concern creates
compensating wage differentials in the job market: lower pay for palace
work relative to sewer work [Marshall, 1982]. Consumers' concern with
the conditions of production adds a product market dimension to the
compensating differential story. The consumer who cares whether the
worker makes products in palatial or sewer conditions consumes not only
the physical good but the associated work conditions — an "extended
product", as it were. This will create compensating price differentials in
the product market analogous to compensating wage differentials in the
labour market.
There is, however, an important difference between workers' assessments of workplace conditions and consumers' assessments. The bricklayer knows readily if he is in a sewer or in a palace. The consumer, by
contrast, has no direct knowledge of the conditions under which a
product is produced. For some products, she may rely on the "reputation" of the firm — "Coca Cola is a good company and must have good
labour standards". But for generic products, like the T-shirt, and for
companies whose names are not household words, the consumer has
little, if any, information about the conditions under which the good is
produced. H o w , then, might consumer preferences for standards be expressed in the market?
In principle, one way to determine preferences for labour standards
is through accurate labelling of the conditions under which products are
produced. Tell the consumer the product is made by slaves, convict
labour, child labour, workers paid abnormally low wages under sweatshop conditions, and she'll decide whether to buy it or a substitute
produced under better conditions, depending on the price of the two
variants. Consumers will penalize or reward enterprises according to their
underlying preference for labour standards, just as workers do so through
compensating wage differentials.
But the product market will not produce accurate labelling of
standards by itself. Low-standard producers will have an incentive to lie
to consumers about the labour conditions in their workplaces. All firms
will claim they produce goods under good conditions, and consumers will
Richard B. Freeman
83
be unable to express their demand for standards. 2 From these considerations, ][ conclude that some external labelling organization, private {vide
Consumer Reports) or public, would be needed to assure the accuracy of
labour conditions labels. But that is the only "extra-market" force needed
to produce the desired outcome. A society that gives consumers the information about labour conditions can step aside and let them determine an
implick "price" for labour standards.
Taking the argument a step further, the market price for standards
should induce producers to improve conditions for workers. The market
share of firms producing under good labour standards will rise when
consumers shun products produced under poor standards. Some firms
that initially produced under poor standards will find it profitable to
improve standards, to avoid having to reduce their price to maintain
customers.
This market-oriented way to produce a socially desired level of
labour standards may strike some readers as unrealistic. When I presented
it to an American union leader, he rejected the notion that people would
pay attention to work standard labels. "They'll buy the cheapest product
in any case", he said, "so only trade barriers or government restrictions
on low-standard workplaces could enforce standards". 3 A similar criticism was made through private correspondence after I presented these
ideas at the April 1994 Department of Labour Conference on Standards
[Schweiger, 1994].
This criticism underestimates, in my opinion, the extent to which
consumers value labour (other) standards of production. As evidence that
people will sacrifice money for "standards", I direct attention to: stock
market funds that specialize in "good companies"; surveys that show that
most Americans wanted to raise the minimum wage in the late 1980s
even when they were reminded this would increase the costs of goods
[Freeman, 1994]; consumer purchases of politically correct products such
as Amazon Forest Crunch Candy at relatively high prices; the 1980s
"Sulliv;in Conventions" on investment in South Africa; the 2 per cent or
so of national income that Americans give to charitable causes; consumer
boycotts, such as the 1980s' boycott of grapes to support the United
2
If firms advertised their standards, knowing that this would increase demand for
their product, those with the lowest standards and lowest costs might have bigger
advertising budgets, and gain market share.
3
1 did not ask if he bought union-label products when such are available in preference
to cheaper non-union products; but I do know that AFL-CIO officials fly non-union
airlines, go to non-union hotels, and so on, if they find this sufficiently more convenient
than patronizing a unionized competitor.
84
Farmworkers; and the efforts of companies such as Levi Strauss and
Reebok International to apply standards in subcontracting arrangements
with firms in developing countries. These firms voluntarily reject forced
or child labour, set minimum wages and hours of work that are often
better than those in the host country's legislation, and guarantee workers
freedom of association.
This criticism also overestimates the shift in demand for a product
necessary to induce producers to raise labour standards. In many markets,
changes in the behaviour of a small proportion of consumers may yield
huge changes in profitability. A loss of 5 or 10 per cent of sales will cut
deeply into the profits of retail stores and induce them to drop lines of
goods from low-standard producers, pressuring those producers to improve conditions. My guess is that many standards — particularly those
associated with decent personnel practices — are relatively inexpensive,
and thus likely to respond to modest market pressures.
If I am wrong and consumers are unwilling to pay for a given set of
labour standards, that set would have failed the market test. The burden
would then fall on the advocates of standards to convince the rest of
society that good standards are worth the price just as environmentalists
have convinced many consumers that environmentally sound products
are worth their price.
In pushing a market approach to labour standards, I do not claim
that providing information is necessarily the best way for consumers to
"buy" the labour standards they want: a labelling strategy may be hard
to implement because of the ease of cheating on labels. I also do not deny
that in addition to consumer demand for standards, there is producer
demand, for the purpose of raising the costs of competitors. In some
cases, moreover, concerned citizens may view some standards as moral
imperatives that justify illegal activity: vide the anti-slavery movement in
the 1850s, anti-abortion activity in the 1990s, etc. My point is that
demand for labour standards is grounded in consumer preferences, and
that a positive economic analysis of standards must begin with these
preferences.
III. Purchasing (enforcing) standards
Given that consumers want labour standards, the next question is
"what mechanism will best enable them to buy the desired amount of
standards cum commodity?" In the domestic economy, two mechanisms
are available: legal regulations and enforcement thereof, and accurate
Richard B. Freeman
85
labelling of goods. As Weitzman [1974] showed in his analysis of quantity
versus price regulations, the choice of mechanism is situation-dependent.
In some cases, the benefits and costs of directly regulating standards and
enforcing such may be more efficacious than a "labelling" strategy. In
other ciises, the labelling approach may be cost-effective.
In general, societies rely more on legal enactment than informed
consumer decisions in establishing labour standards. The United States
ended slavery through constitutional amendment. We restrict child labour
by law and enforce occupational health and safety standards by government regulators. We outlaw discrimination against workers for reasons
of gender, race, disability and the like. In the world economy, ILO
Conventions are legal agreements with a status similar to international
treaties. O n e rationale for the use of legal enactment over labelling is the
potential ease of mislabelling products. The higher the cost of obtaining
accurate information, the less desirable is a market-based labelling strategy
for obtaining desired labour standards.
But we should not exaggerate the effectiveness of legal regulation. A
substantial number of workers are paid wages below the legal minimum
in the United States — a country where laws are generally obeyed. Many
workplaces do not follow national health and safety regulations. Some
countries sign the ILO Convention on child labour but do little else. The
Commission on the Future of Worker-Management Relations in the
United States has noted the tendency for the American Congress to pass
laws protecting workers but then to fail to provide the money for
enforcement. The higher the cost of enforcing a law, the less desirable is
a legal-regulation strategy for obtaining desired labour standards.
Command and control modes of obtaining desirable conditions have
many problems.
My assessment is that society can best obtain the standards it wants
through a mixture of legal regulation and consumer information, with
some standards more efficiently established through the latter and some
through the former. Standards governing how the market works, such as
those regulating labour contracts and guaranteeing freedom of association,
may be more efficaciously set by legal regulation, whereas standards for
actual market outcomes, such as wages and hours or occupational health
and safety conditions, may possibly be more efficaciously determined
through providing consumers with information about those outcomes.
The "information revolution" has, in my opinion, created greater opportunity for a labelling-based strategy than in the past.
86
IV. Who benefits from standards? Who pays?
As with any other commodity, labour standards are costly. Resources must be spent to obtain standards. Someone has to pay for the
production of safety, minimum wages, etc. And someone, possibly a
different someone, benefits from those standards. A key issue is thus the
incidence of benefits and costs of labour standards. Do employers pay for
standards because they are legally obligated to provide them? Do the
beneficiaries pay through lower wages or employment?
Opponents of standards often argue that the main beneficiaries are
workers/firms in high-standard workplaces and that the low-standard
workers/firms pay through reduced competitiveness. Proponents of
standards argue that the main beneficiaries are the workers in lowstandard workplaces or countries. Some labour standards operate like a
minimum wage, reducing employment of some low-paid workers while
raising the pay of others, including workers with the appropriate crosselasticity of demand. Other labour standards operate like a payroll tax.
If the supply of labour is zero-elastic, workers will pay for the benefit
through lower wages. If supply is upward-sloping, the costs will be shared
between workers and employers, and eventually consumers, depending
on supply and demand elasticities. If workers value a given standard, the
supply of labour will shift to the right when it is legally mandated, so
that more of the cost will fall on workers.
Analysis of standards as a commodity desired by consumers suggests
additional considerations in the incidence of benefits and costs. Consider
a situation in which the consumer wants you to work in a safe workplace
while you are indifferent. The consumer benefits from the standard and
ought, therefore, to pay for it. In a market where standards are set
through labelling of conditions, this will be the case. Indeed, consumers
who want higher/lower standards will "buy" the amount they want, just
as they buy higher/lower quality products. If the worker also benefits
from the improved conditions, the consumer and worker will share the
costs and benefits.
Legal enactment creates a different situation. If consumers have
homogeneous tastes, they would vote to enact a single standard and pay
for enforcement through taxes. But consumers are heterogeneous, so that
a single standard will force some to buy a higher standard than they want
while others buy a lower standard than they want. To the extent that
consumers care about their link with products made under substandard
conditions, this suggests that, other things being equal, we ought to give
preference to an information labelling approach to determining standards.
Richard B. Freeman
87
But to the extent that consumers care about the existence of substandard
conditions per se, regardless of whether they buy the goods so produced,
legal enactment has an advantage.
These considerations bring to the fore a major issue about consumer
preferences for standards: whether they are a private good or a public
good. My analysis of differential prices for the extended product treats
them as; private goods, as does the analysis of compensating differentials
in the labour market. If preference for standards goes beyond the commodities the individual consumes to standards in society or the world in
general,, a public goods analysis is needed.
V. Standards and trade
Establishing labour standards within a country is important, but
what makes standards controversial today is growing sentiment for the
use of trade to enforce standards across countries, particularly across
countries with very different forms of government and levels of GDP per
capita. To protectionists, standards offer a rallying cry to preserve or
create trade barriers. To those who believe that free trade is the route to
economic progress in developing countries, linking trade and non-trade
objectives risks blocking the route. To those who care about human
rights., trade is one of the few non-military tools for pressuring foreign
countries to treat their workers decently and move towards more democratic practices.
I have three points to make about international labour standards.
First, I do not accept the premise of some that bad standards drive
out good standards. Any country that wants higher labour standards for
itself can have them... if it is willing to pay. A country can pay for
standards that increase its cost of production in three ways: through
exchange-rate devaluation, with all consumers bearing the burden;
through lower wages of workers who gain the benefits; or through taxes
on the general public. As a case in point, consider Canada and its major
trading partner, the United States. Labour standards and welfare state
benefits are higher in Canada than in the US. Does this force lower
standards onto Canada? As long as Canada has a separate currency, a tax
system and flexible wages, the answer is no: Canadian citizens can buy
the standards they wish. Evidence on labour standards and flows of
foreign investment in the OECD's 1994 Employment Outlook supports
this analysis for advanced countries. The OECD data shows that foreign
direci: investment over GDP (an indicator of the attraction of a country
88
International
interdependence
to international capital) is unrelated to whether a country has relatively
stringent or flexible regulations on labour standards (see Chart 5.6 in Ch.
5 of the OECD report). The primary determinant of investment flows
is the level of wages, as investment has favoured lower-wage OECD
countries such as Portugal or Greece compared to higher-wage countries
like Switzerland or Sweden.4 Within the US, with a single currency,
states survive in the same economic space with different labour regulations.
Second, international standards must allow for differences in the
level of development of countries. Historically, labour standards rise with
development. Even the relatively laissez-faire Americans have enacted
more laws protecting workers over time, with a burst of legislation in the
1980s (Commission on Worker-Management Relations). The effort of
European countries in the 1980s and early 1990s to increase flexibility
and reform aspects of the welfare state still leaves Europe with the
highest labour standards in the world. Newly industrializing countries
such as Korea and Taiwan have introduced higher minimum wages,
various social benefits and increased rights of association. The general rule
is that the higher national output per capita the higher the standards, at
least in some range of variation of GDP. 5 A country with low GDP per
capita will not "buy" the same labour standards as an advanced country
any more than it buys the same number of cars or telephones.
The International Labour Organization, which sets international
labour standards, recognizes that standards must vary with national
wealth: "The ILO has always held its standards to be universal, while at
the same time accepting the inclusion of flexibility clauses that make
allowances for different levels of development... the ILO's practice has been
to set benchmarks that each State is expected to adopt as and when its
level of development allows." [ILO, 1994, p. 16].
Allowing for differing national abilities to pay for labour standards
raises problems. On the one side, flexible standards may do no more than
mirror existing conditions rather than inducing countries to improve
conditions. On the other side, consumers and others in advanced
4
In the OECD listing Canada and the United States are in the same group: countries
with relatively flexible regulations on labour standards.
5
Among OECD countries, expenditures on social protection as a share of GDP and
indices of labour standards (based upon OECD classification of regulations on working
time, fixed-term contracts, employment protection, minimum wages and employee
representation rights) show no apparent relation to GDP per capita. The United States,
in particular, ranks low in expenditures on social protection or labour standards, while
having the highest income per capita. See OECD [1994, tables 5.8 and 5.9].
Richard B. Freeman
89
countries may apply overly high standards to less developed countries —
for instance in the area of child labour. Which standards should be
flexible and which should be universal, without exception for levels of
development? The distinction between standards that specify processes for
determining labour outcomes (freedom of association, use of slave or
convict labour) and standards that specify those outcomes (minimum
wages, occupational health and safety) offers one rough rule of thumb for
answering this question. Many process-related standards can be met
without high levels of income and thus might best be viewed as fundamental social rights. Nearly all outcome standards, by contrast, depend
on the nation's productive capacity, and must be scaled according to that
capacity — for instance, by making them relative to income per head.
But this distinction still leaves open some difficult cases. While noone can object to different wage standards or minimum wages across
countries, varying health and safety or child labour standards is more
problematic. H o w should one view a multinational that invests in safe
machines in an advanced country but in less safe, cheaper machines in a
less developed country? Perhaps the firm would not make the investment
in the L D C with the more expensive machines. Likely as not, the
cheaper machines are safer than those used in the advanced country at a
comparable level of development. Is this firm meeting international
labour standards or not? And how flexible ought standards to be in the
area of child labour? In some LDCs, children may have to work for
family economic survival. Better that they work and eat than starve. The
multinational which insists that its subcontractors fire all child labour
may be doing those children more harm than good. But does the firm,
or consumers of its products, want it to follow local customs to the
extent of hiring 8-10-year-olds at subsistence wages? The salience of these
concerns to businessmen operating in a global economy was highlighted
in a 1993 Harvard Business Review article dealing with the conflict
between child labour standards in the West and those in a poor country
[Nichols, 1993].
The manager of the ILO's Programme on the Elimination of Child
Labour made the following observations in 1994 on this difficult
problem: "Abolishing child labour in one sector alone, such as the export
sector, cannot eliminate child labour in a country — it may simply push
it into other activities, including some more hazardous to children. There
is no quick fix in child labour." [Washington Branch of ILO, 1994, p. 9].
Citing cases in which the threat of trade sanctions led employers to
dismiss children, who were then forced into more hazardous w o r k in the
informal sector, the author of the article drew the following lesson,
"What these cases from the garment industry and other export industries
90
suggest is the need to transfer children away from the workplace in a
planned and phased manner" [ibid., p. 11].
Analysis of standards as a consumer good suggests that the cost of
the transfer ought to be borne by consumers in advanced countries. If
you are opposed to child labour being used in the products you buy, you
ought to be willing to pay a few cents extra for a programme to transfer
those children into education or training. Part of the information label
on a product ought to specify the amount of the purchase price that goes
to such activities. Our demand, as consumers, ought to be that countries/
multinationals develop programmes to maintain the living standards of
children so they can go to school rather than that firms simply displace
the children. If you want better standards in child labour and other areas
in poorer countries, you should put your money where your moralizing
is.
The third and most controversial issue is whether labour standards
should be part of international trade agreements. Ought advanced
countries to make standards an issue in world trade negotiations? Unlike
trade economists who view any interference with free trade as the work
of the Devil, I would be pragmatic in this area. The concerns and issues
faced by working people are all too often missing from conferences on
the world economy dominated by bankers, finance ministries and multinationals. If trade negotiations are the only way to raise forcefully the
standards flag in an international setting, why not? If trade sanctions can
improve labour standards, that benefit must be weighed against the cost
of lost trade. If trade sanctions can overturn an evil dictatorial regime and
save human lives, go for it. Perhaps the standards issue will induce
international trading groups to consider innovative ways whereby international trade might be used to finance improvements in standards. As
boycotts and sanctions have not in general been successful in altering
country behaviour, though, I would proceed cautiously in those
directions.
VI. Conclusions
The "take" on standards that I have adopted in this paper —
analysing them as part of an extended product desired by consumers —
has led me to the following "hard-headed" conclusions:
(a) There is a consumer market-labelling way to establish standards that
has some virtues compared to government regulations.
Richard B. Freeman
91
(b) The choice between delivering standards through labelling or
regulation depends on the costs of providing information; the costs
of enforcing regulations; heterogeneity of consumer preferences for
standards; and whether standards are more a private or public good.
(c) Countries can choose their own standards: bad standards need not
drive out good standards.
(d) Outcome-related standards depend on the income in a country, but
the: level of some process-related standards should be independent of
the: level of income. Consumers in developed countries who want
higher standards in LDCs, such as reduced child labour, must be
willing to pay for them.
(e) Raising the issue of standards in trade negotiations may force the
financial trading community to take standards seriously and develop
new ways to improve standards in LDCs.
Perhaps the most radical (conservative?) notion in this essay is that
policy-makers should give greater weight to a labelling strategy for
determining standards: provide consumers with information about the
labour standards under which products are produced, and then trust the
market to reward products made with good standards and penalize those
made with poor labour standards. I know that you, good reader, would
not buy the T-shirt made by workers under poor conditions, and would
willingly pay an extra nickel or perhaps a dime if the firm producing it
used the money to benefit its impoverished workers, to reduce child
labour, or for some other good purpose. I believe that if mechanisms
were in place to help us express our demand for higher labour standards,
enough other consumers would react similarly that standards would
indeed be raised.
Castro, A. et al. (eds.) 1992. International integration and labour market organisation,
London, Academic Press.
Charnovitz, Steve. 1987. "The influence of international labour standards on the world
trading regime: A historical review", in International Labour Review, Vol. 126.
Commission on Worker-Management Relations, 1994. Fact-finding report, Washington,
DC, United States Government Printing Office, June.
Freemsm, Richard. 1994. "Minimum wages — again!", in International Journal of
Manpower.
92
International
interdependence
ILO. 1994. Defending values, promoting change. Social justice in a global economy: An ILO
Marshall, A. 1982. Principles of economics, Philadelphia, Porcupine Press.
Nichols, Martha. 1993. "Third World families at work: Child labor or child care?", in
Harvard Business Review, Jan.-Feb., reprint 93105.
OECD, 1994. Employment Outlook, Paris, Organisation for Economic Co-operation and
Development.
Schweiger, Richard. Correspondence on labour standards, 9 May 1994.
Sengenberger, Werner. 1992. "Labor standards in the international economy - Challenges
and perspectives" in Tokanaga, Shigeyoshi et al. (eds.): New impacts on industrial
relations — Internationalization and changing production strategies, Munich, Iudicum.
Servais, Jean-Michel. 1989. "The social clause in trade agreements: Wishful thinking or an
instrument of social progress?" in International Labour Review, Vol. 128, No. 4.
United States Department of Labor. 1990. Labor standards and development in the
international economy, Washington, DC, Bureau of International Affairs.
Valticos, Nicolas. 1969. "Fifty years of standard-setting activities by the International
Labour Organization", in International Labour Review, Vol. 100, No. 3.
van Liemt, Gijsbert. 1989. "Minimum labour standards and international trade: Would
a social clause work?", in International Labour Review, Vol. 128, No. 4.
Washington Branch, International Labour Organization. 1994. ILO Washington Focus,
spring.
Weitzman, Martin. 1974. "Prices vs. quantities", in Review of Economic Studies, October.
Part 4:
Challenges for labour standards
from globalization
and economic interdependence
Post-post-modernism
and international labour standards:
The quest for a new complexity
Philip Alston
Professor of Law
Director of the Centre for International
and Public Law, Australian National University
Chairperson, United Nations Committee
on Economic, Social and Cultural Rights
Canberra
Australia
I. Introduction
The decade of the 1990s has already witnessed a process of change
which Is without parallel in world history. The scope and rapidity of that
change have given rise to challenges which our past experience has not
equipped us to answer with any confidence. This is primarily because so
many of the assumptions upon which we have become accustomed to
operating can no longer be taken for granted. As a result, whether we
like it or not, many of the approaches which served us well in a postSecond World War era, dominated by the geo-political and ideological
rivalries of the Cold War, must now be subject to fundamental reexamination.
The fact that this applies equally to approaches to social justice,
including the ILO's system of adopting, promoting and monitoring international labour standards, is amply demonstrated by a variety of recent
critiques of those standards, at least some of which appear to be gaining
acceptance among governments and other participants in the international
process. In essence, this critique has, for the purposes of the present
volume, been well summed up in the following terms:
96
Standards are viewed as an interference in the (natural) market process, leading
to distortions in the price-setting and market-clearing mechanisms, impeding
efficiency, creating sub-optimal allocation of labour, the waste of resources
through rent-seeking, stifling of competition, deterrence of investments and
constraint of growth, and the like. Consequently, labour market deregulation
through the relaxation and elimination of standards should remedy the improper
functioning of markets [Project outline for this volume, p. 1].
But while it is clear that the fundamental changes which labour
markets have undergone in recent years necessitate the questioning of
many of the assumptions upon which the international labour standards
regime is based, it is by no means clear that the correct assumptions are
being re-evaluated. The major problem has been a tendency to conflate
the radical free-market agenda of a particular school of neo-classical
economics with the much more nuanced and complex set of changes that
would seem to be required in order to respond to the changing nature of
the labour market. The failure to separate these two different dimensions
risks leading some commentators to "throw the baby out with the bath
water".
II. The challenge to labour standards
The current challenge to labour standards derives from two related,
but none the less analytically separable, developments over the past
decade and a half. The first is largely ideological in nature and justification, while the second is a direct response to a range of global labour
market trends. Although it is the second rather than the first of these
developments that should frame the debate over the future of labour
standards, it is nevertheless important to understand the relationship
between the two. The ideological push for reform derives largely from
the proposition that the best protection for workers lies in a highly competitive, unstructured labour market which is largely, and ideally almost
entirely, unrestrained in its operation by artificially imposed minimum
standards. Thus it is untrammelled competition among employers in a
free labour market which will provide the best protection for workers.
Those employers who offer low wages, unsatisfactory or unsafe working
conditions, or inadequate leave or other benefits, will be unable to retain
their workers and will, as a result, lose the skills, experience and other
benefits of a stable workforce unless they offer improved conditions
[Friedman & Friedman, 1979; Epstein, 1983].
Philip Alston
97
Enthusiasm in the West for this neo-classical approach, beginning in
the late 1970s, combined with the impact of the economic recession
which followed the Wall Street crash in October 1987, encouraged the
adoption of comparatively radical economic prescriptions in various
countries, ranging from Mrs. Thatcher's Britain, President Salinas'
Mexico, Prime Minister Mahathir's Malaysia, New Zealand under
Finance Minister Roger Douglas, post-Kaunda Zambia, and Chile under
General Pinochet. In Eastern Europe, an attempt was made in the late
1980s to combine communist-controlled central planning with reliance
upon a limited range of market mechanisms and a greater degree of openness to capitalist influences. But the apparent impossibility of exercising
effective control over such a balancing act, combined with the collapse
of the old regimes, led to the abandonment of such efforts in favour of
often rather drastic free-market approaches. Third World countries in
turn saw their patrons abandoning not only their previous political and
economic systems but also their geo-political commitment to support
regimes which were not following suit.
Although the extent to which free market policies were embraced
differed very significantly from one country to the next, various commentators related those developments directly to the events symbolized
by the fall of the Berlin Wall in November 1989 and managed to interpret them as representing the "end of history" or at least the "end of
ideology". In reality, however, what they and others seem to be celebrating is a perceived abandonment of post-modern scepticism about, and
perhaps even the complete rejection of most, if not all, grand normative
theories. Post-modernist approaches, which dominated international
economic analysis for most of the century, involved a preoccupation with
the perceived complexities of policy-making and the unavoidable need for
carefully calibrated and tailored prescriptions to influence the outcome
produced by the interaction of a range of competing factors and influences.
If pursued in an extreme form, such "social engineering" might have
offended post-modernist assumptions as to the invalidity of meta-norms.
For the most part it was not, however, and the social democratic approaches to which it gave rise were quite consistent with them. The 1970s
and 1980s were dominated by efforts in both the capitalist and centrallyplanned (communist) societies to moderate what were seen as the adverse
side-effects of the basic economic philosophy being pursued. The result
was a. determinedly hybrid approach in most, although not all, cases.
Labour standards fitted conveniently into this context. They, or at least
an acceptably restrictive selection of them, could be viewed as a convenient palliative to the worst excesses which would otherwise have been
98
produced by the system in place. They were also consistent with the
quest to achieve a limited international politics of cooperation, through
the ILO and other international organizations, which was compatible
with the maintenance of what was seen as a desirable, even necessary,
degree of ideological and geo-political competition.
The victory of free market ideology was seen to mark a fundamental
departure from these approaches. In their stead a single, all-embracing,
uncomplicated meta-norm is now assumed to be applicable. This represents a victory for simplicity over complexity and validates an approach
in which social justice outcomes are best maximized through the (relatively) unfettered operation of the labour market. Labour standards are
then no more than a distorting mechanism which will facilitate the
achievement of results which are actually antithetical to those which their
well-meaning but misguided proponents seek to achieve.
In fact this line of reasoning does not comport with either historical
or current realities. Historically, labour standards were introduced in the
ILO Constitution of 1919 both as a bulwark against the rigidities of
communist ("Bolshevik") ideology and in order to facilitate free trade
among nations. All that has changed in this regard is that centrallyplanned, authoritarian socialism is no longer in contention as a viable
means by which to moderate the unacceptable consequences of otherwise
unfettered free market approaches. But the quest for alternative means of
reconciling the imperative of protecting basic human dignity with the
advantages of free markets continues unabated.
III. The changing context
What has changed, however, are both the global and rational contexts in which labour standards must now operate and the new trends to
which they are compelled to respond. Ever-increasing global mobility of
capital and labour, rapid technological innovation which knows no
boundaries, the export imperative, and the elimination of many tariff and
other barriers to trade have all led to increased pressures at the national
level to be more "competitive", primarily through the reduction of
labour costs. While increased productivity is the ideal means, this too
usually involves greater "flexibility" on the part of labour, which in turn
is usually seen to require a leaner workforce, lower minimum labour
standards and the reduction of social programmes premised on contributions by employers and governments. It is these factors which compel
a re-examination of international labour standards. Their scope is well
Philip Alston
99
illustrated by the following statement of policy imperatives for Western
governments which the International Monetary Fund identified in its
May 1994 World Economic Outlook:
European governments... should not allow fears about distributional consequences to prevent them from taking bold steps to implement fundamental
labour market reforms. Policies that would increase the flexibility of labour
markets include reform of unemployment insurance systems, minimum wage
laws, employment protection regulations, and other distortions that hamper job
creation and incentives to seek employment.
Governments should also resist pressures to initiate policies that restrict the
operation of market forces, such as trade barriers, attempts to offset the impact
of technological changes on employment, and legislated reductions in the work
week, since such initiatives are likely to prove counterproductive [IMF Survey,
1994].
This approach raises questions as to whether there is any point at
which labour standards cease to act as distortions, and whether there is
any residual need for such distortions. Is the IMF's call for "reform"
merely a euphemism for elimination? If it is not, what are the minimum
regulatory benchmarks that would be compatible with the need for flexibility and from whence can such benchmarks be derived?
In the brave new world, characterized by policies designed to maximize "competitiveness" and "flexibility" (terms which warrant inverted
commas to indicate the author's uneasiness at the inordinately broad
range of meanings attributed to them in different contexts), the old
challenges will not disappear or otherwise "wither away". Instead, they
will simply re-emerge in new guises. Two examples will suffice to
illustrate this phenomenon. The first is the recent announcement by the
Chinese Government that the establishment of trade unions will be
mandated in relation to all foreign ventures in major development zones
within China [International Herald Tribune, 1994, p . 9]. There is a certain
irony in this development in view of China's long-standing reluctance to
tolerate any trade union activity which falls outside the control of the
Communist Party-dominated All-China Federation of Trade Unions.
However, in the face of an increasing number of abusive and exploitative
labour practices, the Government has apparently concluded that a degree
of unionization is an indispensable counter-balance to the otherwise
largely unchecked power exercised over labour by the large foreign
industrial enterprises.
The second example concerns the impact on women's rights to equal
pay and conditions of the move in many industrialized countries to enterprise bargaining. This decentralization of bargaining structures —
100
designed to give enterprises greater flexibility, to establish a direct
relationship between the productivity of a particular group of workers
and their employment conditions, and to make wages more responsive
to market fluctuations — has a clear and strong potential to exacerbate
existing inequalities. The reasons for this include the predominance of
women in those sectors making the most use of casual or part-time
employment and the tendency for these sectors to be the most "flexible"
in terms of wages and conditions. The use of productivity as a basis for
wage outcomes also disadvantages those sectors (particularly the femaledominated service sectors) in which improved productivity is more difficult to measure or prove, and there is a male bias in defining "skills" that
are to be rewarded [see, generally, Campling, 1994]. Such factors led the
Australian Industrial Relations Commission, a strong proponent of enterprise bargaining, to acknowledge that this approach "places at a relative
disadvantage those sections of the labour force where women predominate" [Tully, cited in Campling, 1994, p. 37]. The conclusion to be drawn
from this example is not that the new approach should be abandoned,
nor is it that gender-based inequalities must be accepted. Rather, it is that
new ways must be found within the evolving system to ensure respect for
the non-discrimination norm embodied in labour standards.
It is clear, therefore, that labour market changes will not only bring
forth new challenges for the international standards regime but will also
make many of the existing standards even more relevant and urgently in
need of application than before. Indeed, the process of globalization of
economic activity also necessitates an equivalent globalization of social
policy. Ironically, however, recognition of this fact has led a number of
commentators, particularly in the context of the March 1995 World
Summit for Social Development, to call for the adoption of a new "global
social charter" and other such instruments [United Nations Development
Programme, 1994]. If such calls were premised on the overt rejection of
labour standards or of the International Covenant on Economic, Social
and Cultural Rights, it would be appropriate to ask exactly what the
shortcomings of those two reference points were perceived to be. But
since that issue does not appear to have been addressed by such visionaries, there would seem to be no reason to reject the existing framework.
Rather, our energies should be devoted to improving the effectiveness of
what already exists.
Philip Alston
101
IV. Responding to change
The most important changes that are required would seem to be
essentially procedural in nature. The most pressing need is to respond to
the transformation of the labour market which has been accelerating in
recent years. From the ILO's perspective, these changes have several very
important ramifications. The first is that labour policy, per se, is diminishing in importance in relation to overall social policy at the national
level. Indeed, many of the labour market reforms which have won strong
support within inter-governmental settings, such as the Organisation for
Economic Co-operation and Development [OECD, 1994], have the
potential to move the principal locus of social protection away from the
labour market through which so much of it has traditionally been pursued and into the far broader context of an overall national social policy.
Moreover, the latter concept risks degenerating eventually into an
emergency social-safety-net-type approach which bears little resemblance
to the overall social security or social welfare-based models which have
long been accepted.
The second is that the labour ministries, one of the traditional
mainstays of the ILO's tripartite approach, are less in control of labour
policy than they used to be. One of the consequences of the growing
internationalization of the determinants of domestic economic policies
has been a shift in power from the traditional industrial relations setting
to other settings. Labour market policies have become a central and
direct focus of finance ministries and treasuries, as well as of presidents
and prime ministers. Yet, these groups are not part of the ILO's established constituencies and its influence, along with the relevance of its
labour standards, are diminished accordingly. Moreover, it must be
acknowledged that even those key decision-makers are much more constrained in their options than they or their labour ministry colleagues
were before the onset of the full range of late-twentieth-century pressures
to comply with global economic policy exigencies. Finally, the decentralization and "flexibilization" of the bargaining process have endowed a
much wider and more disparate group of employers and employees with
influence over the de facto labour standard-setting process at the local,
and ultimately national, levels.
The need for a number of changes in the ILO's approach would
seem ico flow from these developments. In the first place, there should be
a greater effort to distinguish, within the overall corpus of labour
standiirds, between those that lay down essential goals of labour and
social policy and those that address the means by which to achieve these
102
ends. The basic standards must then be much more widely disseminated
than is presently the case and educational activities at the local level need
to be encouraged and facilitated. This is also linked to the need to recognize that labour market policy has now come to be located even more
squarely within the broader context of overall social policy, which in
turn has potentially major implications for the ILO. The ILO has to
develop its appeal and openness to what may be termed its secondary
constituencies; it can no longer afford to be as closed as it has been to
these broader interest groups, whether they be social welfare, women's,
children's, human rights or other important non-specifically labourfocused groups. This does not mean that such groups should be made full
partners in the ILO enterprise or, for example, that individuals should be
able to petition the ILO complaints procedures directly (as the Committee of Experts on the Application of Conventions and Recommendations
seems, by implication at least, to have suggested in its 1994 report).
Rather, the Organization must strive to combine on the one hand its distinctiveness in orientation and its tripartite partnership with, on the other
hand, new initiatives designed to reach out to other groups which are
now important players in what was previously a more closed and manageable domain.
A second need is for the ILO to be more willing to re-evaluate the
continuing validity of those of its means-related standards that are under
attack. This does not mean that any of its basic goals should be opened
up to re-negotiation; on the contrary, a clear ideological position in
favour of basic human rights can be the Organization's only viable
raison-d'etre. But, by the same token, the rapidity and extent of recent
labour market changes have created a different context from that in
which some of the earlier standards were designed. While the principal
burden should clearly be on those advocating revision to show how and
why change is needed and how this is compatible with basic labour rights
principles, the Office itself should also become more discerning and critical in its analyses of key issues. In particular, there is a pressing need to
seek to achieve a closer integration of the legal and economic policy perspectives in the context of work done on international labour standards.
A good example of the deficiencies of current approaches is the 1992
report prepared by (or at least in the name of) the Committee of Experts
on minimum wages. This has been an especially controversial issue in
recent years and serious debate has occurred at the national level in most
industrialized countries over whether such wages are, either in general or
at a certain point, counter-productive. Yet in the course of a 200-page
report, only two paragraphs are devoted to this issue. Leaving aside the
delightfully circular nature of the conclusion reached (which is that the
Philip Alston
103
obligation to set a minimum wage is less problematic than the level at
which it is set), it is based upon a cursory review of only two studies
[ILO, 1992]. Moreover, while neither of those studies was conclusive,
both appear to have acknowledged either actual or potential problems
with the minimum wage approach. As a result, the report combines meticulous technical analysis of existing standards and their application with
an almost total neglect of the burning issue that would be of most
concern to almost any general observer.
Finally, the ILO, like all United Nations specialized agencies, needs
to re-evaluate its commitment to cooperate with and contribute to the
work of the United Nations Committee on Economic, Social and Cultural Rights which is responsible for supervision of the International
Human Rights Covenant of the same name. While the history of the
relationship between the Committee (and its pre-1987 incarnation as a
Working Group) and the ILO has been somewhat chequered, and while
the ILO had good reason to diminish its cooperation almost to vanishing
point in the mid and late 1980s, that approach is no longer viable. Given
what seems to be the inexorably diminishing role being accorded to
labour market policies as a means by which to promote specific social
justice objectives, the ILO risks becoming gradually less relevant unless
it concerns itself to a greater extent with the broader international effort
to protect fundamental economic and social rights. In this respect, it has
a central, perhaps even unique, role to play but it cannot do it in
splendid isolation from the principal context in which United Nations
rights-based activity is located. There is every opportunity for a full and
rewarding partnership and the ILO needs to explore all of the possibilities. Without an appropriate entry point into that part of the work
of the United Nations which overlaps directly with that of the ILO in
relation to labour standards, the ILO forgoes a vital opportunity to
develojp a common agenda for the promotion of social justice. In the
longer term, it also risks maintaining its much-valued independence, or
separateness, at the expense of its own increasing marginalization.
Campling, John T. 1994. "International economic re-structuring, enterprise bargaining and
gender outcomes: Predictions for Australia", in International Journal of Comparative
Labour Law and Industrial Relations, pp. 36-54.
Epstein, Richard. 1983. "A common law for labor relations: A critique of the New Deal
labor legislation", in Yale Law Journal, p. 1357.
104
International
interdependence
Friedman, M.; Friedman, R. 1979. Free to choose: A personal statement, New York,
Harcourt Brace Jovanovich, pp. 218-236.
ILO. 1992. Minimum wages: Wage-fixing machinery, application and supervision, Report of
the Committee of Experts to the 79th Session of the International Labour
Conference, Geneva, International Labour Office, paras. 430-431.
IMF Survey, 1994. "WEO highlights labor market reforms", 16 May, pp. 153-156.
International Herald Tribune. 1994. "China to unionize foreign firms over next 2 years",
11 May.
OECD. 1994. Employment/unemployment study policy report, Paris, Organisation for
Economic Co-operation and Development.
United Nations Development Programme, 1994. Human development report 1994, New
York, Oxford University Press.
Contemporary challenges
for labour standards
resulting from globalization
Hassan A. Sunmonu
Secretary- General
Organization of African Trade Union Unity (OATUU)
Accra
Ghana
I. Introduction
In Africa, anyone aged 75 years is considered very old and treated
with great respect. The attainment of 75 years by that respected and
unique tripartite organization, the International Labour Organization, is
a matter of great significance and joy for us in Africa, as for other parts
of the world.
Of significance also is the 50th anniversary of the ILO Declaration
of Philadelphia. The Declaration is as relevant to current socio-economic
realities: as it was 50 years ago. It can safely be affirmed that noncompli;ince with the principles contained in the Declaration is the major
cause of the poverty, social instability and insecurity in the world today.
Have we any cause to celebrate these two anniversaries? The answer
is yes. The ILO, in the exercise of its mandate and the application of the
objectives set out in its Constitution, has made a positive contribution to
mutual understanding, alleviation of poverty, human and trade union
rights, standard-setting, social justice, peace and development.
Because of its tripartite composition, the ILO's presence is felt in all
the nooks and corners of the world. It is, in my estimation, the most
respected of all the United Nations agencies in Africa. To African
workers, the ILO is a friend in need, protector of the oppressed,
defender, educator, standard-setter, judge and succour.
106
The ILO has contributed a great deal to the human resource development and capacity-building of its tripartite constituents, particularly
in developing countries where this assistance is badly needed. The
transfer of skills and competence by the ILO through its various
technical departments has helped to enhance productivity, industrial
harmony and development in Africa.
The principles enshrined in the Philadelphia declaration are the most
quoted of all the declarations in the United Nations system. Article 1(c)
of the Declaration, "Poverty anywhere constitutes a danger to prosperity
everywhere" is highly relevant: the political and social upheavals in many
countries in Africa, Asia, Latin America, East and Central Europe are
caused by the impoverishment of the majority of their people.
Article 1(a) of the Declaration, "Labour is not a commodity" is one
of the fundamental principles of the ILO, but it is being seriously challenged by neo-liberals and free-marketeers to whom profits come first.
This negative attitude denies workers their humanity and the fruits of
their labour. Unfortunately, this anti-humanity economic ideology is not
only being preached but is also being pushed by some agencies of the
United Nations. The result to date has been the extreme poverty of a
fifth of the world's population, a high rate of unemployment worldwide
(14 million in Africa) and social and political instability, especially in
Africa.
Article 1(b) of the Declaration, "Freedom of expression and of association are essential to sustained progress" is one of the basic human
rights that is also being constantly violated both in the developed and
developing countries. This freedom is one of the pillars upon which
democracy is built. It is now universally acknowledged that there can be
no development without democracy.
The Declaration adds the "war against want" to the fundamental
principles on which the ILO is built. ILO tripartite constituents are
morally, legally and constitutionally bound to respect and apply these
and the other principles enunciated in Articles II-V of the Declaration of
Philadelphia.
Lack of social justice and injustice in economic relations between and
among nations, are the principal causes of the poverty, underdevelopment, unemployment and political instability in many parts of the world,
particularly in Africa. It is therefore incumbent upon all the tripartite
constituents of the ILO, in celebrating the 75th and 50th anniversary,
respectively, of the ILO and the Philadelphia declaration, to uphold the
principles upon which the organization was built in order to secure
peace, prosperity and sustainable development. It will be the best tribute
we can pay to our cherished organization.
Hassan A. Sunmonu
107
II. Globalization: Genesis and social implications
With the collapse of communism in East and Central Europe in the
late 1980s, the world became unipolar. There was no countervailing force
to moderate the excesses of the powerful Western industrialized countries
and the deteriorating economies of the Third World made the nonaligned countries less influential in world affairs. The election of Margaret
Thatcher in 1979 as prime minister in the United Kingdom and of
Ronald Reagan as president of the United States a year later, led to the
return of what one might call "free-marketeering" in the world economy.
These two politicians from the most powerful developed economies
became the ideologues of "neo-liberal capitalism". Their belief in the
trickle-down economic theory, and in the ability of the market to solve
all problems, influenced the economic policies of institutions like the
World Bank and the International Monetary Fund. According to the neoliberals.. governments have no business running business. They should
leave that to the private sector.
The main beneficiaries of this neo-liberalism have been the transnational corporations (TNCs) whose economic and political power has
increased tremendously. The T N C s have suppressed all attempts by the
United! Nations to make them more transparent and socially accountable.
The U N Commission on Transnational Corporations has been virtually
dismantled following the pressure of powerful T N C s and their political
backers.
In the Uruguay Round, of G A T T negotiations, Third World countries were sidelined. O r can one call a negotiation between a cat and a
mouse a genuine negotiation? H o w else can one characterize the type of
negotiation in G A T T where a few rich and powerful nations negotiate
and impose their decision on the majority? The call for social justice will
ring hollow in the absence of economic justice.
To the people of the Third World, globalization is the cornering of
world trade, economic resources and technology by the transnational
corporations for the T N C s in the name of the powerful governments of
the industrialized countries and against the present and future interest of
humanity. This situation has made the T N C s laws unto themselves and
uncontrollable, even by their own governments.
The lack of social conscience, greed and exploitation characteristic
of neo-liberal capitalism has brought increasing poverty to the majority
of the world's people. In addition to poverty, there is the gross violation
of the most basic of fundamental human, social and trade union rights.
Social security funds that used to provide succour for redundant and
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unemployed workers, pensioners and the aged in the developed countries
are now being arbitrarily curtailed, while the needy in developing
countries, especially in Africa, who are in worse circumstances, have no
hope for social security.
Collective agreements are being unilaterally repudiated by governments and employers in many countries — N o r t h and South — in violation of ILO Conventions. Even for those in employment, monthly
salaries may last only two to three weeks of the month, especially in
Africa where inflation is rampant. People are existing rather than living
in these countries.
A phenomenon not experienced in Africa until some ten years ago,
graduate unemployment, is now common in most African countries. The
frustration of articulate and highly-educated unemployed youth has led
to violent protests in many African countries and the resurgence of
religious fundamentalism in countries such as Algeria, Egypt and Senegal.
Political instability is also a consequence of current economic
problems. This instability has led to the military take-over of governments, or the perpetuation of military dictatorships in countries such as
Zaire, Sudan, Nigeria, Sierra Leone and Algeria, notwithstanding the
democratization process that has been going on in most of Africa since
1990. Other countries such as Somalia, Liberia, Burundi, Rwanda and
Angola have been engulfed in civil wars. As a consequence, Africa has the
largest number of refugees of any continent. African countries are also
suffering from crushing debt burdens and low commodity prices.
To us in Africa, globalization means:
(a)
Loss of sovereignty: The economic policies of most African
countries are determined by the IMF and the World Bank. Even
some foreign donors take advantage of the poverty of African
countries to dictate impossible terms as conditions for assistance.
(b)
Marginalization: Africa is being consistently marginalized in world
affairs. With commodity prices kept deliberately low and trade
barriers against Africa's produce, especially processed and semiprocessed commodities, in the markets of developed countries,
Africa's share of world trade has slipped below 3 per cent.
(c)
Underdevelopment: It is pertinent to ask whether any country or
continent subjected to the same exploitation, economic injustice and
financial rape as Africa could emerge from underdevelopment. The
anti-people conditionalities the IMF and the World Bank are
currently imposing on more than two-thirds of African countries are
enough to keep Africa underdeveloped. This assertion is confirmed
Hassan A. Sunmonu
109
by the latest report of the World Bank which says it will take 40
years before sub-Saharan Africa returns to average per capita incomes
of the mid-1970s!
What should Africa do? For every ill, there is a cure. Africa does not
need the "charity" of its trading partners and donor agencies. Africa needs
rather understanding, market access and just prices for its commodities,
investment and technology transfer.
For its part, Africa should implement to the letter the African
Charter for Popular Participation in Development (Arusha, 1990). This
Charter defines the path to genuine democracy in the continent through:
(a) popular participation;
(b) empowerment of the people;
(c) accountability;
(d) social and economic justice; and
(e) respect for human and trade union rights.
In other words, Africa has to establish in every country a popular
participatory, people-empowered and accountable democracy that will
promote social and economic justice, respect human and trade union
rights and uphold the rule of law.
Africa also has to intensify the development and utilization of its
human and natural resources. Finally, Africa has to integrate the economies of all its countries through the speedy implementation of the treaty
establishing the African Economic Community.
III. Structural adjustment programmes
and international labour standards
The term Structural Adjustment Programme (SAP) means different
things to different people, North and South. To the industrialized North,
it means the adjustment of economies to become more efficient and
competitive so as to conquer more markets (and make more profits)
worldwide. The adjustment in the North is not externally imposed on
their governments and people but takes place, in most cases, after intense
public debate and parliamentary approval.
In. contrast, structural adjustment programmes in the south,
especially in Africa, are externally imposed by the two Bretton Woods
110
institutions, the International Monetary Fund (IMF) and the World Bank
and countries are blackmailed into acceptance by the London and Paris
Club countries! The aim of these SAPs is to help collect debt from
African countries to repay the developed countries. There is no
consultation with the people, though it is our countries, not the IMF and
the World Bank, which must face the social and economic consequences
of SAPs.
SAPs in the North tend to maximize profits for TNCs at the
expense of the workers and people of the North. Their high standards of
living, social security benefits and higher wages and taxes compared with
those of the South, where they are either very low or non-existent, mean
higher production costs in the North. Thus, TNCs relocate their industries bag and baggage to the south to maximize their profits. Even before
their arrival, these TNCs and/or their subsidiaries negotiate with
governments of the South conditions of low wages, no unions, no social
security benefits and so on, in violation of international labour standards
and the fundamental human rights of their workers.
In other instances, polluting industries that are banned in the North
are relocated to the south and continue their environmental destruction
there! In a number of Export Promotion Zones (EPZs) of developing
countries, workers are not allowed to join or form trade unions. Wages
are often kept low, minimum wage laws are not respected and workers'
social security is not guaranteed. Where trade unions are allowed to
operate, instances abound in which, after negotiating a collective
agreement, the company executives flee the country, leaving their
workers stranded!
Because of lack of concern for safety and environment and the use
of obsolete machinery and dangerous chemicals, accidents have occurred
like that in Bhopal (India) some years ago. If the Carbide Company that
owned the Bhopal factory had respected international labour standards,
the accident could have been prevented and thousands of lives saved.
A look at the orthodox SAPs of the IMF and the World Bank in
Africa will confirm flagrant violation of international labour standards.
Some of the conditionalities imposed include:
(a) Massive retrenchment of public sector workers (about 25-30 per
cent) without any negotiation with the public sector unions or civil
servants' associations, which violates Convention No. 98 (Right to
Organize and Collective Bargaining Convention, 1949). In some
cases, the affected workers are not paid their gratuities and other
entitlements until months, even years, after their forced retirement.
Hassan A. Sunmonu
111
Seine of the redundant have died before payment of their gratuities,
including former employees of the Nigeria Railway Corporation.
(b) Removal of subsidies on food, health, education, housing, transport,
etc. This makes basic necessities too expensive and beyond the reach
of the poor, the aged and children, who constitute the majority of
the population in most African countries. It also constitutes a
violation of the fundamental human rights of these people, such as
the right to education.
(c) Massive devaluation of national currencies, sometimes by more than
100 per cent at a time and between 500-1,000 per cent within a year,
which automatically reduces people's purchasing power and standard
of living. Economists tell us that, when the national currency is
devalued by more than 10 per cent within a year, that country's
economy will not receive the full benefit of devaluation.
The lowering of living standards cannot reflate a country's economy,
nor generate employment. But the most damaging effect of the SAPs is
the segmentation of the international labour market. The world economic recession is the direct result of the deliberate impoverishment of
the economies of the Third World. It is important, in conclusion, to
recall the words of the Philadelphia Declaration, that "Poverty anywhere
constitutes a danger to prosperity everywhere".
For us in Africa, there is no United Nations institution that can
replace the ILO. Despite the current socio-economic problems engulfing
the world, the ILO will continue to be relevant in pursuing its basic
principles and upholding international labour standards for the benefit of
the world's people and for self-sustaining development. Happy
Anniversary!
The impact of globalization
on labour standards in Latin America
Labour Lawyer
President of the Labour Commission
of the Argentinian Confederation of Employers (UIA)
Buenos Aires
Argentina
I. Introduction
Any study of changes occurring in labour relations in Latin America
must take account of the main characteristics of the political, economic
and social systems in place in the region and the new trends emerging in
the 1990s. Such an analysis will not, of course, encompass all the
characteristics of the various countries; the objective rather will be to
identify the essential elements required to interpret the meaning, intensity
and purpose of the structural changes now under way. Thus, the following aspects need to be taken into consideration:
(a) the political system;
(b) the economic situation;
(c) the social system and the role of the State in labour relations and
social security.
All social systems are the product of a specific society and are based
on political, economic and social realities. Any observations thus refer to
a specific period and do not imply any historical assessment or prognosis
with regard to future developments. In addition, account must also be
taken of the "before" and "after" in determining the factors which condition the deep-rooted changes that are occurring, as well as the intensity
and consequences of the transformation process. This requires a prior
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consideration of methodology, since any study of our subject will necessarily be of a multidisciplinary kind.
77. The regional context
At the regional level, a constant characteristic of Latin American
governments for a number of decades was (up to and including the 1980s)
their pendular swing between democratic forms and authoritarian
regimes. This feature has led Karl Loewestein to describe them as "intermediate configurations", since they do not fit the patterns of the Western
constitutional democracies or the totalitarian regimes of contemporary
history. Political instability is reflected in the discontinuity of respect for
the constitutional principles of the separation of powers and for individual rights and guarantees, a process which has resulted in economic
decline, a large internal and external debt, inequality and a lack of social
development.
In recent years, the transition towards redemocratization in the Latin
American countries has been characterized by:
(a) a need to restore basic rights and consolidate political systems based
on respect for the law, freedom and democratic institutions;
(b) the adoption of a market-economy model to reverse the decadent
trend, the spread of poverty in society and the inefficiency of the
State machinery;
(c) a trend towards regional and global integration in line with world
trends which are discouraging economic isolationism;
(d) a clear definition of the social objectives of the community so as to
harmonize the need for growth, investment and increased productivity with the search for and achievement of the common welfare,
improved living and working conditions for the population and the
establishment of a social security scheme which provides adequate
protection at a cost which is not detrimental to internal and external
competitivity;
(e) a social participation scheme consonant with the pluralism which
should prevail in a politically democratic society and in models of
open and competitive economies.
There is a need to formulate ground rules for the so-called "transition periods", since only the conviction of stability will lead to growth
ID
and investment — the two prerequisites of genuine economic and social
development. However, it must be emphasized that any proposal for
change must recognize and preserve the concept of freedom. The temptation to try and reorganize the conflicting factors present in the economic
crisis through authoritarian systems may — over and above the so-called
political legitimacy of their motivations — rapidly become a recipe for
"plebiscitary Caesarism" or markedly corporativist alternatives which
inexcusably lead to a disregard of the fundamental values of the State
based on the rule of law and compromise the essence of the changes
under way.
Thus, any transformation to overcome the crisis must be carried out
within a framework of full respect for constitutional institutions. Any
alternative, as well as being a fallacy, would bring in its wake a return to
the former disruptions of political institutions, which have always been
accompanied by similar disruptions at the economic and social levels.
0:n. the other hand, it is useful to remember that the economic problems which have generally affected the Latin American countries in
recent decades are in fact the cause of the "pre-existing social debt". This
has too often and too lightly been blamed on the adjustment processes
— despite the fact that such structural adjustment was intended to resolve
these imbalances.
Although the list is not exhaustive, these "pre-existing realities" can
be characterized in the following terms:
(a)
a smaller or larger degree of underdevelopment, reflected in a lack
of up-to-date technology and increasing poverty, a labour market
with obvious underemployment in some sectors, particularly the
State administration, as well as rising structural unemployment;
(b)
massive internal and external debt, which prevented countries from
having a capital market to meet the need for growth in investment
and technology;
(c)
rapid inflation, with abrupt transfers of income between sectors,
thus increasing the fight for distribution to the disadvantage of
groups with less capacity to express or impose their views;
(d)
State presence in the economy, not only as a regulator but as an
actor and principal protagonist, to the detriment of private initiative;
(e)
as a result of (d), a high degree of State regulation of labour relations,
making them rigid and ill-suited to the dynamics of economic
relations;
116
(f)
stemming from this high degree of regulation, the unbridled growth
of the informal economy (de facto deregulation) as a means of avoiding legal and fiscal regulations and the bureaucratic red tape which
impeded the free functioning of the factors of production. However,
these marginal activities became a source of unfair competition for
enterprises in the formal sector;
(g) a gradual deterioration in the educational system, and the complete
mismatch of educational programmes (especially in the tertiary
sector) and labour market requirements.
As regards labour relations in particular, the first point to note is the
marked centralization of power, with the State acting as legislator,
regulator, judge and jury of labour relations, thus reducing the opportunity for self-determination and negotiation. Indeed, legislation took
precedence over negotiation and externally-imposed solutions over solutions worked out between the parties. The State acted as an infallible
source of reference to which the parties resorted not so much for
mediation but for a verdict which would relieve them of their reciprocal
responsibilities. Disputes were settled by government decision rather than
through harmonization and social and participatory dialogue within the
framework of society, a process which reinforced the hypothesis that the
community was the "victim" and the State was the "master".
This situation proved to be very convenient in that no-one was seen
as responsible for the "crisis" or felt obliged to redress the situation. It
was a system that reinforced inequality and injustice, not only because it
was based on decisions not taken by the sectors in question — or, at best,
which satisfied the interests of one to the detriment of the other — but
because it often appeared to be determined by political favouritism. The
balance would swing now towards the employer and now towards the
workers, depending on the relative strength of these factors of production
or, even worse, the mood or the tactical and political interests of the
government authority. In addition, State activity accounts for a large part
of the production sector, which makes the State both judge and jury.
This has led to a high degree of unfairness and exacerbated conflict.
Finally, the "omnipresent State" has encouraged workers' representatives
to make impossible demands and employers to refuse to negotiate or
recognize trade union action.
The ills affecting the State machinery as a whole were also apparent
in the social security system where the lack of modernization and adaptation of services on occasion resulted in virtual bankruptcy. In turn this
led to a need for a full review of the philosophy of social security and the
means of implementation. The lack of any link between the labour system
Daniel Tunes de Rioja
117
and social security needs to be emphasized. The State was creating a
system of social protection which was more illusory than real, and at
considerable cost (with funds being eroded by inflation or diverted to
other purposes). Meanwhile, it was striving to remedy the situation by
providing excessive levels of labour protection, based on a concept of
absolute or life-long job stability. This was coupled with a set of benefits
which employers were required to provide but which, by their very
nature, should have been the responsibility of social security.
III. The world context
In our view there are a number of factors which will characterize
developments in the next decade and which will have a marked impact
on labour relations and the problem of employment:
(a) The globalization of markets is creating a high degree of interdependence between local and foreign production and giving
countries and enterprises with higher levels of competitivity and
efficiency an increased social and economic role.
(b) However, we are entering a new era where the emphasis will be on
man and the challenge facing him, namely the challenge of intelligence. That the challenge is a "soft" rather than a "hard" one is
perfectly clear from the fact that modern technologies, machines and
technically complex equipment respond differently depending on
how they are operated.
(c) With the failure of State interventionism, self-sufficient economic
policies and the concept of the welfare State, a new awareness has
emerged based on the premise that there is no welfare without
growth and that the latter is the result of private initiative,
productive investment, efficiency and competitivity.
In such a context, it is clear that these changes place new demands
on the production sector and on labour. For enterprises, competitivity
is the iirst requisite of globalization; for the workers, it means a demand
for greater productivity. At the same time, the traditional importance to
workers of wages and status has now been replaced by the goal of obtaining and keeping a job. The classic structure of homogeneous levels of
remuneration based on policies of general minimum wages (minimum
living wage) or sectoral minimum wages (basic wages established by
collective agreement) has given way to output or performance-related
118
systems of remuneration. In its turn, technology requires a higher level
of training — something which is common to workers, employers and
governments — while new forms of production organization are imposing geographical and functional mobility as well as flexibility of
working hours. These priorities are replacing the preconceived patterns
and pose a new challenge to production sectors: it would be naive or
suicidal to ignore them.
As a result, changes have occurred in the labour relations model and
in the culture of work, that is, in motivations, behaviour and attitudes to
work. At the individual level, the vicissitudes posed by a market
economy mean that enterprises are constantly exposed to the challenge
of competition and the need for technological and organizational changes.
This, in turn, affects the level of employment and employment expectations, since no-one can guarantee "lifetime" work models. The formerly
"atypical" or precarious forms of recruitment (temporary contracts, parttime work, combination of apprenticeship and work training, etc.) are
returning to coexist alongside permanent work. From the collective
viewpoint, a mass-oriented model must necessarily be replaced by a
decentralized and individualized one. This gives preference to the direct
relationship between the enterprise and the workers' representatives and
between workers and employers, since the main commitment is to output
(performance) and productivity.
All these facts confirm that State regulatory activity in the labour
sphere has become exhausted and that the legal guarantees provided
should be based on reality, rather than the reverse. In short, society has
to establish its labour rules within the single framework of its economic
realities. Finally, the new labour relations model must be complemented
by an efficient social security system to compensate for the labour market
conditioning factors noted above.
IV. Change and the social actors
Without doubt the premise underlying this new scenario will give
rise to different reactions. Over and above the comfortableness associated
with a closed-economy model, the new situation means that, if an enterprise is to raise labour productivity, it must tackle jointly those aspects
which determine labour costs, whether they be rigidities in standards or
use and customs which are obstacles to adaptation. To this end, work
organization methods must be reviewed or restructured in the light of
technological change. At the same time, active policies must be
119
introduced to reduce the so-called "labour taxes" (which have traditionally been very high in Latin America and in general have provided
very inadequate benefits), coupled with appropriate staff training policies.
It .should not be forgotten that an open economy implies the
presence: of a "large market", where imports compete with domestic
products and where exports depend on an appropriate balance between
quality and price. This requires a profound technological reconversion
simultaneously with the development of tertiary processes in the
economy and production segmentation — all of which will obviously
affect the structure of enterprises and the employment market itself.
Relocations illustrate that even decisions on production sites are
determined by labour costs.
From the point of view of workers, these conditioning factors also
lead to the emergence of a new situation. First, it is more difficult to
obtain a job — and, in particular, a first job. Today's high unemployment
rates in the developed countries of western Europe are now being
attained by the countries of Latin America, even the so-called "emerging
economies", as a result of State restructuring, industrial reconversion, the
introduction of new technology and resulting automation. In other
words, in a context in which there has been some reversal of the downward economic trends of recent decades in the region, the evolution of
the employment indices is not very satisfactory.
O n the other hand, from the standpoint of those who already have
jobs, the need for labour adaptation to new work techniques and training
for the use of state-of-the-art technology is also encouraging a redeployment of labour which is reshaping the individual and collective
attitudes of workers. This is inevitably leading to the individualization of
contracts of employment and the decentralization of the labour relations
model, These elements, as well as the account to be taken of economic
realities and the need for high levels of competitivity, require labour
relations to be based on collaboration rather than confrontation.
The question arises as to whether this might lead to the demise of
the trade union models which have prevailed to date. Trade unions have
been fortresses grouping together all the workers in a given occupation
and have enjoyed powers which have extended into the political sphere
(as in Argentina, for example). In our view, trade unions must adapt to
the new circumstances and there is no question of their being replaced by
any pseudo-trade union movement. In this respect, account should be
taken of the solidarism experience in Costa Rica. In any event, those who
oppose; change and adopt attitudes which are openly "conservative" in
favour of a historical mass-oriented trade union model would appear to
have been overtaken by circumstances. Such a model can provide no
120
solution to the new problems of unemployment or meet the demands
posed by globalization and increasing competition.
As in Europe after the energy crisis in the 1970s, the current
situation requires the transformation of the trade union movement. The
first stage in this process is for trade unions to become more occupationally-oriented and less political, more concerned with the problems
posed by the new methods of work organization and the training of
human resources. The trade union movement must be more active at the
micro-level (relations between workers and the enterprise and the discussion of production problems in the enterprise) than at the macro-level
(relations between trade unions and governments and the discussion of
overall policies).
Some countries embarked on industrial reconversion following the
Second World War with the wholesale dismantling of their production
structures (the countries of central Europe and Japan). In other countries,
including some in Latin America, reconversion has involved a process of
disinvestment and the scrapping of obsolete machinery and equipment,
which in many cases has included a restructuring of the workforce. In
general, there has been a marked cutback in unskilled labour and a sharp
increase in the demand for skilled workers. This in turn has led to a
process of training, particularly of young workers, placing them in a
better position to enter a labour market which is highly selective and
specialized. Of course, the training in this case is theoretical rather than
on the job.
The erosion of the welfare State, the inability of States in interdependent and globalized economies to ensure the effective regulation of
labour, and the demands of competitivity requiring greater productivity
and efficiency in the use of labour, have all led to the gradual withdrawal
of the State from its regulatory role (deregulation of labour relations) and
the decentralization of collective bargaining down to the individual production unit (abandoning of the above-mentioned activity agreements).
It is also clear that with the demise of the totalitarian system at the
political level, there has been a move away from the concept of the allpresent State (the "megalomaniac" State, as J.F. Revel put it) towards that
of the efficient State. At the same time, the State can no longer bear the
costs which it previously assumed. Mention can be made here of the risks
which have been taken over when certain entrepreneurial activities have
failed or the introduction of subsidies or other incentives which were
eventually paid for by the community as a whole. The State is therefore
playing a less active role in the economy, either through the privatization
of public enterprises or the deregulation of private business. Society itself
121
is also rejecting State intervention and calling for the adoption of certain
values ajid behaviour by the authorities consonant with the public interest.
An open economy implies competitivity, globalization, segmentation, technological progress and training. In social terms, the challenges
of the new era are bringing a sense of motivation but also uncertainties
(both as: regards adjustment as well as alternatives for workforce placement or redeployment). In socio-labour terms, the recognition of
economic realities as the determinants of the labour model implies the
relativi2;ation of the State's role, the abandoning of policies which
transferred on to the market risks to be assumed by employers and
emplo3êes, and the acceptance of negotiation between the parties as the
real driving force of labour relations.
Within such a framework, the State will have an active role to play
in:
(a) establishing the necessary minimum regulations for resolving problems which might arise in individual and collective law and social
security;
(b) exercising supervisory functions with a view to reducing the gulf
between the formal and informal economies, promoting compliance
with standards in general and in particular those regarding safety and
health at work;
(c) mediating in labour disputes, with a view to promoting collaboration between the social partners;
(d) establishing efficient administrative machinery to resolve individual
differences with a view to eliminating the litigious nature of labour
relations in some countries in the region;
(e) arbitrating in labour disputes in the essential services or when
requested by the social, partners;
(f)
promoting employment policies and social compensation mechanisms in periods of crisis (whether general, sectoral, regional or
sporadic).
Special attention should be given to this last point, since we believe
that the four classic functions of the State (eduction, health, justice and
security) must be supplemented by a fifth function: social compensation.
