Implication for enterprises and the ILO of a changing world economy

ILO ENTERPRISE FORUM 96

International Labour Organization

The present global economy is characterized by liberalization of trade, deregulation, and a rapid and continuous flow of new technology, especially information technology. In addition, the free movement of investment has resulted in even more intense global competition.

Possibly the most important feature of the new global economy is the rapidity of change, together with different priorities of nations and peoples. Seen positively, globalization creates prosperity and employment, it lessens unemployment and misery. In particular, it has opened up possibilities of growth in previously underdeveloped countries. By generating prosperity, liberalization can be the driving force behind social progress. But the link between liberalization and social progress is not automatic, and requires concerted action.

Globalization may also have negative consequences, however, which become particularly evident when it coincides with mass unemployment and large-scale poverty. Negative factors may only loom large when globalization coincides with mass unemployment brought on by other causes; protectionist pressures could then intensify and bring the positive effects of globalization into discredit. Also, cross-border movements in search of optimum business environments and borderless mega-competition may be "hollowing out" industries and impacting on company managements and labour markets- The present employment crisis is the longest since the Great Depression, and has brought large-scale poverty in its wake. No country, region or group should be marginalized or excluded from the benefits of globalization. Exclusion, inequality and insecurity can have destabilizing political repercussions which in turn impact negatively on the business environment.

Such negative impact is particularly true in countries in transition. The beneficial effects of globalization are unevenly distributed: the poorest 47 countries in the world receive no more than 0.7 per cent of total investment by the transnational corporations. While deregulation and privatization have engendered a major increase in cross-border investment, this has tended to concentrate on about a dozen middle-income Asian and Latin American countries, to the detriment of many others. Far from levelling the playing field, foreign investment can make it more uneven, with disastrous consequences not only for the developing countries, but also for developed countries thus deprived of large potential markets.

Trade unions are anxious to have international business and governments recognise this polarization. Social upheaval and disintegration may follow if efforts are not made to address the problem of exclusion at all levels through poverty alleviation programmes and through strategies designed to reposition marginalized economies so that they can participate in current developments. Small enterprises must also think, produce and sell globally if they are to make an impact on the global market. Increasingly, business is operating on the basis of strategic alliances which link firms of all sizes into global webs of production, distribution and services .

Enterprises and the Global Economy

The advent of this "global firm" has been facilitated by information technology, which is creating a new competitive landscape and transforming the business environment and labour relations . The components of the new business model include a new duality between the integrated community of firms and the excluded majority; strategic flexibility; competition with co-operation; horizontal, decentralized work structures; and constant communications in real time. A new and more flexible managerial viewpoint is required to design new strategies to deal with the new competitive landscape.

But integrated global financial markets, increased capital mobility and global production and distribution structures are weakening the bargaining power of trade unions everywhere . The unions feel that mobility of capital and productive capacity means that most key decisions on trade and investment are being taken by private business. This trend has deepened with increasing privatization; the policies and actions of TNCs and global firms have a potential negative impact on jobs and incomes everywhere.

However, relocation from developed to developing countries, one of the manifestations of globalization, does not necessarily lead to a drop in real wages, although it is true that jobs in some sectors and places could be lost through this process and through restructuring. A large range of factors influence capital mobility and the locational choices of firms; these include social stability, local infrastructure development, and market proximity.

The existence of firms with a global reach and profile raises the question of whether a new business model calls for new business ethics. Markets must be underpinned by ethical principles and self-restraint. Over-emphasis on efficiency and technology can adversely affect the human element, causing depersonalization and spreading apathy.

World citizenship implies the recognition of the rights of others and one's own responsibilities; there are many examples of initiatives by the business community which reconcile economic, social and environmental priorities and make a commitment to democracy, such as ISO Standard 14000 on environmental issues or the Business Charter for Sustainable Development of the International Chamber of Commerce.

Business and social issues

While productivity and competitiveness remain the primary concerns of enterprises, they are beginning to acknowledge that social problems could have a negative impact on business environments and opportunities. Business has an increasingly important role to play in addressing the issue of unemployment, for example.

Given the shrinking state sector, the role of private companies in the creation of new jobs is increasing in importance. Indeed, one of the greatest challenges of the global economy is to ensure that, wherever possible, lost jobs are replaced by new jobs with good prospects. The Japanese system of life-time employment is an example of business leaders acting to restrain increasing unemployment. Japanese business is currently constructing a new management model aimed at containing the impact of incipient structural reforms and deregulation on employment and the quality of life.

