Jobs as the goal

Published : Jul 03, 2009 00:00 IST

THE International Labour Organisation (ILO), with its headquarters in Geneva, generally has a standpoint on issues of economic policy that differs in crucial respects from that of the Bretton Woods twins, the World Bank and the International Monetary Fund (IMF). The latter pair has traditionally emphasised economic growth and free markets as the key to growth.

The ILO, on the other hand, emphasises employment as an objective in itself and has focussed in recent years on the concept of decent employment. The volume under review presents the case for nuanced and employment-focussed growth policies, on the basis of empirical material on national and global employment trends in the 1990s. The study is primarily built around data on employment, gross domestic product (GDP) and other key economic variables pertaining to a large number of countries, mainly from 1990 to 2004.

The study divides the nations for which data are available into the following categories: developed countries (mostly western Europe, including Scandinavia and southern Europe, and North America plus Australia and New Zealand); central and eastern Europe, or CEE (mostly, former socialist countries of Europe); Commonwealth of Independent States, or CIS (mostly countries that were part of the former Soviet Union); other high income countries (defined as those with a per capita GDP of $10,000 or above in 2003 that are not major exporters of petroleum and are not normally considered developed); petroleum exporter developing countries (defined as countries where more than 50 per cent of the exports are accounted for by petroleum and related products); least developed countries, or LDCs (defined as in the United Nations categorisation); and finally, all other countries, collectively referred to as medium income developing countries.

The last category, which includes India and China and a number of South and Central American countries, is the largest group in terms of labour force and population.

After the introductory first chapter, we get a picture of the structure and evolution of the world labour force in the second chapter, which also goes into the main trends during the 1990s in terms of numbers and characteristics. Thus, we learn that of the worlds labour force in 2000,

23 per cent have no formal education while only 10 per cent have tertiary education;

only 2 per cent of workers in developed countries lack formal education while the figure for LDCs is 51 per cent; and

31 per cent of workers in developed countries have obtained tertiary education as against fewer than 2 per cent for LDCs.

As to future trends, the ILO estimates suggest that the share of developing countries including both medium income developing countries and LDCs in the worlds labour force will rise to 75 per cent by 2015, whereas that of developed countries will fall to 13 per cent.

In the third chapter, the authors highlight the huge asymmetry in the cross-country distribution of productive resources: labour resources are primarily concentrated in the developing world, while non-labour resources are predominantly owned and controlled by the developed world. They note that so far globalisation ...has not been a substantial force in reducing the asymmetries in the distribution of productive resources across countries.

The claim that freer foreign capital flows in a world of globalisation would reduce disparities and bring about convergence in the global economy has not been validated. Net foreign direct investment (FDI) inflow has been concentrated in a few countries. Such flows as did occur have often displaced domestic investment rather than adding to it. The authors suggest that one reason why FDI flows may have crowded out domestic investment is that they went into mergers and acquisitions of state enterprises that were being privatised. Also, the maintenance of high rates of interest to attract and retain foreign capital reduces domestic investment rates.

The authors conclude that ...the impressive growth of private capital flows across national frontiers has done little to increase investment per worker in developing countries. They make a case for foreign aid to augment the investment resources of LDCs.

If capital flows have not helped, what of labour flows? Evidence shows that in 2000 ...just 1 per cent of the adult population of less developed countries lived and worked in developed countries. While workers living abroad send home remittances that constitute valuable foreign exchange resources, this is often more true of the less skilled workers. On the other hand, the migration of highly skilled persons to developed countries causes a loss of valuable human capital for the poor countries.

They note that such migration cannot be considered beneficial to the poor countries since it has actually tended to increase rather than reduce the asymmetry in the cross-country distribution of skills.

Turning to the question of productive employment in developing countries, the authors correctly highlight the fact that the vast majority of people have no access to social protection of any kind for unemployment. As they point out, in the absence of institutionalised social security systems, only persons from relatively well-off households can really be in unemployment. Most people have to engage in some activity, whatever its productivity, in order to try and survive. In such an economy, total employment as such is a poor measure of the amount of productive work done. Poor countries are characterised by a dualism whereby a small formal sector with high productivity and wage labour as the dominant relation coexists with a much larger informal sector having a far larger number of people in self-employment and a smaller number in casual and uncertain wage employment.

