[ Globalisation ]

Institutions beat protectionism

Empirical studies mostly support the optimists’ view (Schmidt, 2005). According to the data, the flow of foreign direct investment depends on the enforcement of the core labour standards, on which the International Labour Organisation (ILO) has been focusing since the 1990s. These standards outlaw child labour and forced labour, provide protection from discrimination, and ensure the right of collective wage bargaining.

It is true that numerous case studies deal with multinational corporations breaching core labour standards. However, this phenomenon gets disproportional coverage in the media. Nonetheless, such studies demonstrate that companies are often unable to handle matters adequately whenever governments fail to properly enforce core labour standards. The empirical literature accordingly emphasises the importance of well functioning institutions – as opposed to globalisation in itself – for the economic and social success of a country. Examples of relevant institutions are a free press, unions, trustworthy courts, an empowered civil society and transparent public decision-making procedures.

Certain resources are required to enforce the core labour standards. The rules have to be made national law and respected in everyday life. Formal legislation is often less important than the informal rules that regulate how citizens interact with authorities and whether courts and governments show equal respect for all. All of the actors involved, both at the state and the civil-society level, need competent staff. A lack of competent staff leads to corruption and emigration.

Developing countries are often unable to provide the necessary resources on their own. Foreign direct investment (FDI) can help, but it is driven by profit motives and does not reach all countries. In the 1990s, FDI mostly was devoted to a dozen emerging markets. To implement the core labour standards equally all over the world, solidarity financing remains indispensable. In the end, that means that debt relief and development financing should be considerably expanded – a demand made not only by globalisation critics such as Attac (2004) in Germany but also, recently, by Jeffrey Sachs (2005) and the UN Millennium Project.

It would also make sense to focus available funds more narrowly on labour standard enforcement. To date, the annual budget of the World Bank Group is more than 40 times greater than the budget of the ILO. Unfortunately, the World Bank Group still refuses to apply core labour standards to its lending and its policies in general. It would, however, be an important player for several reasons beyond the Bank’s financial clout. The World Bank influences international standardisation in three ways:
– First, the data and analyses provided by its large research department shape policy making in general.
– Second, the Bank is one of the largest project financers in the world, with a decisive impact on the budgets and policy decisions of project countries. In this role, it could monitor the enforcement of the core labour standards just as it has already begun to fight corruption.
– Third, the World Bank can design and finance projects aimed to set up relevant labour market institutions.

The World Trade Organisation (WTO) also plays an important role. The design of its free-trade agreements and the rulings of its dispute settlement panels have a great influence. This would be particularly so in the case of binding agreements on investment and antitrust law, which rich countries would like to negotiate. So far, important newly industrialising countries have managed to block this – and rightly so. Nonetheless, the General Agreement on Trade in Services (GATS), which has already taken effect, may also limit the ability of governments to regulate labour conditions effectively. As a result, enforcement often leaves something to be desired, and the legitimacy of public institutions is undermined. Both factors help to explain why populists often call for trade sanctions and protectionism in the defence of labour standards. However, such measures only harm the very people who need help the most: those in poor countries.

The most effective way to implement core labour standards would be to strengthen the ILO. One way of doing so would be to oblige the World Bank and the WTO to consult the ILO on all matters relevant to labour standards. The ILO should be given the right to veto decisions and enjoy a status equal to that of the World Bank and the WTO. Such a reform would strengthen the legitimacy of globalising public policy for two reasons. On the one hand, the above-mentioned risks for national governments would be prevented; on the other, the ILO is the international organisation with the best democratic legitimacy. It is based on representatives from the national governments as well as all wage-negotiating parties (ILO 2004, Schmidt 2005).

Globalisation offers opportunities to establish humane labour conditions in all countries. But better coordination of international policies is needed to avoid dead-ends in development. The institutional capacities of poor countries should be strengthened. In the 1990s, the ILO only had some 130 million dollars per annum for capacity building. However, capacity building is a better way to protect workers than trade restrictions.

References

Attac Deutschland, 2004:
Diskussionen in Attac Deutschland zu einer alternativen Weltwirtschaftsordnung (AWWO) (Attac Germany debate on an alternative world economic order), http://www.attac.de/awwo.
Bhagwati, Jagdish, 2004:
In Defence of Globalisation, Oxford: University Press
ILO, 2004:
A Fair Globalisation: Creating Opportunities for All. Report by the The World Commission on the Social Dimension of Globalisation, http://www.ilo.org/public/english/wcsdg/docs/report.pdf
Sachs, Jeffrey, 2005:
Investing in Development – a practical Plan to Achieve the Millennium Development Goals. Final Report of the UN Millennium Project, http://www.unmillenniumproject.org
Schmidt, Oliver, 2005:
Globalisierung und Arbeitsstandards: Kontroversen, Grundlagen, Ansätze (Globalisation and labour standards – controversies, basics, approaches), Münster, Hamburg