TUAC - TRADE UNION ADVISORY COMMITTEE TO THE OECD

18/12/2012

“We are committed to analysing the root causes of the crisis and drawing lessons from it, and to updating the OECD’s economic analysis and policy recommendations where needed. We therefore launch today the initiative on “New Approaches to Economic Challenges.” (2012 OECD Ministerial Council Statement)

1.       TUAC welcomed the decision of the OECD to undertake the NAEC project. The TUAC representative at the meeting of the NAEC Group on 24 October 2012 said that the stakes could not be higher, not just for the Organisation but for OECD countries and indeed the global economy. The OECD’s origins lay in the reconstruction of Europe in the wake of the Second World War and the Great Depression. Policy failures in the 1920s and 1930s resulted in the Depression that ultimately led to a global war. In the current crisis, there is no room for complacency. Many countries are returning to recession, others see growth slowing, unemployment is set to rise again from already high levels and a generation of young people risks being scarred by joblessness. At the 2012 OECD Forum, the General Secretary of the ITUC said “the social contract is broken, the anger is mounting”. There is a breakdown of trust between citizens, government and business. The political response could again result in extremism and xenophobia.

2.       The OECD has stated that the NAEC will involve both a self assessment of the reasons why the crisis in 2008 was not better anticipated as well as drawing implications for analysis and policy advice. Both are necessary. The OECD collectively is more than just the secretariat but includes the Committees. The IMF’s external assessment carried out in 2011 came to the conclusion that “group-think” was a serious problem that contributed to a failure to challenge conventional thinking. The OECD should undertake a similar assessment process as part of its evaluation procedures.

3.       Before the crisis, there were several alternative forms of market economy, with different policy frameworks, strengths and weaknesses. The trade union report “Exiting from the Crisis” published by TUAC and the ETUI in 2011 was anchored in this “models of capitalism debate”. In the preface to the Report Joseph Stiglitz commented “The crisis has called into question the strengths and weaknesses of various models, and the criteria by which we evaluate alternative policy frameworks. The broad landscape of issues and countries examined in this book provides a vital background for the reassessments that are, and should be, going on in countries, all over the world. Some countries have weathered the storm better than others. Some countries and policies were more responsible for creating the storm. Some policies, long advocated by financial markets and international financial institutions, contributed to the rapid spread of the crisis around the world.” For these reasons a reassessment of OECD analysis and policy advice is key. The OECD, in its policy advice, must shift from prescriptive to diagnostic policy making.

4.       The systemic operation of global markets prior to 2008 revealed a series of imbalances in the global economy that have contributed to the scale of the crisis. These include the imbalance between the growth of financial markets and the real economy; external deficit and surplus countries; profit and capital shares in the functional distribution of national income; the growth of very top incomes versus middle and low incomes in the personal distribution of income; the economic and environmental pillars of sustainable development.

5.       TUAC hopes that the OECD Council through this discussion at the Liaison Committee can move beyond its focus on governance to discuss expected focus of the NAEC project. Given the time constraints, we would suggest a discussion around two clusters of issues: firstly,the need to reverse the rise of income inequality that was highlighted as a key concern in all of the sessions of the NAEC Group on 24 October; and secondly, the role of the State in the economy that was also a common thread of the discussion of the NAEC Group and that was discussed in the 19-20 November meeting of the Public Governance Committee.

Reducing Income Inequality and Building Inclusive Growth

6.       In the area of income inequality, TUAC would make as a starting point to the debate the following points:

-        The rise in income inequality as reflected by both the decline in the share of wages in national income and the rise in personal income inequality now has a serious economic as well as social and political cost. The OECD should develop its analysis of the link between growing inequality and weakening and less sustainable growth. There is an urgent need to shift to models of more inclusive growth.

-        The global financial and economic crisis has invalidated the belief that indiscriminate labour market deregulation and weak labour market institutions are necessary ingredients of economic and employment success. Rather it has proved to be a recipe for growing income inequality and, in some countries, the rise of precarious work. While the richest in many parts of the OECD saw their absolute and relative position improve (sometimes quite dramatically) the poorest (and in several countries the majority) saw their absolute and relative position deteriorate. The OECD itself documented the rise in inequality in its publications Growing Unequal in 2008 and Divided We Stand in 2011. In the United States even those on middle incomes saw little improvement in their earnings or living standards over a twenty year period.

-        There should be a return to the OECD reassessment of the 1994 Jobs Study presented in Boosting Jobs and Incomes in 2006. Those countries that had achieved high employment and a more equitable distribution of incomes focused attention of the broad sweep of labour market policy, including: skills formation systems before labour market entry that give workers a sense of occupational identity and self-confidence; an emphasis on lifelong learning as a route to employability; a focus on the balance of power between capital and labour - including the strength of the trade unions and the extent of collective bargaining coverage; the pursuit of policies to narrow unjustifiable differences between groups of workers; a combination of high unemployment benefits and job search obligations with high levels of investment in active labour market programmes to get the unemployed back to work.

