The G20 and Jobs: Time for Plan B

John Evans

When the economic crisis broke following the collapse of Lehman Brothers in September 2008 and the global banking system seized up, workers began to be laid off, families saw their houses repossessed and banks teetered on the brink of collapse. Financial panic knew no frontiers. It was clear that a coordinated global response by governments and institutions was required to counter what the IMF termed the “Great Recession”. The major economies used the G20 as the forum to coordinate their responses, scaling it up from a low-key Finance Ministers’ Forum into a Heads of Government Summit process – effectively replacing the G8.

The international trade union movement responded rapidly[1], matching the “heat” of the street with the “light” of policy messages coming out of the G20 Summits. Trade union demands centred on stabilising employment, putting in place social protection for workers hit by the crisis, and effective and coordinated government intervention to support the global economy so as to prevent the “Great Recession” becoming a 1930s-style “Great Depression”.

How Capital Flight Drains Africa: Stolen Money and Lost Lives

Léonce Ndikumana

James K. Boyce

Financial scams often cheat working people. In most cases, the victims simply lose their money. In Africa, some lose their lives.

Sub-Saharan Africa experienced an exodus of more than US$700 billion in capital flight since 1970, a sum that far surpasses the region’s external outstanding debt of roughly US$175 billion. Some of the money wound up in private accounts at the same banks that were making loans to African governments.

Inflows of foreign borrowing and outflows of capital flight are closely intertwined. As we document in the book Africa’s Odious Debts, there is a strong correlation between the two. For every dollar of foreign borrowing, on average more than 50 cents leaves the borrower country in the same year.

What role do big corporations play in the economic well-being of the European Union? A non-standard view of Eastern Europe

Ognian N. Hishow

The global economic crisis caused demand in the European Union (EU) to drop to low levels. In order to mitigate the effects of the crisis, stimulus packages were hastily put up in the old member states (OMS). A considerable part of the spending was directed to the financial and banking sectors as it was concluded that these were systemically important. In addition, the core sector of Europe’s industry, car production, also received significant financial support.

Both the banking sector and the automotive industry play a crucial role in the new member states (NMS) of the EU. Hence one would expect that spending on banks and automotive firms in Western Europe, where the OMS are located, is what would have kept Eastern Europe’s economy, where most of the NMS are located, afloat during the crisis.

Working for a Social Protection Floor

Ellen Ehmke

Andreas Bodemer

Worldwide, 75% of the population have no or insufficient access to social security provision. Despite the long record of social security as a human right, which is enshrined in the Universal Declaration of Human Rights (Art. 22, 25) and the International Covenant on Economic Social and Cultural Rights (Art. 9), its implementation has been widely disregarded.

Many pretexts have been given to excuse this severe injustice. Prominently, the competitiveness of a globalised economy has allegedly caused a scarcity of financial resources available for social policies. On the one hand, the assumed negative effects of social security on economic growth have served as reason to cut back globally.

Supporting Dissent versus Being Dissent

Steven Toff

Jamie McCallum

When the Occupy Wall Street movement (OWS) began on September 17th 2011, few could have predicted the wave of occupations that would soon sweep the rest of the country and indeed much of the world in what has been referred to as the American Fall. While it remains to be seen how this inchoate movement will mature, it has so far exceeded everyone’s calculations - it is the first time since the 1999 anti-WTO demonstrations in Seattle that tens of thousands in the US are taking to the street for economic reasons. Average Americans, many of whom have long understood the moral and economic turpitude at the root of Wall Street, are now expanding that stance to make a wholesale critique of neoliberalism and questioning some of the most foundational principles of capitalism.

Decent Work 2.0

Frank Hoffer

Last month, Juan Somavia, the long serving Director-General of the International Labour Organisation (ILO) announced his departure in 2012.

As head of the ILO, he introduced the Decent Work Agenda in 1999 to re-focus the ILO and make it relevant for the 21st century. Twelve years later, the concept of ‘Decent Work’ is firmly established in the global debate and as an objective of national policy. It appears in many documents of the multilateral system, the G20 and national policy fora. It generates millions of Google hits. It is the subject of much academic research and debate. It is enshrined in several ILO Conventions and Declarations, and the international trade union movement introduced the annual Decent Work Day to campaign for workers’ rights. ‘Decent Work’ is so ubiquitous in ILO documents that some cynics say: "Decent Work is the answer, whatever the question!"

New Economy vs. Old Ways

Goran Lukić

New buzz-words are entering into the traditional economic landscape of industrial relations. Managers and politicians who want to be in touch with new economic trends are using terms such as 'green economy', 'renewable energy' and 'corporate social responsibility (CSR)'. Another concept that is being touted as a 'big idea; is 'fair-trade' or 'Creating Shared Value (CSV)'. It seems that these terms are being translated into real action. According to an HSBC Global report, 19% of anti-crisis measures in France were put into the renewable energy sector in 2009, while 13% of Germany's 2009 anti-crisis measures were put into green investment and green tax reform. Q-Cells, a manufacturer of photovoltaic cells, which has its headquarters in the German city Bitterfeld-Wolfen, began its operations in 1999 with 19 employees, and soon had more than 1 000 people on its payroll.[1]

Contesting a ‘just transition to a low carbon economy’

Jacklyn Cock

Introduction

Recently, the South African labour federation, the Congress of South African Trade Unions (Cosatu), has expressed its commitment to a ‘just transition to a low carbon economy.’ However, at this moment the content of that commitment is unclear. Members of Cosatu affiliates could have very different understandings of the scale and nature of the changes involved. A ‘just transition’ could involve demands for shallow change focused on protecting vulnerable workers, or it could involve deep change rooted in a vision of dramatically different forms of production and consumption. In this sense, the ecological crisis represents an opportunity to not only address the unemployment crisis in our society, but to demand the redistribution of power and resources, to challenge the conventional understanding of economic growth and to mobilise for an alternative development path.

The Costs of the Financial Crisis 2008/09: Governments are Paying the Tab

Sebastian Dullien

One could almost get the impression that the storyline of the global economic and financial crisis of 2008/9 is forgotten. Questions of bank regulation and financial sector oversight are hardly discussed in public anymore and legislative efforts to rein in speculative and highly risky activities seem to have petered out. Instead, the public debt crisis has taken center-stage. Around the world, discussion focuses on cut-ting public deficits, with a strong focus on cutting public expenditure and a secondary focus on raising general direct and indirect taxes. The debate has turned from one about obvious market failures, especially in financial markets, to one about alleged government failure. That is, governments spending much more than they take in as revenue and hence piling up increasingly unsustainable public debts.

However, if one looks into the details of the development of the public debt in many of today’s crisis countries, it becomes clear that it is precisely the economic and financial crisis of 2008/9 which has put the debt levels onto an unsustainable path. Prior to the crisis, countries such as Spain or Ireland and probably even the United States were on a path of (or at least close to) fiscal sustainability. After the crisis, markets now question public finance sustainability even in countries such as France.

In a study commissioned by the Friedrich-Ebert-Foundation, we calculated the costs of the global financial and economic crisis for Germany, a country which is not a core crisis country, but is often revered for its resilience in the crisis and its rapid recovery afterwards. In this study, we tried to pin down the costs of the crisis for the economy as a whole as well as for different groups in the country such as wealth owners, wage earners and the government. Germany is an important case study here as it did not experience a real estate bubble prior to the crisis. One can thus argue that the crisis costs can be seen as being completely exogenous to the crisis.

