This article examines recent changes in the approach of the international financial institutions to civil society organisations and trade unions. It examines the new approach of the IMF and World Bank and explores how trade unions may respond.

International Financial Institutions, Civil Society and the Trade Unions.
Professor Martin Upchurch
Middlesex University Business School
London, UK

The changing role of the IFIs

In the immediate post-War period international financial institutions under the ‘Bretton Woods’ arrangements, such as the International Monetary Fund (IMF) were utilised as a clearing house for funds to stabilise the international monetary system. In more recent years the role and influence of the IFIs has become increasingly contested and critiqued. The IFIs have been major agents of neo-liberal free market policies in developing countries, in that their policy prescriptions revolve around privatisation, public sector restructuring and labour market flexibility (Bello 2002; Ofer 2005). Critics of the IFIs have pointed, for example, to their subservience to the economic interests of creditors over that of recipients (Stiglitz 2002), to the ‘Faustian’ dominance of US military-industrial-political interest in policy formation (Gowan 1999), and to the asset-stripping nature of the process as ‘accumulation by dispossession’ (Harvey 2003). The rationale for IFI approach to economic management has been that a reduction in the role of the state will lead to more foreign direct investment (FDI), and that the reduction of labour costs will increase job creation and reduce unemployment and poverty. In one sense this is not an entirely new development. In the UK and western Europe after the war Marshall Aid had conditions attached which included trade liberalisation, monetary stabilisation and European economic integration (Carew 1987). Similarly when the British Labour Government took a loan from the IMF in the 1970s it was conditional on a reduction on public spending which translated itself into Chancellor Denis Healey’s ‘cash limits’ in the public sector. The IFIs today have broadened their scope of operation and have a number of policy objectives which affect labour relations. While the IMF focuses on macro-economic fiscal and monetary adjustment two-thirds of the World Bank’s operations are linked to internal policy reforms, many of which shape the employee relations environment such as pension reform, labour code amendment or public sector restructuring and pay (World Bank 2004a). An example is the IFI view of the Balkans region encapsulated in the World Bank’s Report (2004b) on Building Market Institutions in South east Europe where it is stated;

‘Achieving greater labor mobility and encouraging job creation will require that decisive steps be taken to improve labor legislation through-out the region. Deregulation, decentralization of collective bargaining to firm-level dialogue, improved flexibility of dismissal procedures, simplified wage adjustment and overtime pay, and introduction of fixed-term contracts are some of the reforms being debated to improve the transparency and functioning of the labor institutions in the region. Such initiatives, as well as formalization of the gray economy, are key to fighting the unemployment problem in the SEE8’.

The overall policy objectives of the IFIs can thus be summarised as follows:

• First is to encourage privatisation whereby the World Bank and IMF recommend that participating and recipient countries sell off publicly owned utilities and services in order to reduce government expenditure and encourage efficiency in production. The social cost of privatisation becomes a crucial area of concern for unions and one which they would be expected to seek to engage with in any process of social dialogue or collective bargaining.

• Second, the IFIs have encouraged labour market flexibility with the aim of relaxing laws on dismissals; removing barriers to recruitment; downgrading national minimum wages by lowering, capping or de-coupling the minimum wage from average wages; and eliminating limits on part-time working and working hours. A key policy focus has thus been Government led legislation to revise or rescind ‘labour-friendly’aspects of labour codes.

• Third have been proposals to restructure and reform the public services by introducing user fees for services; means testing of social benefits; reducing the public sector wage bill by cutting jobs and/or restricting wage growth; and altering pay systems to merit based rather than seniority based pay. The World trade Organisation (WTO) has also encouraged these processes through its General Agreement on Trade in Services (GATS). Similarly the Services (Bolkestein) Directive of the European Union has a central purpose of creating a single market for public services within the EU. These proposals have had implications not only for public servants but also for a whole range of state (and trade union) functions. They have often been accompanied with attempts to increase public sector transparency and reduce corruption, often by revising and reforming human resource management procedures and practices within public sector organisations.

• Fourth, has been pension reform, which usually involves system restructure with the net effect of reducing the value of pension payouts and/or increasing pension enactment age. This has proved to be a highly contentious area, especially as there is a linkage here with encouraging the provision of private, as opposed to state pensions.

A New IFI Approach?

