Opinion pieces and speeches by EPI staff and associates.

THIS SPEECH WAS GIVEN AT THE 2002 WORLD SOCIAL FORUM IN PORTO ALEGRE, BRAZIL HELD ON JANUARY 30 – FEBRUARY 4, 2002.

A Global Strategy for Labor

By Jeff Faux

The overwhelming majority of people in this world must work in order to live. The definition of Labor in the global marketplace includes those who are unionized and those who are not. It includes those who work in cities and those who work on farms. It includes those both in the formal and informal sectors. It includes those who work at home and small business people who live by exploiting their own labor. It follows that full employment, adequate wages, and a healthy environment ought to be the common sense goals of global economy.

But the global marketplace, like all markets, is built on a set of rules. Indeed, according to a former director-general of the World Trade Organization (WTO), the rules of the WTO represents the “constitution” of the new global economy. The current rules of the global market — those of the WTO, the International Monetary Fund (IMF), the World Bank, and other global regulators — were not established to promote the dignity and well-being of Labor. They were established to protect the interest of those who invest for a living, at the expense of those who must work.

Investor Protectionism
The investor protectionist policies imposed by those who set the rules for the world’s commerce include trade de-regulation, privatization, weakening of collective bargaining and financial liberalization. Not surprisingly, they – and therefore their clients in the media and the academic world – also measure the progress of globalization according to the interests of the investor class, such as rising stock markets, increasing volume of trade, lower taxes for the rich, and the elimination of any restrictions on investment. The rationale for such a narrow perspective is that these policies will automatically create faster growth, greater equality and expand democracy.

After more than 20 years of intense investor protectionism policies, these promises remain unfulfilled. Over the past two decades of neo-liberalism, global economic growth has actually slowed. Those countries that grew the fastest were the most resistant to the advice of the bankers, the economists, and the consultants who control credit, aid and set the trading rules according to the “Washington Consensus.”

In the past 20 years, equality has actually gotten worse. As Christian Weller, Robert Scott, and Adam Hersh have shown1 the median income of the richest ten countries was 77 times that of the poorest ten countries in 1980, and 149 times in 1999. The incomes of the richest 10% of the world’s people were 70 times that of the poorest 10% in 1980, and 122 times in 1999. Within nations, inequality also seems to have worsened. Accurate global data is not available, but in the countries where the data are most reliable, the trend is clearly toward more inequality2.

Neither has the claim about democracy been fulfilled. As one scholarly article in a neo-liberal publication recently reported: the evidence does not support “a strong and direct connection between globalization and democratization. The evidence is mixed and will continue to be so for some time. For every society in which a ‘people’s power’ revolution is helped along by international cheering squads and satellite television, another is daily becoming more cosmopolitan while adhering to traditional (and often authoritarian) practices.”

Even World Bank president James Wolfensohn in 1999 was moved to admit, “At the level of people, the system isn’t working.”3

By “people,” Wolfensohn meant working people. Clearly the system is working for some people. It is shifting the benefits of new technologies and the efficiencies from the natural expansion of trade and communication to the world’s investors and shifting the costs to the world’s workers.

No one can deny the existence of a global investor class. Electronic technologies and modern transportation and communications systems allow for extremely effective business and financial networking. Increasingly, multinational businesses are managed by multinational personnel, who have little or no loyalty to the country whose passport they happen to hold.

A global investor class implies a global working class, even though the international organization of workers is far behind that of investors. Therefore we cannot fully judge the impact of globalization without reference to the share of benefits and costs going to capital and labor. The question of who wins and who loses from particular policies – such as the WTO round or NAFTA or the proposal for a Free Trade Agreement for the Americas — cannot be answered on the basis of separate national economies alone because every country has an investor and a working class, i.e., there are rich people in poor countries and poor people in rich countries. In 1996, for example, 22% of the world’s billionaires were from the developing nations.

In most cases, international agreements are negotiated by elites that have more in common with each other than with working people in the countries that they represent. As a retired U.S. State Department official put it to me bluntly a few years ago, “What you don’t understand,” he said, “is that when we negotiate economic agreements with these poorer countries, we are negotiating with people from the same class. That is, people whose interests are like ours — on the side of capital.”