The definition of this role is based on the fact that the process of
economic transformation and the adjustment of State structures leads to
situations characterized by:
(a) a shedding of labour, in both the public and private sectors;
122
(b) a need for trained labour, without there being any suitable infrastructure for providing vocational training;
(c) a transformation of regional economies which may result in internal
domestic migration;
(d) external migrations which must be properly addressed;
(e) problems of labour market access by young people and women or
the labour market reintegration of workers over the age of 40-45,
particularly given the probable extension of the pensionable age.
In the context of all these problems, the State must devise policies and
implement measures for unemployment insurance, promoting employment, training and retraining as well as developing and monitoring the
social security system.
V. Conclusions
This new dimension of labour relations, based on democratization
and transition towards the opening up of State economies, the need for
active employment policies and the demise of the concept of the welfare
or paternalistic State, implies facing up to the challenge of a new vision
of labour law and social security. It is not possible to move directly from
a situation in which the State is all-present to one from which it is totally
absent. This redefinition of the State must give vigour, presence and a
sense of confidence to the social partners and the community as a whole.
There must, in any event, be a move away from the predominant
and protagonistic role of the State towards the active participation of the
social partners, who must themselves define the new ground rules for
working conditions and wages, inspired by the goals of common development and within the context of the new conditions of globalization and
competitivity. At the same time, it will be their responsibility and right
to demand levels of benefits from the social security services in line with
the fiscal burdens placed upon them. In the final analysis, the protection
provided by labour standards and that resulting from social security must
not be the illusory product of a network of nominal and theoretical
standards, but the actual result of this new social strategy.
Equality: A global labour standard
Bob Htpple
Professor of Labour Law
Clare College
Cambridge
United Kingdom
Abstract
The effectiveness of international labour standards depends upon
working with rather than against market forces. One of the results of
globalization of the market system is growing inequalities in incomes and
job opportunities. If a dynamic view of the market is accepted, then
business; organizations which build up efficient and diverse workforces,
in close touch with their communities and potential consumers, will be
most successful. Equality is the human right which, above all others,
encapsulates the values of a democratic system. The early labour law was
mainly concerned with vertical equality between employers and workers.
In the new environment of the globalized economy, we should concentrate on horizontal equality between different groups which make up the
workforce. The emphasis in future should be laid upon the special needs
of disadvantaged groups.
/. International labour standards and globalization
The globalization of the market system is accompanied by growing
inequalities in income and job opportunities between those who work
and seek work. To the traditional explanations of structural inequality,
such si; class and family background, sex and ethnic origin, and the
underdevelopment of certain regions, we need to add the new international division of labour. The protectionist walls of nation-states and
124
regional groupings offer no more than temporary respite from the inequalities produced by global competition.
The familiar argument of neo-classical economics is that, since
markets are sets of unplanned spontaneous exchanges which reward individual efforts and so generate grossly unequal outcomes, they cannot be
successfully manipulated through national, let alone regional or international, labour standards. Such standards do not increase, and may
actually diminish, the aggregate welfare of workers. Inequality is simply
the price we pay for a general level of prosperity in a market system.
Against this dismal, static and individualist model of the Chicago
school, there is the real world in which successful national and multinational business organizations make use of labour standards as guidelines
for recruiting, maintaining and developing the most efficient staff, and to
build up diverse workforces. These reflect their local markets, so enabling
them to make their organizations better informed, more adaptable and
closer to their customers. In this dynamic approach to the globalized
market, the role of labour standards is to create a framework, or floor of
basic rights. Within this framework, enterprises can improve their
efficiency and profitability by improving access, training and promotion
on the basis of job abilities rather than arbitrary criteria like race or sex.
While the aim of social justice has "certainly been the most powerful
driving force in the development of international labour law" [Valticos,
1984, para. 18], the effectiveness of such standards depends crucially upon
their working with, rather than against, market forces. If managers
believe that "international labour standards can result in substantially
improved management practice" [Gladstone, 1986, p. 1], they will seek
to implement them in their daily activities.
So, too, if national governments in developing countries come to
understand international labour standards not as protective walls erected
by advanced European and American States, but rather as a powerful
weapon for motivating and developing their own workforces in the face
of international competition, they will be active participants in the
process of implementation. A strong state which ensures stability is
essential for rapid economic growth [Nolan, 1994], but a democratic state
which upholds the rule of law, supports freedom of association including
the right to organize trade unions, and sustains freedom of expression,
will in the long run be stronger and more stable than one which coerces
its subjects.
Bob Hepple
125
II. Fundamental rights in democratic societies
If a. dynamic view of the market, rather than a static economic
model, is accepted then we need to look closely at international
standards. Which of them facilitates growth by developing skilled and
highly motivated workforces, and which impose unnecessary rigidity and
inflexibility in the labour market? There has always been a tendency in
the formulation of international labour law to confuse those global
standards which are fundamental to all democratic societies with
particular objectives or strategies which by their very nature are
conditioned by the level of socio-economic development in a particular
country.
The "methods and principles" enumerated in Article 427 of the
Treaty of Versailles — "neither complete nor final" but of "special and
urgent importance" — contains just such a ragbag of the universal and the
particular. It embodies truly fundamental principles, but also very specific
strategies. In the first category one would surely include:
(a) the guiding principle that labour should not be regarded as a
commodity or article of commerce;
(b) the right of association for all lawful purposes by the employed as
well as by employers;
(c)
the abolition of child labour;
(d)
the: principle that men and women should receive equal remuneration for work of equal value.
Evidently under the influence of Roosevelt's message of 4 January
1941 which promised a post-war world based on four "essential
freedoms", Article 11(a) of the Declaration of Philadelphia of 1944 added
the statement that: "All human beings irrespective of race, creed or sex,
have the right to pursue both their material well-being and their spiritual
development in conditions of freedom and dignity, of economic security,
and equal opportunity".
In the second category of admirable but by no means universal aims,
since they reflected particular trade union concerns in Europe and
America in 1919, we find mention in Article 427 of the Treaty of
Versailles of matters such as:
(a) the adoption of an 8-hour day and 48-hour week;
(b) the adoption of a weekly rest of at least 24 hours which should
include Sunday wherever practicable.
126
To these may be added the even longer list formulated by the International Trade Union Congress of 1919, including the exemption of
women from work on Saturday afternoons, and a 36-hour weekly rest
period [Ramm, 1986, p. 283]. These standards, while important in their
particular context, have long since been overtaken in many advanced
countries, but still reflect only aspirations in some developing regions.
Some standards, like special protection for women, are no longer
considered appropriate. The Conventions and Recommendations adopted
over the past 75 years by the ILO reflect a similar mixture of the
universal and the transient.
This suggests that there is an important distinction to be drawn
between the global and the local, the permanent and the temporary, the
fundamental right and the short- or medium-term objective of social
policy. From this distinction important consequences follow. In particular, while global, permanent and fundamental standards need to be
prescribed internationally, local, temporary and short- or medium-term
objectives are best formulated and implemented at regional, national or
lower levels. This is the well-known principle of "subsidiarity".
In its original guise in Quadregesima Anno, the subsidiarity principle
was used to underpin the argument that State authority is stronger and
more effective if limited to those essential functions which it alone can
perform. In the European Union it has been used in various ways, most
recently in Article 3B of the Maastricht Treaty to restrict the law-making
powers of the European institutions to those situations in which the
objectives cannot be sufficiently achieved by the member States and can,
therefore, be better achieved by the Community [Vogel-Polsky & Vogel,
1991, p. 35]. It has also been used to justify the "social dialogue" between
management and labour in the formulation and enforcement of European
labour standards, a belated and hesitant step in the direction of the
tripartism pioneered by the ILO [Hepple, 1993].
While the principle of "subsidiarity" rests upon the conception of a
"common interest" or "common good", "it was never intended as a
mechanism for resolving the debate about the nature of that good"
[Adonis & Tyrie, 1991, p. 9]. That debate, in industrial relations circles,
concentrates on the issue of "flexibility" in such contexts as pay, working
time, new forms of employment, job content, and job security. To what
extent, if at all, should legal rules at either national or supra-national
levels determine matters such as these? A similar debate revolves around
"deregulation" which, in its more extreme forms, means restoring the
unilateral power of the employer to regulate the conditions of employment and at other times means allowing derogations from common
minimum rules by collective agreement or by a labour inspectorate.
Bob Hepple
127
There is sharp debate throughout the world on the legitimate scope
for flexibility and deregulation of this kind. The varying impact of
globalization on wages and. labour standards in firms operating in
different product markets means that the responses will not be uniform.
In a globalized market, anything goes so far as flexibility and deregulation
are concerned. Attempts to prescribe detailed regulation at international
level are bound to fail if these seriously interfere with the demands on
management to survive and grow in the face of international competition.
Even if lip service is paid to certain standards, the opportunities for
avoidance or ineffective implementation are manifold.
This leads to the conclusion that, if international standards are to be
congenial to the new environment of turn-of-the-century globalization,
they will have to concentrate on those values of the labour market in
democratic societies which are global, permanent and fundamental. I
suggest that there is one human right which, above all others, encapsu
lates these values. This is equality.
III. Towards horizontal equality
In the formative period of labour law, during the industrial revolution in Europe, the kind of equality which was sought was that between
the individual dependent or subordinated worker and the employer
[Hepple, 1986, p. 11]. Once labour was viewed as "human flesh and
blood" and not a commodity, and the insight was accepted that "capitalist
property is domination over human beings" [Kahn-Freund, 1981, p. 79],
the "special function" of labour law was to ensure some kind of substantive and not purely formal legal equality between employer and
employee [Sinzheimer, 1910-11, p. 1237]. This was achieved by protective
legislation, first for children, young persons and women, then for all
workers, and also by guaranteeing freedom of association, the right to
form and join trade unions and, in many countries, positive legal support
for collective bargaining and other forms of workers' participation. This
may be described as the movement towards vertical equality between
employer and employee.
Since the Second World War, another conception of equality has
gained momentum. This is horizontal equality, or equal treatment of all
workers and those seeking work. While protective legislation and collective bargaining achieved higher labour standards for some sections, and
sometimes even a majority, of the employed workforce, it has become
incresisingly clear that this has often excluded other groups of workers,
128
or even been achieved at their expense. Once it is realized that there is
not a single monolithic "working class", but instead a culturally diverse
workforce of men and women, of permanent and temporary, full-time
and part-time, skilled and unskilled, workers, the goal of equality assumes
a radical aspect, one which may well subvert traditional forms of legal
regulation and collective bargaining [Ben-Israel, 1992, p. 350]. If, as was
said at the outset, globalization entails increasing inequality, with growing
gaps between richer and poorer groups, then the right to equality
assumes fundamental importance on a global scale.
The basis for this right can be found in Article 11(a) of the
Declaration of Philadelphia, together with the ILO Convention No. 100
concerning Equal Remuneration for Men and Women Workers for Work
of Equal Value, adopted in 1951, ILO Convention No. I l l concerning
Discrimination in Respect of Employment and Occupation, adopted in
1958, ILO Convention No. 156 concerning Equal Opportunities and
Equal Treatment for Men and Women Workers: Workers with Family
Responsibilities, adopted in 1981, ILO Convention No. 143 on Migrant
Workers (Supplementary Provisions) adopted in 1975, and ILO Convention No. 169 concerning Indigenous and Tribal Peoples, adopted in 1989.
The principle of equality can also be found in many national constitutions, such as the principle of Gleichheitssatz in Germanic countries and
the Equal Protection Clause in the 14th Amendment to the Constitution
of the United States.
The prohibited grounds of discrimination listed in Convention
No. I l l are race, colour, sex, religion, political opinion, national
extraction or social origin. But these are not exhaustive, and Article 1(b)
permits other grounds to be added by member States after consulting
representative bodies. The field of operation of the equality concept is
thus limited only by the willingness of governments, management and
labour to apply it.
No doubt, the most important areas at present are equality between
men and women, and racial equality. The rates of participation of women
in the labour market have increased significantly over the past two
decades, although with important regional variations. The tendency has
been for most new jobs in the advanced economies to go to women. But
gender segregation is, if anything, greater in countries with high levels of
female participation, particularly if this is associated with high levels of
part-time and temporary work. Changes are occurring, but pulling in two
directions, with women increasing their representation in both high-level
professional jobs and in low-level jobs [Rubery & Fagan, 1993]. In the
rapidly expanding part-time female workforce in Europe, there is a high
degree of occupational segregation [Hakim, 1993]. The increasing
Bob Hepple
129
inequality within the female workforce is due to factors such as class
background, family responsibilities, the length and quality of education
and training, and working time patterns.
A growth in inequality has also taken place between host populations and those groups which are variously described as "guest workers",
"migrants", and "visible minorities". Many of these workers were
recruited when rapidly expanding economies were short of labour, and
they did jobs which the host population did not want to do. They tend
to be segregated in unskilled and semi-skilled jobs and concentrated in
production and service sectors. They are likely to under-achieve at school
and to have poorer access to training and promotion than host country
workers. They face higher levels of unemployment than the host population, and they suffer widespread discrimination even if, as is increasingly
the case, they were born and bred in the country [see, for example,
Zegers De Beijl, 1990]. These are not the only groups which suffer from
discrimination and disadvantage. One could mention older worker (40+)
and those with disabilities.
IV. Giving meaning to the equality principle
The concept of equality is broader than a negative prohibition of
"discrimination". The weakness of legal definitions of discrimination is
that they usually turn on the "less favourable" treatment of one person
than others are treated or would be treated in similar circumstances. The
dependence on a white male norm of comparison not only ignores biological differences between men and women (for example, discrimination
on grounds of pregnancy), but also reinforces the occupational segregation arid labour market situation of women, racial minorities and other
disadvantaged groups. The assumption is made that a women or member
of an ethnic minority must conform to an established norm.
The concept of indirect discrimination, which has been developed
first in the case law of the US courts and then even more extensively by
the European Court of Justice, does provide a potentially powerful
challenge to apparently neutral criteria and practices which have a
disproportionately adverse impact on these groups. However, even this
concept suffers from two limitations. First, it depends upon a comparison
between representative groups of people employed by the same employer.
Thus, for example, it may not be possible for a woman to compare her
pay with a "hypothetical" male, that is, what a man would have been paid
had he been employed. Secondly, proof of significant disadvantage does
130
no more than raise a prima facie case of indirect discrimination. The
employer may still provide evidence of objective justification. This
involves a value judgment, and the impact the law on indirect discrimination has on the labour market will depend upon how sympathetic the
court or enforcement agency is to the employer's business needs.
The overriding constraint on the principle of equality in a market
system is that of cost. Although the ideology and prejudices which were
once used to justify arbitrary discrimination may now be generally
rejected, the cost of remedying discrimination is regularly used as an
excuse for preserving the status quo. The transition from discrimination
to equal treatment is likely to be expensive, and hence difficult to
achieve.
A further limitation on anti-discrimination laws is that they are
usually based on the premise that equality is an individual right. These
laws have developed within the traditional forms of civil adjudication for
the resolution of individual disputes, although sometimes unlawful discrimination is also a criminal offence. The weakness in this approach is
obvious if one accepts that social disadvantage is suffered collectively by
groups. The individualist approach inhibits the development of collective
or group procedures and remedies, such as class or representative actions
on behalf of a group. Individual remedies do little to change the underlying structures and practices which produce disadvantage.
One way in which these issues could be collectivized would be
through trade unions and collective bargaining. However, equality issues
present a major problem for unions. For example, traditional approaches
to wage bargaining have tended to have an adverse impact upon women.
Unions have fought hard to maintain differentials based on skills and
grades, and have argued for a "family" wage which is based on the
assumption that the breadwinner should be paid enough to support
himself and his wife and children. As has been observed in the British
context, this "has helped underpin male wages, yet it also serves to
legitimate low wages for women, and helps justify the widely-held belief
that women should not take up jobs when men are unemployed. Historically, faced with a choice of strategies based on wage-earner solidarity
with women and their protection via collective bargaining, or exclusion
of women and legal protection, the union movement has opted for the
latter" [Dickens, 1993, pp. 111-112]. The implementation of the principle
of equality is as much about removing discrimination from collective
agreements as it is about doing so in the case of employers' pay
structures. A key part of any programme to implement the principle of
equality is raising the awareness of negotiators. This, in turn, requires
Bob Hepple
131
pressure on collective bargaining both within unions and from external
agencies such as human rights commissions.
V. Concluding remarks
The argument of this paper is that market forces will produce
grossly unequal outcomes unless business organizations are mobilized to
make use of positive equal opportunities practices on the basis of their
own self-interest and profitability. To do this, they need a broad global
standard of equality enforced by effective national and local strategies.
What is required is a new framework of international labour law —
building on the experience of existing Conventions — which recognizes
the collective or group character of social disadvantage and discrimination. The concept of "group" rights is problematical from a legal
perspective [Lacey, 1993, pp. 112-119] but it has the benefit of focusing
on the needs of disadvantaged groups.
Forceful arguments can be made that special treatment for disadvantaged groups is neither unjust nor immoral, nor is it incompatible
with the principle of employing people on "merit" (itself a suspect
concept) [Parekh, 1993, pp. 261-280]. An equality programme would
include a wide range of measures, at both international and national
levels, including contract compliance, affirmative action policies, and
more precise targeting of cohesion measures. National systems could be
guided towards more effective remedies which compensate and advance
groups and not only individuals.
By concentrating on substantive equality of outcome for disadvantaged groups in the labour market, we can develop a response to
globalization which marries the market success of organizations with
social justice for all sections of the communities in which they operate.
Adonis;, A.; Tyrie, A. 1991. Subsidiarity: No panacea, London, European Policy Forum.
Ben-Isniel, R. 1992. "Equity and equality of treatment in employment: Introduction", in
Gladstone, A. et al. (eds.): Labour relations in a changing environment, Berlin, Walter
de Gruyter.
Dickens, L. 1993. "Anti-discrimination legislation: Exploring and explaining the impact
on women's employment", in McCarthy, W. (ed.): Legal intervention in industrial
relations: Gains and losses, Oxford, Blackwell.
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International
interdependence
Gladstone, A. 1986. The manager's guide to international labour standards, Management
Development Series No. 23, Geneva, International Labour Office.
Hakim, C. 1993. "Segregated and integrated occupations: A new approach to analysing
social change", in European Sociological Review, Vol. 9, pp. 289ff.
Hepple, B. 1986. "Introduction", in Hepple, B. (ed.): The making of labour law in Europe,
London, Mansell.
—. 1993. European social dialogue: Alibi or opportunity? London, Institute of Employment
Rights.
Lacey, N. 1993. "From individual to group?" in Hepple, B.; Sczyszczak, E. (eds.):
Discrimination: The limits of law, London, Mansell.
Kahn-Freund, O. 1981. Labour law and politics in the Weimar Republic (eds. Lewis, R.;
Clark, J.) Oxford, Blackwell.
Nolan, P. 1994. "Democratization, human rights and economic reform: The case of China
and Russia", in Democratization, Vol. 1, No. 1 (forthcoming).
Parekh, B. 1993. "A case for positive discrimination", in Hepple, B.; Sczyszczak, E. (eds.),
op. cit.
Ramm, T. 1986. "Epilogue: The new ordering of labour law 1918-45", in Hepple, B. (ed.),
op. cit.
Rubery, J.; Fagan, C. 1993. "Occupational segregation of women and men in the
European Community", in Social Europe, Supplement 3/93.
Sinzheimer, H. 1910-11. "Die Fortenwicklung des Arbeitsrechts und die Aufgabe der
Rechtslehre", in Soziale Praxis, Vol. 20.
Valticos, N. 1984. "International labour law" in Blanpain, R. (ed.): International
encyclopedia for labour law and industrial relations, Deventer, Kluwer.
Vogel-Polsky, E.; Vogel, J. 1991. L'Europe sociale 1993: Illusion, alibi ou realitef Brussels,
Etudes europeennes.
Zegers De Beijl, R. 1990. Discrimination of migrant workers in Western Europe, World
Employment Programme Working Paper, Geneva, International Labour Office.
The other side of the coin:
Globalization, risk and social justice
Ulricb Muckenberger
Hochschule fur Wirtschaft und Politik
Germany
Hamburg
Abstract
This essay considers the environmental risks brought about by
globalization in the perspective of an increasing tension between the
present distribution of value and resources and the claims of equality.
Against this background it: argues that the industrialized countries need
a sustainable restructuring accompanied by globalized standards that take
into account the social as well as the ecological conditions for mankind's
survival.
/. Towards worldwide equality?
Globalization takes place in many ways. The very character of
capitalism engenders an expansion of trade and production, which often
takes the form of conquest and colonization of less developed markets
and countries. Paradoxically, this process of expansion — "economic
globalization" — has often been accompanied not only by conflict and
loss of traditional equilibriums, but also by new forms of social contact
and coherence. Citizens of different parts of the globalized world — "old"
as well as "new" — have encountered each other, and become aware of
their respective life styles, working and living conditions, and needs. Such
contact has frequently provided the foundations on which to build
mutual recognition and solidarity, leading to the emergence of principles
134
and standards of social justice — what I shall call "social globalization".
Cross-national standards have been established in Europe, North America
and Asia, within the framework of the United Nations and the International Labour Organization. That businessmen as well as workers of
the developed economies feel solidarity with the people of countries
where capitalism is expanding is neither self-evident nor necessarily
"unselfish" — i.e. altruistic. Often the people (including workers) of the
countries of the industrialized North participate in the exploitation of
Third World countries without a thought for common universalized
working and living standards. Often, however, they push for globalized
economic and social standards in order to achieve equal supply conditions
within worldwide competition, i.e. to prevent "throat-cutting competition" from less developed nations. Frequently, solidarity is both selfish
and altruistic, and benefits both industrialized and developing countries.
It seems to be this fortunate coincidence which — I take the ILO as the
best example — contributes most to the emergence and generalization of
globalized standards and principles of social justice.
If what I sketched here as the inter-relationship between economic
and social globalization were the whole truth, one could sit back, trigger
the process of globalization, and wait for the outcome of generalized
equality in well-being, living standards and opportunities in the One
World. However, there is another side of the coin. Globalized social
justice is not a realistic vision, but rather an ideology, a kind of wishful
thinking shared by people in the developed countries. It is realistic
neither from an empirical point of view nor from a normative one. I
shall leave aside the empirical merits of the vision and focus on the
normative point of view. The other side of the coin of the globalizing
economy is the globalization of environmental risks and the exhaustion
of global natural resources. Both environmental risks and scarce resources
challenge not only the ecological equilibrium of our world, but the
survival of mankind [World Commission on Environment and Development, 1987]. This I shall call "risk globalization".
The problem is that there is a severe conflict between economic and
social globalization, on one side, and ecological globalization, on the
other — a conflict which seems inevitably to render illusory the sketched
vision of worldwide social justice. Linear worldwide development — that
is, which simply reproduces the patterns of production and consumption
of the industrialized countries on a worldwide scale — would promptly
lead to the collapse of our world. Day after day, the world population is
increasing by 250,000 inhabitants — the size of a middling European
town. Given this population growth and increased expectation of life, the
world population in the year 2010 will be around 7 billion and by 2025
Ulrich Muckenberger
135
around 8.5 billion [Kennedy, 1992, Ch. 2]. One needs only to imagine
what would be the outcome if all these people were to use the same
amount of energy per capita as in the United States, to demand the same
per capita number of square metres for their homes as in Europe, to
drive as many thousands of kilometres by car and fly as many thousands
of miles, to urbanize as much land and to discharge as many toxic or
harmful chemicals as go through our chimneys or into our rivers. Merely
to imagine such a scenario is a nightmare.
I assume that nobody envisages such a linear globalization of western
modes and standards of living. But how, then, can we uphold the aim of
global justice? Temporarily, we in the N o r t h may tranquillize our bad
consciences by arguing that an African tribesman will not feel a need for
a big apartment or that it would be absurd for an Asian rice planter to
fly as many miles as a western businessman. This is certainly valid for the
time being, but it may not remain so even in the near future. Isn't
individualization advancing and rapidly changing life styles, needs and
mobility everywhere in the world? Isn't a huge growth of mega-cities to
be observed, not so much in the First but rather in the Third World? Is
there thus any continuity of tradition on which to found the belief that
Third World populations will not demand, sooner or later, opportunities
and standards equal to those which the N o r t h monopolizes at present?
Even if we would circumvent these pragmatic empiricist perspectives, we
could not circumvent the underlying question of social philosophy: how
can we: justify these well-established and clearly structured differences —
privileges and disadvantages — in production and consumption standards
between the areas of our world while insisting on the principle of
universal equality?
We are thus in a dilemma. Either we take seriously the exhaustibility
of natural resources and frankly admit that this excludes economic and
social expansion comparable to that of the N o r t h on a worldwide basis
— so disassociating ourselves from the vision of globalized, universal
equality. O r we take seriously equality as a basic unalienable principle of
social justice and accept a global development of production and consumption which we know is incompatible with mankind's (and nature's)
survival interest and will inevitably lead to collective suicide. A dilemma
similar to the one stated here has been identified within the industrialized
nations for some time — the conflict between economic/social and environmental claims. N o w this conflict has become a global one.
Policies concerning these respective claims have always been formulated by different and segregated social actors: economic claims by
employers and their representatives, social claims by workers and their
unions, ecological claims, if at all, by environmental protection or
136
consumers' associations or by the State. What inspires my essay is the
question: is there any synthesizing, coherent approach capable of coping
with the conflict mentioned?
77. Sustainable development:
Restricted to the less developed?
The efforts to globalize standards in a globalizing world have
hitherto been limited to social standards — that is, standards concerning
the working and living conditions of dependent workers and the
unemployed. As soon as we turn to the environmental side, we find
arguments there, too, for the necessity of worldwide action and
standards, though with sparse results. The two discourses — one concerning social, the other environmental globalization — show similarities
and differences.
In both cases an a priori "unfettered" process of globalization has
been under way — in the one case globalization of capitalism, in the
other, of pollution, destruction of nature and natural resources. This
creates a need for countervailing power, for a "humanizing adjustment"
towards the social recognition of workers as human beings and towards
honouring the earth and nature as indispensable to mankind.
In both cases, the process that has produced the risks has, thanks to
the hitherto undisputed freedom of the market, developed largely unchallenged. By contrast, the "humanizing adjustment" has required not only
collective argument and dispute, public justification and evidence, and
collective organization, but also time-consuming procedures of negotiation, agreement, legislation and so on in order to achieve any progress.
Adjustment has therefore always lagged behind, a one-issue-only defensive
patchwork, frequently coming too late to serve its intended purpose.
In the case of social standards, this is well-established, as the history
of the ILO, from its origin in 1919, makes clear. However, the problem
seems to be even greater in the case of environmental globalization which
requires worldwide environmental instruments laying down standards
and procedures. In fact, risk globalization affects people in a highly
"diffuse" way, which makes it hard to identify the source of the risk and
hence to determine the remedy against it. Those who are affected — be
they millions or billions of people — feel affected as individuals. Their
interests are not represented and are not capable of being represented in
a highly aggregated way, comparable to the representative institutions of
Capital and Labour.
Ulrich Mikkenberger
137
The state is often reluctant to handle the problem of global risks in
a rigorous way. Most global risks are cross-national which enables individual countries to duck responsibility. And the national economies
involved are competing with each other which can discourage concerted
action.
This is why collective structures and routines of negotiation and
conflict, comparable to collective bargaining or social legislation at
national level, are missing in the field of global risks. It is not accidental
that a world environment summit (Stockholm) did not take place until
1972, that it took years to establish the Brundtland Commission and
decades to mobilize the nations of the world to tackle environmental
globalisation (Rio, 1992).
I have stressed similarities and differences between the discourses on
social and environmental globalization. I am convinced that in both areas,
hitherto segregated, the advocates of "humanizing adjustment" will have
the chance of political power and enforcement only if, and as soon as,
they act in common. Not only are they working towards the same goal
— the integrity and the dignity of human existence — they depend on
each other. The discourse on social globalization will only make progress
in so far as the one on environmental globalization does, and vice versa.
I would argue against those who, discouraged by the lack of progress in
setting ;ind implementing global environmental standards, might say: "Let
us concentrate all our forces on the social field, where we have at least
a chance". Those who take that view, I would maintain, will not even be
successful in the social field.
It is hard to summarize the present "state of the art" on the handling
of global risks. However, one general principle, developed mainly in the
Brundtland Report [World Commission on Environment and Development, 1987] and forming the essence of the Rio Declaration and the
accompanying "Agenda 21" [Umweltpolitik, 1993] — would seem paramount: that of "sustainability" or "sustainable development". This means
a commitment to a concept of development of our world in which
instruments are chosen and decisions taken that can be upheld in the
future and which do not operate to the detriment of those who did not
participate in choosing the instruments or taking the decision. In other
words, the principle involves a way of development which does not
consist of the externalization of risks and their transfer to subsequent
generations or to other countries or regions of the world.
I would argue that only by applying this principle of sustainability
can we get to grips with and, in the long run, resolve the dilemma
presented here, of reconciling environmental globalization with global
justice. Sustainable development has hitherto been interpreted in too
138
restrictive a fashion. In the Brundtland Report, it was seen as a purely
environmental rather than a social principle, requiring decision-makers
to take account of the limits of environmental resources. Mankind should
not consume resources at the cost of future generations or of other parts
of the world. The question of who consumes these limited resources,
how and according to which criteria rights to consume resources are
distributed among mankind, remained outside the principle's scope. In
addition, sustainability has mainly been applied as a concept to the
undeveloped or less developed countries rather than to developed
industrialized nations. The intention has been to prevent countries in the
process of industrialization from reproducing the same unsustainable
development patterns as those of the industrialized world.
Neither of these restrictions is justified. They both accept the
existing uneven distribution of opportunities in the world and, even if
unwillingly, tend to perpetuate it. From the point of view of global
justice, the principle of sustainability must be endorsed as a social
principle as well as an environmental one. It therefore implies substantial
social restructuring to alter the worldwide distribution of wealth and
opportunities. The principle of sustainable development then clearly will
have its main field of application in industrialized countries, affecting
their patterns of production and consumption, their methods of development, their policies towards developing countries, and so on. Let us
follow this path for a moment.
///. Sustainable North: What would that mean?
Removing the two restrictions on the scope of the principle of
sustainability, thereby reconciling it with the requirements of global
justice, opens up a new perspective. We no longer merely ask which and
how much of our natural resources the world can afford to consume
without endangering its survival. More concretely, we rather ask which
and how much of our natural resources each human being in the world,
each group, each nation, each continent can afford to consume without
endangering mankind's survival and without jeopardizing the equal
participation of other individuals, groups, nations and continents in
global wealth. To put the question like this implies far-reaching
consequences. The collective survival interest is thereby imbedded in a
process of redistribution of wealth and resources according to principles
of global social justice.
Ulrich Miickenberger
139
This new environmental as well as social approach has been proposed lor the first time by Friends of the Earth/Netherlands. They have
developed an action plan, "Sustainable Netherlands 2010", which consists
of three steps [Buitenkamp et al., 1993].
First of all, the world's natural resources are determined and
measured. For each resource and toxic substance, an "environmental
space" is fixed in accordance with the principle of sustainability. The
environmental space shows to what extent mankind may consume the
resources without contradicting the imperatives of survival.
In the second step, the environmental space is distributed among the
world's population, as it will be in the year 2010. Here enters the
globalized social principle of equality according to which every man and
woman is entitled to the same share of the environmental space available.
This p rinciple is applied on a purely arithmetical basis: the environmental
space tor each resource is divided by the total world population (say, 7
billion in 2010). This figure can then be multiplied by the number of
inhabitants a country is expected to have in 2010 (say 16.5 million for the
Netherlands). The result indicates the share of the natural resource the
Netherlands' population is entitled to consume by 2010, according to the
principle of global equality. It implies, for example, a 60 per cent
reduction in carbon dioxide emissions, a 40 per cent reduction in use of
mains water, an 80 per cent reduction in use of non-renewable resources
such as aluminium and a 60 per cent reduction of timber consumption.
The third step is an action plan to adjust, within 15 years, the
"actual"' consumption by the Netherlands of the respective environmental
space to the one which is "due" in 2010, according to the principle of
global equality.
The solution offered to our dilemma by the action plan, "Sustainable
Netherlands 2010", seems voluntarist and naive. The empirical assessment
of "environmental space" is much harder than the action plan suggests.
Moreover, equalizing global social justice by giving everyone an equal
share of every environmental space is a-historic and over-simplistic: it
neglects cultural differences in modes of life, work and consumption
which are not just a result of unequal distribution.
N o n e the less, the action plan has certain merits. It unequivocally
accepts; the principle of global equality. And, from this point of
departure, it makes strikingly clear the extent to which we in the N o r t h
live beyond this principle (according to which, to take just one example,
each of us can afford one transatlantic flight every 20 years!). It
demonstrates the extent to which citizens of the N o r t h externalize their
environmental problems and how far they are indebted to others at
whose expense they benefit.
140
I personally see the action plan as a radicalization and moral
exaggeration of a principle to which we all theoretically adhere but about
the implementation of which we are somewhat cynical. "Sustainable
Netherlands" for me is less important as an exact mathematic calculation
than as a challenge to take equally seriously both social and environmental globalization while restructuring and further developing the O n e
World.
IV. How to master environmental restructuring
Leaving aside the simplifications, "Sustainable Netherlands" is an
urgent plea for the N o r t h to tackle environmental development with a
view to its global responsibilities. Obviously, the principle of sustainability implies changes in industrialized countries' patterns of production
and consumption. The N o r t h must save energy and take up less space.
It must change its economic and social system from one which is founded
on growth and expansion (i.e. which increasingly internalizes natural
resources and externalizes social costs) to one which tends towards an
equilibrium between resources consumed and results achieved and
between economic benefits and global social and environmental costs.
The main strategies for making this change are currently being
discussed. Some experts favour what they call an "efficiency revolution".
This means a restructuring of modes of production to achieve a dual goal.
It should increase national product in a way that enables less developed
countries to profit equally from the gain, without a big reduction in
living standards in the developed areas. It should, at the same time,
radically decrease the global social and environmental costs of production.
Other experts favour the so-called "sufficiency revolution". They do not
believe that the N o r t h can maintain its standard of living if it obeys the
principles of sustainability and global justice. They see as inevitable a
reduction in damaging production in the N o r t h and the sharing of production with the poor. Their discourse therefore focuses on a critique of
the N o r t h ' s consumption patterns and "needs" and its orientation
towards the "Have" rather than "Be" [Fromm, 1983].
I believe both revolutions will be necessary in the near future. We
shall not be able to content ourselves with the vision of a more equitable
sharing of steadily increasing amounts of resources and products. We will,
at least partly, have to take into account the need to share in a zero-sum
game a given amount of resources and products. The N o r t h will thus
have to accustom itself to an unprecedented type of "progress": progress
Ulrich Miickenberger
141
back to less consumption and use of resources, and towards an ethic of
sufficiency and sharing. I believe this, not only for reasons of sustainability and global justice, but also because the dominant consuming
attitudes, forms of need production and status symbols in the North,
more radically analysed, may lead to the conclusion that consuming less
sometimes and under certain circumstances can imply a better life.
The debate over social standards, in the ILO and outside it, has
hitherto been one of progress: of concessions to be negotiated within
economies that are growing and of the extension and even globalization
of standards alongside the expansion and globalization of economies. Risk
globalization and the need, for global environmental standards pose a
serious; challenge to this vision of constant growth of social standards.
The agenda comprises neither further (quantitative) growth of social
standards (higher wages, fewer working hours, better working conditions,
etc.) nor a general cut in social standards as the deregulation school
suggests (there is no evidence that deregulation can cope with environmenteil problems). What is on the agenda, however, is a new qualitative
discourse concerning the standards that are necessary for all human
beings and compatible with mankind's survival, and how a just distribution of them can be achieved. This discourse presupposes publicly
debated and agreed principles of justice which are not limited to
econccmic and social globalization, but are capable of integrating environmental globalization.
1 am convinced that there will be no further progress towards social
globalization if it is not accompanied by and integrated with environmental globalization. The converse also applied: we shall not be able to
solve the global environmental problem without a new, qualitative
approach towards global social standards.
Buitenkamp, M. et al. 1993. Action Plan Sustainable Netherlands, Amsterdam, Friends of
the Earth Netherlands.
Fromai, Erich. 1983. To have or to he, Toronto, New York, London, Sydney, Bantam
New Age Book.
Kennedy, Paul. 1992. Preparing for the twenty-first century, New York, Random House.
Umwdtpolitik. Eine Information des Bundesumweltministeriums. 1993. Bonn.
World Commission on Environment and Development. 1987. Our common future,
Oxford, Oxford University Press.
Part 5:
Universality and flexibility
in international labour standards
Labour standards across countries
with different levels of development
G. Chike Okogwu
Labour Administration Consultant
Lagos
Nigeria
I. Introduction
The theme of this paper is very significant for two reasons. The first
is that the paper has been written as part of the programme for the
celebration of the 75th anniversary of the International Labour Organization (ILO) and, coincidentally, the 50th anniversary of the Declaration
of Philadelphia in which the objectives of the ILO are set out. The
Declaration represents the cornerstone of the ILO's standard-setting
activities which, in turn, have been the essential instrument of the ILO
for promoting social justice. Like A Christmas Carol, the Declaration is
ageless. Its message, its spiritual and material appeal and its significance
all grow with and have been confirmed and strengthened by time. It has
transmitted to each succeeding generation an enduring message of faith
and hope in the eventual emergence of a transformed world community
out of the acceptance of the message which it carries.
The second reason relates to the title of this paper: "Labour
standards across countries with different levels of development", which
is at the very root of the fundamental principles on which the ILO is
based. These include the principle that "poverty anywhere constitutes a
danger to prosperity everywhere" and the affirmation that "all human
beings, irrespective of race, creed or sex, have the right to pursue both
their material well-being and their spiritual development in conditions of
freedom and dignity, of economic security and equal opportunity".
Another requirement is that there should be effective national and
international action "to promote the economic and social advancement
of the less developed regions of the world". Furthermore, article 19(3) of
146
the ILO Constitution, which dates from 1919, provides that, in framing
any Convention and Recommendation of general application, due regard
should be given to the problems confronting those countries in which
"climatic conditions, the imperfect development of industrial organization, or other special circumstances make the industrial conditions
substantially different and [the Conference] shall suggest the modifications, if any, which it considers may be required to meet the case of such
countries".
These principles show that economic difficulties constitute a primary
barrier to the implementation of ILO standards, that there was an awareness of this barrier by the founding fathers, and that much thought has
gone into the search for practical solutions to the problems raised. Yet
the barriers to implementation are greater today than they were about
two decades ago. This is partly because the gap between developed and
less developed countries has widened and partly because the less
developed countries now play a much more active role in international
life. If it is accepted that international labour standards are aimed at
levelling social disparities, both inside a member State and between
member States, the trend could constitute a serious threat to the pursuit
of this aim.
77. Economic and social policy:
Complementary development objectives
At this stage, it is important to recall two relevant provisions of the
ILO Constitution. One provides that it is one of the main objectives of
the ILO to "promote the economic and social advancement of the less
developed regions of the world". The other affirms that the manner of
the application of the principles set forth in the Declaration "must be
determined with due regard to the stage of social and economic development reached by each people".
The objectives set by ILO standards in the field of labour and social
policy supplement those in other fields so that economic progress will be
accompanied by social advance. This principle implies a broad view of
the development process, i.e. an awareness that economic and social
development are complementary and that glaring inequalities should be
removed. Just as economic growth is the key to social progress, so the
redistribution of income can promote not only political stability but
economic growth itself.
G. Chike Okogwu
147
The universal acceptance of the above principle was slow in coming
— it arrived by "camel" post. In this connection, it will be helpful to
refer to two famous statements. The first is that of John Kenneth
Galbraith who had this to say about the purpose of economic development: "One of the generally amiable idiosyncrasies of man is his ability
to expend a great deal of effort without much inquiry as to the end
result". This could be translated to mean strong advice to nations always
to look for the essence of development and not to see it as the faithful
imitation of some developed nations. The second is that of President
Franklin Roosevelt of the United States. In his address to the Conference
of the International Labour Organization in New York in 1941, he said:
"Economic policy can no longer be an end in itself; it is only a means of
achieving social objectives". The doctrine became the heart of the
Declaration of Philadelphia which says the principle "must constitute the
central aim of national and international policy; [and that] all national
and international policies and measures, in particular those of an
economic and financial character, should be judged in this light and
accepted only in so far as they may be held to promote and not to hinder
the achievement of this fundamental objective".
For the ILO, the doctrine was not new, but it gained universal
acceptance only in 1970, when the International Development Strategy
for the Second United Nations Development Decade was unanimously
adopted by the General Assembly. The Strategy put to rest, on the
international plane, the opposition of "economic" and "social" objectives
in relation to development. It is now possible to say, without much fear
of contradiction, that to discuss and decide economic issues without
regard to social objectives is to lose all sense of purpose, and to discuss
and decide social objectives without regard to economic conditions and
c o n s t a n t s is to lose all contact with reality.
The Strategy recognizes that the "ultimate objective of development
must be to bring about sustained improvement in the well-being of the
individual and bestow benefits on all. If undue privileges, extremes of
wealth and social injustices persist, then development fails in its essential
purpose". The Strategy has brought out in bolder relief the ultimate
purpose of development. It is that, in order to provide all with increased
opportunities for a better life, it is essential, inter alia, to raise substantially the level of employment, create a more equitable distribution
of income and wealth for promoting social justice and efficiency in
production, achieve a greater degree of income security, and bring about
the quslitative and structural changes in society that must go hand in
hand with economic growth.
148
This shift in emphasis on the role of social purpose in economic
development has further strengthened the hand of the ILO in its
principal task of standard-setting. It confirms the ILO's thesis that social
progress is not a barrier to economic development or a luxury which
only the more prosperous countries enjoying relative stability and mature
political systems can afford. Rather, social progress is the whole purpose
of economic development and a vital element in the development process
itself, without which both economic growth and political stability are in
jeopardy.
III. Flexibility in international standards
While ensuring as far as possible that the social purpose of
development is not overlooked, the ILO must not lose sight of the
economic constraints which limit what can be effectively achieved at any
given time or within any given period. It must also accept the possibility
that there may be conflicts of social objectives which present difficult
dilemmas and raise important questions of political judgment.
It is in such circumstances that the situation of "countries with
different levels of development" should be taken into account. For is it
not in developing countries that balancing the short-term and long-term
advantages of alternative courses of action presents the most agonizing
dilemmas? Is it not in developing countries that these dilemmas have now
been compounded by the current world recession and political, tribal,
religious and ethnic crises in different parts of the world? These crises
could also create agonizing dilemmas for the ILO. They are equally
capable of undermining the planning and execution of its programmes of
technical cooperation. One of the strengths of the ILO is its commitment
to universality and its ability to maintain a generally acceptable balance
between conflicting claims. Therefore, it needs to ensure that it is not
diverted from the course established by its mandate by prevalent
influential thought and regional interest.
The problems associated with international labour standards as well
as the search for practical solutions under circumstances of wide international disparity of productivity, income and development are many and
challenging. They include: flexibility (legal and economic); the concept
of economic development; premature ratifications; cost of implementation; the choice between global and regional standards; lessons from
Conventions applicable to non-metropolitan territories; technical
assistance (type and timing); the role and effectiveness of ILO operational
G. Cbike Okogwu
149
activities; administrative difficulties (insufficient development of governmental administration) and their remedies; the need for greater clarity in
drafting policy and procedural documents, and their dissemination and
discussion; political difficulties (particularly bringing the legislature closer
to ILO operations); tackling non-compliance and the remedies available;
ratifications which raise unforeseen technical or basic difficulties; the
difficulties encountered by federal States; and implementation through
collective agreements.
In the light of the opinions expressed over the years in different fora,
there appears to be a general consensus that ILO standard-setting should
continue on a universal basis. Differences in national conditions and
levels of development should be taken into account by the inclusion of
appropriate flexibility devices — though basic human rights Conventions
(some would add Conventions on safety, health and welfare) should be
exempted. Flexibility devices include: the possibility of ratifying
Conventions in parts; the acceptance of alternative parts containing more
or less strict requirements; limitations on scope; "escalator" clauses
permitting the gradual raising of the level of protection or the extension
of the scope of protection; temporary exceptions; and flexibility in the
methods of application. In addition, use is also made of promotional
Conventions which define the objectives to be attained with relative
precision but which leave a great deal of freedom to the ratifying States
to decide the means of achieving those objectives.
The list of flexibility clauses is not closed and may never be closed
as long as they are not prohibited. In the meantime, while representatives
of member States in developing countries continue to complain of insufficient flexibility in standards, others have sounded a note of caution.
They point out that only limited use has been made of flexibility clauses
because they depend on the subject matter of the Convention. Other
reasons include inadequate knowledge, information, advice and guidance
to member States and Conference delegations. There is also a need to
clarify the concept and purpose of flexibility which might otherwise
endanger the principle of universality and lead to the "natural" limits of
flexibility being exceeded. A good case can be made out for Conventions
on occupational safety and health and also on the environment to be
exempted from flexibility clauses so as to be of universal application. In
addition, the use of flexibility clauses should not lead to the erosion of
acquired rights and practices. On the other hand, it should be possible to
make greater use of flexibility clauses after ratification. For instance,
some Conventions of general application include the clause "subject to
such modification as may be necessary to adapt the Convention to local
conditions", which is contained in Article 35 of the ILO Constitution.
150
Other problems associated with wide international disparities in
development can be broadly classified as legal, economic, administrative
and political. The classification is not watertight and permits a good
measure of overlapping. One such problem is premature ratification —
a decision by some countries to accept standards for which there is little
or no basis in their national laws and practice and which they are not in
a position, economically, to implement. Although premature ratifications
may lead, in the long run, to the adoption of implementing legislation,
nevertheless they create difficulties. Premature ratifications have been
variously described as "declarations of sympathy" with the principles
embodied in a Convention, "window-dressing" ratifications, "platonic"
ratifications and "bare" ratifications. They have an adverse effect not only
on the good name of the countries concerned but also on the reputation
of the whole system of ILO standards. N o ratification at all may be
better than a ratification which remains ineffective. The Committee of
Experts on the Application of Conventions and Recommendations in its
Report (1931) alluded to premature ratifications as follows: "An adhesion
which is not followed by concrete application is an ineffectual gesture,
the only result of which is to perpetuate an illusion".
In his Report to the 1958 Session of the International Labour
Conference, the ILO Director-General emphasized that "good labour
administration is the heart of social policy". In 1962, the SecretaryGeneral of the United Nations in his report to the Economic and Social
Council also referred to this aspect: "The existence of an efficient
administration is the indispensable mainstay of any international action,
whether undertaken pursuant to a Convention or Recommendation,
through the giving of advice, or in any other way". In these days of
reported falling standards, particularly in many developing countries,
administrative shortcomings can make enforcement of new labour laws
a practical impossibility. It would not be hard to find countries where
legislation in force is not published for a long time after enactment or,
when published, is available in limited quantities, sometimes only to the
administering authorities. It would be appropriate to rake up the 1958
Conference Resolution Concerning Publication of Labour Laws and
make it the topic of a seminar in, for example, the African region. Good
administration constitutes an indispensable condition for ensuring observance of ratified Conventions.
Another important problem relates to the integrative approach to
development. To tackle economic difficulties and social evils together
involves many political, financial and other decisions. To enforce these
decisions requires a level of structural stability which many developing
countries cannot claim to have reached. As governments are confronted
G. Chika Okogwu
151
with the necessity of planning ahead, of allocating resources, and of
catering to opposing interests, the obstacles and possible solutions may
come more sharply into focus.
On the political front, governments often claim that they cannot
obtain parliamentary support for the law and practice of the State to be
brought into line with the articles of the Convention which the government recommends for ratification.
Tin: immediate and long-term solution to this problem should
include, first, an effective programme by the executive designed to inform
and educate the legislature about decisions of the International Labour
Conference, including criticisms by the supervisory bodies of the
application of ratified Conventions, and, second, the occasional inclusion
of members of the legislature in Conference delegations.
IV. Development-dependent ILO standards
The earlier part of this paper referred to the ILO's broad concept of
development. It is worth restating a few of the main points by way of an
introduction to this part of the paper that will seek to identify ILO
standards which are really development-dependent. The first is that social
progress is not a barrier to economic development or a luxury which
only the more prosperous countries enjoying relative stability and mature
political systems can afford. Rather, social progress is the whole purpose
of economic development and a vital element in the development process
itself, without which both economic growth and political stability will
be in jeopardy. The second is that the objectives of ILO standards
relating to labour and social policy supplement those in other fields so
that economic progress will be accompanied by advances in the social
sphere, The third is that the shift in focus of the International Development Strategy for the Second United Nations Development Decade,
enhancing the role of social purpose in economic development, further
strengthens the ILO's hand in standard-setting. The fourth is the
existence of a consensus that economic and social issues are complementary and have to be discussed and decided together.
Unfortunately, there still exists a tendency to give economic
development precedence over social considerations. It is therefore the
function of international labour standards, which have been the ILO's
essential instrument for promoting social justice, to encourage balanced
economic and social progress and contribute a note of economic realism
152
to international actions for social development. A number of examples
of ILO action in this field can be cited.
A good starting point is the use of forced labour for economic
development. The relevant standard is the Forced Labour Convention,
No. 29 (1930), which was directed at the suppression of all forms of
forced labour practised in colonial territories. This was followed by the
Abolition of Forced Labour Convention, No. 105 (1957), whose aim is
the prohibition of forced or compulsory labour in any form, notably as
a means of political coercion, as a method of mobilizing and using labour
for economic development, as a means of labour discipline, as a punishment for having participated in strikes, and as a means of racial, social,
national or religious discrimination. Faced with large-scale unemployment, some governments resorted to measures which contravened these
Conventions. With the assistance of ILO supervisory bodies, solutions
were found such as development of an employment policy.
The growth of various forms of national youth service organization
is another case in point. Governments often argued that they constituted
temporary or exceptional measures to achieve faster initial development.
While showing understanding for this argument, the ILO nevertheless
emphasized the risk of abuse of such schemes. It also warned of other
adverse effects, including the danger that the schemes would gradually
lose their transitory and exceptional character and also the fact, borne out
by experience, that compulsory schemes can prove more costly and less
efficient than voluntary schemes. The happy ending was the adoption in
1970 of Recommendation No. 136 concerning Special Youth Employment
and Training Schemes for Development Purposes. The Recommendation
applies to special schemes (which are defined) designed to enable young
persons to take part in activities directed to the economic and social
development of their country, and to acquire education, skills and
experience facilitating their subsequent economic activity on a lasting
basis and promoting their participation in society.
Another good example is the Social Policy (Basic Aims and
Standards) Convention, No. 117 (1962), which developed from the Social
Policy (Non-Metropolitan Territories) Convention, No. 82 (1947). The
general principles laid down in the Convention are that all policies shall
be primarily directed to the well-being and development of the
population and to the promotion of its desire for social progress; and that
all policies of more general application shall be formulated with due
regard to their effect upon the well-being of the population.
A further example is the Social Security (Minimum Standards)
Convention, No. 102 (1952). The aim of the standard is to establish with
the requisite flexibility, given the wide variety of conditions obtaining in
G. Chike Okogwu
153
different countries, minimum standards for benefits in the main branches
of social security. It covers all important risks and benefits of potentially
universal application. Out of the nine main branches of social security,
a State is obliged to accept three, at least, to ratify the instrument. The
Convention also authorizes certain exceptions for States "whose economy
and medical facilities are insufficiently developed".
To complete these examples, mention must be made of continuing
studies of multinational enterprises and social policy and the related
document, the Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy, as well as a number of other
studies being carried out on the social problems of economic and
technological development.
At this point, it may be possible to attempt an answer to the
question — which standards are really development-dependent? Since the
ILO's standard-setting activities stem from the very essence of its
structure, objectives, principles and ambitions, one could argue that all
ILO standards are in principle development-dependent. In practice, some
are more development-dependent than others, according to the subjectmatter of the instrument and the part of the world to which it is
directed.. In fact, the balanced development of the less developed regions
of the world is mentioned in the ILO Constitution as one of the
Organization's main objectives.
Using the existing revised classification of international labour
Conventions and Recommendations, the standards that are really
development-dependent will be found in the following groups: basic
human rights; employment policy; occupational safety, health and
welfare;; industrial relations; social security; seafarers; dockworkers; and.
social policy (miscellaneous). The Social Policy (Basic Aims and
Standards) Convention, No. 117 (1962), for example, which is grouped
under social policy (miscellaneous) states in article 2 that "the improving
of standards of living shall be regarded as the principal objective in the
planning of economic development".
V. Universality versus regionalism
As a global and specialized agency of the United Nations, one of the
problems faced by the ILO is how to formulate and maintain the correct
and generally acceptable level of international labour standards. This
raises the wider issue of the principle of universalism or universality of
standards versus that of regionalism.
154
It is necessary to start by disposing of the concept of regionalism.
The African Advisory Committee of the ILO, at its meeting in 1972 at
which the possibility of standards being drawn up on a regional basis was
raised, gave a devastating response to the proposal in the following wellknown statement: "Any attempt to adopt Standards on a regional basis
would be a backward step and would produce anomalies and tensions
between different regions". It then concluded, "sub-standards for subhumans have no place in the ILO".
There is now a general consensus that ILO standards should
continue to be drawn up on a universal basis and that differences in
national conditions and levels of development should be taken into
consideration by the inclusion of appropriate flexibility devices as
provided by the ILO Constitution. But the problem is how to attain this
laudable objective:
(a)
the standards must be drawn up on a universal basis;
(b)
they should be conceived so as to respond to the needs of all
member States;
(c)
they should be framed, as provided by the Constitution, with due
regard to differences in the levels and conditions of development;
(d)
the flexibility devices for incorporation into Conventions should be
systematically and methodically examined;
(e)
there should be effective participation, on an equal footing, of the
greatest number of member States in the process of selecting and
preparing the standards;
(f)
the standards should be economically viable and capable of
adaptation in an appropriate manner and time to perceived or
changed working conditions;
(g)
they should be a means of promoting balanced development, a
source of inspiration to social policies, and an indicator of the
direction in which social progress should move;
(h)
they should present a picture not of a haphazard collection of ideas
but of a document whose objectives were set globally by common
agreement.
One of the factors mentioned above, namely wide participation of
member States in preparing standards, involves other considerations,
including:
G. Chike Okogwu
155
(a)
the financing by the ILO of Conference delegations from the least
developed countries;
(b)
assistance to member States at the stages of formulation
implementation of standards;
(c)
the possibility of having fewer items on the conference agenda each
yeîr in order to facilitate wider participation;
(d)
more information and guidance to member States on flexibility
clauses to enable them to make more use of the clauses;
(e)
slowing down the pace of standard-setting
participation of member States;
(f)
avoidance of minimalist Conventions which would not provide
stimulus to social progress and would therefore adversely affect
participation;
fg)
greater attention
standards;
(h)
more use of general discussion subjects because of their educational
value and also because they help member States in establishing areas
of interest and difficulties;
(i)
since it is becoming increasingly difficult for member States to come
to the ILO, the ILO should go to them with its field structure role
suitably expanded to secure more direct contact, wider coverage and
generally more effective results;
(j)
with the growth of regional and sub-regional groupings, more effort
should be made to facilitate the integration of all constituents in a
region in the process of standard-setting;
(k)
at the national level, governments should develop suitable machinery
and procedures to regularly undertake effective tripartite consultation in matters connected with ILO standards.
to
increase
to evaluating the economic implications
and
the
of
While all these considerations will, no doubt, prove useful in
improving the formulation and application of standards, the cost of
implementing most of them will increase the already heavy burden of
labour ministries and other labour administration agencies which, in
developing countries, are poorly funded and staffed. If this happens, the
existing standard-setting system may be thrown into disarray.
In spite of the obstacles, the case for universality of standards is
strong:
156
(a) one of the articles of the Declaration of Philadelphia states that "the
Conference affirms that the principles set forth in this Declaration
are fully applicable to all peoples everywhere..."
(b) member States only gradually reach the position where they are able
to assume the full obligations of a Convention. The legitimate
expression of member States in favour of the adoption of Conventions may represent a desirable objective for the world community
or as a goal for the further development of their national social
policy and legislation;
(c) standards are of value to many countries as a model on which to
base their labour legislation after being suitably adapted to national
circumstances;
(d) ratification gives labour laws a degree of stability that is not necessarily conferred by purely national legislation. This is because
backsliding or repeal is much more difficult than if no international
Convention existed;
(e) while regional standards can be useful to focus attention on significant problems of a regional nature, it is difficult to see how they
can replace universal standards or coexist with them without overlapping and compounding the problems of disparity and, ipso facto,
increasing the adverse social effects of international competition.
This kind of approach will seriously erode the credibility of one of
the arms of the Preamble to the Constitution of the ILO which
states that "the failure of any nation to adopt humane conditions of
labour is an obstacle in the way of other nations which desire to
improve the conditions in their own countries". To the extent that
standards are capable of harmonizing social policy, they would help
to reduce the opportunities for unfair competition, improve
international trade and facilitate social integration;
(f)
it is important to reckon with the saying panta rei — everything is
in constant flux. Life itself involves a continuous adaptation to a
changing environment.
VI. Conclusion
The development of a system of labour standards is the principal
purpose behind the creation of the International Labour Organization.
At the same time, the ILO's standard-setting activities stem from the very
G. Chike Okogwu
157
essence of the Organization, its structure, its aims and its ambitions,
namely, the promotion of social justice under conditions capable of
checking the consequences of unfair competition between nations.
For the ILO, therefore, standard-setting remains the tested and
trusted means of achieving its objectives of economic progress and social
justice a i d of exerting a growing influence in the international community. It has prepared itself for this role and this responsibility: it
always moves in the direction of covering the field; because of its unique
tripartite: structure, it is nourished on facts and stimulated by comment;
it operates with confidence based on knowledge and the considerable
experience which it has acquired over the years, enabling it, for example,
to make a rigid Convention less rigid without emptying it of its social
content. Oscar Wilde once observed that experience is the name which
is usually given to mistakes, but experience is a great teacher.
One of the great achievements of the ILO in the field of standardsetting is; to establish the inevitability of universality in spite of the wide
international disparity in levels of development between member States.
A new motto has been born or is being nurtured for the year 2000, viz:
Unity and universality in spite of disparity.
By-passing the rules: The dialectics
of labour standards and informalization
in less developed countries'
Alejandro Portes
John Dewey Professor of Sociology
The Johns Hopkins University
Baltimore
USA
Abstract
Focusing on the characteristics of activities taking place outside the
pale of state regulation, I address first some aspects of the relationship
between, labour standards, the informal economy and national development. The analysis indicates reasons why attempts to impose advanced
labour legislation in labour-surplus economies often end up by having
perverse effects. Second, I explore the relationship between labour
standards and the economic strategies of less developed countries as they
have shifted from import-substitution to export-oriented industrialization.
The character and functions of the informal sector have shifted between
both periods as countries have increasingly removed those labour protections that created a formal, sector during the earlier import-substitution
industrialization period. Third, I present some proposals for an alternative labour regime and compare it with the existing policy alternatives.
1
1 ac knowledge the assistance of Patricia Landolt and Dag McLeod in the preparation
of this chapter.
160
I. The debate over international labour standards
Too often debates over labour standards are posed in terms of irreconcilable trade-offs. Different experts on international development
argue that improving the quality of jobs undermines their quantity; that
the collective right to national development requires the suppression of
individual rights; and that international labour standards subvert national
political sovereignty [Lim, 1990; Deyo, 1987; 1989; Kochan & Nordlund,
1988]. The incompatibility of these positions is further aggravated by the
relative emphasis that different authors place on economics versus
politics. Opponents of labour standards tend to speak of the economic
benefits of efficiently allocating resources, while ignoring the unique
attributes of the "resource" labour. At the same time, proponents of
labour standards often speak of the need for political bargaining and
social contracts without taking into account the very real benefits that
rapid growth may confer upon developing nations.
Despite the controversy surrounding international labour standards,
the trend towards increasing international regulation of workers' rights
is undeniable. Since the mid-1980s, the United States Congress has
enacted four different laws that make access to the United States market
contingent upon respect for "internationally recognized worker rights"
(see Table 1). At the same time that the United States has unilaterally
imposed labour standards upon countries with which it trades, it has also
sought to introduce the issue of international labour rights into multilateral trade agreements. In the European Union, workers' rights were
taken up in the Community Charter of the Fundamental Rights of
Workers in 1989. Although the form of these provisions may vary
widely, they are all guided by the same underlying premise: poor
working conditions in one country will adversely affect the working
conditions and competitiveness of others.
The notion that sub-standard labour conditions spill over from one
country to the next is hardly new. This belief is clearly spelled out in the
Preamble to the ILO Constitution of 1919 which states that "the failure
of any nation to adopt humane conditions of labour is an obstacle in the
way of other nations which desire to improve the conditions in their
own countries" [cited in Servais, 1989, p. 424]. And yet, until recently,
the evolution of the international system has belied this seemingly
commonsense idea. Historically, the sectoral isolation of labour in less
developed countries, combined with extensive protection in developed
markets, prevented the plight of Third World workers from exercising
Alejandro Portes
161
any influence upon the improving labour standards in the industrialized
world.
Table 1: Worker rights provisions in United States Trade Law
1. Generalized System of Preferences
A 1984 amendment to the GSP made receipt of preferential trade status contingent
upon, whether or not the developing country has taken or is "taking steps to afford
internationally recognized worker rights to workers in the country".
2. Caribbean Basin Initiative
The original legislation of 1983 contained a minor reference to labour rights. A 1990
amendment raised worker protections to the same level as the GSP, placing them
under the mandatory conditions with which recipient countries must comply.
3. Overseas Private Investment Corporation
A 1935 Amendment to OPIC prohibited the financing or insuring of any country
that is not "taking steps to adopt and to implement laws that extend internationally
recognized worker rights".
4. Section 301 of the Trade Act of 1974
Amended by the Omnibus Trade and Competitiveness Act of 1988 in which the
definition of an "unreasonable" act, policy or practice was expanded to include "a
persistent pattern of conduct" that violated basic worker rights.
Source: Lawyers Committee for Human Rights [1991].
Intense competition due to the increasing integration of the global
economy has begun to change this situation. The phenomenal growth of
the East Asian newly-industrialized countries (NICs) and the collapse of
the import-substitution industrialization (ISI) model of development has
transformed traditional patterns of trade. Less developed countries no
longer export just raw materials while manufacturing exclusively for the
domesitic market behind high tariff barriers. Instead, a great many
workers in the Third World now produce goods that compete directly
with those formerly manufactured only in advanced economies. Data
illustrating the increase in less developed country imports in the United
States is presented in Table 2. In many leading-edge industries, Third
World workers have productivity levels that are equal to or greater than
that of their counterparts in the industrialized countries [Shaiken, 1990].
As firms in the developed world begin to compete with goods produced
by low-paid and easily-replaced hands, they are frequently forced either
to drive down wages or exit in search of a cheaper labour force elsewhere
[Sassen-Koob, 1984; Walton, 1985; Fernandez-Kelly & Garcia, 1988]. In
the present phase of the international division of labour, the denial of
162
workers' rights in the Third World may well adversely affect the
working conditions and competitiveness of labour in the advanced
societies.
Table 2: Increase in United States manufactured imports by country
and region of origin, 1980-88
Place of origin
Per cent increase
1980-88
Total world
170
Developed world
Japan
EEC
143
184
134
Developing world
Mexico
Brazil
Hong Kong
Korea
Singapore
Taiwan
China
Asian NICs
240
296
338
116
386
342
262
915
259
This new economic reality, in which the rapid internationalization of
capital erodes the bargaining power not simply of workers but also of
national governments, has elicited two opposing views. Neo-classical
economists have argued that interfering with the free play of market
forces through the imposition of labour standards undercuts the possibilities for Third World development since an abundant and unprotected
labour supply is their only comparative advantage [Fields & Wan, 1986;
Lim, 1990]. According to this perspective, in the long run the unhindered
play of market forces will stabilize into a global economic regime in
which nations trade freely and fairly based on their respective comparative advantages. The reply of neo-institutionalists has been that
unrestricted global competition leads to a downward spiral of wages and
working conditions. In this scenario, workers, employers and governments all lose; increased worker discontent leads to political instability
in both the Third World and in advanced countries, while declining
wages generate an international chain reaction of market contraction and
under-consumption [Kochan & Nordlund, 1988; Castells & Portes, 1989].
Predictably, this debate pits employers against workers within
countries. Less predictably, it has also placed developed countries in the
Alejandro Partes
163
unaccustomed position of favouring regulation of the international
economy while developing nations — long champions of greater trade
control;; — embrace the doctrine of laissez-faire and free market allocation. Yet, both proponents and opponents of international labour
standards tend to assume that the diffusion of regulations from advanced
nations to the Third World will have the effect of homogeneously upgrading and stabilizing working conditions. Indeed, many advocates
sincerely believe that the implementation of legislation to facilitate trade
union organizing, enforce a minimum wage and maintain protections in
the workplace will predictably lead to constraining employers' practices
everywhere in the same manner.
