The ILO is mandated both by its Constitution and by the United Nations to examine the functioning of economic, social and financial policies from the perspective of employment creation as a central goal. Full, productive and freely chosen employment is the primary means of reducing and eventually eliminating extreme poverty. Moving toward this objective requires a steady and brisk pace of growth that is sustainable in environmental, social and economic terms.
The global jobs deficit is a consequence of employment growth in the 1990s of 1.4 per cent per year falling behind the 1.7 per cent per year increase in the world’s labour force. Annual job creation therefore needs to rise above the 40 million registered over the last decade and substantially exceed the annual inflow of new entrants of about 48 million.Furthermore, to put the world on track for halving extreme poverty by 2015 the productivity and earnings of working people living in poverty must also rise significantly.
Improving productivity, especially in countries with a high incidence of poverty, creates conditions for faster sustainable growth in output and the quality and quantity of jobs. The ILO has constructed scenarios to illustrate the order of magnitude of productivity and output growth that could lead to a job-creation rate that would reverse the upward trend in unemployment and improve the incomes of working people living in poverty. These scenarios suggest that the 1 per cent annual rate of growth in world per capita GDP recorded during the 1990s needs to be doubled to over 2 per cent annually, sustained over several years, in order to create a pattern of employment development that would help halve extreme poverty by 2015. Faster progress in the developing world is essential, with a sharp acceleration in per capita growth for Africa, the Middle East, South Asia and Latin America and the Caribbean.
For many developing countries, achieving and sustaining a pace and composition of growth consistent with a substantial reduction in poverty is a major challenge. Purely national strategies for sustainable pro-poor and projobs growth are unlikely to succeed in a world in which economies are becoming increasingly integrated. This is why the ILO’s constituents – governments and employers’ and workers’ organizations – have developed a Global Employment Agenda as a key component of the Organization’s decent work strategy, with the goal of placing employment generation at the heart of economic and social policy-making.
A strategy that combines local action in a sound national macroeconomic framework with an international effort to boost and sustain investment and trade growth could yield a substantial global dividend in the form of poverty reduction and growing markets. Financial stability is important to the poor. They are usually least able to protect themselves when prices start to inflate. But in many cases tight fiscal and monetary policies have retarded expansion, often for long periods.
Furthermore, the scale and volatility of international financial flows, particularly investment in government bonds or on emerging stock markets, have caused major swings in exchange and interest rates, disrupting growth and hence poverty reduction. Many economic policy-makers seem to regard job creation as, at best, a supplementary outcome of pursuing the priorities of financial stability and open markets for goods and services, rather than a central objective for government policies, social dialogue and community action.
It is increasingly recognized that full liberalization of capital flows before strong prudential arrangements are in place to underpin domestic finance markets invites increased financial, economic and social risks. The international policy regime to prevent and if necessary control sudden swings in capital inflows and outflows needs further strengthening to ensure that developing countries and the poorest people within these countries do not carry the costs associated with speculative financial movements.
Alongside international measures to stabilize financial markets and open markets, governments and the social partners need to promote domestic growth by increasing the productivity of labour. Productivity growth is the main source of sustainable, non-inflationary improvement in living standards and employment opportunities. It sets the scene for faster growth and development, allowing greater scope for macroeconomic policies to be directed toward increasing decent work opportunities and the reduction of poverty. By broadening and deepening the forms of action described in Chapter 3, developing countries can improve labour productivity and the incomes of people living in poverty.
Productivity growth is founded on change in production processes to lower unit costs and shift toward the production of goods and services that yield higher returns. It entails changes in the way work is organized, the growth of new businesses and the phasing out of others. Managing change in such a way that the outcome is more and better jobs, especially for the unemployed and the working people living in poverty, is central to government employment policies. Involving the social partners in policy-making helps to build broad popular support for change and ensure that knowledge and experience of the world of work inform policy design.
Prioritizing poverty reduction requires a comprehensive approach to development that enables governments, and society as a whole, to balance competing claims on national resources to ensure that growth is sustainable and benefits most those living in poverty. As described in Chapter 4, the institutional framework for the regulation of markets is of central importance to this process. The challenge facing developing countries and their international partners is to implement economic and social policies and governance mechanisms for the market that ensure that communities living in poverty have access to the resources they need to improve productivity and incomes.
Where markets operate effectively and fairly, the price mechanism contributes to resolving competing claims for limited resources. However, markets alone are not able to ensure equitable access to public goods essential to sustainable pro-poor growth. The role of government is therefore critical to a successful drive to reduce poverty. The political process, which leads to decisions about taxation and expenditure as well as the mechanisms for market regulation, is a determining influence on poverty reduction. However, the voice of poor communities is often not heard in the political process. The freedom of people living in poverty to organize themselves and voice their concerns and aspirations is fundamental to a determined effort to shape more equitable patterns of development.
Although many developing country governments and their foreign advisers hoped that rigorous fiscal and monetary policies would create the stability needed to stimulate investment, growth and poverty reduction, these benefits are slow to materialize. Indeed, in some cases the social and political strains associated with these policies have made it even more difficult to set a course for sustainable growth. Building national institutions that settle conflicts, increase social cohesion and stimulate a brisk and steady pace of productivity growth diminishes the risk of political instability at home interacting with volatile international capital markets to create unmanageable economic shocks.
Moving toward a comprehensive framework for development will involve the creation of systems for consultation and participation of a wide range of representative social and economic forces. Governments must accept and lead such a process. The role of democratically constituted parliaments and local assemblies is also vital to the forging of a broad national consensus on development priorities. The social partners have a key role to play in promoting representative organizations of small businesses and workers in the informal economy and seeking ways to ensure that people living and working in poverty organize and have a say in policy-making.
In a world where the opening up of national economies to global markets challenges the policy sovereignty of nation States, social dialogue enhances the capacity of countries to choose their own path towards sustainable pro-poor growth. A number of governments have found that social dialogue with employers’ organizations and trade unions can help achieve a convergence of expectations about economic developments. This reduces the risks of financial or social instability or reduced trade competitiveness undermining employment creation and sustainable pro-poor growth.
The contrasting experiences of the Republic of Korea and Indonesia during the Asian financial crisis shows that social dialogue can accelerate recovery from financial shocks and help create conditions to avoid or diminish future turbulence.
9 In the Republic of Korea, a national tripartite committee helped develop social protection policies that resulted in a sharing of the burden of unemployment and avoided an excessive increase in poverty.
More intangibly, social dialogue reassured domestic and foreign investors that financial stabilization would not be at the price of social or political instability, thus shortening the recession and accelerating the recovery. Indonesia, without the benefit of independent and representative employers’ and workers’ organizations at the onset of the crisis, was slower to develop the accompanying social and employment policies needed to buttress financial responses to the crisis, and has suffered a longer and deeper recession.
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