Download Proposal - Organization of American States

Proposal for the Creation of an Inter-American Fund for the
Promotion of Decent Work1
Presented by the Ministry of Labour and Employment of Brazil
1
The International Labour Organization considers Decent Work as dignified work that is
sufficient in both quality and quantity (productive and secure work; ensures respect of labour
rights; provides an adequate income ; offers social protection ; and it includes social dialogue,
union freedom, collective bargaining and participation)
MINISTRY OF LABOUR AND EMPLOYMENT
OFFICE OF THE MINISTER/ LABOUR MARKET OBSERVATORY
PROPOSAL FOR THE CREATION OF AN INTER-AMERICAN FUND FOR
THE PROMOTION OF DECENT WORK2
The proposal for an Inter-American fund that would finance policies and programs geared
towards creating a greater number of jobs with better quality in the Americas leads us to
preliminarily consider the following questions:
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Is it the right time for establishing such a fund? In other words, can it be justified within
the framework of hemispheric integration?
What is its purpose and reach, within the scope of the hemispheric integration process?
Is it feasible? By which we mean, is there a way to mold an institutional and financial
arrangement that would make the fund feasible and would in fact make it an effective
instrument for the social development of the region?
It is not a simple task to answer these and other related questions. To the contrary, it requires a
foreseeable effort vis a vis the development of the integration process in the Americas and the
challenges related to overcoming the asymmetries that exist among the American countries, as
well as the centered approach to address the issues of decent work for sustainable development
with social inclusion in the region, contributing to the effort of constructing more prosperous,
solidary and equal societies.
The present document, aims to provide different paths to follow, to raise some initial elements
that justify the creation of such a fund and that delineates its structure. This paper does not
pretend to give an in depth answer to the themes at hand with the due attention that they deserve.
Economic opening and structural adjustment
Since the mid 80s’, the Latin American and Caribbean countries have opened their commercial
regimes and sought to redefine their insertion into the global economy. Integration processes were
encouraged and an ample spectrum of free trade agreements was grounded, known also as “open
regionalism” (BUSTILLO & OCAMPO, 2003: pag.9).
The process of globalization in the region, which occurred through a greater opening and
integration into the world economy, was accompanied by a process of structural adjustment that
was necessary to regain or maintain macroeconomic equilibriums and to adapt the regional
economies to the transformations of the international economy.
During the 90s, the region’s countries aiming to promote and diversify their exports incorporated
themselves to the globalization process through the promotion of commercial and financial
opening and through an opening to investments. To such end, they promoted tariff reduction and
opening to short term credit (abundant, at first instance, in the developed countries) and used a set
of policies advanced by the Washington consensus (fiscal balance, reduction of inflation rates,
2
The International Labour Organization considers Decent Work as dignified work that is sufficient in both
quality and quantity (productive and secure work; ensures respect of labour rights; provides an adequate
income; offers social protection; and it includes social dialogue, union freedom, collective bargaining and
participation)
opening of markets, reforms in the State, etc.) promoting structural adjustment of their
economies, with the intention of correcting flaws and macroeconomic distortions. However, the
social dimension was not included in the repertoire of economic reforms, with the exception of
the supposed positive impact that economic growth would have on poverty (Panorama Laboral
2002, p.38 and 39).
The Latin American and Caribbean economies fulfilled their commitment of completing the
economic reforms suggested by the Washington Consensus. Since the mid 80s, the region
gradually inserted itself in the economic reform process, promoting:
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The liberalization of their commercial regimes (reduction of tariffs of an average level of
almost 50%, in the mid eighties and early nineties, to a little more then 10%, at the end of the
decade);
Escalation of commercial negotiations aimed at strengthening the intra-regional economic
integration;
Reduction of the fiscal deficits (which ended up increasing once more at the end of the
decade, given its close correlation to the economic cycle), through the control of public
expenses, rationing of taxes and privatization of public enterprises (57% of all privatizations
in the region that occurred in the past decade happened in the infrastructure sector);
The implementation of stabilization policies that had managed to reduce inflation levels,
which had reached the one digit level in many of the countries of the region;
The promotion of reforms in social security and in labor legislation.
However, the results obtained were discouraging with regards to economic growth and equality,
when in theory, globalization should have promoted a greater convergence with the developed
economies. Such frustration led to an environment more adverse to these reforms3.