The empirical evidence tells a different story. It questions current
assumptions about the consequences of enactment of "advanced" labour
standards in less developed economies. Focusing on the characteristics of
activities taking place outside the pale of state regulation in the Third
World., I address first some aspects of the relationship between labour
standards, the informal economy and national development. Second, I
explore the relationship between international labour standards and the
economic strategies of Third World countries. Finally, I present some
proposals for an alternative international labour regime and discuss its
viability.
II. Labour standards in the Third World
Many Third World nations already have labour legislations which, on
paper at least, have little reason to envy those of the most advanced
countries. Issues of job security, accident protection, unemployment
insurance, old-age pensions, rights to unionization and grievance procedures are meticulously legislated in many Third World codes. In part,
these standards reflect years of working-class mobilization and struggle.
However, they are also the product of ideas, values and practices diffused
from the industrialized world. This diffusion has led to a profound
disjuncture in the condition of Third World workers. Imported labour
standards have had significant consequences in economic and social
reality, but they are generally not those that were originally intended.
The fundamental weakness in the application of protective legislation
in Third World nations is the existence of a large mass of surplus labour.
In this context, firms face the dilemma of observing regulations and thus
being saddled with costly and inflexible labour arrangements, or trying
to by-pass them. Competitive pressures generally lead firms to settle for
164
a combination of both types of practices [Beneria, 1989; Bromley, 1978].
In labour-surplus economies, the introduction of extensive labour regulations leads inevitably to the rise of an informal sector. Although
commonly characterized as a set of "survival" strategies by the very poor,
the informal sector in Third World countries is far more complex and
includes as well the strategies of modern firms to cope with State-imposed
constraints.
A symbiotic relationship thus emerges between the employment needs
of vast sectors of the population and the need of firms to meet competitive pressures by avoiding imported and frequently unrealistic rules. The
specific relationship between informal and formal production processes
is determined by the scope of State regulations, the requirements of
modern firms and the characteristics of the labour force. In general,
enterprises in less developed countries make use of unprotected labour
through a complex set of arrangements which include direct hiring of
informal subcontractors and suppliers, the use of intermediaries and the
practice of hiring "temporaries" on a casual basis [Beneria & Roldan,
1987; Birkbeck, 1979; Davies, 1979].
Although well-concealed from public view and, most certainly, from
the record-keeping mechanisms of the State, informal labour practices by
formal firms have represented a key factor increasing their flexibility and
allowing them to overcome the constraints of detailed regulations [Portes
& Walton, 1981]. The main outcome of this process is the segmentation
of the working class into a relatively high-paid and protected minority
and a mass of unprotected workers occupied in manifold informal
arrangements. This situation appears to some as a sign of the continued
existence of a dualistic economy segmented between those "in" and those
"out" of the modern sector [Tokman, 1982; PREALC, 1981].
In reality, the underutilization of labour by the modern sector is, in
many cases, more apparent than real. The recent empirical literature
documents a number of instances in which the "problem" is not the
absorptive capacity of modern industry but, rather, the ways in which it
utilizes labour in order to by-pass existing State rules. A dense network
of formal-informal productive relations is characteristic of Third World
economies with extensive regulations and suggests, in turn, the futility of
attempting to equalize labour market conditions in the advanced and less
developed worlds on the basis of additional legislation.
Alejandro Portes
165
III. The informal economy under import-substitution
and export-oriented models of development
The consolidation of labour practices including the resistance of
modern-sector firms to hire highly protected workers, and the existence
of multiple alternative labour arrangements, helps explain the Latin
American anomaly that the informal sector has persisted and even thrived
during periods of rapid industrial growth. Both neo-classical and Marxist
theorists have predicted the inevitable demise of "marginal" economic
activities with sustained industrialization. However, evidence from the
period of rapid industrial growth in Latin America from 1950 to 1980
indicates that the informal sector actually thrived in many instances in
the context of dynamic industrial development. Table 3 summarizes the
relevant empirical data for the seven largest Latin American countries
during, this period. The pattern is unmistakable. Latin American economies expanded by a weighted average of 5.5 per cent and the regional
gross national product (GNP) quadrupled. Manufacturing was clearly the
most important element of this phase of growth, registering an unweighted average annual increase of 6 per cent between 1950 and 1975.
Unlike turn-of-the-century industrialization in the United States, the
growth of manufacturing in Latin America was accompanied by a sustained increase in the number of urban workers excluded from formal
protected employment. Industrial self-employment alone, which is
assumed to disappear as modern firms drive artisanal production out of
existence, remained a stable proportion of the labour force. The selfemployed continued to represent approximately one-fifth of manufacturing workers with their absolute number growing by 1.8 million.
According to estimates by the ILO's Regional Employment Programme
for Latin America and the Caribbean (PREALC), informal employment
declined only four percentage points, from 46 to 42 per cent of the
economically active population (EAP) of the region during this 30-year
period [PREALC, 1982]. Other figures, based on exclusion of workers
from social security coverage, put the 1980 figure at more than 50 per
cent of the Latin American EAP [Portes, 1985].
The informal economy that grew in tandem with import-substitution
industrialization in Latin America was not homogeneous, but featured
distinct types of activities. In terms of their functions, at least three types
of informal "sectors" could be distinguished. First, there was an informality of "survival", most visible and best publicized, whose sole function
was the physical reproduction of those involved. Invented selfemployment at the margins of the urban economy such as begging, shoe
166
Table 3: Latin America: Segmentation of the economically active population (EAP),
1950-80
Country
Year
GNP"»
Argentina
1950
1980
Brazil
Informal
workers
Per cent
of urban
EAPb»
Informal
workers
Per cent
of total
EAPb»
Selfemployed
Per cent
of total
EAP bW
12.9
31.3
21.1
23.0
22.8
25.7
7.8
16.7
1950
1980
10.0
59.2
27.3
27.2
48.3
44.5
28.6
33.7
Chile
1950
1980
3.4
7.7
35.1
27.1
31.0
28.9
22.4
18.6
Colombia
1950
1980
2.5
9.5
39.0
34.4
48.3
41.0
23.4
18.9
Mexico
1950
1980
10.0
44.2
37.4
35.8
56.9
40.4
37.4
23.2
Peru
1950
1980
2.2
8.3
46.9
40.5
56.3
55.8
40.2
Venezuela
1950
1980
2.4
8.3
32.1
20.8
38.9
31.5
28.8
31.8
Latin America
1950
1980
51.8
190.9
30.8
30.3
46.5
42.2
27.3
28.3
Notes:
.
'' Gross national product in billions of 1970 dollars.
' The sum of unpaid family workers, domestic servants, and the self-employed minus
professionals and technicians.
c)
When unavailable, 1970 figures have been substituted for those from 1980.
b
Sources: PREALC [1982]; Wilkie & Perkal [1985].
shining and casual street vending represent examples of these activities.
Second, there was a vast sector of independent informal enterprises catering to the needs of the low-income urban population. These activities
stretched all the way from the production and sale of foodstuffs to the
repair and reconditioning of TV sets, other appliances and even automobiles [Roberts, 1976, 1989; Lanzetta de Pardo et al., 1989]. I have
argued elsewhere that this sector played a central role in Latin American
economies by lowering living costs for the urban working class and facilitating access to consumption of modern items that otherwise would be
outside its reach [Portes & Walton, 1981]. Indirect benefits in terms of
lower formal sector wages and greater political stability trickled up to the
owners and managers of large formal firms.
Alejandro Partes
167
Third, there was a sector of informal enterprises subordinate to
formal iirms through various subcontracting arrangements which helped
supply the high-income market. For example, informal collectors of
recyclable wastes such as paper, glass and plastics formed part of integrated supply chains which furnished a significant proportion of raw
materials to industrial concerns producing goods for the middle class
[Birkbeck, 1979; Fortuna & Prates, 1989]. The same was true of a vast
underground network of homeworkers and shanty-town sweat-shops producing everything from clothing to auto parts in subcontracting chains
controlled by the larger firms [Beneria & Roldan, 1987; Roberts, 1989;
Lomnitz, 1977, 1988]. Although best concealed from public view, this
sector played a central role during the period of import-substitution
industrialization. As seen above, these subcontracting chains benefited
directly the large formal producers by increasing their labour flexibility
and lowering their costs.
The rapid shift towards a different model of development during the
1980s led to significant transformations both in the character of the
informal economy and in its functions. Under strong pressure from international finance agencies, Latin American countries vied with each other
to lower tariff barriers, privatize state enterprises and encourage exports.
Seeking new forms of insertion into the world market, governments
worked to improve productivity and efficiency in the most internationally competitive industries while liberalizing tax and labour rules to
attract foreign capital. The latter set of policies had immediate consequences; for the character of the domestic informal economy.
Under export-oriented industrialization, all three forms of
informality described above have persisted, but the third (subcontracted
production) has experienced a significant change. N o w homeworkers and
inform;il sweat-shops under subcontracting arrangements produce not
only for the domestic market but, increasingly, for export. Recent studies
document a number of instances of this remarkable "internationalization"
of the Latin American informal sector. In Guatemala, for example, PerezSainz [1993] has described how indigenous garment producers in the
villages surrounding the capital city have been transformed into contractors for various California firms which advance them raw material
and capital for the acquisition of sewing machines. In one shop after
another in these Cakchiquel Mayan villages, women sew shirts and
blouses for the California market receiving, in return, a very low piece
rate without any social security protection.
Similarly, in his study of the Jamaican canned fruit export industry,
Robotham [1992] traces a chain of casual subcontracting linking the larger
firms with small informal packers and fruit collectors. The end result is
168
a product competitive because of lower price, not necessarily quality, in
international markets. The drive towards increasing exports has led state
enforcement agencies to turn a blind eye to systematic violations of
existing labour codes by exporting firms [Walton, 1985; Fortuna &
Prates, 1989]. This practice may be called "piecemeal" informalization in
so far as it does not entail the blanket removal of workers' protections
from the existing labour code, but a pattern of selective omissions. In
countries like Chile, however, these violations are frequent enough to
account for the proliferation of informal enterprises and for their
employment of a large share of the urban labour force. As a recent
analyst noted:
There are plenty of "formal" companies, operating as legal entities and
paying taxes, which still operate with "informal" labour relations. They employ
workers without legal contract, a widely prevailing practice in small and medium
firms. This is particularly easy to do in Chile because labour legislation imposed
in 1979 (and minimally modified in 1991) permits it, and the State plays a weak
role in the regulation of labour markets [Diaz, 1993, p. 13].
A still more important strategy adopted by Latin American governments is the creation of Special Production Zones (SPZs) to attract
foreign firms interested in the production of certain goods for export to
developed markets. What is "special" about these zones is the removal of
taxation and labour controls applicable to the rest of the national
economy. Thus, instead of seeking greater flexibility in the piecemeal
violation of existing rules, foreign firms secure it wholesale under the
SPZ regime. National States "informalize" themselves vis-a-vis their own
laws in their quest for even more foreign investment. The end result of
this process is not a larger informal sector as under the piecemeal violation strategy, but the breakdown of the formal-informal distinction.
When the State ceases to protect workers and regulate key aspects of the
labour contract, employment in all firms approaches the conditions
previously labelled "informal" [Castells & Portes, 1989].
The Dominican Republic offers a good example of this situation.
Through the active promotion of SPZs in the 1980s, the Dominican
Republic managed to attract more than 400 assembly plants employing
over 110,000 workers [Schoepfle & Perez-Lopez, 1989; Itzigsohn, 1993].
By the early 1990s, manufacturing for export comprised 43 per cent of
total industrial employment, up from just 5 per cent in 1974. Yet, the
massive increase in export industrial production and employment was not
accompanied by any significant improvement in the condition of the
labour force. Instead, wages declined steadily, forcing the entry of other
family workers, primarily women, into the labour force.
Alejandro Portes
169
As seen in Table 4, wages in the manufacturing sector declined by
50 per cent between 1977 and 1991. The same decline occurred in the
export-oriented sector and in public employment. Meanwhile, selfemployment increased by approximately 20 per cent. Indeed, social
security protections in formal sector industries became so weak under the
new model of development that many workers preferred to remain as
self-employed artisans and informal shop owners rather than seek jobs in
the burgeoning SPZ sector [Lozano, 1994; Itzigsohn, 1993].
Table 4: Evolution of the urban labour market in the Dominican Republic,
1977-1991
1977
1979
1981
1983
1985
1987
1989
1991
33
33.3
34.5
35.3
35.0
39.1
40.0
41.9
56
58.8
59.2
60.7
63.8
64.6
65.0
64.2
Manufacturing wages''
149
142
129.4
128.4
92.1
99.1
87.6
75.6 e)
Export zone wages''
161
155
123.2
159
74.0
80.8
88.5
84.8 e)
Public sector wages''
57
83.7
85.1
74
72.3
68.0
54.1
41.7 e)
Self-employment d ' (%)
20
16.2
18.5
17.6
—
—
—
25.2
Unremunerated family
workers:1" (%)
1,8
1.6
2.4
2.2
—
—
—
—
14
18.6
20.7
21.7
25.7
25.6
25.6
26.8
Labour force participation"'
(%)
b
U r b a n EAP > (%)
O p e n unemployment' 1 '
Notes:
(%)
* National figures as a percentage of the total population.
Urban economically active population as a percentage of the national EAP.
c
> In constant Dominican pesos of 1977.
^ In the capital city.
<> To August 1991.
b)
Source. Fortes et al. [1994, Table 7] based on Dominican census figures.
Wholesale informalization under the new export regime approaches
the unrestricted labour market conditions advocated by neo-classical
economists and other defenders of laissez-faire trade. So far these policies
have not led to a significant reduction in poverty as a consequence of
increasing labour demand in any Latin American country [Diaz, 1993;
Castells & Laserna, 1989]. Instead, benefits have trickled up to corporations stnd governments in terms of higher profits, greater management
flexibility and a less deficit-ridden balance of payments. However, those
who oppose these policies will be well advised to remember the
experience of Latin American countries during the period of importsubstitution industrialization. Pushing for the adoption of a panoply of
170
imported labour standards will not guarantee their observance. More
likely, such measures will lead to the re-enactment of underground labour
practices by employers, encourage governments to increase the practice
of piecemeal informalization and segment domestic labour markets anew.
Alternative policies must be sought that take effectively into account the
specific conditions of less developed labour-surplus economies.
IV. An alternative international labour regime
For those who assume that the pattern of wholesale informalization
under the new export model of development will decisively tip the
balance against labour rights, the question is how to pursue measures
sensitive to the underlying social realities. I begin this quest by noting
that the dilemma between workers' rights and firms' need for flexibility
is a false dichotomy. In reality, the two may co-exist through a flexible
and realistic application of labour standards.
The first step is to tailor workers' rights to conform more closely to
the situation that prevails in less developed countries. Not all labour
rights are equally important, nor do they all exert the same influence
upon the labour market. Various items that are commonly included under
labour standards can be broken down into four distinct categories (see
Table 5). Basic rights are the least likely to create labour market rigidities
and lead to the type of labour market segmentation typical of Third
World economies with elaborate labour protections. Furthermore, these
are the standards where an international consensus seems already to exist
and which are therefore most amenable to international monitoring.
Agreement on civic rights is less broad, yet the standards listed under
this category have come to be accepted as consensual by democratic
nations. In addition, the extension of civic rights can encourage the political bargaining and social pacts that many observers believe are a necessary precondition for successful national development. The two middle
categories — survival and security rights — depend upon local conditions
and do not lend themselves readily to fixed international standards. These
rights are best left to bargaining among workers, employers and governments, once basic and civic rights have been fully implemented.
With the exception of the provision on minimum standards for
wages and occupational health and safety, the categories of basic and civil
rights are identical to the ILO's five fundamental workers' rights listed
in Table 6. Even the exceptional category (item 5 in Table 6) contains a
clear element of flexibility signified by the word "acceptable". Levels of
Alejandro Partes
171
Table 5: Types of labour standards
Type
I.
Examples
Basic rights
Rights against use of child labour
Right against involuntary servitude
Right against physical coercion
n.
Survival rights
Right to a living wage
Right to accident compensation
Right to a limited work week
m.
Security rights
Right against arbitrary dismissal
Right to retirement compensation
Right to survivors' compensation
IV.
Civic rights
Right to free association
Right to collective representation
Right to free expression of grievances
Source: Fortes [1990, Table 10-2].
Table 6: ILO fundamental worker rights incorporated into United States trade law
1.
The right to associate with other persons, ILO Convention No. 87, Freedom of
Association and Protection of the Right to Organize Convention (1948).
2.
The: right to organize and bargain collectively, ILO Convention No. 98, Right to
Organize and Collective Bargaining Convention (1949).
3.
The right to avoid forced or compulsory labour, ILO Convention No. 105,
Abolition of Forced Labour Convention (1957).
4.
The right for children to avoid industrial employment, ILO Convention No. 138,
Minimum Age Convention (1973).
5.
The right to acceptable conditions of work with respect to minimum wages, work
hours, and occupational safety and health, ILO Convention No. 1, Hours of Work
(Industry) Convention (1919), ILO Convention No. 131, Minimum Wage Fixing
Convention (1970), ILO Convention No. 155, Occupational Safety and Health
Convention (1981).
Source: Lawyers Committee for Human Rights [1991, pp. 78, 79].
172
remuneration, work hours and occupational safety can obviously not be
the same everywhere. Tailoring them to local conditions again points to
the need for bargaining between employers, workers and governments,
supported by the observance of civic rights (item IV in Table 5 and Items
1 and 2 in Table 6).
To their credit, lawmakers in the United States have used the ILO's
fundamental workers' rights as the criteria for trade preferences granted
to less developed countries. However, the international application of
these standards remains flawed in a number of ways. Determinations over
labour conditions in less developed nations are highly politicized and
often unconnected to the actual level of workers' protection in a given
country. More importantly, the unit that is judged to be in violation or
compliance with particular labour standards remains the national State
when, frequently, violations take place at the level of the firm.
Raising worker rights to the level of the World Trade Organization
(the designated successor of the GATT) could be an important step
towards addressing these problems. Under a social dumping clause,
judgement over working conditions would be settled by W T O dispute
mechanisms, reducing some of the arbitrariness of these decisions. A key
step forward would be the application of labour standards to companies
rather than countries, which would reduce the incentive for Third World
governments to attract foreign investment through the piecemeal nonobservance of basic labour rights. Removing these rights from competition between nations by applying them universally across industries
could also tone down the current volume of the debate between less
developed and industrialized nations. The primary focus of international
regulations should be on those labour standards for which a moral global
consensus already exists and on sanctions targeted on the direct violators,
in particular companies whose assets and operations in the First World
could be put in jeopardy by their unscrupulous Third World practices.
In addition to these measures, there is a second set of policies which
can strengthen the position of labour in Third World countries and hence
serve as a bulwark against the "downward spiral" anticipated by critics
of the current model of development. Ironically, these policies involve a
most capitalistic goal, namely the promotion of independent small enterprises. Spearheaded by the writings of Piore and Sabel [1984], the concept
of flexible specialization has gained considerable attention in the literature
on industrial development. These authors have drawn on the experience
of Emilia-Romagna in central Italy and other "industrial districts" to
highlight the potential for growth of small, technologically advanced
firms linked through flexible networks [Capecchi, 1989].
Alejandro Portes
173
The development of high-tech small enterprises has three positive
consequences for the strengthening of labour standards. First, it can
alleviate the downward pressure on wages and work conditions as the viability of small firms ceases to depend upon the vulnerability of labour;
second, workers in new firms benefit from apprenticeship opportunities
and training; third, the development of communities of small producers
gives workers in larger formal industries the chance to shift into this
sector, strengthening their hand vis-a-vis managerial power. The development of a dynamic small-scale sector can thus represent an efficient means
to promote labour standards by giving workers the opportunity to make
independent use of their energies and ingenuity.
Ai: first glance, this argument would seem to reinforce the position
of laissez-faire advocates, such as Peruvian economist Hernando de Soto
[1989], concerning the advantages of removing State intervention from
the economy in order to "free" popular entrepreneurial energies. In fact,
the proposal runs exactly in the opposite direction because the emergence
of a dynamic small-scale sector depends on direct state support. The
growth of a small business sector out of the informal sector is by no
means automatic for the obvious reason that, except in rare circumstances, entrepreneurs lack the capital, technological know-how, and
organizational resources to implement anything beyond sweat-shop or
homework production [Capecchi, 1989].
The experience of central Italy and all other industrial districts in the
literature indicate that it is not the absence of State intervention, but its
sustained presence that has been necessary to lead experiments of "flexible
specialization" to success. State assistance need not come from central
governments, but can be more effectively provided by local agencies. It
involves, at a minimum, training assistance, flexible access to credit,
transportation facilities and support of cooperative efforts [Benton, 1989;
Brusco, 1982].
Combined with the judicious implementation of a package of internationally monitored labour rights, an innovative set of policies in
support: of dynamic small enterprise can go a long way toward strengthening the rights of workers, avoid the segmentation of the labour market
and transform today's informal economies of survival in the Third World
into vehicles for sustained development.
174
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and developing countries'
Trilok Singh Papola
Adviser, Labour, Employment
and Manpower Planning Commission
Government of India
New Delhi
India
I. Introduction
Labour standards aim at ensuring social justice for workers, in terms
of basic human rights, humane conditions of work, a measure of employment arid social security, and fair and special treatment with respect to
age, sex and any natural, physical or social handicap. In so far as they
constitute the minimum conditions of working and living in a civilized
society, these standards can only be absolute and universally applicable.
They could be set by the international community for adoption and
application by different countries, or they could be determined by the
individual countries, keeping the basic, universally acceptable principles
in view. In today's world, with a continuous and rapid flow of ideas,
commodities and resources, including human resources, among countries,
the case for universal acceptance of basic standards has become more
pressing and urgent.
At the same time, labour standards have come under pressure and
criticism in recent years, particularly from the industrialized countries in
the wake of the difficult economic situation and high rates of unemployment faced by many of them. The argument used to attack labour
standards is in the nature of a direct challenge to the concept of
traditional social guarantees in the form of protection of wages, hours of
1
The views expressed in this article are personal and do not necessarily reflect the
position of the Government of India.
178
work, social security and security of employment. They are seen to
produce distortions in the labour market leading to negative effects on
the productivity of enterprises and the economic performance of a
country. The logical conclusion of this line of argument would be not
merely that labour standards should be more flexible but that there
should be no labour standards at all. In this context, the call by some
industrialized countries for the inclusion of a "social clause" which, inter
alia, would incorporate compliance with international labour standards
into trade relations, sounds rather opportunistic and contradictory.
In comparison, the demand for greater flexibility in labour standards,
frequently voiced by the developing countries in international labour
conferences and other fora, does not seem to challenge the very concept
of social guarantees: it only asks for the setting up and application of
standards in a flexible manner so that compliance is within their capacity.
It does not violate the spirit of the Declaration of Philadelphia regarding
full applicability of its principles to all people everywhere, but emphasizes "due regard to the stage of social and economic development
reached by each people" in framing them, as stated in the Declaration.
77. The need for flexibility in labour standards
An element of flexibility is required to be built into the instruments
— Conventions and Recommendations — adopted by the International
Labour Conference — to give them a "variable content" to suit varying
conditions in different countries. At the same time, the Conference is not
required to set "regional" standards, a subject which has been a matter of
some debate. If the instruments have to be framed with due regard to the
"stage of social and economic development", there does appear to be a
case for different standards for different "regions" or groups of countries
classified on the basis of levels of development. It must be recognized,
however, that the capacity of a country to comply with particular
standards cannot be assessed on the basis of a single indicator. The ILO
Constitution itself (Article 19(3)) recognizes "climatic conditions, the
imperfect development of industrial organization, or other special circumstances [that] make the industrial conditions substantially different" as the
factors to be taken into account in the case of individual countries when
framing Conventions and Recommendations of general application. It
would nevertheless be extremely difficult to distinguish country
groupings by applying "relevant" multiple criteria that could be universally acceptable.
Trilok Singh Papola
179
Furthermore, the very principle of minimum universal standards
considered essential in a civilized world of work would get substantiallydiluted, if not destroyed, once the norms are fixed on the basis of
prevailing conditions. It may, therefore, not be practical or even desirable
to set "regional" standards. But it is desirable to provide enough
flexibility in the application of universally-set standards to suit the
conditions and capability of individual countries and, at the same time,
provide a mechanism for their progressive, full and universal application.
In emphasizing the need for variability and flexibility in the application of labour standards, the developing countries have generally
advanced the following arguments. First, a large number of standardsetting instruments, particularly Conventions, were adopted without their
participation, at a time when most of them were not yet independent;
these instruments are too rigid and do not take sufficient account of their
special problems. Second, financial constraints prevent them from effective participation in the process of framing instruments even now. Neither
problem is insurmountable. They can be taken care of by looking afresh
at the old Conventions and revising or amending them, and by facilitating greater participation of developing countries in the processes of
instrument-framing through technical cooperation. The broader issue that
the economic and social conditions of a country may constrain full
application of the standards needs to be examined in realistic terms,
however. Flexibility in the text and manner of application of Conventions should be provided wherever considered necessary.
The case for varying the content, and the extent and manner of
application, of a particular labour standard by countries' levels of
development rests primarily on the costs of application — direct and
indirect as well as private and public. Application of standards relating to
wages, conditions of work and social security, for example, would result
in a rise: in production costs in private enterprises and higher public costs
in administering the related legal provisions. An increase in labour costs
due to application of the standard could have an adverse effect on employment, investment and production, involving an indirect social cost.
Various standards could be reviewed and new ones set, bearing in mind
such costs in relation to the economic capacity of different countries.
Many ILO Conventions already provide some flexibility and permit
partial coverage or implementation of parts of a Convention in fulfilment
of the obligation arising out of its ratification. The Social Security
(Minimum Standards) Convention (No. 102), for example, can be ratified
by complying with the obligation in respect of three out of 10 branches
of social security specified in the Convention. A State may also avail
itself of a temporary exception with regard to the persons covered or
180
benefits provided. The Minimum Age Convention (No. 138), does not
specify a mandatory minimum age, which can be as low as 12 years in
certain circumstances. Its coverage can also be limited by excluding
certain categories of employment and work (for example, employment
in the family business or home-based work) where its application
involves special and substantial problems.
A number of countries have made use of the partial implementation
provisions of the Social Security Convention. In fact, only 38 countries
have ratified the Convention; practically all of them have implemented
only parts of the package of minimum social security benefits provided
under the Convention; and only one-half are developing countries. The
Minimum Age Convention, in spite of the flexibility allowed, has been
ratified by only 46 countries.
Cost cannot, however, be the sole criterion for application of
standards and its importance should vary depending on the nature and
objective of the standard. There are certain inhuman social practices,
which may help to maximize private profit and which would involve
substantial public cost to eliminate. Yet their continuance cannot be
accepted in a civilized society. Use of forced labour, suppression of the
rights of expression and organization, unduly long hours of work endangering workers' health, employment in hazardous occupations and
activities without adequate safeguards, employment of children in
occupations and activities which cause permanent damage to their
physical and mental health, and discrimination on the basis of certain
natural and social characteristics are among the malpractices which any
civilized society would like and should endeavour to eliminate. International labour standards with regard to these subjects cannot be made
highly variable and flexible if some minimum norms of civilized work
are to be guaranteed. In exceptional circumstances, where the economic
and social structure makes it extremely difficult to implement such
standards with immediate effect, a reasonable phasing and time limit
could be stipulated.
III. Enforcement and the informal sector
Quite often, difficulties in application of certain labour standards,
particularly in developing countries, arise not so much from the direct
costs of compliance but in ensuring effective enforcement due to the
nature of production organizations. For example, standards are often set
with factory-type production organizations in mind and with the assump-
Trilok Singh Papola
181
tion thai; most workers are regular wage and salary earners. Application
of standards is also easier in these conditions. But such standards are
unsuitable for, as well as difficult to implement in, unorganized forms of
production which take place largely on an apparently self-employed basis.
Economic structures of developing countries are characterized by the predominance of this type of production.
In practice, pressure from organized unions of workers and easier
application of protective legislation have to a large extent ensured
reasonable standards in the organized segments of the workforce in
developing countries, particularly with regard to conditions of work,
employment and social security. This is the case even where countries
have not formally ratified relevant ILO Conventions on these subjects.
However, workers in the unorganized segments, constituting the overwhelming majority in most developing countries, are in greater need of
the guarantees stipulated in these standards. They are generally untouched
either by the Conventions or by legislative and other mechanisms of
protection evolved by countries under the influence of these
Conventions.
The question of standard-setting for the "informal sector" has consequently acquired special significance in recent years. The conventional
assumption of development theorists, which is also implicit in most ILO
Conventions, is that the informal sector is a transient phenomenon.
Economies will gradually be transformed into integrated entities consisting predominantly of formal and relatively large-scale organizations
employing workers mostly as regular wage and salary earners. However,
this has not turned out to be valid in the experience of developing
countries. Most workers continue to work as self-employed and irregular
wage-earners, and their proportion is in fact increasing rather than
declining. In this context, it is quite understandable if a degree of
frustration and apathy towards international labour standards has
developed among developing countries. The situation in this regard is
rather paradoxical: the standards are relevant and suitable mainly for the
formal sector, where compliance is easier and is mostly already in
practice; they are not relevant and suitable and are more difficult to apply
in the informal sector where they are most needed.
This does not mean that the exercise of standard-setting has lost its
utility. It only points to the need for evolving minimum standards that
are easier to implement for employment in the informal sector. National
governments and international fora like the International Labour Conference have, by and large, failed in this direction. The dilemma is a real
one: standards as they exist in various Conventions are generally not
suitable and are difficult to apply in the informal sector, but if standards
182
are set very much lower for this sector, they may not serve the desired
purpose. Nevertheless, it is important that crucial areas of concern are
identified and implementable norms and appropriate mechanisms are
evolved to provide minimum guarantees to workers in the informal
sector. Protection against risk to health and life, and a minimal measure
of social security through the creation of public or collective funds, may
be the areas of priority action. Such measures need not necessarily be on
the basis of legislation. Alternative self-governing and cooperative
mechanisms could be used and non-governmental organizations and trade
unions could be involved in administering the benefits.
For the purpose of evolving and applying suitable standards for the
informal sector, it is not necessary for the ILO first to set standards
through Conventions and to ask countries to ratify and implement them.
The ILO's efforts should be supplemented by the countries themselves
in devising ways to ensure minimum guarantees in crucial areas of risk
faced by informal sector workers. In fact, given the wide variety in
conditions in the informal sector and in the degree of legislative and
other protection provided to workers in different countries, action should
preferably be initiated at the individual country level. The ILO may
provide expertise and exchange of information, as well as other assistance
wherever necessary, to facilitate such action. To begin with, ILO advice
could be given in the form of guidelines and recommendations and these,
along with the experiences of different countries, could subsequently
form the basis of Conventions.
The above approach to formulating labour standards for the informal sector may be better appreciated if it is recognized that the
ratification of ILO Conventions is not the only mechanism to guarantee
minimum labour standards. The number of ratifications by a country is
not necessarily a true reflection of the state of labour conditions.
Ratifications are also not necessarily a function of a country's level of
development, though labour standards are generally better observed in
developed countries than in developing ones. If the United States has
ratified only 11 ILO Conventions and India has ratified 36, that by no
means indicates that labour conditions are worse in the United States
than in India. Also, a Convention may not be ratified for some technical
reason, yet the relevant standards may have been met through national
legislation and practices. For example, India's non-ratification of the
Freedom of Association and Protection of the Right to Organize Convention (No. 87) and the Right to Organize and Collective Bargaining
Convention (No. 98) does not mean that such rights do not exist in law
and practice in India. Conventions are often not formally ratified, even
though their basic provisions are implemented, for the reason that the
Trilok Singh Papola
183
ILO supervisory machinery (consisting of the Committee of Experts on
the Application of Conventions and Recommendations) sometimes
adopts too legalistic an approach.
Formal ratification is important in so far as it puts an obligation on
a country to comply fully with the standards stipulated in the Convention. However, the formulation of such standards should be not only a
truly and effectively participatory process, but also an evolutionary one
based on the study of the situation and experiences, particularly in the
developing countries. At the same time, it is necessary to give due
recognition to the genuine efforts of individual countries to provide the
guarantees aimed at in the Conventions without formally ratifying them.
Experiences of such efforts could be fruitfully used in setting and revising
the standards as well as in laying down mechanisms for compliance.
IV. Concluding remarks
The prevailing international economic situation, with an emphasis
on enthronement of markets as engines of growth, poses a danger to the
pursuit; of social guarantees through instruments such as international
labour .standards. The proposition that labour standards distort labour
markets, resulting in inefficiency, needs to be carefully examined. Empirical evidence does not necessarily support this proposition and, even if
it is partially valid, economic gains must be weighed against social costs.
At the same time, international differences in productivity levels and
incomes warrant a certain degree of flexibility in the application of
standards across countries with different levels of development. In this
context, the fact that developing countries have not been able to achieve
the same extent and level of labour standards as the industrialized
countries must not be used as a weapon for denying them the benefits of
trade and perpetuating international disparities. More important, however, is the need for flexibility in relation to the structure of employment
in different countries. Here, evolving minimum standards for application
in the informal sector, where most workers in developing countries are
employed, should form a priority item in the standard-setting agenda at
the international and national levels.
Macro-sweating policies
and labour standards
Alice H. Amsden
Ellen Swallow Richards Professor of Political Economy
Department of Urban Studies and Planning
Massachusetts Institute of Technology
Cambridge, Ma.
USA
I. Introduction
Not long ago the issue of labour standards in economic development
was fairly straightforward: employers and right-of-centre social scientists,
especially mainstream economists, tended to be against them; labour and
its left-of-centre allies tended to be for them.1 As the twentieth century
drew to a close the labour standards issue became more murky. Conservative views stayed the same, but a geographical division developed
between the South and "neo-institutionalist" or "internationalist" labour
advocates in the North (mainly the United States). Low wages (in
relation to productivity) and minimalist labour standards in lateindustrializing countries were regarded in the North as significant factors
behind the deterioration of Northern labour standards and real wage
1
The United States Department of Labor portrayed the polarization as follows:
"Beyond a minimum list of labor standards, the neo-classical view suggests that government should leave the setting of labor standards to the 'free' labor market. According
to this perspective, raising labor standards prematurely introduces economic distortions
that retard income and job creation. The neo-institutional view, by contrast, sees labour
standard; as tools that may influence the social process of development in positive or
negative ways, depending on how policy-makers apply them" [Herzenberg & PerezLopez, 1990, p. 4]. The positive potential of labour standards lies in their ability to raise
productivity by improving the motivation and physical capacity of workers, and to raise
aggregate demand by increasing labour incomes.
186
growth. Therefore, a more militant posture towards late-industrializing
labour standards began to be espoused.
Writing during the debate on NAFTA (North American Free Trade
Agreement) for the Economic Policy Institute (EPI), the most vocal
left-leaning think-tank on the standards issue, Richard Rothstein,
exhorted: "Mexico should increase its minimum wage, child labor, and
hours-of-work standards to US levels. This harmonization should take
place gradually, over a ten-year period" [Rothstein, 1993a, p. 3; 1993b].
Labour standards themselves came to be interpreted more broadly, to
include wage increases commensurate with productivity increases
[DeMartino & Cullenberg, 1995]. The teeth in the debate took the form
of linking the South's access to Northern markets to improving its labour
standards. In 1994 France and the United States agreed to include international labour standards on the agenda of GATT negotiations.
International labour solidarity was not seen by Northern advocates
as being compromised by tougher Southern labour standards. To the
contrary, tougher Southern standards were regarded as favourable to
labour in both the North and South. Northern workers were supposed
to benefit from standards that increased the price of late-industrializing
countries' exports and that reduced their attractiveness as low-cost
production sites for Northern investors. Meanwhile, Southern workers
were supposed to benefit from higher wages and better working conditions, leading to increases in aggregate demand and employment. If, the
argument ran, Third World workers did not receive the fruits of their
labour, the result would be global stagnation. According to an EPI
publication by Walter Russell Mead: "Continued economic growth in a
liberal trading order requires increased consumption and higher real
wages among the newly productive workers of the developing world"
[Mead, 1990, p. 39].
Are these arguments for tougher Southern labour standards persuasive, or are they a thin veil for protectionism? Should neo-institutionalists
in the South accept them, or be placed in the awkward position of
resisting higher labour standards? These are the questions analysed briefly
in this essay. Tying real wage increases to productivity gains is taken as
the exemplary labour standard, but the arguments presented would be the
same in principle for raising environmental or other non-wage standards
to Northern levels.
Alice H. Amsden
187
II. Wage-led versus profit-led Southern
manufacturing growth
Assuming that productivity in the South is rising rapidly due to
technology transfer (see the discussion in Hikino & Amsden [1994]),
what is the likely effect on the South's growth rate of manufacturing
output of tying real wage increases to productivity increases? The answer
depends on whether the late-industrializing economy is "wage-led" or
"profit-led", as distinguished by Lance Taylor [1988].
The overwhelming number of developing countries are small
(measured by population or gross domestic product) and therefore tend
to be "open" to international trade, meaning a large share of their output
is accounted for by exports (although only a handful of lateindustrializing countries have succeeded in exporting significant amounts
of manufactures to Northern markets). Real wage growth might increase
domestic demand, but in a small open economy the rise in domestic
demand could not be expected to offset the fall in demand from the
price-sensitive rest-of-the-world. The dynamic international competitiveness of these countries is "profit-led" — so insisting that their
gains in productivity be offset by rising real wages could be expected to
stunt their growth. Converting productivity gains into corresponding real
wage gains in their export sectors would hurt their profitability. This
would sdmost certainly reduce their investment rates and hence long-term
growth unless firms found ways to protect their profit margins and
circumvent new labour standards by means of production "speed-ups",
for instance (this paper ignores the non-trivial issue of whether tougher
labour standards can be monitored).
While productivity has certainly been rising fast in successful
late-industrializing countries, such growth has tended to be faster in some
sectors than in others [see World Bank, 1993]. Therefore, if real wages in
small, open economies were tied to the fastest-growing productivity
sectors, and impulses from these sectors led to aggregate wage increases
in excess of aggregate productivity increases, the result would probably
be inflation and corrective exchange-rate devaluations. This would present
a recurrent cycle of threats to Northern workers from low-cost Southern
goods cheapened by repeated exchange-rate devaluations.
Summing up, the Northern argument that higher labour standards
in small, open Southern economies lead to higher Southern growth rates
appears to be false and, therefore, self-serving. In 1977 the United States
Congress, supported by organized labour, decided to equalize minimum
wages in the US and Puerto Rico [Dietz, 1986]. Although this equaliza-
188
International
interdependence
tion (which came into force on 1 January 1981) was not the only cause
behind Puerto Rico's rising unemployment and economic stagnation, it
is likely to have influenced it. Singapore also experimented briefly with
a high-wage policy in the 1980s in an attempt to shift output towards
more capital- and technology-intensive industries, but abandoned it in the
face of dwindling international competitiveness.2
In theory, the Northern argument for tying real wage gains to
productivity gains makes more sense in the case of large, "wage-led"
Southern economies, which may export selectively but whose centre of
gravity remains a large domestic market (as in China or India). If
productivity goes up and real wages are forced to rise accordingly, aggregate demand may increase, leading to more investment and ultimately
higher income.
In practice, insisting that China raise wages in tandem with
productivity growth would probably make only a minor dent in its
attractiveness as a locale for foreign investment, or in its international
price-competitiveness. Total factor productivity in China's state-owned
enterprises has, in fact, been rising at about 2.5-3.0 per cent per annum,
and real wages have increased by as much (uncharacteristically), if not
more [see Jefferson & Rawski, 1994]. But this has in no way reduced the
"threat" of Chinese exports in American markets, because wages are so
low to begin with by comparison with American levels.
On the other hand, a borderline wage-led/profit-led economy like
Mexico, which is large by developing country standards (population =
90 million) but which is also fairly "open" (exports, mostly to the US,
equalled 15-20 per cent as a share of GDP in the early 1990s), would
probably collapse if forced to adopt the Economic Policy Institute's
formula of American minimum wage, child labour and hours-of-work
standards within a ten-year time horizon. The depth of depression would
most likely equal or exceed that of East Germany after the fall of the
Berlin Wall, when it adopted West German wage and exchange rates. The
costs to American taxpayers of stabilizing the Mexican economy would
probably match or exceed the costs to West Germans of unification,
making American workers worse off than before.
2
Virtually all the fast-growing East Asian economies have experienced rapid growth
of real wages as well as rapid growth of productivity, although total factor productivity
measurement has triggered a debate [see World Bank, 1993; Kwon, 1994; Young, 1994].
Real wage increases, however, have tended to lag behind productivity increases except
possibly in China's public sector (for labour productivity details in South Korea, see
Amsden [1989, Table 4.10]).
Alice H. Amsden
189
Thus, the Northern argument that higher labour standards induce
more robust growth even in large "wage-led" Southern economies appears
to be either irrelevant or insidious.
III. The North's fate
The next question to consider is how Northern labour incomes are
likely to fare if the South continues to infuse Northern technology and
raise its productivity in the absence of more militant labour standards
(including wages commensurate with productivity increases). The assessment presented thus far of how militant labour standards would impact
on the South's growth prospects dovetails with the mainstream argument.
However, the mainstream also regards Southern growth as largely beneficial (or irrelevant) for the North, whereas we would argue that for
Southern growth to impact positively on the North, "extra-market"
macro-economic policies are required that are "labour-friendly" rather
than "labour-sweating".
The mainstream argument, as articulated by Paul Krugman [1994],
for instance, is that: "Economic growth in low-wage nations is in
principle as likely to raise as to lower per capita income in high-wage
countries; the actual effects have been negligible... Contrary to popular
opinion, the economic development of the Third World does not
threaten, the First World".3 In this felicitous view not only would
militant labour standards hurt the South but their absence would also not
injure the North.
Krugman argues that, if higher productivity in the South reduces the
price of goods consumed by Northerners, then Northerners' income
rises. It, on the other hand, productivity in the South rises in tandem
with rising wages (as Krugman erroneously assumes), then simply world
income: rises.4 The hitch Krugman acknowledges is an income redistribution in the North from unskilled to skilled workers due to specialization in the North of skilled labour-intensive production and relocation
in the South of unskilled labour-intensive production; he interprets the
factor-price equalization theorem in the North in terms of two types of
3
If Charles Tilly [1995] can be taken as representative of "popular opinion", then
Krugman rightly characterizes such opinion as maintaining that First World workers (if
not all Northerners) are threatened by Third World growth (or at least "globalization"),
and that the absence of militant labour standards hurts the North.
4
See footnote 2.
190
labour rather than in terms of labour and capital. But Krugman dismisses
the importance of even intra-labour income redistribution because "in
1990 advanced industrial nations spent only 1.2 per cent of their
combined GDPs on imports of manufactured goods from newly
industrializing economies". Although foreign investment in newly
industrializing countries has been rising rapidly, Krugman makes a rough
calculation that capital export reduced the growth of the N o r t h ' s capital
stock by only an infinitesimal 0.2 per cent.
Krugman concludes by equating Northern demands for tougher
labour standards with protectionism, and leaving the fate of the N o r t h
to free trade. But while free trade alone may allow a handful of
late-industrializing countries to continue exporting manufactures to the
N o r t h , it will not necessarily help poorer developing countries to grow
or Northern workers to prosper. Moreover, the negative impact on
Northern workers of an absence in the South of protective labour
standards is cumulative. If unit labour costs in mid-technology sectors
continue to fall faster in the South than in the N o r t h , then more
Southern industries will out-compete Northern industries and more
foreign capital will flow Southward, in search of both cheaper labour and
expanding markets. In fact, the share of US imports from only Asian
late-industrializing countries, including China, increased from 8.5 per cent
in 1970 to 16.6 per cent in 1991, or about 1.7 per cent of United States
G D P [ U N C T A D , 1993].
Rising per capita income and real wages are highly desirable in the
South, but so are they desirable in the North, and in the majority of
Southern countries. Yet real wages stagnated in the N o r t h since 1973 and
they plummeted in most developing countries in the 1980s. The only
exception was rapid growth in output and real wages in East Asia; but
this region singlehandedly could not act as a global engine of growth.
The reasons behind the North's stagnation since 1973 have little, if
anything, to do with the "East Asian miracle". Although the end of a
Golden Age of economic prosperity (1945-1973) remains something of a
mystery, Northern macro-economic policies made a large contribution
to economic decline. If most of the world's workers, whether in the
N o r t h or the South, are to prosper from increasing "globalization", then
labour-friendly macro-economic policies have to be adopted. Instead,
"macro-sweating" policies have predominated.
Alice H. Amsden
191
IV. Setting macro-economic standards
According to the factor-price equalization theorem, the N o r t h
should experience falling real wages and rising real interest rates as it
specializes in more capital- and technology-intensive production. Real
wages have certainly stagnated in the N o r t h since the end of the Golden
Age and, while interest rates are strongly influenced by politics, the
tendency for them is to rise as capital migrates Southward. Under these
conditions, if expanding output, rising real wages and full employment
are to tie achieved in the North, then it is essential to have high levels of
investment which, in turn, require expansionary macro-economic policies.
Yet, since 1973, such policies have been contractionary as an article of
faith. As Maddison [1994, p. 35] observed:
[What] reinforced the sharpness of the slowdown [after 1973] was the basic.
change in the "establishment view" of economic policy objectives. The nev
consensus emerged as a response to events, but it also helped mould them. Tht
shock of inflation, the new wave of payments problems, and speculative possibilities brought a profound switch away from Keynesian type attitudes toward
demand, management and full employment. Most countries gave over-riding
priority to combating inflation and safeguarding the balance of payments.
Unemployment was allowed to rise to prewar levels. Even when oil prices
collapsed and the momentum of world inflation was broken in the early 1980s,
the new orthodoxy continued to stress the dangers of expansionary policy in
spite of widespread unemployment and strong payments positions.
The new orthodoxy had a devastating effect on global labour
standards — in the N o r t h and throughout most of the South. Between
1978 and 1989 real manufacturing wages increased in only six out of 20
developed countries and fell in 26 out of 33 non-Asian developing
countries. The wage share in manufacturing value-added increased or
remained constant in only four out of 21 developed countries and 20 out
of 40 non-Asian developing countries [Amsden & van der Hoeven, 1994].
Real wages in the South fell due to a debt crisis, triggered in the early
1980s by the N o r t h ' s unilateral declaration of war against inflation. Real
wages in the N o r t h stagnated in conjunction with high real interest rates,
low investment and the fraying of the welfare state. The new orthodoxy
"looked to a self-starting recovery rather than one induced by policy"
[Maddison, 1994, p . 35]. From the viewpoint of real wages and other
labour standards, however, no self-starting global recovery was in sight
as the twentieth century ended.
192
V. A broader ILO mission
The ILO has argued for many years that labour standards which
involve the basic health and safety of workers, their freedom to form
trade unions, and equal pay for equal work, should not be compromised
by considerations of national competitiveness. It is not these rights but
rather "protectionist" labour standards for fast-growing late-industrializing
countries that have become controversial. Such standards are more discretionary, involving the linkage of real wage increases to productivity
increases and the pegging of Southern production and environmental
practices to Northern levels.
Demands by the North for protectionist labour standards in the
South should be rejected as self-serving. They threaten to derail growth
in small, open "profit-led" Southern economies and are either ineffective
or harmful in large "wage-led" Southern economies.
This, however, does not mean that the fate of Northern workers
should be left to whatever living standards free trade and "globalization"
dish out to them. A new definition of labour standards needs to be
adopted by the ILO that includes a commitment on the part of Northern
governments to coordinate expansionary macro-economic policies with
the goal of increasing investment and hence employment. Simultaneously
a new innovative set of labour standards needs to be coordinated in order
to contain inflationary pressures in collective bargaining. Unless the issue
of expansionary macro-economic policies and inflation-containing wage
negotiating policies are put high on the ILO's agenda of labour standards
broadly construed, the North's threats to make access to its markets
contingent on higher Southern production costs will not abate.
Bibliographical
references
Amsden, Alice H. 1989. Asia's next giant: South Korea and late industrialization, New
York, Oxford University Press.
Amsden, Alice H.; van der Hoeven, Rolph. 1994. Manufacturing employment and real
wages in the 1980s: Labour's loss till century's end, Geneva, International Labour Office.
DeMartino, George; Cullenberg, Stephen. 1995. "Economic integration in an uneven
world: An internationalist alternative", in International Review of Applied Economics
(forthcoming).
Dietz, James L. 1986. Economic history of Puerto Rico: Institutional change and capitalist
development, Princeton, Princeton University Press.
Alice H. Amsden
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Herzenberg, S.; Perez-Lopez, J-F. (eds.). 1990. Labor standards and development in the
global economy, Washington, DC, United States Department of Labor.
Hikino, Takashi; Amsden, Alice H. 1994. "Staying behind, stumbling back, sneaking up,
soaring ahead: Late industrialization in historical perspective", in Baumol, William J.
et al. (eds): Convergence of productivity: Cross-national studies and historical evidence,
New York, Oxford University Press.
Jefferson, Gary H.; Rawski, Thomas G. 1994. "Enterprise reform in Chinese industry",
in Journal of Economic Perspectives, Vol. 8, No. 2, pp. 47-70.
Krugman, Paul. 1994. "Does Third World growth hurt First World prosperity?" in
Harvard Business Review, July-August.
Kwon, Jene. 1994. "The East Asian challenge to neoclassical economics", in World
Development, Vol. 22, No. 4.
Maddison, Angus. 1994. "Explaining the economic performance of nations, 1820-1989",
in Baumol, William J. et al. (eds.), op. cit.
Mead, Walter Russell. 1990. The low-wage challenge to global growth: The labor
cost-productivity imbalance in newly industrialized countries, Economic Policy Institute,
1730 Rhode Island Avenue, NW., Washington, DC 20034.
Rothsteiia, Richard. 1993a. Setting the standard: International labor rights and US trade
poliry, Washington, DC, Economic Policy Institute.
—. 1993b. "New bargain or no bargain?" in The American Prospect, No. 14 (Summer).
Taylor, Lance. 1988. Varieties of stabilization experience, Oxford, Clarendon Press.
Tilly, Charles. 1995. "Globalization threatens labor's rights", in International labor and
working class history (forthcoming).
UNCTAD (United Nations Conference on Trade and Development). 1993. Handbook
of international trade and development statistics, 1992, New York, United Nations.
World Bank. 1993. The East Asian miracle: Economic growth and public policy,
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1050 Massachusetts Avenue, Cambridge, Ma., 02138.
Workers' rights in the global village:
Observations of an American trade unionist
Thomas R. Donahue
Secretary- Treasurer
American Federation of Labour and Congress
of Industrial Organizations
(AFL/CIO)
Washington, DC
USA
I. Introduction
At the ILO's founding meeting in Washington at the Pan American
Union Building, there were no delegates from outside the United States
who arrived by aeroplane. International air services did not exist. In 1993,
more than 42 million people flew on more than 354,000 international
flight;; on United States carriers alone. This spring, the weekend travel
section of the Washington Post was advertising intercontinental flights for
less than $400.
In 1919, none of the foreign delegates could telephone their home
countries for instructions or advice. There was no such service. If they
were in Washington nine years later, they could have telephoned the ILO
headquarters in Geneva for $75 (which would be nearly ten times as
much in current dollars), but they would have needed advance reservations:: the entire capacity of the transatlantic telephone link was just one
call at a time. In 1988, American Telephone & Telegraph alone handled
more than one billion overseas calls. None required advance reservation
of telephone lines.
In 1919, no-one thought to keep track of the net amount of funds
that American corporations invested in their foreign affiliates. Ten years
later, when the first statistics on direct investment were collected, the
total came to $7.5 billion. They are considerably larger today: the latest
196
International
interdependence
figure, for 1992, was $486.7 billion which is, in constant dollars, a sixfold
increase.
All of these examples (and many of those that follow) are from my
own country, but it would not be difficult to find examples elsewhere
that are equally or more dramatic. Taken together, they represent what
may well be the biggest single change in the world affecting the ILO
since its creation, namely the vast increase in global interdependence —
exchanges, transportation, communication, and more. A German
historian could observe, 16 years before the ILO was founded, that the
world "is, more than ever before, one great unit in which everything
interacts and affects everything else, but in which also everything collides
and clashes".1 If it was true then, it is a hundred times truer now.
77. Workers* rights in the global village
It is no surprise that the metaphor of the global village now has an
honoured place in business literature and newspaper columns. Much of
the discussion of it is rhapsodic, so it may be reasonable to extend the
metaphor a bit. In our global village, there is no mayor, the disparities
between rich and poor are colossal, the street lights on the poor side of
town have not worked for years, the air is often bad, the water is often
undrinkable, charities are pathetically inadequate and the police have
virtually no power. If households equal nation-states, there is not much
effective remedy in our village for child abuse or violence within families,
there are some nasty disputes over the boundaries between houses, and
neighbours are shooting at neighbours for no good reason.
In more literal terms, there is a paradox in all this that presents an
enormous challenge to the ILO: economically, the world has indeed
become highly integrated and interdependent but, politically, the international system is still an anarchic framework of nation-states, all of them
more sovereign than not, none of them completely secure. The scope of
economic life, dominated by forces in the private sector, has become
mainly global; the scope of political life, in which plain citizens can
engage and have an effect, remains mainly national.
1
Erich Marcks, quoted in Hamilton [1990, p. 5]. Hamilton recounts a fascinating
story of an executive of an American foundation who made his way to an obscure
Colombian mountain village, and found the residents tuning in their radios every
morning to hear the commodity prices from London. A leader of the local agricultural
cooperative explained that they needed the information; after all, world prices would
affect the prices for their crops.
Thomas R. Donahue
197
Consider just one result of this in the ILO's realm of concern. As
investment capital has become more mobile and transportation and
communications infrastructure has improved, it is now far easier than it
was even a few. years ago for industrial production to shift to those parts
of the world where the workforce is poorly paid and easily exploited.2
An example of this is Nike, a US-based corporation that generated
about $1.7 billion in revenues and sold 40 million pairs of athletic shoes
in 1989. Significantly, Nike owned no factories: all of its production was
contracted to facilities in low-wage nations such as Taiwan, South Korea,
Indonesia, Malaysia and China. And Nike is hardly alone, even within
its industry. A 1990 study by two Dartmouth College geographers could
report that "no athletic footwear firm now wholly owns any integrated
production facilities" [Donaghu & Barff, 1991].
Merely to denounce Nike or other multinational corporations for
relying; as much as they can on low-wage, exploitable labour is inadequate
and misses the point. In an international economy driven by market
dynamics, a firm that does not seek out the cheapest available workforce
for its own purposes may be at a competitive disadvantage vis-a-vis other
firms that do. Thus, as nearly everyone from Adam Smith to Marx could
recognize, such multinationals are pursuing their own narrow economic
interests and responding to incentives.
One suspects that the most effective device for changing the behaviour of corporations (or humans, for that matter) is not passionate
moral lecturing, but rather the restructuring of those incentives. And in
the global village, any restructuring for the goals we seek would be international in its effect and would have workers' rights as one of its
components.
III. Counter-arguments and responses
It may be useful for those of us who support the international
protection of workers' rights to review the arguments against our
2
Americans have seen this phenomenon on a smaller scale within their own country.
There has been a shift of manufacturing from the Rust Belt areas of the North-east and
Mid-west to the Sun Belt states in the South and West. In Manufacturing on the move
(Washington, DC, Brookings Institution, 1993), Robert Crandall shows that, today, the
single most important explanation for the growth of Sun Belt manufacturing is labour
market: conditions, specifically, wage rates and the degree of unionization. Put less
euphemistically, capital is moving where workers are cheaper and have fewer rights.
198
position and the responses we can plausibly make. Permit me to suggest
some possibilities.
Argument: Every step towards a stronger international workers' rights
regime can compromise national sovereignty.
Response: Maybe so, but that sort of thing is nothing new and is nothing
to worry about. It is true that international workers' rights and the
sovereignty of nation-states are counterposed in some ways. It is also true
that, before this century, there were very few occasions when those rights
could find their way past the realm of Utopian philosophy and the most
marginalized politics. Since then, times have changed. Three political
developments in the twentieth century — each of them well-established
and irrevocable — have eroded some of the old prerogatives of the
nation-state.
The first is the spread of Wilsonian (and Leninist) principle that
governments and their subjects can be independent actors in international
politics.3 This has large consequences. Among other things, it opens up
vital political space for working people in one country to defend the
rights of their sisters and brothers in another, regardless of how
sympathetic or unsympathetic their own governments may be. We can
return to this point later.
The second development is genocide and the violation of human
rights on a scale never before seen in human history. In the aftermath,
there is an erratic consensus that nation-states cannot be considered black
boxes, completely opaque to outsiders. Some fundamental human rights
have been internationalized, at least nominally. That, in turn, has a
fortifying effect on workers' rights.
The third development has been the growth of international
economic regimes under which nation-states trade morsels of their
sovereignty for more enticing rewards. Some of the most notable
examples since the Second World War have been the General Agreement
on Tariffs and Trade (now to emerge in a more powerful incarnation as
the World Trade Organization), the Bretton Woods framework, and the
European Union. But, of course, there are a multitude of lesser inter-
3
One noted historian argues that after a certain point, "the Wilsonian and Leninist
diplomacy were equally determined to emphasize the distinction between the people and
their rulers. However, whereas Wilson pressed his distinction in the hope of building a
republican or possibly a social democratic fire ..., Lenin incited the Western proletariats
to ... enthrone revolutionary regimes" [Mayer, 1971, p. 264]. The legacy of Wilson is
especially germane here, since it led directly to the Fourteen Points and eventually to his
strong support for creation of the ILO itself.
Thomas R. Donahue
199
nations] agreements that affect everything from air-traffic control systems
to currency stabilization to methods of catching tuna. Drawing the line
at workers' rights seems a little disingenuous.
Argument: Workers' rights are an economic burden that developed countries
may be able to afford, but their price is too great for developing countries.
Response: As a wise old governor of New York named Al Smith used to
say: "Let's look at the record". In those nations with long periods of
great economic growth since the Second World War, have there been
extensive workers' rights and powerful trade unions? The answer is yes
in West Germany and Japan, no in China and somewhat in Turkey and
Mexico1. Spain's economic miracle began in the latter years of Francisco
Franco's fascist regime, and it continued briefly under conservative
democracies and then the democratic socialist regime of Felipe Gonzalez.
So the answer to the original question is apparently yes, no, and
maybe — but in fact it is more likely that all answers are irrelevant.
Much of the considerable literature on development suggests that the
most important reasons why nations succeed economically include
climate, resource endowment, geographic location, size, the availability
of capital and sheer luck. Also, as Lawrence Harrison convincingly
argues, culture may play a big part. He suggests that economic
development depends on four cultural values: (i) the degree of identification with others in a society, or the "radius of trust", as Harrison calls
it; (ii) the rigour of the ethical system; (iii) the way that authority is
exercised within a society (Harrison suggests that some but not all kinds
of authoritarianism can suppress economic growth); and (iv) attitudes to
work, innovation, saving and profit [Harrison, 1992, pp. 1, 10-13].
Again, the point is that workers' rights and strong trade union
movements do not guarantee that an economy will either prosper or fail.
While those factors can have a real effect, it is likely that the pace and
contours of economic development will be determined overwhelmingly
by other factors. The issue of workers' rights in developing countries,
then, cin be framed as choices that are as much social and moral as
economic, for example:
(a) whether wealth is distributed evenly or concentrated in the hands of
a relatively small elite;
(b) whether those on the middle and bottom rungs of the economic
ladder have the benefits of freedom of association and expression, or
live frightened and vulnerable; and
200
(c) whether working people have the institutions that give them dignity,
recourse, a voice.
Trade unionists from both developed and developing nations are already
quite familiar with these issues. It is no secret what our positions are.
Argument: The internationalization of workers' rights is a kind of cultural
imperialism. It is rich and powerful nations imposing their cultural
standards on nations that are poor and weak. It does not recognize that what
can be appropriate in one culture can be irrelevant or dangerous in another.
Response: One must resist the temptation to dismiss this argument on ad
hominem grounds. We usually hear it from the elites of nations where
worker exploitation is most flagrant, or from their allies in multinational
corporations. John Stuart Mill once observed that "practical Toryism
simply means being in, and availing yourself of, your comfortable position inside the vehicle without minding the poor devils who are freezing
outside" [quoted in Himmelfarb, 1968, p. 121]. It is ordinarily the ones
inside the vehicle who condemn international workers' rights as cultural
imperialism.
However unsavoury their interests may be, their argument has some
validity. Cultures are different. And there is always a real risk in
nationalistic universalism when, as Hans Morgenthau put it, "the moral
code of one nation flings the challenge of its universal claim with
Messianic fervour into the face of another" [Morgenthau, 1948, p. 246].
The citizens of currently and formerly great powers know how seductive
that can be, and how it can lead to debacle.
It is obviously prudent to consider how workers' conditions around
the world are similar, and how they are not. For example, a minimum
wage should be a right of workers everywhere. But should a minimum
wage in Indonesia be the same as in Sweden, or Kuwait? If not, is there
a formula we can use to calculate an internationally acceptable minimum
in each case? And would this standard always apply? If, say, a
government claims that in an effort to achieve full employment in
peacetime, it intends to keep minimum wages low or to control wage
increases, at what point are workers' rights violated so as to justify
international concern?
Drawing the full perimeter of universality is difficult, maybe
impossible. Not all of the most distant boundaries can be clear and fixed.
Nevertheless, there are most certainly workers' rights that are
fundamental and universally applicable — rights such as freedom of
association, organizing and bargaining collectively, and prohibitions of
child labour and of forced labour. One of the great contributions of the
Thomas R. Donahue
201
ILO over the last 75 years has been delineating and publicizing those
rights.
IV. Protecting international workers' rights
Once we establish the economic, legal and moral viability of
international workers' rights, as I believe we easily can, we must consider
a far more complex question, namely, how do we get from here to there?
What kind of infrastructure can most effectively protect the rights of
workers?
The best, most realistic, answer is a network of institutions, public
and private, national and international. Fortunately, such a network
already exists; even more fortunately, it is growing larger and more
sophisticated. At its centre is the ILO. The ILO's role and achievements
— establishing a code of international labour standards, giving technical
assistance to encourage growth of employment, sponsoring invaluable
research, and much more — are absolutely unique. It is difficult to
imagine any other organization that could fill all the needs that the ILO
does.
It can set standards, it can investigate, it can publicize, it can use its
moral authority to help working people, and it does those things
superbly. But it cannot enforce the observance of workers' rights. In the
end, that responsibility still belongs primarily to the nation-state — but
not completely. There have been two promising developments in the last
several years that nudge (and in some instances shove) national authority
in good directions.
First, there is a much stronger linkage than ever before between
workers' rights and international trade and finance. More and more, the
idea that respect for workers' rights should be a precondition of trade
and credit relationships is gaining acceptance.
In the United States,4 the most successful linkage has been in the
Generalized System of Preferences (GSP) programme, which gives dutyfree treatment to eligible imports from developing countries. When it was
renewed in 1984, the US programme required beneficiary countries to
4
By citing only American examples, I certainly do not mean to imply that all good
initiatives for international workers' rights emanate from Washington — far from it. For
instance, the United States would do well to emulate some of the initiatives that have
already come out of the European Union and the MERCOSUR trade framework in South
America.
202
uphold the right of association, the right to organize and bargain
collectively, a prohibition on forced labour, a minimum age for employed
children, and acceptable conditions relating to minimum wages, w o r k
hours and safety and health. (It is not terribly hard to detect the ILO's
positive influence on those standards.)
In subsequent years, workers' rights requirements were included in
reauthorization of the Overseas Private Investment Corporation and for
US participation in the World Bank's Multilateral Investment Guarantee
Agency. The 1988 Omnibus Trade Act established that a link between
worker rights and trade would be a US goal in the Uruguay Round, and
the same legislation also declared that denial of worker rights could be
considered an unfair trade practice, which is actionable under previous
American laws [US Department of Labor, 1991, p p . 7-12]. Under the
Clinton administration, the US Government is pressing for an
examination and, ultimately, the negotiation of workers' rights in the
new World Trade Organization.
There have been some interesting initiatives to expand the linkage
to international lending institutions in which the United States participates. The House of Representatives' Subcommittee on International
Development, Finance, Trade, and Monetary Policy, under the leadership
of Congressman Barney Frank, is holding hearings in 1994 on labour and
environmental standards in those institutions.
AFL-CIO President Lane Kirkland was invited to testify on the first
day of hearings. H e told the subcommittee, "We believe that it is time
for this Congress to instruct the Executive Branch to use its voice and its
vote on the boards of the international financial institutions to ensure
that these institutions serve and do not undermine the purposes for
which democratic governments are brought fqrth... Specifically, we
should push to ensure government accountability and workers' rights
criteria are effected in the decisions on the division of loans and grants
and their subsequent assessment" [Kirkland, 1994, p . 34].
The second development, which is just as encouraging, is the new
appreciation of a moral aspect to international workers' rights and their
connection to human rights generally. Those of us in the American trade
union movement have certainly noticed the change. O u r movement has
always defined itself as internationalist, and it has thus taken a strong
interest in the conditions of working people elsewhere. As early as 1933,
soon after Hitler came to power, American unions organized a boycott
of German goods because they believed that there should be a
relationship between workers' rights and trade. For some years now, our
youth organization, Frontlash, has successfully campaigned for a
"toycott" — a boycott of toys made with Chinese slave labour.
