It is an odd moment. The promise of globalization—the ability to benefit many people economically as well as enrich the world scientifically and culturally—continues to be undercut by the rules of the global economy that protect the rights of multinational corporations while ignoring the human rights and social and environmental concerns of workers. And while the mood swing today appears to be away from reliance on narrow market led strategies, corporate dominated trade liberalization continues.

 

 Despite a decade-long campaign by unions and nongovernmental organizations in support of labor rights and environmental protections, no progress was made at the World Trade Organization’s (WTO) Ministerial Meeting in Doha, Qatar, in November 2001.  Meanwhile negotiations proceed for a Free Trade Agreement of the Americas (FTAA) that would extend NAFTA-style rules to the entire Western Hemisphere. As has been the case with all corporate driven treaties, the business community has been advising negotiators and assisting in writing of the rules. Unions have been excluded from the talks and worker rights are not even being discussed.

 

The labor movement faces difficult choices in its approach to the global economy.  Can the institutions of the global economy be reformed? What political coalition, tied together by what program, can achieve reform?

 

There was a time, largely forgotten today, when the labor movement was part of a global coalition to create a multilateral trade organization (it was called the International Trade Organization or ITO) that was seen as encouraging full employment, development, labor rights, and higher living standards.  Its defeat, in large measure by the American business community, cleared the way, almost fifty years later, for the WTO.

 

This example of labor internationalism provides, I believe, guidelines (not a blueprint!) for labor’s current attempts to reform global institutions.  After examining this history I look at the crisis of today’s corporate dominated globalization.  I conclude by arguing that the labor movement should broaden its approach to the global economy by supporting a development agenda that would unite unions and other NGOs around the world in a campaign for global fairness.

 

 

The Spirit of 1948

 

In 1941, in the Atlantic Charter, where the aims of the post–World War II international system were first articulated, President Franklin Roosevelt and Prime Minister Winston Churchill pledged that at the war’s end they would seek to secure “for all countries and peoples improved labor standards, economic advancement, and social security.”

 

The labor movement supported the effort to create a postwar multilateral trading order. In 1945 the United Auto Workers Executive Board explained that to “make possible the further raising of our own living standards” we have “to win uniformly high standards of living for workers of all nations.” [1]  And the same year Emil Rieve, president of the Textile Workers Union of America proposed that the United Nations require that all nations seeking the benefits of international trade should be required to observe an International Code of Fair Labor Practices. Rieve stated, 

 

The disparities in conditions of living among peoples of the world and within each nation are enormous. But so long as these exist, fears for economic security are engendered. Alarms over competition become widespread. Trade policy becomes a tool for self-protection, rather than a means for the promotion of international development . . . . They promote discriminatory policies. They must be eliminated by improving the conditions and raising the standards of the people of the world . . . .  In the United States the right of the industry of one state to trade outside its own borders is dependent upon the observance of a Fair Labor Standards Act. The principles underlying this act must become the cornerstone of international relations.[2]

 

The original vision for the postwar international economic order called for three institutions. The first was the International Bank for Reconstruction and Development, better known as the World Bank. Its job was to finance individual projects to assist in “reconstruction and development.” The second was the International Monetary Fund (IMF), which was responsible for global macroeconomic management.  The third was the ITO, whose role was to define the rules for a multilateral trading system.  Much has been written about the Bretton Woods negotiations where the IMF and World Bank were created. Much less has been written about how the postwar order was stillborn from the beginning because the ITO never came into existence.

 

The ITO was negotiated in Havana in 1948 and signed by fifty three countries which were broadly representative of the countries of the world at the time. Thirty-nine of the countries in Havana—representing Latin America, Asia, Africa, and the Middle East  were developing countries.

 

By the time the ITO was presented for ratification by the U.S. Senate, American opinion had begun to swing against the UN and international institutions. But it was opposition from the U.S. business community that killed the ITO. [3] The Executive Committee of the United States Council of the International Chamber of Commerce had this to say about the ITO:

 

It is a dangerous document because it accepts practically all of the policies of economic nationalism; because it jeopardizes the free enterprise system by giving priority to centralized national governmental planning of foreign trade; because it leaves a wide scope to discrimination, accepts the principle of economic insulation and in effect commits all members of the ITO to state planning for full employment. 

