Thursday, 4 August 2016

Is the G20 “Enhanced Structural Reform Agenda” serious about inclusiveness?

Pierre Habbard: Recently, the G20 Finance committed to a new — but yet to be made public — “Enhanced structural reform agenda”. Ministers also called for the “benefits of growth” to be “shared more broadly”. 

Will the two fit together? And, will they lead to policy change?

The G20 Finance Ministers and Central Bank Governors meeting in Chengdu in July, was the last in a series of Ministerials held in the run-up to the Leaders’ Summit, 4–5 September Hangzhou, under this year’s Chinese presidency. 

The statement has the usual “we re-iterate” commitments language. Compared with the recent G20 Finance statements however, there are two novelties that stand out: (i) the unusual wording (for finance ministers and central bankers) on the need for growth to be “shared” within societies and (ii) the endorsement of a blueprint “enhanced structural reform agenda”.

Let’s start with the new wording on growth. “The benefits of growth”, we are told, “need to be shared more broadly within and among countries”. The outcome of the Brexit vote in the UK is flagged out as a wake-up call. 

Jack Lew, the US Treasury Secretary, said: “The [UK] referendum reinforces the importance of concentrating on shared growth. […] The benefits of growth [should] not just go to the bottom lines of businesses or investors, but also [to] working families and the middle class.” He added that the G20 needed to “redouble efforts” to boost “shared growth”.

Terms like “shared growth”, “inclusive growth” and “inclusiveness” can have different meanings, but they are all linked to the evidence of rising inequalities, of the growing gap between the “bottom 40%” and the top 1% and the shrinking of the middle class.

At the OECD, the prevailing view is that reducing inequalities, and hence enhancing the “inclusiveness” of policies, can be achieved by reducing skills gaps and mismatches within and between generations and by adding a few layers of safety nets for the poor and the deprived.

For trade unions however, it might take more than that to effectively reverse the income inequality trend, where weak wage levels are disconnected from productivity gains; in precarious jobs increasingly becoming the norm; job and income insecurity for all, including the higher skilled and the middle class.

TUAC called for an end to “past policy errors that have weakened labour market institutions [and] replace collective rights with individual responsibilities”. This is also the key message of trade unions to the G20 leaders meeting in Hangzhou: to obtain a “refocused structural policy agenda that rebuilds strong labour market institutions to create quality jobs and to reduce income inequality”. On that, the G20 Labour & Employment Ministerial in Beijing in July offered some encouraging signals in pledging to promote coverage of and compliance with minimum wages and collective bargaining.

But what about the G20 Finance? Beyond its general concern about growth that needs to be shared, is it taking “inclusiveness of policies” and inequalities seriously? But G20 Finance also endorses a new “Enhanced Structural Reform Agenda” consisting of no less than 48 “guiding principles” to which an undisclosed number of indicators are added to help monitor implementation of these principles.

At the time of writing, the 48 principles and the associated indicators have not been made public. They were negotiated behind closed doors with no stakeholder consultation — at least as far as trade unions are concerned. At this stage, all we have are nine “priority areas” agreed at the April meeting of the G20 Finance:
  • Promoting Trade and Investment Openness
  • Advancing Labour Market Reform, Educational Attainment and Skills
  • Encouraging Innovation
  • Improving Infrastructure
  • Promoting Fiscal Reform
  • Promoting Competition and Enabling Environment
  • Improving and Strengthening the Financial System
  • Enhancing Environmental Sustainability
  • Promoting Inclusive Growth

We can expect the usual emphasis on trade liberalisation and de-regulation: recommendations to further reduce trade barriers, promote trade and investment treaties, eliminate “restrictive regulations” and “excess burden of regulatory compliance” on private businesses. 

The heading on “Promoting Fiscal Reform” could, however, entail a shift away from the classic regressive tax reform OECD blueprint dating back to the Going for Growth edition of 2009. That could be assumed based on the latest OECD G20 submission on “tax design for inclusive economic growth” (reviewed in the previous two blogs). There is a stand-alone chapter on “Promoting inclusive growth”. 

The acid test for the importance and orientation of the “inclusiveness” of the G20 Enhanced Structural Reform Agenda will be the content of the “labour market reforms” chapter. Will it be a continuation of the past or, akin to the G20 tax policies, offer a change of direction or at least a modest shift in focus?

It looks like we can expect no real change. The call to “rebalance protection from jobs to workers” may sound attractive considering the Danish model of “flexicurity” but OECD discussions so far put far more attention on the “flexi” and far less to the “(se)curity” part. 

And while the OECD concern for reducing “labour market duality and informality” is a legitimate one, past experience shows that it is an implicit call for weakening employment protection legislation even further — giving more freedom to employers to get rid of workers at short notice. 

Finally, the proposition to make wage-setting mechanisms more flexible and “more responsive to local conditions” can be seen as a call for an end of sector-wide, branch-level collective bargaining agreements. While the OECD submission concedes that this package could depress workers’ wages, it claims that this “may be mitigated” by simultaneous reforms in the area of competition and bankruptcy: “The price reduction resulting from product market reforms eases the downward pressure on the real wage and at the same time, labour market reforms facilitate the necessary reallocation of workers”.

In sum, a relatively classic formula for labour market de-regulation, and for individualisation and transferring risks from employers onto workers. Not exactly something anybody would see as too inclusive.

Pierre Habbard is an economist with the Trade Union Advisory Committee to the OECD.

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