The G20 and the Labor Ministerial Meeting

It is not surprising that the United states, which is properly concerned about the unemployment situation and the fact that employment is lagging behind output recovery, should use its influential position in the G20 to convene a meeting of the Employment and Labor Ministers on the jobs situation prior to the next G20 Heads of State meeting in Canada.

The macroeconomic aspects of the labor situation are indeed a proper focus of such a meeting. But the Pittsburgh declaration goes further and urges the G20 countries not to “disregard or weaken internationally recognized labor standards” and to “implement policies consistent with ILO fundamental principles and rights at work.” This however is certain to put the United States and India at loggerheads, for reasons that I and Arvind Panagariya have spelled out in an op-ed in India’s leading daily, The Times of India (February 23, 2010).

The main problem is that, driven by their fear of competition from developing countries, the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) has long wanted to moderate the competition from these countries, with India and China among the ones most feared. Their problem is: how to get the protection. The raising of labor standards abroad through trade treaties and institutions is their answer. Increasing the cost of your rivals is a surefire way of moderating competition; such “export protectionism,” as distinct from conventional import protectionism, has been the preferred solution for several years now.

Thus, when the unions in the United States and the European Union insist on a set of labor standards in the developing countries with which they compete for markets at home and abroad, they take an altruistic line: we are doing this out of solidarity; we are doing it for your workers. But when you push them hard, they always say: it is “unfair” to have to compete with others who do not have our standards. Now, the latter is an argument about competition; it is about losing out in trade; so it is an argument motivated by self-interest, not altruism.

The traditional demand by U.S unions has been that others should have the same standards as the United States does. But this argument is comic, were it not tragic. Is the United States a paragon of virtue on labor standards? After all, less than 10 percent of its private workforce is now unionized. And this is because the main weapon that unions have, the right to strike, has been crippled by the Taft-Hartley legislation of over 50 years ago. So, the U.S. unions have shifted to asking for IL0 “core standards” instead. But this will not wash either. The United States has not even ratified many of these core conventions. So, in effect, this version is also to be aimed at others, not themselves.

By trying to sneak such export protectionism through at the Labor Ministers’ meeting, the United States is undermining its bona fides as a responsible leader in the world economy today. It is also setting up a gratuitous, labor-lobbies-led conflict with India.