One of the main criticisms of the IFIs has been their lack of transparency and accountability. The phrase ‘Washington Consensus’ and sometimes ‘Washington-Treasury Axis’ has been used to describe the US based power interest that dominates the policies and values of the IFIs. In practical terms the dominance of the Washington-Treasury axis was concretely expressed in the World Bank’s intention to construct a new Global Architecture of Governance (GAG) in line with former bank President James Wolfensohn’s outline of a Comprehensive Development Framework (Wolfensohn 1999). This framework promised a convergence of practices of nations across a whole range of economic and social policy and signified a ‘benchmarking’ approach whereby IFI policy is encouraged in recipient (and donor) countries. Some argue that this combination of ideological imposition, power in practice, and the consequent global institutional architecture consolidates a new dominance of finance based capitalism (Cammack 2002; Soederberg 2002). However, while the IFIs have created the new framework the net outcome is not merely in the interests of finance capital, but rather in the general economic and industrial interests of western, particularly US-based industrial capital.

Contemporaneously with Wolfensohn’s 1999 statement we can discern a shift in IFI policy and approach. This shift is a reflection of not only the acknowledged failure of the IFIs to address poverty[i] but also the gathering storm of ‘Northern’ global justice protests beginning in Birmingham in 1998 and Seattle in 1999. It also followed on from the 1997 East Asian financial crash, which at one time threatened to severely damage western based economies and which led to some sober reflection in the Washington-Treasury axis, not the least being the continued ability of the IFIs to finance reconstruction (Lavigne 1999). The new approach seeks to involve civil society organisations (CSOs) in IFI deliberations by allowing them to ‘participate’ and to engage in a process of poverty reduction on a country basis. Such a process might lead us to define a second cosmopolitanised (or Post-Washington Consensus) model of the IFI-labour relationship whereby, in pluralist fashion, conflict between labour and the IFIs is contained and resolved institutionally. This is significant in wider terms, as it raises further questions about the form and content of Social Dialogue frameworks within states, and what, if any, role the IFIs might play in the process. The new policy can be interpreted as a concerted effort to legitimise the Bank’s operations by a process of involvement and participation that rings familiar to industrial relations scholars.

The decision on the part of the two major IFIs to declare poverty reduction to be their overarching goal took place at the Annual Meetings of the IMF and World Bank held in September 1999. Two subsequent key World Bank documents consolidate the new thinking in approach[ii]. The first document emanated from the World Bank’s Social Protection Advisory Service as a Discussion document in 2004 (Egulu 2004). The paper, written by one of the International Confederation of Free Trade Unions (ICFTU) African representatives, focuses on the ‘weaknesses and shortcomings which have limited the effective participation of trade unions’ in the World Bank programmes and calls for ‘… more dialogue between the labour movement and the IFIs, strengthening trade unions, building union capacity and more analytical work on labor market policies and core labor standards’. (Egulu 2004: Executive Summary). The concern about lack of trade union involvement was earlier confirmed in an evaluative document of the World Bank of countries in transition where it notes the positive effect that trade union lobbying had had on limiting corporate corruption so that ‘…greater emphasis should be placed on building local constituencies – not merely entrepreneurs, but workers and reform-minded politicians as well – capable of demanding further policy reforms’ (World Bank 2004a: 20). Under the revised approach recipient states are required to draw up a Poverty Reduction Strategy Paper (PRSP) to identify targets for poverty reduction outcome indicators. This is then translated into a Country Assistance Strategy (CAS) which includes country political initiatives in return for financial assistance. They run in parallel with changes in the IMF, where in the field of macro-economic fiscal and monetary adjustment the former Enhanced Structural Adjustment Facility (ESAF) is now called the Poverty Reduction and Growth Facility (PRGF). The structural adjustment programs of ESAF have been controversial due to their emphasis on fiscal austerity rather than poverty reduction. The new approach is now meant to have a wider rubric, inclusive of poverty reduction. The targets will become conditions to be assessed by the IFIs to determine the country’s access to debt relief and loan support. In addition, the IFIs are anxious to encourage the involvement of both states and CSOs in drawing up the PRSP whereby both the IMF and World Bank stipulate that the PRSP is to be formulated by the borrowing government, rather than by the IFIs as has had been done previously. The World Bank approach to ‘civil society’ has since been clarified in a second key document that includes both NGOs and trade unions within a ‘definition’ of civil society organisations (World Bank 2005a). The document states that the Bank’s activities should include ‘facilitation, dialogue and consultation, and partnership’ (ibid p.ix). The report is quite clearly a response from the Bank to the growing global justice movement to which the Bank gives recognition. Referring to the development of the World Social Forum the document suggests that:-

‘There was an overall shift toward more peaceful engagement in the wake of the violence which occurred in 2000 and 2001 at the international meetings in Prague, Quebec, and Genoa, and particularly after the September 11, 2001 terrorist attacks, but experience shows that some groups remain committed to using obstructive tactics or even violence. With these more militant groups, there is little basis for the Bank to expect that constructive relations are possible or desirable. However, the evolution of the World Social Forum (WSF) and other civil society forums suggest that even some of the more radical social movements may be maturing, recognizing the need to move beyond using protest as an advocacy tool and engaging policy makers in serious debate about policy alternatives’(ibid p xi).