Computing the costs of the crisis is not as simple as one might think. It starts with the government sector. One cannot simply use the headline figures presented in the mainstream media on bank rescue packages and stimulus packages and add them up. Firstly large parts of the bank rescue packages have not been real costs to the governments. If a government gives a guarantee to a bank and the bank continues business without the government ever having to pitch in, this is not a real cost in the end. If a government injects capital in private banks and later sells off the shares again, only the net loss can be counted as a cost. If the government sells the shares for more than it has injected earlier (as has been the case for the Swiss measures to support the country’s large banks), there are no costs, but even profits. Only if the government has to inject money into the financial system in a way that it cannot recoup later, the injection has to be counted as a cost. Similarly, if a publicly owned financial institution has inferred losses, these are clearly net losses for the government. For these costs stemming either from direct losses of public banks or non-recoverable injections of public funds, we use the term direct costs of the crisis.

Secondly, stimulus packages cannot completely be seen as net costs. If a government builds new highways or repairs public buildings in the crisis as a stimulus measure, it incurs expenditure, but at the same time the value of the public’s assets increases. Again, as long as the government does not overpay and does not build useless gimmicks such as pyramids, this spending is not a net cost.

In contrast, tax cuts used to stimulate private spending might at least be net costs to the government; yet, if we are interested in the macroeconomic costs, we need to keep in mind that these tax cuts increase the disposable income of the private sector and hence are not net costs to the economy as a whole.

Be that as it may, looking only at expenditure for stimulus packages and bank rescue packages misses an important part of the costs: The automatic fall in tax revenues caused by the recession and the automatic increases in expenditure stemming from such a crisis, that is, for unemployment compensation. We have called costs of lost government revenue or higher transfers of lost output indirect costs.

Similarly, computing the costs for the private sector is not completely straightforward. If someone defaults on her mortgage and the value of mortgage backed securities falls, this is not necessarily a net cost to the economy. While the bank loses, the person defaulting on the mortgage might increase her net wealth. As long as both the debtor and the creditor are domestic, this does not change the net wealth of the economy. Only if the debtor is foreign, a default changes the net wealth of the country in question. However, just looking at losses in the financial markets again neglects important elements of the crisis costs: The loss of output and consequently wage and profit income of the private sector through the crisis. In parallel to the terms used for the public sector, the private sector has borne both direct and indirect costs of the crisis: Direct costs are those caused by a fall in the net value of assets. Indirect costs are income flows foregone due to the crisis.

We calculated three scenarios: an optimistic rapid return to the old growth path; a slower return to the old growth path and a pessimistic scenario in which output never recovers to the pre-crisis growth path, but remains significantly below this path.

By now, at least until the summer of 2011, the German economy has developed roughly in line with our most optimistic scenario. The scenario assumes a GDP growth rate of 3.5 percent in 2010 and 2.8 percent in 2011. However, at the time of writing, there are some signs that the recovery is seriously slowing down and a risk of a new recession is emerging. Thus, it is unlikely that the most optimistic recovery scenario continues. One can probably say that the most likely real-world development will be between our most optimistic and the medium scenario.

Table 1 below presents the results of our computation. The first very interesting result is that indirect costs of the crisis dwarf direct costs. Total costs even in the most optimistic scenario are around €700bn, of which only a little less than €100bn are direct costs. In the less optimistic scenario, the ratio becomes €2154bn to €100bn. The second central result is that the government bears most of the crisis costs. Government revenue even in the most optimistic scenario (which now can be seen as the lower limit) has been hit by a total of €270bn or more than 10 percent of GDP. In the less optimistic scenario (which now can be seen as the upper limit), costs to the government even add up to about €800bn or more than 30 percent of current GDP. The third interesting element is that wage and transfer earners in Germany might not be quite as hard hit as sometimes feared. In the more optimistic scenario, their incomes are only reduced by €177bn, yet in the less optimistic scenario by €755bn. The low value for the optimistic scenario is probably a special feature only to be found in Germany and might be explained by the labour market policies during the crisis when the German government paid firms to keep workers on reduced hours instead of firing them (“Kurzarbeit”) which in turn led to a very low increase in unemployment in Germany during the crisis.

In international comparisons, the costs in Germany can probably be seen as rather modest. Germany has experienced one of the most vigorous recoveries after the crisis. Yet, already in Germany, the crisis can be seen to have been responsible for a significant deterioration of public finances. Wealth owners, who can be seen of the main beneficiaries of a deregulated financial sector which has finally wreaked havoc with the economies of most advanced countries, in contrast, have only borne a comparatively modest part of the crisis costs.

Table 1: Crisis costs for wage and transfer recipients, wealth owners and government in Germany

This imbalance in bearing the crisis burden should be kept in mind when measures to rebalance the public accounts in the OECD countries are discussed. Wealth owners here should at least pay a fair share of the burden. Specifically, this means that the balance between spending cuts and tax increases and the specific changes to the tax codes which have been part of many austerity packages need to be re-thought. The first point here is that budgets should rather be balanced by tax increases than cuts in social security spending.

Second, when taxes are increased, a focus should be on those types of taxes which are borne by people who have in the decades before benefited the most from deregulated financial markets: This would mean a focus on increasing taxes on interest and dividend income, capital gains and wealth. In addition, one should also increase the income tax rates in the top tax brackets as these individuals disproportionately benefit from the investment opportunities in deregulated financial markets. Last but not least, these numbers support a financial transaction tax as well as a financial activities tax: Both make financial transactions and financial intermediation slightly more expensive and will secure that society at least gets a small share back of the costs that irresponsible financial markets and financial institutions have incurred.

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Sebastian Dullien is Professor at HTW — University of Applied Science, Berlin. His extensive work on the financial crisis has recently been summarized in his book Decent Capitalism (published by Pluto Press in 2011, written with Hansjörg Herr and Christian Kellermann).

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Summer days on Utøya

Dan Gallin

I shall never forget the summer days I spent in 1955 on Utøya, the small island near Oslo that the Norwegian trade unions had given to the Labour Youth League as a study and leisure centre.

I had arrived in Europe in March 1953, back from the United States where, as a student, I had discovered socialism in the shape of a Trotskyist dissidence. The brilliant explanation of the world, the heroic and tragic story of the “Old Man” and his movement, had taken hold of my imagination and my emotions. So much so that I drew the attention of the authorities who gave me one month to leave the country.

So there we were, my companion and I, in Europe and needing to find our bearings. She was a member of the same group. By the summer of 1955, we were ready to discover Scandinavia, the bastion of a social democracy that we viewed with suspicion.

In Oslo, we found the Labour Youth League in the phone book. We turned up unannounced at the office of the man in charge, who was the General Secretary, and told him we were members of the American Socialist Youth League and we were looking for Norwegian socialists to discuss socialism with. The Norwegian comrade looked at us for what seemed quite a while and then said, “You’ve timed it nicely. Our summer course has just started. Later on, we can take you over there. You can spend a week with us. It’s on Utøya, a little island near Oslo. You’ll see.”