 

Fearing that ratification had become hopeless, Truman decided not to bring the ITO charter to the U.S. Congress and the ITO was abandoned without a vote.

 

Business opposed the ITO for the very reason it stands as an alternative to the WTO. The ITO was not nearly as corporate influenced as the WTO. While the ITO contained an ambitious program to reduce traditional trade barriers, it also addressed commodity agreements, development, and business monopolies.[4] There were provisions protecting investor rights (although the American business community thought they were not strong enough) and labor rights.[5] The labor rights provisions, it is worth noting, were put in the ITO at the insistence of developing countries.  

 

The aim of the ITO was not to remove all nontariff barriers to trade. Trade barriers were to be reduced but in a way that recognized, as Robert Howse put it,  “the interdependency of different states’ trade and other economic policies.” [6] Take the issue of full employment. Jan Tinbergen (later to become the first economist awarded the Nobel Prize), in a paper submitted on behalf of The Netherlands to the Preparatory Conference of the ITO, proposed that sanctions be imposed on countries that do not pursue full employment policies. 

 

The well-known proposition that free trade brings to each country concerned a maximum of well being, can only be proved if it is taken for granted that under all circumstances the available productive resources will be used. If this full employment is not guaranteed, it might quite well be that protective measures, instead of being a disadvantage, bring an increase in a given country's well being

. . . .  For the community of countries the following very important question therefore arises: Will it be possible to eliminate the unhappy consequences of a depression caused by an inadequate employment policy in another country? . . . The community of countries adhering to a full-employment policy should have the right to restrict their imports from those other countries that have not followed an adequate employment policy. In order to avoid . . . deliberate nationalist trade restrictions, its supervision should be placed in the hands of an international agency, perhaps the International Trade Organization. [7]

 

While Tinbergen’s proposal was not incorporated in the final version of the ITO, it illustrates the kind of debate that took place about how an international trade organization could help workers. The contrast with the WTO couldn’t be stronger.

 

Failure to create the ITO left a gaping hole in the international architecture. Full employment, labor rights, and commodity agreements were no longer part of the multilateral system.  According to Hans Singer (a student of Keynes’ and a leading development economist at the UN in the late 1940s):  “I would venture the guess that if Keynes had realized that the ITO was not going to be established he might have wished to withdraw his support from the incomplete Bretton Woods system which emerged. GATT [General Agreement on Tariffs and Trade], which took the place of the ITO, contained none of the things which Keynes thought important, and stood for some things which Keynes in fact fought against.”[8]

 

The ITO was designed to regulate trade in a way that provided all countries with a way to adapt and adjust to competitive pressures without having to sacrifice equity and social justice. [9] This was the spirit of 1948.

 

It took almost fifty years for another multilateral trade organization to be created. By then the political climate was very different.

 

 

Rise and Collapse of the Washington Consensus

 

Starting in the early 1980s, fashionable opinion held that unfettered free markets, a reduced role for the state, and integration into the global economy provided the best formula for development. International financial institutions, the World Bank, and the International Monetary Fund (IMF) pressed developing countries to conform to the formula as a condition for their loans. In policy circles, the formula came to be known as the “Washington Consensus.”

 

It was in this context that the WTO was created. Business blocked the ITO because they believed it did not serve their interests. But forty years later

business—frustrated by the inability to force countries to reduce trade barriers, especially those that interfered with cross-border trade among transnational corporation

subsidiaries—sought the creation of the WTO with its formidable enforcement mechanism.

 

  Today the Washington Consensus is breaking up. Its legitimacy (along with the WTO’s) is declining in the face of slow economic growth, crippling instability in global financial markets, growing inequality, and the degradation of working conditions for large numbers of people.