The above statement suggests that the IFIs, and the World Bank in particular, are now more open to dialogue with selected CSOs and are actively interested in monitoring effects of the PRSPs.

Some NGOs have already criticised the sincerity of the new approach. The European Network on Debt and Development, for example, after conducting an exhaustive survey of PRSPs, found that while the PRSPs do focus on safety net provision the macroeconomic policy remains indistinguishable from the previous era[iii]. Moreover, the degree of participation is criticised for being ‘little more than consultations with a few prominent and liberal CSOs’ (cited in Bello and Guttal 2005). Given the possibilities of a new approach of the IFIs the question then arises as to how should trade unions respond.

Trade Union Response

The new approach of the IFIs places trade unions in a dilemma. Should unions seek to engage with the IFIs in an attempt to moderate their policies, or should unions avoid engagement on the basis that the IFIs are merely seeking to incorporate opposition and legitimate their policies?

Much research on the effects of IFI conditionality, both before and after the ‘new approach’ has been conducted by the International Confederation of Free Trade Unions (ICFTU). The results so far, have failed to prove that the new IFI approach is operating in the collective labour interest. A Statement[iv] issued by the ICFTU and the Global Unions’ Federations (GUFs) in 2005 claims that ‘Although the IFIs frequently proclaim that that the “Washington Consensus” of the 1980s and 1990s is dead, classic structural adjustment conditions continue to be attached to the HIPC programme and many IFI loans’. Giving the examples of highly indebted countries such as Zambia and Uganda the Report found that ‘In a recent survey of Poverty Reduction Support Credit (PRSC) loans granted by the World Bank to thirteen low-income countries, the European Network on Debt and Development found that in eleven out of the thirteen cases the Bank imposed privatization conditions. In some cases, the PRSC conditions contradicted policies adopted in government-prepared Poverty Reduction Strategy Papers (PRSP). It is not only highly indebted countries that appear to be suffering from continued neo-liberal prescriptions. The same Global Unions report concludes that in Turkey in May 2005 ‘..the IMF approved a new $10 billion loan which included 29 new financial and structural conditions, including the generation of a sizeable primary fiscal surplus, privatization of $1.5 billion worth of state-owned assets within eight months, placing strict controls on public sector hiring, undertaking a review of civil service wages, and adopting new pension and social security reform legislation. The IMF also called for “improved labour market flexibility”’[v]. An ICFTU Survey of unions in Central and Eastern Europe and the Newly Independent States of the former Soviet Union in 2001-2003 found that the IFIs do not operate ‘in an open, accountable, transparent way’ and that ‘although a certain level of participation of trade unions….was achieved in the last three year period…there is still a lack of consultative mechanisms’ (ICFTU 2003: 7). Research by Upchurch (2005) into the former Yugoslavian states of Bosnia, Serbia and Montenegro, FYR Macedonia and Croatia comes to similar conclusions, with evidence of the continued introduction of labour market flexibility, reduction of public sector wages and pensions attached to loan agreements. What is worse, wherever trade unions were invited to submit their comments and engage in the deliberations of the IFIs their objections to many of the IFI policies were dismissed by the relevant Governments. The continuing interference of the IFIs in policy formation had also by-passed existing mechanisms of social dialogue.

The reasons for this policy impasse are not difficult to explain, and lay in the continued attachment of the IFIs to a view that only a liberalised economy and labour market can create the conditions for economic prosperity. The World Bank’s Doing Business in 2005 report, for example, continues to advocate ‘penalty points’ for those countries which continue to offer labour protection in their employment laws (World Bank 2005b). The over-riding policy framework of the IFIs is that workers will benefit from a ‘trickle-down’ effect as their countries become richer. However, with the policies as they stand, in such areas as the dilution of minimum wages, the dissolution of national collective bargaining into localised arrangements; the reduction of the public sector wage bill; and the removal of benefits for the unemployed and pensioners it is likely that inequality and poverty will be made worse rather than better.[vi] With this in mind the international trade union response must surely be to construct an alternative development agenda to that proposed by the IFIs’. Such an agenda should argue for the real ownership of aid-linked poverty reduction strategies by national governments, and the abandonment of ‘conditionality’ set by the IFIs. Furthermore, workers’ interests should be fully recognised by Governments in formulating anti-poverty strategies and the collective interest of labour should be fully represented by trade unions and collective bargaining, rather than within cosmetic forms of consultation and ‘dialogue’.

