Responding to Global economic crisis: challenges before TUs

Global economic crisis - What caused it ? - Who is paying the price for it? - How are govts addressing the issues? - What can we learn from it? What needs to be done?

Causes Sub prime housing loans? OR Crisis of over production/over capacity, erosion of profitability and inequalities in the distribution of wealth (within and between countries that limit purchasing powers and markets – One reason of the crisis: unequal distribution of income between capital & labour that limited households’ ability to consume other than through debt (Stiglitz) Reduction of public control on the economy - ‘markets know the best’ philosophy – lack of regulation of financial markets & institutions - greed & speculation - de-regulation of economy & labour markets

A look at the past Shift from welfare state to market economy since 1970s – rise in global competitive pressures and fall in rate of profits & growth – since 1970s new policies: Privatisation & structural adjustment (1980s) - redistribute incomes towards the rich on the theory that rich invest & that will promote economic growth 1990s: Globalization, opening up & integration of China, India, Brazil, Russia, & many other emerging market economies – as production centres, markets, sources of cheap labour, raw materials – but this increases the problem of over-capacity, which depresses prices & profits

Rise of Financialization Declining profits in industry & agriculture gave spurt to financial sector investments and deregulation of capital markets Financial sector creates profits but it doesn’t create new value Growth of (unregulated) private equity capital/hedge funds and their operations in mfg sector - Even mfg companies play markets rather than produce (Ex GE, GM, Porsche) – even social security funds Growth of trading in derivatives (Value of credit derivatives market is estimated at more than 8 times the global GDP)

The world today Richest 20% pocket 86% of the world’s GDP; and the poorest 20% mere 1%. 200 richest people in the world had combined wealth of over $1 trillion, equal to the combined annual income of 41% of the world's people (2.5 billion) 1.3 billion people — over one-fifth of the world’s population — live on less than $1 a day & lack access to clean water; More than 5 million children die every year under age 5 due to lack of access to health care and lack of income security 80% of the world population has no adequate social security, 50% has none

Impact of Crisis 212 mn jobless worldwide in 2009 (ILO) – crisis added 34 mn additional unemployed since mn workers & their families living on below $ 1.25/day in 2008 – over 200 million additional workers were living on the margin and at risk of falling into poverty Abt 40% drop in FDI in 2009, with more than a 50% drop in some developing countries (UNCTAD). International trade volume fell by 15% in 2009 Economic slow down & its impact - fall in govt revenues, decline in social welfare expenditures, and ???

Impact on Asia Capital Outflow from Asia (>100 billion $$$ in 2008) – what was its impact on Asian economies, stock markets & currencies? Impact of recession in western markets on Asian production, employment & economic growth Impact of credit squeeze on domestic investments, industry & jobs Remittances, foreign aid, govt revenue – all go down

Impact on Workers Besides Job losses (migrants, youth, women) - Wage cuts, wage freeze, higher work loads, forced unpaid leave, default on social security contributions, rise in casual unprotected precarious work, violations of FoA – rise in decent work deficits Impact of job losses on family welfare: nutrition levels, children education (girl child), burden on woman, alcoholism, housing Workers pension funds - globally pension funds lost over 5 trillion $ between 2007 & 2008) – in some countries where pensions were privatised (ex in Latin America), they lost more

Impact on Wages (ILO data base) Decline in real wage growth from 4.7% in 2007 to 1.5% in 2008; In G-20 - from 1.1% in 2007 to 0.0% in 2008 Worse in 2009: Real wages fell in more than half of the countries; hard hit - Germany, Korea, Japan, Taiwan, Mexico, South Africa Increasing wage disparity in a number of countries (such as in US, UK where gender pay gap also increased) Increasing social conflicts on wages everywhere Given high unemployment figures, there will be greater pressure on wages in the future

Impact on Social Security SS revenues & reserves fell - due to fall in contributions & investment incomes, decline in govt subsidies & through rising non-compliance Public social security funds lost over $ 225 bn in for some funds, the loss represents as much as 5 years of investment income Loss in private pension assets in 2008: $ 5.4 trillion (as per OECD estimate) This loss has been followed by rising social security expenditure due to increased demand for benefits for unemployment, housing & social assistance.