Thomas R. Donahue
203
Those actions are typical. In the past, however, the American trade
union movement was often a solitary voice. Now, the resources and
visibility of non-governmental human rights groups, which at one time
were concentrated on the admirable goals of defending political dissenters
and ethnic minorities, are also being used in defence of workers' rights.
Such groups as Amnesty International, Human Rights Watch and the
International Labor Rights Education and Research Fund — to mention
only three with a substantial presence in the United States — are making
a splendid contribution to that cause.
In the last three years, important new ground has been broken. One
of the most remarkable developments during the campaign against the
North American Free Trade Agreement was the formation of a coalition
of trade unionists, human rights activists, civil rights supporters, religious
leaders ;ind environmentalists — all of them opposing NAFTA partly
because: of the systematic violation of workers' rights in Mexico.
This was unprecedented. Never before had those disparate elements,
which really do have considerable common ground, come together in a
working alliance; never before had international workers' rights been
such a salient part of a major political debate in our country; and never
before had they been framed so effectively as a moral and human-rights
issue, liven though NAFTA did pass, this achievement of the antiNAFTA campaign will resonate for some time to come.
All of the individuals and institutions that are promoting international workers' rights are doing valuable work — and all have their
own natural limitations. Governmental institutions must operate within
nations! political constraints. Non-governmental organizations have no
authority to implement change. Multilateral organizations cannot exceed
the consensus of their members.5 Fortunately, none of them needs to act
alone. Each can be part of a flexible network within the global village.
Americiin trade unionists are proud to be in it. As economic integration
grows, which it will, we will certainly do all we can to help this network
expand and prosper.
We are delighted to be part of a network that is based on the noble
idea of workers' rights; and "ideas", as Lord Acton wrote, "have a
radiation and development, an ancestry and posterity of their own, in
which men play the part of godfathers and godmothers more than that
of legitimate parents". All of us know very well that it is the men and
5
The: American diplomat George Kennan has written of "the great difficulty which
is alway:; involved" in situations of this sort. "This is something that requires
centralization of authority, complete privacy of decision, and a highly disciplined mode
of procedure. These are not the marks of coalition diplomacy." [Kennan, 1961, p. 134]
204
women of the ILO who are the godparents of workers' rights. On the
75th anniversary of the ILO, we salute them and we echo the message of
Nelson Mandela: "We thank you that you did not tire in your struggle".
Donaghu, Michael T.; Barff, Richard 1991. "Nike just did it: International subcontracting
and flexibility in athletic footwear production", in Regional Studies, Vol. 24, No. 6,
pp. 537-552.
Hamilton, John Maxwell. 1990. Entangling alliances: How the Third World shapes our lives,
Cabin John, Md., and Washington, DC, Seven Locks Press.
Harrison, Lawrence, E. 1992. Who prospers? How cultural values shape economic and
political success, New York, Basic Books.
Kennan, George. 1961. Russia and the West under Lenin and Stalin, Boston, Little, Brown
& Co.
Kirkland, Lane. 1994. Testimony on "International Labor and Environmental Standards",
Hearing of Subcommittee on International Development, Finance, Trade, and
Monetary Policy, US House of Representatives, 23 March, Washington, DC,
Government Printing Office.
Himmelfarb, Gertrude. 1968. Victorian minds, New York, Knopf.
Mayer, Arno J. 1971. Wilson vs. Lenin: Political origins of the new diplomacy, 1917-1918,
Cleveland & New York, World Publishing Company.
Morgenthau, Hans J. 1948. Politics among nations: The struggle for power and peace, New
York, Knopf.
US Department of Labor. 1991. Worker rights in US policy, Washington, DC, Bureau of
International Labor Affairs.
Part 6:
Labour standards
in particular regions and countries
to labour standards
resulting from globalization:
The case of Korea
YoungKi Park
Director, Institute for Labour and Management
Sogang University
Seoul
Republic of Korea
I. Introduction
The Republic of Korea (South Korea) is often referred to as a model
among; newly-industrializing economies (NIEs) that has succeeded in
transforming its agricultural economy into an industrial power. Gross
national product (GNP) has increased almost 500 times during the past
three decades; per capita income, which stood at a mere US$87 in 1962,
increased to US$7,466 in 1993; exports of goods increased from US$54.8
million to US$82,444 million during the same period. The industry-mix
of the economy and employment composition also changed. Primary
industry as a proportion of GNP decreased from 40 per cent in 1962 to
15 per cent in 1993, while the share of secondary and tertiary industries
increased from 17 to 40 per cent and from 41 to 45 per cent, respectively.
The proportion of workers employed in primary industry, which
accounted for 62 per cent of all employed persons in 1962, decreased to
13 per cent, while the proportion in secondary and tertiary industries
increased from 8 to 28 per cent and from 30 to 59 per cent, respectively,
over the same period.
In an unparalleled rate of urban growth, the population living in
administratively defined sbi (cities of 50,000 or more) increased from 6.9
208
million, constituting 28 per cent of the total population in 1962, to 33
million in 1993. Hence, those who live in urban areas today account for
almost 80 per cent of the population. Thus, Korea has indeed changed
from a rural society to an industrial economy. While its success is
attributable to numerous factors, government policies, and labour policy
in particular, have often been cited as a crucial component that enhanced
and facilitated this success.
77. Labour policy and its practice
The basic framework of labour relations and employment standards
in Korea is codified in four pieces of labour law: Labour Union Law,
Labour Dispute Adjustment Law, Labour Relations Commission Law
and Labour Standards Law. These laws were first enacted in 1953 towards
the end of the Korean War (1950-53), and each has been amended several
times, coinciding with changes of government or the political climate.
The most recent amendments came in December 1987 when the military
government was ousted by popular vote. The substance of the laws,
however, has remained untouched.
Their underlying philosophy is to promote cooperation between
employers and employees so as to enhance economic development. This
is clearly illustrated by the preamble to the Labour Union Law:
The purpose of this law is to guarantee to workers, according to the
National Constitution, the autonomous rights of freedom of association,
collective bargaining and collective action aimed at maintaining and improving
their working conditions, thereby making possible their contribution to the
enhancement of the economic and social status of workers and to the
development of the national economy.
In order to promote a dialogue between labour and management, an
additional piece of labour law, the Labour Management Cooperation
Law, was enacted in 1980. Regardless of unionization among their
employees, all business establishments with 50 or more regularly
employed workers are required to form a Labour Management Council.
The basic characteristic of the overall legislative framework may be
described as "pluralist": the labour relations system relies heavily on a
decentralized approach that emphasizes the rights of workers and
management to negotiate, resolve conflicting interests and pursue areas
of common interest with minimal government involvement. Under this
framework, the role of government is limited to two areas: establishment
Young-Ki Park
209
of the procedural rules for collective bargaining and labour management
interaction; and mediating in disputes over interests as well as over rights.
This free interplay of competing interests is expected to produce
substantive outcomes which promote and balance the goals of democracy
and economic efficiency. The framework rests on three basic principles:
(a) the right of workers to form a union of their own choosing; (b) the
right of workers to bargain collectively and negotiate over wages, hours,
and other terms and conditions of employment; and (c) the right of
workers to engage in collective action. In return for accepting the procedures established for union elections and recognition, management
secures the right to make decisions affecting the firm's long-term values,
competitive strategies and other organizational policies, without the need
to consult with or involve workers or their representatives.
At the workplace, this collective bargaining system is supported by
union contracts that are legally enforceable through dispute arbitration
services; provided by statutory machinery (the Labour Relations
Commissions). However, since its introduction in 1953, this dispute
settlement mechanism has barely been used. The reasons are numerous
but the main one may be the fact that, at the time of enactment, there
were not enough industries, or industries sufficiently developed, to
require such a mechanism. While the labour laws of western industrialized countries were enacted largely as a response to economic forces, such
as incre;ised conflicts between employees and employers and the need to
resolve these conflicts, the labour law in Korea was introduced mainly to
meet a political need following division of the country and establishment
of a socialist state in the N o r t h and a market economy in the South.
Economic realities, in other words, neither forced the enactment of, nor
served is the basis for, labour legislation.
One of the most important features of Korea's remarkable economic
progress is perhaps the strong role played by government policy, particularly in its ability to discipline and influence large businesses that
dominate the Korean economy. The government played an equally preeminent role in Korea's labour relations system.
Prior to the change of government in 1987, the single criterion that
dominated government policy was economic growth which may be
summed up in the slogan "develop first, share later". Policy was focused
primarily on efforts to control labour costs. The government's emphasis
on economic expansion meant that the legislative framework was more
often ignored than enforced. Until 1987 therefore, business (and big
businesses in particular), was effectively able to operate in a union-free
environment.
210
As the government began to respond to popular demand and undertake its role as specified in the law, the legal framework itself began to
reveal deficiencies. As the economy became increasingly exposed to
international competition, it became more difficult to enforce the
framework. Business increasingly felt the need for greater flexibility in
job structures, and the range of strategic choices widened regarding the
location of production or service facilities, where to invest and whether
or not to accept union representation in the new establishments.
The employers' attempt to restructure their way out of high-cost
locations or market positions, and the separation of management's
strategic actions from labour's rights embedded in the legal framework,
made it difficult to operate the system and resulted in significant
hardships for workers and their unions.
Since 1987, labour relations have been characterized by a great deal
of conflict over basic union rights — a principle guaranteed by the
framework — and attempts by companies to eliminate unions where they
existed and prevent new unions being formed. This may be the reason
why the union expansion which followed political reform in 1987 began
to reverse from 1990.
Here and there, new management-worker relationships began to
form in Korea. Some companies, while discouraging unionization of their
employees, attempted to engage in greater consultation with their
workers over the company's long-term strategy. Positive labour relations
programmes began to be implemented in the leading business conglomerates — for instance greater direct employee involvement and
participation at the workplace, with more flexible, team-based approaches
that give greater emphasis to training, employment security and flexibility in wage setting.
Thus, the legal framework of labour relations is increasingly under
challenge by new programmes introduced by management. At the same
time, the framework is under siege in a world dominated by global
markets, strong international competitors and changing technologies. The
need to develop a system of human resource management that can help
firms gain competitive advantage from their human resources has posed
a direct challenge to and engendered a certain scepticism about the
framework.
It is a point of general consensus in discussion of labour relations in
Korea today that the system of industrial relations codified in legislation,
while perhaps appropriate to the 1950s, is neither relevant nor enforceable in the 1990s. There is a mismatch between the existing legal
framework and "new realities" which require adjustment to rapid technological change, new forms of work organization, changed workforce
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demographics and career patterns, and altered employee expectations of
work.
In the face of this mismatch, many argue that the framework of
collective worker representation must inevitably be restructured into a
new system which will guarantee full functioning of labour markets,
facilitate advanced personnel management techniques and adequately
perform the task of representing worker interests.
It is therefore of interest to examine recent experience of operating
the law and its effects since 1987, the relationship between the system of
collective representation and economic efficiency, and their place in the
on-going political reform to which the country is now deeply committed.
III. Business efficiency
With the advance of new technologies, Korean management has
begun to face information, coordination and motivation problems in
devising competitive strategies. Information about company performance
held by various employees and their strategic behaviour in using that
information has become crucial. In order for a firm to maintain or
improve its competitive edge, the need to motivate optimal performance
becomes vital. At the same time as skilled workers have become relatively scarce, the value of firm-specific human capital is also rising.
Korean managers are also beginning to recognize that information exists
at various levels of organization. In many situations it is inefficient for
management to make all key decisions. Just as the sudden debacle of
socialist regimes proved that the centre cannot efficiently run a centrallyplanned economy, neither can the centre efficiently run a large, modern
enterprise. A firm in which managers are authorized to make decisions
at different levels illustrates this point: it shows that hierarchies work
best when there is uncertainty at the workplace. Experience has demonstrated that the efficiency o f ' a firm improves where employees are
authorized to make decisions related to performance of their job. The
reason is very simple. They can respond better than centralized management which lacks information about shocks or unusual circumstances in
specific jobs.
»
The potential for divergent interest groups within a business establishment, which can lead hierarchies to use information for their own
benefit at the expense of the firm, also shows that there are payoffs for
sharing information, and that there are incentives in a structure which
links management to workers outside the standard hierarchy. Giving
212
employees substantial decision-making authority (strategic participation),
and a share of the resultant productivity, has improved productivity.
The success of firms which rely heavily on worker loyalty and
tenure has been accompanied by wider economic advantages. The routes
by which employee representation can improve enterprise efficiency are
manifold: an increased information flow from management to labour,
which can lead to concessions by workers in difficult economic times,
thus saving troubled enterprises; increased information flows from
workers to management outside the hierarchical chain, providing a forum
for both sides to devise new solutions to problems; and motivating
workers to make longer-term commitments to the firm, thus reducing
the high rate of labour turnover. The labour turnover rate in Korea is
approximately five times higher than that in Japan. Investment in firmspecific skills has also enhanced the advantages of job rotation and
consultation and reduced the turnover rate.
A collective voice in the workplace has generally proved to be
beneficial to the enterprise because it discourages strikes due to unmet
grievances (the major goal of existing labour legislation). It also lessens
the costs of turnover by reducing redundancies or giving workers the
compensation package they desire. It helps to alter the way management
and labour operate, creating a more cooperative and informed decisionmaking process.
Effective worker representation also alters the distribution of output
within a firm. After 1987, after unions regained their vitality, the nominal wage in Korea more than doubled within five years. In principle, this
has no direct effect on a firm's efficiency. If worker representation
schemes only blur management's right to make decisions and fail to
enhance higher productivity, they will breed managerial resistance to the
system. Nevertheless, the schemes invariably redistribute profits towards
workers, and for that reason the management resists unionism. The
danger that effective systems of worker representation reduce the firms'
share of the pie proportionately more than they increase the size of the
pie explains why management rarely voluntarily cedes much power to
worker representatives.
Collective worker representation has, it is true, been accompanied
by some costs. Apart from the direct administrative expense of supporting organizations of representation and the processes of negotiation,
the cost of lost production time has been substantial. During 1987, for
example, a total of 3,749 strikes occurred, 2,552 of them in the month of
August alone. There was also the cost of training worker representatives
to assume greater responsibilities. While there is no precise benefit-cost
data analysis of Labour Management Councils, management in general,
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and especially after it became difficult for them to deny collective
representation of workers, came to favour the council system on the
grounds that it has a higher positive net effect than a union provides.
IV. Market efficiency
Worker representation schemes forced management to provide
informai:ion to employees about the situation of the enterprise which
would otherwise have been kept secret. This change in management
practice: helped to improve the efficiency of the labour market even when
it did little for the firm. It helped by eliminating the deleterious effect of
information imbalance on some market outcomes. For example, if a
manager perceives that a plant must be closed and decides to do so but
withholds information, so that workers fail to plan for this event in
advance, worker suffer more from dislocation losses. While the effect on
the firm's profitability due to the loss of its information monopoly is not
clear, advance notice of plant closure helps workers substantially.
A s;econd area in which worker representation has improved competitiveness relates to the workers' contribution to the enterprise. This
is especially true of job training. Firms that cannot fully bear the costs
of general training for workers have provided only narrow firm-specific
training. However, even firm-specific training has helped not only the
firm but the economy at large. The immediate benefit redounds to
workers and society, not to the firms. But the extension of such training
to an entire market led to a situation in which no firms need suffer, for
they were able to replace workers they had trained by workers trained
in other enterprises.
V. Role of government
Regulations of market functions exist in all societies. Regulations
may be introduced to remedy market imperfections or sometimes for
reason:, of income redistribution. In Korea, the government inspectorate,
known as Labour Inspectors, are formally assigned to enforce regulations.
They are often joined by lawyers pursuing statutory rights through civil
actions. However, in many areas of public concern, including the labour
market, neither means has been adequate. Amongst other reasons for this
failure, it is due to the fact that sites to be regulated are too numerous
(120,000 work sites with only 500 inspectors) for any plausibly-sized
214
government inspectorate to monitor. Likewise, activities within work
sites are too heterogenous for a government inspector to decide the best
means of achieving the desired outcomes. Private litigation, on the other
hand, is not only costly but also too complicated to settle disputes over
standards of behaviour. Private litigation, therefore, has proved to be the
least feasible and least preferred means for workers to remedy the
infringement of their rights. Consequently, the results were often
regulatory failures — downgraded employment conditions, cumbersome
reporting requirements on matters of uncertain relevance, inflexibility in
adjusting standards to varying or changed circumstances, and weak
enforcement.
The failure of the enforcement system on worker safety and health
standards clearly illustrates this point. Safe working conditions for
workers in Korea, as in all other countries, are considered a company
priority. The Workmen's Injury Compensation Act of 1963 commits the
government to "assure safe and healthy working conditions for working
men and women". But law enforcement, which relies chiefly on labour
inspectors, falls far short of these expectations. Since the enactment of the
law, more than 50,000 workers have been killed on the job; two million
workers have been disabled and another 50,000 have died from occupational diseases. In 1993, approximately 90,000 workers sustained
workplace injuries, of which 56,000 were "serious", 29,000 workers
became either handicapped or suffered permanent disablement, and 2,210
died. While the incidence of workers killed or disabled has fallen since
1990, there has been little improvement in the manufacturing sector. In
any case, along with nearly incalculable suffering, this carnage carries
costs in the form of survivor benefits, insurance for hospitalization and
other treatment, and days lost in production. When combined, these
costs are estimated at some US$5.4 billion in 1993 alone, amounting to
a loss of 1.65 per cent of G N P . While many factors contribute to poor
occupational health and safety records, the poor regulatory mechanism
is chiefly to blame. Reliance on government inspectors to enforce health
and safety standards is inimical to a system in which the enforcement is
partially carried out by the committee legally mandated to look after
workers' health and safety within a plant.
The committee thus merely supplements direct government regulatory efforts. These committees operate with delegated legal powers; they
monitor, and in some measure enforce, compliance with regulations,
while enjoying broad discretion in bargaining with management over the
most appropriate local means to achieve regulatory goals. By taking
responsibility for monitoring and ensuring compliance with health and
safety measures, the committees can tap the knowledge of members in
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finding ways in particular settings of satisfying publicly determined
standards. Where this system operates, market efficiency also improves
markedly.
One of the rationales for adopting the current legal framework of
collective bargaining is that it enables labour and management to make
the relevant trade-offs on working conditions. As unionism gained
momentum after 1987 and government workplace regulation concomitantly increased, the use of workplace committees has resulted in less
reliance; on the heavy-handed interference of government. The experience
since 1987 seems to indicate that public goals for workplace behaviour
may be best met by giving intended beneficiaries some collective power
to supplement government enforcement efforts and to bargain with
management about how these goals are achieved.
VI. Political reform and labour relations
After more than 30 years of military rule, Korean society is now
deeply committed to the principle of democracy and to democratic
reform. The principle of democracy is, of course, rooted in respect for
the moral equality of individuals, each of whom should have the same
opportunity to influence the actions of government. Commitment to the
ideal implies that inequalities in public life due to irrelevant differences
among citizens should be eliminated, and equal treatment under law and
equal access to public goods should be extended to all. If a society is
committed to the cause of democracy, therefore, the principle of democracy jihould be extended to all segments of society including the
workplace.
The case for workplace democracy can be made on both instrumental! and non-instrumental grounds. The instrumental argument is that
workplace democracy strengthens democracy in the broader society.
Democracy requires some equality in the distribution of material
resources, and this is unlikely without some measure of worker representation inside companies. Also, democracy requires citizens capable and
confident in their exercise of deliberative political judgment, and these
citizen attributes are unlikely to arise in a society which shows no respect
for such attributes at work. To take an extreme case, there is no logical
consistency in individuals being slaves in the economic sphere but
exercising voting rights in the political arena.
The non-instrumental argument may be illustrated by extension of
democratic principles beyond formal politics. One way of expressing the
216
idea of democracy is that those involved in a socially cooperative activity
and bound by its rules ought to have the right to determine those rules.
This principle has applicability not only to the State but to all other rulegoverned cooperative activities, including work.
If the arguments for workplace democracy are accepted, it would be
inconsistent to deny it in practice. Two objections might be distinguished. The first is that people can more easily avoid autocratic bosses
than they can autocratic governments. In a market economy, it is
assumed that workers are free to quit their jobs and find a different
employer or set up their own business. But it is easy to exaggerate the
power of exit. Quitting unsatisfactory conditions is an attractive, even an
exhilarating prospect so long as one can find a job paying comparable
compensation elsewhere. In reality, substantial unemployment, large wage
differences across firms and sectors, and many firm-specific, non-portable
social benefits, make exit non-viable for many workers. It is especially
true for workers in Korea whose compensation is generally linked to
length of service. The market solution, therefore is regarded by workers
as a disaster rather than an opportunity. It is the least useful option for
workers in need of protection from autocratic management. It is also the
least desirable option for management because it hampers skill accumulation and deprives workers of a sense of commitment to the firm.
A second objection is directed to the different functions of government and firms. One may argue that firms are designed to produce
economic value, not to govern social life. This implies different criteria
of performance. While governments, at least in part, are judged by representativeness, firms are judged by the "market test" of profitability. This
objection might be answered in two ways. First, the distinction between
firms and governments is overdrawn. Governments are routinely judged
by their success in producing economic value. If the economic achievements of the government were sufficient to obviate the need for
collective representation, the labour relations framework reflected in the
law might not be relevant. Experience, however, has proved the contrary.
Individual voices have failed to promote discussion among employees
about shared preferences, leaving management with conflicting signals
from disagreeing workers. The wielding of unequal power by management and labour defines employment relations and makes individual
voices an uncertain channel of communication. Many employees were
induced to keep silent, leading to an industrial peace built and maintained
on hidden conflicts. The unpleasant reality was that for a large percentage
of the workforce there was hardly any voice. There has seldom been a
voice without collective representation.
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217
On the other hand, while better individual employment contracts
and detailed government regulations may solve some problems, they, too,
are insufficient. One of the advantages of government regulation is that
it provides protection to all workers, including the unorganized. But an
employment relationship can hardly be specified to meet all types of
contingencies and regulate them in advance. Even the most laborious
attempts; to do so will leave room for disputes over contract interpretation. And the very attempt to specify contracts in detail is a way to
undermine managerial flexibility. Neither government regulation nor the
individual contract, therefore, can be a substitute for rules drawn up by
the parties involved and a collective voice. Nor can they be used as a
pretext for better monitoring and enforcement of regulations or for
developing more appropriate strategies.
VII. Conclusion
As; a global economy emerges, all the rules of the economic game
have changed or been increasingly challenged. Labour relations are not
an exception. There is an increasing tendency to deny the framework of
labour relations based on collective representation, as a model enabling
modern industrial relations and human resource management systems to
contribute to the economic and social advancement of a society and its
citizens. It is increasingly claimed that there is a mismatch between
existing collective representation and new realities. The mismatch is
larger in a newly-industrializing economy that depends solely on its
economic competitiveness; as Korea's economy is increasingly exposed to
international competition, it needs to adjust to rapid technological
changes and the new economic environment.
Experience, on the other hand, has proved that a well-designed
system of worker representation can produce benefits not only to
workers but also to the firm and to the markets in which they operate.
Though the system based on workers' collective representation is
accompanied by some economic burdens and losses, it positively
supplements efforts of government to regulate labour market outcomes.
The system, moreover, is consonant with basic democratic norms
and the democratic reform to which Korean society is now deeply committed. If one believes in the principle of democracy, therefore, it will be
difficult to deny the value of collective representation. The principle of
democracy mandates recognition of workplace associations as an
important complement to social self-government along with private
218
markets and public hierarchies. Though it may be costly, it has to be
accepted as part of democratic life. Under plausible conditions, moreover,
collective worker representation has proved that it can provide a positive
contribution and improve the competitive edge of both companies and
society. Experience has also shown that there are no viable alternatives.
The system of collective representation, however, needs to develop in
such a way as to provide information and consultation rights, guarantees
of their permanence, and power to enforce formal rights. The result will
be to secure not only a fair share of the fruit of their labours but also to
motivate workers to commit themselves to the cause of the company,
and to provide them with a stake in the system that will serve as a
positive economic force.
Regulation of the labour market
in the globalized economy: The case
of working time reduction in Japan
Kazuo Sugeno
Professor of Law
University of Tokyo
Tokyo
Japan
I. Introduction
The accelerated globalization of the economy and intensifying
industrial competition poses great challenges to conventional labour
standards in many industrialized societies. A common and fundamental
policy issue is the extent to which and in what manner the longestablished regulation of the labour market needs to be modified to
accommodate structural changes in industrial environments. The issue is
complex because it remains necessary to protect workers' basic interests
in the deteriorating labour market, although a significant degree of
deregulation appears essential to enhance its functioning in the globalized
economy. This paper seeks to describe the issue of regulation versus
deregulation of the labour market in contemporary Japan, focusing on its
most significant development, the recent policy-led reduction in working
time.
Working time is an aspect of industrial relations susceptible to
international influence, as testified by the history of the formation of
ILO standards and their dissemination. The free movement of commodities across borders has increased this influence by making working time
one of the basic elements of fair competition in the international marketplace. ^X'orking time is, on the other hand, a key aspect of industrial
relations which reflects the fundamental structure and characteristics of
220
the domestic economy. Working-time standards thus reflect an interesting
interaction between international and domestic forces.
In discussing the relationship between regulation and deregulation of
working time in Japan, this paper will briefly sketch these dynamic
interplays in the post-war development of Japanese working-time
standards, identifying the globalization of the economy as a central force
in recent developments. Through such a historical approach, this paper
proposes a new combination of regulation and deregulation to cope with
pressures from increasing economic globalization.
77. The ILO's influence on working-time standards
after the Second World War
Like many industrialized countries, Japan has protective labour
statutes which set out basic working-time standards with criminal
sanctions and inspection mechanisms. The basic legislation is the Labour
Standards Law, enacted in 1946 during the occupation by Allied Forces
after the Second World War, which established the daily and weekly
limits on working time as 8 and 48 hours, respectively. It also required
employers to give workers at least one rest day per week and 6-20 days
of annual leave in accordance with length of service.
When this law was drafted, Japan was in economic ruin and
disorder. However, the scholars and bureaucrats who undertook the
drafting were determined to create legislation that would lay the
foundation for modern democratic industrial relations. Therefore, the
basic ILO working-time standards were used as a model, even though
many of those standards were difficult to implement in the light of the
industrial conditions of that time. The principles of the 8-hour daily and
48-hour weekly limits on working time, weekly rest and annual holidays
with pay in Conventions No. 1, Hours of Work (Industry) (1919), No. 14,
Weekly Rest (Industry) (1921), No. 30, Hours of Work (Commerce and
Offices) (1930) and No. 52, Holidays with Pay (1936), were made the
pillars of the new working-time legislation.
Nevertheless, the drafters considered the industrial realities of that
time and incorporated domestic features into the legislation. For example,
recognizing the need for economic recovery, the regulations created
ample flexibility for overtime work. In addition to the temporary deviation from the daily and weekly limits permitted in Article 3 of
Convention No. 1, Article 36 of the Law further enabled employers to
use overtime working in accordance with a written agreement with a
Kazuo Sugeno
221
majority union or other representative of a majority of employees. The
agreement had to be submitted to the Inspection Office. Otherwise, the
Law did not impose any statutory restrictions on the length of and the
reasons iror overtime work.
The: legislation also made the daily and weekly maxima more flexible
than the ILO standards by allowing employers to average scheduled
(regular) working hours over a period not exceeding four weeks. The
employer was required to specify the working hours for each day and
week in. the work rules, and the average regular working hours could not
exceed the weekly maximum of 48 hours. This averaging system could
be installed unilaterally by the employer without statutory restriction on
the length of daily and weekly work schedules.
As for annual paid holidays, the system in Convention No. 52 of
increasing holiday entitlements with length of service was found to be
highly compatible with the long-term employment system which was
already considered a model at that time. Thus, the Law provided that
employees were entitled to at least six days of holiday with pay after one
year of continuous service, with the number of leave days increasing by
one day with each year of service up to 20 days annually. However, the
Law made the annual holiday system special to Japan by requiring an
attendance rate of 80 per cent or more during the previous year of service
to be entitled to holidays, and also by not restricting the division of
holidays into parts.
Another facet of working-time standards in the Labour Standards
Law, winch did not necessarily contravene ILO standards but represented
a major domestic feature of working-time regulation, was the existence
of inferior standards for a wide range of industries. For example, the Law
set 9-hour daily and 54-hour weekly maxima for small-scale mercantile
and service undertakings.
III. The domestic development
of working-time practices
After the framework of working-time law was established as an
element of the liberal and democratic legal system of the reborn nation,
Japan's economy was rebuilt and subsequently entered a long period of
sustained economic growth from the mid-1950s. The expansion of the
national economy continued rapidly until the first oil crisis in 1973. It
then underwent large-scale adjustments to overcome global economic
fluctuations including,.later, the 1978 oil crisis and the rise of the yen in
222
the late 1980s triggered by the 1985 Plaza Accord. Through such adjustments, Japanese industry was rationalized and strengthened its position
in the global product market. These sustained periods of economic
growth and adjustments were marked by working-time changes of an
almost exclusively domestic character. Hence, the standards and practices
of working time in Japan became clearly distinctive from those in Europe
and the United States.
The most striking feature was the gap in annual working hours
between Japanese and Western workers created by Japan's delay in
reducing working time. According to Labour Ministry statistics, average
working hours reached a peak of 2,426 hours in 1960, the middle year of
the first decade of sustained economic growth, and then declined steadily
to 2,077 hours in 1973. Such data demonstrate that regular working time
decreased (and weekly rest-days increased) significantly as a consequence
of high economic growth and improved productivity. From the mid1970s, however, the reduction in regular working hours slackened.
Instead, overtime working hours gradually increased, and overall working
time crept up to about 2,100 hours per worker. This level of annual
working hours lasted for a decade during which industries allocated the
gains of limited economic growth mostly to rationalization investments
and wage increases.
In continental Europe, on the other hand, the five-day work week
became widespread soon after economic recovery following the Second
World War, and holiday entitlements increased throughout industry.
Statutory vacation standards were raised in many countries, and the ILO
adopted a new Convention, No. 132, Holidays with Pay Convention
(Revised) (1970). Even during the economic difficulties that followed the
oil crises, working time was further reduced in line with demands for
work-sharing by labour movements. The result was that, as of 1985,
Japanese production workers worked 244 hours (30 days) longer than
American workers and 509 hours (63 days) longer than workers in West
Germany. Average regular working hours of production workers in Japan
were 181 hours (22 days) longer than in the United States, and 357 hours
(44 days) longer than in West Germany.
These differences can be ascribed to three features of working time
in Japan:
(a) First, there was the delay in the spread of the five-day work-week,
in particular, in medium-sized and small businesses. According to the
Labour Ministry's statistics, in 1986, the five-day work-week applied
to only 26 per cent of all workers: the proportion was 50 per cent
in firms with 1,000 or more employees, 16 per cent in those with
Kazuo Sugeno
223
100-999 employees, and 3 per cent in those with 30-99 employees. As
a result, there were large discrepancies in regular working hours
between larger and smaller enterprises ranging from 1,890 hours in
enterprises with 1,000 workers or more to 1,986 hours in enterprises
with 30-99 workers, as of 1984.
(b) Second, there was a large amount of overtime working, regardless of
enterprise size though larger firms typically recorded more overtime.
In 1984, the annual number of overtime hours worked was 223
hours for enterprises with 1,000 workers or more, 169 hours for
enterprises with 100-999 workers and 144 hours for enterprises with
30-99 workers. When these overtime hours are added to regular
working hours, there was little difference in the number of actual
working hours by enterprise size; firms of all sizes recorded averages
of around 2,100 hours. Actual annual working hours in 1984 were
2,113 for enterprises with 1,000 workers or more, 2,101 hours foj
enterprises with 100-999 employees and 2,130 hours for enterprise:
with 30-99 employees.
(c) Third, Japanese workers utilized on average only half the annual
paid holidays guaranteed by the Labour Standards Law, regardless of
the size of company they worked for. This had a significant impact
on annual overall working hours. In addition, there was no major
revision of statutory working-time standards despite the development
of labour standards in the ILO and European countries. Legal
standards lagged behind those of Western nations, although they
initially had a reformative character.
Most of the domestic features of working-time standards and
practices described above can be understood in the light of the structure
of Japjuiese industry which is divided into a small number of large-scale
enterprises and a large number of smaller firms.
In bigger firms, labour relations are based on a long-term employment system in which firms recruit new graduates as potential employees
and develop their careers with systematic job rotation and training until
the age: of retirement, typically 60. Top executives as well as senior
managers are internally recruited, and the members of an enterprise have
a strong sense of community with common interests. Labour unions are
organized within each enterprise on the basis of this internal labour
market, and wages and other working conditions are negotiated between
an enterprise union and the company. Industrial relations are thus
individual to the company.
224
Meanwhile, smaller firms often exist as the affiliates of or
subcontractors to larger firms. Though they attempt to maintain a longterm employment system, wages and fringe benefits are markedly inferior
to those in larger firms. Labour markets involving smaller firms are more
externalized with a significant degree of worker mobility across enterprises. Moreover, there is less unionization; fragmentation of industrial
relations is even greater in this vast sector.
Amidst this decentralized and multi-layered industrial relations
structure, working-time standards among larger and smaller firms
naturally diverge. Yet, even in the case of larger firms, employees are
very much concerned with the viability of their firms, on which they
depend throughout their entire career. Firms also demand total devotion
from their employees in exchange for assuring them financial security for
life. Thus, employees were willing to respond cooperatively to management's requests for production expansion through longer working hours.
They also did not complain about sacrificing their vacation entitlements
by not using up statutory annual leave.
Needless to say, enterprise unions were concerned about their
fragmented power; they formed industrial federations and national
confederations to overcome their organizational weakness. The "Shunto"
(Spring Wage Offensive) system, through which enterprise-based wage
negotiations within and across industries were coordinated, is one way in
which these industrial and national labour groupings have been able to
increase their organizational strength. Unions have thus been successful
in spreading wage increases established in the leading firms in key
industries to other firms and industries. Until recently, however, unions
gave priority to wage increases and enterprise growth, without attaching
importance to working-time reduction. Employers' requests for overtime
work which generated production and remuneration increases were
typically not resisted. In this sense, labour and management fully took
advantage of lax overtime regulation.
The features of Japanese industrial relations were nurtured during
the period of economic growth which lasted until the first oil crisis, but
they firmly took root during the ensuing period of economic adjustment
in the late 1970s and most of the 1980s. During this time, industries
underwent large-scale rationalization and downsizing of the labour force.
The reduction in regular working time faltered, overtime became more
firmly institutionalized and taking annual leave became more difficult.
Though the product market began its globalization in those years, Japan's
far-eastern location long obscured the working-time gap between it and
the Western nations.
Kazuo Sugeno
225
IV. International pressures from globalization:
The movement towards reduction
in working time since 1987
As; its industries increased product exports during the economic
adjustment period, Japan was strongly criticized by the United States and
Europe for its economic aggression. These criticisms included the long
working hours in Japan which were considered an element of "unfair
competition". The Japanese Government responded to the mounting
trade friction by adopting a policy of restructuring designed to turn the
economy from one primarily geared to exports to one geared primarily
to domestic demand. One aspect of this plan, which was announced
immediately before the Tokyo Summit in 1985, was the drastic reduction
of working hours from an average annual figure of 2,100 hours to a goal
of 1,800 hours.
To promote the change, the Labour Standards Law was revised
twice, in 1987 and 1993. The 1987 revision established a phased programme to reduce weekly maximum working hours from 48 to 40 hours. The
first stage involved a reduction to 46 hours, followed by 44 hours from
fiscal 1992 by a revision of the enforcement ordinance. The Law was
again revised in 1993, setting a 40-hour maximum from fiscal 1994 with
a three-year deferral for smaller undertakings in designated industries.
In addition to lowering the limits on working time, the Government
has also been trying to create an environment more conducive to shorter
working hours, with the cooperation of labour and management in the
relevant industries. These measures include the introduction of a five-day
week for banks and other financial institutions from 1990 and in
government offices from 1992, and the call for reconsideration of business
practices that act as impediments to reductions in working time.
Accordingly, the "Law for the Promotion of Reduction in Working
Hours;" was enacted in 1991 to help enterprises reduce working hours and
increase weekly rest days with subsidy programmes and other measures.
Supporting the pursuit of shorter working time was the widespread
perception that, despite Japanese industry's strong position in the global
market and the achievement of great national wealth, Japanese workers
were not enjoying the quality of working life they deserved. Lengthy
working time was recognized to be an area of Japanese industrial
relations which required structural reforms to enhance worker welfare.
Reduction of working time was thus not only promoted by unions in the
spring offensives but gained basic support even from employer organizations;. Furthermore, severe labour shortages during the economic boom
226
toward the end of the 1980s stimulated the efforts of firms to reduce
working hours since sought-after young workers manifested clear
preference for companies with shorter working hours and more
vacations. The recession that followed the collapse of the "bubble
economy" also led to a reduction in overtime work and reconsideration
of lengthy working-time practices.
As a result, annual working hours have been reduced by more than
40 hours a year since 1988. In 1993, average working hours were 1,913
annually, bringing within reach the goal of 1,800 hours within five years.
The Labour Ministry's monthly labour survey covering undertakings
with 30 employees or more shows that, of 1,913 hours, 1,780 were
regular working hours while 133 were overtime hours. By comparison,
in 1982, Japanese workers put in 2,052 hours annually — 1,866 regular
hours and 186 hours of overtime.
The five-day work week is also spreading steadily. As of December
1992, 68.1 per cent of firms with 1,000 employees or more operated a
five-day working week. This proportion was 26.8 per cent for firms with
100-999 employees and 14.9 per cent for firms with 30-99 employees.
Most firms which have not yet instituted a five-day working week have
introduced five, six or seven rest days over four weeks.
Even the statutory standards of overtime premiums and annual leave
have been raised closer to international norms. The 1993 revision of the
Labour Standards Law provided for overtime and rest-day premium rates
to be increased by government ordinance from the present 25 per cent
to 50 per cent in stages after discussion in the tripartite Central Labour
Standards Council. As a first step, the rest-day work premium was
increased to 35 per cent from fiscal 1994. Regarding annual leave, the
1987 revision of the Law increased the minimum holiday entitlement
from six to ten days and provided for annual leave planning in labourmanagement agreements. The 1993 amendment further reduced the
requirement of continuous service from one year to six months.
V. Deregulation for flexible work scheduling
Reforms of working time standards moderated their excessively
domestic features in favour of greater international compatibility. Yet
such reforms were also accompanied by measures for increasing flexibility
in work scheduling, a common trend observed in industrialized countries.
The 1988 and 1993 revisions of the Labour Standards Law established several flexible working-time schemes to adapt working hours to
Kazuo Sttgeno
227
the remarkable changes in industrial structure, and methods and types of
work, (during the Japanese economy's dynamic development. The new
flexibility measures are also perceived as an effective means for
implementing a drastic reduction in work hours, while maintaining the
productivity required to compete in world markets. Such measures
include a variety of working-time averaging schemes and a flex-time
system.. The Labour Standards Law now sets out four types of averaging
scheme, over a period of one month or less, three months or less, one
year or less and one week. For the first three types, the employer must
fix daily and weekly work schedules in either work rules instituted by
employers or in an agreement with a majority union or a majority
employee representative in the undertaking. There are also daily and
weekly limits on working hours for the second and third averaging
schemes (9 and 54 hours and 8 and 48 hours, respectively). For the fourth
type, which is allowed only for small undertakings in certain service
industries, the employer can vary daily working hours up to 10 hours
within the weekly 44-hour limit. The averaging schemes have been
conventionally used for irregular or lengthy shift-work in certain
industries, but recently they have been more typically used as a means of
reducing annual working hours while accommodating work schedules to
business fluctuations over a certain period. For instance, several department stores combined the busiest months of July and December with the
subsequent slack months and rescheduled working hours and weekly rest
days using the three-month averaging scheme. In so doing, they increased
rest days within each three-month period and reduced annual working
hours significantly.
The flex-time system is even more widespread, particularly among
while-collar workers in larger firms. Under flex-time arrangements,
employees can adjust their working time by starting and finishing at a
time they wish, on condition that they put in a certain number of
working hours over a given period (usually one month). According to a
Labour Ministry survey in 1991, 30.8 per cent of firms employing 1,000
workers or more have adopted such systems.
As in many other industrialized countries, the phenomenon of
flexible work scheduling is part of a more general trend of greater
flexibility and diversity in employment types and work styles. The
remarkable increase in part-time, fixed-term and other atypical employment is another major feature of the trend towards broader flexibility in
the labour market. It is an outcome of combined factors from both
supply and demand sides: employers' efforts to strengthen competitiveness in the changing environment as well as workers' more diversified
values and behaviour.
228
In contrast to trends on the European continent, the trend towards
flexibility in Japan has been proceeding in the context of a structurally
tight labour market. In other words, there has been almost no objective
of work-sharing to combat unemployment. Another characteristic is that,
for working time as well as employment, Japan's post-war labour legislation originally allowed much more flexibility than in Europe. It has thus
been less necessary to relax traditional labour law.
The recent restructuring of business organizations for economic
revitalization has prompted management's demand for the deregulation
of working time of managerial and professional employees. Faced with
a big increase in senior white-collar employees in recent years as well as
the prospect of intensifying international competition, many larger firms
are drastically modifying their egalitarian wage and promotion systems
based on length of service. Firms still intend to maintain the long-term
employment relationship but intend clearly to differentiate wages and
promotions among middle-ranking core employees in accordance with
their responsibilities and achievements. Annual goal-setting and evaluation
of attainment is a typical technique adopted in such competitive personnel systems. Emphasis on employee initiative and autonomy can also
serve as an additional incentive. Employers are thus claiming that some
form of "white-collar exemption" should be introduced in working-time
regulation in Japan. This will become one of the most crucial issues in
protective labour law in the coming decade.
VI. Conclusion
Working-time standards in Japan after the Second World War were
initially internationally oriented with the aim of instituting elements of
modern and democratic industrial relations. As the Japanese economy
underwent significant development and adjustment, specifically domestic
features evolved which mirrored the structure and characteristics of
Japanese industrial relations. The most notable such feature was lengthy
annual working hours which surfaced on the international scene when
Japan became a leading actor in globalized competition. In response to
international criticism, the Government undertook the reduction of
working time through a liberal-corporatism type of collaboration with
labour and management. Legal standards on working time were dramatically improved, creating a new type of regulation for social reform. But
this had to be combined with increased flexibility of labour standards for
more efficient company operation and diversified work-styles. Further-
Kazuo Sugeno
229
more, growing demand for deregulation to revitalize industries in the
midst of intensifying global, competition has provoked a difficult but
unavoidable issue. An emerging pattern of the ongoing reform of social
legislation is not simple deregulation but a complex combination of
regulation and deregulation to enhance worker welfare and strengthen
competiitiveness.1
Araki, T. 1994. "Flexibility in Japanese employment relations and the role of the
judiciary", in Oda, H. (ed.): Japanese commercial law in an era of internationalization,
London/Dordrecht/Boston, Graham & Trotman/Martinus Nijhoff, pp. 249-274.
Blanpain, R.; Koehler. 1988. Legal and contractual limitations to working time in the
European Community member States, Antwerp-London-Frankfurt-Boston-New York,
Kluwer.
Blyton, P. 1985. Changes in working time, London & Sydney, Croom Helm.
ILO. 198:6. "Flexibility in working time", in Conditions of work digest, Vol. 5, pp. 1-19.
—. 1990 "The hours we work: New work schedules in policy and practices", in
Conditions of work digest, Vol. 9, pp. 1-119.
Ingami, T. 1992. "Flextime and personnel management: Greater emphasis on discretionary
work", in Japan Labor Bulletin, Vol. 31, No. 12, pp. 4-8.
Shimadi, H. 1989. "Shorter working hours", in Japan Labor Bulletin, Vol. 28, No. 3,
pp. 3-8.
—. 199;!. "The globalization of business and the new worlds of work", in Japan Labor
Bulletin, Vol. 31, No. 4, pp. 3-8.
Sugeno, K. 1992. "Flexibility in working time: International trends and concepts", in
International Academy of Comparative Law, Xlllth International Congress (Montreal
1990) General Reports, Cowansville, Les editions Yvon Blais Inc., pp. 403-438.
—. 199:>. "Japan: The state's guiding role in socioeconomic development", in Comparative
Labor Law Journal, Vol. 14, No. 3, pp. 302-320.
—. 1994. "The structure of industrial relations in Japan", in Oda, H. (ed.), op. cit.,
pp. 275-317.
Veneziini, B. (ed.). 1992. Law, collective bargaining and labour flexibility in EC countries,
Istituto Poligrafico Zecca dello Stato, Rome.
1
/Jong with intensifying global competition, another significant force that is putting
pressure on social legislation and labour market reform is the unprecedentedly rapid
ageing of society.
Down under against the tide:
Mainstreaming equity and creating
an open Australian economy1
Grant Belchamber
Senior Research Officer
Australian Council of Trade Unions (ACTU)
Melbourne
Australia
I. The background to the 1983 Accord
Australia's "experiment" with a prices and incomes policy began in
March 1983 on the election to office of a federal Labor Government. At
four subsequent federal elections Labor was re-elected. With an electoral
term of three years, the Statement ofAccord by the Australian Labor Party
(ALP, or Labor) and the Australian Council of Trade Unions (ACTU) —
"the Accord" — is, in 1994, 11 going on 13 years old.
The ACTU was established in 1927. Australia's first unions were
formed in the first half of the nineteenth century and the union movement grew to be the world's strongest by the late 1880s. However,
English common law told against the movement during long and bitter
industrial disputes in the early 1890s in the pastoral and maritime
industries and, with the unions defeated, membership collapsed.
Labor is a political party formed in 1892 in response to those losses.
The popular labour movement resolved to supplement industrial struggle
with political struggle through the ballot box, and the ALP was born as
its political wing, to complement its industrial wing, the union movement. That decade, 100 years ago, also saw the start of formal processes
1
For helpful comments on an earlier draft of this article, I thank Geoff Harcourt,
Duncan Campbell, Werner Sengcnberger, Jim Wright and colleagues at the ACTU. All
errors are my own.
232
which culminated (in 1901) in the birth of the Australian nation by the
federation of the continent's six separate colonies.
Labor has held government federally on several occasions since Federation but prior to 1983 its terms in office were brief and tumultuous.2
The Australian labour movement was a broad church. The unions represented all points on the political compass, from avid Moscow-line
communist to virulent Vatican-line anti-communist, and the factions of
the ALP spanned all points in between.
Before 1983, the most recent period of Labor in office had been the
Whitlam government in 1972-75. This was preceded by more than two
decades of conservative coalition governments which held office unbroken for virtually the entire post-war boom period. The three brief
Whitlam years, which were characterized by mistrust, division and strife
between the two wings of the labour movement, coincided with the first
OPEC oil price shock and the emergence worldwide of stagflation which
confounded the so-called "Keynesian orthodoxy" and punctured the
world-wide boom. The seven years which followed Whitlam were
governed federally by a conservative coalition. They were years of "fight
inflation first" policy but, by the turn of 1983, the conservative government had failed, with unemployment over 10 per cent and inflation at
11.5 per cent.
II. Economic and social policy post-1983
The origins of today's Accord can be traced to that period in the late
1970s.3 A shared view emerged amongst significant players in political
Labor and industrial labour that a prices and incomes policy might work
and should be attempted. The operation of such formal and informal
policy approaches in western Europe and Scandinavian countries was
investigated. What was being contemplated was not the imposition of
short-term statutory price and wage controls (as had been tried without
success in the 1960s and 1970s in the USA, Britain and elsewhere), but
2
The Curtin/Chifley governments of 1940-49 may be cited as an exception. Though
not brief, the period in office had its tumults (for example, the Labor Government sent
in troops to break a major national dockside strike) and originating as a war-time
administration was certainly a special case.
3
And even to the early 1970s when a group of academic economists including Eric
Russell, Geoff Harcourt, Phillip Bentley and Barry Hughes developed the "Adelaide
Plan", a prices and income approach to macro-economic management, which was
discussed at high levels in the labour movement.
Grant Belchamber
233
the efficacy of longer-term consensual approaches to economic and social
policy at large.
As it happens, at this time the "rational expectations revolution in
macro-economics" was rolling through the English-speaking industrialized
world. Originating in certain quarters of the United States economics
intelligentsia, this resurgence to full political favour of a dogmatic freemarket:i:;m culminated in the domination of the 1980s world stage by
Britain s Margaret Thatcher and United States President Ronald Reagan.
Australia's avowed Accord ran directly counter to that philosophical
trend. But the blend of policies actually pursued in the name of the
Accord, across the policy spectrum reveals a complex combination of
reliance on, and regulation of, market forces.
Policy with respect to financial and goods markets has been deregulatory and, with few exceptions, fully in accord with the direction of
change which "rational expectations" theory would suggest:
(a)
The Australian dollar was floated in late 1983, to "let the speculators
speculate against themselves" [Hughes, 1993]. Today, the central
monetary authority (the Reserve Bank) intervenes in the foreign
exchange market only to "smooth and test" currency movements,
without targeting any particular exchange rate or rates.
(b)
The domestic banking industry was opened up to foreign competition. Sixteen new foreign banking licences were issued, offered and
accepted in the mid-1980s to shake u p the big four established
domestic banks which were, for all practical purposes, the wholesale
and retail Australian market.
(c)
Regulatory controls on foreign exchange transactions were removed
over the course of 1983 and 1984.
(d) Regulations (other than minimum prudential requirements) governing domestic banking were rescinded by 1989.
(e)
In goods markets, import quotas have been abolished and tariffs
have been cut steadily and continue to fall. In 1983, nominal rate of
tsiriff averaged 13 per cent for manufacturing as a whole, with
nominal duties of 60 per cent for motor vehicles, 81 per cent for
clothing and 102 per cent for footwear. The resultant effective rates
of assistance were estimated to average 22 per cent across manufacturing as a whole, to exceed 250 per cent for footwear and motor
vehicles and to be 222. per cent for clothing [IAC, 1989]. By mid1996, the general tariff rate will have fallen to 5 per cent; by 1 July
234
International
interdependence
2000, tariffs on automobiles will have been cut to 15 per cent and on
textiles, clothing and footwear to 10-25 per cent.
(f)
Australia's negotiating position in the Uruguay Round of GATT
trade talks, and its pivotal role within the Cairns group in that
process, was decidedly deregulatory and anti-interventionist.
Social policy since 1983 reflects a blend of reliance on market forces
and moderation of their extremes, particularly at the lower end of
income distributions. The cuts to and atrophy of welfare programmes
and provision in Reagan's America and Thatcher's Britain was not emulated in Labor's Australia.
(a) The social security system has been overhauled to target poverty
alleviation. Substantial cash payments are now provided to lowincome families with children, whether the parent(s) are working for
wages or receiving pensions or benefits. Old-age pensions have been
increased to their highest-ever level in real terms. Whilst social
security expenditure as a proportion of total Commonwealth budget
outlays rose over the 1980s, public spending fell steadily as a
proportion of GDP. This was a period of fiscal rectitude and (in the
late 1980s) substantial budget surpluses. Transfer payment arrangements were targeted and tightened, with income and assets tests
introduced to reduce the eligibility of higher income groups for
pensions and benefits. The clear goal has been to truncate income
distribution at the lower end, subject to the constraints of responsible fiscal policy, to over-ride the adverse distributional
implications of unfettered market forces.4
(b) Although there was sustained effort directed toward poverty alleviation, the "high flyers" amongst income earners did not have their
wings clipped. The top marginal rate of income tax was cut from 60
per cent to 47 per cent and full dividend imputation introduced,
contributing to the fastest income growth over the past decade being
recorded by the top decile of income earners. (Their gains would
* The distribution of property is also a relevant consideration when the social security
target is poverty alleviation; this is reflected in the imposition of both income tests and
assets tests to determine eligibility for social security benefits. Further, Australia has one
of the world's highest rates of private home ownership (around 70 per cent); so much so
that a clear indicator for incidence of poverty (especially but not only amongst the
elderly) is living in private rental accommodation. The reforms to the social security
system under the Accord provide extra subsidies wherever beneficiaries are living in
private rental quarters. However, there is no wealth tax nor inheritance tax in Australia.
Grant Belchamber
235
have been even greater had the tax base not been repaired and
broadened during the 1980s through the introduction of capital gains
and fringe benefit taxes and closure of important tax loopholes.)
(c)
Medicare, the universal health care system introduced in 1984,
provides patients with freedom of choice with respect to private
general practitioner services, and coexists with private health
insurance funds which support a private hospital system in addition
to the public hospitals. Health expenditure consumes around 8 per
cent of Australian GDP compared with over 12 per cent in the
USA; whilst "queues" exist for treatment of certain chronic disorders,
no acute patients are turned away for lack of health insurance. A
Report on Medicare recommending improvements to it has recently
been completed by a Working Party comprised of representatives of
the A C T U and the federal ALP parliamentary caucus. There is no
doubt that Australia has one of the world's finest health care
systems.
(d)
The education and training system has been subject to continuous
reform across all sectors from schools to technical and vocational
training to higher education:
—
both public and private sector providers deliver education
services at pre-school, primary, secondary, tertiary and vocational levels;
—
the high school retention rate (the proportion of students
completing year 12) rose from one in three in 1983 to two in
three in 1992, and is projected to reach or exceed 80 per cent by
the year 2000;
—
participation in higher education amongst persons aged 15 to 69
years has increased from 6.5 per cent to 9.4 per cent between
1983 and 1992; the number of persons in the same cohort with
post-school qualifications rose from 34 per cent to 41.8 per cent
over the same period [DEET, 1993];
—
the Australian Vocational Certificate Training System is at
present undergoing pilot-testing for general introduction. It is
designed to transform the school-to-work transition and to
establish the "life-long learning" paradigm in Australian workplaces, wherein work and learning continue throughout
working life. This replaces the "front-end learning" model,
wherein learning (schooling and skill formation) preceded
working life, which in turn preceded retirement.
236
(e) "Superannuation" is Australian for "pension fund". Though a universal, publicly-funded old-age pension was introduced in Australia
in 1909, it provides a flat-rate payment with very low replacement
rates. Currently, at 25 per cent of average male earnings, the pension
is at its highest-ever level in real and relative terms. Nevertheless,
alone it allows only very modest living standards in retirement.
In 1986-87, the union movement succeeded in an industrial campaign
to require employers to pay 3 per cent of a worker's earnings to a
superannuation account in the worker's name, vested and preserved
until retirement and portable with any change of employer. In 1991,
the federal Labor government legislated to implement a phased
increase in this entitlement, reaching a 9 per cent employer contribution by 2001 and flagging an intention to require a further 3 per
cent to be paid by workers themselves.
This arrangement will not only alleviate the impact on the public
accounts which would otherwise arise inexorably by 2020 from the
demographic bulge of Australia's retiring baby-boomers. It is also
expected to raise the level of national savings, thus contributing to
an amelioration of the nation's chronic current account deficit on
the balance of payments.5 It should be noted that these superannuation payments do not funnel into a single, central, public
sector fund; they flow to trust funds whose trustees most often are
comprised of employer and union nominees who, in turn, contract
fund management out to competing private sector specialists. Thus,
workers' compulsory savings for retirement add directly to the flow
of funds available to finance private sector investment in Australia,
and lower interest rates below what they might otherwise be.
III. Wages policy under the Accord
If "economic rationalism" or "market fundamentalism" means virtually exclusive reliance by governments on market solutions (because of
a belief that government attempts at regulatory or other interventions
will be rendered nugatory by the compensating adjustments of rational,
private individuals maximizing their own self-interest), then the rejection
5
The current account deficit will be a persistent concern if demand and expected
demand are sufficient to keep investment and output growth at sustained high levels, as
hoped.
Grant Bdchamber
237
of this view under the Accord is no more starkly illustrated than with
respect to labour market policy.
First, prior to 1983, the future growth of wages in Australia was a
major uncertainty facing every business. Shut out of the economic process, umons simply bargained for wages as best they could, each in the
interests of their own members. Wages growth was volatile and procyclical, accelerating in the booms and slowing in the busts. There was
no connection between wages policy and other policy instruments. 6
Si:n.ce 1983, wages policy has been framed with regard to the goals
of economic policy generally, and the growth of wages has been moderate and predictable. This matters greatly for business, especially for those
investors contemplating major new investments. Moderate and predictable wage outcomes for more than 11 years have seen Australia top the
O E C D league tables for jobs growth (notwithstanding the recent recession). There is also evidence that employment growth under the Accord
has been concentrated in relatively well-paying jobs, not amongst
hamburger flippers and shoe shiners and the like, as has been argued to
be the case in the USA over the 1980s [Bluestone & Harrison, 1990; US
Department of Commerce, 1992; A C T U , 1989].
This restraint in wage claims by ordinary working people has contributed in large measure to Australia's lowest rate of inflation in 30 years.
And it has been achieved — uniquely in Australia — in such a way that
the living standards of the weakest and lowest-paid wage-earners had a
greater degree of protection against inflation during the 1980s than did
middle-income earners. 7
6
When full indexation of wages to movements in the cost of living was first
introduced in 1975, the then Arbitration Commission highlighted the linkages between
wages piolicy and the other instruments of economic policy, and stressed the need for
harmonization and consistency between them. But almost immediately, the Conservative
coalition regained federal office at the elections of December 1975, reversing federal
government support for the indexation package and ending any prospect of the policy
harmony being achieved.
7
In the private sector, the Industrial Relations Commission determines legally binding
minimum award rates of pay. In practice, most employers pay more than the bare minimum to their employees. These over-award payments vary greatly from employer to
employer, region to region, industry to industry, by sex and ethnic background and
more. Labour market forces are alive and well in Australia — there is no "mandated wage
uniformity", but rather a relevant structure of legal wage minima.
P r ior to A ward R estructuring (see below), the ad hoc growth of award coverage over
the course of the century had resulted also in differences in minimum award rates for
identicd job classifications. This was a fundamental flaw in a system which purported to
dispense wage justice — how, for instance, can different legal minima for the same
occupation in the same region be fair? These differences fostered claims based on fair
wage comparisons for award wage increases, engendering a chronic instability to the
238
International
interdependence
In 1983, an explicit goal of wage restraint under the Accord was to
raise the share of profits in national income from its then historical lows,
thereby to promote investment and jobs growth. This was achieved by
1985-86, and in the late 1980s the profit share reached all-time record
highs. In 1994, as Australia comes out of an extended recession, the profit
share is close to those record levels reached at the height of the late-1980s
boom. (Indeed, unless new investment soon and substantially improves,
the case in support of continuing wage restraint will have to be reexamined.) Associated with this unparallelled wage restraint throughout
the Accord has been a sustained decline in days lost to industrial disputes.
On average, over the past 11 years, the time lost due to industrial disputes was 60 per cent lower than in the preceding decade. Most recent
official figures show Australia's incidence of industrial dispute (working
days lost per thousand employees) is at its lowest since records commenced 35 years ago.
Second, Award Restructuring since 1988 has totally reshaped the
framework of Award regulation which governs attitudes to work and
training and the way in which work is done in Australian workplaces.
The Award system evolved largely by accident over 80 years in Australia
but, by the mid-1980s, it had become out of tune with modern approaches to work organization and competitive efficiency. Thus, companies
are more flexible, productive and competitive when strategic focus is
placed on team performance rather than individual output, when skills
and competency are emphasized and when authority and responsibility
are devolved to workers through flat management structures. That
quality earns a premium on prices is a truth from the modern world.
Award Restructuring builds these principles into the institutional
framework which sets the rules in Australian workplaces. Through historical coincidence, Australia's system of award regulation in the labour
market evolved contemporaneously in the first half of the twentieth
century with Taylorism and the rise of the production line. By the mid-
wages system.
Award Restructuring sought to remedy the problem through minimum rate
adjustments (MRAs), special increases in certain award rates of pay which are absorbed
against existing over-award payments. This benefited low-paid workers receiving the bare
minimum only (amongst whom women and minorities are prevalent) whilst restoring
coherence and stability to the structure of minimum award rates of pay. By this means,
it was possible to raise the legal floor of the relative wage structure, without raising the
entire economy-wide array of actual wages paid.
Beyond MRAs, the position of weaker and lower paid groups of workers received
relatively greater protection against inflation through flat dollar (rather than percentage)
increases in wages under the Accord during the second half of the 1980s.
Grant Belchamber
239
1980s, Australia had an award system which embodied the "best-practice"
management theories of the 1930s. These inherited award structures
embodied Taylorist management principles — which encouraged demarcation, discouraged skill formation and hindered responsiveness and
flexibility — but they are now either gone or well on the way out.
In each industry the restructured awards (which continue to set
minimum standards in employment) contain only a few, broadly-defined
job classifications, linked by skill levels so as to provide a career path
along which workers may progress throughout working life by acquiring
additional skills and competence. Further, by defining jobs broadly and
building in cooperative workplace arrangements, change and flexibility
in work organization is facilitated. For example, changes such as total
quality management can more readily be introduced, and inventory
management can be based on the principles of "just-in-time" rather than
"just-in-case".
It is one thing to re-write every award in the country (and there are
around 5,500 of them), but it is another to ensure that the scope thus
made available for changing the way work is organized and performed in
each workplace across the country is in fact utilized. Award restructuring
facilitates change. It enables and assists the change process to occur and
grow, but responsibility for actually changing things at any place of work
is ultimately a matter for the workers and management there. Subject to
the broad principles and minimum standards set by restructured awards,
the precise details of changes to take place in any workplace are best
addressed by the people directly involved. Governments and unions and
the Industrial Relations Commissions can help and exhort and advise and
assist, but the people who constitute enterprises (or companies) must
actually do it.
From 1983 to mid-1990, the rules governing operation of the centralized wages system proscribed unions from engaging in direct negotiations
at company level concerning wages8 (though issues like work organization and work practices were not off-limits). To gain the benefits of the
centralized wages system, unions had willingly given the "no extra
8
This is not strictly true; in March 1987 a "two-tier" wages system was instituted. A
precursor to Award Restructuring, this arrangement provided two "first tier" general
wage increases (A$10 per week in March 1987 and A$6 per week in February 1988) with
a "second tier" wage increase of up to 4 per cent available enterprise by enterprise in
return for negotiated and/or arbitrated cost offsets. This resulted in a round of
"productivity bargaining" British-style, which quickly became a bean-counting exercise.
Widely loathed by workers, who were being asked to trade off meal breaks and smokos
and wai;h-up time and the like, this episode was spent by mid-1988 with no chance of its
renewal, in the foreseeable future.
240
claims" commitment required of them, but by late 1990 inflation had
fallen to very low levels and the system based on these commitments had
run its course. It was time to implement award restructuring.
The fact is that, whilst people will agree in the abstract on the need
for change, they are generally more resistant to it when it concerns them
directly. For all the rhetoric, reason and power of logic that can be
brought to bear, we are more likely to achieve the change required if
there is some incentive or reward or sharing of the gains on the bargaining table. Since mid-1990, there has been that scope. The recent Accords
have reaffirmed the objective of enterprise bargaining, and the Industrial
Relations Act 1988 has been rewritten to promote it with the enactment
of the Industrial Relations Reform Act.9 The union movement supports
this trend away from centralized wage adjustments. This is only partly
because inflation is low and the consequent erosion of the purchasing
power of (especially low-paid) workers' wages is much slower and
because workers stand to gain from Award Restructuring. It is also
because enterprise bargaining requires the presence at workplaces of
union officials, which is regarded as an essential element of the renewal
of the movement itself into the next century.
Agreements exist in the public and private sector, in large and small
companies. They exist in industries as diverse as stevedoring, vehicle
manufacturing, oil, chemicals, heavy engineering, metals fabrication, steel,
mining, meat, telecommunications, postal services, warehousing, retail,
and transport, to list just some. Presently, more than one million of
Australia's 6.5 million wage and salary earners are covered by a formal
agreement; and the Government's objective is to have around 80 per cent
of employees working under a workplace agreement by the end of 1996
[Keating, 1994, p. 29]. These agreements embrace details of changes in
work arrangements and work performance as well as rates of pay.
Overwhelmingly, agreements are conducted by "single bargaining units"
(SBUs) representing workers at each place of work which (in view of
traditional multi-union coverage in most workplaces) is a major efficiency
gain in its own right.
The scope of the Accord is reflected again in the most recent agreements [ACTU, 1993; 1994] which (i) recommit the parties to promotion
of direct bargaining; (ii) cement agreement to two A$8.00 per week
9
The Accord commits the union movement to pursue wage outcomes consistent with
maintaining Australian inflation in line with our trading partners, and to put job creation
ahead of all other claims. Inherent in this dual commitment is the ACTU belief that the
Australian union movement is sufficiently well "networked" to be able to deliver on both
parts of it.