On Utøya, there is a central building for the logistics (meals, showers, course rooms) and the participants were living in tents pitched all over the place, but mainly in a meadow in front of the building. We were assigned a tent, but we spent most of our time with the young Norwegians. I spent a whole night discussing with Reiulf Steen, who was later to become the Minister of Foreign Affairs and the Prime Minister, very much involved in assisting the resistance movements against the dictatorships in Latin America. We discussed the USSR, its social and political nature, and Stalinism. One night was not enough.

We met many of the hundreds of young socialists who were full of energy, joy, humour and determination, sons and daughters of the midnight sun which, during the Norwegian summer, never sets. They were ordinary young people, citizens like all others in a social democracy. No professional revolutionaries, but they were out to change the world. There were as many of them on this little island, maybe even more, than in the whole of our American grouplet. The American comrades whom we had left behind were no less committed and courageous, but we had now discovered something we had not experienced before – a mass movement of young socialists.

This was the movement that Anders Behring Breivik, a fascist activist, attacked on 22 July 2011. After setting off a bomb in the government quarter of Oslo, killing eight people, he landed on the island disguised as a policeman, called together the young people there and started gunning down defenceless youngsters who had not had the slightest inkling of what was about to happen to them. On Utøya, Breivik killed 69 people in the space of an hour and a half.

Norway’s Prime Minister Jens Stoltenberg, who is also the leader of the Labour Party, declared that the massacre was an assault on democracy and the open society, and he pledged that Norway would not cave in to it. More precisely, though, it was an attack on the Norwegian labour movement. Breivik was quite explicit: the labour movement, guilty of “cultural Marxism”, had to be targeted – and what had to be hit was labour’s most precious asset, its youth, to punish it for betraying the nation by promoting its “islamisation”. If the shooting had happened just a few hours earlier, Stoltenberg himself and former Prime Minister Gro Harlem Brundtland might well have been among the victims. They had visited Utøya that day, to take part in the debates.

We socialists ought to be more concerned about what is happening to us in Northern Europe. On 28 February 1986, Sweden’s Prime Minister Olof Palme was assassinated. He had been to the cinema with his wife Lisbet, and as usual they had no bodyguards. At 11.20 p.m., while they were walking home, a man stepped up from behind and fired two pistol shots. The first one mortally wounded Palme. The second one injured Lisbet, who survived. The assassin fled and was never found. A man was arrested and sentenced, but was later released upon appeal. The motives for the assassination, and those who may have ordered it, were never identified. The police investigation, which went on for years, led nowhere.

Stemming from the upper reaches of the bourgeoisie, Palme was a “traitor to his class” and the Swedish Right harboured an intense hatred for him. In government since 1965, twice Prime Minister (1969-1976 and 1982-1986), and Chairman of the Social Democratic Workers' Party(SAP) from 1969 to 1986, he strengthened the Social State even further, as well as the trade unions’ power vis-à-vis the employers. As regards foreign policy, he was the only leader of a western government to oppose the Vietnam War. He also opposed the invasion of Czechoslovakia in 1968, the Pinochet coup in 1973 and more generally, throughout his career, the military dictatorships in Latin America, the fascist dictatorships in Europe and the apartheid regime in South Africa. Although never really on the Left of the Party, he has often been described as a “revolutionary reformist”.

Palme’s assassination was a turning point in the history of our movement. None of his successors have had his charisma, political intelligence and daring. The SAP lowered its profile. In fact, its moderation probably pushed it out of office. It has lost two parliamentary elections in a row since 2006. It has less of an international presence now, and as a result the Socialist International has lost some more of what little influence remained to it. Had Palme lived, the capitulation of social democracy to neoliberalism and the “third way” buffoonery of Blair and Schröder would have been more difficult. If Palme’s assassination had been the result of a right-wing conspiracy, that plot would have achieved its aims.

It could all have gone differently. In 1998, Swedish Social-Democracy had somewhat recovered. It had a rising star: born in 1957, Anna Lindh was the brilliant chairperson of the Social-Democratic Youth League from 1984 to 1990, a Member of Parliament from 1982 onwards, Environment Minister in 1994, and Foreign Minister in 1998. She was cast in the Palme mould, and the intention was that she would succeed the dull bureaucrat Göran Persson as head of government and of the Party.

But the assassin was lying in wait. On the afternoon of 10 September 2003, Anna Lindh was shopping in a Stockholm department store, without any bodyguards of course, when a man knifed her in the chest, stomach and arm. Despite the doctors’ efforts, at 5.29 the next morning she was dead.

The assassin was caught on 24 September. He was Mihailo Mihailovič, born in Sweden of Serb parents, angry with the Swedish government because it had supported NATO in Kosovo. Following various judicial bouts, and his certification as psychologically deranged, he was sentenced to life imprisonment.

After Sweden, that historical bastion of Nordic socialism, it is now the turn of Norway, the only remaining Nordic country with a social democratic government that defends progressive causes at the international level as well as defending the social State. Yet again, a lone madman has struck.

A lone madman? That claim is made mainly by the extreme Right. Because, of course, if the ideas of the extreme Right are to be safeguarded, it is vital to put as much distance as possible between the ideology vehiculated by its parties and the criminal acts their ideology inspires. The belief has to be fostered that fascism is an opinion, not a crime, and that the organisations of the extreme right are made up of normal, ordinary citizens. Whereas in fact, they are nurseries for Breiviks who can emerge anytime, anywhere, armed to the teeth and ready to sow death.

Shortly after the Norwegian drama, Oskar Freysinger, an extreme right-wing Swiss politician famous for opposing the construction of minarets and for stating that abortion has caused an “invisible genocide”, gave the following reply to a journalist who pointed out that a number of Breivik’s standpoints matched Freysinger’s own and those of his party, the Swiss People’s Party: "Do you think there will be fewer terrorist attacks and madmen if I’m forced into silence? It will be worse!” That answer should be taken as a threat.

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Dan Gallin is currently chair of the Global Labour Institute (GLI). Prior to this, Dan worked for the IUF (International Union of Food workers) from August 1960 until April 1997, since 1968 as General Secretary. He is currently researching union organization of women workers in the informal economy, labour movement history and issues of policy and organization in the international trade union movement.

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The dilemma of job creation and decent work

Edward Webster

In August 2010 South African government officials began closing down clothing and textile factories in Newcastle, in the province of KwaZulu–Natal. This came in the face of angry protests from the workers because the owners were paying less than the statutory minimum wage of R324 ($49) a week. The factory owners said they could not pay more and survive in the face of cheap Chinese textile imports.

Globally, the clothing and textile industry is to a large extent controlled by an oligopolistic group of large retailers and branded manufacturers, who stipulate their supply specifications in terms of low price, high quality and short lead times. But due to the strengthening of the local currency (the rand) since 2003, the end of the Multifibre Agreement (MFA) in 2004 and relatively high labour costs, South Africa no longer has a comparative advantage in an integrated global economy.[i]This challenge is not peculiar to South Africa. The existence of fragmented and outsourced manufacturing, accompanied by aggressive buying practices, militates against a living wage in the global apparel sector. This is in spite of the fact that there is general consensus on all sides of the industry that an increase in the unit labour costs by the amount proportional to what is deemed to be a living wage would only marginally impact on the retail price of the garment (Miller and Williams, 2009:104-105).