According to CEPAL, poverty in Latin America remained unaltered between 1980 and 1999 (it
went from 34,7% to 35,3%), due to great unequal distribution in the region: while the poorest
40% of Latin American maintained their income levels constant between 1980 and 2000, the
richest 10%h had doublde their income levels. The analysis of the relationship between poverty
and product for Latin America shows that in the 90s, for each percentage point of growth in GDP,
poverty decreased 0.12%, while in the 80s this relationship was of 0.88% (Panorama Laboral
2002: p. 48). As such, economic growth is not a panacea with respect to the poverty reduction,
which is more closely associated to the reduction of unequal distribution of income.
In the 90s, the Latin American and Caribbean GDP grew, in average, 3.3% a year, greater then
the world average (2.4%), however it did so alternating in boom and bust cycles, leading to an
economic growth volatility4 coefficient of 0.7 during that period (Panorama Laboral 2002: p. 45).
In that same period, the average annual rate in exports of goods increased in 8.4%. The dynamism
of exports therefore did not manifest itself in the economy’s behavior.
Static comparative advantages led the economies of the region to specialize in less dynamic
sectors of world trade. The regional export specialization process followed three basic patterns in
the last decade (BUSTILLO & OCAMPO, 2003: p. 19):
Data from the “LatinoBarometetr (2002)” study indicate that 76% of Latin Americans, even though they
support the reforms, are in fact unsatisfied with the results. 83% consider income distribution to be unfair
or very unfair. It is worth mentioning that the distribution factor was absent from the goals set out for the
economic transformations engendered by the region.
4
Ratio between standard deviation of GDP growth and the average growth of GDP
3
1. Incorporation to vertical flows of trade of manufactured goods, mainly centered on the United
States market (Mexico and other Central American countries); such a pattern enabled countries
to take advantage of certain dynamic manufacturing markets, but at the same time having to
reduce levels of internal linkages in the production chain (high level of imported material in
these manufactured goods)
2. Integration in horizontal networks of production and marketing, specially of primary products
and manufactured goods based on the processing of natural resources (South America); this
model enabled greater internal production linkages but also led countries to specialize in
products that were at a competitive loss in the world market;
3. Dominance of exports of services, primarily tourism, as well as financial and transport related
(Caribbean and Panama).
Therefore, it cannot be expected that an opening of the economy automatically translates into
economic growth through an increase in exports:
“ The export performance of Latin America and the Caribbean in the 90s suggests
that the strong links between GDP growth and exports and rise in competitiveness
(specially in the dynamic sectors of world trade) cannot be automatically attained
with an opening of the economy. Unless countries undertake a consistent effort to
stimulate the relations between the exporting sectors and the internal economic
activities of the State (thus raising the value added of exports), and incite dynamic
comparative advantages that are based on knowledge, the links between exports
and GDP will be weak and exports will be focused on products that face a less
dynamic demand and are more vulnerable in international trade” (BUSTILLO &
OCAMPO, 2003: p.19)
For export capacity to be translated into greater economic growth, it is imperative that countries
incite the development of a competitive export supply market capacity that promotes greater
associations between the dynamic activities in international markets and the domestic production
system (promotion of exports with a high technological density and high value added).
The region was unable to establish a satisfactory and sustainable growth process, it was also
incapable of correcting certain structural issues that have restrained its growth, such as savings
and investment levels, which remained unaltered around 18 to 20 percent of GDP respectively
(Panorama Laboral 2002: p. 46). The short growth and recession cycles that marked the region’s
economy, especially in the second half of the 90s, are rooted on the economic growth model
adopted, heavily dependent on the influx of foreign capital, a flow of capital that has shown itself
to be extremely volatile (specially short term credits). As such, the region’s economy has shown
itself to be extremely vulnerable to international economic imbalances.
In order to face the destabilizing effects of the boom and bust cycles related to the volatile flows
of capital, it is necessary that consistent stable growth strategies be adopted. In that sense, it is
essential to elaborate policies that can protect the economies from crises and that respond to the
realities of developing countries: the regulation of the capital account is an added attribute to
macroeconomic policies, providing greater freedom to avoid excessive debt and unsustainable
appreciation of the exchange rate (BUSTILLO & OCAMPO, 2003: p.20 -22).
The employment overview in Latin America and the Caribbean
The distribution inequality in Latin America and the Caribbean is in large part a result of the
growing precariousness of labor and employment conditions. Unemployment has increased in the
region and the trend of technological development and outsourcing of labour continues, as does
the deterioration of labour income rates.