Earnings from wages or own work are meagre in this sector and the productivity low. Growth of GDP in the 1990s has in most cases not meant a significant increase in formal sector employment, nor has it been associated with an increase in productivity in the informal sector.

The authors argue: Steady improvement in economies that are characterised by dualism and surplus labour requires simultaneous processes of rapid growth of employment in the formal segment and rapid decline in underemployment in the non-formal segment. Such simultaneous processes were rarely in evidence in developing countries in the 1990s. Policies aimed at achieving high GDP growth rates, by themselves, will clearly not help meet the employment challenge.

The authors suggest that to achieve more rapid growth of productive employment, policies must focus on encouraging domestic investment and developing explicit growth strategies for the non-formal sector. These must include public investment in infrastructure and the strengthening of credit and technology delivery systems to small, micro and household enterprises.

Oddly, despite their implicit concern for labour, the authors also say that labour market regulations must ...provide protection to workers without generating strong incentives for investment in capital- or technology-intensive products or for substitution of capital for labour. Given that there is not a shred of evidence to suggest that technology choices in developing capitalist economies have been greatly influenced by either labour regulations or wages, this is simply echoing the demand of big capital for flexible labour!

Examining the interface between employment and poverty reduction, the authors rightly debunk the claims of neoliberal economists that trade growth stimulates economic growth, which in turn reduces poverty, and that therefore trade growth reduces poverty.

They argue, again correctly, that poverty is rooted in poor employment conditions in the non-formal segment of developing economies. Surprisingly, they make little reference to the lack of productive assets such as land as a key factor underlying poverty. They conclude that policies for poverty reduction should aim at stimulating investment and output growth in the non-formal segment and ensuring employment-intensive growth in the formal segment.

Interestingly, they argue that public works programmes or employment guarantee schemes ... in practice ...often function as mechanisms for transfer payments to the poor while granting that in principle they can constitute investment programmes for the non-formal sector. Other issues dealt with in the book include the problem of persistently high unemployment of less skilled workers and the increase in non-standard and part-time employment in developed countries and the worsening unemployment problem in CEE and CIS countries.

The general conclusion from the experiences of all these as well as developing countries is the same: Economic growth improves the employment situation [only] when it is designed to do so. The corollary is that ...improving the employment situation must itself become a central concern, a core objective of policies worldwide.

While there is much that is valuable in the book under review, and much that is unexceptionable, it is somewhat disappointing that the authors have not taken neoliberal theology head on. The book uses data up to 2003 and covers a period of relatively less volatile economic performance in the developed capitalist world than has been the case subsequently. This may explain the assertions in the book about unemployment not being a very big issue in the developed world, at least for skilled labour.

However, in contrast to the period from 1945 to 1973, which saw rapid growth in the core capitalist countries, the period of dominance of finance capital since 1980 has seen far lower growth rates. Yet the negative role of finance capital hegemony on growth and its contribution to increased inequality find no mention in the book. The authors seem to accept implicitly many of the premises of neoclassical economics about the benign effects of free trade and mobility of capital even though their own empirical results induce healthy scepticism.

Nowhere is it confronted squarely that domination by finance capital and its cross-border mobility entails significant constraints on expansionary macroeconomic policies to boost output and employment. A glimpse of the acceptance of dominance of finance capital with its permanent strike against taxation is seen when the authors, after recommending job creation by governments in developed countries through expansion of public services, quickly add that the disadvantage is that such a strategy will require increasing taxes in many cases. The implicit presumption here is that taxation will drive away capital and that governments cannot run up deficits that will follow if taxes are not raised.

How different the world looks in 2009, at least as far as the state of neoliberal orthodoxy on fiscal deficits and financial innovation is concerned, as the neoliberal propositions on these matters lie in tatters! In any event, policymakers in India would do well to heed the advice of the authors on the importance of foregrounding employment in policy.

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