 

One recent study compared the rate of growth in real Gross Domestic Product (GDP) from 1960–80 with the growth from 1980–2000 for 116 countries divided into quintiles according to per capita income. It found that the growth rate fell for every quintile from the earlier to the later period. Among the poorest countries in the lowest quintile, the 1980–2000 growth rates turned negative. Indeed, those nations that have grown the fastest over this period were those that most resisted the advice of the Washington Consensus.[10]

 

Trading volumes in developing countries have grown faster than the world average since the 1980s. Developing countries now account for a third of world merchandise trade. Manufactures account for 70 percent of developing country exports after hovering at around 20 percent in the late 1970s and early 1980s.

 

 Yet the United Nations Conference on Trade and Development (UNCTAD) notes that this massive increase in the volume of exports has not added significantly to developing countries’ income. The experiences of developing countries, according to UNCTAD, suggest a complex relation “between trade and growth, and they rule out an unequivocal causal link from the former to the latter.”[11] And a new report by the Economic Commission on Latin America and the Caribbean (ECLAC) concludes: “Historically, the periods of greatest export expansion have tended to coincide with lackluster economic growth, especially in Latin America and the Caribbean.”[12]

 

Why have developing countries not benefited from increased openness to trade and the successful implementation of the export led model of development?

 

Some countries have been unable to shift production out of primary commodities such as agriculture and natural resources. These markets have been stagnant and the general trend in prices has been downward over the past two decades.  And with the industrial revolution expanding into thickly populated districts of the developing world, manufacturing faces the sort of chronic overcapacity problems that agriculture has endured for most of the last century. Because many countries are now similarly positioned in the international economy—producing apparel, toys, and electronics for export—they must compete feverishly for investment by multinational producers. The result is an unending cycle of wage depression, decreasing benefits, and a lack of investment in education. And, in addition, workers lack the most basic rights (especially the right to free association) and are therefore unable to form unions and bargain for their fair share of productivity increases.

 

While there has been a steeply rising ratio of manufactured exports to GDP, this has not been accompanied by a significant upward trend in the ratio of manufacturing value added to GDP. It is often the case that transnational corporations have imported semimanufactured goods with technology already embodied. The value added in the developing country may then be due to low skilled labor and consequently create little income per capita.

 

Export led growth, especially when associated with export processing zones, leads to shallow development with weak linkages into the rest of the economy. Developing countries need to generate employment of a kind that contributes to high levels of sustained growth, to internal redistribution. Further trade and financial liberalization will do no more than deepen the existing patterns of inequality, and downward pressure on wages and fragmentation of the labor market. An ECLAC study of Mexican and Central American factories describes the failure of this development strategy:

 

The contribution made by [Mexican and Central American maquila factories] to economic growth is more modest than that which one could suppose upon seeing the volume of their activity. Should the maquila factories multiply in their current form, the countries would be specializing in supplying cheap labor, and [the sector’s] growth would depend on the continual cheapening of this factor. This is not compatible with a long-range strategy of growth with social equity.[13]

 

The contradictions of exportled growth stand to become sharper with China’s membership in the World Trade Organization. China has huge supplies of labor at rock bottom wages, and population growth ensures that this will hold into the future. It is not clear that any developing country can now enter the system with production costs below those of China, making it impossible for newcomers to enter the hierarchy of exportled growth.

 

There is a widespread agreement that the present “development” model is flawed, that the current trajectory of globalization is unsupportable and unsustainable. As Harvard economist Dani Rodrik argues:  “Forcing all countries into a single, neo-liberal development model would be unwise—in light of the political backlash from national groups—even if there were serious ground to believe that the model is economically advantageous. It is absurd when the evidence on the model’s economic superiority is itself in doubt.[14]” 

 

 

Politics of Reforming the Global Economy

 

An alternative to the Washington Consensus must have an international constituency. That constituency requires a program to unite behind. The international labor movement should make the development of that program, and a global campaign on its behalf, one of its top priorities.[15]

 

Unions have put great effort into trying to link respect for core labor rights to trade through the WTO.  The labor movement’s campaign, coordinated by the International Confederation of Free Trade Unions (ICFTU), has raised the visibility of worker rights, increased the emphasis on labor rights issues in multinational institutions such as the World Bank, and was a major force behind the adoption by the International Labor Organization (ILO) of the Declaration on Fundamental Principles and Rights at Work in 1998. Despite this, the campaign was derailed at the recent WTO Ministerial meeting in Doha where no progress was made on labor rights.