Thus, the fundamental purpose of neo-liberal polices of the past 20 years has been to discipline labor in every country in order to free capital from having to bargain with workers over the gains from rising productivity. Such bargaining is the essence of a democratic market system. Although labor is obviously better served when it is organized into trade unions to bargain with a unified voice, the bargaining between labor and capital goes on even if workers are unorganized.

As in any bargaining, both sides are constantly maneuvering for advantage. But Labor is typically at a disadvantage because it usually bargains under conditions of excess supply of unemployed workers. Moreover, the forced liberalization of finance and trade provides enormous leverage to capital by giving it a threat of fleeing the economy altogether — by freeing it from responsibility to the firm, the community or the nation.

Uncontrolled globalization, in one stroke, puts government’s domestic policies decisively on the side of capital. In an economy that is growing based on its domestic market, rising wages help everyone because they increase purchasing power and consumer demand — which is the major driver of economic growth in a modern economy. But in an economy whose growth depends on foreign markets, rising domestic wages are a problem, because they make it more difficult to compete internationally.

Capital’s Gains
Although one can find a mass of data on the financial interests of the relatively tiny investor class, the mainstream media carries little systematic information on what is happening to the huge class of the world’s workers as a whole. But a look at the trends within countries shows a general deterioration of the position of labor relative to capital — in both developing and developed economies.

The Global Policy Network, a new group of non-profit research organizations linked to national trade unions movements has so far posted reports on labor conditions in 27 countries on its web site (www.gpn.org). The countries examined include those among the poorest (e.g. Lesotho, Zambia), the most rapidly developing (e.g. Korea and Ireland) and the most developed (Canada, United States).
The exact manifestation of labor’s shrinking share of income differs from country to country but there is a common pattern in the concentration of economic growth in the “informal” sector — where workers are unorganized, contingent, and unprotected. That is, where they have little or no bargaining power with capital.

Argentina is, of course, the latest example of this relentless downward pressure on workers’ living standards. No other country has embraced the neo-liberal paradigm as much as Argentina. The suicidal tying of the peso to the dollar was for years celebrated as the example of what a developing country had to do in order to gain the confidence of foreign investors. One result has been the nearly doubling of the share of the population in extreme poverty as capital relentlessly squeezed labor’s income share. As a report from the Instituto de Estudios y Formacion in Buenos Aires shows, labor productivity among Argentina’s 500 largest firms — which dominates Argentina’s international trade — rose 50% from 1993 to 1998, while real wages rose only 20%. So where did the benefits of increased efficiency go? Within those firms the share of income going to labor dropped from 35% to 28% in five years, while capital’s share rose from 65% to 72%.⁴ Moreover, much of this capital found its way overseas. Many so-called “foreign” investors are in fact Argentines who have been buying high-interest Argentine bonds with accounts in banks in the United States and Europe.

Another vivid example of how neo-liberalism negatively affects workers at all levels of development is the North American Free Trade Agreement. Like most recent agreements, NAFTA protects investors at the expense of workers and the environment. Seven years after its implementation, the political protectors of capital in all three countries judge NAFTA a great success, and support the efforts to expand it to all of the Western Hemisphere through the Free Trade Agreement of the Americas.

But as a recent collaborative study by economists in Canada, Mexico, and the United States shows5, from the perspective of the working people in all three countries, NAFTA has been a failure. All three countries saw a decline in real wages, an upward redistribution of income and a dramatic expansion of the informal sector jobs characterized by insecurity, low pay and no bargaining power.

Global Class Politics
All markets require rules and policies. Consequently, they are political institutions. Therefore, just as a global investor class implies a global working class, a global marketplace implies a global politics. Global politics in turn imply global political “parties,” even though they are not formally organized as such.