The result of these competitive pressures is the undercutting of local jobs from low wage sectors of the global labour force, as the case of Newcastle illustrates, where costs of labour are a small proportion of the total costs in production. On average wages constitute less than one-half of 1% of the retail price of branded sweatshirts. Miller and Williams conclude that progress is possible only through an acceptance of collective bargaining through trade unions in supplier factories.

Andre Kriel, the general secretary of the Southern African Clothing and Textile Workers Union (SACTWU), takes a similar view:

“Some Newcastle employers expect us to decrease wages and compete in the world as a low wage country. This is a short term and impractical view. If we drop wages, other countries will respond by dropping theirs further – a vicious downward spiral. Getting trapped in a race to the bottom is not a sustainable option. The other option, which we support, does not focus only on wages but also includes a long–term, sustainable and human rights–based solution. It requires compliance with our laws, decent work, a focus on improving productivity, modernising work, upskilling workers, improving quality, diversifying product range and ensuring reliable delivery times” (Kriel, 2011).

Workers in the developing world, as early as the seventies and eighties in Brazil, Korea and South Africa, became the architects of their own future. No longer willing to accept their designation as either victims or as labour elite, they took control of their lives, went out on strike and started a struggle for democratic trade unions. While the ILO was debating on how to respond to their ‘discovery” of the informal sector in Kenya in 1972, Ela Bhatt had begun to organise these workers into a union, the Self Employed Women’s Association (SEWA).

A new labour paradigm has emerged in the Global South that does not see decent work as an obstacle or add-on to development, but is instead attempting to integrate decent work into an alternative developmental path. Work, I suggest, is the missing link in the current discourse on development; none of the dominant theories on globalisation integrate the struggle for decent work into their developmental trajectories. All three dominant theories of globalisation – neo-classical liberalism, the social reformist or anti-capitalist/ autonomist theories that underpin the current anti-globalisation movement and development statism – treat the struggle for decent work as either an obstacle or an add-on (Bowles, 2010).

In the course of my research on working life I have seen the erosion of standard employment relationships, the growth of insecure and low non-core jobs, together with the expansion of the informal economy and large-scale unemployment. These jobs lack the characteristics of decent work as defined by the ILO; they have, in other words, a decent work deficit.

This deficit can be expressed as an absence of the four goals of decent work: an absence of sufficient employment opportunities, inadequate social protection, the denial of rights at work, and shortcomings in social dialogue. “It is a measure of the gap between the world that we work in and the hopes that people have for a better life” (ILO, 2001:8). These absences can be expressed in terms of four gaps: an employment gap; a rights gap; a social protection gap; and a social dialogue gap (ibid, 8- 10).

The economic crisis which began in late 2008 has accelerated this logic leading to the widespread bail-out of banks and now austerity programmes with cutbacks on public sector jobs and benefits. Many countries no longer hire permanent public sector staff and appoint on short term contracts. For those in the informal economy the situation is worse with their incomes being cut by an estimated 50%.

How can this decent work deficit be reduced? This can only be done, I argue, by developing a long term goal that integrates decent work into a country’s growth path. In other words the goal of decent work should be seen as an objective to be progressively realised. Quite simply this involves accepting that decent work is not an immediately achievable goal. Each country will have to take into account its specific social and economic context and set itself a series of immediate, medium and long term goals.

Governments, together with their labour movements and employer associations, in some developing countries, have begun to identify how these long term goals can be achieved. The crucial step in advancing this debate was the demonstration that a basic set of social security benefits, or at least parts thereof, are affordable in developing countries. The realisation that, in the short term, it is possible to imagine building a global social floor – a basic pension, child benefits, access to health care, temporary employment guarantee schemes or income transfers for the long term unemployed -broke the spell of the “non-affordability myth” (Cichon, Behrendt and Wodsak, 2011:3).

But if these policies are to be more than mere rhetoric, resources must be allocated to implement these policy frameworks. The only way to create sustainable employment is through turning “bad” jobs into “good” jobs through skills development and the improvement of infrastructure.

This attempt at developing an alternative development path is not some way-out revolutionary adventure, “tilting at windmills” as it were. Instead it is swimming very much with the current by grounding political innovation in successful social policy initiatives. This is happening in countries such as Brazil, through a conditional family grant, the Bolsa Familia, in India through the Mahatma Ghandi National Rural Employment Guarantee Scheme (MGNREGS), a guarantee of 100 days paid work for each rural household and South Africa is experimenting with an employment guarantee of two days a week, the Community Work Programme (CWP).

The Global South faces a massive challenge to overcome the legacy of its past and meet the challenge of globalisation. If we take the modest sum of R1500 per month (250 US dollars) as a minimum for a “decent” wage, then over 10 million people out of South Africa’s workforce of over 19 million suffer from a decent work deficit. But the challenge is not financial; it is one of thinking long term around strategies of future growth. This is a matter of priorities and political will. It was estimated that in India the MGNREGS costs 1.3% of GDP. Estimates for a similar employment scheme in South Africa vary between 1% and 3% of GDP.

But there are signs of an awakening civil society and a revitalised labour movement in the Global South that could provide the pressure from below that brings together not only wage labour and the great swaths of informal, precarious labour, but also joins them to movements against the commodification of nature and of money in a new employment generating and ecologically sensitive development path.

[i] It is beyond the scope of this article to examine the validity of employers’ claims that they cannot afford to pay the minimum wage. This would require undertaking a price breakdown of a Newcastle factory and the implications of a minimum labour price/cost floor for clothing retailers in South Africa.

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Professor Webster is currently leading a research team designed to develop a diagnostic tool to track the goal of decent work in the province of Gauteng , South Africa. His most recently co-authored book, Grounding Globalisation: Labour in the Age of Insecurity, won the American Sociological Association (ASA) prize for the best book on labour in 2008.

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References

Bowles, P (2010) Labour and globalisation, Global labour journal, Volume I, Number 1.

Cichon, M, Behrendt, C and V. Wodsak. 2011. The UN Social Protection Floor Initiative: turning the Tide at the ILO Conference 2011. Friedrich Ebert Stiftung

Miller, D and Williams, P. 2009. “What price a Living Wage? Implementation Issues in the Quest for Decent Wages I the Global Apparel Sector’, Global Social Policy: Volume 9(1):99-125.

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Argentina’s ‘Year of Decent Work’, a critical assessment

Bruno Dobrusin

The centre-left government of Cristina Kirchner declared 2011 as the ‘Year of Decent Work’ in Argentina, following consultations with the ILO and other international institutions regarding government programmes during the current global economic crisis. The Kirchner administration has indeed promoted several counter-cyclical measures to fight against the global recession and maintain levels of employment in the country. The relative success of these policies, together with the continuous economic growth that Argentina has witnessed since 2003, led the government to tour the international forums such as the G20 meetings and claim that Argentina is an example of a successful response to the crisis. Despite the improvements in the overall economy and the high levels of employment that the country is witnessing, the so-called ‘model’ is far from ideal, and has to be questioned on its main claims. This article discusses the recent improvements as presented by the government and the counter-facts suggested by a recent study carried on by the Workers’ Confederation of Argentina (CTA)[i].