The central factor in the level of unemployment in any society is the way in which its labour market functions; reform of labour markets is the single most important challenge posed by the global economy. In South Africa, for example, the legacy of past inequalities is pervasive and frustrates efficient functioning of the market. This is compounded by rigidities in the labour market which hinder job creation in the formal sector and contribute to income disparities between the unionized and non-unionized sectors.

There is a close correlation between unemployment and inequality and poverty; the answer may lie in lower unit labour costs which will generate higher employment and thus reduce poverty and inequality to more acceptable levels. Unemployment is not the major factor in poverty and inequality, however; employment creation alone is not sufficient to alleviate these ills.

Women, young people, disabled persons, rural dwellers and some ethnic groups are the most adversely affected. In addition, the increase in the numbers of the working poor may be due in large part to the unprecedented growth of the informal sector. Trapped in a narrow range of marginal activities characterized by low productivity, these dispossessed workers are adversely affected by economic downturns both in terms of their own activity and of the availability of markets and clients in the formal sector, which is itself being down-sized in the context of structural adjustment programmes.

There is a current tendency to see the informal sector as a panacea for unemployment. A very recent study by the UN Economic Commission for Latin America found a correlation between the decline of enterprises and the increase in poverty in the Caribbean region, for example. The study found that the decline in the competitiveness of major export sectors, and of wages in them, and the absence of viable economic alternatives to provide employment and incomes, resulted in an increase in poverty. This is compounded by poor physical infrastructures, inadequate safety nets and weaknesses in the institutions of civil society. The study contended that addressing these problems would require governments and investors to act in concert.

The role of governments

The role of government is to create and sustain an appropriate environment in which business can flourish, new jobs can be created and existing jobs improved. The magnitude of this task requires the co-operation of the social partners. Action in three areas is crucial: human resources development, labour market flexibility and labour standards. While social stability is also a vital component of a sound environment, the gravity and scope of such potentially disruptive social problems as unemployment and poverty require concerted action by all parties.

Human resources development is the key to socio-economic growth. In the context of globalization and technological innovation, the growing gap between technology and skills re-emphasizes the importance of flexible training, which includes enterprise-based training and continuous education. Human resources development and the creation of a highly skilled and flexible workforce are especially important in a global economy because these enable enterprises and nations to remain competitive.

Worker qualifications are an important factor in the locational choices of firms. And, from a worker's point of view, higher skills are related to higher wage levels. This calls for action to promote human resources development and the acquisition of appropriate skills to support economic growth. Training is not a panacea for the lack of productivity and growth, however. Nor is it an automatic guarantee of employment.

Flexibility and deregulation are very controversial issues. By and large, employers argue that excessive labour regulation hinders growth, and rigidity contributes to unemployment. The first reform necessary is the reduction of entry and exit costs of labour, including provisions of legislation on unfair dismissal, barriers to retrenchment, and non-wage costs. Flexible factors of production best allow business to respond to a rapidly changing competitive environment and ensure the desired increase in productivity. These include flexible internal and external labour markets which facilitate an optimal balance between capital and labour; and flexible working time arrangements which allow best possible use of available resources. In a global economy, labour market rigidity is another factor that influences the locational choices of firms and investors.

A more flexible stance is also necessary in labour relations. Rigidities inherent in national and sectoral bargaining may hinder dynamism and growth in the private sector. Enterprise-level bargaining which reflects the economic possibilities of individual enterprises is more realistic and more likely to allow enterprises space in which to develop.

The causes of unemployment go beyond labour market rigidities. The dismantling of existing regulations and of social protection is a cause for grave concern and could itself create unemployment. The informal sector cannot be expected to continue to absorb the fall-out from the formal sector. In addition, increasing flexibility can be detrimental to enterprises themselves if it results in decreasing loyalty on the part of workers, customers, and, eventually, even share-holders.

A discussion of flexibility and deregulation also involves the related issue of labour standards in a global economy. The crucial connection between standards and globalization lies in their impact on competition; diversity in systems of social protection can work to the advantage of some countries while marginalizing or penalizing others. It can even be argued that the application of ILO standards and other international norms is not always feasible in all countries and could even be counter-productive in developing countries trying to access the global economy.

