How to Make the World Economy More Social?
Meeting of the SI Committee on the Economy, Social Cohesion and the Environment, Casablanca, 4-5 May 2001
A contribution to the discussion
The social democratic and socialist parties of the Socialist International feel themselves committed to work together to make the world economy more sustainable - as well under an environmental as under a social perspective. This task necessitates structural reforms in the actual international economic order.
GLOBALISATION AND ITS EFFECTS
Opening economies and markets has had some positive effects. However, unregulated globalisation has had a high cost economically and socially in the last two decades. The world trade in goods, services and finance has been growing rapidly. In addition, the inequality inside societies (industrialised as well as developing ones) has increased. Inequality between poor and rich nations is on a constant rise, reaching historically unprecedented levels.
Whereas the Keynesian economic theory underlined that the state had a democratic responsibility to influence the economic development, the neo-liberal theories urged for the separation of economics and politics with the ultimate goal to keep the economy outside democratic control.
So what can be done to make the world economy more social and more dynamic again? There are several elements of an international strategy which have to be tackled, if the actual deadlock brought about by neo-liberal globalisation is to be overcome.
1. PUTTING DEVELOPMENT QUESTIONS BACK ON THE AGENDA
Development policies have gone out of fashion in the last twenty years. Market-based strategies that put the accent on the opening up of developing economies to foreign investment and the dismantling of state structures in the sphere of production and public infrastructure have dominated the debate. The results have been extremely meagre - especially in those countries where the influence of the Bretton Woods institutions has been strongest: in Africa. If we want to make the world economy more social and more dynamic, development questions have to be taken seriously again.
1.1 The emerging world economic order has to respect development strategies: This implies more room of manoeuvre for the protection of nascent industries and a flexible and generous application of special treatment arrangements within the WTO-system. The planned revision of the regulations concerning TRIMs (Trade Related Investment Measures) and TRIPS (Trade Related Intellectual Property Rights) in the next WTO-round has to be done in a way that guarantees the use and application of the economic instruments that were used efficiently by the successful emerging economies of the last decades.
1.2 There has to be a more efficient debt relief: It becomes more and more clear that debt service is in many cases not reconcilable with the capital formation that is needed for more accelerated development (in real terms). This question has to be tackled urgently. Linking debt relief with democracy and the improvement of civil and political rights would ensure that this effort would genuinely result in policies accelerating development (ie human and physical capital).
1.3 Regionalisation has to be encouraged and promoted. Regional economic integration, if properly handled, creates favourable development strategies and permits a more just, balanced and more efficient integration into the world market while at the same time avoiding some of the negative effects that had marked the classical national development strategies of the 1960s and 70s (import substitution) like the absence of competition, overprotection, narrow markets and technological stagnation. The role that the European economic integration has played in the 1960s and 1970s in allowing for technological innovation and economies of scale, thus making the European economy much more competitive, may be instructive in this respect.
1.4 A reduction of the efficient levels of protection and subsidising of key markets by industrialised countries is necessary. This is particularly true for agriculture. "Free trade" which puts subsidised European or North American farmers in "competition" with peasants in the Third World is extremely unfair: In 1995, the average per capita transfer to each US-farmer was $ 29.000 - one hundred times the annual income of a corn farmer in the Philippines.
A thorough debate of the future of the international trade in agricultural products between the European Union, East European countries and the CAIRNS-group countries is necessary. The question is how to make agriculture more sustainable and how to reduce the social costs of international trade with agricultural products especially in the Third World while keeping the social effects of these processes in the industrialised countries at a reasonable level.
2. REGULATING THE FLOWS OF GOODS AND FINANCE
Trade in goods, services and finance has to be embedded in an institutional framework. The deregulation of the last decade has allowed for a strong increase in trade and financial transactions world wide. The effects have been partially positive, but also negative. Volatility and instability of financial markets have grown considerably. Delocalisation of production and the increased trade in goods and services has had negative effects on the real wages in the industrialised countries, affecting particularly workers with lower qualifications. What can be done to mitigate at least partially these effects?
2.1 Introducing social minimal requirements in the world trade system: The increasing flow of commercial exchanges asks for some minimal standards concerning basic working conditions and worker's rights. These minimal conditions are enshrined in the ILO's so-called Core Labour Conventions (The core labour standards refer to conventions in the areas of freedom of association and the right to collective bargaining - no. 87 and 98 -, prohibition of forced labour - no. 105 -, prohibition of child labour - no. 138 - and prohibition of discrimination in hiring and employment practices - no. 100 and 111). The respect of these conventions has to be assured by a system of social standards. This system can be implemented by
- voluntary action
- positive incentives
It is to be discussed how positive incentives could be financed and what consequences sanctions could have for poor countries.
2.2 Reinforcing regulation in the financial sphere: To reduce the high volatility and instability of international financial markets, some essential measures are necessary:
2.2.1 As a considerable part of world-wide capital movements serves essentially speculative aims, it may be worthwhile to evaluate measures aiming at increasing stability in financial markets, like the Tobin-Tax. Such a system could also create new tax revenues, able to replace traditional taxation of capital and equity, which has been undermined by globalisation.
2.2.2 Efficient control of tax havens and off-shore financial centres. These financial centres are key to the worldwide systems of tax evasion, money laundering and speculative financial operations (like the ominous Highly Leveraged Funds). As most of these centres operate out of OECD-territory, a control of these centres - provided there is the political will - is a feasible undertaking.