The Decent Work Agenda proposed by the ILO is based on four pillars: employment creation, rights at work, extending social protection and promoting social dialogue. The main focus here is on employment creation in Argentina over the past few years, and on the quality of employment created. Since 2003 Argentina has had a remarkable economic recovery, with an average eight percent annual growth. The devaluation of the currency in late 2002 led to the protection of an important part of industrial production, which explains the generation of employment in the time period. Between 2002 and 2007, the rate of employment increased to levels unseen since 1974, creating approximately 3.7 million new jobs out of which half are in the formal sector[ii], with the industrial sector as the main participant. It has to be recognised that the success of the industry is the reduction of the labour cost in dollars of an important industrial sector, which, due to the low technological component, can compete with imported products through the lowering of salaries in dollars. The leading sectors in the period, the automobile and the iron and steel industries, do not need the exchange rate protection nor did they contribute to employment recovery. Towards 2009, with higher production, employment in the automobile companies was lower than that registered in the middle of the 1990s. The reason is that it is an enclave industry, with small participation of production from Argentina

In the period 2003-2010 social protection was improved, with a current 86 percent of the population receiving benefits from social security systems (both private and public), up from 60 percent in 2003[iii]. In addition to this, the government has also produced a recovery in the minimum wage negotiations by bringing back the Minimum Wage Council, with participation by unions, the state and the employers. This has produced a consistent increase in the minimum wage, at an average rate of 20 percent a year. This set of achievements is being presented by the Kirchner administration to the G20 as an example for other countries to follow. The ILO has supported the government in its promotion of a firm decent work agenda. However, behind this policy, there is a harsh reality that is not being heard about Argentina and the labour policies of the current administration.

There are a number of reasons that justify the assessment that Argentina is not indeed the paradise of decent work. According to two different studies made by alternative trade unions, the employment situation in the country is actually grimmer than that presented by the government. The main difference in the evaluation of these studies is the statistics used. The government has consistently denied the inflation levels and has intervened in the National Institute of Statistics, through appointing a new director and changing the figures of inflation on a monthly basis. This arbitrary decision has been consistently criticised by the workers’ representatives in the Institute. When we take the statistics produced by other public non-intervened institutes, employment figures remain virtually the same since 2007, without improvements in the 8 percent unemployment figure[iv]. If we look at employment creation, it was significant in the period between 2003-2006 that an average of 750,000 jobs was created per year, but it declined in the period between 2007 and 2010 to an average of only 200,000 jobs annually[v]. Moreover, the government claims that informality has decreased over the past decade, when it actually remains at historically high levels. Out of the 3,7 million jobs created, more than half are in the informal sector, which remains at an overall level of 40 percent of the employed population[vi]. Among the youth, informality is even higher, reaching 60 percent of the employed[vii], and with worse working conditions. These factors are closely related to the still relevant 30 percent poverty levels, and just over 5 million people below the level of extreme poverty[viii]. Argentina is not then a good example of a country overcoming the decent work deficit and there remains a need for significant change in the working conditions of the majority of Argentinian citizens.

In reality, informal and precarious working conditions continue in Argentina. Only the salary of the formal workers compensates for the increases in prices, leaving a minority that can sustain their living standards. The current real wage is similar to that of low earners in 2001 at the moment of the economic crisis. The unemployment rate continues to be greater than the same rate in the early 1990s, and it is still much higher than in the 1970s and 1980s. In addition, the stages of ‘social dialogue’ promoted by the government only include the main trade union confederation (CGT), a key ally of the government. There is no intention in the Kirchner administration to recognise any of the alternative trade union confederations, countering the demands made consistently by the ILO in its Freedom of Association reports.

At the September G20 meeting of Labour Ministers, the Argentine government will present their response as the example for other G20 governments to follow, especially those undergoing economic crisis. However, Argentina is still far from an ideal place for labour policies and labour rights. As presented here, the country still has to discuss the productive and developmental model that currently produces immense wealth and a GDP growth of 8 percent a year, but it provides these high profits for a small group of heavily concentrated business groups, mostly foreign, and keeps workers in precarious working conditions.

[i] IDEF-CTA. “Sobre el trabajo decente. Contexto general, informalidad laboral y políticas publicas”, July 2011.
[ii] Labour Ministry of Argentina. “Trabajo, Empleo y Ocupacion. Una Mirada a sectores económicos desde las relaciones laborales y la innovación”, June 2010, p. 43
[iii] Labour Ministry of Argentina. “Trabajo y Empleo en el Bicentenario. Cambio en la dinámica del empleo y la protección social para la inclusión social. Periodo 2003-2010”, September 2010., p.49.
[iv] IDEF-CTA, p.2.
[v] IDEF-CTA, p.4
[vi] Ibid, p.21.
[vii] Ibid, p.27.
[viii] Ibid,p.14

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Bruno Dobrusin is MA candidate at the Tata Institute of Social Sciences, Global Labour University. He is also advisor to the International Relations Secretariat of the Argentine Workers' Confederation (CTA) and research scholar at the Institute of Studies of State and Participation, belonging to the State Employees' Union of Argentina. He is currently involved in the follow-up of the process of regional integration within South America for CTA.

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The euro crisis and the European trade union movement

Vasco Pedrina

After successfully bailing out banks and adopting a first wave of economic recovery measures, the authorities of the European Union (EU) and its member states began to impose draconian, anti-social austerity plans from the beginning of spring 2010. These plans stem from an increasingly coordinated policy at the EU level, which is entering a new phase with the “Euro-Plus Pact” and the “enlarged bailout plan”. Dressed up as part of a fight against “macroeconomic imbalances”, new mechanisms are to be put in place. These will provide EU authorities with the means to step up the pressure for general social dismantling. Concretely, this amounts to a “wages straitjacket” that calls into question the autonomy of social partners (one of the pillars of the “European social model”), raises the retirement age across European countries and introduces legislation to curb national debt. This policy is not only having dramatic social repercussions. It is also heading up an economic blind alley that is putting the euro at risk.

At its Congress in Athens in May 2011, the European Trade Union Confederation (ETUC) reaffirmed its opposition to the currently prevailing neoliberal economic policies and once again demanded a change of course. The only conceivable way of pulling the eurozone out of crisis is a combination of measures aimed both at boosting economic growth and at a gradual reduction of debt levels and macroeconomic imbalances. The ETUC is calling for a “New Social and Green Deal” consisting of a large investment plan, the issuing of eurobonds, low-interest liquidity provision by the European Central Bank (ECB) and a low-carbon industrial policy underpinned by fiscal reforms, which should include a tax on financial transactions. As far as Greece is concerned, it is now clear that it will not be able to break out of the present vicious circle without a really substantial recovery plan financed by the EU within the framework of a sort of Marshall Plan for countries in distress. The ETUC is also demanding a thorough overhaul of the “Euro Pact” – particularly the part on wage and retirement measures.

Mobilising against social suffocation

To back this alternative economic programme, the ETUC has held four European action days in the past two years. Demonstrations and strikes spread across many European countries, but they did not build enough pressure to halt the neoliberal steamroller. Back in the days of the “social democratic compromise” under the presidency of Jacques Delors, protests of that size would have been seen as a good reason for getting down to negotiations. Today, that is no longer so. Neither the EU authorities nor those of the member states were swayed by the protest action. True, the European trade union movement has, in the meantime, managed to get the most reactionary legal provisions expunged from the Euro Pact, but its antisocial thrust remains, as do the national austerity plans. At the same time, some pillars of the “European social model” are under relentless attack. Symptomatic of this is the EU political authorities’ refusal to correct the precedent created by the European Court of Justice (ECJ) in the Laval, Viking, Rüffert and Luxembourg cases of 2007/08. Through these rulings, the ECJ called into question the basic principles of social Europe, such as the precedence of basic social rights over the economic freedoms of the internal market, the principle of “equal pay for equal work in the same place”, the right to strike in order to combat wage dumping, and the autonomy of the social partners.