Grant Belchamber
241
"safety net adjustments" to award rates of pay to provide the floor to the
wages system in enterprises/sectors where agreement is not reached; and
(iii) commits the Government in principle to the introduction of paid
maternity leave in the next federal budget (May 1995).
IV. Efficiency and fairness: The Australian way
One direct consequence of enterprise bargaining pursuant to an efficiency agenda in Australia will be not only greater efficiency in
production and improved competitiveness in goods and services markets,
but also "a thousand micro-economic price adjustments" in the structure
of actual wage relativities (though not of award minima). The direction
of causation involved is the opposite of that assumed by orthodox economic theory. This posits flexibility in wage relativities leading to greater
allocative efficiency in labour markets (as scarce labour supplies are bid
to where they will be most profitably employed) and thus to greater efficiency and competitiveness in the macro-economy. It is the latter vision
which underpins calls for the abolition of minimum wage laws, such as
those which resulted in the freezing of the US statutory minimum wage
under Presidents Reagan and Bush, from 1 January 1981 to 1 April 1990,
and in the abolition of minimum wage laws altogether in Thatcher's
Britain in 1985.
Amongst labour economists and across countries, evidence of this
allocative role of wage relativities has long been searched for, but with
staggeringly little success. This has generated a burgeoning theoretical
literature (search theory, bargaining theory, human capital theory, implicit contract theory, Reddaway's "job opportunities" theory, segmented
markets, efficiency wages, ...) in a remarkable process of secondary
elaboration on the orthodox simple market model. The change process
being described here draws not at all on the orthodox theoretical conception. The Accord directly targets wages growth at the level of the
macro-economic aggregates, and efficiency at workplace level, whilst
mainlining the integrity and relevance of legal minimum rates of pay.
This continuing labour market revolution in Australia has taken
place against a backdrop of incessant social change. The participation rate
for women has risen steadily in Australia as in other countries, while that
for men has declined a little. The incidence of part-time work has grown
rapidly. Private sector employment has risen faster than in any other
country but public sector employment has been flat or has declined.
242
More teenagers are staying longer at school; fewer work full-time but
many more work part-time.
These developments are common to other industrialized countries,
but are more pronounced in Australia because of our high rates of population growth. In no way can these developments in Australian labour
market demographics be attributed to the award system or the industrial
tribunals; award provisions apply to part-time work and employment of
young people and women, and the same changes are happening in
countries without similar social institutions.
Conservative commentators and policy analysts in Australia point
to the continuation of the country's exotic award system as evidence that
Labor under the Accord has failed the test of labour market reform.
Although deregulation of financial and goods markets is acknowledged,
a fundamental and irresistible tension is seen to exist because the labour
market has not been deregulated in the sense of abolition of the award
system which sets the regulatory parameters in Australian labour markets. The United States labour market is raised as an icon in this regard.
The Thatcher anti-union laws and their failure to generate a sustainable
jobs boom are ignored, though it is at least arguable that Thatcher's
labour market policy approach was highly regulatory in terms of new
and onerous legal requirements placed on unions to complement the
"deregulatory" abolition of minimum wage laws. The observable facts are
that different markets work in different ways and the differences between
labour and financial markets (for example) are evidently more important
in understanding their respective functionings than their similarities.
Policy premised on the contrary view will be misguided and unhelpful.
In this respect, the labour market reforms pursued in Australia over
the past decade have been fully consonant with those enduring truths
embodied in the ILO's Declaration of Philadelphia, in particular that
"labour is not a commodity" and that "poverty anywhere constitutes a
danger to prosperity everywhere".
The Reagan and Thatcher approaches to policy were predicated on
market solutions in the pursuit of freedom and efficiency as propounded
in the libertarian economics of Friedman, von Hayek and the like. On
this view, markets — not governments (read regulation) — are societies'
best guarantors of individual freedom, and markets are the shortest and
surest route to efficiency and growth and prosperity. Down under, and
in large measure against the tide of economic opinion in the 1980s,
Australian Labor governments in Accord with the union movement have
pursued efficiency and fairness. The Accord embraces market forces and
market solutions in the quest for a dynamic, competitive economic base
for Australia in the twenty-first century. But it is not a religious belief
Grant Belchamber
243
held in spite of the evidence and in denial of the consequences. Where
markets work sluggishly or generate social outcomes unacceptable in the
land of the "fair go", there has been effort to rectify the situation.
As to individual freedom, as any visitor to this country soon recognizes, Australia is amongst the most tolerant and free societies on earth.
The preposition that Australia is embarked on some "road to serfdom"
is simply laughable. In this context, a ditty from the Great Depression
comes 1:0 mind:
Australia's a free land, free without a doubt —
If you haven't got your dinner, you're free to go without!
If it be a mark of free societies that there are beggars on the streets and
homeless people in the parks, then a fair and caring society will be happy
to fail that test and seek to bring all its citizens and their children along
for the iride through history. A fair society's path to prosperity will not
intentionally be paved with the poverty of its unfortunate constituents.
ACTU. 1989. National Wage Case submission.
ACTU/'Federal Labor Government. 1993. "Putting jobs First" Accord Agreement 19931996, (Accord Mark VH), March, ACTU House, Melbourne.
—. 1994. Agreement between the Federal Labor Government and the Australian Council of
Trade Unions Regarding Continuing Implementation of Accord Mark VII — "Putting
Jobs First", 1 June.
Belchamber, G. 1992. A decade of change — Australian trade unions and global free trade,
D144/92, November, ACTU House, Melbourne.
Bluestone, B; Harrison, B. 1990. "The growth of low-wage employment: 1963-86", in
American Economic Review, May.
DEET. 1.993. National report on Australia's higher education sector, Department of
Employment, Education and Training, AGPS Canberra, May.
Hughes, B. 1993. "Remarks made in chairing the Float Ten Years On session of the ABE
Annual Forecsting Conference", Regent Hotel, Sydney, 7 December.
LAC. 1989. Annual Report 1988/89, Industries Assistance Commission, AGPS, Canberra.
Keating. P. 1994. Working nation — The White Paper on Employment and Growth, AGPS,
Canberra.
US Department of Commerce. 1992. Workers with low earnings: 1964 to 1990, Current
Population Reports Series, No. 178, US Department of Commerce, Bureau of the
Census, March, p. 60.
Labour standards, global markets
and labour laws in Europe
Lord Wedderburn, QC, FBA
Professor of Law Emeritus
London School of Economics & Political Science
University of London
United Kingdom
I. Introduction
No labour standards are more important in a democratic society
than the right to freedom of association and the right to strike located
within it. These are essential! means for workers and their organizations
to promote and defend their economic and social interests [ILO, 1985,
para. 363]. The ILO has supported these values not only by legalistic
methods, but also by a "strong emphasis on technical cooperation and
education" [Valticos, 1969, p. 201], methods which "in relation to
freedom of association and industrial relations, have an importance
altogether disproportionate to their immediate impact on the body of law
and precedent" [Jenks, 1967]. Personal intercessions by the DirectorGenera] and by officials have aimed to put an end to infringements of
freedom of association [Pouyat, 1982, p. 301].
The Director-General of the ILO pointed out in 1994 that social
justice can be undermined in many ways, but the means of restoring it
are just as diverse [ILO, 1994]. Despite doubts about the compatibility of
"economic development" and trade union freedoms (laid bare by Caire
[1977]), the standards of what are now Conventions No. 87, No. 98 and
No. 154, on freedom of association and the rights to organize and bargain
collectively, and of Convention No. 135 and Recommendation No. 143,
on workers' representatives, remain points of reference perceived both as
"fundamental human rights" and as operational values "in the interest of
workers, employers and the State" [ILO/SIDA, 1974, p. 10]. How are
246
these standards faring in the global market? Could they be better
protected at European level?
The ILO Tripartite Declaration of Principles on Multinational Enterprises and Social Policy (1977, and Annex 1987) and the OECD
Guidelines on Employment and Industrial Relations (1976, revised 1984)
lent further support, the first endorsing the applicability of labour
standards to multinational enterprises which was "decisive" [G. LyonCaen, 1991, p. 163]. Of course, enjoyment of basic freedoms "can easily
be prevented through national laws" — witness the ban in many jurisdictions on sympathy or secondary industrial action [Muchlinski, 1994,
Ch. 13], widespread even in the liberal 1970s [Davies, 1993, p. 214]
though rarely, if ever, justifiable within ILO principles [Ben Israel, 1987,
pp. 93-98].1 The right to strike that lies within the heart of freedom of
association may, according to ILO interpretation, legitimately be
restricted by national laws without infringing fundamental standards, for
example by procedures such as secret ballots, or by special rules applying
to a narrow sector of "essential services". The recent Italian Law 146 of
1990 goes wider in its mixture of executive ordinances, guided collective
bargaining and special Commission in seeking a new "balancing of
interests in defence of personal, constitutional rights", as against the
exercise of the constitutional right to strike, to resolve the "fragmented
relations of the tertiary society" [Treu, 1993, p. 350].
A right to strike is a necessary part of the "three-dimensional
concept" encompassing rights (or liberties) to organize, to bargain and to
strike. It is no accident that the ILO freedom to associate imports a
"right to organize"; it is a concept of greater teleological content than
mere freedom of assembly [Wedderburn, 1991a, Ch. 6]. Collective
bargaining is sometimes described as an attempt to "place the employeremployee relationship on an equal basis" [Ben-Israel, 1987, p. 27] or, as
the German Constitutional Court put it, on an "almost fair level of
negotiations on wage and work conditions" (26 June 1991, cited in
Zachert [1993, p. 21]). The Webbs, too, spoke of bargaining "between
equally expert negotiators" [Webb & Webb, 1914, p. 842]. That ambitious
formulation — equality is more difficult to measure than inequality —
serves to cast doubt across any given implementation of the standards. Of
course, the object of diminishing the inequality in bargaining power is
elementary. High authority has it that the "main object of labour law has
1
Yet see the ban in s. 224 TULRCA 1992 (Britain), and ss. 63, 64 Employment
Contracts Act 1991 (New Zealand); but contrast the relaxation in Industrial Relations
Reform Act, 1993, Part 6, especially s. 43 (Australia). On the draconian ban in the State
of Victoria, see Pittard [1993, p. 173].
Lord Wedderburn
247
always been and, I venture to say always will be, to be a countervailing
force to counteract the inequality of bargaining power which is inherent
and must be inherent in the employment relationship" [Kahn-Freund,
1972, p. 8].
77. Collective bargaining and worker representation
That task of achieving "almost-fairness" in bargaining strength with
a domestic employer is always difficult to achieve in reality. With a
multinational employer it is much more daunting, even if the two necessary factors are present — secure autonomous organizational strength, and
nationd. laws with effective remedies to enforce fundamental labour
rights. In a majority of European jurisdictions some fundamental
standards receive constitutional protection. But even if national rhetoric
applauds such provisions, in reality there are often gaps or lapses. Except
for Italy, Luxembourg and France, all of the member States of the European Community were the subject of criticism by the ILO Committee
on Freedom of Association or by the Committee of Experts on the Application of Conventions and Recommendations for significant breaches
of basic Conventions in the decade following 1981 [Creighton, 1992].
Among them, the case of the United Kingdom is notorious and
extreme. In report after report from 1988 the Experts have shown how
the new United Kingdom prohibition on trade union membership for
certain public servants, extension of laws which permitted — and permit
— the dismissal of workers who take part in strikes, bans on many forms
of industrial action altogether, and provisions making unlawful the
operation of autonomous union rules against members, contravened
principles of freedom of association [ILO, 1989, 1991; Ewing, 1989]. To
this we must now add the new legal duty on trade unions to identify to
the employer each of the workers it is calling out on strike [TULRCA,
1992, s. 20]. No doubt other countries fail to observe standards; but the
divergence in observance among member States of the European Union
is somewhat alarming. That alarm is compounded when the United Kingdom trumpets the message that the road to economic recovery is
deregulation of workers' employment rights, calling on other States to
follow its lead.
Of course, diversity of labour relations systems among these
countries, with its roots in the history of their different labour
movements and associated social relations [Wedderburn, 1991a, Chs. 3,
10; Maire, 1985, pp. 54-55], makes the idea of immediate harmonization
248
of labour laws a millennialist, even futile, venture [see Weiss, 1991].
"Heterogenous traditions and present tendencies" seem to rule out even
convergence of practices [Treu, 1990, p. 351]. But the ILO has long
disposed of methods of inserting floors of labour standards into diverse
systems, allowing jurisdictions to implement them by varied mechanisms,
by collective agreements even if not binding erga omnes. This is a method
accepted too by the Council of Europe in regard to its Social Charter
1961 [Adinolfi, 1988]. In comparable systems one finds a twofold
meaning of freedom of association — an individual freedom and a collective freedom, "the collective dimension being implicit in its
destination" [Sciarra, 1990, p. 664]. However, in the Council of Europe
instruments, attention has concentrated on the individual aspects in the
Convention on Human Rights 1950 (art. 11), as against the collective side
of the coin, the Social Charter 1961 (arts. 5 and 6).
The apparent acceptance of this weak European Community status
quo on freedom of association by the executive Commission in the 1980s
and 1990s is, therefore, highly surprising and so far not satisfactorily
explained. Without free, autonomous and strong trade unions, the social
dialogue becomes a monologue. Despite a reference to the "inspiration"
of ILO Conventions in the Community Charter of Fundamental Social
Rights (1989, Preamble 10th recital), the Charter's standards relating to
these freedoms, instead of incorporating ILO standards throughout as had
first been intended, were very narrowly drawn. The Commission's
Action Programme for the social dimension of the single market said
merely that the right to freedom of association and collective bargaining
already "exists in all the member States of the Community". Responsibility for implementation of such rights, including the right to strike,
rested "with the member States in accordance with their national traditions and policies". The Commission limited its own role to a nonbinding "Communication" on collective bargaining [Commission of the
European Communities, 1989, pp. 29, 30], still unpublished five years
later (the Commission lists it as "not yet scheduled" [Commission of the
European Communities, 1993b, Annex III, p. 96]).
Instead, a somewhat alarming agenda appeared in the Draft of 1993
when the Commission asked whether, in an open, competitive world
economy, "the basic principles of free collective bargaining, state action
to protect workers and statutory or voluntary workers' representatives
in workplaces are still recognized as the pillars of the European social
contract?" [Commission of the European Communities, 1993a, p. 32].
Such questions were much softened in the final version [Commission of
the European Communities, 1993b]. But explicit adherence to ILO
standards was still noticeably lacking in the latest plans — indeed, many
Lord Wedderburn
249
interesting and revealing questions were cast out of the Paper in those
three weeks. The debate between those who see high social standards as
no "optional extra" but as an "integral part of the competitive economic
model", and those who think they "have become unaffordable", is not
entirely concluded [Commission of the European Communities, 1993b,
pp. 1446]. The Community response is also not clear to the concern that
investment capital will be attracted "towards countries where the
regulations and controls over employment relationships appear more
favourable, even more indulgent, compared with one's own protective
regime'' [Santoni, 1992, p. 713].
The Green Paper [Commission of the European Communities,
1993b, p. 41] recognizes that transnational enterprises "could adopt a 'cost
cutting' strategy" reducing employment standards. But, it says, they may
not do so if member States "adapt labour law and practices in such a way
as to constitute a positive incentive" to them to adopt new processes,
while preserving "fundamental objectives of preserving workers' rights".
The relationship to expectations on maintenance of ILO standards is uncertain. Similarly, in discussing the problem of "social clauses" the
Community "will continue to play a constructive role" through "existing
international institutions such as the ILO". Exploitation of workers
should not be an "instrument of competition" (some countries have child
labour and forced labour [ibid p. 69]); the references in the earlier draft
to countries which "forbid freedom of association and the right to strike"
[Commission of the European Communities, 1993a, p. 84] seem to be
omitted from the final version. There have, of course, been culprits even
among member States offending against standards on freedom of association.
In an adumbration of the confusions over GATT, which may help
to explain the ambiguous stance of the European Union at Marrakesh,
the "difficult" controversy over "social clauses" is recounted — protecting
workers from exploitation on the one hand and, on the other, concern
about disguised "self-interested tendency towards protectionism"
[Commission of the European Communities, 1993b, p. 69]. This problem
will grow as "globalization of economic production gains momentum".
But, unhappily, there is nothing here to suggest that the Community will
take or propose original steps to solve this contradiction without
substantial sacrifice of international standards. Indeed, some anxiety may
be permitted at the comment that protection of safety standards or of
working hours belong to a "different debate". We may contrast the
original proposals of the ILO's Director-General on this dilemma of the
globalized economy, for new, flexible machinery based upon freedom of
association, basic social protection and effective "reciprocity" from
250
developed countries, alongside practical help such as assistance for school
facilities, to diminish recourse to child labour [ILO, 1994, pp. 54-66].
In the days when the social dimension was being explained to European labour movements, the impression was that the Community was
pursuing parallel aims. Today, a degree of non-intervention on international labour standards contrasts with the energy devoted to the
integration of the economic market as the dominant theme of the
"Europe project" [Lo Faro, 1992, p. 32]. The "social dimension" in
general has lost the place accorded in principle to it by earlier summit
Councils. Since Maastricht, proposals for a European Fundamental Rights
Act (as in the stimulating draft by Daubler [1991]) have been firmly
marginalized. The failure to construct a floor of fundamental labour
rights at Community level — which is not at all incompatible with
commonsense "subsidiarity" — became manifest as the "social dialogue"
debate developed.
In the same period, the Commission sought a dominant role for
itself in representation of member States and the Community in the ILO
itself on many other matters where competence is shared.2 Since national
delegations are tripartite, the necessary consultations plainly require
action by member States which the Commission can hardly effect. Nor
has it been wholly clear what the Commission's principles are for recognizing trade unions or employers' associations as "representative" parties
to Community "social dialogue". The European Court has also left this
hot potato aside.3 Directives necessarily refer to the great diversity of
national law or practice. Belatedly, the Commission initiated some
slender studies on this matter [Commission of the European Communities, 1993d, Annexes I, II, III to Annex 3]. Apart from UNICE and
CEEP, already recognized, several employers' organizations claimed
European representativeness, for example for small businesses or
"commerce"; and CEEP, already recognized in the public sector, has no
affiliates in the United Kingdom. No doubt "the social partners
concerned will be those who agree to negotiate with each other"
[Commission of the European Communities, 1993d, para 31].
In 1993, the Commission set out its three-point general principle:
bodies should be "cross industry" or cross-category at European level;
2
See Opinion 2/91, ILO Convention No. 170, Safety in the Use of Chemicals at Work,
19 March 1993, ECJ, paras. 10, 34. The Commission later proposed to maintain its central
role in regard to most ILO matters: see Commission, 1994 (sections 4 and 5, which would
considerably limit the representative and voting capacities of member States in the ILO).
3
See, for example, Opinion 2/91, 19 March 1933, ECJ, paras. 29-32.
Lord Wedderburn
251
have adequate structures to participate in consultation; and comprise
organizations that are an integral and recognized part of member State
social partner structures, with the capacity to negotiate agreements and
as far as possible represent all member States [Commission of the European Communities, 1993d, para. 24]. The opportunity to require satisfaction of ILO standards was not taken. Conventions Nos. 87 and 98
were once more sidelined. Nor do the Commission's test require a
democratic structure to represent the members of the employer's association or trade union.
Representativeness is a complex issue, as the ILO knows full well
[Morgenstern, 1986], but these tests do not seem adequate. They are topdown dialogue. An association might satisfy the criteria when it did not
properly represent its members or their policies. These may be costly
mistakes. Already an organization of "independent" trade unions has
complained of exclusive rights given to the ETUC [European Industrial
Relations Review, 1993, No. 236, p. 3] — but, as it had no members in
three States, it was judged to be of "little significance" [Commission of
the European Communities, 1993d, Annex I, p. 17]. Arguments about
representativeness may grow if multinationals decide to resist trade
unions oriented towards bargaining which aim to bring them to the
Euro-bargaining table. Allegations may even be made that the Commission is favouring client groups. Again, what about unions denied full
freedom in their domestic law (some public employees' unions, for
example)? Europe can surely learn here from ILO experience, developed
by its Credentials Committee since the first dispute over workers'
representatives from the Netherlands in 1922. In jurisdictions with a legal
concept of "representative unions", definitions vary substantially (as in
France, Belgium, Spain and Italy — where a new amendment is imminent). Elsewhere, solutions emerge in industrial practice (as in Germany
or Denmark) but these do not always supplant the deficiencies of multiunionism, as in the United Kingdom. The problem will take on a new
urgency if the European Court of Justice rejects the argument that duties
of consultation under Directive 75/129 extend only to unions which an
employer chooses to recognize.
Perhaps friction between the ILO and the Community was inevitable, for they approach common social problems in different ways (see
in the: context of regulation, or protection, of women's night work
[Marchand, 1993]). The ILO, a United Nations agency, is an organization
which has as a principal objective "the improvement of working conditions", whilst also paying attention to the conditions of competition. The
"EEC and its social action programme", plus its concern with external
competence, inherit "a logic centred upon the necessities of economic
252
integration" [Maupain, 1990, p. 52]. The European Court of Justice may
have lent support to this analysis in holding that the carrying on by a
State of an economic activity giving privileges to its workers, when
others would do the work for less, can contravene the competition rules
of the Treaty/ The ruling is interpreted by some authorities as justifying
"social dumping" by switching work to a cheaper labour market irrespective of labour standards [A. Lyon-Caen & G. Lyon-Caen, 1993, p. 265].
This form of competition is something which neither the Community,
the ILO Tripartite Declaration nor the OECD Guidelines may be able
to prevent [Muchlinski, 1994]. Are these signs that competition law could
weaken the protective elements of labour law?
III. Freedom of association and trade union rights
The ILO attaches central importance to freedom of association not
merely of itself but as an active principle infusing many other fields: "It
is a determining factor in the application of standards" [Pouyat, 1982,
p. 287]. Proposals that "international trade agreements should include a
social clause laying down minimum or fair labour standards" are of
central relevance to ILO ambitions of "social justice, the abolition of
poverty and equality" [Servais, 1989, pp. 423, 432]; the Director-General's
sensitive Report in 1994 reflects the determination to pursue such international methods in a realistic manner [ILO, 1994, Part 3]. The plans for
a "social dimension" to the single market of the Community (often
becalmed in debates about the proper Treaty base [Wedderburn, 1990,
p. 51]) carried distant echoes of proposals for such strategies. But in 1993
the Commission appeared to report (in addition to the uncertain remarks
mentioned above) that the issue of "a labour clause in public contracts"
had been "dealt with" in its modest proposals to protect transfrontier
"posted" workers, a small segment of the wider issue [Commission of the
European Communities, 1993b, Annex II, p. 96]. So, too, its White Paper
on growth, competitiveness and employment, whilst supporting multilateral cooperation policies to "increase social standards", in the quest for
international competitiveness appears to reject social clauses as an object
of trade policy [Commission of the European Communities, 1993c, pp. 112-
4
Merci Convenzionali Porto di Genova v. Siderurgica Gabbriella SpA (179/90) 10
December 1991, especially on art. 90 of the Treaty: see G. Lyon-Caen [1992] Dr. Ouvr.
313 (the monopoly for workers who were nationals was of course contrary to article 48
of the Treaty).
Lord Wedderbum
253
113]. Even the ambitious new machinery for "social dialogue" in the
Maastricht Social Chapter (Protocol and Agreement of the Eleven)
needed, according to experienced observers, the addition of "a systematic
elaboration of fundamental social principles... derived from the ESC (the
Council of Europe Social Charter 1961), the Community Charter (1989)
as well as the Conventions and Recommendations of the ILO" in order
to ensure that the social dialogue is "not simply to be an alibi for
inaction" [Hepple, 1993, pp. 35-36]. Others have judged it may have
become a "fairy tale" after a history of "weaknesses and incoherence"
[Szyszczak, 1994, p. 326].
The Commission's Green Paper of 1993, by asking "What sort of a
society do Europeans want?", provided a golden opportunity to reinforce
basic standards. But it was taken in rhetorical rather than concrete terms.
There is little in the Green Paper [Commission of the European
Communities, 1993b] or in its White Paper [Commission of the European
Communities, 1993c, especially Chs. 6 and 9] about freedom of association, though such standards must be central to strategies based on
"social dialogue". Manifestly, the social dialogue can be a "democratization" [Commission of the European Communities, 1993b, p. 61] only
if the organizations concerned are "representative" and "speak for their
members". The fact is that blemishes remain in this area and freedom of
association in the Community has not been strengthened recently by
European labour law (see the annual reports on national situations:
National Reports [1991, 1992, 1993]). Significant positive steps have been
taken, it is true, at State level (such as the Italian Workers' Statute 1970,
the French Lois Auroux, 1982 and laws in States emerging from authoritarian regimes, in Spain in 1980 and 1985, Portugal in 1975-79 and, more
slowly, Greece in 1990). In the United Kingdom, many steps backwards
from ILO standards were taken in 1980-93 and other States have been in
default | Creighton, 1992]. As such, this has excited little interest in the
Community.
As; the crisis in the world economy developed, and unemployment
with it. the influence and membership of trade unions was weakened and
suffered further from the globalization of trade and production. This has
put the fate of the social dialogue more often in the hands of the
employers. There have been few countervailing initiatives at Community
level to ensure that representatives of workers could bring to the table a
voice effective for such a transnational dialogue. One recent exception has
been the support for consultative groups in transnational enterprises and
the funds made available under a budget heading initiated (at the instigation of the European Parliament) to finance cross-frontier meetings of
workers' representatives in multinationals [European Industrial Relations
254
Review, 1993, p. 15]. These workers' groups may acquire ambitions wider
than exchange of information [Roberts, 1993, p. 181]. But, more generally, it seems to be assumed that the "social dialogue" will find parties
ready, willing and able — and suitably representative — to take part in
these industrial conversations. When the eligibility of organizations for
the dialogue is further discussed, it would be useful if ILO standards had
by then been adopted to afford the Commission some expert guidelines
for distributing the invitations.
The labour law position in the United Kingdom is atypical, but
nevertheless instructive. Traditionally, and contrary to the policies of the
last decade, the UK sought observance of many ILO standards through
practice rather than positive law. It found as early as 1921 that it was
unable to ratify by legislation the very first Convention on the 48-hour
week — which, ironically, it had supported strongly on the foundation
of the ILO — because of the pressures of the by-then dominant "voluntarism" of collective bargaining; as workers were afraid that legal control
over working time would threaten their overtime pay [Alcock, 1971,
pp. 50-58]. History bequeathed few positive rights to those workers or
their unions — no right to organize, to bargain or to strike, but only
"immunities" protecting those organizing union activity against some
liabilities available to the "masters". This left the courts free to discover
unprotected liabilities in the deeper complexities of the common law
[Wedderburn, 1986, Ch. 8]. Carried over into the modern law, also, was
a form of individual "freedom of contract" which still incorporated many
of the master's rights that had their origins in the criminal law
[Wedderburn, 1993].
To become even a slender countervailing force to aggregations of
international capital, which benefit from transnational global markets,
product differentiation, corporate personality and limited liability, a
union needs the support of national and international organization and
favourable local legal systems. Even so, its perspectives may remain
overwhelmingly national while multinational "corporate networks may
act as surrogates for markets", promoting efficiency between and within
multinational enterprises [Dunning, 1993, p. 615]. United Kingdom
unions customarily relied before 1980 on their organizational strength to
claim the liberties which the law does not directly grant; for them,
therefore, a weakness engendered by economic recession is of particular
importance. As for ILO Conventions, even after ratification, these do not
form part of applicable domestic law in the United Kingdom until
incorporated by specific legislation.
It was, of course, quite another matter to become a member State of
the European Community, since Community law is binding once
Lord Wedderburn
255
promulgated by a legitimate source — Commission, Council or Court.
Some in the United Kingdom therefore thought that accession to the EC
would lead readily towards the adoption of a new positive law to enforce
minimum standards and spoke grandiosely of a "European law". It has to
be added that some had in mind not positive rights for unions but the
"negative" right of workers not to be members of a trade union; the
litigation in 1981 under the Council of Europe's Convention of Human
Rights contrasted with a continuing lack of protection for collective
organization for United Kingdom workers in their trade unions [von
Prondzynski, 1989, Chs. 7, 10]. The traditional ideology whereby trade
unions preferred the law not to "intervene" in UK industrial relations
then interacted with three different interventions: the defeat of a
Conservative government's "corporatist" plans for a regulated structure
in 1971-74, the cautious Labour government's "social contract" policies
in the later 1970s and the sharp intervention of a "free market" ideology
from a very different Conservative government in the 1980s. This meani
that union claims to positive rights were scarcely heard before th(.
multinational enterprise entered into its inheritance in the global
economy [Wedderburn, 1991a, Ch. 4].
The United Kingdom legal system today places no obligation upon
employers to bargain with a union. That feature is not by itself so
distinctive, since no overall duty to bargain exists in many others laws
(Germany, Italy or Ireland). However, practice makes for pressure in
some countries and particular laws may require bargaining in some
situations (as in Italy). The changes in labour law generally between 1980
and 1993 represented a "step by step" reversal in seven major statutes of
traditional policy [Davies & Freedland, 1993], which did not end with
the era of Lady Thatcher. They were marked by consistent policies of:
first, deregulation of employment protection laws to relieve "burdens on
business"; second, decollectivization of labour market institutions (such
as the few exceptional institutions on "fair wages"); and third, restrictive
regulation of trade unions to reduce their impact upon the economic
market, with restrictions enforced against the funds of unions themselves
so as to avoid the risk of creating "martyrs" among members or officials.
This programme included an unusually influential ideological compass —
the philosophy of Hayek [Wedderburn, 1991a, Ch. 8]. No doubt the
economic crisis might have turned the mind of any United Kingdom
government towards "deregulation". But it was this specific philosophy
and its teachings about "spontaneous order", the discipline of the "free"
markei; and the trade union threat to its proper functioning, which
fuelled the drive against trade unions and sustained the belief that it was
right.
256
The laws of 1980-90 (consolidated in TULRCA [1992]) turned the
legal balance strongly in favour of the employer who now enjoyed the
bargaining edge. Powers to dismiss striking workers were expanded in
1990, despite the ILO Experts' condemnation of even the less severe,
previous law; and after 1988 all forms of union security arrangement
became unenforceable [Wedderburn, 1991a, pp. 215-216]. The law of 1993
gives permission to employers to discriminate in respect of employment
conditions against employees who are members of a union [TURER Act,
1993, Si 13; Auerbach 1993] and further regulates internal union affairs,
limiting severely the grounds on which unions may accept or exclude
members [ibid, s.14]. This has caused the TUC to rewrite its inter-union
"disputes procedures" and in many eyes threatens "the ability of mainstream unions to function as a movement coordinating their activities
rather than as separate competing units" [Simpson, 1993, p. 199].
The trend is towards "derecognition" by employers of established
unions. Though often partial [Claydon, 1989] and in part a function of
the closure of larger establishments [Beaumont & Harris, 1991], it is now
identified as a general trend [Millward, 1994]. For the first time, there is
a growing refusal to recognize unions for bargaining [Millward et al.,
1992]. That tendency in turn is connected to the transnationalization of
the enterprises. Six out of ten large companies in the United Kingdom
are multinational, of which some two-thirds are based in the UK [Sisson
et al., 1992]. Such companies, wherever control is based, are less likely
than a solely UK company to bargain on all sites with a union and are
more likely to be found decentralizing bargaining structures and
"narrowing the scope of the negotiating agenda" [Marginson et al., 1993b,
pp. 67-68]. Indeed, employers in Europe have been found to be increasingly "attracted to the non-union option" [Sussex, 1989, p. 80]. It appears
that the pattern may be following the deunionization curve which has
blighted employment rights in the United States [Craver, 1993].
Thus, traditional United Kingdom labour law was atypical in its
origins and shape, with few positive rights and little regulatory legislation
other than legislation on health and safety at work. In that exceptional
area, because of developments in the Factory Acts of the nineteenth
century, it has experienced, if anything, more regulation than most other
European systems [Wedderburn, 1991a, pp. 354-364]. This has been
largely accepted in the new legislation of 1980-93. But that legislation
disestablished many of the collective "immunities", the protections that
provided the only conditions of legality for unions. It imposed new
controls over internal union affairs far beyond anything needed for
individual members' interests. It also repealed the exceptional collective
labour market institution, leaving only the tripartite Health and Safety
Lord Wtxiderburn
257
Commission and the conciliation service, ACAS (shorn of its function to
improve collective bargaining). It was a policy devoted to confronting
social problems predominantly by reference to the competitive market.
Its rhetoric, well suited to the common law preference for "freedom of
contract", proclaimed that there was no alternative to these policies.
However, Irish legislation of 1991 on part-time workers demonstrates
that a jurisdiction administering this type of common law can move in
the opposite direction if it wishes to increase protection for vulnerable
workers; [Wilkinson, 1992].
At: root, the new United Kingdom policy does not believe in "consensus" politics, recalling that Hayek held the activities of "what are now
euphemistically called 'social partners' (Sozialpartner)" to be "essentially
anti-social activities" [Hayek, 1979, Vol. Ill, p. 143]. In the jurisdictions
of most member States, such sentiments have not been dominant, though
there is no guarantee they will not become more influential (can we
guarantee we shall not encounter some Forza Europa before 2000?)
Policy in continental member States has tended to set out from the
premise: that employment protection must not be obliterated by the
market [Veneziani, 1993, pp. 304-310]. Efforts to make the labour market
more "flexible" have been approached with a view to achieving reform
without destroying consensus and tripartism. The need in the 1980s was
to mould the collective institutions to meet new demands of the market
"to build a labour law which both participates in the values of our
industrial relations culture and also is able to marry together objectives
of social purpose and objectives of efficiency {gli objettivi di socialita e gli
objettivi di efficienza)" [Giugni, 1982].
Such a policy involves modification of employment protection rights
won in the previous decades by way of a garantismo flessibile, opening
fixed labour standards to derogation but by collective agreements, not
individual arrangements where the employer is bound to dominate (as
with "solidarity contracts" [Giugni, 1991, pp. 159-160]). Such changes, it
is said, must be made to avoid the day coming when "people will ask
whether it is really necessary to take refuge in Mummy-State (mammismo
di Stato) rather than clutch at what Adam Smith called the invisible hand
of the market" [Ghezzi & Romagnoli, 1992, p. 18, p. 60].
In general, in most of the continental systems "everywhere we look,
we are witnessing the search for new types of regulatory formulation
aimed! at ensuring the necessary economic flexibility and social cohesion"
[Chouraqui, 1993, p. 144].
Protective legislation has been amended in many countries and
"atypical" or non-standard forms of employment admitted, notably fixedterm, casual or part-time (Meulders & Plasman [1993, p. 49] in the EEC
258
and, in France, Michon & Ramaux [1993, p. 93]). Modifications and
proposals for amendment of laws on working time, atypical working
relationships, dismissals, unemployment or related payments are regularly
reported now from France, Spain, Italy, Germany, Luxembourg, Belgium
and even Denmark.5 But in these jurisdictions, except Denmark, the
system of legal regulation of employment is such that when amendments
are made deregulation leads to a reregulation. The law of 1985 introducing flexibility on temporary employment in Germany — a legal
system offering a "positively regulated and comprehensive paradigm of
employment" [Miickenberger & Deakin, 1989, p. 163] — made it natural
that new conditions should be enacted. Contrast "deregulation" in the
English and common law sense, usually a sweeping away of legislation to
leave matters to the "free contract" of the employer and employee
[Wedderburn, 1991a, pp. 361-362].
Such peculiarities of labour law, and its interaction with the
common law, may illuminate some of the United Kingdom reactions to
parts of the Community's legal programme. For example, the ease with
which any UK government can live with the extensive Community
regulation on health and safety at work is due to the historical
circumstance — an outcome of struggles against exploitation of workers,
especially children and women, in the nineteenth century — that
regulation of health and safety came to be regarded as a proper subject
for legislation. It continued to be so regarded even after the settlement in
the United Kingdom that other working conditions belonged primarily
to collective bargaining. The introduction into the Treaty of Rome of
article 118A by the Single European Act led therefore to no juridical
shock in the UK. Similarly, but for different reasons, the United
Kingdom has from the outset accepted, though occasionally tardily, the
need to amend the law for progressively equal treatment of men and
women in employment —that fortunate bequest in article 119 originating
in 1957 from the demands of France and the influence of the ILO [KahnFreund, 1960, pp. 326-330]. Equality of the sexes (though unhappily not
of the races) is now a "fundamental right" in the Community [Docksey,
1991].
5
See, for recent examples: European Industrial Relations Review (1993), No. 229,
p. 27; No. 231, pp. 11, 19, 25; No. 232, pp. 4, 8; No. 235, pp. 7, 14; No. 236, pp. 10, 11,
15; No. 237, p. 7; No. 239, p. 9; (1992) No. 223, p. 7; No. 227, p. 6; (1991) No. 195, p.
17; No. 200, p. 27; (1990) No. 196, p. 22, and (1989), No. 182, p. 19; No. 191, p. 13.
Lord Wedderburn
259
IV. European labour standards
Outside those areas of safety and sex equality, and the principle of
free movement for workers, the purpose of Community intervention in
labour relations becomes more uncertain, especially in the era of the
multinationals. In fact, the rest of the promised land of "European social
law" has scarcely been mapped, let alone occupied. The speeches which
converted many sceptics to the social dimension, proclaiming "the establishment of a platform of guaranteed social rights ... such as every
worker's right to be covered by a collective agreement" [Delors, 1988,
p. 570] have given way now to less concrete exhortations for consensus
[Flynn, 1993]. Some parts of the edifice by which workers were to be
protected are missing altogether — for example, the machinery for participation in the employer's decision-making process, via optional models,
in the draft Fifth Directive on Harmonization of Company Law and the
draft Statute (Directive and Regulation) on the Societas Europaea (the
European Company, which would be optional for transnational capital).
These company law plans began life in the 1960s and 1970s and were
thought to be important to "facilitate the restructuring of European
industry after 1992" [Hall, 1990, p. 35]. A few years back in 1988, they
were 'on the table of the Council" ("I hope for a quick decision", said
Mr. Delors [1988, p. 570]); yet they still moulder on the shelf with no
promise of progress.
The resistance of the United Kingdom is one, but only one, reason
for such delays. Multinational employers have contributed and other
governments have been tardy or even obstructive from time to time —
understandably if they felt their social institutions to be threatened, as
when the German Government fears dilution of its domestic pattern of
"codetermination". The programme to protect the conditions of
"atypical" workers, proposals born a decade ago to give them, for
example, conditions pro rata with standard employees, has fared little
better, even at a time when their exploitation is increasing. One Directive
(91/383) on safety at work for temporaries has been adopted; the others
are still "under discussion" [Commission of the European Communities,
1993b, 95, Annex III]. Proposals for parental leave met a similar fate. The
Treaty base on safety at work did allow a Directive on pregnant women
and new mothers to make some progress (92/85), even though it also
dealt with a wide range of rights; so, too, a Directive protecting young
persons at work, though United Kingdom voices characteristically
doubted if "paid leave" could possibly be "a question of the health or
safety of workers" [House of Lords Select Committee, 1993, p. 11].
260
Free movement of workers, like equality at work for men and
women, is manifestly a fundamental right in Community labour law
[A. Lyon-Caen, 1991, p. 55]. It has given rise to a large body of law, not
least complex social security regulations interacting with the highly
diverse national laws [Balandi, 1993]. But, in the context of a multinational economy, free movement, important though it may be to
particular workers, finds its rationale in competition. It does little to
provide a countervailing bargaining power. "The logical correlative of a
freedom of trans-national movement for 'capital' would be a legal right
of trans-national, collective industrial action for 'labour'" [Wedderburn,
1972, p. 19]. That remains a compelling reason entitling workers in the
Community to Community support for their collective freedoms at ILO
level.
Two other Directives have long been seen as the centrepiece of
European labour law. They require from employers, inter alia, consultation with employees' representatives about collective dismissals
(75/129, amended 92/56) and in a transfer of the undertaking (77/187).
Such a transfer passes employment contracts to the new employer —
unless the employees object, in which case national law is permitted to
deprive them of both job and remedy [TURER Act 1993, s. 33(4)].
Neither of these Directives is unequivocally a measure for the protection
of workers. Whereas some Directives fall entirely into that protective
category — for example, those protecting employees' interests in the
employer's insolvency (80/987) or requiring written particulars of
employment (91/533) — the Directives of 1975 and 1977 are arguably
based less upon worker protection than upon market integration and
competition. Analysis has found in them a "subservience to the process
of market integration" which dominates social policy [Davies, 1993,
p. 346; see also Wedderburn, 1991b]. Of the 1975 Directive, Mancini
(now a judge of the European Court of Justice) wrote significantly: "A
market intended to enjoy genuine freedom of competition will not
function if, in the regions to which it extends, employment is subject to
excessively disparate rules" [Mancini, 1985, p. 2]. And again: "If a country
can authorize redundancies on less stringent conditions than other
countries its industry will be given an incalculable advantage" [ibid. p. 12].
A similar rationale can be found for Directive 77/187 [see Davies,
1989]. Harmonizing labour laws is thereby made a function of competition principles and European labour standards come primarily to be, not
protective of workers, but contingent upon the operation of the market.
Two further instruments — The Working Time Directive (93/104)
and the proposed Directive on information and consultation of
employees through European-level works councils in Community-scale
Lord Wedderburn
261
undertakings — illustrate the need to read the small print of Directives
in determining their nature. Whether they can be adopted by a "qualified
majority vote" is less important than whether they afford effective
protection. Because control over working hours was vigorously opposed
by the United Kingdom and was weakened at the instance of other
States, the text of Directive 93/104 includes many derogations and optouts. Most of these involve derogation by collective agreement in
accordance with the practice of many continental labour law systems. But
one also finds the right of a member State, subject to safety considerations, to allow an employer and employee by individual agreement
to displace the limit of 48 working hours in a week (art. 18(l)(b) — to be
reviewed within seven years). Uncertainties abound — for example,
whether a worker's individual consent can be given or revoked through
a collective agreement [see Bercusson, 1994]. It may be argued that such
provision is needed because legal intervention must be "flexible" in the
interests of competitiveness. But it is a defeat for a collective, consensus
approach.
The proposed Directive for European works councils would require
large multinational employers with employees in various member States
to inform and consult employees' representatives. It would demand
consultation, not negotiation; negotiation appears primarily in plans for
the social partners at European level. A similar scheme in a wider form
appeared in the "Vredeling" proposals of 1980, ultimately defeated after
vigorous campaigns by opponents including United States corporations
[Docksey, 1986]. More modest proposals are here advanced by the Commission, limited to the transnational plane of Euro-undertakings or
groups [Hall, 1990; 1992a], primarily in undertakings employing 1,000
employees within the Community and at least 100 in each of two or
more member States. More complex, similar provisions bring in groups
of companies. Ironically, these proposals would apply particularly to
United Kingdom multinational companies; out of 880 undertakings
falling; within the primary definition some 330 are UK [Sisson et al.,
1992; Marginson et al., 1993a].
The multinationals have fought hard over this text. For instance,
once the proposal included a wide range of subjects for obligatory
consultation, including "any management proposal likely to have serious
consequences for the interests of the employees" (Annex, art. 3). But in
later drafts this list of minimum requirements does not apply if
management and the workers' "special negotiating body" (SNB) reach an
agreement on the form or content of the works council (art. 6(1)). By not
imposing minima where there is "agreement", the text about the negotiation is severely weakened. SNB members are to be appointed or elected
262
by workers "in accordance with national legislation or practice",
kaleidoscopic in their character where they exist (none exist nationally
in the United Kingdom). The scope of the proposal must not be misunderstood. The Directive has always made clear that a "final decision
shall be exclusively the responsibility of... management" (Annex, art. 3).
Most so-called "prototype" councils set up already by some multinationals
offer information, less often consultation [Marginson et al., 1993a].
Beyond that, UK employers are opposed to "bolstering the tradition of
collectivism" [Hall, 1992b, p. 561] and multinationals generally are
"implacably opposed" to the "development of European-level collective
bargaining" [Gold & Hall, 1992, p. 65].
The Eleven may adopt this Directive under the Protocol and
Agreement on social policy (the Social Chapter), given an initiative by
the Commission. If so, UK multinationals would not wholly escape
because it would apply to their undertakings sited in the eleven States
where it was binding. Some believe this might lead them also to observe
the same works council requirements by voluntary arrangements also in
the United Kingdom [Marginson et al., 1993a]. But whilst they gain on
information and consultation, trade unions may see the range of issues
for collective bargaining continue to shrink.
Some commentators believe that European labour law has made a
new beginning in the Social Chapter Agreement and Working Time
Directive. In the former, the Eleven are given competence to adopt
Directives by adapted qualified majority on some employment matters,
including consultation rights and "working conditions", and on others by
unanimous vote on proposals by the Commission (art. 2(1)(2)(3)). But it
is notable that the Agreement specifically excludes from this machinery
"the right of association, the right to strike or to impose lock-outs" (art.
2(6)). Here again, freedom of association is denied the protection of
Community machinery, albeit in the form of the Eleven's adapted
Directive under article 2 of the Agreement — even if all Eleven agree.
The reasons for this are not obvious. It is the mysterious and unexplained
policy which has for a decade excluded this most basic labour standard
from formal Community entrenchment. Room is also made for collective
agreements at Community level, for example in sectoral bargains, to be
applied throughout the different States (art. 4(2)). Contrary to general
belief, this idea is not wholly new [see Durand, 1959; also Gunter, 1972]
but its revival offers another revealing analysis. Surprisingly, States are
not required to be guarantors of enforcement if collective bargaining fails
to reach everyone affected (see the Declaration attached to art. 4(2)); the
opposite is the case for implementation of standards created by Directives, as there the State is required to be ready to effect implementation
Lord Wedderburn
263
by law (art. 2(4)). This is a matter, as we shall see, of some importance
given the diversity of the systems of labour relations law in the various
States.
It i:> crucial, therefore, that the Commission has indicated it will play
a decisive role in the outcome of this new style and level of bargaining,
once agreement has been reached at Community level.
The question of whether an agreement between social partners representing
certain occupational categories or sectors constitutes a sufficient base for the
Commission to suspend its legislative action will have to be examined on a caseby-case basis with particular regard to the nature and scope of the proposal and
the potential impact of any agreement between the social partners concerned on
the issue which the proposals seek to address [Commission of the European
Communities, 1993d, para. 30].
Clearly, the Commission remains in the driving seat. The question is not
whether the Commission will promote legislation when the social
partners wish it, but whether it will stay its hand and "suspend"
legislative action on their agreement. It has been suggested that in such
"bargaining in the shadow of the law" we see the base of a new Community labour law [Bercusson, 1992]. Supra-national law-making and
collective bargaining will interact with national labour laws to make "a
common labour law of Europe" [Bercusson, 1993].
This is a noble vision, much to be desired. But there are unaddressed
problems, not least the juridical effects of such agreements when the
Commission stays its hand. It is not merely that the legal effects between
the collective parties will vary from system to system in Europe — from
the (normally) unenforceable United Kingdom to the legally dominant
German collective agreement. It is not even that bargaining itself has
always depended upon the willingness or compulsion of employers
(German labour law realistically describes a trade union as a body having
sufficient "social force" to compel negotiation and does not, as many
believe, impose a legal duty to bargain). The normative effects of
collective agreements diverge even more sharply. None of the systems is
"better" than the others; each touches sensitive nerves in its own society.
United Kingdom agreements are incorporated into the enforceable individual employment contract only if the latter so stipulates, expressly or
by implication, and the individual employment contract can exclude all
or part: of the benefit of the collective agreement. This is also the case in
Ireland. [Kerr & Whyte, 1985, p. 159].
At the other end of the spectrum, in France collective agreements
apply by law to relevant employers and workers. Even an express disclaimer by a worker cannot displace the minimum benefit of legal norms
264
in a relevant collective agreement; they bind the employer with "immediate, imperative and automatic" effect [G. Lyon-Caen & Pelissier, 1992,
pp. 750-752] and variation is permitted only if more favourable to the
worker. Spanish law, too, applies collective terms "by legal normative
effect, not by contract" [Sala Franco, 1990, p. 201]. German normative
provisions provide benefits to employees who are members of the negotiating union [Weiss, 1987, p. 126], though the courts limit disadvantages
arising from interaction of collective agreements, works accords and
individual contracts by a subtle ranking of individual and collective rights
[Daubler, 1989, p. 526]. The Commission's revised draft for the "Posted
Workers" Directive proposed to treat as binding collective agreements
that are "generally applicable" in the area or industry in question for
workers "posted" across frontiers [Bercusson, 1993, p. 258]. Significantly,
that is something less than implementation erga omnes and is not
dissimilar to the relaxed approach of the Council of Europe and the ILO.
Diversity goes further. For example, in France, Germany, the
Netherlands and Spain, collective agreements may be "extended" to new
employers by a minister's order. At present this is not possible in Italy,
Denmark, or the United Kingdom [Wedderburn & Sciarra, 1988]. And
agreements whereby unions can bargain for benefits to union members
only are lawful in some States (Belgium, the Netherlands, Spain), in
others unlawful (Germany, France, Portugal, probably Italy and since
1988 — effectively — the United Kingdom). Among the divergent jurisdictions clearly some adjustment is needed in any attempt to transpose
European-level collective agreements to national level. Otherwise this
would result in a crazy-paving of conflicting rights and benefits at
individual level, with no equivalence in benefits for workers in a given
sector in the various countries [Wedderburn, 1992].
This degree of national normative chaos would presumably be a
factor influencing the Commission on whether to propose legislation to
implement a Euro-level framework agreement [Commission of the European Communities, 1993d]. Legislation by way of Decision or Directive
might — though with difficulty — call the national systems into
equivalence of implementation, and in that event the classic prediction
that the legislative method would triumph over collective bargaining
[Webb & Webb, 1914], which long seemed erroneous, might at this level
come true after all. Even so, the risk remains that the effects of Eurolevel agreements would themselves become increasingly divergent at
national level.
Because of such difficulties, a strategy is often preferred of
"coordinated bargaining" within the different systems, rather than
supranational agreements [Weiss, 1991, p. 59]. Indeed, the early proposals
Lord Wedderburn
265
for "framework agreements" [Delors, 1985] began as little more than
recommended standards for coordinated action (compare Durand [1959]).
Now the Commission's affirmation that it will decide on a "case-by-case"
basis whether a Euro-level agreement under the Social Chapter Agreement is to be implemented by legislation, or by national collective
bargaining, adds another dimension [Commission of the European Communities, 1993d, paras. 30, 31]. Despite the industrious accumulation of
paper in the Byzantine corridors of the Commission and the tired offices
of member States, unions and employers, European labour law has not
yet found effective transnational machinery for collective agreements. It
may yet do so; obstruction such as that of the United Kingdom Government will not prevent progress provided strategy builds from the bottom,
not the top. That is why ILO Conventions Nos. 87 and 98 are precedents to which Brussels could better attend.
V. Conclusion
The anchor of Community policy must be the rights to organize in
free association, to strike and to negotiate collectively. Without these,
there can be no bargaining or "dialogue" [Wedderburn, 1991a] and policy
on European labour law, however well intentioned, will shrivel at the
touch of multinational employers. Working people require more than the
boumy of information and consultation, useful though those may be.
ILO principles need to be enforced as transnational "fundamental rights"
to guanintee a voice in negotiation for those workers' free representatives.
Equally, labour law policy needs the spontaneous strength which springs
only from men and women in autonomous association; active support at
an informed workplace is a necessary condition for policies that inevitably lace hard choices. The same standards should be accepted by the
Court, the Commission and the Council (the Court has hinted, in regard
to Community employees, that this course is one which it could adopt).6
European industry has much to gain from a workforce that holds
these rights in common. Labour movements that say they need no more
guarantees than those they already enjoy in domestic laws or constitu-
6
See Maurissen and European Public Service Union v. Court of Auditors (193 and
194/87) (1990) ECR95; Union Syndical-Amalgamated European Public Service Union,Massa
and Kortner v. Council (175/73) (1974) ECR 917 (First Chamber), and see Advocate
General Trabucchi in Syndicat General du Personnel des Organismes Europeens v.
Commission (18/74) (1974) ECR 933, 947-9.
266
International
interdependence
tions should be asked, before they spurn protection all might share in
common, to pause and consider the history of movements which mistakenly thought their trade union rights were impregnable. No "social
dialogue" will prosper that builds — as has too often been the case —
bureaucratically from the top down. That is one reason for the crisis of
"representativeness". Nor can European labour law rest on sure foundations until these rights are central to Community-level dialogue (not set
aside as in the Action Programme or excluded, as by the Social Chapter
Agreement).
Once it was optimistically thought the signs pointed "unmistakably
to a European labour law in which the control of jobs is increasingly
removed from the power of management to the power of organized
labour" [Hepple, 1977, p. 500]. Now commentators find it is "open to
question" whether the Social Charter and Action Programme constitute
"an overall external reference point for socially active labour law", and
without a "coherent body of principles" the Community is "unable to
evolve a framework of collective labour law" [Davies & Freedland, 1993,
pp. 662-663]. Coherence can be built only on the rock of the ILO
Conventions. The sacrifices required from workers in the "restructuring"
of enterprises and "flexibilization" of the labour market entitle them
anew to these rights, as yet inadequately represented legally at European
level in vague dicta about "fundamental rights". Even a mere Recommendation on freedom of association and collective bargaining would be
a contribution. Without active promotion of these standards, there is a
hole in the heart of the "social dimension". They should become a
European floor to the richly diverse national traditions, entrenched
transnationally for the protection of working people.
Adolfini, A. 1988. "The implementation of social policy directives through collective
agreements", in Common Market Law Review, Vol. 25, p. 291.
Alcock, A. 1971. A history of the International Labour Organization, London, MacMillan.
Auerbach, S. 1993. Derecognition and personal contracts: Fighting tactics and the law,
Institute of Employment Rights.
Balandi, G. 1993. "La previdenza integrative in alcuni paesi europei", in Lavoro e Diritto,
No. 81.
Beaumont, P.; Harris, R. 1991. "Trade union recognition and employment contraction:
Britain, 1980-84", in British Journal of Industrial Relations, Vol. 29, p. 49.
Ben-Israel, R. 1987. International labour standards: The case of freedom to strike, Deventer,
Kluwer.
Lord
Wedderbum
267
Bercusson, B. 1992. "Maastricht: A fundamental change in European labour law", in
Industrial Relations Journal, Vol. 23, p. 177.
—. 1993. 'European labour law and sectoral bargaining", in Industrial Relations Journal,
Vol. 24, p. 257.
—. 1994. The Working Time Directive and collective bargaining, Parts I and II, Institute of
Employment Rights.
Caire, G. 1977. Freedom of association and economic development, Geneva, International
Labour Office.
Chouraqui, A. 1993. "Legal flexibility versus social cohesion? The overall regulatory
complex for freedom of expression in France", in International Journal of Comparative
Labour Law and Industrial Relations, Vol. 9, p. 130.
Claydon, T. 1989. "Union derecognition in Britain in the 1980s", in British Journal of
Industrial Relations, Vol. 27, p. 214.
Commission of the European Communities. 1989. Action programme on the fundamental
social rights of workers, COM (89) 568, Social Europe 1/90(3).
—. 1993a.. Draft Green Paper: European social policy: Options for the Union, 26 October.
—. 1993l:i. Green Paper: European social policy: Options for the Union, 17 November, COM
(93) 551.
—. 1993c. White Paper: Growth, competitiveness, employment: The challenges and ways
forward into the 21st century, EC Bulletin, Supp. 6/93.
—. 1993d. Communication concerning the application of the Agreement on Social Policy
presented to the Council and the European Parliament, 14 December, COM (93) 600
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in Central and Eastern Europe
Lajos Hethy
Political Secretary of State
Ministry of Labour
Budapest
Hungary
L Introduction
The mission of international labour standards is to promote balanced
economic growth and social progress, to orient governments, workers
and employers in shaping employment relationships, and to regulate
labour issues of international character. The Declaration of Philadelphia
(1944), which was subsequently incorporated in the ILO Constitution,
laid down the basic principles for those standards. They include: "labour
is not a commodity"; "freedom of expression and of association are
essentia to sustained progress"; "poverty anywhere constitutes a danger
to prosperity everywhere"; and "all human beings, irrespective of race,
creed or sex, have the right to pursue both their material well-being and
their spiritual development in conditions of freedom and dignity, of
economic security and equal opportunity". In addition, international
labour standards are seen as a means of preventing international competition at the expense of labour and of promoting fair competition (at least
as far £is labour costs are concerned). There is also a belief that they may
contribute to "social justice" and "social peace" [Valticos & Samson,
1993]. The major source of such standards are the Conventions and
Recommendations of the ILO, which has adopted 174 Conventions and
181 Recommendations since 1919. Two among them — the Freedom of
Association and Protection of the Right to Organize Convention, No. 87,
and the Right to Organize and Collective Bargaining Convention, No. 98
— have been and still are of outstanding importance for the Central and
Eastern European region.
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interdependence
In Central and Eastern Europe transformation or transition1 — the
concepts themselves are debated — appeared initially to be a relatively
simple process; experts as well as politicians of the developed democracies
and market economies offered ready-made recipes of how to build up the
institutions of political pluralism and a "free" market economy. It was
realized only later that transformation had social preconditions and
consequences and that workers' and employers' organizations are as
essential elements of the tissue of the new social and political systems as,
let us say, the political parties themselves. It was also emphasized that
macro-economic stabilization and transformation were unlikely to proceed smoothly and effectively unless the policies enjoy support, or at least
tolerance, on the part of society, including workers and employers. The
ILO has made a considerable contribution to the thinking process in
which the social dimensions of economic transformation have become
visible and (more or less) part of recent political approaches.2
II. The transformation of industrial relations
In Central and Eastern Europe the transformation of industrial
relations, regarding actors and institutions, has experienced a period of
"erosion" and "fragmentation" followed by a period of "reconstruction"
and "consolidation".
To proceed with "reconstruction" and "consolidation" firm political
and social foundations are needed. Short-term political and organizational
interests cannot serve as a basis. Long-term philosophies and values, based
on historical traditions and conventions, may constitute solid pillars on
which progress can be based if they are shared by the main participants
in industrial relations. A major difficulty the region is faced with lies,
however, in the division of societies regarding the evaluation of their
roots and past; there are sharp debates over which traditions could or
1
The debates about "transition" and "transformation" are far from being abstract:
they are related to practical dilemmas concerning the process of change. "Transition"
suggests a direct switchover to the model(s) existing in Western Europe. In "transformation" local conditions (such as the legacy of the past, culture, values, traditions, etc.) have
an important role, which is why the "final product" of the process cannot be exactly
foreseen. This author prefers the concept of "transformation" to transition.
2
See Social Institutions for Economic Reform in Central and Eastern Europe, Round
Table Conference, International Institute for Labour Studies (Geneva)/Institute of Labour
Research (Budapest), Balatonfiired, 29 Sept.-l Oct. 1991 (published in Labour and Society,
Geneva, No. 4, 1991).
Laps Hetby
275
should tie accepted or rejected. Such divisions are present even in those
countries where positive changes in industrial relations and labour
legislation began prior to the political events of 1989-90 (Hungary and
Poland) and where market economy-type industrial relations have long
pre-war traditions (former Czechoslovakia, Hungary, Poland). As both
governments and social partners are uncertain as to their own roots,3
values and traditions, international examples — those of the Western
European market economies — and international standards tend to have
far greater importance. In this respect, international labour standards have
the obvious advantage that they are unambiguous (national practices,
even in Western Europe, are highly differentiated), progressive (crystallizing the universally progressive elements of national approaches) and
flexible (they can be adapted to widely differing national political, social
and economic conditions). That is why international labour standards, in
the present uncertainty, may function as important contributors to
change in Central and Eastern Europe.
The Central and Eastern European region — the former "socialist
countries", or "centrally planned economy countries" (CPECs) as they
were called by the ILO — faced the challenge of international labour
standards as early as the 1950s and 1960s. Their relationship with the
ILO was and remained uneasy and controversial for decades. The trade
unions, as is widely known, were closely dependent on the ruling Communist parties. They assumed a "transmission belt" function, handing
down central political policy to the workers and making efforts to
mobilize them in the service of centrally-set political targets, at the same
time as performing certain social political functions. They had a highly
centralized organization, governed by the principle of "democratic
centralism", and were dominated by one national trade union council.
Free collective bargaining was strictly limited by the system of economic
guidance (keeping wage determination within the authority of the plan
and state agencies) as well as by labour legislation. When the "socialist"
countries ratified a set of ILO Conventions in the 1950s and 1960s (including Conventions Nos. 87 and 98 referred to above) these countries
and their governments automatically locked themselves into the supervisory machinery of the ILO.4
3
Workers' participation, for example, has had deep historical roots in most of the
region, but it has been rejected — at least for the moment — in labour legislation even
in such countries as former Czechoslovakia and Bulgaria.
4
For example, Conventions No. 87 and 98 were ratified by Hungary in 1957.
276
The Organization's legal experts continued to raise (well-founded)
doubts for decades over the extent to which legislation provided for
freedom of association and free bargaining. The governments concerned
continued to argue that the unified (monolithic) trade union organization
was to meet the demand of workers, and that the relationship between
the unions and the party was political rather than legal, though both
pursued identical interests. It was also said that the implementation of
international labour standards involved different means in the socialist
and capitalist systems [Simpson, 1991].
Debates about violations of international labour standards reached
their climax when political crises in the region touched heavily upon
labour. Political reprisals after the Prague Spring in Czechoslovakia (1968)
repeatedly raised the issue of discrimination in employment. In Poland
the question of freedom of association was bitterly debated when the
Jaruzelski regime, after the introduction of the martial law (1981), forced
underground Solidarity, the first important genuinely independent trade
union of the region. The relevant ILO committee gave Poland's 1982
Trade Union Act close scrutiny and found certain clauses in it —
permitting only one trade union at an enterprise and imposing strict
limitations on the right to strike — contradictory to international labour
standards [ibid.].
The ILO (and the international labour standards adopted by it) have
been faced for the past 75 years in differing countries of the world with
a double challenge: on the one hand, to be universal and require an
advance upon existing practices and, on the other hand, to take into
consideration the wide variety of political, social and economic conditions in member countries. The organization, as far as we can judge in
the Central and Eastern European context, started out from the wise
philosophy that living contacts and permanent dialogue constituted the
most solid guarantees for the adoption and implementation of international standards in the given regional (national) settings. It is an open
question to what extent such contacts, often including fierce debates,
contributed to the positive developments in industrial relations and
labour legislation after (and in some countries prior to) the political
changes in 1989-90. At present there exists no convincing and unambiguous answer; it is difficult to go beyond mere speculation. Still we have
the (we hope not unfounded) feeling that the dialogue in the 1970s and
1980s had a helpful impact.
In Hungary, positive changes began as early as the end of the 1960s,
triggered by the Economic Reform of 1968. A 20-year gradual liberalization of industrial relations followed: there was a shift in the trade unions'
role towards becoming genuine representatives of workers, legal obstacles
Laps Hetloy
277
to collective bargaining were gradually removed, etc. In 1983, the ILO
sent a mission to Hungary. Its report revealed some doubts but made a
positive evaluation of the progress achieved [ILO, 1984]. The mission's
report was well received by the then Hungarian Government (and Communist Party leadership), thus presumably opening up new opportunities
for reform. The International Organization of Employers (IOE), a major
constituent of the ILO, seemed to have adopted a similar philosophy at
a later stage in 1991 when it accepted as members two employers'
organizations from Hungary and Poland, even though they probably
failed to meet fully all the requirements. However, they embodied a
strong promise of further progress in this direction, especially with
assistance from the IOE. A relationship between the ICFTU and two
Hungarian trade union confederations — a new one, the League, and an
old (reformed) one, MSZOSZ — has recently been established on the
basis of similar approaches.
III. Progress towards international labour standards
Political and economic change in Central and Eastern Europe in
1989-90 has profoundly reshaped the actors and institutions of industrial
relations as well as labour legislation [Hethy, 1993]. It is difficult,
however, to provide a reliable overall evaluation of the current situation,
as comparative analyses of new labour legislation and new emerging practices are missing. A certain period of time is also needed to be in the
position to identify and describe lasting patterns. What we see at present
seems to be a general progress, or at least a genuine intention to achieve
it, in the implementation of international labour standards.
(a) Trade unions (as well as employers' associations) have become independent, autonomous organizations relying on their membership, or
at least they are on the way to being so. Their dependence on the
Communist Parties (and the State) has ceased. Trade unions' rights
are protected by law: such legislation, in general, follows Western
European examples.
(b) In all countries, regulations have been adopted to promote "free"
collective bargaining. At the same time, obstacles to the process
continue to exist in the economic guidance system; the State has
maintained its control over wages in several countries as part of
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International
interdependence
policies to achieve macro-economic stabilization and lower inflation.5
(c) The right to strike has been regulated all over the region. However,
workers often face a number of legal obstacles that discourage
recourse to lawful industrial action, as a result of which unlawful
industrial action has reached imposing proportions in several
countries [OECD, 1993].