The meetings in Davos, and now New York, of the World Economic Forum are in some ways the convention of the global party of capital. We might call it the Investors’ Protection Party. Their convention in New York is paid for by the world’s largest multinational corporations and will be dominated by 1,000 corporate executives, along with 250 government officials, including 20 heads of state. They will be accompanied by lawyers, consultants, journalists and academics who will do business with each other at the receptions and dinners and in the corner of hotel lobbies, just as in any political convention.

Similarly, this meeting of the World Social Forum here in Porto Alegre is in many ways a convention of a global political party in opposition, which is now searching for a common program with which to oppose the investor’s agenda. The difference between these two “parties” is not, as the media would have it, the difference between globalizers and anti-globalizers. Globalization – in the sense of people exchanging goods and ideas with each other has been going on for several thousand years and will continue. Neither is it a concern with “social” as opposed to the “economic” issues. This meeting is also about economics – an economics that serves society, rather than one that is served by society. In that sense, the core contention between Davos/New York and Porto Alegre is over the rules of the global marketplace — and who will set them.

Because the Investor Protection Party dominates the global financial institutions, the party in opposition has little real access to forums which might force those institutions to seriously consider alternatives. Demonstrators can temporarily obstruct the workings of the global institutions’ managers. But as the WTO showed by moving its last meeting to Doha, international agencies have the resources and the will to circumvent street demonstrators.

As a consequence, the leaders of the NGOs, trade union, anti-poverty and religious groups in opposition find themselves drawn into largely fruitless efforts to achieve social justice by lobbying the IMF, the WTO, the World Bank, and other finance and development institutions, which have no intention of making significant change in their program. NGOs may be put on public advisory committees, but the real work goes on in private where representatives of multi-national businesses negotiate the rules.

The Party of Opposition is thus constantly forced back into a defense of national sovereignty as the only available instrument for achieving social justice. Yet sovereignty is steadily eroding under the relentless pressure of global markets. Moreover, a nationalist politics undercuts the cross-border cooperation needed to balance the cross-border political reach of business and finance. Nationalism perpetuates the myth that national identity is the only factor in determining whether one wins or loses in the global economy. It obscures the common interests of workers in all countries when faced with the alliances of investors in rich and poor nations that now dominate the global marketplace.

Still, human rights and social justice will become part of the “constitution” of the global marketplace only when enough nation-states demand it. Therefore, if the global opposition is to develop an alliance of its developing and developed country wings, it must pursue a common global program for working people of all nations that reinforces their national struggles for economic and social equity. Such a program would support national democratic movements and leaders who understand that national social contracts cannot be maintained in a global market that lacks one of its own, and that a global social contract cannot be established in the absence of effective social democracy at the national level. We cannot demand “democracy” at the IMF and not within the nations that belong to it.

The strategy for labor must change the framework of current global political debate in which the investor class pursues its interest across borders, while the working class is constricted by those borders. The creation of a true global alternative requires a perspective through which the interests of workers in all countries are linked. In a global marketplace, workers’ living standards increasingly rise and fall together. When workers in Brazil win a wage increase, it raises the bargaining power of workers in Germany. When workers in Indonesia improve their working conditions, workers in Nigeria benefit. Likewise, when the social safety net is strengthened in one country it helps those struggling for human economic and social rights in other countries as well.

So long as the struggle is seen as a struggle of nation against nation, the party of Opposition will never be able to mount a credible alternative to the Neo-Liberal paradigm. Only when workers in all countries see that they ultimately have more in common with workers in other nations than they have with the owners of capital in their own country, will they be able to organize effectively. When investors are faced with similar demands for decent pay, healthy working conditions and human dignity at the workplace everywhere, they will be forced to have a serious debate about the economic future of the planet.

Trade Unions’ Role
The definition of the global working class ca
nnot be restricted just to unions. Nonetheless, the free trade union movement — that is, the movement of unions democratically elected by workers and accountable only to their membership – play a crucial leadership role for the world’s workers. Labor unions are critical in part because they have the power to deny capital the human resource that is necessary for the generation of profits. The capacity to strike is the ultimate threat to the investor class.