 

The campaign for worker rights has come under vicious attack from those who claim, among other things, that linking worker rights to trade is a protectionist ploy by northern unionists designed to undermine the comparative advantage of the South.  This is wrong for at least two reasons. First, workers from developing countries, at least those in independent free trade unions, are virtually unanimous in their support for enforcing worker rights and environmental protections in the WTO. More than two hundred national trade union centers from 143 countries endorsed a call for a WTO working group on labor rights as a first step toward enforcing worker rights. And the results of the first empirical survey of workers, from the North and the South, on their views regarding worker rights and trade, are striking:

 

Our data is unequivocal:  an overwhelming majority of respondents, 95 percent, held the view that provisions are needed in trade agreements to protect core labor standards. Further, of the remaining 5 percent, most were unsure rather than opposed. This level of support was evident across the two industries and across regions . . . .  Relatively few differences exist between these two groups. Indeed, in some cases . . . where differences do exist, Southerners in fact tend to hold views more supportive of a trade labor rights link.[16]

 

Second, criticizing worker rights as protectionism ignores the South-South dimension of this issue. Differences in labor rights and standards divert trade and foreign investment mainly among developing countries. The countries that suffer the most from the weak enforcement of core labor rights in China or Indonesia are almost certainly other developing countries with higher standards. The race to the bottom also occurs within the South.¹⁷

Labor rights are important because they lead to rising wages which lead to rising demand. Tom Palley, an economist at the AFL-CIO, identified seventeen countries that reformed their freedom of association laws and examined their economic performance in the five years before and after the changes. On average, GDP growth and manufacturing output increased while export growth decreased, which Palley suggests is a result of increased domestic demand. In another study of more than seventy countries, Palley shows that freedom of association is linked to higher wages, improvements in political governance, reduced levels of corruption, and improved income distribution.18

 

The ILO has recently launched a World Commission on the Social Dimensions of Globalization. The aim of the commission is to promote international dialogue on ideas to make globalization more inclusive. It is chaired by President Tarja Halonen of Finland and President Benjamin Mkapa of Tanzania. The international labor movement is represented by John Sweeney from the AFL-CIO and Zwelinzima Vavi from the Congress of South African Trade Unions (COSATU). Other members of the commission are politicians and academics from around the world. 

 

The dialogue will mean little unless the commission makes some bold proposals.  For example, the commission could propose that the ILO, by cooperating with the WTO,  play an important role in the protection of core labor rights.  The ILO could determine where core labor rights are being violated. Offenders would have a period of time to fix the problem. If the violations continue then other countries that adhere to the core rights should have the right to refuse, without being penalized by the WTO, to import products made in violation of them.  This has the merit of:  not involving the WTO in labor rights, drawing on the labor rights expertise of the ILO, providing countries with a strong incentive to enforce labor rights, and giving countries the choice of whether or not to impose sanctions in response to violations.

 

But labor rights, as important as they are, are not enough.  Transforming pent-up demand into an engine of growth should be at the center of the labor movement’s approach to the global economy. Having built the means of mass production, developing countries must now find ways to stimulate and finance domestic mass consumption to substitute for export demand.

 

A labor development program might include, in addition to labor rights, debt relief, supporting full employment growth policies at the national and international level, reforming WTO patent provisions to ensure affordable access to medicines, and breaking the WTO straitjacket preventing countries from experimenting with different institutional arrangements to pursue development. Support for this type of program would allow unionists to build strong alliances with developing countries and may make some governments in the South more inclined to take a more open attitude towards core labor standards.

 

As the largest democratically organized movement at the world level that is defending the vision of society based on the values of social justice, the international labor movement must take a leading role in the public campaigns for global fairness. There are no national solutions to the problems of the global economy. 

 

This is not a new idea.  In l948, developing countries, with the support of American unions, played a crucial role in transforming a rather modest U.S. initiative for an International Trade Organization into a broad-based proposal to put trade, labor rights, commodities, investment, and development at the center of a multilateral trading organization.

 

It is time to revive the spirit of 1948.