(d) To deal with high and rapidly growing unemployment most national
governments lay great emphasis on active employment policy. (It is
another question what results can be expected from such measures
and how they can be financed in the context of dramatic falls in
GDP and industrial output.) [Standing, 1993, p. 16]
(e) Several countries have introduced obligatory (guaranteed) minimum
wages to be paid to all workers (employees). It should be noted,
however, that guaranteed minimum wages have lagged behind the
minimum costs of living all over the region [Vaughan-Whitehead,
1993].
What the OECD has said about new laws on bargaining and strikes
in Czechoslovakia, Hungary and Poland seems to be true for the entire
region and all its labour legislation. "All the three Central and Eastern
European countries have already enacted laws to constrain collective
bargaining conduct and have done so in advance of the subject matter of
collective bargaining itself being fully defined and established.
Consequently, it is difficult empirically to assess their workability or
acceptability..." [OECD, 1993, p. 10].
In the past, a strong wall was erected between Central and Eastern
Europe and the implementation of certain basic international labour
standards by the totalitarian political system. The system dominated both
industrial relations and labour legislation, which is why most of these
standards could be implemented at best only formally. Its collapse, in
principle, removed that wall. In practice, however, not all those factors
which were obstacles to progress have been eliminated and new ones
have since appeared.
5
In Hungary, wage determination by the State was gradually liberalized (deregulated)
in 1989-91. It was suspended in 1992 and — on the basis of a tripartite agreement —
totally eliminated in 1993. In other countries (e.g. Bulgaria, Poland) it has been
maintained.
Laps
Htkby
279
(a) In the transition period between the "old" and "new", certain
political (social) forces which disappeared or became marginalized in
Western Europe in the past have gained at least transitory importance. National and foreign predatory "capital", pursuing short-term
profit maximization, often has little respect for the basic rights of
workers and their representative organizations. At the same time, it
enjoys political support on the part of the new governments which
are keen on privatization and attracting foreign money. The situation in mushrooming small private undertakings is a particular
source of concern [Csako, 1992].
(b) The new governments, political parties and parliaments (because of
the: lack of traditions in the recent past) had no clear industrial
relations philosophies of where and how to proceed. That is why
new regulations have often followed up abstract ideas without roots
in reality or have been over-eclectic with their foundations in shortrun political compromises.
(c) Change has involved sharp political struggles. In this context, some
trade unions shed past political dependencies while others acquired
new ones by being directly involved in the new governments, political parties and parliaments (such as Poland's Solidarity or Bulgaria's
Podkrepa). In other cases, governments were confronted by trade
unions seen as political rivals, and interfered (or tried to interfere)
with the internal affairs of labour organizations in the name of such
slogans as "political change" and "pluralistic democracy".
(d) In some countries, new strong actors (multinational companies)
appeared on the scene with industrial relations and human resource
development philosophies of their own. While their example often
proved to be beneficial, their integration into local (national)
conditions remains an unresolved dilemma. A survey of their
possible and probable impact is currently on the agenda, e.g. in
Hungary — an exercise which is based once again on international
labour standards, even if they are much less formal than the ILO
Conventions.6
6
OECD Guidelines for Multinational Enterprises (1976) and ILO Tripartite
Declaration of Principles concerning Multinational Enterprises and Social Policy (1977.)
In Hungary a seminar was organized by OECD to evaluate experience related with
multinationals (Seminar on Labour/Management Relations and Human Resource
Practices in Foreign and Multinational Enterprises, Budapest, 14-15 June 1993).
280
(e) Economic transformation, coupled with economic crisis and macroeconomic stabilization sets tight limits for the countries of the
region in their efforts to eliminate such legacies of the past as
depressed wage levels, precarious work and working conditions, and
the general degradation of the work environment.
To implement (certain) international labour standards requires economic (financial) preconditions beyond political and social will, not only
in Central and Eastern Europe but all over the world including even the
industrialized market economies. (To support our argument it is enough
to refer to the lasting debate about "downward" or "upward" harmonization in the European Community/Union in recent years.)
Central and Eastern Europe's present economic situation, despite
some encouraging signs, is very difficult. It simply cannot be described
by concepts used in the western part of the continent. When "recession"
is referred to in Western Europe a stagnation or slight (1-2 per cent)
decline of GDP is meant. In the former socialist countries after 1989-90,
there has been a huge drop in GDP; even in Hungary, which has
managed relatively well, the decline in GDP has amounted to 20-25 per
cent. At the same time, these countries have suffered annual two or threedigit inflation rates, real wages have continued to fall and social benefits
have been eroded. In such an economic context, governments' and
employers' manoeuvring space has steadily shrunk. Although lip service
has repeatedly been paid to a proper "social safety net" all over the
region, at present there is little hope of achieving an improvement in
social protection. Workers and trade unions have to take into account
that pressure for higher wages or social benefits, however justified, may
have adverse effects by raising labour costs and budgetary deficits and
increasing unemployment. Today, there seems to exist a very narrow
path to find compromises between labour's demands and economic constraints, the improvement of wages and working conditions and tight
financial limits that would come close to the spirit of international labour
standards holding out the prospect of a "fair distribution of goods" and
"social peace".
International labour standards have been given emphasis by other
developments, too. Political reprisals and growing ethnic tensions in some
countries after the political change have raised the issue of discrimination
in employment and labour problems of a multinational nature such as
growing labour migration within Central and Eastern Europe and from
the region to Western Europe. This has underlined the importance of the
rights of migrant workers.
Laps Hhhy
281
IV. The emergence of tripartism
A most interesting (and probably most important) development of
transformation is the appearance of national-level institutionalized
tripartism — negotiations and agreements — in several countries of the
region (Hungary, 1988, Bulgaria and Czechoslovakia, 1990, etc.). Such
"social dialogue" among governments, workers' and employers' organizations is far from being a general or widespread phenomenon in the
Western European market economies. Experts argue that it has lost
imporuince even in those countries where it was previously strong.
However, it proved to be beneficial in these countries, especially in
periods of crisis, in the prevention of conflicts and maintenance of social
cooperation. It is probably due to its particularism that the development
of such tripartism is not supported by international labour standards;
there exists only one ILO Convention (No. 144) which prescribes
tripartite consultations but to serve the specific target of the promotion
of international labour standards. At the same time, the ILO's wellknown tripartite organizational structure and practice may themselves
have served as an example for the initiatives of tripartism in the region.
In fact, the ILO was present during the process of the establishment of
tripartite institutions in most countries (in Hungary in 1988-89 and more
recently in Poland in those exercises which eventually led to the State
Enterprise Pact of 1992)7
National-level institutionalized tripartism has become an active
contributor to the transformation in Central and Eastern Europe [Hethy,
forthcoming]. It has played a role in the reconstruction of industrial
relations and labour legislation, in public policy formulation (primarily
in the fields of employment, income, wage and social policies). It has also
been instrumental in the prevention and settlement of nationwide labour
(social) conflicts. (The most spectacular example of this was offered by
the tripartite settlement of Hungary's taxi and truck drivers' blockade in
autumn 1990.) Those political conditions and considerations which have
promoted and maintained institutionalized tripartism in the region are
numerous:
7
Iri Hungary ILO experts took an active part in the preparation of the deregulation
(liberalisation) of wage determination and of tripartite practices (1988-89); further
developments in the country were supported by an ILO technical cooperation project
(1991-93); in Poland tripartite exercises on issues of labour dispute settlement in the state
sector •— supported by the ILO — led to the State Enterprise Pact in 1992.
282
(a) Tripartism involves a promise to ease those labour (social) tensions
and conflicts which inevitably accompany macro-economic stabilization and transformation.
(b) It gives a certain legitimacy and public support to participants
(governments, unions, employers) all of whom face deficits in one
field or the other.
(c) It is based on, and represents a continuity of, past strong cooperative
(or corporatist) traditions in industrial relations in the previous
period of "socialism".
(d) It meets openly declared or tacit expectations by international
organizations, which are assuming growing importance in the region,
such as (apart from the ILO) the World Bank, the European Community/Union, etc.
National-level tripartism, at the same time, is fragile and politically
vulnerable. The uncertainties in its existence and functioning can be
attributed to the fact that the social partners — unions and employers'
organizations — are not yet properly consolidated. The relationship of
governments and unions is often burdened by divergences in their political interests and ideological values; economic decline and constraints
open up very limited space for social dialogue and agreements; regulations
serving as the legal foundation of tripartism are often insufficient and
weak. That is why tripartism in some countries has had extreme fluctuations in its career (Bulgaria is the best example) [Thirkell & Teseneva,
1992]. Still tripartism is a means to promote international labour
standards.
For the ILO it will take years (if not decades) to assess recent
developments in industrial relations and labour legislation in Central and
Eastern Europe from the standpoint of the implementation of international labour standards. We can nevertheless risk the statement, even
if based only on a superficial knowledge of the emerging new situation,
that the region has come (is coming) closer to the norms laid down by
the ILO in the fields — apart from the freedom of association and
bargaining — of employment, wage determination, working conditions,
etc. We are aware of insufficiencies in new government policies and
labour legislation in the region; still we are confident that such
weaknesses can be eased or remedied in the future. If the ILO has been
successful, at least to some extent, in having a positive impact over the
past 40 years, even when its efforts faced fundamental difficulties, it has
much better chances now. The countries of the region seem to be determined to meet the requirements set by international labour standards, not
Laps Hithy
283
only-"formally" but with sincere efforts on their part to promote their
actual implementation.
Central and Eastern Europe, in the context of profound political and
economic changes, is committed to the idea of constitutionalism: law has
a growing importance in the whole life of these societies including the
"world of work" — the relationship of governments, workers and employers. However, legislation, as well as industrial relations, is dependent
on the solid foundation of the new (emerging) political and economic
systems. As political, economic and social transformation is unlikely to
be completed overnight or in a couple of years, but will rather last for
decades, one cannot speak now about consolidated and firm new political
and economic systems. One can only report about orientations, developments and trends rather than clear and stable conditions and situations.
International labour standards constitute one of those factors which have
their own part in reshaping the societies of this moving world.
Csako, M. 1992. "A magyarorszagi munkaiigyi viszonyok atalakulasanak egyes
akadMyairol" (Obstacles to the transformation of labour relations in Hungary), in
Szociologiai Szemle, No. 4, Budapest.
Hethy, L. 1993. "From centrally planned to free market economies: Industrial relations
implications", in Blanpain, R.; Engels, C. (eds.): Comparative labour law and industrial
relations in industrialized market economies, Deventer-Boston, Kluwer,
—. forthcoming. "Tripartism in Eastern Europe", in Ferner, A.; Hyman, R. (eds.): New
frontiers in European industrial relations, Cambridge, Ma., Blackwell.
ILO. 19i!4. The trade union situation and industrial relations in Hungary, Report of an
ILO mission, Geneva, International Labour Office.
OECD. 1993. Preventing and resolving industrial conflict, Paris, Organisation for
Economic Co-operation and Development, Labour Market and Social Policy
Occasional Papers, No. 11.
Simpson, W.R. 1991. Tripartite structures in Central and Eastern Europe and the USSR,
Freedom of association and the role of the State in industrial relations,
ILO/OECD/CEET Conference, Paris, 11-13 September.
Standing, Guy. 1993. Labour market developments in Eastern and Central Europe,
ELO/CEET Policy Papers, No. 1, Budapest.
Thirkell, J.E.M.; Teseneva, E.A. 1992. "Bulgarian industrial relations, tripartism and
collective bargaining", in International Labour Review, Vol. 131, No. 3.
Valticos, N.; Samson, K. 1993. "International labour law", in Blanpain, R.; Engels, C.
(eds.), op. cit., pp. 77-78.
Vaughaii-Whitehead, Daniel. 1993. Minimum wage in Central and Eastern Europe: Slippage
of the anchor, ILO/CEET, Budapest, Report No. 1.
The ILO and current trends
in the principles
of labour law in Argentina
Asociacion Argentina de Derecho del Trabajo
y de la Seguridad Social
Buenos Aires
Argentina
I. Introduction and background
The ILO has worked tirelessly since its foundation to promote social
justice in the world, the raison d'etre of its existence. The guiding
principles for international standards on social matters are set forth in the
Constitution of 1919 and the Declaration of Philadelphia. These state
that: labour is not a commodity; freedom of expression and of association
are essential to sustained progress; poverty anywhere constitutes a danger
to prosperity everywhere; the war against want must be carried out by
continuous and concerted national and international effort with the
participation of workers, employers and governments, and with a view
to the promotion of the common welfare; lasting peace can be established
only if it is based on social justice; and all human beings, irrespective of
race, creed or sex, have the right to pursue their material well-being and
their spiritual development in conditions of freedom and dignity, economic security and equal opportunity.
As the Director-General of the ILO, Michel Hansenne, stated in his
Report to the 81st Session of the International Labour Conference in
1994, "the 75th anniversary of the Organization will be an opportunity
for the: international community to reaffirm its belief in social justice as
one of its fundamental values, and its determination to further this
cause..." [ILO, 1994, p. 6]. He emphasized that the objective of the
286
Organization was to ensure the dignity of workers and that, to this end,
it would continue to oppose ideologies which are a negation of freedom
and to combat inhuman conditions of work.
The world is going through a profound crisis which is not only
social and economic in nature but which fundamentally affects ethical
values. The market economy and the advance of liberalism are, as the
Report indicates, ideologies or modes which are leading to a legal void.
They are inevitably taking us back to the "law of the jungle", to the
situation which existed in the early years of the Industrial Revolution and
produced the nefarious social consequences which led to the very foundation of the ILO.
Argentina has not been immune from the evolution of the global
economy or the social problems which have arisen. These have taken on
special characteristics in the country due to lack of industrial development and the political events which, from 1976, have had a serious
impact on production structures and the redistribution of income.
Argentina is only now beginning to recover from the stagnation into
which it was plunged at that time. Labour demand fell, unemployment
rose and there was a considerable increase in social and economic
inequality. The policies now being imposed are designed to deregulate
markets, reduce the role of State activity in the economic and social
spheres, and give free rein to the law of supply and demand in monopolistic and oligopolistic markets. A further aspect which compounded
the employment situation was the privatization of almost all State
enterprises, an adjustment which led to the massive lay-off of labour.
This deregulation, which was beneficial to large capital, was accompanied by active State intervention to prevent collective agreements from
granting higher wages without corresponding increases in productivity.
Several standards were issued to reduce labour costs and, particularly
since the administration of President Carlos Menem, without any effective steps by the trade unions to halt declining living and working
conditions. The National Employment Act introduced precarious contracts in an attempt to create new sources of jobs, copying models from
other countries but without success. Other standards, which have been
criticized by the ILO, were introduced to restrict the right to strike in
essential services. And in an attempt to create a capital market, a new
insurance system was established to allow workers' contributions to be
assigned to private investment funds for the creation of obligatory and
unavailable savings.
In this context of increasing poverty, unemployment and marginalization, employers' powers have increased to an excessive degree, giving
a marked authoritarian character to the employment relationship. As a
287
result, the principles of labour law have faced a crisis with declining
protection afforded to workers and the disregard, in fact or in law, of the
guiding principles defended by the ILO since its establishment and enshrined in its many Conventions and Recommendations. This situation
raises the question of the function of these basic principles and the need
to reaffirm them fully in Argentina within the context of international
standards. We also need to recall the words of Michel Hansenne that the
goal of i:he ILO is to ensure the dignity of workers.
77. The principles of labour law
The principles of labour law are those guidelines or postulates which
inspire the meaning of labour law standards and regulate the employment
relationship in accordance with criteria which are different from those
which may apply in other branches of law. These principles represent thf
basic concepts of the legal organization of labour resulting from standards
in which a specific meaning is given to each constituent provision, as
Alfredo Montoya Melgar has said, and which are essential to their correct
application [Montoya Melgar, 1986, p. 220].
Although the principles can be extracted from these specific
standards, I believe that they have evolved over time and illustrate a
trend in labour law towards the reconciliation of capital and labour,
without detriment to human dignity and its full achievement. This does
not mean that these principles are immutable, since they must be adapted
to the purposes required, with account being taken of the social situation.
Article 14bis of the National Constitution clearly states the principle
of protection, the fundamental idea governing the legal organization of
labour in Argentina. It also establishes that work in its different forms
shall enjoy the protection of the law. This basic idea, which respects the
worth of man and gives consideration to the value of work, is a source
of inspiration for the law on contracts of employment, from section 4
onwards, which stipulates that "the main objective of a contract of
employment shall be the productive and creative activity of man in itself.
Only thereafter shall it be taken into account that there is a relationship
of exchange of an economic nature between the parties and which shall
be regulated by this Act". In the same way, as regards trade union law,
Act N o . 23551 stipulates that "trade union action shall contribute to
removing obstacles to the full self-realization of the worker" (section 3,
fine). This implies a harmonious relationship between individual and
288
collective interests with a view to implementing the protection principle
established by the National Constitution.
III. The weakening of protection
In Argentina, as in most nations, particularly those of the so-called
Third World, there has been a weakening in recent years of the protective structures governing labour law in favour of the market economy.
The pretext has been the need to reduce labour costs to make production
more competitive within a globalized market, with the declared intention
of mitigating unemployment. The arguments that a contract of employment should be determined by market forces or that labour costs should
be reduced as the only means of ensuring international competitiveness
or securing investment must be set against the three historical objectives
of labour law: stable employment, an adequate wage, and dignified and
equitable conditions of work. Attempts have been made to bring
standards into line with an iniquitous social reality, by displacing man
from the centre of social policy. Hence, the State has moved away from
defending workers to defending itself from the workers, from protecting
employees towards protecting employers and guaranteeing their investments, and by placing such guarantees over and above the protection that
should be given to basic human rights. The dismantling of these rights
seems to be a sign of the times in both legislation and case law, although
the contrary is often claimed to be the case.
It should not be forgotten that labour law is fundamentally a
guarantee of the stability of the employment relationship established and
affirmed in response to the social situation and that its equalizing
function has allowed interests to be reconciled over time. As Luis
Enrique de la Villa has said, anticipating the remarks by Michel
Hansenne mentioned earlier, and in terms which might have been endorsed by John Kenneth Galbraith, "a set of totally reversible standards
would lose the trust or rather the respect of the workers and lead to the
emergence of non-peaceful demands, thus reproducing a historical process
with which we are all familiar" [de la Villa, 1982]. As the Harvard
economics professor has said, "the present desolate situation of the
socially assisted sub-class has been considered the most serious social
problem of the age and it is also the greatest threat to peace and social
harmony in the long term" (the culture of satisfaction). It was precisely
to avoid such consequences that the ILO was established 75 years ago.
289
Some conditions of work cannot be left to the law of supply and
demand or to determination at the less important level of the enterprise,
particularly in circumstances such as those of today in which trade
unions have lost some of their bargaining power. It is unacceptable that
the vital interests of the workers should be determined by individual
bargaining. Some members of the employers' sector want a return to
individual bargaining — which would mean going back more than 100
years in history. It would result in the demise of labour law, and bring
in its wake abuse and exploitation.
There is no denying the impact of unemployment on society or the
effects of new technologies or the need to compete in increasingly wider
markets;. But none of these can justify making workers the scapegoats,
enabling employers to earn higher profits without assuming any risks or
by increasing cost competitiveness through lower wages and downgrading
conditions of work. Employment, it must be repeated, will not increase
simply because we reduce the level of protection. This has never happened anywhere in the world. On the contrary, the objective in countries
such as Argentina should be to emphasize higher-quality production
throug;h the introduction of new technologies and the training of workers
in more advanced occupational skills.
It is clear that technological change influences the volume and
quality of employment. As Bayer has noted, employment in industry is
declining in the industrialized countries and the growth in services is not
enough to offset the departure of these workers from the labour market.
It is logical that technological change will have a negative effect on
employment levels and so will the introduction of new work systems.
Thus, in the case of restructuring due to technological change which may
result in the lay-off of workers, recourse must be had to remedies which
are lacldng at present. The right of trade unions to be informed must be
fully established; this does not concern only the necessary information
for bargaining but includes knowing the extent to which the enterprise
or sector plans to introduce changes resulting in a reduction of the
workforce.
Two aspects must be negotiated with the trade union — the retraining of workers who may lose their jobs and protection against
redundancy. These provisions must be included in the economic package
of measures accompanying the introduction of new technologies, which
require much bigger investments. Automation and the new technologies
should, not cause prejudice (the principle of indemnity) and their
implementation should improve working conditions. Employment problems which might arise from the introduction of new technology must
be solved in principle at enterprise level by the employer, with oppor-
290
tunities being given for placement in other workplaces, retraining and the
prompt allocation of a new job.
When indirect horizontal effects arise from unemployment in other
industries where closures are due to the lack of competitive capacity, in
addition to the provisions on redundancies established by labour legislation, social security must help provide an effective remedy. Redundant
workers should be given priority in re-recruitment if the enterprise
resumes its full-time activities.
IV. Fundamental rights
In times of crisis, it is important to reaffirm the principle that
certain rights may not be waived and to follow the civil law guidelines
established by the Civil Code, whereby a defect of will may be invoked
if one of the parties takes advantage of the weakness of the other. Section
12 of the Act on contracts of employment stipulates that "any agreement
between the parties which suppresses or diminishes the rights established
by this Act, occupational statutes or collective agreements shall be null
and void, at the time of its conclusion, during its implementation or the
exercise of the rights...". The sense of this section is clear and means that
employers may not reduce wages established by collective agreement or
fixed by law.
The principle that certain rights may not be waived also means that
there can be no arbitrary wage reductions on the pretext of the high cost
of labour and the need to achieve greater productivity. It is obviously
unjust to place on workers' shoulders risks which should be assumed by
the enterprise. A key legal obstacle to the power of the management
excludes from the jus variandi any alteration of the substance of the
employment contract (section 66). It has always been understood that
wages are excluded from alteration by the employer. Where a wage cut
has been imposed, this cannot be legitimized by the consent of the individual worker who is forced to choose between accepting the reduced
wage or being dismissed. In such cases, the balance of contractual benefits
has been unilaterally broken by the employer.
It can thus be seen that the system governing the employment relationship in Argentina, which has been accused of rigidity, is in fact
extremely flexible. It is true that workers may oppose a wage reduction
and that any claim for the payment of the difference due to such
reduction would be successful. But, as has occurred in other cases, this
would be at the cost of their jobs. Hence, stability in this context should
291
be given special protection, since such dismissals would be an abuse of
law and would be anti-social.
In periods of economic crisis, increased protection needs to be given
to workers against unfair practices by the employer. The economy
should resolve economic problems and it is not legitimate for employers
to try to increase their profit margins by reducing the contractual rights
of workers. If the employer's situation is critical, attention could be given
to other variables such as financial costs or the costs of services and
inputs; account should always be taken of the workers' situation and the
intangibility of their wage, with special protection needed against arbitrary dismissal.
The establishment of protective legislation in periods of economic
crisis is no chimera. However, the dominance of the employer over the
worker is not only an act of injustice but, in Argentina, a violation of the
Constitution, which guarantees that work in its various forms shall enjoy
the protection of the law. It is unacceptable to consider constitutions as
neutral, since this would be tantamount to saying that article 14bis was
a text which, instead of promoting social justice and State intervention
in the establishment of a just social order, negates any idea of change and
progressive social transformation. O u r Constitution makes a specific
ideological commitment to the transformation of the structures in place
in the nineteenth century. It affirms a more just social order which takes
into account the situation of the most deprived sectors of society, whose
interests must be addressed by State action.
The tendency of current legislation is towards a reduction of the
basic rights of workers, contrary to the protection principle. Thus, as
regards working time, the National Constitution establishes reduced
working hours as a basic right under the protection principle. This right
can be read only in the context of the ILO Hours of W o r k (Industry)
Convention, N o . 1 (1919) and national legislation encompassing its
provisions: thus it seems inadmissible and constitutionally invalid to
permit working days of up to 12 hours. Furthermore, this is clearly
contrary to the objective of creating new jobs and improving the quality
of production in the interests of greater competitivity. These are not
measures to create jobs but to reduce costs. Far from providing a solution
to unemployment, such proposals will actually increase it by providing
employers with additional gains at the expense of working conditions and
in violation of the Constitution.
In other matters of particular concern to workers and which are
directly related to their living conditions — such as rest periods and
holidays — it is planned to let the parties themselves decide at different
levels (including that of the enterprise) the possible transfer of rest
292
periods to the following month or the amount of annual leave which
they actually take, provided that it is not less than 14 days in any given
year. These are matters which are among the first and most valuable
achievements of the workers' movement. The possibility of their actual
enjoyment (which is at stake here) cannot be left for settlement between
the parties, since this would be contrary to the structure of minimum
rights established by law and protected by article 14bis of the National
Constitution.
I believe that there must be respect for the spirit of international
labour Conventions. We must return to our National Constitution and
reaffirm the principle set forth in article 14bis, giving each of its precepts
its true meaning of protection and extending the protection principle to
the critical situations faced by workers. Contrary to what has been said
many times, it is not a question of bringing labour law progressively into
line with the realities imposed by the de facto functioning of labour
relations in the context of recession and unemployment. This would be
tantamount to legitimizing the abuse of law and giving a legislative stamp
to injustice. That conditions of work are often unworthy of workers
must not lead the State into downing tools and doing nothing, on the
pretext that it lacks the means to exercise its supervisory power. And the
argument that investment is necessary to growth cannot be used to
exempt investors from their responsibilities, to waive such responsibilities
in recruiting or subcontracting, to authorize excessive hours of work or
the elimination or splitting of weekly rest, or to reduce severance pay.
The National Constitution and international labour Conventions
have established a social programme, with clear guidelines for the
protection of the workers, which should take precedence over any
employers' claims. The social clauses of the Constitution and international labour Conventions are dynamic and modulate the other rights
recognized by Argentina's Magna Carta.
V. Conclusion
Ownership rights are not absolute. They must be harmonized with
those other rights which are sanctioned by the Constitution or
international Conventions ratified by Argentina and which enshrine
human rights that by their nature take precedence. It should also be
noted that labour law is based on the fact that the employer undertakes
a risk investment with a view to obtaining a profit; the worker has no
part in this risk and dignified and equitable conditions of work must be
293
guaranteed at all times to ensure his or her full development. The
solutions to the serious social and economic problems besetting the
world, and Argentina in particular, at this dawn of a new century will to
a large extent depend on the affirmation of the protection principle and
the respect of policies established in this sphere by the ILO.
Bibliographical
references
de la Villa, Luis Enrique. 1982. Jornadas sobre empleo en la crisis economica, Madrid,
Ministry of Labour.
ILO. 19'H. Defending values, promoting change. Social justice in a global economy: An ILO
. Conference, Geneva, International Labour Office.
Montoya Melgar, Alfredo. 1986. Derecho del trabajo, Madrid, Tecnos.
Part 7:
Labour standards
and international trade
Labour standards and international trade
Guy Caire
University of Paris X-Nanterre
France
L Introduction
The question of the relationship between international trade and
labour standards has been on the ILO's agenda ever since its inception.
Indeed, the initial British proposal noted that "one of the principal
objectives of international labour Conventions is to eliminate unfair
competition based on oppressive working conditions... the appropriate
penalty should be that, when a majority of two-thirds of the conference
is convinced that the terms of the convention have been broken, the
signatory states should place an embargo on goods produced in those
conditions of unfair competition unless those conditions are remedied".
While this restrictive procedure was withdrawn, undoubtedly for fear
that the threat of such sanctions would jeopardize ratification of the
Conventions, interest in a more voluntarist approach has nevertheless
been manifested on several occasions.
The link between labour standards and international trade can be
tackled from two points of view. The first takes as its starting point
recognition of the dignity of labour which, as the Philadelphia
declaration stated, cannot be considered as a commodity; action is taken
in the name of social justice to prevent socially unacceptable conditions
being created or sustained by trading relationships. It was undoubtedly
considerations of this nature that led to the abolition of slavery or, closer
to our time, to the rejection of forced labour as unacceptable and to its
condemnation at the Nuremberg trials, or even to the denunciation of
apartheid. The second aspect places greater emphasis on the economic
perspertive, which accords more value to commodities and productive
efficiency; the question then becomes one of identifying when the
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advantages arising out of factor endowment are being artificially enhanced
by forms of labour force utilization that constitute "social dumping". In
the first case, labour standards operate as a sort of ceiling and as a value
to be promoted within a framework of universally recognized human
rights.1 In the second case, they act as a sort of floor or minimum
threshold that should be respected in order that the ceteris paribus
principle can operate within a framework of equitable trade rules. While
seeking to keep track of both dimensions, which are essential in a sphere
that borders on both law and economics, we shall examine in turn the
goals that might legitimately be set, the unavoidable constraints that have
to be confronted and the practical procedures that might be devised in
order to provide a normative content for trading relationships.
77. Aims of a "social clause"
In a very broad sense, the term "fair standards" can be said to cover
all the provisions of the international labour code drawn up in the course
of the ILO's existence, and therefore all questions relating to work and
employment [Mayer, 1985; 1991]. However, the notion of a "social
clause" seems to be more restrictive, even though its scope remains
somewhat vague.2 It seems to us possible to envisage minimal rules
governing behaviour in three inter-related areas: permitted categories of
1
The Declaration of Human Rights as such does not appear in the Constitution or
the H.O, but a whole range of the Organization's objectives derive from it, including the
freedom of association, the elimination of discrimination, equality of opportunity, the
right to work and to a minimum income, entitlement to social security, satisfactory
working conditions and standards of living.
2
"If one wanted to establish some sort of general system of norms that could be used
as 'fair labour standards', not only in respect of international trade but also for a more
general evaluation of the rights and conditions of workers, this could be done with the
use of fewer than 80-odd ILO Conventions that are still up to date. It would probably
be sufficient to use one-tenth of these to establish a satisfactory system of workers'
protection" [Edgren, 1979]. For this author, such a regime would cover the following
areas: the right to organize and to bargain collectively, discrimination in recruitment and
promotion, child labour, forced labour, occupational health and safety and the labour
inspectorate. For his part, G. van Liemt, after examination of eight separate proposals,
retains four areas that were mentioned in all eight proposals and two that were mentioned six times, namely, freedom of association, the right to organize and to bargain
collectively, a minimum age for the employment of children, freedom from discrimination in employment and occupation, freedom from forced labour and occupational health
and safety; the second group of standards mentioned at least twice included labour
inspection, a minimum wage, weekly rest, special protection for female workers and
employment promotion [van Liemt, 1989].
Guy Caire
299
labour, conditions of employment and the functioning of the labour
market. Clearly, however, the necessary agreement will be increasingly
difficult to obtain as progress is made from the first to the last.
As; far as the unethical use of certain categories of labour is
concerned, three cases can be envisaged. The first is forced labour, a
widespread practice during the colonial era and the subject of Convention
No. 29 of 1930, Convention No. 105 of 1957 and Convention No. 50 of
1936 on the recruitment of indigenous workers. The second is the use of
prison labour, which was condemned in numerous countries (USA, 1980;
Great Britain, 1897; Australia, 1901; Canada, 1907; New Zealand, 1908;
South Africa, 1913; Spain, 1934) and on which both the ILO and the
General Agreement on Tariffs and Trade (GATT) sought to achieve
international agreement. During the Cold War period, however, much
use was made of prison labour for production in the countries of the
Eastern bloc. The third and final case is child labour, which continues to
be a widespread practice involving between 55 million (ILO) and 145
million (UN) children.
The ILO has, of course, been concerned about child labour since its
inception and the vast majority of countries have ratified at least one
Convention on the subject. As a result of this and the existence of
compulsory schooling, there is a minimum age (between 12 and 15, with
the possibility of a lowering of the minimum age for some light work
and a raising for dangerous work) below which no economic activity
should generally be permitted. The question of the sort of work targeted
in Convention No. 138 of 1973 (Minimum Age Convention) is one of
the most difficult that governments have to resolve, since the International Labour Conference recognized that flexibility was required in
deciding on the sphere of application. For this reason, articles 4 and 5
contain various sorts of dispensations in respect of certain categories of
job or work (family businesses, domestic tasks — the latter not always
clearly defined in cases where a large informal sector exists) or exclusions
from the sphere of applications (agriculture and, in some countries,
processing industries, shipping and companies below a certain size)
[Swepston, 1982; Mendelievich, 1980; Rodgers & Standing, 1981a; Ki
Zerbo, 1980].
The question cannot be dissociated from the economic and social
significance of the phenomenon, for several reasons. First, the concept of
childhood is undoubtedly linked to a concept of age but is also dependent
on social structures. Second, child labour takes many forms (ranging from
domestic work, through non-domestic, non-monetary work, whether
occasional or regular, to marginal economic activities in the informal
sector, bonded labour and. wage labour) and is, moreover, part of a
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socialization process. Third, account has to be taken of the effects of
work on children's health, growth, education and personal development.
The key problem posed here is the economic one of the extent to which
children are exploited and the ethical one of marginal and criminal
activities [Rodgers & Standing, 1981b].
As far as workers' conditions of employment are concerned, two
essential aspects have to be considered: inadequate levels of pay engendering "social dumping" and discriminatory practices that constitute
an infringement of workers' dignity (as apartheid in all its ways and
means did) or of simple fairness [Vose, 1985]. Thus, economic and social
considerations once again come into play. It has to be pointed out that
wages are not covered by the international labour code, with the exception of the international shipping industry. It is a difficult task to
establish the minimum level to be set or even the relationship that should
exist between the wages of various categories of workers, and deducing
from them the existence of anomalies to be censured is, except in particular cases (for example, workers producing goods for export in zones
where the social security regime is less favourable than the one that
applies to the rest of the workers in the country). It depends on the local
conditions under which goods and services are produced and on the
characteristics of the national labour market. Furthermore, the final price
of a product depends on so many factors unconnected with social costs
that it is difficult to assess the real impact of labour legislation on costs.
In a report in which he coined the phrase "when prices beat all the
competition, there is no competition any longer", the French senator
Jean Arthuis took note of calculations made by the Department of
External Economic Relations for various countries habitually cited as
beneficiaries of relocations.3 But he also pointed out that "analysis of the
cost of labour requires two prior precautions. The real cost of labour
must include the subsidiary costs that bear on labour and micro-regional
differences, since both can be significant" [French Senate, 1992-93]. He
added that "differences in labour costs are not the only criterion in
relocation".
If it is difficult to make meaningful, well-founded comparisons,
attempts to specify what should be meant in international terms by
"unfair wages" are even more problematic. If it is taken to mean any
payment "lower than the standards accepted in the exporting country",
3
Whereas the hourly labour cost, including social security costs, for a skilled workers
was 55 francs in France in 1993, it was 23 in Taiwan, 15 in Tunisia, 11 in Poland and the
former Czechoslovakia, 10 in Morocco, 9 in China, 5.75 in Mauritius, 5.5 in Thailand,
4 in the Philippines, 2.6 in India, 2.5 in Rumania and 1.2 in Madagascar.
Guy Caire
301
as was proposed in 1954 by the United States committee on foreign
economic policy, those standards have to be defined and a judgement
made on the acceptability or otherwise of deviations from them. It could
be, for example, that the French contract for new entrants to the labour
market often described as the "young person's minimum wage", would
be directly affected. The difficulties are undoubtedly increased if unfair
standards are understood to include "the persistence of working conditions lower than those justified by productivity in the industry in
question and the economy in general", as the United States committee on
foreign economic policy proposed.
However, in attempting to draw up a strategy in this area, it is
possible to take as a starting point Convention No. 131 of 1970 on the
fixing of a minimum wage and Convention No. I l l of 1958 on discrimination.. This could be supplemented by the specific provisions of Convention No. 143 of 1975 on migrant workers, a question in which the
GenersJ Assembly of the United Nations has also been interested since
1980. Convention No. I l l , which with a total of 110 ratifications by
1992 is one of the instruments with the greatest degree of international
recognition, cites a whole range of causes of discrimination to be
eliminated. In giving countries that have ratified the instrument an
opportunity to extend its provisions to other types of discrimination, it
adopts a promotional approach that could provide the basis for a social
clause.
Irrespective of questions of fair pay, international instruments on
human rights also lay down just and favourable working conditions,
covering in particular the questions of reasonable restrictions on working
time and the guaranteeing of health and safety at work. The "right to
interfere" that the notion of a social clause might seem to imply does not
extend, to the monitoring of all working conditions. But in health and
safety matters the attention given to working conditions might partly
overlap with that given to environmental considerations, which are
playing an increasingly important role on the international scene.4 This
4
An OECD working group has been instructed to draw up "procedural guidelines
tin integrating trade and environment policies". "Principles for transparency and
consultation" have also been formulated. These include investigation at as early a stage
as possible of the conjunction of trade and environmental problems and the monitoring
of measures taken in order to avoid potential conflicts, inter-governmental cooperation
on transboundary and global pollution and, in the event of disagreement, the involvement
of both, environmental and trade experts in order to ensure that both points of view are
simultaneously taken into account [OECD, 1993]. For its part, the GATT ensures that
the implementation of global environmental measures does not give rise to discriminatory
practices in enforcing the most-favoured-nation rule (the same rules should apply
302
International
interdependence
is why the general standards on workers' health and safety adopted in
1981 (Occupational Safety and Health Convention, No. 155) and on
health services at work adopted in 1985 (Occupational Health Services
Convention, No. 164) may be of particular interest [Parmeggiani, 1982].
This leaves the third of the areas mentioned above, namely the
functioning of the labour market. From the point of view of promoting
human rights and establishing fair conditions for international competition, this should at the very least cover freedom of association, the
subject of Convention No. 87 of 1948, the right to organize and to
bargain collectively, the subject of Convention No. 98 of 1949, and also,
to provide the necessary monitoring, Convention No. 81 of 1947 on
labour inspection. This is the best-known sphere of the ILO's activities,
on which there is very widespread agreement and for which the specific
control mechanisms have in some cases been put in place. Thus, we shall
do no more than mention it without further commentary, except to note
in passing that, while progress has been made in this area, "hundreds of
trade unionists throughout the world were murdered in 1990 and 1991,
that several thousand were detained, and tens of thousands more sacked
for their union work" [ILO, 1992a, p. 9]. It is also worth drawing
attention to a matter more directly connected with international trade,
namely that of free zones which certain governments, such as those of
Bangladesh and Pakistan, exclude from the application of their labour
codes, and where trade unions or strikes are not permitted. A similar
situation is found in the "homelands" in South Africa, where a number
of industries have been set up [Vose, 1985].
///. Constraints in drawing up a social clause
In attempting to identify the problems involved in drawing up a
social clause dealing with foreign trade, it is possible to classify the
constraints likely to be encountered under three headings — economic,
institutional and political. We shall examine them in turn.
From the economic point of view, there is undoubtedly a degree of
ambiguity in the concept of a fair labour standard. It can be used for
whatever the source of imports) and the national-treatment rule (the same regime for
imports and domestic manufactures). It should be noted that about 150 Conventions and
multilateral agreements on environmental protection have been concluded [Barde, 1993].
These practices could be borne in mind when the procedures that might be adopted for
a social clause are discussed below.
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303
protectionist ends in order to prevent countries with low labour costs
from gaining a competitive advantage — but it can also be used to ensure
that workers in those countries are better paid. The way the standards
are drawn up depends on the purpose ascribed to them.
The purpose might be purely protectionist, in which case the standards
would be set at a level that would effectively bar imports from certain countries.
If the main purpose was to assure workers in developing countries of a fair share
of the fruits of industrial progress, standards would have to be more flexible and
some discretionary judgement would be involved in deciding whether the legitimate demands of workers were being frustrated. If, on the other hand, the main
purpose was to safeguard fair competition in the world market against abuses in
the form of "sweated labour", then the main focus of interest would be on the
market distortions caused by the practice rather than on conformity or nonconformity with labour standards [Edgren, 1979].
From a purely protectionist point of view, exporters would have to
prove that they had paid a certain minimum wage. If, on the other hand,
the purpose was to ensure that workers received a fair deal, rules on fair
competition that made explicit reference to working conditions would
have to be adopted.
One of the arguments put forward by critics of present GATT procedures is that it is difficult effectively to combat unfair competition since
the consensus rule means that any condemnation must be agreed to by
the offending country. The critics include countries like the United States
whose industrial base is undergoing radical structural change and is
threatened, depending on the industry, by imports from Japan, the four
newly-industrialized countries in South-East Asia or those in Latin
America, such as Brazil. In fact, the meaning of the word "fairness" in
international trade depends on the concept of reciprocity that is adopted;
for their part, the Americans prefer to speak of a "level playing field"
[Coughlin, 1991]. US trade legislation includes an escape clause that
comes into play when the increase in imports is the cause of serious
damage to an industry (section 201), the principle of compensating
customs duties intended to eliminate the effects of export subsidies paid
by foreign governments (section 701) and the anti-dumping clause (section
731), all of which are classic instruments that conform to the logic of the
GATT. But the 1974 Trade Act includes section 301, reinforced by
extended clause 301 of the Omnibus Trade and Competitiveness Act of
1988, which enables the US trade representative to take retaliatory
measures against any "unfair" act. This is defined as any act that is
deemed "unjustifiable" (one that violates international law), "discriminatory" or "unreasonable". The last adjective refers in particular to the
304
refusal to grant workers certain internationally recognized rights (the
right to form trade unions and to engage in collective bargaining, the
prohibition of forced labour, a minimum employment age and the establishment of minimum working conditions and pay levels). However, it
is questionable whether the problem of trade barriers can be tackled on
a unilateral basis as far as the definition of unfair practices is concerned
and resolved on a multilateral basis by threatening recriminations
[Rainelli, 1993].
Moreover, "the case for a social clause is also open to two types of
criticism. On the one hand, it can be asked why concern is limited to the
trade sector where working conditions are frequently better than in the
rest of the economy; or why the system does not consider the broader
issue of human rights. On the other hand, it can be asked why the social
clause should be linked only to trade: would action not be more effective
if it was also linked to public capital flows (such as official lending and
aid flows) and strategic relations such as defence treaties?" [van Liemt,
1989, p. 447]. Finally, in this economic debate on the sources of social
dumping, attention might be drawn to its monetary origins, the result of
exchange rates being undervalued because of government policies. Thus
in his evidence to the French Parliament, the Nobel prizewinner, economist Maurice Alais, stated that "in most cases, it's a nonsense, and to tell
the truth a profound error, to accuse less developed countries outside the
European Community of 'social dumping' and 'unfair competition' and
to seek to impose on them social protection systems comparable to those
of developed countries such as France or Germany. It is not those
countries that are responsible for the perverse effects of unrestricted free
trade, but rather the current institutional framework of the international
trading system. To speak of 'social dumping' or 'unfair competition' is
an argument devoid of all foundation" [Uruguay Round, 1993].
Institutional constraints fall into two categories: some relate to
international organizations that are concerned mainly with the mechanism to be put in place under the social clause label, while the others
relate to the audiences to which those mechanisms are primarily supposed
to be addressed. They can be examined in turn.
As we have already noted, the social clause issues lie on the
boundary between economics and law, In consequence, two international
organizations, the GATT and the ILO, are necessarily concerned with
the problem of fair standards in matters of international trade. We will
briefly survey the ways in which the question has been addressed by each
of these organizations [Servais, 1989].
The problem of "social dumping" was examined as early as 1927 at
the international economic conference called by the League of Nations.
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305
The issue re-emerged in 1947 at the United Nations conference on trade
and employment. Article 7 of the charter of the international trade
organization — which never saw the light of day — took up the idea that
"the existence of unfair working conditions, particularly in those areas of
the economy producing goods and services for export, creates problems
for international trade". As a consequence, "each member state [should
take] all appropriate and practical measures to eliminate those conditions
on its territory". The issue resurfaced in the 1950s in the early days of
European integration. While article 68 of the treaty establishing the
European Coal and Steel Community contained a social clause, the Ohlin
report, drawn up by a group of experts appointed by the ILO, examined
the relationship between working conditions and unfair competition.
References to fair labour standards are also found, in the form of
commitments, in a certain number of international agreements on raw
materials (article 28 of the 1987 agreement on sugar, article 45 of the 1981
agreement on tin, article 64 of the 1986 agreement on cocoa and article
53 of the 1987 agreement on rubber).
The independent commission on the problems of international development, the so-called Brandt commission, recommended in 1980 that
"fair labour standards should be internationally agreed in order to prevent
unfair competition and to facilitate trade liberalization". In June 1986,
during; the negotiations leading up to the launch of the Uruguay round
of trade talks, the American delegation asked the other parties "to
consider possible ways of dealing with workers' rights issues in the
GATT so as to ensure that expanded trade benefits all workers in all
countries". Although this initiative was not adopted at Punta del Este, it
was taken up again later, in June 1986, by the European Parliament; in
a resolution on the trade negotiations, it adopted the idea that the GATT
should institute a "social clause" [Charnovitz, 1987]. Andre Sainjeon,
rapporteur for the European Parliament's committee on foreign economic
relations, has proposed the introduction of a social clause that would take
account of the need to abolish child labour and forced labour and to
promote the freedom of association. According to him, these three
objectives could be included in article 20, paragraph e of the GATT
agreement which allows countries to ban the import of goods made by
prisoners.
As far as the ILO is concerned, the Preamble to the 1919 Constitution affirmed that "the failure of any nation to adopt humane conditions of labour is an obstacle in the way of other nations which desire to
improve the conditions in their own countries". The world conference
on employment convened by the ILO in June 1976 adopted a position
of principle according to which "the competitiveness of new products
306
imported from developing countries should not be achieved to the
detriment of fair living conditions for their labour forces". At the time
of the debates on the second Lome Convention, the ILO, at the request
of the Commission of the European Communities, put forward a
proposal that could be used as a basis for discussion.
Recognising that difficulties were likely to arise if the observance of entire
Conventions in all their detail was expected, this draft consisted of a series of
basic principles drawn from a variety of sources: ILO Conventions and Recommendations, the Tripartite Declaration of Principles concerning Multinational
Enterprises and Social Policy, and the Covenant on Economic, Social and
Cultural Rights. These standards were chosen with due regard to their relevance
to the production of commodities involved in international trade. They covered
questions of non-discrimination, employment (including free choice of employment), working and living conditions, occupational health and safety, employment of children and young persons, maternity protection, social security,
industrial relations and labour inspection. The proposal subsequently put
forward by the Commission of the European Communities retained only four
of the suggested principles [ILO, 1988, p. 58].
If we turn now to the audiences being addressed, two characteristics
are, for the ILO and other international organizations that might be
involved, of particular significance in realizing any goals that might be
set.
The first has been mentioned on several occasions, namely the voluntary
nature of the acceptance to be bound by Conventions, which prevents them
from playing a full part in the regulation of international trade. The second
characteristic, although it does not yet seem to have attracted much attention,
is yet no less significant given the globalization of the economy. It concerns the
'state-centred' nature of ILO standards, in other words, the fact that the
obligations arising from Conventions apply directly only to States although the
role of non-governmental actors in the globalization of the economy is
increasing and can determine the success or failure of national social policies
[ILO, 1994, p. 56].
A variety of approaches could be adopted to tackle this situation
resulting from globalization of the economy, which introduces new
actors in addition to the traditional nation states and inevitably has an
indirect influence on any normative action undertaken by the ILO. More
generally, it affects the operation of standard international law, which in
principle recognizes nation states and international organizations as the
only entities having rights and obligations. In view of the failure to
conclude the international agreements that had been hoped for in 1944,
the boards of multinational companies or industrial committees might
Guy Caire
307
offer a suitable forum for the discussion of certain aspects of relocation.
Extending the 1977 Tripartite Declaration of Principles on Multinational
Enterprises and Social Policy might offer such enterprises an opportunity:
... of subscribing voluntarily to certain standards or codes of conduct for
which verification procedures could be established. The fact of subscribing to an
optional, clause, which once accepted would be binding, could be recognized by
the award of a "social label"; by adopting a variety of codes of conduct, some
of which are very stringent, multinationals have already shown that they attach
great importance to such forms of recognition, especially in the eyes of
consumer organizations [ibid., pp. 65-66].
Specifying the nature of what we have termed political constraints
leads us to reconsider exactly what a social clause is. "Through the social
clauses, either the access of exporting countries to international markets
is made conditional on compliance with certain basic ILO standards or
— more concretely — a link is established between the lowering of
barriers to trade and compliance with certain labour and social protection
standards to the extent that the latter affect production costs" [ibid.,
p. 57]. In other words:
... a typical social clause in an international trade arrangement makes it
possible: to restrict or halt the importation or preferential importation of
products originating in countries, industries or firms where labour conditions
are inferior to certain minimum standards. Producers "that do not comply with
the minimum standards must choose between a change in working conditions
or run the risk of being confronted with increased trade barriers in their export
markets [van Liemt, 1989, p. 476].
There are psychological dimensions to the question that cannot be
ignored. The United States is undoubtedly the country that has, in the
recent past, pushed hardest for the introduction of minimum labour
standards in the sphere of international trade. At least four pieces of
legislation have been introduced. First, the initiative on the Caribbean
Basin became law in 1983. This states that, in granting additional
preferential trading rights, the US President should take account of the
extent to which workers enjoy reasonable working conditions and have
the right to organize and enter into collective bargaining. Second, the
Society for Private Investment Overseas, an organization that insures
American companies investing in developing countries against war,
expropriation and internal conflicts, adopted an amendment when its
mandate came up for renewal in 1985. The amendment stated that the
organization "cannot insure, re-insure or finance a project unless the
country in which the project is to be carried out takes measures with a
view to adopting and applying laws giving workers in those countries the
308
International
interdependence
rights granted to them at the international level". Third, when the
Generalized System of Preferences came up for renewal in 1984, Congress
added a clause on workers' rights to the list of conditions for refusing to
grant duty-exempt status to products from developing countries. The
final example is the general law of 1988 on trade and competition.
Developing countries cannot fail to compare these measures, which
are relatively constraining for them, with the fact that the United States
has been among the most reluctant to ratify ILO Conventions. Thus:
... they feel that developed countries' concern about working conditions in
their countries is due above all to their export success, and to the growing
pressure for protectionism that has arisen from high unemployment in
importing countries. They consider the social clause proposal to be disguised
protectionism that could obstruct their industrial development and deprive them
of one of their key comparative advantages: the ability to use low-cost labour
productively. They object to what they consider to be interference in their
domestic affairs and resent the fact that they appear to be asked for reciprocity
in social obligations in return for trade concessions. Other arguments against a
social clause have also been put forward: why is the question of labour standards
brought up in isolation from the broader issues of imbalances in the world trade
structure — including the issue of greater market access through accelerated
restructuring of developed country economies, and that of raw material prices,
many of which are at a low level and continue to fluctuate wildly? Finally, it is
asked why some of the countries which believe that international trade should
be linked with minimum labour standards are maintaining their economic and
financial ties with such countries as South Africa where the fundamental
freedoms of large parts of the population are by no means guaranteed, [van
Liemt, 1989, p. 435]
Thus in order for the social clause not to appear as protectionism
masquerading under the guise of human rights, serving merely as an
extension of other discriminatory practices adopted by the industrialized
countries such as so-called "voluntary" restrictions on exporting
countries, the repressive element should be offset with incentives that
might encourage its wider acceptance. For example, the O E C D countries
could propose in exchange a gradual easing of import quotas. And in the
light of the heavy burden that structural adjustment plans can impose on
developing countries, 5 and the extent to which the ILO has been able to
5
Structural adjustment plans are put in place in order to resolve balance-of-payments
and inflation problems by restricting effective demand and encouraging the free working
of market forces. One of the aims of these plans is to bring about a change in the
composition of production in favour of goods and services that can be exported and to
the detriment of those not likely to be traded in international markets. A study of 12
Guy Caire
309
influence t h e practices of t h e I M F and t h e W o r l d B a n k 6 b y p e r s u a d i n g
t h e m t o i n c o r p o r a t e social considerations i n t o t h e i r s t r u c t u r a l a d j u s t m e n t
p l a n s , t h e c o u n t r i e s in q u e s t i o n m i g h t be p e r s u a d e d t o c o m m i t themselves
t o accepting a certain n u m b e r of social rights. I n general t e r m s , it w o u l d
b e necessary t o offer t h e m concrete s u p p o r t t o help t h e m deal w i t h t h e
possible: consequences of i n t r o d u c i n g m o r e p r o t e c t i v e social measures i n
c o n j u n c t i o n w i t h t h e d e v e l o p m e n t of t h e i r i n t e r n a t i o n a l t r a d e .
There is, of course, the possibility of bilaterally-financed technical
assistance, but this approach no longer seems commensurate with the magnitude
and multilateral dimension of the problem. The only realistic way of dealing
with the problem is to be bold enough to consider entirely new solutions. In
this sense, we could perhaps consider some concerted action with the G A T T ,
and see if international trade itself can provide a source of financing for these
complementary adjustment measures [ILO, 1994, pp. 61-62].
countries affected by such plans shows that the flows of labour between industries and
sectors generally go in the desired direction [Horton et al., 1991]. However, this same
research, like many other studies, also shows that stabilization programmes lead to a fall
in demand on a scale that varies in accordance with the severity of the measures adopted
and the bottlenecks that characterize the various sectors. It is generally low-paid workers
who bear the main burden of adjustment, suffering job losses, increased unemployment
and cuts La real wages. This has led to the emergence of proposals intended to compensate
for the restriction of demand by overall budgetary measures and the encouragement of
market mechanisms, through the introduction of more selective measures and changing
the methods of intervention used by the public authorities. In particular, it is proposed
that a distinction should be made between essential goods and services and luxury or
unnecessary goods and services and that account should be taken of the effects of demand
policies on income distribution and the poorest sections of the population [van der
Hoeven, 1987; Eshag, 1989].
6
"The efforts made by the ILO in the field of structural adjustment policies have
done much to win acceptance of the principle that social objectives are of cardinal
importance, and that they must be taken into account if economic restructuring is truly
to lead to sustainable growth... The ILO is planning to intensify its positive collaboration
with the 'International Monetary Fund and the World Bank, so that the policies suggested
to the member States should, as from the design stage, take into account the concerns of
the Org;mization, the government leaders responsible for social policy and the employers'
and workers' organizations in the countries concerned. The purpose of the Organization's
cooperation with the financial institutions will be to give greater prominence to the social
content and to the considerations affecting employment protection and development for
the most disadvantaged population groups. The Organization will further endeavour to
influence the approach of the financial institutions and to accentuate the advantages of
tripartite discussion in developing social cohesion and enlisting broad support for national
development policies" [ILO, 1992b].
310
IV. Procedures
If the social clause and normative action are to be made as effective
as possible, due attention has to be paid to three procedural questions
concerning, respectively, the establishment of rules, the monitoring of
their application and the various types of sanction which it may be necessary to impose.7
There are a number of ways in which the notion of a social clause
might be given concrete form: bilateral agreements or agreements limited
to a specific number of countries and involving ILO participation; trade
agreements with a social clause between private companies in importing
and exporting countries; or a code of conduct of the kind adopted by EC
member States in respect of subsidiaries of EC-based multinational
companies operating in South Africa, etc. None of these possibilities
should be ignored. Nevertheless, if the issue is to be given the importance
it deserves, the adoption of international instruments within the framework of UN institutions would appear desirable.
When it comes to drawing up a standard, whether within the framework of the GATT or of the ILO, different questions are raised: "First
of all, it has to be decided whether the lawmaker should lay down precise
rules applicable without exception to everybody, regardless of social disparities, the economic context or practical considerations. Should a
standard only specify a goal or should it also spell out the ways of
achieving it? Should strict penalties be prescribed or should the courts be
allowed more latitude in judging each case on its merits?" [Servais, 1986].
This conflict between flexibility and rigour that is evident in the
formulation process will also be found when it comes to the implementation and monitoring of standards by officials, courts or the international
body charged with taking cognizance of them. Furthermore, the debate
cannot be divorced from the context in which it takes place. It must be
linked to the general concern with flexibility that characterizes current
economic thinking and the demands for derogation or flexibility made by
a number of developing countries — even though the Committee of
Experts on the implementation of ILO Conventions and Recommenda-
7
These questions have already been tackled by many authors including, among
others, Carnoy et al. [1983]; Hansson [1983]; Daoudi & Dajani [1983]; Kohona [1985].
Guy Caire
311
tions may subsequently discover that few countries granted this freedom8
actually make use of it.
As far as the GATT is concerned, labour standards could, like the
restrictions on dumping and capital equipment subsidies contained in
article .29, be included in a multilateral agreement concluded under its
aegis. Thus the International Metalworkers' Federation (FIOM — Federation Internationale des Organisations de Travailleurs de la Metallurgie) has
proposed that the general escape clause in article XIX should be supplemented. by a social clause that would enable governments to introduce
selective import restrictions against countries that do not enforce fair
working conditions. The ILO can choose among a variety of instruments,
including conventions, recommendations, resolutions, conclusions and
declarations. The most restrictive formulations are not necessarily the
most effective, not only because it is insufficient merely to establish
norms but also because Conventions have to be ratified and applied,
because the rate of ratification has for many years been stagnant (falling
from 30 per cent between 1950 and 1955 to 15 per cent between 1965 and
1970), because the delay in translating international standards into law
and national practices is becoming ever longer and, above all, because we
have to come to terms with the growing heterogeneity of situations,
needs and possibilities in the various member States. As a result, international Conventions, hitherto seen as by far the most appropriate
instrument for normative action, "face a serious dilemma: either the
provisions they contain are made more flexible so as to make them more
accessible to the majority, in which case the Conventions would lose
some of their character; or else they include a minimum number of strict
obligations, and the Conventions run the risk of being ratified by
disappointingly few countries" [ILO, 1994, p. 48].9 It may be valuable,
8
Flexibility can be granted: through the inclusion in the agreements of phrases such
as "if necessary", "in appropriate cases", "if needs be", "as far as possible", "in accordance
with national practice and conditions"; through many clauses such as those offering an
opportunity to ratify only certain parts of an instrument or to choose between several
provisions laying down different requirements, the authorized exclusion of certain groups
of workers from the application of an instrument, gradual implementation clauses etc. or
even through the introduction of so-called equivalence clauses that allow derogations from
a particular regulation provided that comparable protection exists overall.
9
And "more generally, the reasons for the existence of Conventions should not be
lost sight of and flexibility should not be taken so far as to deprive them of their binding
nature that is calculated to make States take action. A balance needs to be struck between
different concerns. In some areas, however, there is no room for flexibility; as has often
been said, 'international standards must be intransigent when they are a matter of
fundamental rights' such as freedom of association, the abolition of forced labour or the
elimination of discrimination" [Servais, 1986, pp. 198-199].
312
therefore, to explore less restrictive "soft laws", without abandoning all
regulatory ambitions.
In order to prevent fair standards remaining simply a pious hope,
attention has to be paid to supervisory procedures. While the ILO
Constitution, in its original form, provided for the possible adoption of
"economic sanctions" 10 as a last resort in ensuring compliance with
ratified Conventions, the current article 33 mentions only the possibility
of taking "such measures as ... may seem appropriate in order to ensure
enforcement" of the provisions in question. N o such measures have been
taken. Rather than having recourse to sanctions, the ILO, and indeed all
specialized international organizations, have preferred to adopt a strategy
based on conciliation and pragmatic defence of their regulations [Leben,
1979, p . 326].11 From this point of view, various methods are conceivable:
... one of them would be to entrust the ILO with the role of supervising
the standards and reporting on their observance to member governments, after
which it would be up to each country unilaterally to revise the trade preferences
or other concessions it had been granting to countries violating the standards.
A more universal method would be for regional groups of countries to agree not
to restrict imports from developing countries on condition that the labour
standards (and corresponding restrictions on capital subsidies) were respected. A
third alternative would be to introduce a social clause into the general escape
clause of the GATT, which would enable importing countries to take unilateral
action against countries that had clearly violated the labour standards [Edgren,
1979].
Institutional mechanisms can also be imagined: in the report by Andre
Sainjeon referred to above, the author proposes the establishment of a
consultative committee made up of the various social partners represented
within the ILO; if basic regulations were infringed, this committee could
turn to the International Court of Justice in The Hague.
10
Retaliatory measures taken by various countries have ranged from import bans,
anti-dumping duties, countervailing duties, refusal of most-favoured-nation status,
sanctions against firms, export restrictions and negotiated incentives to outright boycotts
[Charnovitz, 1987].
11
The advantages of a flexible method are also stressed by a former Director-General
of the ILO: "a procedure based on the intrinsic rights of any international organization
to inquire into questions of concern to it, to establish farts and to publish such findings
and recommendations as it considers appropriate, can be applied to all its members and,
without placing legal obligations upon them, can have as much influence in practice as
a procedure based on more formal obligations" [Jenks, 1967, p. 236].
Guy Caire
313
It is possible to imagine a sort of division of labour among the
various international organizations involved. Rather like the minimum
standards that the Commission of the European Communities, at the
request of the European trade unions, put forward for inclusion in the
Lome Convention concluded in February 1985, individual countries or
groups of countries could, within the GATT framework, offer bilateral
trading privileges (preferential treatment in areas such as customs duties
and import quotas, or financial assistance) without discrimination to
countries enforcing previously established fair labour standards. For its
part, the ILO, as part of a strategy integrating economics and law, could
respond, to requests from member States or international organizations
to determine the extent to which certain standards are complied with. In
so doing, it could act on behalf of organizations or institutions
supervising competitive conditions in world trade. Thus the annual
report of the Committee of Experts on the Application of Conventions
and Recommendations could be extended from its legal and administrative brief to one closer to that of the Declaration of Principles and
action programme that in 1976 followed the world conference on
employment, income distribution, social progress and the international
division of labour.
As far as the specific actions to be undertaken by the ILO are
concerned, it is possible, rather than falling back on procedures based on
protests and complaints,12 to conceive of establishing a procedure similar
to that put in place for trade union freedom, which has the advantage of
flexibility, swiftness and relatively low operating costs. This could be
done either by extending the mandate of the present committee or by
setting up new, specialist tripartite committees. Moreover, at the request
of the parties involved, the ILO could offer a voluntary mediation and
arbitration procedure that would have the effect of suspending the other
procedures for a year, say. A model might also be found in the practices
adopted in the wake of the 1964 declaration on apartheid (updated in
1981) or the similar procedure adopted in 1978 for Arab workers in the
territories occupied by Israel. Under these procedures, the DirectorGeneral presents an annual report on the evolution of the situation, thus
exerting moral pressure that might lead to a remedy for shameful forms
of injustice. This echoes an idea put forward at the International Labour
12
Nevertheless, if this procedure were retained, it would be better to enlarge its scope
since experience shows that a narrow concept in which only governments were allowed
to lodg;e: complaints would remain fairly limited in its application. In that case, however,
it would perhaps be necessary to lay down rules for deciding the admissibility of each
compliiint and the priority to be given to the case [van Liemt, 1989, p. 445].
314
Conference in 1973 whereby "while it may be difficult to make fair
labour standards specific conditions of trade agreements the impartial
examination of controversies concerning fair labour standards may greatly
facilitate trade negotiations". Use could also be made of "procedures of
conciliation rather than complaint designed to enable potentially conflicting parties to reach common ground as to what the facts are and seek
agreement on remedial action to resolve or at least narrow their
differences" [ILO, 1973, p. 39].
In general terms, it is through the combined effect of diplomacy (in
the form of conciliation and mediation) and essentially moral incentives
that the supervisory agencies seek to enforce international standards when
they give rise to difficulties. Moreover, it is well known that the practical
influence of international standards goes well beyond their formal value.
In the case of the special procedure under which, for example, complaints
about the violation of trade union rights can be investigated, the pressure
exerted on the parties involved arises out of moral considerations and the
weight of public opinion rather than the force of the law. Similarly, the
procedure that authorizes the Governing Body of the ILO to invite
countries that have not yet ratified certain Conventions to report on
their legislation and practices in the areas concerned may make it
possible, by bringing the debate out into the open, for desirable improvements to be made.
V. Conclusion
Two observations may serve as a brief conclusion to this outline. On
the doctrinal level, it has to be noted that the devaluation of ethical
considerations in international relations has been accompanied by the
relative marginalization of normative theory and the triumph of positive
theories characterized by a behaviourism that subordinates values to facts.
However, things may be in the process of changing. On the one hand,
if order, an intelligible and possibly desirable organizational principle,
presupposes law, individual states nevertheless remain sovereign, since
even the United Nations Charter is not universal because certain
countries have not ratified it. Moreover, since international law is
essentially a law based on consent, the arrangement of its constituent
parts is necessarily variable. In national law, the judge is obliged to fill
the legal vacuum on pain of denial of justice; nothing of the sort can be
observed in international law. And yet, on the other hand, a concept of
a duty to interfere on humanitarian grounds is emerging. Indeed, it was
Guy Caire
315
accepted by the UN in Security Council resolution 688 of April 1991,
which ordered immediate access for international humanitarian organizations to the Kurdish population of Iraq. Is it not possible to imagine,
with the increasing globalization of the economy, that such a practice
could be extended to areas in which not only threats to people's very
existence but also those affecting their living and working conditions
would be justification for a right to interfere? On the more empirical
level that has been the main concern of this paper, we have sought to
appropriate for our own ends the adage contained in a famous speech
addressed to young people by Jean Jaures, in which he declared that we
should "achieve the ideal by observing reality". Unless they take account
of the obstacles, legitimate ambitions alone will never lead to effective
practical recommendations. That is why, in this sphere as in many
others, it is necessary to take account of the fact that "government
policies are likely to be a mixture of what is desirable from the economic
point of view, what is opportune from the political point of view and
what is; feasible in practice" [OECD, 1967, p. 47].