2.2.3 For developing or transition economies, capital controls may still be useful elements of national economic policy, allowing a certain degree of control over exchange rates and flows of capital and investments.
3. REFORM OF THE INSTITUTIONS
International institutions play an ever increasing role in structuring the world economy. Up to now, they have been central actors in the mainstreaming of the world's economies. This role has to change; the aim has to be to make these institutions socially and environmentally responsible, as venues for open discussion including civil society and social partners, monitored by parliamentarians, where their respective responsibilities can be implemented.
3.1 IMF and World Bank: the IFIs have to be reformed. Central elements in this respect should be:
3.1.1 Increasing the transparency of the apparatus and its internal decision taking;
3.1.2 Enhancing the role of the political control by the Board of Directors and decreasing the power of the bureaucracies in both institutions;
3.1.3 Creating additional controlling institutions.
3.1.4 Scaling down the apparatus to a level, which allows the accomplishment of well defined core tasks of the IFIs. The so-called "mission creep" of World Bank and IMF in the last decades (essentially related to the structural adjustment policies) has to be changed, as it far too often has produced adverse effects under any respect: socially, economically and politically.
3.1.5 Reducing the role of the IFIs to the tasks they were initially created for: Financing development (WB) and stabilising the international currency exchange system (IMF).
3.1.6 Crisis intervention of the IMF should be guided by the principle of "bailing in" instead of "bailing out" private interests.
3.2 WTO-Reform: Details will be described by a special working group; yet, increased participation, taking into consideration necessities of global development, respect for ecological and social standards (workers’rights clause) and a prudent approach to additional liberalisation seem to be central elements in any type of reform agenda for the WTO.
3.3 The ILO has to be strengthened: a strategic element in this would be the linkage of the world trade system to the system of tripartite conventions and arrangements of the ILO (social clauses linked to ILO-Core Labour Conventions).
4. SOME BASIC PRINCIPLES OF A GLOBAL ECONOMIC SYSTEM
The future reform of the international economic system should be guided by the following basic principles, whose respect seems to be crucial for a more just and equitable world economy:
4.1 The principle of sustainability, which puts the respect for economically, environmentally and socially viable structures in the centre of the world economic system;
4.2 The principle of the primacy of political decisions and democratic control: Markets need control and a framework of institutions and regulations to function properly.
4.3 The principle of public goods and public services: the market by itself cannot satisfy all human and social needs.
4.4 The principle of distribution of political tasks and democratic responsibilities: these have to be implemented on the local, national, regional and global levels by different democratic institutions.
4.5 The principle of competition: concentration of economic power through TNCs is a source of monopolistic power and exploitation of consumers and society. Sound competition policies on a global level must be considered and implemented.
5. THE POSITION OF TRANSNATIONAL CORPORATIONS
Transnational Corporations are the outstanding "winners" of the era of globalisation. Among the 100 leading economies of the world, only 49 are states. 51 are enterprises - the leading TNCs. The 200 leading TNCs today do produce 27.5% of the world's GDP - a share which is on a constant rise. At the same time, TNCs are at the core of some of the most urgent problems of the world economy.
Transnational corporations, prime actors in the global economy, must in one way or another be forced to assume their social and environmental responsibilities. In addition to national and international law, “soft” laws, such as the OECD guidelines for multinational enterprises (adopted in 1976 and reviewed in June 2000) and the ILO tripartite declaration on transnational corporations and social policy (1977), can also be effective if governments, consumers and investors demand the TNCs to observe them.
Development: TNCs are taking over an ever higher degree of control of developing and emerging economies. About 90% of foreign direct investments in Third World countries today are mergers and acquisitions - TNCs taking over national enterprises in developing countries. This process tends to concentrate decision taking power, profits and technological competence in the developed world. One may well ask, whether Korean enterprises would have been able to enter the international Chips-market in the 1980s, if they had been local departments of American or European TNCs. At the same time, the high productivity of TNCs is crowding out small and medium enterprises, informal sector producers and small handicrafts - thus destroying jobs and business initiatives at the local level. Whereas the world's exports were about doubling between 1982-1999, the value of the sales of TNC-affiliates world wide were almost growing six-fold.
Unemployment: TNCs are highly productive economic structures. The discrepancy between their share in world GDP and world employment is striking: ILO sources indicate that TNCs, while producing more than a quarter of the world's GDP and controlling more than a third of world's fixed capital, do employ (including their subcontractors and indirect job effects) only 5% of the global workforce. The 300 leading TNCs today employ less people than they did at the beginning of the 1980s - while profits and production have been soaring in the meantime.
Taxation: TNCs are at the core of the "taxation gap" in modern societies. Due to the deregulation politics of the last two decades, mobile factors like capital undergo ever greater changes to escape or avoid taxation, putting the burden of state finances almost exclusively on immobile factors - consumption and labour.
SOCIALIST INTERNATIONAL AND GLOBALISATION
The Socialist International redoubles its commitment to ensuring that globalisation works for the benefit of all the world citizens. The goal is to link the technological revolution and the material growth which arises from it, to social advancement in a fully democratic and sustainable process - in other words, to guide global change so that it brings about global progess.
The key to our efforts, and the element which places our International at the forefront in meeting the challenges of globalisation, is solidarity. Solidarity from a material point of view, but also from the perspectives of culture, education, gender and the promotion of respect for fundamental human rights everywhere. In a sense, global progress depends on global solidarity.