According to data from the ILO (Panorama Laboral 2002), unemployment in the region reached
in 2002 9.2% of the labour force, equivalent to 17 million unemployed workers5. This level of
unemployment is almost double of it was that observed in the early 90s (5.6% in 1991). The
increase in unemployment impacted primarily poor families. The latter show rates of lack of
occupation five times higher then those of the highest rates of income. The growth of
unemployment, especially among lower income groups, has resulted in great length to the rise in
the participation rates of these groups in the labour market.
Another important indicator of the de-structuring of the regional labour market is the increasing
precariousness of employment: most of the jobs created between 1990 and 2001 were in the
informal sector (two out of every three new jobs). Also, there has been We also notice an increase
in the outsourcing process of non-agricultural related employment: the proportion of people
employed in the service sector increased from 71.2 % to 74.6%, given that 96 out of every new
100 jobs created in that period were in that sector. It is also important to point out that there was a
reduction in the social protection of labor, as manifested in the decline in the percentage of
employees that pay social security (from 66.6% in 1990 to 65.3% in 2001: 43 out of every 100
new employes did not have access to social security services).
The purchasing power of the region’s minimum salary showed a percentage point drop in 2002,
reversing the rising trend it had since 1996. Also, the industry’s real average wage showed a
contraction of –0.7%. Currently, industrial wages are in average equivalent to those of the 1980s,
while minimum wages correspond in average to 74% of wage levels of 20 years ago.
These labor market indicators are important factors that explain the regression observed in
income distribution in the region (the Gini Coefficient rose from 0.53 to 0.54). Latin America
continues to be the most regressive region in the world. The Gini Index retreated in the past two
decades all it had progressed in the sixties and the seventies (Panorama Laboral 2002: p. 49).
The decent work deficit in Latin America and the Caribbean6
According to the ILO, the decent work deficit in the region increased from 49.5 % of workers in
1990, to 50.5% in 2002, which is equivalent to 93 million urban laborers with a decent work
deficit in 2002, which is close to 30 million more then in 1990. With these numbers, it is
estimated that for that period, the deficit reached 15.3 % of the urban work force of the region
(Panorama Laboral 2002: p.12).
5
The unemployment rate measured for Latin America and the Caribbean consists of a prudent average of
open unemployment rates for the countries of the regions, based on information obtained through home
consultations and only for the urban population.
6
In order to measure the decent work “primary” deficit, the “hiatus” of employment and social protection
are added up. Two components are used to estimate the employment hiatus: the difference between the
current and the historical unemployment rate; and the number of employed workers in low quality
occupations. The social protection hiatus takes into consideration the level of employment in the formal
and the informal sectors and the relative indexes of social un-protection (workers that don’t contribute to
the social protection systems) – Panorama Laboral 2002, p.12
In order to revert this trend, it is necessary to invest in policies and programs that guarantee a
decline in unemployment as well as the extension of the coverage of social protection for
workers, especially for those of lower income. The ILO estimates the costs of the decent work
deficit in the region to be 5.7% of GDP, which implies, for example, that a commitment of a little
more then 1% of GNP per year, for a period of 5 years, is needed in order to cover the deficit. For
a GNP of about 1.9 trillion dollars7 in 2001 (current values), an amount of approximately US$
107 billion would be needed to finance the decent work deficit, corresponding to an annual
payment of a little over US$ 20 billion, for a period of 5 years.
The decent work deficit is a common trait among the countries of the American hemisphere. In
that sense, overcoming this deficit represents a guiding principle for any solidary action in the
hemisphere.
For an inclusive globalization
The globalization process is a reality that can be transformed, managing it towards a more
inclusive configuration, which incorporates goods and services produced in the poor countries8
(in particular the farming countries), with supra-national institutions that are capable to govern
this process and with macroeconomic policies that integrate the social and political aspirations of
the different peoples. As such, it is necessary to shift its current path, in order to make true the
dream of a more equitable globalization process that multiplies the opportunities for all and that
benefits the poor and the marginalized.
A different globalization has to be, therefore, inclusive, and able to turn economic progress into
social progress. Economic growth and social progress should be considered as interdependent and
indissoluble features in the construction process of prosperous, solidary and equitable societies. A
different globalization should seek to construct an integrated political framework that combines
social and economic policies, taking into account the distinct economic realities faced by the
countries, in order to cover the costs associated with having a social agenda. In sum, it should
seek to articulate appropriate social and economic policies, to develop a true socio-laboral
dimension to the globalization process, aiming to generate decent work, which is inductive to a
more equitable distribution of the benefits of economic progress (ILO, 2002: p. 51).