European trade unionism at a crossroads

“Social Europe” is under pressure. Clearly, there will be no change of course unless pressure from strikes and political action coordinated at the European level builds up on a scale quite different to anything that has been achieved up to now. And yet, in the wake of the crisis, unions are falling back to defensive struggle positions within national frameworks. Evidently, the unions have put too little energy into European mobilising. Even 80,000 people on the march in Brussels no longer have such a great impact.

The time has come to re-examine our strategy if we do not want to look on helplessly as the European trade union movement slides into irremediable decline. The current debate on this issue within the political left and the trade union movement is seeing the emergence of two currents of thought. One of them advocates a strategy of “renationalising policy”. Those supporting this “fallback strategy” argue that, as the EU is on the road to neoliberal damnation, the only realistic response would be to set up resistance networks to defend the social State within the national framework. The left-wing supporters of this position are, de facto, putting themselves in the same camp as the conservatives within the trade union movement who, like quite a lot of Nordic confederations, believe that the “lone road” is the best way of defending their “Nordic social model”, even though that model is more and more threatened by new developments within the EU.

The other school of thought advocates an “offensive strategy” of Europeanising social struggles. Their argument is that the only positive alternative is a quantitative and qualitative leap forward in joint political action and mobilising across Europe. But the days in which such a leap might still be made successfully are numbered. There is a serious risk that the Euro Pact, together with the whole series of austerity plans, will cause such an increase in the imbalances between and within countries that the social and political tensions will become unbearable, due to the rise of populist forces. The already growing tensions among trade union confederations in Europe and among confederations within individual countries (such as Italy) give some idea of where such developments could lead, namely to a catastrophic paralysis of the labour movement.

Levers for Europeanising social struggles

The strikes and mobilisations over the past two years in various European countries have led to the emergence of new demands, new forms of action and new alliances from which useful lessons can be drawn for the Europeanisation of trade union resistance networks. At the same time, other routes may lead to the qualitative leap described above. At the ETUC congress, two proposals were discussed for campaigns with the potential to launch a real, coordinated counter-offensive.

One of these proposals concerns the response to the currently prevailing neoliberal economic policies. It is based on the alternative ETUC economic programme mentioned above, on reinforced coordination of bargaining policy and on an offensive for a European minimum wage policy and against the precarisation of jobs. Workplace strike capacities in support of European demands need to be strengthened in order to achieve these objectives. Granted, the ETUC congress did adopt a proposal from the Spanish confederations CCOO and UGT, calling for serious examination of the feasibility of coordinated strikes or a European general strike, but it did so without conviction. Clearly, the political will is still lacking, but this state of mind could change if the pressure of suffering continues to mount, which it probably will.

The second proposal, entitled “Equal Pay, Equal Rights”, aims to give new impetus to the struggle for workers’ rights, which are under attack almost everywhere, as well as the struggle against wage dumping. To support this campaign, the Swiss Federation of Trade Unions has proposed the launching of a European Citizens’ Initiative (ECI) entitled “For a Europe without wage dumping – Priority for basic social rights over economic freedoms”. Under the new Lisbon treaty, citizens can petition EU authorities on new policies and legislations with one million signatures. An ECI of this kind would be aimed at giving the EU a mandate for the legislative measures needed to ensure that precedence for basic social rights over economic freedoms becomes generally applicable throughout the European Union.

Launching such an ECI would enable broad awareness-raising (and mobilisation) in workplaces and among the union rank-and-file right across Europe – something that has not been possible so far. Other social movements and political forces that share our concerns about the future of social Europe could be associated with the ECI. The ETUC congress accepted this second proposal, which a working group is to put into concrete form by the end of this year. But it did not give a clear green light to the decisive lever for such a campaign, namely the ECI. The reservations come from countries such as France, the UK and Italy, whose union confederations say they have no tradition of collecting signatures for this kind of instrument. They are underestimating the potential of a citizens’ initiative as an instrument of decentralised awareness-raising and political pressure for a common objective throughout Europe.

The ETUC congress could have sent out a strong signal for a large-scale political and trade union European counter-offensive. The lack of energy to go down that road is probably due to the way that unions in quite a few countries have been hit and weakened. Nonetheless, it may well be that a response on a scale to match the current challenges will become possible once the pressure of suffering rises even further, and people will be forced to realise that a social and political turning-point cannot be reached without strengthened trade union policy coordination beyond national borders. This will require an alliance with all interested social movements and political forces. The future of social Europe and of the European integration process is at stake.

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Vasco Pedrina is the National Secretary of the Swiss inter-professional trade union Unia and Vice-President of the Building and Wood Workers’ International (BWI). He represents the Swiss Federation of Trade Unions (SGB/USS) on the ETUC Executive Committee.

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7 Reasons why a Universal Income makes Sense in Middle-Income Countries

Hein Marais

Is job creation really the best way to seek wellbeing for all in countries with chronic, high unemployment? No – especially not in a wealthy middle-income country like South Africa, where very high unemployment combines with high poverty rates. Here are 7 reasons why a universal income grant makes more sense.

1. EARNING A DECENT SECURE WAGE IS NOT A PROSPECT FOR MILLIONS OF SOUTH AFRICANS

While the rewards of South Africa’s modest economic growth are cornered in small sections of society, close to half the population lives in poverty, and income inequality is wider than ever before.

Job creation improved modestly as economic growth accelerated in the early 2000s. About 3 million ‘employment opportunities’ were created in 2002-08. The semantics are important. Very many of those ‘opportunities’ did not merit being called ‘jobs’. They divided roughly equally between the formal and informal sectors, and occurred mainly via public works programmes, business services, and the wholesale and retail trade sectors. A lot of them were crummy, insecure and poorly paid.

The average unemployment rate for middle-income countries is in the 5-10% range; in South Africa, it is about 25%. Add workers who have given up looking for jobs, and the actual rate sits around the 35% mark. Since late 2008, the private sector has been shedding jobs, and the public sector’s been trying to add new ones. It’s an endless game of catch-up.

2. HAVING A JOB DOES NOT AUTOMATICALLY SHIELD AGAINST POVERTY

Having waged work is the single-most important factor deciding whether or not a household will be poor. But earning a wage does not guarantee that you won’t be poor.

Vast numbers of workers earn wages so low and on such poor terms that their jobs don’t shield them against poverty. Increasingly that applies also to formal sector jobs. Almost one fifth (some 1.4 million) of formal sector workers earned less than R 1 000 (USD 125) a month in the mid-2000s, according to Statistics SA data.

Two factors drive these trends: the shift towards the use of casual and outsourced labour, and the related decline in real wages for low-skilled workers.

The average real wage is being propped up by the improved fortunes of comparatively small numbers of high-skilled, high-wage workers. Workers without tertiary qualifications lost about 20% of their average real wage. And women in the formal sector earned less in real and relative terms in 2005, compared with 1995.

