Rethinking Bretton Woods | Thu, Sep 9, 2010
The UN Non-Governmental Liaison Service released Decent Work and Fair Globalization: A Guide to Policy Dialogue.
The recent world economic and financial crisis has dramatically increased the credibility of UN, civil society and other voices calling for a major overhaul in current approaches to economic governance. An essential anchor to leverage such change is the 2005 commitment of all Heads of State and Government to strongly support a “fair globalization” and to make “full and productive employment and decent work for all” a central policy objective in all relevant national and international policies, including to meet the Millennium Development Goals (MDGs).
The new NGLS publication aims to map out the ramifications of this commitment in terms of better holding economic governance institutions accountable to full and decent employment goals. It also aims to help strengthen the advocacy of civil society organizations campaigning for greater economic and social justice by providing tools for more informed policy dialogue on how to align macroeconomic, trade and financial policies with these new objectives.
In its chapter on trade, the report not only refers to unfair rules in the trade system, but also to the unfairness created by the absence of rules in certain issues whose “effects on trade and employment are much more significant than modest movements in tariff rates and non-tariff barriers.” In doing so it quotes a demand made by the International Working Group on Trade-Finance Linkages in its submission to the UN Commission of Experts on Reforms of the International Monetary and Financial System last year (available at http://www.coc.org/node/6349): “The fast dissemination of the crisis shows that the fate of developing countries in the trading system does not lie so much in the achievement of enhanced market access as on meaningful reforms to the international financial architecture in which context such trade is conducted.”
The relevance of other trade-finance linkages to the employment and decent work agenda is also usefully covered and substantiated in the report. Addressing macroeconomic policies for decent work the report refers to the role that “capital management techniques” can play both in the governments’ duty to protect the right to work by preventing as much as possible financial instability and crises that lead to the unnecessary destruction of jobs and often permanent deterioration of average wages and its duty to fulfill decent work-related human rights, notably through regulating finance in a manner that will maximize productive employment creation.
Yet, the financial deregulation provisions in a number of other bilateral and regional agreements that many developing countries have already signed or are in the process of signing, restrict the ability of countries to implement such capital management techniques.
Reviewing such agreements is a necessary part of the intensified international cooperation called for in the Global Jobs Pact, says the report In a chapter on reform of the international financial system, the report takes on the connection between trade deficits/ surpluses and the reform of the global reserve system.
In the current system, the guide argues “countries with large trade deficits are told to cut them back,” but without comparable pressure on large surplus countries. If a country cannot boost its export earnings sufficiently to close its trade deficit, it depends on capital inflows to make up the difference, needing to resort to contractionary policies if such inflows are not forthcoming or the IMF, as often is the case, is not ready to provide them under different scenarios. The deflationary bias of the system has been compensated to some extent by the fact that the United States, as issuer of the world’s global reserve currency, has been able to sustain large trade deficits for a long time. But this, in turn, has led to a new version of the so-called “Triffin dilemma:” with the dollar becoming the main choice for settling international payments everywhere, deficits in the US can only increase. These deficits tend, in turn, to erode confidence on the sustainability of the US dollar-based system, but the consequences of diversification of reserves are a fall in the value of the currency, so all actors tend to hold onto their dollar-denominated assets.
The response, in the form of countries building their own large stocks of US-dollar based assets through trade surpluses, represents a reduction in aggregate demand that ultimately runs against global full employment. The report proposes a solution in the form of an annual emission of an international currency that would be targeted to offset the increase in “non-borrowed” reserves – meaning to compensate for reductions in global purchasing power resulting from excessive reserve accumulation. The system of allocation could also have built-in incentives or penalties to discourage countries from maintaining large surpluses. Such system goes back to Keynes’ ideas on an international currency. Though it could build on the Special Drawing Rights (SDRs) issued by the IMF, assuming that they are reformed in important respects, including their allocation basis.