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Cahiers francais, Oct.-Dec, pp. 45-54.
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trading regime: A historical overview", in International Labour Review, Vol. 126,
No. S, Sept.-Oct., pp. 565-584.
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Routledge & Kegan Paul.
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finances, du controle budgetaire et des comptes economiques de la nation sur
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75th Session of the International Labour Conference, Geneva, International Labour
Office.
—. 1992a. World Labour Report, Vol. 5, Geneva, International Labour Office.
—. 1992b. Democratization and the ILO, Report of the Director-General to the 79th
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Jenks, C.W. 1967. "The international protection of trade union rights", in de Luard, E.
(ed.): The international protection of human rights, London, Thames & Hudson.
Ki Zerbo, J. 1980. "The world of work and the protection of the child. Analysis of the
discussions of an African Symposium", in Labour and Society, Vol. 5, No. 4, October,
pp. 389-401.
Kohona, P. 1985. The regulation of international economic relations through law,
Dordrecht, Martinus Nijhoff.
Leben, C. 1979. Les sanctions privatives de droits ou de qualite dans les organisations
internationales specialises, Emile Bruylant.
Mendelievich, E. 1980. Children at work, Geneva, International Labour Office.
Mayer, J. 1985. "The concept of the right to work in international standards and the
legislation of ILO member States", in International Labour Review, Vol. 124, No. 2,
March-April, pp. 237-253.
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for labour standards resulting
from globalization
Louis Emmerij
Special Advisor to the President
Inter-American Development Bank
Washington
USA
I. Main characteristics of globalization
and regionalization
Globalization is not new. But there has clearly been an acceleration
during the 1980s with the simultaneous occurrence of various phenomena. These include: the rapid growth of offshore financial markets, with
the concomitant circulation of vast amounts of money that can scarcely
be regulated by public monetary authorities; the explosion of mergers and
acquisitions, national and international, which are bound to affect global
industrial restructuring and international competitiveness for years to
come; the accelerated homogenization on a global scale of consumer
preferences, product standards and production methods; and a visible
trend for the fortunes of large corporations to be less dependent on the
health of any one nation's economy.
The post-war growth of multinational enterprises, whereby large
corporations created or acquired foreign subsidiaries to compete in
overseas markets, is being superseded by the growth of global, inter-firm
networking agreements and alliances. Firms now tend to define themselves in the global marketplace more in terms of the strategic assets they
control than in terms of particular products. As the service component
of many manufacturing activities expands, the boundaries of specific
industries are increasingly blurred.
320
The acceleration of technological change and deregulation further
strengthens perceptions of globalization. In part, this is because of the
importance of new information and communications technologies to the
functioning of off-shore financial markets, the management of global
corporate activity and the internationalization of production.
To varying degrees, all these factors have weakened the ability of the
State to control the behaviour of other economic actors theoretically
under its jurisdiction, and have pushed the boundaries of policy-making
into the sphere of the global, rather than the national economy. The
State as an economic entity arguably reached the peak of its power in the
middle decades of the twentieth century. Integration of States into an
international economic system not only increased their openness in a
conventional sense, but also weakened their ability to impose their will
on other economic actors, notably business firms with subsidiaries in a
number of countries, employed persons with internationally marketable
skills and investors with access to international capital markets. Even
limited globalization has greatly increased mobility of goods, assets and
individuals.
The internationalization of currency markets has made it more
difficult for central banks to control the money supply. Integration of
bond markets has made it more difficult for the State to determine rates
of interest. Transfer pricing by transnational corporations has made it
easier for enterprises to shift their property tax liabilities from countries
where taxation is high to countries where it is low. Similarly, the ability
of large firms to locate their fixed investments almost anywhere in the
world has reduced the power of the State to regulate industry, be it
through taxation, the imposition of minimum wage legislation, environmental controls, health and safety provision, or anything else.
Globalization therefore implies the need for global economic
management. If, at the one extreme, globalization has weakened the
ability of the State to manage its national economy, at the other extreme
it has raised questions about how best to manage a truly global economy
in the interest of all participants — rich countries and poor, big countries
and small. It is evident that the existing international economic institutions were not designed to manage an integrated global economy. They
were designed to serve a system of national states in which each State was
assumed to be able to exercise sovereignty over domestic economic
affairs. There is a danger that, as the process of globalization proceeds,
the existing set of international institutions will become increasingly
ineffective and obsolete. We may soon reach a situation where no government organization, be it national or international, is in effective control
of global economic affairs, and where no-one can be held accountable for
Louis Emmerij
321
events in the global sphere. If this view is correct, then the issue of
international governance and the unavoidable restructuring of institutions
this entails is indeed likely to be high on the agenda in coming years.
In summary, we need to adapt and strengthen existing global institutions to allow them to cope better with the unforeseen events that will
surely accompany the accelerated evolution of the international economy
we are now experiencing. This will, furthermore, be essential to ensure
a truly global economy which will include as active and constructive
actors those countries presently drifting away from the world economic
mainstream. And, finally, it will be necessary to ensure that regional
economics blocs are consistent with global markets and the global
economy rather than the contrary.
Indeed, not only globalization but also regionalization is the order
of the day. Steps towards greater regional integration need not always be
defensive in nature, or a response to a poorly functioning global economy. The formation or reinforcement of regional groups may occur as
an intermediate step towards globalization, to strengthen the economies
of member countries so that they can chisel out a greater part of the
global market. The important point is that the type of regional grouping
likely to be prominent in the decade or so ahead will depend to a great
extent on whether globalization continues. Globalization and regionalization can go hand in hand or be antagonistic, depending on the prevailing
circumstances.
The adoption of a defensive posture by the industrialized countries,
a retreat into protectionism and regional blocs, would clearly have serious
consequences for many Third World countries, particularly small
countries with open economies. There is the real possibility that the
weakest of the developing countries would thereby become further
marginalized, thus aiming yet another blow at the slow-track countries
already in difficulty. This could induce many developing countries to
seek bilateral trading agreements among themselves — as was common in
the 1930s and 1940s — or try to establish, or strengthen, their own
trading blocs.
Things are made more complicated because on the international
scene today we begin to observe policies that judiciously combine export
promotion and protectionist measures. They would seem to be moving
in a (direction where the clear-cut distinction between free trade on the
one hand and protectionism on the other becomes increasingly blurred.
What we are now seeing is a paradoxical trend. National investments in
more and more developing countries, and in particular in the bigger
developing countries, are focusing on the mastery of sophisticated technologies — including the so-called "new technologies". At the same time,
322
international investments are attracted to those countries for labour cost
reasons, in order to reallocate industrial activities with a view to
conquering global markets. This apparently contradictory trend may turn
into open conflict.
The debate here is whether the new technological revolution will
benefit only the old industrialized nations by turning back the evolution
that has been taking place in the international division of labour over the
past 20 years, or whether developing countries will also be beneficiaries
by cornering important shares of the global market. The East Asian
experience has shown that it can be done. The question remains whether
other countries, and in particular the poorest countries, can imitate this
excellent example.
II. A minimum package
of international labour standards
Globalization stimulates even further the urge for competitiveness.
Competition no longer has the original meaning of "cum petere", i.e.
searching together. On the contrary, it has come to mean all-out war
between countries and firms. The pressure on wages, social benefits and
labour standards in general is becoming more serious. One of the ways
to circumnavigate this negative challenge is to identify and introduce in
all countries a minimum package of labour standards.
The debate on the desirability of including labour standards in
international agreements has been under way for a considerable time and
will be intensified by the globalization of the world economy. The debate
focuses mainly on whether the attempt to compel the introduction of
labour standards in developing countries represents a form of hidden
protectionism designed to benefit the industrial countries. Instead of
adopting open protectionism, the rich countries may be accused of
disguising their protectionist intentions by pressing for the premature
introduction of labour standards in poor countries.
The arguments in favour of inclusion are the following:
(a) Social progress should keep pace with economic progress. One way
of achieving this is to ensure that employees have the right of
association and can engage in collective bargaining with employers.
The insertion of relevant labour standards into international
agreements would assist in bringing this about.
Louis Emmerij
(b)
323
Industrial countries are collaborating in the exploitation of workers
in developing countries if they fail to press for the adoption of
universal minimum labour standards: this is known as the "solidarity
argument". In many cases, developing countries will hesitate to
improve working conditions at home on a voluntary basis since they
fear competition from other countries not wishing to make similar
improvements. The inclusion of labour standards in international
Conventions would naturally help to bring working conditions into
line with internationally recognized norms in as many countries as
possible.
A related argument concerns the readiness of workers in industrial
countries to cooperate in essential restructuring processes at the
national level. The insertion of labour standards into international
agreements would provide a guarantee that trade will not take place
on the basis of unfair competition at the expense of workers in
either developing or industrialized countries.
(c)
Optimists believe that, by including labour standards in international
agreements, a halt will be called to the growth in protectionism. An
increasing number of protectionist measures taken by the rich
countries in particular are the result of difficult economic
circumstances, notably the persistent high levels of unemployment.
In. addition, production capacity in low-income countries is
expanding rapidly, particularly in the textile, clothing, footwear and
electronics sectors. This expansion has so far been seen as a threat to
industrial economies: rapidly growing imports of products from lowincome countries are ascribed, among other things, to the neglect of
working conditions in those countries which allow labour costs to
be held down. The destruction of competition in this way would be
countered by the inclusion of labour standards in international agreements, thus eliminating one of the arguments for the introduction
of protectionist measures.
The arguments against inclusion are equally compelling and run as
follows:
(a)
There are those who fear that the real motive for linking minimum
Labour standards with international agreements is the protection of
domestic industries in industrial countries. The inclusion of labour
standards in international agreements would in fact mean that the
economic problems of the industrial countries were transferred to
the developing countries. Rich countries and their trade unions, in
pressing for the introduction of labour standards, are simply seeking
324
to spare from an essential process of restructuring domestic
industries which are unable to withstand competition from
developing countries. This puts a brake on economic development
as much in the industrial countries as in the developing ones.
(b) The premature inclusion of labour standards would destroy one of
the comparative advantages of developing countries, namely a
favourable relationship between productivity and wage levels. In
addition, developing countries would have imposed upon them
standards which, given their level of development, cannot all be
considered attainable.
(c) The solidarity argument used by the proponents of inclusion is said
by its opponents not to be properly thought out. At best, the labour
standards imposed would affect only those working in the modern
sectors in developing countries and would be of no benefit to other
groups within the population. Moreover, labour costs would be
artificially raised, leading towards an increasing emphasis on capitalintensive investments. The insertion of labour standards into
international agreements would aggravate the dualism of developing
economies, reduce the rate of growth of employment and make no
contribution to improving the conditions of the poorest groups —
who could indeed be disadvantaged by the reduced growth in
exports and employment.
(d) Finally, there is a danger that the desire to impose labour standards
may slide into interference in a country's internal affairs. Developing
countries in particular may find their freedom of manoeuvre curtailed as regards both national and international policy. The ILO has
developed a better procedure than this for improving working conditions within countries, namely that of direct contacts: this makes
allowance for certain sensitivities and is likely for that very reason
to be more effective.
It is obvious that the debate remains inconclusive. Of greater
importance, however, is the realization that supporters and opponents are
not pursuing opposing objectives: both are against protectionism and in
favour of improved working conditions in the countries concerned. From
this the logical question follows whether a compromise could not perhaps
be found via the idea of minimum standards. This would comprise a
package of provisions and requirements so essential that in principle all
countries can subscribe to them and which can be selected and implemented in such a way as to meet the objections of opponents.
Louis Emmerij
325
As mentioned earlier, the growing globalization of the world
economy makes it even more important that the international community agrees on a minimum package of international labour standards,
and ensures its application in all sectors of the economy and in all
countries. Indeed, an essential feature of true minimum standards is that
no exception is admissible and that great care be taken over their
identification. The standards must clearly be set and implemented in such
a way sis to exclude any adverse effects on employment and economic
growth in the countries concerned.
It is perfectly possible to compile a minimum package of international labour standards by applying a mixture of social and legal
criteria.. The main purpose of such a package is the satisfaction of the
basic need for freely chosen work in humane conditions. What must be
taken into account is how far this package affects the competitive
position of both the industrial and the developing countries. This leads
to the economic criterion.
The economic criterion is often linked with international trade and
the conditions for fair competition between countries. The debate on the
desirability of introducing a "social clause" into Article XIX of the
General Agreement on Tariffs and Trade (GATT) has dragged on for
many years. American trade unions — and particularly the AFL-CIO —
have pressed strongly for the introduction of labour standards throughout
the world, most especially in countries which already, or may in the
future, engage in trade with the United States. The AFL-CIO has always
laid great stress on the point that the failure to introduce such standards
has led, and will continue to lead, to unfair competition. The central
issue, therefore, is the identification of a very narrow pathway between
exploitation of workers on the one hand and, on the other, erosion of
comparative advantages of developing countries and hence their competitive position on world markets. The great comparative advantage of
many developing countries is the availability of human capital and its
relatively low price. It is logical and proper, given the need to promote
employment and economic growth, that they should seek to take
advantage of this state of affairs on the global market. At the same time,
however, it is of vital importance for such countries, and for all their
working population, that minimum labour standards should be identified
and observed.
O n balance, we do not feel that a minimum standards package
would, raise too many difficulties: in most cases the application of the
standards would have no adverse effect on the international economic
position of developing countries or, more generally, their potential for
growth.
326
III. Summary and conclusions
The I L O owes its foundation in no small part to the desire that
countries should undertake simultaneously to improve working conditions, thus avoiding the erosion of their international competitiveness.
One of ILO's main tools for the improvement of working conditions has
been the formulation of international labour standards. A country which
has ratified a Convention is required to observe its provisions and thus
report on the measures taken to this end. The ILO checks that the
countries do indeed act in accordance with the Conventions they have
ratified, and various procedures exist for channelling complaints against
governments regarding their observance of Convention provisions.
Arguments for the inclusion of minimum labour standards in international trade policy agreements, particularly in the light of emerging
global markets, include:
(a) the desirability of social progress in a country keeping pace with
economic development, in which connection the introduction of
labour standards — notably regarding freedom of association and the
right to engage in collective bargaining — can provide a useful
impetus;
(b)
the fact that countries might hesitate voluntarily and unilaterally to
improve working conditions for fear of adversely affecting their
competitive positions; and
(c)
the fact that this step makes it more difficult for countries to adopt
protectionist measures on the excuse that their competitors profit
from p o o r working conditions.
The main arguments against inclusion are:
(a) the absence of any economic justification;
(b)
the fact that premature introduction of labour standards erodes a
major comparative advantage enjoyed by developing countries,
namely a favourable relationship between productivity and wage
levels;
(c)
the danger that labour standards will not only fail to benefit the
poorest groups in developing countries, but may even worsen their
position; and
(d)
the risk of interference in a country's internal affairs.
Louis Emmerij
327
Historically, improvements in working conditions have been the
result both of economic and technological progress and of the development of trade unionism. Working conditions and social provisions may
nevertheless show considerable differences in two countries at the same
level of economic development. The introduction and enforcement of
minimum international labour standards in the small-scale agrarian sector,
where female and child labour is common and much work is carried out
in a family context, is in practice extremely difficult. This is also true of
the traditional non-agrarian sectors: working conditions are generally
poor, but the nature of the sector makes the introduction and enforcement of labour standards very difficult.
In the modern industrial sector, however, it is relatively easy to
check whether labour standards are being observed. Given the desirability
of improving working conditions without eroding countries' competitiveness, the following questions must be answered:
(a) Have working conditions in the export sector improved or deteriorated in the recent past?
(b) Are working conditions in export sectors better than in those
producing for the domestic market?
(c) Have poor working conditions in the export sector of certain
countries helped them achieve more rapid growth in exports and
hence in national income?
The answers to all these questions are highly controversial.
By minimum international labour standards, we mean standards
whose violation or non-application implies a serious risk that the basic
need tor freely chosen work in humane conditions cannot be satisfied.
They ought therefore to be applied in all countries in all economic
sectors. By using a mixture of social, legal and economic criteria, it is
possible to put together a. minimum package of international labour
standjtrds which contributes to the creation of a climate in which there
is scope for meeting the basic need for freely chosen work in humane
conditions. The standards in question are laid down in the following ILO
Conventions: No. 29, Forced Labour Convention (1930); No. 87, Freedom of Association and Protection of the Right to Organize Convention
(1948); No. 98, Right to Organize and Collective Bargaining Convention
(1949); No. 100, Equal Remuneration Convention (1951); No. 105, Abolition of Forced Labour Convention (1957); No. I l l , Discrimination
(Employment and Occupation) Convention (1958); No. 122, Employment Policy Convention (1964) and No. 138, Minimum Age Convention
(1973)..
328
The minimum standards identified are all embodied in international
Conventions. One must now ask whether their effectiveness can be
enhanced by including a provision concerning their observance in international agreements involving both industrial and developing countries.
If this is to be justifiable and effective the following three conditions
must be met:
(a) the agreement itself must contribute to achieving the conditions
needed to facilitate observance of the minimum international labour
standards;
(b) the agreement must provide for a satisfactory procedure for the
settlement of disputes by an independent body;
(c) the enforcement of minimum international labour standards must be
based on reciprocity.
In this connection, there are a number of reasons for regarding the
Lome Convention as particularly suitable to be used as a guinea-pig for
the inclusion of the minimum labour standards provision: the Convention provides for an adequate appeals procedure and itself creates
conditions for fostering the observance of minimum standards. The
European Union is party to the Convention, which offsets the fact that
not all EU member States have ratified all the labour Conventions in the
minimum package. The number of ratifications by the ACP countries
presents an encouraging picture. But obviously, and with the emergence
of globalization and global markets in mind, the inclusion of such a
minimum package in GATT, after the successful conclusion of the
Uruguay Round, will be the first priority.
Labour standards in the globalized economy
and the free trade/fair trade debate
Brian A. Langille
Faculty of Law
University of Toronto
Canada
Abstract
The specific debate over labour standards in the globalized economy
is part of the more general debate over "free" versus "fair" trade. This
debate within trade theory seems intractable, involving arguments about
democracy and sovereignty and, most crucially, the normative status of
international regulatory competition. Resolution of this difficult set of
issues is nevertheless a precondition for progress on the specific agenda
of lab our standards in the globalized economy. The disagreements within
trade theory can be made explicit and, it is argued, the outline of their
resolution can be constructed using resources already inherent in liberal
trade theory and the existing world trading system.
/. Introduction
The subject matter of this volume of essays is a broad one:
"International labour standards in the globalized economy: Issues,
challenges and perspectives". This essay expands the topic further by
suggesting that the debate on labour standards in the new world
economic circumstances is usefully viewed as part of a more general
debate; on regulatory competition as engaged by theorists of international
330
trade and their critics. In other words, our topic is a specific instance of
the broader argument over "fair" as opposed to "free" trade.
Establishing this connection is illuminating, but also debilitating. It
is illuminating because the fair trade/free trade debate has progressed to
the point where the fundamental issues and disagreements are becoming
apparent. This more general discussion comprehends not only labour
standards but also such matters as environmental regulation and competition policy, so enabling common features as well as differences to be
crystallized in a useful way. In my view trade theory articulates, most
explicitly, the arguments which must be confronted in order to resolve
the specific question of labour standards.
At the same time, the connection to the free trade/fair trade
problem is debilitating because the more general discussion often
generates more heat than light. Labour lawyers and trade economists
seem to bring to bear such opposing conceptual paradigms that they
never really join debate. There is a systematic lack of communication and
their theories appear, to borrow Flaubert's phase, as "two identical
impertinences" [Flaubert, 1929, p. 367 cited in Hirschman, 1991, p. 168].
Participants in these debates occupy what has been aptly described as
"two solitudes".
The point of this essay is to show how the free trade/fair trade
argument goes to the heart of the debate on labour standards in the new
global economy; and then to suggest a way of understanding and thus
dissolving the conceptual barriers between free and fair traders. However,
if this effort is successful it merely clears the ground and removes an
obstacle, albeit a large one, to the concrete and difficult task of forging
institutions, processes and substantive labour standards appropriate to the
new globalized economy.
In what follows I outline briefly the free trade/fair trade debate,
suggest that free traders cannot dodge fair trade arguments and locate
what I believe to be the important dimensions of disagreement characterizing the debate. I then make explicit the conceptual divide between the
two camps.
II. The free trade/fair trade debate
Arguments about "fair trade", "harmonization", "level playing
fields", and "races to the bottom" have come to dominate the agenda of
leading trade theorists. For example, Bhagwati has characterized the
demand for fair trade as a "Pandora's box" which has "grown out of
Brian A. Langille
331
hand" and which constitutes the "true crisis" facing trade theory
[Bhagwati, 1994, pp. 548, 582]. The basic and familiar argument of fair
traders against trade liberalization is that domestic labour (and
environmental) policies are thereby exposed to "unfair competition" from
countries where standards, or their enforcement, are lower. Jurisdictions
compete for mobile capital by lowering regulatory standards. To avoid
this outcome, fair traders oppose free trade regimes and insist that they
must contain provisions for equalizing regulatory standards to ensure a
"level playing field" and thus avoid a "race to the bottom".
For free trade theorists these arguments are nonsensical. Regulatory
diversity is one dimension of comparative advantage and to argue against
diversity is to argue against the rationale for trade itself. Moreover,
regulatory competition is prima facie a "good thing". If competition
among; sellers of widgets is socially desirable, why not among producers
of labour regulation? These economic arguments are bolstered by political
ones relating to democracy and/or sovereignty. If residents of other
jurisdictions choose different sets of regulatory policies, on what basis can
we interfere with their choice? In addition, it is argued that projecting
labour (or environmental) policy into international trade negotiations
undermines domestic sovereignty concerning those issues.
These arguments are the raw material for the conceptual gridlock
which characterizes the free trade/fair trade debate. (I here ignore other
non-conceptual problems generating this gridlock including the pervasive
argument that all claims for "fair trade" constitute protectionism
masquerading under a different name.) In what follows I argue that free
trade theory itself cannot avoid the fair trade challenge and maintain a
laissez-faire attitude to issues such as labour standards. I then examine the
arguments concerning democracy and sovereignty and finally approach
the core issue — are we to understand our problem in terms of the
virtues of competition, or in terms of the dangers of a "race to the
bottom"?
III. Fair trade is free trade's destiny
Free trade theory contains within itself the notion of fair trade. This
can be seen in the following way. The informing idea of liberal trade
theory lies in Adam Smith's insight that:
What is prudence in the conduct of every private family can scarcely be
folly in. that of a great kingdom. If a foreign country can supply us with a
332
commodity cheaper than we can make, better buy it of them with some part of
the produce of our industry [Smith, 1776, p. 424].
Smith was appealing to a model in which domestic producers of
goods for potential export faced tariff barriers. The outstanding accomplishment of liberal trade theory and the world trading system has been
the reduction of tariffs among the key trading nations to "almost
negligible levels" [Bhagwati, 1994, p. 5]. The high cost of protectionism,
including the cost of each job "saved" in domestic industry, has been
recognized to a large extent. But the result of trade liberalization is not
only gains from trade but also specific domestic "losers", including those
whose jobs are lost in industries unable to compete with cheaper foreign
producers. This requires appropriate "adjustment policies". The best
advice to those caught in this domestic policy dilemma has been to
pursue the gains from trade, but to use some of those gains to compensate the losers [Trebilcock et al., 1990]. Within the classical model of
domestic producers with goods for potential export, the policy debate is
constructed and legitimized by domestic (democratic) political processes
in which all constituencies — capital, labour and consumers — are
involved.
This world has been revolutionized by two key developments —
increased mobility of capital and increased regulatory competition.
Increased mobility of capital and other factors of production, combined
with the relative immobility of labour and the absolute immobility of
jurisdictions, has reshaped the simple model upon which liberal trade
theory is based. At the same time, governmental regulatory policy, which
hitherto played "no role" in classical theory [Bhagwati, 1994, p. 584] has
come to the forefront. Within trade theory itself these developments have
created intellectual disarray concerning the central notion of "subsidies".
That free trade theory is now enmeshed in fair trade theory can be
demonstrated briefly. The signal achievement of the free traders has been
the reduction of tariffs and the resulting gains from trade. But from a
global perspective there is no conceptually relevant distinction between
a tariff upon a foreign good and a direct subsidy to domestic producers
of the same good. They achieve the same result for the same motive. And
further, there is no relevant distinction between what may be referred to
as "positive" and "negative" subsidies. That is, government subsidies to
pay for required pollution equipment or day-care facilities for the
children of workers cannot be distinguished from a "subsidy" in the form
of not imposing the regulatory requirement in the first place. Government inaction (non-regulation) is as much a subsidy in the eyes of foreign
producers saddled with costly regulatory requirements as direct funding
Brian A. Langille
333
to meet the requirement if imposed. Thus, there is a profound question
inherent in liberal trade theory itself — what is the "natural", "neutral"
or non-subsidizing level of regulation? Trade theory is obliged by its own
logic to respond to this question even though it cannot supply an answer.
This simple point provides the key, as we shall see, to resolving the most
basic element of our intellectual gridlock — arguments setting the virtues
of regulatory competition against warnings of a race to the bottom.
IV. The arguments of democracy and sovereignty
The mobility of capital undermines in a fairly straightforward way
the traditional arguments of democracy and sovereignty invoked by
liberal trade theorists. The legitimacy of the policy choice faced by states
contemplating the liberal theory of trade was underwritten by an appeal
to democracy. The policy issues were whether to undertake trade liberalization and, if so, whether to compensate the losers with part of the
gains. These issues were decided by domestic policy processes. In so far
as government regulatory policy was perceived as a relevant factor
endowment that, too, was resolved ideally by democratic means within
the state and the political contest between domestic capital, labour and
consumers. But now capital has not just the political strategy of "voice",
it has: the option of "exit" [Hirschman, 1970]. Capital has slipped the
moorings of the nation state, but labour has not. In these circumstances,
theory predicts and practice bears out the simple idea that the mobile
factor will play off the immobile factors against one another. Thus,
international regulatory competition is to be expected. But the result of
this new regulatory competition, for example in labour policy, is the
creation of what may be referred to as a "democratic deficit". By
acquiring the option of exit, capital is liberated to participate in and
establish an international market-place in regulatory policy. But this is a
shift away from a world in. which regulatory policy is determined within
domestic political processes, entailing a loss of democratic control. Much
of the antipathy to proposals for trade liberalization, such as the North
American Free Trade Agreement, reflects popular unease over this loss
of control.
The new situation also highlights the processes of choice in other
jurisdictions. If the new market-place in regulatory competition is to be
justified then, as with all market choices, our choices are only legitimately constrained by free and informed choices elsewhere [Friedman,
1962, p. 12]. Hence the renewed interest in North America, for example,
334
in the status of democracy and democratic institutions in Mexico. If
choices elsewhere are not free and informed, then the impact of the
market-place in regulation is to export their democratic deficits to our
own shores.
The argument of sovereignty is also clouded by the new global
circumstances. The old advice not to cede sovereignty over issues such as
domestic labour policy regulation to international processes is now best
re-evaluated if not ignored. The reality is that sovereignty over these
issues has already been ceded and policy is being established to an
increasing extent internationally. The issue is not whether but how
policy will be determined internationally — through the market or
through political negotiations. The problem is no longer avoiding a
potential loss of sovereignty, but whether to take an opportunity to
reclaim some measure of it.
V. Races to the bottom
and the virtues of regulatory competition
I have suggested thus far that liberal trade theory is, in its own
terms, forced to address the issue of subsidies and thus the appropriate
level of regulatory activity (regarding labour standards, for example).
Coherence requires that free trade theorists address these matters in the
same way as they have dealt with the problem of tariffs. In reality, the
world trading regime is not characterized by an international market in
unilaterally established tariff policies but by a political and legal process
of multilateral negotiations, agreements and enforcement. I have also
suggested that this process is necessary to take up the democratic slack
created by the shift from domestic political processes to an increasingly
significant international market-place of regulatory competition. None
the less, there will remain a conceptual gulf between free traders and fair
traders. Eventually, the stalemate will evolve into a debate about whether
to characterize our new circumstances as a "race to the bottom" or
simply as one of (beneficial) regulatory competition. Progress will be
made if we can identify precisely why this debate is so intractable. I shall
argue that both the "race to the bottom" and "beneficial competition"
characterizations are, in their own terms, accurate. The problem is to
choose which of these competing modes of understanding to deploy.
The argument for regulatory competition is more familiar and is
summed up in the question — "if competition in supply of widgets is
socially desirable, why not in the production of labour regulation?" In
Brian A. Langille
335
the context of the market-place for capital investment the question can
be more pointedly put as "if international regulation mandating a supercompetitive price for widgets is so socially undesirable, why is international regulation mandating a super-competitive price for location
rights socially desirable?" [Revesz, 1993, p. 1234]. Law here is regarded as
a product for which mobile capital shops. The virtues of market ordering
are said to be as apparent here as in any other product market.
The race to the bottom is perhaps somewhat less familiar and is best
conceived in terms of a "prisoner's dilemma". The "prisoner's dilemma"
is a very useful and familiar way of capturing an important and widely
acknowledged idea — that rationally motivated, self-interested behaviour,
i.e. the standard behaviour of players in the market-place, can lead to
socially sub-optimal results and that these results can be avoided through
cooperation rather than competition. A very useful rendition of the
"story" of the prisoner's dilemma is presented by Amartya Sen as
follows:
The story goes something like this. Two prisoners are known to be guilty
of a very serious crime, but there is not enough evidence to convict them. There
is, however, sufficient evidence to convict them of a minor crime. The District
Attorney — it is an American story — separates the two and tells each that they
will be given the option to confess if they wish to. If both of them do confess,
they will be convicted of the major crime on each other's evidence, but in view
of the good behaviour shown, in squealing, the district Attorney will ask for a
penalty of 10 years each rather than the full penalty of 20 years. If neither
confesses, each will be convicted only of the minor crime and get two years. If
one confesses and the other does not, then the one who does confess will go free
and the other will go to prison for 20 years ... What should the prisoners do?
... Each prisoner sees that it is definitely in his interest to confess no matter
what the other does. If the other confesses, then by confessing himself this
prisoner reduces his own sentence from 20 years to 10. If the other does not
confess, then by confessing he himself goes free rather than getting a two-year
sentence. So each prisoner feels that no matter what the other does it is always
better for him to confess. So both of them do confess guided by rational selfinterest, and each goes to prison for 10 years. If, however, neither had confessed,
both would have been in prison for only two years each. Rational choice would
seem to cost each person eight additional years in prison. [Sen, 1986, p. 69].
Prisoners' dilemmas involve a strategic decision in circumstances
where the reward to each depends upon the reward to all and the choice
of each depends on the choice of all [Elster, 1986, pp. 8-9]. Essentially,
the two players must decide whether to cooperate or defect. We can also
see international competition in regulatory policy in terms of a prisoner's
dilemma. Assume that we have two jurisdictions with identical labour
336
standards policies. These jurisdictions also seek to attract capital
investment in the name of job creation and other benefits. Capital will
shop for the jurisdiction which has the lower regulatory price. The two
jurisdictions would be better off if they agreed to cooperate and not
reduce labour standards from their current levels. But each jurisdiction
sees that, at least potentially, it is in its interest to reduce its labour
standards no matter what the other jurisdiction does. Thus, as with the
prisoners and acting perfectly rationally, both jurisdictions reduce their
labour standards with no net impact on investment. The outcome of this
version of the prisoner's dilemma is particularly striking — that even in
circumstances of equal starting labour standards, jurisdictions will
rationally engage in a race to lower standards.
When liberal trade theorists discuss the prisoner's dilemma/race to
the bottom analysis, they tend to miss the conceptual point. The point
is not that it is irrational for one state to "choose" to lower labour
standards to attract (or retain) investment. This may be the case and
indeed this is assumed in the analysis. The point is that the choice is a
strategic one — where the outcome depends on the choice of others. But
the others will see the same problem the same way and in the absence of
an avenue for cooperation and agreement all will "defect".
In the end, however, notions of beneficial competition or the
prisoner's dilemma/race to the bottom are two ways of looking at the
same phenomenon. The same rationally self-interested behaviour in a
competitive situation can be seen as either beneficial competition or a
prisoner's dilemma. What then really differentiates the two modes of
analysis? The core disagreement is whether it is possible rationally to
perceive what is socially optimal in any other way than that defined by
the market. The reason the prisoner's dilemma is compelling is that we
"know" that it is better to be in prison for two years rather than ten.
Thus, the prisoners have "given away" years of their freedom. If they had
cooperated they would have achieved an optimal result. But from the
beneficial competition perspective this is not what has occurred. While
it is true that the prisoners themselves could have been better off, this
would also be true of producers of widgets who conspired to fix their
price. Since we do not wish producers of widgets to conspire to fix their
price, we should not be moved by an analysis which invites such activity.
The conceptual disagreement which separates free and fair traders is,
then, really a substantial disagreement about possible modes of defining
the socially optimal. On the one view there is only one standard for
defining the socially optimal — the mechanism of the market. On the
other view, there are other standards of the just, fair and reasonable.
Indeed, the most common way of perceiving labour law is as a series of
Brian A, Langille
337
constraints on the operation of the labour market established through
political processes. H o w , then, do we resolve this fundamental dilemma?
The first part of an answer must be that the question of the appropriate
scope of the market, as opposed to political instruments of choice, cannot
be answered by invoking the market mechanism.
A. second part of the answer, in my view, is that the world trading
system has already decided on a prisoner's dilemma/race to the bottom
analysis and thus the need for political resolution of these issues. The
world trading system was constructed as a solution to a multi-party
prisoner's dilemma concerning tariff policy. As Stein writes:
The attempt to create an international trade regime after World War II was,
for example, a reaction to the results of the beggar-thy-neighbour policies of the
depression years. All nations would be wealthier in a world that allows goods
to move unfettered across national borders. But any single nation, or group of
nations, could improve its position by cheating — erecting trade barriers and
restricting imports. The state's position remains improved only so long as other
nations do not respond in kind. Such response is, however, the natural course
for those other nations. When all nations pursue their dominant strategies and
erect trade barriers, however, they can engender the collapse of international
trade and depress all national incomes. This is what happened in the 1930s and
what .nations wanted to avoid after World War II [Stein, 1991, pp. 35-36].
As we have seen, there is no relevant conceptual distinction between
tariffs; and subsidies in trade theory. The subsidy issue comprehends the
problem of the relative level of government regulation including labour
standards. The claim for multilateral negotiated agreements on labour
standards should be seen as a natural and inevitable corollary of free trade
policy. If this point is grasped, the debate between free trade and fair
trade theorists will indeed dissolve and the debate about "labour standards
in the global economy" will proceed on its merits.
Bhagwati, J. 1994. "Fair trade, reciprocity and harmonization: The new challenge to the
theory and policy of free trade", in Deardorff, A.; Stern, R. (eds.): Analytical and
negotiating issues in the global trading system, Ann Arbor, University of Michigan
Press.
Elster, J. 1986. "Introduction", in Elster, J. (ed.): Rational choices, New York, New York
University Press.
Flaubert, G. 1929. Correspondence, Volume 5, Paris, Conard.
Friedman, M. 1962. Capitalism and freedom, Chicago, University of Chicago Press.
338
International
interdependence
Hirschman, A.O. 1970. Exit, voice, and loyalty, Cambridge, Mass., Harvard University
Press.
—. 1991. The rhetoric of reaction, Cambridge, Mass., Harvard University Press.
Revesz, R.L. 1993. "Rehabilitating interstate competition: Rethinking the 'race to the
bottom' rationale for federal environmental regulation", in New York University Law
Review, Vol. 67, p. 1210.
Sen, A. 1986. "Behaviour and the concept of preference", in Elster, J. (ed.), op. cit.
Smith, A. 1776. The wealth of nations, New York, Modern Library Edition 1937.
Stein, Arthur A. 1991. Why nations cooperate. Circumstance and choice in international
relations, Ithaca, Cornell University Press.
Trebilcock et al. 1990. Trade and transitions: A comparative analysis of adjustment policies,
London, Routledge.
The ILO in the cross-fire:
Would it survive the social clause?
Hans-Goran Myrdal
Director
Swedish Employers' Confederation
Stockholm
Sweden
I. Introduction
As the ILO celebrates its 75th anniversary, it may well be asked if
the Organization will survive with the tripartite structure it has had since
birth. The ILO is coming under strong criticism from several quarters
and it is also being confronted by demands which, if they were satisfied,
would undermine its very existence. The employers' side and many
governments are demanding far-reaching reform of the ILO, and particularly of what has been its core activity, the setting of standards.
Meanwhile, the international trade union movement has renewed and
strengthened its old demand that ILO Conventions should be made
binding, by means of social clauses in GATT and other trade agreements.
All that is needed is for the employers' or workers' organizations represented in the ILO — or a sizeable proportion of either party — no longer
to consider participation worthwhile for the ILO's tripartite structure to
collapse like a house of cards.
It is debatable how serious this would be. The current participation
of employers and workers in the ILO, with delegates having full voting
rights, has advantages but also drawbacks. There are alternative means by
which an inter-governmental organization can collect views and information from the labour market parties in each country. In any case, the
ILO's record in the field of international labour standards does not
convince us that the current structure has been solely beneficial.
Standards have grown according to the principle of adding layer to layer
without the ILO adapting its activities adequately to the far-reaching
340
economic and social changes in the world. However, there are some valid
reasons and extenuating circumstances.
77. Cold war distortions
The flaws relate to a large extent to the Cold War. For nearly half
a century the ILO was in the firing zone between the superpower blocs.
The ILO's area of interest made it an ideal forum for political and
ideological conflicts between communism and capitalism. The delegates
from communist countries — whether they represented governments,
workers or "employers" — acted as a monolithic Moscow-controlled bloc.
This bloc operated independently, or in alliance with others, to satisfy
aims which usually had little or no substantive relevance to the ILO. An
example was the bloc's annually recurring denunciations of Israel, jointly
with the Arab countries. On numerous occasions, this caused long disruptions of all activity within the ILO's general assembly — the
International Labour Conference — and its committees.
I will never forget the 1982 Resolutions Committee, for instance.
The main objective of the Committee is to prepare resolutions to enable
the general assembly to make statements concerning the future activities
of the ILO. During a few weeks of intensive negotiations, the 1982
Committee, with its 200 or more delegates, was unable to deal with any
of the 20 or so resolutions that had been tabled. It did not even succeed
in composing a short formal report on the number of meetings that had
been held, etc. This was due to delaying tactics by the alliance against
Israel which had been narrowly defeated in the vote on the order in
which the proposals should be discussed. Total chaos broke out during
the last three days, all that was discussed being hundreds of points of
order. The result was that the ILO's general assembly in 1982 was unable
to state what it intended to deal with in the following years.
The politicization of the ILO during the Cold War challenged one
of the basic principles of the ILO and the UN — the principle of
universality. The USA, Poland and Vietnam each resigned for a couple
of years, and the threat of a total breakdown of the Organization was
constantly on the horizon. Consideration for the principle of universality
meant that the ILO, and in particular its Director-General and the Office,
were forced to observe strict "neutrality" between communism and
capitalism, between a planned economy and a market economy. During
this period, it was taboo to express a positive opinion of private
enterprise and the market economy in any of the ILO's instruments or
Hans-Goran Myrdal
341
resolutions. When the Cold War began to thaw, however, the occasional
use of euphemisms such as "small and medium-sized companies" was
allowed. These fundamental constraints on the ILO's freedom of action
resulted in serious distortions and inevitably affected the 100 or so
Conventions that were produced during this period, negotiated as they
were on the basis of inadequate and distorted representations of facts.
In its relations with the socialist countries during the Cold War, the
ILO was also forced consistently to ignore the fact that independent
employers and trade unions can only exist in market economies based on
pluralist, and consequently, private ownership. The absence of any type
of independent organization or independent critics within the communist
bloc meant that the ILO neither dared nor could question the composition of the delegations nor could it, as a rule, question how the ILO
Conventions were applied in the communist States. In other words, the
communist bloc could without blushing participate in formulating and
ratifying ILO Conventions with no intention of implementing the Conventions themselves or worry about scrutiny from the ILO. During the
Cold War, the ILO's supervisory body came to be used principally as a
weapon against democracies and the least repressive undemocratic States.
The ILO workers' group was able, during this period of almost half
a century, to rely completely on the votes of the communist bloc. The
bloc also contributed actively by making far-reaching proposals for
detailed and rigid provisions in support of the union side. The communisl: countries were keen for the rules to cause problems for companies
and governments in market economies. As a rule, the workers' group
within the ILO found it difficult to decline these generous offers. This
is one of the reasons why the ILO Conventions which originate from the
Cold War era are the way they are.
Another contributory factor was that many democratic governments
also felt compelled to compete for the favour of the workers' group.
Delegates from both developed and developing countries supported the
inclusion of provisions which made it impossible for their own countries
later to ratify the Conventions. In the atmosphere which prevailed,
government delegations often regarded the task of drawing up new ILO
instruments as an opportunity for political manifestations without
worrying too much about later ratification. A comparison between votes
and ratifications of individual countries would reveal enormous discrepancies.
The Cold War and concern for the ILO's universality also put heavy
pressure on both governments and labour market organizations not to
rock the boat. The global balance of power was the main focus. For many
decades there was never a question of making far-reaching structural
342
reforms of the ILO and its activities. It is only now that these matters
can be raised seriously. Indeed, the facts stated above give sufficient
grounds to expect an almost infinite need to change and renew the ILO's
activities. This impression is corroborated by closer scrutiny of the ILO's
instruments. I will limit myself to commenting on the Conventions.
III. Are ILO standards generally agreed?
Today, the ILO has 174 Conventions which have come into force
and 181 Recommendations. They are commonly referred to as "the international labour standards — ILS". The underlying assumption that they
are generally agreed internationally must, however, be refuted. First, it
should be noted that, although each of these instruments was once passed
by at least a majority vote of the International Labour Conference, this
result was often achieved against the opposition of a large minority, such
as the entire employers' group (excluding the communists) and a high
proportion of governments. Second, and more important, the percentage
of ILO member countries which have ratified the ILO Conventions is in
most cases very low. On average, the 174 Conventions have been ratified
by only one-sixth of the member States. Only 11 (7 per cent) have been
ratified by more than half the membership.
A few of the largest and most important nations stand out for their
low ratification rate. The USA has ratified 11 Conventions and China 17.
A few small countries, including several exotic oceanic island nations are,
on the other hand, over-represented among the ratifying countries. The
composition of ratifying countries is, moreover, often anything but impressive. Let me exemplify this with a Convention which I was involved
in negotiating in 1974 and 1975. The "Migrant Workers' Convention"
(classified by the ILO as category 1) was adopted by a majority vote.
Two decades later it has still only been ratified by 10 per cent (16) of the
ILO member countries. Very few of them have immigration of the type
covered by the Convention. I doubt that it has any relevance in, for
example, Benin, Burkina Faso, or San Marino.
Moreover, if we consider the age of the Conventions, any suggestion
of "internationally agreed" would appear to be sheer nonsense. There are
64 Conventions dating from 1919 to 1939 still in force. On average, these
Conventions, denunciations included, have been ratified by 39 countries,
i.e. 25 per cent. Of course, it is not surprising that most of these pre-war
Conventions are antiquated and contain provisions that have no validity
or application today. Seventeen are no longer open for ratification. But
Hans-Goran Myrdal
343
13 are currently classified by the ILO as "category 1: Instruments, ratification and application of which should be promoted on a priority
basis". Among the 62 Conventions which date from 1945 to 1969, the
average ratification is the same — 40 countries, i.e. 25 per cent.
Less than one-quarter of all the ILO Conventions in force were
adopted during the last 25 years. Their ratification level is much lower.
The 41 Conventions dating from 1970 to 1990 — all classified as "category 1" — have on average been ratified by only 20 countries, i.e. 10 per
cent. The ratification level has fallen even further among OECD
countries — countries which undeniably take ratification and implementation of ILO Conventions more seriously than the average ILO member
country. Two-thirds of the OECD countries have ratified only one or
two of the 18 ILO Conventions that were passed between 1979 and 1989.
Looking at the total numbers, it is true that some of the older
Conventions are past ratification by now. I would guess, however, that
this is more than offset by the fact that ILO procedures make denunciation (de-ratification) very cumbersome. Denunciation is only allowed
every ten years counted from the date on which the Convention came
into force. Therefore, in practice, a denunciation requires both a high
degree of attention by a government, and a genuine interest based on
serious problems that the Convention has caused the member country.
A country will hardly denounce a Convention simply because it is no
longer applicable (if it ever was) or because it might cause problems if it
were invoked. I doubt that the present governments in Albania or
Myanmar are even aware of the ratifications made by former governments in the early 1920s.
The difficulty of denouncing antiquated Conventions has, however,
posed problems for a number of ILO member countries, including
Sweden. It has denounced only a few, where the consequences of continued ratification have been considered to be extremely serious from a
practical point of view or as a matter of principle. For instance, Sweden
denounced the Convention prohibiting all underground work by women
in mines (No. 45) when it became a serious obstacle to its policy of
equality between men and women. Still, this ILO Convention from 1935
remains one of the most ratified with denunciations only from some
countries with large mining industries. The need to denounce is, on the
other hand, not likely to be felt as urgently by countries like Singapore
and Solomon Islands which have no underground mines. This Convention, of doubtful principle, is still classified as category 1 by the ILO,
implying that it should be promoted worldwide on a priority basis.
For two decades, Sweden has had serious problems with the Employment Service Convention (No. 88) of 1948. This, again, is among the
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most ratified ILO Conventions. It is based on the assumption that
employment services should be a public monopoly. Its detailed
prescriptions have been interpreted by the ILO as a prohibition against
hiring out labour and other services provided by employment agencies.
The Convention compelled Sweden to retain for many years its
monopoly legislation which tended markedly to reduce efficiency and
was detrimental to innumerable companies and to Sweden's economy.
Employment agency services are becoming more and more indispensable
in an economy which is open to global competition and in which
information technology has made flexibility vital to the success of any
company. In accordance with the ILO provisions Sweden was, in this
case, obliged not only to wait three years for the denouncement period,
which was 1992, but to wait an additional year before it was entitled to
let a new law come into effect. The new law provides for full freedom
for private employment services. It is quite clear that this also benefits
employees. Unfortunately, it is impossible to calculate how much this
anti-progressive ILO Convention has cost Sweden.
A few other countries also took the chance to denounce the same
Convention in 1992. However, the list of ratifications tells us at a glance
that quite a few of the highly industrialized countries where private
employment services are available in abundance have not bothered to
denounce the Convention, despite clear infringement of its provisions.
For once, however, time seems to have caught up with this Convention.
A new one based on the reverse principles is now being discussed within
the ILO.
My final example concerns one of the largest and most important
legislative decisions in Sweden over the past decade. According to a
statement from the International Labour Office, it involves a violation
of the Employment Injury Benefits Convention (No. 121) of 1964. One
of hundreds of detailed provisions in this Convention allows ratifying
countries to withhold benefits for up to three qualifying days — provided
these qualifying days existed at the time of ratification. When Sweden
ratified the Convention it imposed no qualifying days, although no benefit was paid for the day on which the person was injured. Until recently,
the benefit level was nearly 100 per cent of earnings from the first day
of absence, regardless of whether the absence was due to injury at work
or other type of sick leave.
A serious economic crisis and an immense budget deficit have now
compelled Sweden to lower its benefit level and to introduce a qualifying
day — though Sweden remains among the leading countries with benefits
far above the ILO Convention's norms. It would require a totally
unreasonable amount of work for the social welfare offices, and insur-
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345
mountable costs, to go through the 10 million or so cases of illness
reported each year in order to pay compensation for the first day of
illness to the 5 per cent whose absence was caused by injury at work.
The Swedish Government seems wisely to be disregarding the ILO's
objections. Unfortunately, the ILO does not allow this Convention to be
denounced until 1997.
The six Conventions which the ILO has declared to be "basic
worker rights" Conventions, those concerning freedom of association
(No. 87), collective bargaining (No. 98), forced labour (Nos. 29 and 105),
child labour (No. 138) and discrimination (No. Ill) deserve to be
commented on separately. These Conventions have been ratified by a
large majority (around two-thirds) of the ILO member countries. They
are, indeed, the most fundamental Conventions and contain very
important principles which are fully supported by all three parties.
However, these basic conventions also incorporate more debatable
aspects. It is unfortunate that the USA — the world's largest democracy
and its most advanced economy — has only been able to ratify one of
them. The main reason is that the US industrial relations system differs
totally from the European patterns that served as a model for the Conventions. The US system is based to a greater extent on the rights of the
individual. It is also up to a majority of all employees in a company to
decide via a secret ballot whether a particular union should be given the
right to bargain on their behalf. If supported by a majority, the union is
automatically given a bargaining monopoly and vast influence. Although
we in Eiurope favour the type of industrial relations on which Conventions 87 and 98 are based, there is no reason to reject the American
model as such. It should be possible to formulate ILO standards in this
field in such a way that they retain the basic principles — freedom of
association, etc. — without excluding industrial relations systems of the
type in use in the USA.
IV. The need to replace present ILO standards
For seven decades, the ILO has produced a steady flow of almost 400
instruments — Conventions and Recommendations. Many of those which
originated in the 1920s and 1930s are naturally obsolete by now. Most of
the remaining Conventions were passed during the Cold War, under distorting conditions. Many were also passed against considerable opposition
to the entire Convention or parts of it. Most of the Conventions have
been ratified only by a small proportion of the ILO's member States. A
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mere handful, mainly the basic worker rights Conventions, have achieved
more than 50 per cent ratification. There are indeed few, if any, ILO
Conventions that deserve to be regarded as "internationally agreed labour
standards".
As indicated, even a socially advanced country such as Sweden has
run into problems with a number of the Conventions it has ratified. It
has already denounced some, and others will probably follow. As my
examples indicate, some ILO Conventions have, sadly, become obstacles
to economic and social development, and particularly to new initiatives
and measures that are urgently needed to generate employment and economic growth, as well as to reform the social security system. Some
Conventions clearly have no social value whatsoever. With regard to
others, it may be argued that a denunciation could mean throwing the
baby out with the bath water. The ILO maintains a myriad of rigid,
detailed regulations at the cost of widespread refusal to ratify and an
increasing number of denunciations.
The question is whether it is possible to patch up and repair this
vast, unmanageable and intricate patchwork quilt of Conventions. The
most suitable step would be to replace it with a smaller number of new
instruments which incorporate basic principles and general provisions
formulated with the object, eventually, of serving as guidelines for the
upward harmonization of social and labour conditions in all parts of the
world. They should be flexible enough to apply in countries at different
stages of development and with widely varying conditions. I see no alternative if the ILO is to be able, within a reasonable time, to present
instruments which really deserve to be called "internationally agreed
labour standards".
A revision of the ILO's standards is also needed for the Organization's other main activity, its rapidly expanding technical assistance to
developing countries and countries in transition. The ILO has always
maintained that standards and technical assistance complement each
other: that ILO standards should be "the guiding principles" of all the
ILO's technical assistance activities, including training, seminars, policy
advice, etc. and their ratification and implementation should be systematically promoted through these activities. Moreover, in his 1994 report,
the Director-General states that the ILO, in future, should "focus" its
technical cooperation on "policy advice". It is also established ILO policy
that ILO standards should be integrated with the technical assistance
programmes of all other U N agencies, as well as with activities of international, regional or national bodies — and, in particular, those of the
International Monetary Fund, the World Bank and national governments.
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Given this objective, there is a distinct risk that the ILO's own
technical assistance (as well as that of other UN agencies) in many cases
may involve promoting and giving policy advice in favour of the ratification and implementation of Conventions that contain outdated standards,
or even standards that impede economic and social development. The
three Swedish cases described above illustrate how the current ILO
classification of Conventions as category 1 (top priority) may be used to
induce developing and other countries to adopt such standards. The
former communist countries are particularly keen to obtain technical
assistance in order to achieve a rapid transition to a market economy. In
the absence of previous experience, they could be relatively easily
persuaded to ratify existing international labour standards as a self-evident
part of this transition process. The high proportion of ratifications
among countries that have received technical assistance from the ILO in
the last few years is hardly a coincidence. Thus, a radical revision of the
ILO's standards is necessary also in order to avoid serious mistakes in
technical assistance.
V. ILO standards and the "social clause"
Whilst employers are demanding a radical reform of the ILO and its
labour standards, international and national trade union organizations
have initiated a coordinated campaign to compel countries to accept ILO
standards through international regulations for trade, market access and
investment. To understand the magnitude of the threat to which the ILO
is exposed, it is important to examine the interests and motives behind
this trade union campaign.
First, however, it must be emphasized that the idea of making the
application of international labour standards a condition for trade or
favourable trade treatment dates back beyond the formation of the ILO.
The demand was put forward when the ILO was established in 1919, and
when its activities were resumed after the Second World War. It was also
put forward in negotiations under the General Agreement on Tariffs and
Trade (GATT) and in other contexts relating to international trade, but
has always been rejected on the grounds of its protectionist purposes and
consequences. None the less, individual States have often stated that the
low wages and poor labour standards of other countries constitute a
reason to put up trade barriers. A case in point occurred in 1930 when
the US Congress used the Smoot-Hawley Act to raise tariffs dramatically
to "save" American jobs, in response to trade union demands that tariffs
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should be adjusted to wage costs in other countries. This marked the start
of the trade war during the Great Depression.
With only a brief intermission just after the Second World War, the
American union movement has been strongly protectionist and has used
labour standards and labour costs as arguments in favour of restricting
imports as well as American investments abroad. The AFL/CIO were,
in 1993, the main active party in the extensive protectionist campaign
against NAFTA, the North American Free Trade Agreement. Their argument was unequivocal: low labour costs and labour standards in Mexico
would lead to the USA being flooded with imported goods, with structural changes, plant closures and mass unemployment as the inevitable
consequences. The AFL/CIO considered NAFTA's supplementary social
agreement, which permits certain sanctions as a last resort if the member
countries do not comply with their own labour legislation, to be ineffectual. Later, the AFL/CIO was a relentless opponent of the new
GATT agreement.
The controversy over NAFTA and GATT has contributed lately to
a dramatic surge in activity on the part of international trade unions. A
further contributing factor has been the fall of the Berlin wall and the
fear among trade unions that cheap imports from eastern and central
Europe will lead to structural changes in western Europe. European trade
unions have more or less openly worked to maintain or raise tariffs and
other barriers to imports from eastern Europe. I have personally heard
trade union leaders demand "Aid — not trade", rather than "Trade — not
aid". The insistence on forcing "international labour standards" on eastern
and central Europe is one feature of this campaign.
An even more important factor influencing the partly reinforced and
partly renewed protectionist attitudes is the "globalization" of business.
This is associated with advances in information technology and the rapid
economic growth of the newly-industrializing countries (NICs) and a
number of developing countries which are emerging from underdevelopment. However, the trade unions relate the globalization of
business and increased investments abroad to the economic crisis and
high unemployment rates which hit western Europe in particular during
the 1980s. The structural changes are attributed to higher imports from
NICs, even though these imports are more than offset by higher exports
to these same countries.
The invention of the slogan "social dumping" has probably had a
profound psychological influence. It has spread like wildfire and is now
used by trade union organizations in every conceivable and inconceivable
context: NAFTA, GATT, trade with developing countries and former
socialist countries, the European Union's "internal market", and so on.
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However, "social dumping" has also appeared in more official contexts,
the Director-General's report to the International Labour Conference in
1994 being one instance.
The unfortunate aspect of the term "social dumping" is the impression that it is related to the "dumping" that, in free trade agreements such
as G A I T , has always been regarded as sufficient grounds for restricting
imports. Dumping is when export prices are below the. cost of production
in the exporting country. It; is a fundamental principle of free trade to
enable countries at an earlier stage of economic development to compete
by mesms of lower labour costs — their only comparative advantage and
the only possibility they have of participating in global trade and of
developing. Reference to "social dumping", on the other hand, has the
opposite purpose — namely to prevent countries from competing by
virtue of their lower labour and production costs. It gives the new
protectionists a false legitimacy by obscuring the differences between free
trade and its opposite. The trade union organizations present their
demands for restrictions on imports based on low labour costs and
inadequate social standards as though such restrictions were a necessary
measure to prevent protectionism!
There are some differences in nuance between the A F L / C I O with
its undisguised desire to prevent trade in goods produced in countries
with lower labour costs, and the European trade union movement's more
cautious warnings against free trade and free capital movements. The
often somewhat imprecise nature of the demands made by international
trade union organizations serves to conceal underlying differences in the
level of ambition. However, the obscurity also appears to be part of the
strategy to have as a first step a small number of basic standards adopted
as a condition for trade. Once the social clause principle has been adopted
it is assumed to be easier to gain acceptance for other standards. This
explains the often displayed discrepancy between general statements on
the alleged dangers of.liberalization and globalization, and the reference
to a few "basic" Conventions which could not reasonably remedy the
alleged dangers.
Demands for a social clause are found in many documents from
international unions like ICFTU, E T U C and T U A C as well as in a
document submitted in 1993 to the ILO by its workers' group. Most
documents concentrate on ILO standards and the ILO's role in relation
to the G A T T and the World Trade Organization (WTO). However, the
unions have also made proposals to other international organizations
which expand the scope of the social clause beyond trade and ILO
Conventions. In April 1994, for example, T U A C presented its written
and verbal comments to the O E C D with regard to O E C D plans further
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to deregulate capital movements and direct foreign investment. Foreign
direct investment was described as a threat to employment and welfare.
As protection against structural changes and "social dumping" T U A C
demanded binding international regulations on investments, with a social
clause based on both ILO Conventions and the O E C D and ILO codes
of conduct for multinational companies.
The trade unions are not entirely alone in their demands for a social
clause. They have some degree of support from a few governments, including that of the USA. It is due to pressure from the USA that the
question of a social clause has been discussed in connection with the
conclusion of the G A T T negotiations and the establishment of the new
World Trade Organization. At the same time, the fight over N A F T A
demonstrates that, for the present American government at least, it is a
question of balancing the advantages of free trade with the need for
domestic support from the protectionist American trade union
movement.
However, it is more surprising that the ILO's Director-General,
Michel Hansenne, has also positioned himself in the forefront of those
who want a social clause in Defending values, promoting change, the 1994
Report of the Director-General to the International Labour Conference.
The fact that the ILO's highest official has pleaded formally and with
great involvement for a social clause is remarkable as well as misleading.
The ILO's decision-making body, the International Labour Conference,
and the ILO's Governing Body have never stated that they were in
favour of a social clause and are unlikely to do so in the future.
The Director-General's arguments in favour of a social clause
coincide with those of the trade unions and need not be recapitulated.
However, Mr. Hansenne's ideas on how cooperation with the World
Trade Organization should be organized are worth noting. Contrary to
the trade union organizations, the Director-General is eager to promote
the idea that ILO cooperation with the W T O would not detract from the
ILO's basic principle of voluntariness. ILO standards, including social
security, should be included in a new comprehensive international Convention establishing the link between ILO standards and access to world
markets. Each country would determine individually if it wished to ratify
the Convention. In this way, voluntariness would be maintained. The
tacit premise, however, is that all the nations of the world would in
practice be forced to ratify the new Convention. The alternative would
be economic and social crisis for those which chose to remain outside.
During the 1994 general assembly, the Director-General expressed
himself more specifically in an article "How to apply the social clause"
(Le Monde, 21 June 1994). If there is agreement on the content of the
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clause die technical solution is very simple. It would suffice to make
membership of the WTO conditional on the adoption of, for example,
the Conventions on freedom of association (No. 87) and on collective
bargaining (No. 98). However, this apparently simple solution is unrealistic. For example, as already mentioned, the USA has not ratified
Conventions No. 87 and No. 98 on freedom to negotiate and indeed has
ratified only one of the four other "basic trade union rights" Conventions
usually considered to be the "core" of a future clause. It is unlikely that
the USA would agree to the radical changes of its industrial relations
system that would be necessary for ratification. Should the USA and
other countries which had not ratified the Conventions be excluded from
the WTO and exposed to trade sanctions from the rest of the world?
VI. The consequences for the ILO of a social clause
(or its threat)
The most weighty argument against the social clause relates to its
protectionst purpose and the serious consequences it would have for
global trade and investment. However, when analysing the future of the
ILO, it is important to note that any social clause in which it is an active
or passive participant would have extremely serious consequences for its
present activities as well as for the ILO as an organization. It would
suffice that the WTO or the European Union decided to base a social
clause and its application on ILO Conventions and ILO investigations.
This in itself would turn the ILO into a weapon against many developing
countries and countries in transition to a market economy.
One effect of a social clause would be to undermine the ILO's
fundamental principle of universality, i.e. the principle that the ILO shall
embrace all the UN member States. It is not at all certain that universality can be maintained if the ILO becomes instrumental in regulating
which countries are admitted to, or excluded from, the global market.
The developing countries, in particular, could paralyze the activities of
the ILO in the event of their leaving, or threatening to leave, the
Organization. However, it is more probable that the developing countries
would, remain members in order to use their vote to the full to prevent
the ILO's standard-setting and, especially, its application of standards
from being used against them. It would be possible for them both to
influence and obstruct the Organization's work.
Already at the 1994 International Labour Conference, even though
the likelihood of a social clause still seems close to zero, developing
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countries in particular were more cautious, suspicious and critical than
ever towards anything related to international labour standards. The mere
possibility that standards could be applied as conditions for trade was
clearly looked upon by them as a deadly threat to their economies and
living standards. The developing countries' opportunities to influence
existing labour standards via the ILO should not perhaps be overestimated. I have already touched on how difficult it is to revise these
standards. However, they could affect — and even paralyze — the process
of generating new standards. This could also make it more difficult to
replace the plethora of detailed and obsolete ILO Conventions with a
limited number of more general and flexible standards of the type
employers are demanding.
The most effective way, however, for countries in the risk-zone to
prevent sanctions based on a social clause would be to influence in
various ways the ILO's machinery for application of standards. Overall,
the application of standards has been a valuable part of the ILO's
operation. In individual cases — judged separately — the ILO's scrutiny
has as a rule been objective and disinterested, and has often led to changes
in legislation and practice in member countries. These changes have
generally been beneficial and have contributed towards harmonizing the
legislation of different countries.
At the same time, the application of standards has also been
characterized by a lack of proportion in dealing with different member
countries. During the Cold War, the worst offenders — the communist
countries — were spared the ILO's criticism. This can partly be blamed
on insufficient evidence and "proof". However, it is equally due to the
fact that the ILO, for political (universality) reasons could not take the
risk of expelling a large number of nations. In another example, the ILO
for decades devoted a great deal of its operations — special committees,
plenary sessions, resolutions, etc. — to Israel's treatment of "Arab
workers in the territories occupied by Israel". On the other hand, the
ILO has not shown any comparable interest in the much more numerous
"Arab workers" in Arab States, even though they were probably treated
much worse from the point of view of "international labour standards".
It was also a political stand when the ILO embarked on an extensive
detailed criticism of countries which it was safe to criticize, such as the
socially advanced democracies in Scandinavia. Sometimes, peripheral and
dubious cases have been given an unreasonable amount of attention. One
example of this is the ILO's repeated and much publicized reproof of the
United Kingdom for alleged breaches — strongly repudiated by the UK
Government — of trade union rights at a small government informationgathering headquarters (GCHQ) considered as specially sensitive for UK
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national security. This was the result of the British unions and the ILO
workers' group exploiting the ILO machinery to rebuke the conservative
British government for political and ideological reasons.
In a political organization such as the ILO, political considerations
and political alliances can never be entirely avoided. The ILO's fundamental principle of voluntariness and the absence of sanctions have,
however, meant that the politicization has not entirely got the upper
hand. A social clause, in combination with sanctions (which would have
serious economic and social effects on the countries affected if they were
utilized), would radically change the situation. For countries which
consider the clause — in its current or possible future form — to be a
threat, it would become a life interest to enter into political alliances
which could prevent condemnation and consequent sanctions. A further
"politicization" of this kind would replace objectivity, disinterestedness
and equal treatment of all countries with arbitrariness and distortions.
This would also influence the treatment of individual cases entirely
unrelated to the social clause. For the same reason, it is even likely that
a social clause would eventually entail a complete breakdown of the
ILO's machinery for the application of standards. Thereby, the ILO
would not even be able to fulfil the role of doorman to international
trade sind investment that the spokesmen for the clause envisage.
Inevitably, a social clause would affect the fundamental character and
constitution of the ILO. An essential feature of the ILO, in all its 75
years of existence, has been its voluntariness. The ILO issues advice and
recommendations which it is at the discretion of the member countries
to follow or disobey. This applies also to ILO Conventions even though
they sire legally binding when ratified. No-one risks sanctions. Consequently, the ILO's international labour standards do not basically
function as international legislation.