-        A framework agreement on “inclusive labour markets” negotiated and agreed by European social partners in spring 2010 represents a promising route for discussion. It states that ensuring inclusive labour markets implies shared responsibilities of employers, individuals, workers, workers’ and employers’ representatives. It also states that achieving an inclusive labour market does not depend exclusively on actions by social partners. Public authorities and other actors have responsibilities in terms of ensuring that there is a framework which encourages and promotes inclusive labour markets. Moreover, inclusive labour markets must allow and encourage all people of working age to participate in decent work and provide a framework for their development.

-        Particular attention needs to be given to the nature of structural reforms and adverse effects in the current situation. There is increasing evidence suggesting that weakening labour market protection have contractionary effects in the short term. The increase in employment and income insecurity may lead to rising precautionary savings and a decrease in consumer demand. Moreover, reducing the alleged generosity of unemployment income support could cause additional negative effects by weakening automatic stabilizers and contributing to a further decrease in demand.

-        Future economic performance has to be judged by wider criteria than GDP per capita which by itself tells us little about the quality of life enjoyed by citizens. It tells us nothing about the distribution of incomes, nothing about differences between rich and poor in terms of health and life expectancy, nothing about social mobility, nothing about environmental sustainability and other issues that are crucial for the quality of life. Most importantly, it tells us nothing at all about whether most citizens have, (following Amartya Sen’s formulation) the capabilities they need to choose lives that they have reason to value.

Does the Liaison Committee agree with the priority and the proposed policy response? What follow-up does the OECD envisage for its own work on inequality and how is it strengthening policy coherence across the Organisation in this regard?

Role of the State

7.       Beyond the role of public policy to reduce income inequality, the lessons of the crisis should call into question the “light regulation” and the tolerance of imbalances that contributed to the crisis. TUAC would make the following points:

-        The global macro-economic imbalances at the root of the crisis still exist and, so far, very limited action has been taken to rebalance the global economy. Rather the shift to austerity policies in 2010 by many European economies is pushing economies into a low growth equilibrium at high levels of unemployment. Unless policy makers shift priorities, the chances of a return to strong and sustainable growth are significantly diminished and the risks of future crises enhanced. Macro-austerity policies pursued in a context of capacity underutilisation and a liquidity trap worsen the problem, and their contractionary effects cannot be effectively counteracted by monetary policy or macro-prudential financial regulation. Rebalancing must take place at high levels of employment.

-        Reducing the complexity, lack of transparency and in many cases the size of the financial sector in the OECD area as a whole is necessary - through regulation, financial taxation and structural reforms. The priority is to make the financial sector serve the needs of the real economy and prevent financial speculation from damaging sustainable growth prospects. This will require ring fencing risky activities.

-        At national level policymakers should devote more attention to the question of innovative institutions and industrial policy as sources of growth and demand generation. If the global economy is to continue to grow and if OECD countries are to prosper then they must develop their capacities to develop new products and new services. This demands the creation of an “innovation ecosystem”, where the state invests in education and training, there is access to capital (especially for the development of environmental technologies or knowledge-based activities), there are institutions for information exchange and technology transfer.

-        Global value chains and production networks are increasingly influencing the location of production and employment. It is essential that OECD countries and companies achieve competitiveness on the basis of a “high road” strategy that includes respect of labour standards, and raising skill levels and high motivation of employees.

-        Environmental damage and resource scarcity must be factored into production systems, so that the economy can move to zero emissions, zero waste and zero exposure to hazardous substances. New economic thinking should also help us understanding how to reach full employment and decent working conditions in a resource-constrained world.

-        Tax systems have done a weaker and weaker job of collecting necessary revenues to fund a modern state (via base erosion and profit shifting) and reducing inequality (through excessive concessions at the high end). The NAEC project must examine how taxation policies can be improved to improve both growth and equality. This must include a re-assessment of the shift of the tax share to consumption and achieve broader taxation on property and wealth.

How does the Liaison Committee see the priorities in establishing the role of the “Entrepreneurial State”

Moving forward

8.       TUAC has established a group of representatives of affiliates and Global Unions working on the NAEC project and following up the work done on the report “Exiting from the crisis: towards a model of more equitable and sustainable growth” in 2011. This will be meeting in early 2013 and will be ready to comment on the interim report on the NAEC project that will be presented to the 2013 OECD Ministerial Council Meeting (MCM). In association with the OECD Forum and Chairs and Vice-Chairs of the 2013 MCM, TUAC is also seeking to engage other affiliates in broader consultations on the NAEC work. The Chief Economist of the AFL-CIO, William Spriggs, working with the TUAC secretariat is also servicing as the TUAC representative on the NAEC Group.

9.       TUAC looks forward to further engage with the OECD on the project.

What other means of engagement would the Liaison Committee propose?