From the late-1970s into the 1990s, South African companies tried to compete and maintain profit levels by upgrading machinery and introducing new technologies to achieve higher productivity and reduce reliance on militant, organised workers.

Eventually the dividends dwindled, and currency crashes since the mid-1990s inflated the cost of imported technology.

The hunt for profit required another squeeze, and it was applied to the wages and terms of employment of workers who are not shielded sufficiently by labour laws and shopfloor organising.

Company profits as a share of national income rose from 26% in 1993 to 31% in 2004, while workers’ wages fell from 57% to 52%.

Companies now rely on a shrinking core of skilled, full-time workers and a larger stock of less-skilled and badly paid casual or out-sourced labour. By 2008, according to the Labour Ministry, about half the workforce was in casual and temporary jobs.

Job creation is vital. But it’s not a match-winner anymore – not in the kind of economy and labour market that defines South Africa. The quest for more – and better jobs – has to occur as part of the wider realization of social rights.

3. SOCIAL GRANTS SEPARATE MILLIONS FROM DESTITUTION BUT IT IS ILL-SUITED TO TODAY’S REALITIES

The impact of the social grant system is beyond dispute. According to Statistics SA, the increase in incomes among the poorest 30% of South Africans after 2001 was mainly due to social grants (especially the child support grant). They’re the best poverty-alleviating tool South Africa has at the moment.

Beneficiaries rose radically since 2000. The 2.6 million recipients of pensions and social grants increased to about 14 million in 2010. About 43% of households in 2007 received at least one social grant; in half of them, pensions or grants were the main sources of income.

A large proportion of low-income households would probably be unviable without these grants.

The current social protection system hinges on the fiction that every worker, sooner or later, will find a decent job. Thus the grants were designed to assist people who, due to age or disability, cannot reasonably be expected to fend for themselves by selling their labour. Meanwhile, the employed have access to employer- and worker-subsidised protection (all tied to employment status).

But large numbers of vulnerable workers are not eligible for these state grants, and do not benefit from employment-based provisions.

4. TARGETED AND MEANS-TESTED SOCIAL PROTECTION IS BURDENSOME, COSTLY AND HUMILIATING ADMINISTRATION

Most states prefer to ration cash grants by targeting them and tying them to certain conditions. South Africa is no different (though only the child support grant is nominally conditional at this point).

This is administratively expensive, and it tends to be difficult, especially when it is tough to determine an individual’s income, and when that income is likely to fluctuate significantly.

It runs the risk of creating arbitrary divides between those who benefit from social grants and those who do not. Which is why critics regard the approach as expensive, inefficient and ‘offensive to basic egalitarian principles’, as Guy Standing puts it.

Most means-tested social grants involve burdensome and humiliating interactions with the state that basically involve ‘proving’ to a stranger that you’re poor and unable to fend for yourself and your family. This is why huge stigma and shame tend to attach to them.

A universal income grant would be available to all adult citizens, and would be neither conditional, nor targeted or means-tested. The tax system would be used to retrieve (and help finance) the grants from individuals who don’t need them because their incomes are high enough. The grants would form a cornerstone of a broader social protection system.

5. A UNIVERSAL INCOME IS DEVELOPMENTAL AND WOULD BOOST WELLBEING

Cash transfers bring powerful anti-poverty, developmental and economic benefits. The observed effects include reduced stunting in children and better nutrition levels, and higher school enrolment of young children.

In a localized, universal income pilot project in Namibia, child malnutrition declined and school attendance increased significantly within 6 months. Recipients also became more active in income-generating activities.

Financial simulations have shown that a universal grant as small as R 100 per month could close South Africa’s poverty gap by 74%,[1] and lift about six million people above a poverty line of R 400 (USD 50) per month.

Cash grants can also help drive more inclusive patterns of growth. Brazil’s expansion of social transfers (especially via the bolsa familia, a conditional grant) along with the extension of the minimum wage has boosted internal demand for local products and services, and aided the growth of formal jobs, as Janine Berg shows in a recent paper.[2]

6. A UNIVERSAL INCOME CAN BE A POWERFUL EMANCIPATORY TOOL, ESPECIALLY FOR WORKERS

Cash grants contain a radical, emancipating potential. The key is to uncouple them from the labour market, which a universal income grant can achieve.

This is a potentially radical and subversive turn that confronts the ‘double separation’ that is typically imposed on workers – separation from the means of production and from the means of subsistence.

The impact potentially reaches much farther than gains in social justice.

A universal income has the potential to improve the wages and terms of employment for low-skilled workers. If the bare necessities of life can be secured elsewhere, demeaning and hyper-exploitative wage labour is no longer the ‘only option’.

Its most subversive effect is to equip people with the freedom not to sell their labour and to withdraw, at least sporadically, from the ‘race to the bottom’ between low-skilled workers in high unemployment settings.

Thus a universal income can endow the weakest with bargaining power. Linked with other efforts to strengthen wellbeing and expand the content of citizenship, it can contribute toward significant redistribution of power, time and liberty. It also challenges one of the anchoring principles of Anglo-capitalism, which binds employment and citizenship together.

7. A UNIVERSAL INCOME TREATS WOMEN AS CITIZENS, NOT MERELY AS CAREGIVERS AND BEARERS OF CHILDREN

Millions of women in SA have entered the labour market since 1980s, despite their exceptionally poor job and wage prospects. Three quarters (75%) of African women younger than 30 years are unemployed. Most who do find employment tend to work part-time, for low wages and in highly exploitative conditions.

Yet women also bear the bulk of responsibility for social reproduction, and they head more than 40% of households, the majority of them single-parent, impoverished households.

Overall, the sexual division of labour in both the domestic sphere and labour market remains structured in ways that enable men to monopolise full-time and better-paying jobs, while women perform most of the household labour. Men, whether employed or not, continue to ‘free ride’ on women’s work – paid or not.

A guaranteed universal income challenges these arrangements, by helping provide currently inaccessible economic independence, and by strengthening the negotiating position of women who do enter the labour market.

CONCLUSION

More jobs are vital and feasible. However, the quest for more jobs has to occur as part of a wider realization of social rights. A universal income grant would be a powerful intervention for radically reducing the depth and scale of impoverishment, and for enhancing liberty.

[1] The poverty gap refers to the total income shortfall of households living below the poverty line. A narrower poverty gap means more households would edge closer to, or above the poverty line.
[2] Changes in labour market and social policies boosted consumption and economic growth in rural and poor areas, and created a steady demand for small retailers and service providers. That boost in demand also affected other parts of the value chain, including formal manufacturing and distribution (Berg, 2010). See Berg, J. (2010). “Laws or luck? Understanding rising formality in Brazil in the 2000s”. Working Paper no. 5. ILO Office in Brazil. ILO.

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Writer and journalist HEIN MARAIS is the author of the new book ‘South Africa Pushed to the Limit: The political economy change’, published by UCT Press and Zed Books. It is available online and at good bookstores.

