Wednesday, April 29, 2009

The Excesses of Globalization

The top three revenue earners in Kenya are tea, horticultural products and tourism. There is little interest in tourism after the 2008 post election violence, which has still to be resolved. Sales of horticultural products are depressed due to the global economic climate. And tea is a turbulent commodity; most plantations are owned by multinationals. It's not difficult to work out who benefits from the tea industry in Kenya.

In addition, most of the big players in Kenya in these sectors are foreign. They pay little or no tax; they employ as few people as possible; they pay them as little as possible. The country will never get rich from their top revenue earners because they are in the hands of people and organisations who are allowed to exploit the country for everything they can get, and are happy to do so.

The majority of people in these sectors are not permanently employed, are often part time and have little or no protection from their employers. You might expect the International Labour Organization's (ILO) 'World of Work Report, 2008' to give considerable coverage to Kenya and other African countries. But you'd be disappointed. There are mentions of African regions but there seems to be little data about most African countries. In the light of this lack of data, one may conclude that conditions in Africa are far worse than in other continents.

The report as a whole shows that income inequalities are increasing in most countries and have been doing so for nearly two decades. The conclusion is that the economic model that led to the current financial crisis is not sustainable and that balancing economic with social and environmental goals is vital to recovery, as well as to a reverse in the trend towards higher levels of inequality.

While a few, rich people, gained from the economic expansion preceding the current crisis, the majority did not get richer. Indeed, many became poorer. But it's that poor majority that must pay for the current financial rescue package. Those on high incomes have seen huge increases in their incomes. Those on low incomes have seen small increases or even decreases. Women in all countries, especially developing countries, are less likely to be employed and more likely to be employed on an informal basis. They also receive lower wages than men.

The ILO's report shows that financial globalization has played a major part in these increases in inequality. Unemployment has increased while productivity has decreased. Globalization has resulted in a significant increase in banking crises. The report argues that there is a need for regulation to limit the excesses of financial players and protect the vulnerable, who usually suffer the most when things go wrong.

The ILO also notes the issue of 'performance pay systems' for senior employees. This has resulted in large increases in executive pay that is not reflected in company performance. In 2007 in the US, executive pay in the top 15 firms was 500 times that of the average employee, compared to 360 times higher in 2003. Other countries experienced similar patters. The report suggests that executives are in a dominant bargaining position and the result is both an increase in inequality and a decrease in economic efficiency.

In contrast, the bargaining position of employees, trade unions and other labour institutions has weakened. There have been increases in part time and non permanent employment, which means lower pay. In addition, taxation has become less progressive, shifting the burden of tax from the richer sectors of the population towards the poorer. Redistribution and social protection are thus compromised.

The 'Decent Work Agenda' proposed by the ILO includes "well-designed labour regulations and social protection, and respect for basic workers’ rights" to achieve higher levels of employment and greater equality. They argue that, along with a reform of the financial architecture, this will contribute to a more balanced and sustainable economy. At the same time, it will help to address the social consequences of the current financial crisis.

The above suggests an opportunity for 'development by omission'. It is not acceptable for tax systems to move away from progressive forms of tax, ones that shift the burden from the poor to the rich. Nor is it acceptable for the highest paid individuals in a firm to have the power to award themselves ever increasing salaries and bonuses while the lowest paid get only small increases. The move towards less formal employment with the resulting drop in income only increases vulnerability. Big, private sector, employers have seen their profits swell for many years. The increase in profits has often been a result of cutting wage costs and this cannot continue indefinitely.

It's easy for employers to blame the economic slowdown, the rising cost of fuel, the food crisis and various other trends, but these labour trends have been worsening for a long time. They are inimical to both development and equality. The dogmatic claims for the benefits of globalization have not materialised. Employment has not increased as a result, it has decreased. Conditions have disimproved and there are rising levels of inequality.

Governments need to take into account the social consequences of globalisation, in addition to the economic consequences. This is especially true for governments of developing countries, such as Kenya. The government needs to keep an eye on employers who are increasing their executive pay, cutting employee pay and increasing their levels of temporary and part time employment. So far, they seem more interested in promoting the interests of employers, regardless of the costs to employees and the country as a whole.

The government need also to rebuild the health, education, social services, infrastructure and other public goods that have been allowed to decline for so long. Many Kenyans will not benefit directly from labour reform as most do not work in the formal sector. Any efforts at redistribution and redress needs to take this into account.

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2 comments:

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