Standards should therefore be appropriate to the level of development of countries and their competitive positions in the global economy. While the task of reconciling labour standards with economic reality lies with the state, its action should be informed by the needs of business and labour, the parties directly affected.

International standards are the key to ensuring the parallel development of international trade and social progress; their effectiveness is hampered by the fact that they are binding only on the countries which have ratified them. Advances in this area are dependent on political will and the capacity to pursue autonomous social policies. The difference in levels of ratification now appear to work to the disadvantage of those furthest along in social areas, which may explain why some countries are now looking to the World Trade Organisation to provide a uniform and obligatory guarantee of international workers' rights by partners in trade.

Altogether, it is vital that standards be re-examined in the light of the new global environment; the social dimensions of international trade should enable rather than hinder free trade. Standards should be fewer, less ambitious and more realistic, making them easier to ratify and to implement. Future emphasis should be on implementation rather than promulgation.

Tripartism in the global economy

The sheer magnitude of the tasks facing governments in the context of globalization and structural adjustment programmes calls for the co-operation of the key actors in civil society; tripartite structures are being viewed as potentially powerful tools. Instances of tripartite co-operation in addressing social issues such as unemployment, income disparities and poverty range from regional efforts such as the Essen Employment Process, dedicated to halving European unemployment by the turn of the century and the European Pact of Confidence, to country-level initiatives in Burkina Faso and South Africa. Such initiatives point to the recognition by governments and businesses of the need to involve other interested parties in building the conditions necessary for sustainable growth. As democratic institutions providing a voice to a large segment of society, trade unions are essential to realistic national and international dialogue and action.

The ILO in the new global environment

Globalization gives the ILO an unparalleled opportunity for responsive change, providing it with the necessary impetus to review and revise its programmes and to create a new niche for itself. The ILO should be the international institution which deals with the social dimensions of the global economy but in doing so it should ensure that social considerations enable rather than hinder free trade. It should shift its emphasis from standard-setting to needs-oriented practical assistance that encouraged employment creation, especially for young people and the long-term unemployed and that provided assistance to governments in the creation of an enabling environment for business. This last includes guidance on the way in which the labour and social conditions which underpin business creation could be improved. Support to governments in the creation or adaptation of social security systems to make them functional and affordable in the long-term is another area for action. More importantly, it is time that the Organization moves from constitutional to real tripartism and gives business a greater role in the ILO and its concerns more consideration in its programmes, thereby redressing the current imbalance between employers' and workers' activities. In particular, there is an urgent need for greater technical assistance to employers' organizations in developing countries and countries in transition, to help them develop their financial and human resource bases so as to create viable and democratic institutions. The ILO should also acknowledge more clearly the role played by enterprises in employment creation and give them their due place in the philosophy of the Organization and the everyday work of the Office.

The ILO sees itself as being very relevant in a global economy. Its Constitution has always presupposed free trade, although, contrary to popular belief, the Preamble does not give it a mandate to "create a level playing field". This is now the mandate of the World Trade Organization.

Notwithstanding its relevance, the ILO's ability to respond to current events is hampered by the fact that its main tool, International Labour Standards, can not be effective unless ratified and implemented. However, far from being a threat to the role of the ILO, this situation has given it new direction, especially through the activities of a Working Party of its Governing Body. The Working Party's discussions on the social dimensions of international trade have opened up new and very fruitful perspectives for the Organization. The ILO cannot remain indifferent to the debate around the issue of free trade and must respond to the challenge of ensuring the parallel development of international trade and social progress.

Concrete activities proposed by the Working Party include a campaign to have basic standards ratified; the promulgation of a new Convention on child labour; and an effort to redress the gaps in information about the social impact of globalization through a questionnaire. The main future lines of action are:

the adoption or implementation of core standards on freedom of association, freedom from discrimination, child labour, forced labour and collective bargaining, which, together, provide a framework within which workers can agitate for a fair share of the economic pie. Ensuring implementation remains a concern;

the creation of an international mechanism to encourage the promotion and monitoring of social progress in the context of economic liberalization (e.g., a trade review policy committee); and

support for the creation of instruments (such as voluntary codes of conduct) through which non-governmental actors, and particularly enterprises, can associate themselves with states in promoting the parallel evolution of social progress and global economic development.

In sum, the ILO is a flexible organization which can adapt to new demands without major institutional modifications. Above all, its tripartite structure gave it a unique advantage in linking economic development with social progress.