And just as the Party in Opposition needs the support of organized labor, so labor needs the support of the NGOs and other organizations that rise in opposition to the neo-liberal program.

In recent years, trade unions and other parts of the Party in Opposition have been working closer together. The coalition of workers and environmentalists in Seattle in 1999 symbolized this effort. And in local struggles against multinational corporations around issues of privatization, pollution and injustice all over the world reflect similar partnerships. One recent example is the coalition of U.S. and Mexican union activists and university Students Against Sweatshops that forced a company producing for Nike to recognize an independent trade union whose leaders had been persecuted for protesting abominable working conditions.

Through the International Confederation of Free Trade Unions and its regional networks, unions have stepped up their efforts at global collective bargaining and joint organizing campaigns against multinational employers. The global trade union movement was crucial in the struggle against apartheid in South Africa and dictatorships in Korea and Indonesia. Today, unions all over the world are aiding in the struggle against oppression of workers’ voices, from Burma to Colombia to Zimbabwe.

To move forward in partnership with the other parts of the opposition to neo-liberalism, we will need to pay attention to areas that have sometimes divided trade unions and their allies. One area is the environment. At times, differences have been interpreted as reflecting philosophies of “growth” versus “no growth” in which trade unions are seen as willing to sacrifice the environment in order to save jobs and environmentalists are seen as willing to sacrifice jobs in order to save the environment. This of course allows the investor class to play off one group against the other.

The real question is not “growth versus no growth” but the creation of a full employment economy that respects and sustains the environment and resource base. By now it is obvious that competitive markets driven by self-interest will maximize the use of resources for immediate consumption. That’s what makes them so “efficient.” Individual firms do not typically accept higher costs in order to preserve the environment, because doing so would put them at a competitive disadvantage. Moreover, there is little incentive for investors who live thousands of miles away from their investment to reduce their profits in order to avoid the environmental costs. Thus, any program to create a sustainable economics that relies on the voluntary efforts of profit-maximizing firms is doomed to failure.

The solution therefore lies in the democratic regulation of capital and the development of long-term planning — not just land use or water resource planning, but one that includes provision for social safety nets and job opportunities as well. At the margins, of course, there will always be some differences between those whose primary concern is the worker security and those whose primary concern is the environment. Just as there will be differences within the environmental and labor movements. But the key task in building an alternative vision is to create a democratic forum for negotiation, in which those who will pay the price of failing to protect the environment or providing sufficient employment are the ones making the ultimate decision over the allocation of natural resources.

Another tension that must be resolved involves labor rights and standards in international trade and investment agreements. Although virtually all trade unionists and their allies support such rights and standards, many in the Third World see the effort to enforce them with trade and financial sanctions as a vehicle for first-world protectionism.

As one Asian economist observed: “The U.S. Treasury runs the International Monetary Fund, and for years urged them to make loans to dictators who squandered the proceeds and are now dead, or retired in the South of France. Then the IMF tells us that the only way to pay their debts is to increase exports made with our cheap labor. When we do, U.S. unions complain that we are undercutting labor standards.”

On the other hand, trade unionists from developed countries see their third-world brothers and sisters as being too willing to align themselves with multinational capital in opposing social protections through trade and financial agreements. They are skeptical when those in developing countries who claim to be supportive of human rights resist economic sanctions — which, in practical terms, are the only way to preserve those rights.

One strategy for overcoming this disagreement is to design a “grand bargain” that gives the working people in both developed and developing countries what they need. The bargain starts with the distinction between rights and standards. Collective bargaining is a right that every worker is entitled to, regardless of how rich or poor is his or her society. The wages and benefits that a union settles for, however, will depend on what the particular enterprise can pay. Likewise, all workers should have a right to a minimum wage. But the level of that minimum wage will depend on the economic development level of the country or region.

Once that distinction is understood, it may be possible for labor organizations and their allies in all countries to reach agreement that would provide enforceable labor rights in exchange for guaranteed commitments of long-term development aid and debt relief. Thus, the developed world would get protection for its social standards, and the developing world would receive the flexibility and capital investment it needs for growth. Incidentally, the issue of labor rights and standards is not just an issue for developing countries but developed ones as well.