Useful Websites

www.worldbank.org
www.imf.org
www.icftu.org
www.psiru.org

References

Bello, W. (2002) Deglobalization: Ideas for a New World Economy, London; Zed Books
Bello, W. and Guttal, S. (2005) The Limits of Reform: the Wolfensohn Era at the World Bank, Bangkok: Focus on the Global South
Cammack, P. (2002) ‘The mother of all governments: The World Bank’s matrix for global governance’, in R. Wilkinson and S. Hughes (eds.) Global Governance: Critical Perspectives, London: Routledge
EBRD (2004) Strategy for Serbia and Montenegro, Document of the European Bank for Reconstruction and Development
Egulu, L. (2004) ‘Trade Union Participation in the PRSP Process’, Social Protection Discussion Paper No. 0417, Washington: World Bank
Gowan, P. (1999) The Global Gamble: Washington’s Faustian Bid for World Dominance, London; Verso
Harvey, D. (2003) The New Imperialism, New York; Oxford University Press
ICFTU (2003) ‘Trade Unionists: IFIs Patronising and Arrogant’, CEE Network, 29/30, Brussels, International Confederation of Free Trade Unions
Lavigne, M. (1999) The Economics of Transition: From Socialist Economy to Market Economy, Basingstoke: Macmillan
Mann, M. (2003) The Incoherent Empire, London: Verso
Ofer, E. (2005) ‘Reform of IMF Conditionality’, Journal of International Economic Law, 8, 2: 509-549
Soederberg, S. (2002) ‘The New International Financial Architecture: Imposed Leadership and “Emerging Markets”’ in Leo Panitch and Colin Leys (eds.) Socialist Register 2002, London: Merlin Press pp. 175-92
Stiglitz, J. (2002) Globalization and its Discontents, New York; Norton
Upchurch, M. (2005) ‘The International Financial Institutions as a ‘Fourth Actor’ in Industrial Relations: the case of the Former Yugoslavia’, Paper presented to the New Actors in Industrial Relations Workshop of the British Journal of Industrial Relations, London School of Economics, September 22^nd-23^rd 2005
Wolfensohn, J. (1999) ‘A proposal for a comprehensive development framework memo to the board, management and staff of the World Bank Group’, World Bank, 21^st January
World Bank (2004a) Economies in Transition: An OED Evaluation of World Bank Assistance, Washington D.C.: World Bank
World Bank (2004b) Building Market Institutions in South Eastern Europe, Washington D.C: IBRD/World Bank
World Bank (2005a) Issues and Options for Improving Engagement between the World Bank and Civil Society Organisations, Washington D.C.: World Bank
World Bank (2005b) Doing Business, Washington D.C.: World Bank

[i] Time Series Measurement of poverty levels can be found at the UN statistical database (http://millenniumindicators.un.org)

[ii] The brief of the IMF does not go as far a Social Protection and focuses on macro-economic policies. This is in contrast to the micro-orientation and poverty reduction brief of the World Bank.

[iii] See www.eurodad.org and Eurodad 2003 PRGF Matrix and Analysis, Eurodad, Brussels, 2004

[iv] The IFIs’ Role in Implementing Global Commitments to Achieve the Millennium
Development Goals, Statement by Global Unions to the 2005 Annual Meetings of the
IMF and World Bank (Washington, 24-25 September 2005)
[v] (IMF Press Release No. 05/104, May 2005 & Turkey: Letter of Intent and Memorandum of Economic and Financial Policies, April 2005).

[vi] Current estimates from the ILO show ‘…that in developing countries in 1997 around 534 million persons can be considered working poor. This was about the same number as in 1986 (536 million). Thus, in 1997 around 25% of the employed labour force in developing countries were working poor, the great majority of whom were living in low-income countries. The dynamics of the working poor population show that their numbers have increased in low-income countries, but decreased in middle-income countries. There seems to be also a polarization between those low-income countries where the number of working poor are declining and those where they are increasing thus exacerbating world inequalities’ (Employment Analysis – poverty, income and the working poor’ Geneva: IL0, 2005)

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