Labor holds a central position in this context. Facing the decent work deficit should be a goal of
government policies. The latter should balance economic policies with social policies, as well as
with the policies that stimulate sectorial investment, which promote a productive solution to
economic stagnation, through the creation of new industries, expansion of investment, generation
of employment and stimulating demand.
The proposal for the creation of the Fund
Social policies play a fundamental distributive and integrative role. Increasing their efficiency
and raising its financing are very important elements necessary to strengthen that role. The
7
GNP in 2001 for all of Latin America and the Caribbean, at current market prices.
The developed countries have pushed for the opening of trade for the products that make up their
exporting agenda. However, by subsidizing their producers and restricting imports, these countries are still
protecting the sectors of their economy (especially the agricultural sector) that could be threatened by
competition from developing countries (ILO, 2002: p.30).
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generation of more and better employment, therefore, support for decent work, is the social
investment of greatest relevance.
The integration with the global economy should be accompanied by a social integration and
productive effort as well as the strengthening of the public institutions effort, aiming to improve
the productivity of sectors that are lagging behind and to improve the capacities of lower income
groups, as well as the progress of democracy in the region.
In this context, social and employment policies should have priority in the political and economic
agendas of the countries of the American hemisphere, aiming at adapting its peoples to the global
economy and to ensure a more equitable access to the benefits of globalization. The promotion of
decent work, in this context, is the basic condition for the sustainable development of the
countries in the region and for the success of the hemispheric economic integration. For that
reason, the agenda for decent work should be developed within the axis of national and regional
development policies.
The confrontation to the decent work deficit should base itself on strategies that promote decent
work at national, sub-regional and regional levels, with clear, precise and shared guidelines,
which would guide the design of plans and programs for the promotion of decent work. Also, it is
important to establish a monitoring and evaluation system of the results of such policies.
In the framework of the Inter-American Conference of the Ministers of Labor (IACML), an
innovative and challenging proposal is, therefore, to build a true “ Inter-American Strategy of
Support for Decent Work”, establishing pillars and guidelines/lines of action, as well as goals,
which involve and define the development process of the “National and Sub-regional Plans of
Support for Decent Work”.
At the European union, the fight against unemployment became a priority during the meeting of
the European Council in Amsterdam in June of 1997. The Heads of State and Government agreed
on giving a judicial base for the employment policy, in the European Union Treaty, introducing a
Title devoted to Employment.
The Extraordinary European Council of Luxembourg, of November 1997, defined a series of
guidelines related to the employment policies, run by different countries of the European Union
in their National Employment Plans, saving, evidently, their specificity. An important agreement
was reached regarding the goals and the process of operation of the priority given to employment
in the Amsterdam treaty. Built upon four pillars (employability, entrepreneurial spirit, capacity to
adapt and equality of opportunities), which constitute the basis of the strategy, the Guidelines
establish the specific goals that the Member States should reach, in order to raise employment
levels onto a lasting foundation. 9
The development of directives for employment policies around structural axis and the inclusion
of a set of objectives, be them of a qualitative or of a quantitative nature, aim to follow-up the
national efforts of implementation of the guidelines and foster the coordination of employment
policies in the Member States. The agreement also includes an evaluative comparison of the
employment policies, making it possible to make joint advancements and learning from the
successes and failures of each one (comparison of best practices). Finally, quantifiable goals are
fixed that have to be carried out by the Member States, whose implementation is monitored and
analyzed by the European Commission based on the Member States reports.
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Information extracted from the home page of the European Union: www.europa.eu.int
A common employment policy does not exist and there are no intentions to implement one,
instead there exists a reinforced cooperation, that occurs through the incorporation into the
National Action Plans (PAN) of the strategic priorities and of the guidelines established in the
matter of employment policies, enabling the coordination of the policies by the European
Commission, through the General Directorate of Employment and Social Affairs, and its constant
evaluation, resulting in the “ Joint Employment Report” , from which there are proposed
recommendations to the Member States and orientations (or even new guidelines) for the
development of the next National Action Plans.
The General Directorate of Employment and Social Affairs is responsible for the development
and monitoring of the “European Employment Strategy (EEE)”, encouraging cooperation among
the Member States in terms of employment policies, as well as supporting and complementing
their actions. It is also responsible for the administration of the European Social Fund (ESF), the
main financial instrument to converting into concrete measures the employment strategies of the
EU, contributing to the promotion of social and economic cohesion measures in the bloc.
Created in 1957, the Fund supports measures to prevent and combat unemployment, it promotes
professional development and improves the operation of the labor market. In partnership with the
Member States of the European Union, the ESF aims to reach a higher level of employment,
equality between men and women, sustainable development and social and economic cohesion.
The activities that can be supported by ESF include:
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Education and professional training projects;
Plans to promote and motivate employment and self-employment;
Initiatives to generate new sources of employment;
Improvement in the national, regional and local employment services;
Plans to strengthen the links between the working world and education and research;
Innovative measures and pilot projects to create work in local communities.
The ESF budget for the period of 2000 – 2006 totals something around 80 billion euros (around
11.4 billion a year). Together with the three other structural funds of the EU –European Regional
Development Fund (ERDF), European Social Fund, the European Agricultural Guidance and
Guarantee Fund (EAGGF) and the Financial Instrument for
Fisheries Guidance (FIFG), the ESF has contributed to the goal of diminishing the gap that exists
between the standards of living between regions and peoples as well as promoting social and
economic cohesion. The structural funds account for one third of the EU’s budget. It is worth
mentioning that the the European Social Fund provides an important lever to encourage and
support Member States to make their policies more active. Across the EU, ESF makes up an
estimated 8%5 of expenditure on active labour market policies.
The European experience with its employment strategy, its institutional arrangement, its
monitoring, evaluation system and the ESF financial support can serve as a blueprint for the
development of an “Inter-American Strategy for the Promotion of Decent Work”, supported by
the creation of a “Inter-American Fund for the Promotion of Decent Work”, within the
framework of the IACML, thus uniting all the actors and regional and international organizations
involved in the Inter-American System on Labor.
Taking the European experience as an example, the Inter-American strategy should consolidate
itself in pillars, which unfold into directives (lines of action), with specific goals and objectives.
The pillars of this hemispheric strategy could be as follow:
Foster employment and training of workers – gathering directives in terms of active
labour market policies and the building/improvement of public employment services;
II. Foster Entrepreneurial Capacity – guidelines geared towards programs that support and
foster entrepreneurship (small and medium enterprises, self employment, self-managed
enterprises, solidary economy, local production arrangements, etc.);
III. Equal opportunities – lines of actions geared towards promoting equal opportunities
among people and to combat any form of discrimination in the work and/or in terms of
wages, facilitate the balance between the family and the professional life (child and senior
care), as well as promote social corporate responsibility; and
IV. Social Dialogue and Democratization of Worker Relations – uniting guidelines geared
towards stimulating, structuring and consolidating the social dialogue, expanding the social
capital of the American countries, guarantee and promotion of fundamental labor rights as
well as increasing the scope of social protection for workers.
I.
The creation of the Fund itself is a sensitive issue, as it implies identifying permanent sources for
funding, its management structure and implementation, among other related questions. In the case
of the ESF, the resource pool comes from the EU budget. In the case of the American economies,
and in particular those of Latin America and the Caribbean, establishing the fund based on the
contributions of Member States to the OAS fund would be far from sufficient. Identifying
alternate sources of funding and relying on outside funding from international organizations
would be needed.
[translation incomplete as this last sentence was missing from the document]
Between 1994 and 2001, the Latin American and Caribbean region received in average, 25 billion
dollars a year in foreign portfolio investments. In that same period, the foreign remittance of
income from foreign investments reached in average an annual level of 68.4 billion dollars, 17.3
of which were in dividends and profits, 14.7 billion in investment returns and 36.4 billion in
interest payments10. A one percent tax on foreign portfolio investments and on remittances of
income from investments by foreigners would raise resources close to 1 billion dollars a year 11.
Even if it is not enough to cover the decent work deficit, it is a significant contribution towards
that end.
Data extracted from the Annual Statistical report of CEPAL – 2002 –(table 251)
It is worth mentioning that this estimation is underestimated, since the account in question represents the
surplus value and not that of the flow.
10
11
Bibliography
BUSTILLO, Ines & OCAMPO, Jose Antonio. “Asimetrías y cooperación en el Area de Libre
Comercio de las Americas”. Serie Informe y Estudios Especiales CEPAL /Oficina de la
Secretaria Ejecutiva. Santiago de Chile, mayo 2003.
Commissao Economica para a America Latina e Caribe (CEPAL). Anuario Estatistico 2002.
Oficina Internacional del Trabajo (OIT/ILO). Informe del Director General – Globalización y
trabajo decente en las Américas. XV Reunión Regional Americana. Lima, Diciembre de 2002.
Oficina Internacional del Trabajo (OIT/ILO). Panorama Laboral de la America Latina y Caribe
2002.
European Union Home Page: www.europa.eu.int