Main concerns? Main concern of Capital: - Ensure the health of financial markets, banks & financial institutions - Protect the value of countries’ FOREX reserves What is the main concern of Unions? - provide social protection to those most affected - more fairness, transparency & regulation of international finance & financial markets - respect for workers rights - maintain price stability & employment levels - role of state & public regulation

Response to Crisis Measures to stabilize financial markets & preserve lending to enterprises & hence employment and incomes - included Central banks cut interest rates, expanded money supplies & eased requirements on collateral for refinancing operations by central banks Borrowing & spending by Govts (fiscal stimulus packages) to offset the reduction in private sector demand due to crisis Bail-out of Banks & firms thru loans, asset purchases, guarantees, and direct spending Establishment or enhancement of bank deposit guarantees

But many countries with large levels of foreign debt, high inflationary pressures and facing massive capital flight could not take counter cyclical measures (Hungary, Ukraine, Latvia & other CIS countries) – to avoid depreciation of currencies & increasing debt servicing costs – these countries had to take loans from IMF and implement austerity measures – to build confidence in the financial markets BUT these had negative impacts on employment, wages and investment.

“The current recovery plans are necessary, but insufficient. It is not enough to inject money into the economy, we need to change its principles to make sure it generates social justice, development for all, equity, stability and long-term prosperity,” – says international labour movement.

Union view Regulate Global Finance - such as hedge funds & private equity funds; Create a financial transaction tax – to dampen speculation & raise funds for development – Ex: 0.005% tax on just currency exchanges & derivatives trading would raise $150 billion a year globally Regulate executive & shareholder bonus & remuneration – to discourage short term view of financial investments; Close down tax havens; What should be the objectives of International financial markets ? expand the casino in more orderly fashion OR to channel resources into real economy? Regulate financial markets so that these serve the objectives of real economy

Union view End deregulation of employment market & ensure respect for fundamental rights of workers (FoA & CB rights) Ensure basic social security for all (effective social protection measures would have minimized ‘impact of economic crisis’ and assisted in improving effectiveness of stimulus/recovery packages) Role of State – in providing social security to all – State is the ultimate financial guarantor - social security should be seen as human right and not as a savings account of individual contributors What else???

Global Jobs Pact – a decent work response to crisis ILO Summit on the Global Jobs Crisis in June 2009 adopted Global Jobs Pact - a framework for policies aimed at: –Global economic recovery with job creation and the provision of social protection to working people and their families at its core; Tripartite dialogue with social partners a key for addressing the crisis & developing national policy response. Areas for action at national level include: –Employment incentive public investment ; –Special employment programmes, training, skills –Support for enterprises –Broadening social protection and minimum wages

ILO’s Global Jobs Pact Members agreed to implement measures to “maintain employment” and to “avoid the damaging consequences of deflationary wage spirals and worsening working conditions”. One of the reasons for crisis: gap between productivity & wages. Stagnating wages relative to productivity - together with growing wage inequality - have limited the ability of most households to increase consumption other than through debt. Therefore - Govts must take measures to promote real wage increases thru - social dialogue, collective bargaining & statutory or negotiated minimum wages. Minimum wages “should be regularly reviewed and adapted”.

Social Security essential Recognizing that social protection systems can prevent increased poverty & address social hardship while also helping to stabilize the economy, GJP recommends the countries to build a basic social protection floor for all, including: Universal access to essential health services Income/subsistence security for all children (child benefits) Income support combined with employment guarantees through public works programmes for the working poor Income security through basic tax-financed pensions for older people, persons with disabilities & those without main breadwinner in a family.

Atleast one lesson for Asia Over dependence on exports & western markets Almost 60% of final demand for Asian goods comes from developed countries. Exports account for about 47% of developing Asia’s output For economic & social stability at home - Asian countries need to depend on domestic markets – this implies Decent Work & respect for fundamental labour standards.