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A Plan B for the World Economy

Christian Kellermann

‘Capitalism’ is back on Main Street. Crashing, dismantling, reforming, repairing, restoring – all kinds of approaches to capitalism are discussed in the wake of the recent crisis. The debate has gained far more momentum today than it had during the past decade, though we had already witnessed a number of such crises. However, in practice, the gap between regulatory rhetoric and actual reform of our economies and the world economy as a whole is still considerable. Our systems remain at risk of on-going instability. Crises will continue to be the norm rather than the exception if we keep on working with the dysfunctions of current capitalism. Many of us will be unable to live a decent life under conditions of increased insecurity, inequalities and pressure in terms of wages, jobs, raising children and providing for old age. An excessive degree of unequal income distribution and personal insecurity is not only detrimental to a good life; it is also economically dangerous and inefficient. The reasons for economic crises and increasing inequality, which are symptom and root of personal and systemic insecurity and inefficiency alike, are manifold.

Finance has played a crucial role in most of the economic crises we have experienced since the 1990s. Financial markets are both gigantic amplifiers of imbalances within and between our economies and a root of imbalances themselves. Illuminating the cracks in finance is therefore the logical starting point for the Plan B of fixing our current capitalistic system. The excesses of finance are only one part of the fundamental problems economies and societies are facing and which have contributed to the recent crisis. There are at least three dimensions of instability which are related to finance but go beyond the narrow instabilities of the financial system. First, imbalances between different sectors within economies have escalated. One expression of this is highly indebted private households as well as governments, as a consequence of real-estate and other bubbles which were fuelled by the financial system. Second, international imbalances have never been as big as they are today. Third, together with financial deregulation the shareholder-value principle of corporate governance became dominant. This led to a short-term orientation of management and high bonus payment for management at the cost of long-term sustainable development of companies and firms.

Besides these developments, the radical market globalisation of the last decades led to a huge increase in wage dispersion and an ever-growing low-wage sector which had not been seen since the early times of capitalism before the First World War. Labour markets in almost all industrial countries became more deregulated while at the same time trade unions became weaker. In many cases economy-wide or sector level collective bargaining was eroded. Firm-based wage negotiations or individual working contracts without any collective agreements started to dominate.

Increasing inequality is a phenomenon which can be found in almost every country. High inequality does not only provoke a feeling of ‘unfairness’ in and between societies; it also hinders social mobility and has negative impacts on health and productivity. Hungry wolves do not hunt best – in fact, the very opposite is true for present day economies. The American dream of high social mobility within a society and the opportunity for anyone to become rich if they work hard enough is in fact little more than a mirage. Today, mobility within society is more of a reality in the Nordic countries of Scandinavia where equality is higher than in the Anglo-Saxon world of capitalism.

Capitalism has more problems: in the past, it led to a very special type of technology, production and consumption growth which is blind to ecological problems and the fact that natural resources are limited. Prices systematically fail to adequately incorporate ecological dimensions and the deterioration of nature. Prices also give the wrong signals for the direction of innovation as well as of production, consumption and the way we live. After experiencing a number of regional ecological disasters in the past century, the world is now heading for a global ecological disaster, unless fundamental changes take place very soon. This makes the search for solutions very complicated: the present crisis is not only a deep crisis of traditional capitalism, but it has emerged at a time when a deep ecological crisis is also evolving.

A global Plan B should therefore include three interrelated dimensions. First, the model should be ecologically sustainable: preventing global warming, changing to a renewable energy basis and preventing other problematic developments such as a reduction in biodiversity. Second, it should be formed in such a way that the growth process is not jeopardised by either asset-market bubbles or goods market inflation or deflation, and does not result in the excessive indebtedness of individual sectors or even whole economies, thereby leading inevitably to the next crisis. At the same time, such a model should promote innovation and, therefore, technological development necessary both for solving ecological problems and, in the medium and long term, increasing labour productivity and so holding out the possibility of growing prosperity for all. Third, it is critical that all population groups have a share in social progress. Inequality of income and wealth distribution must be at politically and socially acceptable limits.

At the core of Plan B is a more equitable income distribution. It is crucial to reverse the negative changes in income distribution and grant all population groups an adequate share in the wealth created in society. One secret of the success of regulated capitalism after the Second World War was the increasing mass purchasing power of workers, based on growing incomes and relatively equal income distribution. It is now becoming clear that the old model has to be regenerated.
Income distribution has three important components: functional distribution of income in wages and profits, distribution within the national wage sum and the national profit sum, and state redistribution policy. A fall in the wage share is the result of a higher profit mark-up. The latter was possible on the basis of deregulation, particularly due to the increasing power of the financial sector and its willingness to take risks in pursuit of higher returns. The shareholder-value approach and the increasing role of institutional investors drove enterprises to pursue higher profit mark-ups. Correspondingly, the structures and rules of the game in the financial sector must be changed in such a way that the profit mark-up falls again.

Recent decades have been characterised by significant wage dispersion. In almost all countries in the world the low-wage sector has increased. Precarious employment and informality have also increased, especially in the sector of non-tradable goods and services. Globalisation trends, therefore, cannot directly explain the emergence of these sectors. They are the result of labour market deregulation. These unjustified income inequalities among wage earners must be dismantled by means of labour market reforms. The collective bargaining system must be strengthened, backed up by other labour market institutions to achieve the decent work conditions stressed by the International Labour Organisation. Minimum wages and social security guaranteed by the state also play a crucial role in this. Such labour market regulations are not only important to reduce income inequality, they are also important to establish a nominal wage anchor against deflationary money wage cuts.

Even with strict regulation, markets do not lead to a politically acceptable income distribution. In addition to that, not everyone has equal chances in the market. The disadvantaged – whether on the basis of gender, childcare responsibilities, handicap, age, race and so on – can drop out of the market and be deprived of an income, or at best obtain only an inadequate one. Ultimately, by no means are all incomes obtained on the basis of personal achievements; consider, for example, large inheritances, which are an intrinsically alien element with regard to capitalism. Tax law and social systems must be deployed in order to organise income distribution in a socially acceptable manner. Tax law should therefore include a clear redistributive component, and this need becomes more pronounced the more evident it is that market outcomes alone will lead to growing inequality. Against this background, not only is a markedly progressive tax system important, but above all, regulations which ensure that incomes from capital are adequately taxed.

This Plan B might sound good, but is it not completely unrealistic? Change the rules of the game and shift the roles of governments, society and the market at the local, national and global level – and the powerful few who have been benefiting greatly from the current brand of capitalism might actually lose out. However, the outlook for change is not that bleak. Economic history is full of deep shifts in opinion, followed by deep shifts in the structure of economic institutions. Crises allow us to call into question all doctrines and interests which have been disseminated virtually unquestioned.

One thing is very clear, however: a more ‘decent capitalism’ will not be created by the profiteers of the current system of non-regulation. Their profits are built too heavily on certain prerogatives, which they will not just hand over to public control. Quite the opposite is true: it is mostly mere placebos that have been rubber-stamped by the global financial elite so far. For deeper reform the underlying power relations of current finance capitalism will have to change, which means that the relationship between states and markets will have to be radically rebalanced.

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Christian Kellermann is the Director of the Nordic Office of the Friedrich Ebert Foundation (FES) in Stockholm. Before joining the FES, he worked as a financial market analyst in Frankfurt and New York.

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Further reading:
Decent Capitalism. A Blueprint for Reforming our Economies, by Sebastian Dullien, Hansjörg Herr, Christian Kellermann, Pluto Publishers, London, 2011
http://www.plutobooks.com/display.asp?K=9780745331096&

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