Select Committee on International Development Appendices to the Minutes of Evidence


Memorandum submitted by War on Want


  1.  War on Want welcomes the Government White Paper on Globalisation. It provides a useful contribution to one of the greatest debates presently facing the planet. Reducing globalisation to simplistic notions of "for or against" is far from helpful. Opposing globalisation is like opposing the tide. It cannot be stopped but it can be regulated, shaped and controlled. The debate which is needed is what form that regulation and control should take.

  2.  The language of the White Paper represents a refreshing approach from the Government. The recognition in the covering press release that "if we go on as we are the poor will become more marginalised" is a helpful acknowledgement that the absolute pursuance of free trade at all costs has not had a positive impact on the poorest people in the world.

  3.  Unfortunately the detail of the policies within the White Paper do not reflect this refreshing thinking. War on Want submitted evidence to the Government as they drafted the White Paper. Our evidence covers the two areas of globalisation in which we profess to have expertise, that of International Capital Flows, and the support of Core Labour Standards. In both of these areas we were disappointed with the detail of the Globalisation White Paper.


  1.  The Globalisation White Paper seeks to discuss the most effective ways that globalisation can deliver wealth to the poorest people in the world. War on Want contends that support for core labour standards is critical to this. War on Want's overseas partners welcome news that companies such as Marks and Spencer outsource their production to countries like Bangladesh. Jobs in export-oriented industries are likely to be better than no jobs.

  2.  But globalisation can pit worker against worker, driving down wages and conditions around the globe to the lowest possible levels. If workers in Bangladesh are too expensive, production can easily be moved to China, and then on to Sub-Saharan Africa, and so on, ensuring that absolute lowest costs are always achieved.


  Therefore wages will never get above a subsistence level. Workers will always accept the minimum that they need to stay alive. This is why globalisation has not delivered the benefits that it might have promised. Workers are not left with any spare money either to inject into the local economy, or to send to their families. The universal implementation of core labour standards will end this race to the bottom and allow benefits to be distributed more equitably.

  3.  But how can core labour standards best be achieved? The White Paper is disappointingly silent on this matter. A box on page 29 restates the support of the United Kingdom Government for the ILO's Declaration on Fundamental Principles and Rights at Work. It focuses particularly on child labour and on the efforts being made through the Ethical Trading Initiative to persuade multinational companies to adopt voluntary codes of conduct. This initiative, while welcome, does not go far enough. The voluntary code system is severely limited in terms of it monitoring and verification process. Often codes do not include reference to the most important core labour standard—that of freedom of association. ILO conventions on core labour standards have been in existence for many years. They have been agreed by most developing countries but they are not implemented, because the countries are afraid that to do so will lose a competitive advantage to other developing countries.

  4.  In these circumstances the only way forward is the universal enforcement of core labour standards through international law. World trade treaties might be the most appropriate home for enforceable core labour standards, carrying with them sanctions for non-compliance. Indeed the UK Government and the EU supported their inclusion in the Seattle talks. The inclusion of this so-called "social clause" in trade talks is controversial because of the fears that it could be used for protectionist purposes by wealthy countries against the poor. In spite of this good progress was made in Seattle towards a compromise position involving a joint working group of the ILO and WTO under which could be developed incentives for compliance with core labour standards rather than punishments for non-compliance. It is unfortunate therefore that in the Globalisation White Paper, core labour standards and world trade talks are not mentioned in the same breath. This represents a weakening of the Government's position. While recognising that the fears of the developing world about protectionism have some justification. War on Want would like the British Government to play a role in bringing together those who disagree on the social clause, to facilitate a compromise acceptable to all, which will strengthen the implementation of core labour standards throughout the world.

Questions for the Secretary of State:

    —  Will the Secretary of State agree that the attainment of core labour standards will lead to a more equitable distribution of the benefits of globalisation?

    —  Has the Government now discounted any possibility of linking core labour standards to world trade negotiations?

    —  Given that ILO conventions, widely supported by the international community, are widely violated, what measures does the Government advocate to ensure core labour standards are enforced around the world?

    —  Does the Secretary of State acknowledge that voluntary codes of conduct on labour standards, adopted by Multinational Corporations, represent only a relatively small weapon in the armoury, when it comes to improving workers rights around the world? And furthermore will she acknowledge that there are inherent dangers that certain elements of core labour standards, in particular freedom of association, will be left out of such codes while they are controlled by corporations.

International Capital Flows

  5.  One specific aspect of globalisation which has caused poverty is the growth and instability of capital flows. $2 trillion is now exchanged every day on world currency markets. This has increased 83 fold in the last 30 years. 95 per cent of the flows are not related to trade and are speculative. In 1997-98 high volumes of currency speculation resulted in an East Asian financial crisis. As a direct result the ILO estimates that ten million people were thrown out of work and poverty levels rose dramatically.

  6.  The Globalisation White Paper acknowledges the risks associated with the scale, speed and volatility of global financial flows. For the first time, the Government states that it is prepared sometimes to countenance "specific measures to help discourage excessive short term capital inflows". But it goes on to state that such measure should only be viewed as a "temporary means of facilitating the reforms needed to ensure orderly and sustainable liberalisation. This policy change, while welcome, only puts the Government into line with current World Bank thinking.

  7.  War on Want believes that unilateral capital controls can be a useful tool in the medium to long term for developing country governments seeking to build their economies and encourage long term capital investment, whilst protecting fledgling industries from the volatility of speculative flows. In our submission for the White Paper we described how Chile and Colombia have used such measures to good effect. We hope that the Government can continue to become more positive about this valuable option, and support developing countries when they choose to pursue these policies.

  8.  The White Paper goes on to describe the codes which Gordon Brown and his colleagues have come up with at the Financial Stability Forum to try and ensure less volatility. These measures (paras 173-181) concentrate on surveillance, transparency and the resolution of crises when they do occur. They are unlikely to reduce the levels of currency speculation or prevent crises.

  9.  War on Want believes that the levels of currency speculation that we are now seeing are inherently unstable and present a constant threat to emerging economies and the poorest people in the world. We favour the introduction of a currency transaction tax (Tobin Tax). Such a tax, set at a low level (say 0.25 per cent) would make the majority of speculative transactions unprofitable and thus reduce volatility in the market. At the same time they would not interfere with the market's genuine ability to correct inappropriate exchange rates. The tax would also generate substantial revenue (we estimate $250 billion pa) which could be devoted to poverty alleviation.

  10.  The Currency Transaction Tax is supported by the Canadian Government and the Finnish Government. The United Nations is currently undertaking a feasibility study. The single largest centre for currency transactions is the City of London so the British Government has a major role to play in building international support for the tax to be introduced.

Questions for the Secretary of State

    —  Does the Government accept that spiralling levels of currency trading inevitably create instability and an environment that brings too many risks for developing countries seeking to join the global economy?

    —  Looking at Chile or India or China, does the Government accept that unilateral currency controls imposed by developing country governments, can provide a very useful form of protection against the ravages of speculation and allowing an emerging economy to attract greater long term investment?

    —  Given that London is the location of more currency exchange than any other country in the world does the Secretary of State not agree that Britain should play an active role in building international political support for the introduction of a small tax on currency transactions?

War on Want

January 2001

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