This voluntariness has made it possible for the ILO to disregard
otherwise normal criteria for democratic decision-making. For instance,
the fact that the San Marino and the USA have exactly the same number
of votes, although one has 19 thousand and the other 240 million
citizens, has never been considered a problem. If the ILO is transformed
by the social clause into an organization with binding international
legislation, this ought naturally to generate demands for a radical
redistribution of the member States' voting power and influence. We can
draw a comparison here with the UN. The UN's General Assembly
cannot adopt binding decisions which carry sanctions. To the limited
extent that such decisions can be adopted by the UN, its power of
attorney is given to the U N Security Council, where each of the superpowers has a veto.
354
Even more obviously, a social clause would pull the rug from under
the ILO's unique tripartite decision-making structure: every member
country is represented by government, employer and worker delegates
who all have the same right to vote and are free to use their vote
independently of each other. As long as the ILO is restricted to
determining and monitoring recommended options to its members o n
labour market and social issues, this decision-making process is fully
justifiable. The participation of employer and worker delegations gives
access to a wide range of relevant knowledge from every corner of the
world. Their participation in the formulation and application of standards
also increases the probability that these will be accepted by the parties
nationally. Therefore, no-one has had cause to complain that, for
instance, San Marino's employer delegate, who represents only a handful
of shopkeepers and other small companies, has the same voting power as
an Indian government delegate representing 846 million citizens. N o r has
anyone objected that the workers' and employers' delegates from many
countries, including the USA, represent a very small minority of workers
and employers in those countries.
If, however, thanks to the social clause, the ILO is transformed into
an organization with the purpose of handling international legislation and
its enforcement via trade sanctions, the tripartite decision-making
structure would appear to be — and should be — the first casualty. Direct
interest representation of organizations in national legislative bodies is
incompatible with the fundamental principles of democracy. Ever since
the days of fascism there has not been one single country with a parliament entirely or partially based on interest representation. Moreover, I
find it hard to imagine that employers in Sweden and many other
countries would be prepared to participate in a tripartite I L O which, in
practice, had the authority to legislate and enforce laws. The ILO would
have to find other ways to obtain information on the opinions of
national and international organizations and workers.
Tripartism and the ILO's decision-making structure cannot be regarded separately. A social clause would bring into focus the ILO's basic
composition and every aspect of its constitution. Strange to say, neither
the ILO's Director-General nor the trade union organizations seem to
have considered such consequences. Parallel to the proposals for a social
clause, they advocate a massive extension of tripartite structures, both at
international and national level. Some have suggested that the social
clause should also include a commitment by member countries to introduce tripartite national systems for consultations as well as "negotiations"
and "decisions". However, they have not gone so far in corporatism as
to propose interest representation in national legislating bodies.
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355
The advocacy of a social clause by the trade union organizations and
the Director-General has generated expectations among some and apprehension and uncertainty among others. To protect the ILO's activities
from permanent damage, it is vital that the social clause be removed from
the agenda of the ILO's decision-making body without further delay. As
a consequence of the Director-General's report, the International Labour
Conference focused on the issue of a social clause in 1994 for the first
time. The great majority of governments commenting on this issue, and
particularly those from Third World countries, had strong objections, as
did employers. I have no doubt about the outcome had there been a vote
for or against. However, the Conference discussions on the annual report
are followed by decisions only if such decisions are proposed in a draft
resolution by one of the committees of the Conference.
The 1994 International Labour Conference unanimously adopted a
resolution concerning "the 75th Anniversary of the ILO and its future
orientation". It was preceded by a fierce battle in the Resolutions
Committee — I was myself a member — between the workers' group and
the governments of the developing countries. The former tried to insert
at least some words that could be used in favour of a social clause. China,
India, Pakistan, Malaysia, etc. were just as anxious that the Conference
should decide that the ILO should "resist" a social clause of any kind.
The outcome was a compromise, proposed by the OECD countries and
supported by the employers' group, to the effect that the Governing
Body of the ILO was to draw its own conclusions on the basis of the
general discussion. The employers' group, however, made it clear that it
was opposed to any link between standards and trade and, consequently,
to a social clause. I am fairly convinced that the ILO's Governing Body
will remove the social clause from the ILO's agenda.
VII. Will the ILO survive?
The ILO is the oldest existing UN organization. In the course of its
75 ye;irs, the ILO has survived many difficult ordeals. As opposed to
several other UN bodies, the ILO has its own clearly-defined fields of
activity. The ILO is also comparatively dynamic and has an extensive
range: of activities. When I ask whether the ILO can survive, I refer to
the present ILO, with its universal character and its tripartite structure.
I assume that there will always be some form of international organization at UN level for labour market and social issues.
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I have demonstrated here that the ILO today is more than ever in
the cross-fire between incompatible demands from different constituents.
The trade union organizations are adamant in defence of existing international labour standards and want further standards in old and new
areas. Considering the ILO's standards to be a form of "toothless"
international legislation, they wish to use a social clause to transform
those standards, or a good portion of them, into international regulations
that would, in practice, be binding for every country and company
throughout the world. They wish to see the ILO as both legislator and
judge, with the WTO, the OECD and other international organizations
as law enforcers. They want to focus the ILO's technical aid on the task
of assisting recipient countries to ratify and apply standards. Nor do they
hide their intention that the social clause, and the ILO's standards as a
whole, should constitute a protection against "globalization" of trade,
industry, services, investment and financing. They seek to counteract the
"effects" of competition and market forces. Basically, they dislike liberalization, deregulation and sometimes even privatization.
Employers and many governments, including those of many developing countries, are also demanding changes in the ILO but to the
opposite effect. They are critical of the multiplicity of international
labour standards, many of which consist of rigid, detailed and often
obsolete rules which can serve as obstacles to economic and social
progress. Instead, they want a limited number of standards which outline
certain fundamental principles and which are sufficiently flexible to apply
to different types of situations and companies and to countries at widely
differing stages of development. They want the ILO's activities to be less
focused on standards, and more on measures which can help member
countries to achieve the optimum conditions for growth and productive
employment. They want the ILO to give priority to technical assistance
but, for the reasons mentioned, with the emphasis more on the practical
side — occupational training, management training, measures to facilitate
entrepreneurial pursuits, and so on.
One possible scenario is that the diametrically opposed demands
among the ILO constituents will cancel each other out — that there will
be no social clause but that those in favour of a clause will obstruct the
possibility of performing a radical reform of the kind that employers are
calling for. If so, the ILO would continue in the same rut. Such a
development, or lack of development, would not lead to a sustainable
compromise. Many would regard it as the final proof that the ILO, with
its tripartite structure, had outlived its usefulness and should be
supplanted by a new organization of the same type as the other U N
bodies. This perspective bids us to reform while there is still time.
International labour standards,
the global economy and trade
Edward E. Potter
International Labor Counsel
to the US Council for International Business
President, Employment Policy Foundation
and Attomey-at-law and partner, McGuiness & Williams
Washington, DC
USA
I. Introduction
The idea of linking international labour standards and trade on a
multilateral basis is not new. It has been under discussion since the
Industrial Revolution. Indeed, concerns that differing labour conditions
could create a competitive advantage for one country's goods and services
over those of another was one of the principal reasons leading to the
formation of the International Labour Organization (ILO) in 1919. Since
then, i:here has been substantial economic and social progress throughout
the world, in part due to the development of ILO standards on fundamental human rights and hundreds of technical Conventions, Recommendations and guidelines.
Unlike when the ILO was formed, today's world is increasingly
interconnected. Falling trade barriers, instant communications, relatively
fast and inexpensive transportation and rapidly changing technologies are
shaping the world economy. In the globalized world economy, the same
technologies to produce goods and services are readily available to
everyone in both developed and developing countries.
The global economy has meant that developed and developing
countries — workers and employers — compete head-to-head in the world
market-place as never before. That competition has resulted in substantial, and in some cases, dramatic economic growth in many
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developing countries. At the same time, structural adjustment is occurring
in many developed nations that previously dominated their own domestic
markets as well as some markets in the world economy. Competition
from developing countries is even leading to structural adjustment in
newly industrialized countries.
//. The new "rules of the game"
A new economic era is emerging with "rules of the game" that differ
substantially from those when the ILO was established 75 years ago.
Under these new rules, what role should ILO standards play in the global
trading economy?
Rule 1: Change is constant
The new global market-place itself may be only transitory. Just as
the world market-place designed in 1944 at Bretton Woods — characterized by the free flow of goods and services across national borders — was
transformed almost before it was achieved so, too, the global marketplace as it exists today may be short-lived.
New economic and competitive powers are continuing to emerge
throughout the developing world. The Pacific Rim countries are outpacing the mature industrial economies in rates of growth, educational
performance and national savings. World demographics are shifting,
redefining market-places and the allocation of public goods. Competitive
pressures for regional trading blocs — the European Union, the Pacific
Rim, the North American Free Trade Agreement — continue. At the
same time, a new World Trade Organization governing trade and investment will be formed following the successful conclusion of the Uruguay
round of multilateral trade negotiations.
Rule 2: The pace of change is more rapid than at any time
in history
The pace of change in the 1990s and into the twenty-first century is
being driven by the pace of scientific and technological discovery.
Unprecedented rates of scientific "breakthroughs" are propelling new
technologies and information flows. Technology is redefining comparative advantage between nations and where it lies. The competitiveness of
a product or service, and the jobs that go with it, no longer depend solely
on cost, quality and innovativeness. Customization, serviceability and
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speed o f product development and delivery are the new keys to competitiveness and job creation, prompted by the rapid diffusion of technology
and information.
If the first rule of the new economic era is that change is constant,
the second must be that change will be more rapid than at any time in
history. In the past, we have thought of periods of change in terms of
years. In the future, it may not be much of an exaggeration to think in
such terms as the "blink of an eye."
Rule 3: Economic nationalities are increasingly
blurred
Companies, industries, products, technologies and jobs no longer
depend upon the strengths and weaknesses of any one nation's economy
or economic base. Those companies and countries that succeeded in the
global market-place of the 1980s learned this lesson well. They identified
and utilized the strengths of many nations to offset weaknesses at home.
The Japanese and Pacific Rim "economic miracles" channelled their
research and development money into process development and commercial technologies based upon basic scientific research conducted in the
United. States and Europe. Worldwide strategic alliances between companies emerged to share the risks of new product development and to
expand marketing power in highly competitive markets.
Rule 4: Workplace roles are blurring
In. an era of high-technology, high-performance workplaces, distinctions between blue- and white-collar workers are increasingly
meaningless, as are management-worker and employer-employee distinctions. Decision-making and problem identification and solving are
increasingly diffused throughout organizations of production as a result
of modern human resources practices and improved information technology. Thus, whether manufacturing or service-based, "value-added"
employees are those who make a contribution to the organization and its
objectives.
Employment security no longer resides exclusively in management's
hands:. Workers in the executive suite of the 1990s are as likely to be laid
off as workers engaged in production. Meanwhile, a wide range of
employee participation structures aided by modern communication and
information technology offer the potential in many organizations for
redistributing responsibility for, and benefits and burdens of, competitiveness to the front-line worker.
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Rule 5: Employment security requires lifetime learning, and
cannot be assured by international labour standards
Increasingly, technology, changing customer preferences and the
global market-place require a more highly educated workforce whose
skills can adapt to rapidly changing markets. In my own country, the
skills of new entrants to the American workforce often do not meet the
requirements of available jobs. Today, there are too many people entering
the labour force without the knowledge and skills necessary to meet the
demands of the high-performance, high-technology workplaces upon
which depend America's future competitiveness and ability to create jobs.
At the same time, skills shortages exist in both manufacturing and
services sectors.
This is a problem not just for the United States but for all countries.
No longer can it be assumed that, once an individual has finished school
and served an initial learning period on the job, he or she has the
knowledge and skills needed for a lifetime of work. Instead, work on the
eve of the twenty-first century requires constant learning, adaptation and
acquisition of new skills to keep pace with emerging new technologies,
new methods of operation and new forms of workplace organization that
place more responsibility on individuals at all levels.
Job security in the post-Second World War era typically meant
employment for life in one company or one industry, often performing
the same mass production job. Some upward mobility was possible, often
tied to seniority as well as performance. In this era, unions bargained to
ensure that their members shared in the success of the company through
wage increases, ever-increasing benefits packages and job security.
Employment security and job creation for the remainder of this
century and the next will depend on very different factors. No government, company or union realistically can guarantee employment for life,
increasing wages or upward mobility. In competitive world markets,
there cannot be employment security unless there is customer security.
Unfortunately, there is no guarantee of customer security in competitive
markets. Consumers around the world are "global shoppers" who buy
goods and services based on quality and price without regard to their
country of origin. This is a phenomenon beyond regulation.
The closest that workers and employers can come to achieving
customer security is to satisfy fully customer needs over the long term.
Those needs and preferences are constantly changing, and a business (and
its employees) providing goods and services to meet those needs must be
able to anticipate change and restructure itself accordingly. A vibrant
business organization dedicated to continuous improvement, total quality
Edward E. Potter
361
and customer satisfaction, one that is designed for highly flexible
environments and capable of rapid change, is a business that will be able
to survive and prosper in today's global economy and provide long-term
employment opportunities.
Within this competitive environment, a worker's economic security
increasingly depends on his or her own ability to adapt to changing
demands of jobs and the job market. Workers faring best in this
environment will be those who possess the skills, training, mobility and
flexibility to move laterally, as well as vertically, within organizations
and in the external labour market when necessary.
Thus, under the new economic "rules of the game," the relevance
and importance of international labour standards in an international
trading regime are being redefined. Competitiveness on the eve of the
twenty-first century is not a macro-economic contest between nations. It
is a struggle fought daily by employers and employees in every nation in
large and small companies, union and non-union, high-tech and low-tech,
in service industries and in manufacturing. Providing an international and
domestic employment policy environment that balances the need for
business to have sufficient flexibility to compete in global markets, and
for workers to have certain essential social protections and to acquire
necessary education and training, is one of the challenges facing the ILO
on its 75th anniversary.
III. The relevance of international labour standards
in a global economy
By the end of June 1994, the ILO will have adopted 175 Conventions addressing almost all workplace issues — an impressive output
which does not count 182 supplementary Recommendations and other
guidelines. However, the overall average rate of ratification of Conventions has been low — about 21 per cent. The rate of ratification of
recently adopted Conventions over the past three decades, particularly
those: concerned with health and safety, has been even poorer — between
10 to 15 per cent. But, significantly, ratification of the basic human rights
Conventions has been much higher, exceeding 60 per cent of the ILO's
membership.
A former ILO official, Efren Cordova, estimated that in 1990 there
were over 2,100 labour standards to be found in the 162 ILO Conventions; then in force, and another 2,500 standards contained in related
Recommendations. Further details adding to the complexity of ILO
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standards are provided by observations of the ILO's prestigious Committee of Experts, which considers its conclusions concerning the
meaning and scope of ILO conventions to be "valid and generally recognized" unless taken to the International Court of Justice. While much is
made of the flexibility clauses found in ILO Conventions, these clauses
bear primarily on the methods of implementation and the level of economic development, not flexibility in the standard itself based on
changing economic and competitive circumstances.
Many developing countries simply do not have the economic or
political ability to implement ILO standards. In view of globalized world
markets and trade, many industrialized nations now see that they need
flexibility for the development of their labour markets and to lower
deficits and unemployment. Under these circumstances, one cannot help
but ask whether every ILO Convention and Recommendation is essential
in a global economy.
Conventions and Recommendations are not ends in and of themselves. Indeed, the real effect of Conventions is contingent on their being
ratified and implemented. With the possible exception of the human
rights Conventions, there is no international consensus that ILO
standards should be used to "level the playing field" between nations.
And, even with respect to the human rights standards, the broad
consensus is on basic principles relating to freedom of association, forced
labour, discrimination et seq., and not on details and fine distinctions.
Because ILO Conventions are not widely ratified, ratification of ILO
standards may have the result of putting the workers and employers of
the ratifying country at a competitive disadvantage. This is an ironic
result given that one of the founding purposes of the ILO was to eliminate unfair competition based on poor working conditions.
The economic and political circumstances of today's world are vastly
different from the those that led to the formation of the ILO following
the First World War. Rapid change and international competition in one
form or another are here to stay. Is it not time for the ILO to rethink
the purpose of international labour standards? Is it not time to examine
whether particular standards are relevant or appropriate in today's global
economy? Is it not time to "deregulate" ILO standards, leaving in place
those standards that are essential to protection of worker rights? Is it not
time to reassess whether more new standards are needed? Is it not time
for the ILO's supervisory machinery to reassess the interpretation and
application of Conventions in the light of new economic and social
conditions? Is it not time for the ILO to place its primary emphasis on
technical cooperation, education and training that assists member States,
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363
workers and employers develop the necessary infrastructure and tools to
compete and succeed in the global economy?
TV. International labour standards and trade
The growing importance of international trade and the global
market-place has led to calls to link international labour standards with
trade through the use of sanctions in the form of withdrawal of trade
benefits. This idea is not new, having been raised since the early 1800s.
Opposition to the idea has been widespread in the ILO and the GATT,
especially by developing countries and by most employers. The social
clause is widely perceived as having a protectionist motivation or, at least,
being subject to protectionist abuse.
In the United States, we have had our own experience with protectionist trade legislation beginning with the 1922 and 1930 Tariffs, the
latter being the infamous Smoot-Hawley Act. In addition to a protectionist tariff and the prohibition of imports produced by forced labour,
Smoot-Hawley enshrined the principle of cost equalization. This principle
empowered the President to adjust tariffs in order to equalize the differences in the costs of production between a domestic article and a
similar foreign article. Although this provision applied to all production
inputs, not just labour, the legislation was intended to deal with the
problem of low-wage foreign production at a time when labour costs
accounted for a high proportion of production costs. In the face of
dimmed memories, we should remind ourselves that Smoot-Hawley had
a shattering effect on the world economy by shrinking international trade
and causing industrial stagnation and unemployment up to the Second
World. War.
The disastrous consequences of Smoot-Hawley on the United States
and world economy must be kept in mind when addressing the appropriateness of a social clause for trade in today's global economy. A
requirement that trading partners should meet ILO technical standards,
such as those relating to minimum wages, safety and health or regulatory
conditions of employment, would effectively implement the principle of
cost equalization. While dampening economic growth in a substantially
more interconnected world than in the 1930s, the domestic benefit of
such a. regime is questionable. A 1994 study by the US-based Institute for
International Economics shows that US protectionist strategies have saved
very few jobs; those that were saved have cost consumers many times the
average annual wage and benefits involved.
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The social clause raises three additional problems. The first is which
standards should be included? With the exception of the basic human
rights Conventions, the low ratification rate of most technical Conventions rules them out because there is clearly no international consensus
that they be implemented.
ILO human rights standards stand on a somewhat different footing
because of their higher rate of ratification and the fact that they are not
economic in their orientation. That is, the ability to achieve the goals of
the freedom of association and forced labour Conventions, for example,
is not contingent on the level of economic development of the country
concerned. In their present form, however, their use is problematic
because compliance involves more than complying with the central
purposes of the Conventions, and includes numerous details that would
make them difficult to apply in a trade regime.
Closely related is the question of determining the level of trade
sanctions that would be appropriate as a result of a nation's failure to
adhere to an international labour standard. It is virtually impossible to
measure the competitive advantage resulting from non-respect of labour
standards. An objective measure would be necessary to calculate any
proposed sanction. The United States' experience with countervailing
duties and anti-dumping actions demonstrates that the ability to quantify
the economic impact of unfair trade practices is a critical guard against
spiralling trade sanctions.
Finally, what criteria and what forum will be used to determine
when trade sanctions should be invoked for violation of labour standards?
In the case of a multilateral social clause, countries would have to agree
on and accept as binding the precise legal definition of each standard. In
order to be workable in a trade regime, a few clear and simple but essential principles or goals would have to be endorsed on a multilateral basis.
Who should decide whether there has been sufficient violation of a
labour standard to trigger sanctions is a more difficult problem, but the
ILO's tripartite Committee on Freedom of Association provides a model
for impartiality, consensus decision-making and a basis for the application
of central principles.
In the final analysis, however, the idea of a social clause is
incompatible with the ILO's basic foundation. Ratification of ILO
Conventions is voluntary, and the success of the ILO's supervisory
machinery rests on directing "sunshine" to the lack of compliance. The
weight of international opinion, rather than trade sanctions, is used to
encourage compliance with ratified Conventions. The ILO's supervisory
machinery is a singular achievement that demonstrates the power of
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international moral suasion. The case for an alternative mechanism in a
trade regime has not been made.
V. Conclusion
In today's intensely competitive world, structural adjustment is a
constant necessity for every organization in order to respond to changing
customer needs and preferences. Organizations that become complacent
and satisfied with their achievements lose market share and relevance. So,
too, the ILO must adjust and adapt to changing world circumstances if
it is to maintain its credibility and usefulness on international employment policy issues. The globalized world economy is a very different
economic framework from that existing when the ILO was formed in
1919.
Now that the East-West struggle no longer diverts the attention of
the ILO, the organization has an opportunity to redirect its focus and to
assume world leadership in helping member States create healthy economies without relying on low labour standards, especially those involving
human rights. ILO technical cooperation programmes should take on a
higher priority than in the past. Through the ILO, employers and
workers must be educated and trained with the necessary skills to work
and succeed in a high-technology work environment so they can play a
central role in the political and economic life of their nations.
The socialfoundations ofinternational trade
Stephen K. Pursey
Head, Economic and Social Policy Division
International Confederation of Free Trade Unions (ICFTU)
Brussels
Belgium
I. Introduction
The Declaration of Philadelphia, adopted on 10 May 1944, was the
first stone laid in the post-war construction of a framework for
international cooperation and development. It was followed in quick
succession by the Bretton Woods Conference, the establishment of the
United Nations and, in 1948, by the General Agreement on Tariffs and
Trade: (GATT). The architects of this "new world order" were well aware
of the inter-relationship between the institutions they were establishing.
They :;aw sound money, free trade, trade union rights and social security
as shared commitments which would bind nations together in peaceful
cooperation and prevent a resurgence of militaristic nationalism.
This vision of a world governed on the basis of democracy and
respect for human rights, with economies functioning according to the
principles of the market but tempered by an active social policy and an
influential trade union movement, remains intact despite the many
changes of the last 50 years, including the resurgence of neo-liberal
concepts of minimum state intervention in the 1980s. However, for the
bulk of the world's population, it is a vision that has only begun to come
within reach in the last five years. A handful of States, mostly members
of the Organisation for Economic Co-operation and Development
(OECD), have followed the model with a degree of consistency
throughout most of the post-1944 era. They now dominate the world
economy, accounting for 55 per cent of total output and 75 per cent of
world, trade (IMF World Economic Oudook, October 1993). Their per
capita incomes average US$19,000 per year, or 24 times the average of the
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four-fifths of the rest of the world (UNDP Human Development Report,
1994).
As the ILO looks to the future, it is worth reflecting on the extent
to which the principles of the Philadelphia declaration remain relevant
to the task of eliminating the mass poverty and joblessness which continues to threaten the peace of the planet. The cumulative effect of trade
and financial liberalization, coupled with the collapse of the state-planned,
single-party alternative of the old Soviet bloc, has created a global market
but has thrown into sharp relief the social inequalities and political discrimination which the post-war generation wished to eliminate. Economic
interdependence has accelerated at a pace outstripping the capacity of
international organizations to achieve an integration and coordination of
government policies even within the group of industrialized countries. If
the delegates of the Philadelphia, Bretton Woods, San Francisco or
Havana Conferences of 1944, 1945 and 1947 were able to join us now
looking to the future, they would perhaps be alarmed to see the compartmentalization of the functions of the main international organizations.
77. Markets and social responsibility
The driving force of market economies is the limited liability
company. Typically privately-owned, it is a legal construct which enables
investors to risk part of their wealth knowing that if the enterprise fails
their personal liability is not absolute; if it succeeds their personal
rewards will be considerable. It has proved to be a powerful dynamic unit
for the organization of the production and distribution of goods and
services. The primary objective of limited liability companies is to show
a profit to their shareholders. However, the more successful they are in
pursuit of this objective, the more extensive is the wider social impact of
their behaviour.
The contract of employment between such companies and their
workforce is inherently unequal. In the absence of a counterbalancing
association of employees, companies have the power to treat workers as
they see fit without the responsibility to take their views and interests
into account. The security the limited liability company provides to
investors is not matched for its workers, whose investment of labour is
dependent on a contract of employment heavily weighted on the
employer's side. The right to organize a trade union for the collective
representation of workers' interests is therefore the legal counterpart of
the limited liability company. Coupled with statutory duties covering the
Stephen K. Pursey
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minimum provisions of contracts of employment, collective bargaining
is the main method by which the wider social responsibilities of all
limited liability companies are defined in practical form.
If markets are to operate for the benefit of the many rather than the
few, justice at the workplace is essential. Other measures are also necessary, for example, to enforce commercial contracts between companies,
to protect the consumer, to prevent damage to the environment and to
ensure that financial markets operate with due prudence. However,
perhaps the keystones of a system of laws which enable private enterprise
to operate in a socially responsible manner are the rights of workers to
freedom of association and to organize and bargain collectively. They
create a balancing mechanism between the twin imperatives of economic
flexibility and social security, thus creating a framework for dynamic
development and political stability.
The architects of the post-1945 international institutions were acutely
aware of the need for balance in economic and social policies as a
reinforcement to democracy. They had lived through the consequences
of the: breakdown of the earlier attempt in 1919 to establish an international framework for cooperation and security. Strong, free and
democratic trade unions were an essential element of their vision because
they introduced the concept of accountability for the exercise of power
into daily life at the workplace. The consensus view was that where free
trade unions were able to organize, a bulwark would be secured for
democracy and the rule of law.
III. The challenge of globalization
The cluster of jubilees in the 1990s creates an opportunity to reexamine some of the basic building blocks of the international system.
Are the concerns of the post-war period still relevant to those engaged in
further developing the system of international cooperation? Both in the
industrialized countries, the developing world and the countries
characterized as in transition from state planning to the market, there are
man)' voices that argue that the social agenda is purely a matter for
national determination and that the international framework should be
limited to the liberalization of trade and financial flows. Others, however, increasingly highlight the social impact of globalization and the
tensions it provokes both within and between nations; they are calling
for joint action.
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The debate came to a head in April 1994 in the weeks immediately
prior to the Marrakesh GATT Ministerial Meeting and the signing of the
new Multilateral Trade Agreement. The issue of the linkage between
internationally-recognized workers' rights and trade was, however, not
resolved and has been referred to the Preparatory Committee for the
World Trade Organization for further discussion. The international trade
union movement was instrumental in pushing the question of a "social
clause" to the top of the agenda but, regrettably, much of the ensuing
argument created more heat than light. If progress is to be made, it is
time the international community recalled the qualities and clarity,
rationality and vision that characterized the post-war era.
Market theory suggests that, under conditions of free competition,
factor prices — in other words the costs of land, labour and capital —
will tend to equalize. This would imply that trade liberalization, through
the emergence of new low-cost suppliers, will force down prices on world
markets. For labour, this could lead to a deterioration of the wages and
conditions of work offered by existing suppliers or an increase in
productivity at a faster rate than output, both of which would reduce
labour costs per unit of output.
Theory would also suggest that, as output and productivity rise in
low-cost suppliers, factor prices including wages and other labour costs
should tend to rise as currently underemployed resources are brought
into production.
To a certain extent, both trends are visible, at least in some
countries. But the gap between conditions of work remains uncomfortably large and constitutes an underlying source of tension in trade
relations. In addition, there is growing evidence in both industrialized
and developing countries of increasing social inequality between a welleducated and skilled section of the population and a large but marginalized mass of less-advantaged who survive precariously in outright
unemployment or casual, temporary, informal and poorly paid employment. Although it is extremely difficult to disentangle the effect of
changing patterns of trade, technological advances and differences in
macro-economic conditions on the one hand, and labour market policies
on the other, it is widely accepted that the adjustment process could
become severely distorted if basic minimum standards concerning the
treatment of workers are widely divergent.
Viewed from the perspective of sustaining the growth of global
demand and enlarging consumer markets in developing countries, it is
essential that trade liberalization does not induce or add to a deflationary
pressure on wages and conditions worldwide. With unemployment in the
industrialized countries averaging over 10 per cent, and over 1 billion
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people in the developing world surviving (and all too often dying) in
absolute poverty, it is vital to find ways of harnessing the powerful forces
of trade liberalization to the benefit of the many rather than the few.
The notion that trade liberalization is not an end in itself was
accepted in the Preamble to the General Agreement on Tariffs and Trade
(GATT) which states that the participating countries are entering into the
accord:
Recognizing that their relations in the field of trade and economic
endeavour should be conducted with a view to raising standards of living,
ensuring full employment and a large and steadily growing volume of real
income and effective demand, developing the full use of the resources of the
world and expanding the production and exchange of goods ...
The issue before the new World Trade Organization, established in
the Final Act of the Uruguay round, is whether these noble objectives
can be achieved without new accompanying measures to promote the
progressive realization of minimum labour standards in all countries.
F r o m 1919, when the International Labour Organization was founded,
the international community has recognized that "the failure of any
nation to adopt humane conditions of labour is an obstacle in the way
of other nations which desire to improve the conditions in their own
countries" (Preamble to the Constitution of the ILO). With the growing
interdependence of nations consequent on the expansion of world trade
and investment, the linkages between trade and minimum labour
standsj-ds are increasingly apparent. What is giving rise to controversy is
how such linkages can be defined so as to create a process of labour
market adjustment in countries of widely differing levels of development
that supports a progressive opening and expansion of world markets to
the benefit of all.
IV. The social and political rationale
of a social clause
Negotiating the Final Act of the Uruguay Round took over seven
years :ind at many points seemed on the verge of breakdown, provoking
grave concerns that failure would lead to a return to the protectionism
of the 1930s. There are still a number of hurdles to clear, including the
ratification of the texts of the agreement by national legislatures and their
full integration into national law and practice. In many countries, of both
the industrialized and developing world, political leaders are under
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pressure from various groups that perceive their jobs to be threatened by
foreign competition. Political support for trade liberalization is fragile,
with electors being invited to, in effect, back a vague but general promise
that increased competition will improve the general welfare while a large
number of specific groups of workers face worsened conditions of
employment or redundancy. The often impenetrable texts of the international trade lawyers are not easy to sell to voters whose sense of
insecurity has been exacerbated by real fears of unemployment, wage cuts
and weakened provisions of social protection.
In many countries, both industrialized, developing and the former
communist States, rising unemployment, poverty and social disintegration
are creating fertile ground for extremist nationalist, religious, ethnic and
anti-democratic forces. Such groups feed on a pervasive sense that forces
beyond their control are undermining jobs, their communities or culture.
All too often, frustration can be channelled by unscrupulous politicians
into a hatred of strangers or foreigners and into violence. Crime, drug
abuse and other anti-social forms of behaviour are further symptoms of
a general malaise, the roots of which lie in slow growth or recession,
social injustice and the weakness of democratic channels for the
resolution of grievances.
Trade policy, of course, cannot solve these problems. But, if it is to
have a positive impact and not exacerbate such social and political
tensions, it must be constructed in such a way as to demonstrate clearly
that democratic political leaders are aware that enhanced economic
flexibility must go hand in hand with new methods of guaranteeing social
security, in the broadest sense of the term. International economic
cooperation, including through trade agreements, should be based on a
firm commitment to basic human rights, of which freedom of association, freedom from forced labour and freedom from discrimination in
employment are critically important to the development of democracy
and social justice.
It has been said that in the twenty-first century, the nation State will
be too big to solve some problems and too small to solve the others.
International cooperation through multilateral agencies like the World
Trade Organization and the International Labour Organization is of
increasing importance. But it will face many difficulties unless a strong
basis for political understanding between nations through shared common
values can be created. Guarantees that trade advantages will not be gained
at the expense of extreme exploitation is one of the most important ways
of buttressing an open and fair system for international trade.
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V. The social clause and development
It would clearly be unrealistic to expect low-cost exporters from
countries with a GDP per capita well below those of the industrial
countries to pay comparable wages, not least because productivity per
capita is often well below that of the established producers. However, it
is realistic to expect that, as productivity rises and exports rise in the lowcost countries, wages would not be artificially kept down through
restrictions on basic labour rights. The precise path which wages and
other conditions of work take in the development process cannot be
determined internationally through, for example, some sort of international minimum wage. What can and should be a condition of participation in the global market is that workers have the right to bargain
collectively through a trade union of their own choosing to determine
their conditions of work.
Collective bargaining is the best available means of reconciling
aspirations for social progress with productive potential. It is an
extremely flexible process which can take account of widely differing
conditions between and within countries.
An effective social clause that would assist developing countries in
their struggle against poverty should therefore focus on a selected group
of minimum labour standards which constitute the basic elements of the
internationally agreed principles for the humane treatment of labour.
Rather than attempt to universalize specific targets for wages and
conditions of work, the minimum standards should be those that
establish the core elements for a dynamic and flexible process of social
advancement.
Low-cost countries would retain their competitive advantage but a
floor of minimum standards would help to ensure that competition
imparted a positive impetus to social conditions rather than encouraging
gross exploitation. The primary beneficiaries would, in fact, be
developing countries wishing to ensure balanced social development and
most vulnerable to cut-throat competition on the basis of labour
exploitation. Industrial countries would still face a major task of
adjustment. However, they would be better able to manage the process
since developing-country consumer markets would be set on a sustained
growth path and the gap in labour costs of production would tend to
narrow over the long term.
Such a vision is, of course, a logical extension of the principles of the
Declaration of Philadelphia. It will remain anathema to the more extreme
proponents of free-market capitalism. However, the economic establish-
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merit in many industrial countries is increasingly aware that the magic of
the market cannot solve many of the critical problems of managing
change and promoting growth. Many employers are alarmed that the
constant pressure to cut labour costs, while difficult to resist in decisions
at the company level, is producing social problems that damage
companies. Competition produces both positive effects, notably a
pressure to innovate and improve products, but also negative consequences, not least for human resource investment, workforce morale and
labour/management cooperation. Collective bargaining, rather than
representing an obstacle to the market, can in fact be a support. It
enables social security to be pursued by economically flexible means.
However, the full benefits of such social partnership can only be gained
if it is a general pattern. Free riders destabilize the balance and ultimately
bring into question the concept of an open world trading system.
A social clause is not an anti-market germ that would infect and
destroy the multilateral trading system. On the contrary, it is a logical
adjunct to a process which has created an undeniable economic and social
interdependence between all nations.
VI. Translating theory into practice
The ICFTU has spent many years refining its conception of a social
clause through extensive debate with its affiliates in all parts of the world.
With member organizations in 124 countries, the ICFTU is able to
present a consensus on exactly how a social clause could be made to
work effectively for the differing interests of workers in all the member
countries of the new World Trade Organization.
The ICFTU therefore proposes that a clause along the lines of the
following should be included in the GATT and similar international
agreements:
The contracting parties agree to take steps to ensure the observance of the
minimum labour standards specified by an advisory committee to be established
by the GATT and the ILO, and including those on freedom of association and
the right to collective bargaining, the minimum age for employment, discrimination, equal remuneration and forced labour.
These points of reference are ILO standards. As such, they were
originally adopted by a full-scale international conference following
careful tripartite negotiation in two years of committee work. The
standards the ICFTU proposes to specify are also amongst the most
Stephen K. Pursey
375
widely ratified of the ILO. In other words, they are not industrialcountry standards but principles that governments of all countries,
regardless of their stage of development, should legitimately be expected
to observe.
The ILO is the competent body to examine the implementation of
labour standards. It has established reporting and investigatory procedures
which idready yield a great deal of information on the observance of
basic labour standards. We would therefore expect the G A T T and the
ILO to review systematically, and on the basis of specific complaints, the
extent to which G A T T contracting parties are meeting their obligations
under the social clause and to make recommendations.
When a country was found to be falling short of its obligations, a
joint G A T T / I L O Advisory Body should recommend measures to be
undertaken by the government within a specified period of time to
improve performance. One element of this effort would probably be
better enforcement of laws and regulations through a strengthened labour
inspectorate. The ILO would also offer technical assistance, perhaps
funded by a new international social fund, to help countries in the
process of raising standards. At the end of the period, say t w o years, a
further report would be prepared on the effect given to the earlier
recommendations. The second report would state that the country was
now fulfilling its obligations, or that progress was being made and further
time was needed to deal with the problem, or that the government had
failed to make adequate efforts to implement the G A T T / I L O recommendations. Only in the latter case would the problem be referred to the
W T O for consideration of appropriate trade measures.
The procedures for operating a social clause are important. They will
determine the effectiveness and acceptability of the clause. Unfortunately,
there has been little discussion at official level of such practical details.
But, as is evident from the above outline, they do not present the
enormous, but usually unspecified, problems that opponents of the social
clause seem to see. The failure to look at the mechanisms for applying a
social clause has also led to over-concern about an uncontrollable wave
of unjustified import controls. It should be clear that a social clause
should promote the observance of the basic minimum labour standards
which determine wages and. other conditions of work. The trade sanction
would operate as the ultimate penalty for non-cooperation.
The social clause would be implemented through the same transparent procedures as govern all of international trade through the G A T T .
There: would be ample opportunity for scrutiny of any claim that
workers' rights were not being respected. A social clause would cover,
first and foremost, the basic rights to freedom of association and to
376
bargain collectively. Collective bargaining enables a positive relationship
between productivity and wages to be established. The social clause
would then cover other basic standards, including child labour, discrimination and forced labour. Change could not be expected overnight in
every area. But a government would at the very least have to demonstrate
its recognition of the problem and indicate what actions it is taking to
bring about an improvement in the situation.
VII. Conclusions
The addition of a social clause to the multilateral system of trade
rules is an essential element in reinforcing the still fragile consensus
favouring further liberalization. Furthermore, it is a mechanism that
would yield substantial advantages to the citizens of all nations, both
developed and developing. Concern about jobs and working conditions
is usually the root cause of calls for trade protection. By addressing these
issues directly, the World Trade Organization could do a great deal to
strengthen political support for the conclusions of the Uruguay round.
Critics of the social clause have raised legitimate concerns. But a
thorough analysis of its rationale and operating mechanisms demonstrate
that such concerns can be met, and a workable procedure introduced into
the corpus of trade law to the mutual advantage of both low- and highsocial cost producers.
The social clause will not miraculously end all the tensions involved
in trade between countries at different levels of development. However,
it would create a forum wherein such problems could be articulated and
resolved in a fair and balanced way. By concentrating on the process of
social development through reference to widely-accepted standards, it
would give a positive impetus to the often arbitrary and unpredictable
effects of trade expansion on society.
Realizing the full benefits of a social clause would require action in
other areas, notably the alleviation of developing country debt and the
coordination of macro-economic policies for growth. It would fit in well
with the trend towards concentrating development assistance on measures
to alleviate poverty in the context of good governance and social
partnership. Trade would be seen as contributing to and reinforcing
efforts to promote democracy and development.
A multilateral approach to the linking of workers' rights to trade is
preferable in principle to the growing tendency to introduce unilateral
measures. So far, such measures have also focused on ILO standards as
Stephen K. Pursey
377
the point of reference and are producing some positive results that could
be relatively easily subsumed in a new multilateral system. The new
World Trade Organization should therefore give high priority to setting
in motion a negotiating process on the social clause. The ILO should play
a major role in seeking to ensure that its procedures for promoting the
observance of labour standards are used by the international community
in seeking to reinforce the authority of the rule-driven framework for
international trade for which the WTO will be responsible.
The ILO and the WTO share a common heritage which must not
only be remembered but further enlarged. In this respect, it is interesting
to remember that the GATT secretariat is headquartered in a building
that was the original home of the ILO. The motto on its foundation
stone is Si vas pacem cole justitiam (If you seek peace, cultivate justice).
Translating that vision into practical international commitments is a
challenge worthy of the inheritors of the Declaration of Philadelphia. As
Wilfred Jenks, a distinguished Director-General of the ILO said 25 years
ago "the Declaration of Philadelphia has not dated... because it was before
its time". Perhaps its time has now really arrived.
and economic interdependence:
The problem of renovating the social pact
International Institute for Labour Studies (IILS)
Geneva
Switzerland
I. Introduction
The essays in this volume reflect a breadth of perspective which
would be difficult to summarize. Reflections on the theme of international labour standards is, of course, a constant for these authors, but
when filtered through the disciplines of law, economics, and history,
through the variety of national perspectives, or through the pragmatic
views of different economic actors, the result is a volume of considerable
diversity. The paragraphs that follow, therefore, make no effort at
synopsis; they are, rather, an epilogue, building around and upon a few
central! issues that emerge from a reading of this volume in its entirety.
II. The universality of standards:
An unending debate
Consideration of the "universality" of international labour standards
is a theme common to many essays in this volume, although the concept
itself seems to have no easy definition. At the most practical level,
universality refers to whether a given international labour standard is
accessible to all countries and may be immediately applied. For example,
there is broad concurrence in the universality of basic human rights
standards as an inviolable principle: for many other standards, however,
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essayists invoke a distinction in the corpus of labour standards in which
some could be described as "development-dependent" (Portes), or "meansrelated" (Alston), a distinction as fundamental to Herbert Feis in his 1927
article for the International Labour Review, as it is for modern authors.
Readers will disagree at the margins of this debate, as Freeman observes
when he explicitly questions the substance of occupational safety
standards as development-dependent. Donahue also evokes the grey area
at the boundary of different categories of standards: "Drawing the full
perimeter of universality is difficult, maybe impossible. Not all of the
most distant boundaries can be clear and fixed". But that there are some,
"non-means-related" standards is noted by all: "There are most certainly
workers' rights that are fundamental and universally applicable".
The distinction between categories of standards is most prominent
in discussions comparing the developing vis-a-vis the developed world.
One of the main arguments here assumes that economic progress precedes social progress; that some standards can indeed be looked at as
means-related, and that the production of the "means" precedes the
"acquisition" or implementation of standards. By extension, the implementation of some standards can be viewed as premature. Both Funes de
Rioja and Portes, writing from the the perspective of Latin America,
argue that if standards are implemented prior to the obtention of means,
the results can be damaging. Hepple refers to the principle in a more
subtle way: "the effectiveness of international labour standards depends
upon working with rather than against market forces". Others, however,
reject the assumption that standards are development-dependent, and
argue instead that economic and social progress can be jointly pursued,
and, in consequence, that the entire corpus of international labour
standards can at all times and in all places be aspired to. The inherent
flexibility of international labour standards (e.g. the principle — not the
substance of minimum wages) is sometimes evoked, as is the more
philosophical point, embedded, Okogwu recalls, in the ILO Constitution,
that economic progress and social progress go hand in hand — in tandem,
rather than in sequence. If this were not so, this argument advances, the
principle of universality might be the first casualty, i.e. an array of
international labour standards, some of which are "universal" and some
of which are "less so", or whose universality is subjected to means-testing.
The essays appear to evoke two problems deriving from this.
The spatial dimension of universality: The path of globalization (through
its present phase of regionalization) leads some to conclude that now
more than ever before countries may be inclined to acknowledge the
need to share certain standards. This, Wedderburn reminds us, is a funda-
383
mental premise behind the construction of the European Union. It is a
principle, some observe, that recalls the Preamble to the ILO's Constitution when it warns that the failure of some countries to adopt adequate
labour standards is an obstacle to other countries that desire them. For
several authors in this volume, the extension of the market across borders
is not necessarily wholly positive. Sunmonu, for example, argues that: "to
the people of the Third World, globalization is the cornering of world
trade, economic resources and technology" by the industrialized North.
Economic liberalization, in his view, can only result in an accentuated
power imbalance between those who have and those who have not. Even
if, as argued from the neo-liberal perspective, labour standards constitute
"distortions", one might well wonder, as Alston does, "whether there is
[nevertheless] a residual need for such distortions". While the expansion
of the market is a promising mechanism, it is "not an end in itself. As
Pursey states: "With unemployment in the industrialized countries
averaging over 10 per cent, and over 1 billion people in the developing
world surviving (and all too often dying) in absolute poverty, it is vital
to find ways of harnessing the powerful forces of trade liberalization to
the benefit of the many rather than the few". For authors writing in this
vein, globalization calls forth the need to ensure that standards are
universal — not to consider them only subsequently relevant, once (if
ever) globalization completes the process of economic interdependence.
The employers in the volume largely draw the opposite conclusion
(that now more than ever before sharing standards is a constraint). The
argument is twofold. First, it is argued that standards impede rapid
adjustment to change, which is all the more required in "globalized world
markets and trade". As will be noted below, this undergirds their
perception of the obsolescence of standards. Second is the very pragmatic
point that standards are not "shared" to begin with. The bulk of ILO
Conventions, argue both Myrdal and Potter, are not "universal", because
not widely ratified: "ratification of ILO standards", writes Potter, "may
have the result of putting the workers and employers of the ratifying
country at a competitive disadvantage. This is an ironic result given that
one of the founding purposes of the ILO was to eliminate unfair competition based on poor working conditions". The point would seem to be
that most standards are hindrances in today's competitive economy, not
merely for the inherent reason (to be developed below) that they impede
change:, but because they were never universal to begin with. But if the
arguments for and against the universality of standards merely hinged on
their observance, the whole debate would be a rather mechanistic one of
how to ensure better compliance. This issue figures in the debate in these
essays, but is only part of the debate.
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The temporal dimension of universality: Compliance is not the onlymatter, since there are other grounds on which the concept of universality is debated in these essays. Many, for example, appear to equate
universality with timelessness or agelessness. This distills the point that
the concept of "obsolescence" is logically inconsistent (i.e. simply does
not apply) to the world of universal standards. The notion of timelessness
begs a number of other questions, too. One can be thought of as a problem in the history of ideas; when, in time, do ideas originate and how is
belief in them influenced by the course of events? At the most philosophical level is French's discussion of why ideas matter in history and
his observations on the "unfulfilled promise" of the Declaration of
Philadelphia. Some essays reflect on whether the concept of democracy
itself is one of those timeless principles only now coming into its own.
Young-Ki Park, for example, argues in analytical terms that market
economies are only sustained through democratic control, and that the
latter is only possible through standards. He writes from the national
perspective of a country in which this linkage has come to the fore in
recent times. But the fact remains, and is implicitly addressed by a
number of essays, that the promulgation of any international labour
standard is anchored in time. On the one hand, the promulgation of basic
human rights standards themselves and the timeless principles that they
embody are rooted in specific historical moments. This suggests that the
world community, that reflected in the composition of the ILO, has at
these special moments in history been able to articulate its belief in
certain fundamental rights. It would seem no accident that the boldest
statement of timeless principles underpinning labour and human rights
coincided with the conclusion of two of this century's major wars. On
the other hand, the historical origin of some standards suggests that the
perception of their need arose in specific historical circumstances, the
matter of working time 75 years ago, for example, or that of part-time
work in 1994, or, indeed, some future problem on the horizon for which
an international standard may be called for. The relationship of particular
standards to their past and present is a major theme of the volume.
III. The obsolescence versus the constancy of standards
No essay in this volume finds itself in the position of advocating
repeal of timeless principles. But some in this volume do question
continued relevance of at least some standards. For the most part,
grounds of this position have to do with how the world economy
the
the
the
has
385
changed. The issue, however, may be even more fundamental. First, one
might well ask whether the "laws" of economics are more important than
other laws by which human society is constituted. As can be expected,
a number of voices clearly reject this implicit hierarchy. The trade
unionists, among others in this volume, defend the social law that
standards represent for its independent significance; analogous to the
matter of the "timelessness" of standards, these writers question the
appropriateness of applying economic scrutiny to social rules; that is, as
well as being timeless, standards are "priceless" and their value should not
be cheapened by looking at them in the merely economic terms of cost.
Some essays nevertheless argue that, in a world of substantial and
unprecedented change, some labour standards have outlived whatever
their original usefulness might have been. Some of the change may be
social in origin. For example, standards originally designed to protect
women at work may indeed obsolesce in the light of changing social
conceptions of male/female equality. This then becomes an argument for
revision of older standards, and, indeed, the ILO has a long history of
revising and updating its standards as circumstances evolve. Much of the
change, however, is economic in origin, and it is here where analyses of
"globalization" are invoked by many authors. Two major tendencies are
reflected in the discussion.
First is those who, in essence, say that economic interdependence
compels flexibility at the "micro" level, whether of people or of firms,
and that standards are a source of macro-rigidity in adjusting to this
imperative. This is a theme well developed by the employer contributions. The theme extends to one of "freedom from the bottom up" —
both as good in itself — and because the nation-state can no longer do its
job in an interdependent economy. Thus — viewing the matter from the
perspective of national rather than international labour standards —
Funes de Rioja describes what he sees as the "false protection" of the
State in endeavouring to construct protective rules that can only be
artificial and constraining in an environment over which the State no
longer has any control. In this view, primacy is accorded individual
freedom and initiative and many standards are viewed as being exogenous, unworkable constraints, whence their obsolescence. Arguing
from the opposite perspective at this same national level, however,
Madrid critiques a vision of economic reform that subordinates and
sacrifices social protection.
The second major tendency is evoked by those who dwell more on
the risks of globalization; rising inequality within and between nations,
loss of autonomy of the State, "a race to the bottom" (Langille), etc. For
these authors, an implicit distinction is drawn between the "obsolescence"
386
of standards and their "erosion". The former appears as dubious in these
essays, but the latter, the weakening of established standards, cannot be
doubted. The key message is that the erosion of standards and of the
State's autonomy are not arguments in support of the view that standards
have become outdated. They are arguments instead for their reconstruction. At the national level, Belchamber's discussion of Australia can be
read as an example of how economic imperatives may require an updating and renovation of labour standards. At the international level, the
risk of standards' erosion is, of course, the major argument underlying
the proponents of a social clause in world trade agreements, as noted
below.
Other essays focus on the rising significance rather than obsolescence
of labour standards. Hepple, for one, describes how existing standards on
equality, rather than obsolescent, may only just now be gaining in significance, acquiring a value that economic change has, if anything,
magnified. Sugeno shows how the ILO's very first Convention on
working time, never the object of much attention in Japan, has now
acquired greater importance there, in order to render politically sustainable the fact of economic interdependence. Marshall argues that
international competition requires high performance which can only be
built on high labour standards. Rather than viewing labour standards as
outdated, exogenous constraints, his argument views them as endogenous
components of economic performance of rising value in an era of globalization. While Marshall thus argues the intrinsic value of standards in
economic competition, others argue more theoretically that it is in any
case impossible to conceive of "institutions" apart from "markets".
Figueroa, among others, sides with the latter view: "Some people argue
as if interventions in labour markets were purely exogenously determined... Clearly, a more balanced approach would recognize endogenous
and exogenous components of labour standards".
IV. How the compliance with standards
can he strengthened
According to several contributors to this volume, new vitality of
international labour standards could be derived from their better
enforcement through integration in a broader, multilateral policy
framework. Usually, the analytical departure for this recommendation is
the widely perceived threat for existing standards. They are deemed at
risk of being eroded by intensified, international competition centred on
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wages and other labour cost components. The spectre of a downwarddirected spiral of labour conditions should be countered by making ILO
norms more universal 50 that they cover the increased number of
competitors.
The cause of international labour standards could be strengthened by
a "social clause" in international trade agreements. This would be the
primary mechanism for linking the liberalization of trade and the spread
and enforcement of fundamental standards. It would be aimed at eradicating the most flagrant violations of working and living standards in all
countries and sectors. Following earlier proposals, Caire would like to see
the social clause not being limited to the trade sector, but cover capital
flows as well.
The call for the social clause originates in the prevailing weak
international control and enforcement of labour standards. Both the
mechanisms available to the General Agreement on Tariffs and Trade
(GATT) and the ILO are seen as either unsatisfactory, or insufficiently
used. Social clauses could be a means to raise progressively the working
and living standards of workers in developing countries along with rising
productivity, while simultaneously protecting labour standards in the
industrialized countries, through appropriate measures of trade adjustment. Emmerij sees prospects for a compromise between the supporters
and opponents of labour standards in international agreements because
both proclaim to be against protectionism and in favour of improved
working conditions in the countries concerned.
For Langille, it is unavoidable to negotiate about labour standards in
a multi-lateral framework of G A T T (World Trade Organization —
W T O ) . The seemingly intractable debate about "free trade" and "fair
trade" will not lead us farther. From a global perspective there is no
conceptually relevant distinction between a tariff upon a foreign good
and direct subsidy to domestic producers of the same good. They achieve
the same result for the same motive. The claim for multilateral agreement
should, ;3S Langille concludes, be seen as a natural and inevitable corollary
of free trade policy.
Which standards are to be included in international trade agreements? Several contributors select a "minimum package" of ILO
standards which constitute basic human rights, and are widely ratified by
the member states of the ILO. For example, Pursey, speaking for the
International Confederation of Free Trade Unions (ICFTU), lists the ILO
Conventions on freedom of association; the right to organize and bargain
collectively; the minimum age for employment; the prohibition of forced
labour; non-discrimination, and equal remuneration. Emmerij adds the
388
ILO Convention on employment policy; Caire would wish to also include minimum wages and standards of health and safety in the package.
Virtually all advocates of the social clause in this volume, including
the trade unionists, stress the point that no uniformity of substantive
standards entailing a levelling of labour costs across countries is intended
as this would harm the competitive advantage of developing countries.
Nevertheless, what several contributors would like to see established in
every country is a minimum floor to wages and other terms of employment that would prevent exploitation and provide a positive impetus to
constructive competition. In other words, the objective is to work
towards "universality" of ILO standards, not "uniformity".
In the view of the trade unions, and other protagonists of the social
clause, adequate procedures for operating social clauses should observe
principles such as transparency and multilateralism which would make
them a defence against protectionism, and should alleviate the justified
fears on the part of developing countries. The unions propose procedures
for a joint ILO-GATT (WTO) Advisory Committee to deal with complaints, and a differentiated system of investigation and remedies that
leaves trade sanctions as a last resort for penalizing non-cooperation.
The union proposals on the social clause are opposed by the
employers' representatives. For them, the clause serves as a protectionist
device, and has serious consequences for trade and foreign investment.
Potter and Myrdal are concerned that in pursuing the social clause jointly
with G A T T , the ILO would depart from its principle of voluntarism and
political suasion. Myrdal speaks of a threat for many developing countries
and countries in transition to a market economy, and foresees these
countries either leaving the ILO, or obstructing its process of setting and
applying labour standards. Even worse, the social clause would entail
further "politicization" of the ILO, and pose threats to its tripartite
decision-making structure.
V. The ILO in a system
of international governance
Beyond the trade issue and the pros and cons of a "social clause",
many of the essays address in broad terms the theme of the ILO's role
in a system of international governance. T w o principal arguments, which
in a sense summarize the foregoing paragraphs, may be detected in the
essays. The first might be called the "less is more" school of thought, a
somewhat cautionary, and occasionally critical view of the ILO which
389
emphasizes the risks inherent in the "overproduction" of labour
standards, and is mindful of the limitations of voluntarism. The second
argument belongs to a more evolutionary school of thought, and contemplates the need — i.e. the desirability, if not the inevitability — of an
architecture of international governance built upon the declining
sovereignty of nation states. These are indeed contrasting visions of the
ILO's hiture. Their analytical basis is a shared one, however, for both
prescriptions are argued from the fact of rising economic interdependence; that is, the rapidity and pervasiveness of economic change
can be used at one and the same time as an argument for a more
restricted role of the ILO and for a more expansive one.
"Less is more": A return to the basics
For some authors, the sheer volume of instruments in the International Labour Code is argued to be counter-productive. They have
grown too many and too detailed, Myrdal says, and many, as observed
above, have lost their usefulness. The "numerous details" of compliance
with some standards is an argument against their being ratified to begin
with, Potter comments, and Myrdal adds a further argument against ratification in the lengthy and difficult procedure required for deratification
("denunciation"). Proof that the production of standards has faced diminishing returns is found in the long-term decline in the rate of ratification
of new standards. Indeed, Myrdal observes, only "a mere handful" of
standards, those relating to basic human rights, have achieved ratification
of over 50 per cent of member states. In short, he argues, there are "few,
if any" standards "that deserve to be regarded as 'internationally agreed
labour standards'".
There would seem on the face of things to be a logical problem in
the argument that the volume of international labour standards is too
great, given that their promulgation is not by executive fiat, but by
decision of the "world community" represented in the ILO — a tripartite
community at that. For Myrdal, however, explanations of this anomaly
are not wanting. Political gamesmanship during the Cold War distorted
the "production process" of labour standards, he argues, as the Communist Bloc in alliance with Western trade unions passed standards
designed, to hobble Capitalist economies. In what may be one of history's
ironies, however, Hethy argues that ILO standards ratified by the former
Communist countries played a not inconsiderable role in the political
liberalization of Central Europe. Myrdal argues further that a simple
majority of the International Labour Conference is all that is required for
adoption of a standard, and often that is all that many have received.
390
Finally, he notes that the over-production of standards might simply arise
from political shrewdness, since voting in favour of a standard which it
has no subsequent intention to ratify is a costless way for a democratic
government to shore up its political capital with labour constituencies.
This, in short, is the strength and weakness of the ILO's voluntarism. Since international labour standards are not international law (the
force of the latter, as Caire observes, being in any case by consent), the
true strength of the ILO as an agent of international governance resides
in its not inconsiderable "power of international moral suasion" (Potter).
Ironically, the absence of any direct, democratic procedure in the
promulgation of labour standards can be argued to have facilitated their
production. Were international labour standards somehow to acquire
more directly the status of international law, the very decision-making
structure of the ILO would, in Myrdal's view, be unacceptable in
democratic terms. The present equal voting rights among countries of
vastly different population size and economic influence would become
unacceptable. Moreover, the "representativeness" of national delegations,
reflecting as they currently do only the voices of a few interest groups —
employers, trade unions, and governments — would be too narrow a
constituent base for truly democratic decision-making. Whatever may be
its shortcomings, tripartism "works" in the ILO because of the Organization's voluntarism. The whole would be at risk were the nation-state not
the final arbiter of the labour standards it chooses to adopt.
For the employer voices in this volume, therefore, the message is
clear and consistent: a return to the basics, building upon the most
"internationally agreed" of the ILO's standards, its basic human right
instruments; and a preservation of the voluntary (rather than compulsory) nature of the international agency's decisions. As to the
Organization's role in international governance, the thrust can be
described as a "bottom-up" approach through technical cooperation,
rather than a "top-down" approach through regulation (or "preregulation", in light of the foregoing qualifications on the ILO's
independent capacity in the realm of international law). Technical
cooperation directed toward assisting labour and management in the
development of their market activities would aid countries in attaining
their social and economic goals. The aim would be to avoid, as Funes de
Rioja describes in relation to his own country, the premature ratification
of standards whose significance would thus be "false" rather than "real".
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The counter-argument: Strengthening and broadening
international social policy
Arguments of "means-relatedness" or "obsolescence" aside, an
interesting similarity arises in these essays between the employers' point
of view and those who would argue for a more mandatory application of
labour standards. That common starting point is the need perceived by
many for the ILO to defend its core standards on basic human rights.
For most writers, let it be said, this by no means implies scrapping the
other instruments in the International Labour Code. Indeed, Papola,
among others, would add to the corpus, arguing that minimum standards
applying to the informal sector, "where most of the world works",
should ibe evolved. But for those, in particular, who endorse the need for
a stronger role of the ILO in a system of international governance, the
endorsement refers most pointedly to the promotion of basic human
rights and their diffusion. Thus, as noted above, those authors who link
the "how" and the "what" of governance through their advocacy of a
"social clause" tend to exclude any, or at least most, of the "meansrelated5' standards upon which a developing country's comparative
advantage could reside.
"It: has been said that in the twenty-first century, the nation State
will be too big to solve some problems and too small to solve the
others", writes Pursey. To the extent that one believes that the world
economy is characterized by rising interdependence, a necessary corollary, in the opinion of Donahue, among others, is the de facto erosion
of national sovereignty. Or, as Langille argues, "the mobility of capital
undermines in a fairly straightforward way the traditional arguments of
democracy and sovereignty". The fact of globalization, in Emmerij's
view, has "weakened the ability of the State to control the behaviour of
other economic actors theoretically under its jurisdiction and [has] pushed
the boundaries of policy-making into the sphere of the global". If
economic fortunes and failures increasingly rely on markets that,
themselves, respect no boundaries, social and labour standards must
themselves be contingent in this process.
Alston observes that giving prominence to economic liberalization
at national levels has in practice often meant the erosion of status of
labour ministries, and the implicit transfer of the authority for labour
and social policy to finance ministries. This, of course, is neither a
desirable nor an inevitable path. Reduced sovereignty may mean reduced
autonomy, but it does not imply the reduced importance of the State or
of labour policies. Recalling Marshall's argument, once again, economic
interdependence should enhance the importance of national labour
392
policies, since the high performance economy required of rising
international competition is one where labour standards are strong,
endogenous components of efficiency.
The world described by some of these authors therefore seems to be
one in which the matter of national sovereignty is increasingly an
"academic" matter. "The reality is that sovereignty over [domestic labour
policy] has already been ceded", writes Langille. The real issue is "not
whether but how policy will be determined internationally — through
the market or through political negotiations". It follows that the issue of
international governance is, as Emmerij suggests, "high on the agenda".
In fact, it may already have been tabled for discussion. Caire, for
example, believes that the concept of a "duty to interfere" on humanitarian grounds may be gaining ascendency within the United Nations
community where, hitherto, a strict construction of the principle of
national sovereignty would have prevented international action. He asks:
"is it not possible to imagine, with the increasing globalization of the
economy, that [the duty to interfere] could be extended to areas in which
not only threats to people's very existence but also those affecting their
living and working conditions would be justification for a right to
interfere?"
The implications of economic interdependence lead several authors
to the need to frame the role of the ILO in new terms. Since labour
policy is becoming just one facet of broader social policy concerns,
Alston argues that the ILO must broaden its appeal to various "secondary
constituencies", the other actors aside from trade unions, employers, and
labour ministries which shape social policy. Since its core concern
involves the defence of basic human rights, the ILO should evolve much
closer working relations with other of the UN system's agencies that
share this concern, in particular the UN Committee on Economic, Social
and Cultural Rights.
VI. International governance through widening
the concept and policy framework for standards
Whilst the debate on the social clause is focused on the
"globalization" of existing fundamental labour standards, according to
some essayists, international social policy would have to be tied more
firmly to other policy realms. Standards could not flourish under
conditions of widespread economic slump and indebtedness. Labour
standards would have to be complementary with, and closely tied to,
393
global demand management policy. Amsden, for example, views it as
essential that Northern governments coordinate expansionary macroeconomic policies with the goal of stimulating investment and employment, in order to prevent negative repercussions of increased trade and
investment on the industrialized countries. A new definition of labour
standards would need to be adopted for this purpose, as it would be for
containing inflationary pressures in collective bargaining. She argues
provocatively that wages should be allowed to lag behind productivity
growth in small, newly-industrializing countries building their economies
through export markets. But, on the other hand, she goes farthest in
advocating an integration of international labour standards within the
broad fnimework of international economic policy. In the United States,
Donahue describes a more recent call by the trade unions to link worker
rights to international financial institutions through the United States
government's voting influence on criteria for loans and grants administered through the Bretton Woods organizations.
Others call for linking social standards and environmental standards.
For Miickenberger, it is inconceivable that the Western living standards
and life styles can be diffused throughout the globe without provoking
fatal ecological risks, and engendering unbearable political tensions about
the question of who consumes how much of the world's finite resources.
Therefore, ecological conditions would have to join social objectives to
make development sustainable. Fewer natural resources will have to be
consumed, through more efficiency in resource utilization, and selfsufficiency on the part of the materially privileged part of the world
population.
Freeman, finally, suggests looking at labour standards as a consumer
good, and creating a link with consumer policy — in essence, pursuing
international governance objectives through the product market. He
holds that the consumer wants standards just as he wants other aspects
of product quality. Hence, he is willing to pay a premium on the price
of traded goods if he is convinced — by appropriate information, such as
product labelling — that this extra cost stems from having decent labour
standards in the country of origin of the product. If as a result of
informed consumer choice the sales of the product decline, this will
induce the producer to change the incriminating working practices.
Coordinating social and economic policy and action at the international level is, of course, by no means a new demand. The idea was a
centrepiece of the Declaration of Philadelphia. Perhaps it is appropriate
in this anniversary year of the ILO that such far-reaching suggestions for
a strengthened system of international governance in which the ILO
would play a major role echo the Declaration's ambition. This was a
394
postwar vision of international governance not since reclaimed — an
"unfulfilled social contract", in French's words, which emerged in the
history of ideas only to fall victim to the Cold War. In contemporary
terms, Okogwu finds the Declaration's language unusually clear and
prescient: achieving social objectives "must constitute the central aim of
national and international policy" and, "in particular, those of an
economic and financial character, should be judged in this light and
accepted only in so far as they may be held to promote and not to hinder
the achievement of this fundamental objective".

Kwhi^i J

Transcription

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