This “grand bargain” that links development with broadly increasing living standards would be connected to planning for sustainable development to create the program elements for a global social contract. Other elements would include:

• Flexible Development. The one-size-fits-all policies of the international financial agencies have not only failed to produce faster growth, they have allowed the leaders of recipient countries to escape responsibility for their own policies by blaming all their problems on the IMF or World Bank. Therefore, once human and political rights are ensured, countries should have the flexibility to choose their own development path, for which their leadership should be held accountable – to their citizens.
• Winners Compensating Losers. As long as workers who have to bear the costs of open markets expect that they will be abandoned by the society that profits at their expense, they will resist globalization. So countries need social policies that compensate those who must pay for the benefits of economic integration. Such policies would include increased public spending on health care for the uninsured, worker retraining, adequate pensions, and community redevelopment, as well as more generous unemployment compensation and wage insurance to cushion the blow of moving to lower-paying jobs.
• Regulated Finance. Volatile financial markets must be tamed. Since no system of global banking regulation is in sight, the simplest solution is the “Tobin Tax” – a tax on international financial transactions. The proceeds would be used for long-term investments in education and health care in poor countries. Such a tax, which has the virtue of being easily understood and can be administered
  with minimal bureaucratic discretion, is already supported by many influential people around the world. Several years ago, in fact, the government of Canada proposed a discussion of the Tobin Tax for the agenda of the Group of Seven (the major economic powers) meeting in Halifax, but the U.S. Treasury quickly quashed the idea.
• Coordinated Economic Policy. A fully functioning global economy — like a fully functioning national economy — needs central banking and counter-cyclical public budgets in order to maintain overall growth. But there will be neither a global central bank nor a global government budget for a long time, so these functions must be performed by the governments of the three largest economies – the United States, Europe, and Japan — acting together. Having pressured the world into a system of brutal competition, the major powers have an obligation to maintain sufficient global demand with low interest rates and other macroeconomic policies. Putting pressure on their governments to act is the special responsibility of worker organizations in those countries.

Conclusion
A major strategic task before us is the strengthening of the alliance of working people — North and South, East and West — through a common program. This should rest on a “grand bargain” in which the interests of developing and developed country workers are served. Such a grand bargain for labor would also help raise consciousness among the majority of the world’s citizens of the need for international solidarity with each other.

The task is difficult. But the world’s working majority has two great advantages. One is that it is the vast majority — in every country. The second is that the world’s workers are indispensable. One can imagine a world without multinational investors. It is impossible to imagine a world without workers.

Thus, the world’s workers broadly defined, have the power to radically change the rules of the global economy. To do it, we need a common program, strong organizations and the realization that — whatever country we live in — we are all in the struggle together.

1. Weller, Christian E. and Robert E. Scott, and Adam S. Hersh. October 2001. The Unremarkable Record of Liberalized Trade. Washington, D.C.: Economic Policy Institute. 

2. Faux, Jeff and Lawrence Mishel. 2000. “Inequality and the Global Economy.” In Will Hutton and Anthony Giddens, eds., On the Edge: Living With Global Capitalism, London, U.K.: Jonathan Cape Publishing.

3. Dalpino, Catherine. Fall 2001.”Globalization & Democracy.” In Brookings Review, Vol. 19. No. 4 Pages 45-48, Washington, D.C.: The Brookings Institution.

4. Lozano, Claudio and Eduardo Manjovsky. 2001. Highlights of Labor Market Conditions in Argentina. Global Policy Network, Washington, D.C.: Economic Policy Institute. http://gpn.org/data/argentina.html

5. Faux, Jeff and Robert Scott (U.S.), Carlos Salas (Mexico), and Bruce Campbell (Canada). 2001. NAFTA at Seven: Its impact on workers in all three nations. Washington, D.C.: Economic Policy Institute. 

Jeff Faux is the president of the Economic Policy Institute.

[ POSTED TO VIEWPOINTS ON JANUARY 30, 2002 ]