DAWN (Pakistan), Opinion, By Sabur Ghayur
MANY in the developing world and some significant ones in the industrialized countries have been voicing their concerns and even challenging the policies of international financial institutions (IFIs), and speed and sequencing of the three important components of globalization and free trade regime, namely: deregulation, market liberalization especially of the capital, and privatization and disinvestment of state-owned enterprises.
The on-going process of massive restructuring, mergers and acquisitions, especially by the multinational corporations (MNCs), and the consequent downsizing have led to deteriorating employment, working and living conditions across the globe. In the developing world, the number of enterprise closures and sick industries have multiplied during the past couple of years. Such practices and the very process of globalization, have added tens of millions to the already unemployed, and at least three times of these newly unemployed have been an addition to the global poor.
The nature and extent of the fall-out of the IFIs' policies and globalization and free market economy, can be gauged from the Thai experience. The double-digit decline in economic performance during 1997-98 attributed to the speed and sequencing of market liberalization, and the consequent currency crisis in the region, increased the poor by over a million, and as a result, 12.9 per cent of the population plunged into poverty. The situation also turned the Thai economy from one of an importer of a million foreign workers to the one with an unemployment level reaching two million in the crisis years of 1997-99.
Indeed, the process of globalization and policies of IFIs grossly lack employment considerations. Let us take the Indian case. The country opened up the economy in the early nineties at the behest of the erstwhile IFIs, particularly the IMF. There did occur a rapid growth of the industrial sector, but at what cost? The process made 600,000 small-scale and 125,000 large-scale industrial units sick. The rise of industrial sector was accompanied by an employment growth of just half per cent in the formal sector during the same period.
To correct the situation entered IFIs - the World Bank, the International Monetary Fund and the Asian Development Bank - with their own set of stabilization and structural adjustment programmes. The thrust of the IFIs' initiatives has been in the direction of spending cuts, restructuring, institutional reforms, enterprise closures, corporate governance, privatization, and reforming the banking and financial sector. In an environment of serious socio-economic problems and liquidity crunch, many wonder about the need and rationale for such a broad-spectrum agenda.
One must, however, hasten to acknowledge the assistance being provided by the IFIs to the "beneficiary" countries. They have also emerged as major donors for a significant number of developing countries. One half of Pakistan's debt, for instance, is owed to the IFIs since 1958. No doubt, they are now an important source of medium- and long-term concessional funds as well as short-term stabilization assistance. The need for putting some conditions on the recipient countries is also clearly understood.
This notwithstanding, the IFIs' policies are largely unrelated to ground realities. The conditionalities imposed are not only too harsh but also have serious socio-economic implications. The emphasis of the IFIs on the sale of state-owned enterprises at a time of recession is one such example. Who will buy these? And if some are found willing, then what will be the price they can offer? The policies of the IFIs have lacked a balance between the consideration of economic and financial stabilization, needs and those of social development.
No wonder, frustrations and helplessness lead to street agitations. The debacle of the WTO ministerial meeting in Seattle in 1999 was a manifestation of such growing impatience. This mood was also reflected in this year's contention-ridden spring meeting of the IMF and the WB in Washington and the annual board meeting of the Asian Development Bank in Chang Mai, Thailand.
How to humanize the IFIs' policies and the whole process of globalization thereby making it amenable to employment and social unperatives? This would require steps in many directions.
Firstly, the social priorities will have to be increasingly integrated in any programme planning and implementation. The emphasis on growth maximization should be blended with employment maximization and social justice. This requires a vigorous pursuit of an active labour market policy. This implies an adequate focus on employability of the workforce. It can be ensured through training, retraining, labour market monitoring, employment counselling, vocational guidance, and if need be, by resorting to direct employment creation programmes.
The social dimensions of development also demands evolving, in a phased manner, social safety nets. The process, in the first instance, should focus on retirement benefits, retrenchment benefits, health care, and education and training provisions for male and female workers and their children. At a later stage it can be extended to cover unemployment allowance. These propositions, it is important to point out, fit into the recently declared intentions of the IFIs in the region regarding poverty eradication and social development.
The experience of the industrialized countries and even some of the newly industrialized countries have clearly demonstrated the usefulness of functioning trade unionism at workplaces and institutionalization of social dimension of development.
Secondly, the need for effective regulation of the international financial markets and reform of the international financial architecture. The free flow of capital - the hedge funds, speculative investment, highly leveraged investment, etc. - will have to be monitored and controlled. The on-going efforts on reforming the international financial architecture should result in a functioning mechanism in terms of transparency, greater information, better regulations and enforcement of banking and financial standards. An important component will be reforming the IFIs by making them more transparent and participatory. In fact, they should effectively and visibly involve civil society in their policy formulations as well as in the execution of these.
Yet another related step would be exploring the possibilities of establishing regional agencies complementing the IMF in different continents. Parallel to the ADB, here in Asia, one can work for the establishment of the Asian Monetary Fund whose task should be to work closely with the international financial agencies for currency stabilization and regional surveillance and for the maintenance of banking standards and prudential regulations. More important, it should raise sufficient funds through contributions from the member countries and use them for ensuring liquidity should there arise a need as well as help in the establishment of social safety nets in the member countries.
Thirdly, protection to the production structures in developing countries must be ensured. Their manufacturing and service sector is simply incapable to compete with those in the industrialized and even in the newly industrialized countries. This would, however, have to coincide with a faster growth of domestic market and bringing efficiency in the use of factors of production.
Fourthly, the matter of privatization of the state-owned enterprises. It is certainly not a panacea for the ills confronting the public sector. Their existing situation is largely attributed to mismanagement, lack of transparency and accountability. Besides, the experience of privatization with respect to growth in output and employment in many countries has been frustrating. Hence, professional management is preferred to privatization.
In case privatization is deemed necessary, it should be ensured that countries have done proper valuation of assets. There is a difference between disposing of profit and loss-making units. The process of privatization should be transparent. It is important that the new owners are genuine entrepreneurs and are neither crony capitalists nor real estate developers under a new garb. The proceeds of privatization should be used for debt retirement and social development, and the conditions of work and size of employment of the privatized units should remain unchanged and should be altered, where necessary, only through mutual consultation of employers and workers.
Lastly, a functioning social dialogue is desirable. It should be integrated in the overall process of policy- and decision-making including those related to the international trade and investment. In its wider aspect, it should aim at: 1) raising the education and training level of employees, 2) adherence to the internationally recognized standards of labor, quality and environment, 3) greater transparency and accountability, and 4) good governance.
The challenges confronting us today in the midst of globalization and free market economy demand concrete steps. There should be a strengthening of financial market supervision and regulation. Transparency and market discipline will have to be put in place together with an effective regulatory mechanism. Good practices in the area of governance will have to be fostered. Democratic institutions will have to be strengthened. Also, regional cooperative mechanisms will have to be erected.
Can we leave all this to the whims of free market forces, politicians, and the bureaucracies of governments and the IFIs? Participation and partnership is the key to humanizing the whole process.:
