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Income inequality is a problem for business, growth and society

Interview - March 6, 2015

The interests of workers are represented at the G20 level by Labour 20 – L20 – which unites trade unions from G20 countries and around the world. L20 is convened by the International Trade Union Confederation (ITUC) and Trade Union Advisory Committee (TUAC) to the OECD. TUAC General Secretary John Evans spoke to The Worldfolio at the launch of L20 2015 in Ankara, and articulated the concerns and priorities of trade unions under Turkey’s G20 Presidency.


Some critics of the G20 claim it is an exclusive, undemocratic club that lacks transparency. How does the L20 ensure the voice of ordinary people around the world is represented on this stage?

First of all, after the crisis in 2008, the G20 came together and was reasonably effective in trying to stop the world from going into a global recession. The countries in the G20, covering over 80% of the global economy and two thirds of world’s population, were more representative than the G7 or G8.

However, on the labour side, we never wanted to just hear the voice of the G20 countries or even industrialized countries. Through what is now the L20, we have been able to present the views and concerns of the international trade union movement. For us the key issue, rather than just legitimacy, is delivering the goods in terms of trying to pull the global economy onto a high growth path and to tackle some of the issues we feel are now on the agenda in Turkey. We wait to see how they're going to deal with the questions about inequality, jobs, growth, and climate change. We think that, potentially, the G20 can shift the global agenda. It doesn't have legitimacy itself, but nevertheless it fits into other international processes which do have legitimacy. The real question is about its effectiveness: can we deliver the sort of policies and coordination that the global economy needs to get out of the ongoing crisis?

Your last point relates to one of the three “I’s” of the Turkish presidency: Implementation. How hopeful are you that, under the Turkish Presidency, the monitoring and implementation of agreed actions and targets will improve?

Well, if you look at the communiques and different actions plans which have previously come out of the G20, a lot of big decisions have been taken over the last 4 years. But, each time we come back to another meeting, growth forecasts are lower, unemployment is either the same or it is higher, inequality has increased. We are going into this G20 looking at implementation issues with an open mind.

One of the great claims to fame from last year's Australia Presidency was the agreement to raise growth by 2.1% to 2018. The problem is that this was agreed a year ago and growth is already half a percentage point lower than what had been predicted. So we're saying: let's talk less about 2018 and focus on what we can do now to try to increase aggregate marks, raise wages, get people into jobs and change the negative stock.

We did our own tracking exercise last year, where we looked at the conclusions of the Russian G20 Presidency and the different national action plans that were adopted in St Petersburg. What we found – and this was not surprising – was that a small majority of affiliates across the board basically said that most of the recommendations had been watered down.

We've done our own modelling as well around the question of whether you can raise wages because wage shares have been dropping for 30 years in most G20 countries. What would wage rises do for growth? Working with some academics and economists, we reckon that wage rises would be quite important in restoring some balance in the global economy because, basically, you need the help workers with incomes to buy goods.

Another key issue we will focus on is the declaration that was adopted by the Labour Minister in Australia on safe work places. It's a good, practical declaration. If Turkey could put it in place and drive that agenda, and also back up some initiatives we are talking about on supply chains, we could see some progress.

You have criticized this target of 2.1% global growth by 2018 because it assumes full employment…

… Yes. We work on the OECD, so we discussed the basis of the modelling with them and the problem of just focusing on the structural side. In the models they use, which are generally the liberal models, you get a shock and then you look at the end of the process. The model is based on an impossible economy because it basically assumes full employment. The Australian Finance Minister said in the lead-up to the Brisbane Summit: "This will create millions of new jobs". Of course it will, because you already assumed it has. Wishing it or assuming it does not make it so.

I also think there is a point of difference between us and some governments that the agenda of inclusiveness is really important. It has now been shown that rising income inequality is bad for growth. The real problem is that some of the recommendations on the structural policies, including some of those in the National Growth Plans from Brisbane, are likely to make inequality worse. When the IMF or the OECD are telling Italy or Portugal or Spain or Greece to decentralize collective bargaining and cut minimum wages, this actually increases inequality and is not going to lead to higher growth. 

There is more flexibility now at least. It's interesting that the OECD, which for many years has been very much opposed to minimum wages, has supported the introduction of a minimum wage in Germany, and they also supported President Obama's efforts to raise the federal minimum wage in the United States. I think strengthening collective bargaining and labour institutions is part of the solution to inequality.

L20 is also trying to promote a transition towards a low carbon economy. One of the G20 discussions is likely to focus on how to lower the costs related to renewable energy, which are seen as prohibitively high in some quarters in relation to the amount and reliability of energy generated. What impact is this proposed transition likely to have on jobs and quality of life?

Firstly, on the point you made about the costs of renewables, this depends on the cost of non-renewables. We are obviously on the side of those who view the current crude oil price as being out of line with the long-term fundamentals regarding energy prices. Energy issues are going to be difficult this year, given the position of some of the G20 member states.

Obviously we also represent workers in the energy and mining sectors, so we try to link agendas: what needs to be done on climate change transition to also create clean, green jobs for the future. These are issues around which there should be a sense of industrial democracy, because workers can see production, they don't leave their brains behind when they come to work in the morning. They see how jobs can be done better and more efficiently, in a more environmentally conscious way. So I think this is an agenda for workplace involvement and, in some areas, it links up with some of the questions on safe workplaces, which we discussed earlier.

You have been a firm supporter of the G20’s targets to raise the participation of women and young people in the workforce. Youth unemployment, for example, can lead to whole generations feeling disenfranchised and excluded from the economy. What concrete actions can be taken to enable member states to address these problems?

On youth unemployment I think you are right; it affects the future because you're basically destroying hope in young people and their view of society and so on. I can't see solutions to the youth unemployment problem without also looking to the overall unemployment problem. In 2008 we had young people coming out of the educational system and trying to access the labour market when suddenly the jobs were not there. Even highly-educated young people in a recession are likely to spend 15-20 years earning lower incomes, if they can find a job in the first place. The failure to resolve youth unemployment is still the worst side of the general unemployment problem.

This issue was a focus of the Mexican Presidency in 2012. They set up an unemployment task force at the beginning, which produced a major report and an action plan on youth unemployment. I think it's very important that Turkey puts it on the agenda, but let's look at what was said in 2012, and let's see what has been done, and what hasn't been done and why hasn't it been done.

Interesting ideas on youth unemployment are being put forward not just by G20 countries. We recently had meetings in Davos with the Swedish Prime Minister, and he's introducing a youth guarantee scheme later in the year that would guarantee young people a work or educational placement after a certain amount of time. One thing we have been able in the past to agree with the B20 is a common position on quality apprenticeships, but the availability of apprenticeships is decreasing. 

If you look at the actual figures of apprenticeships, Germany is the only country seen as a possible model. The actual number of apprenticeships in Germany has been falling over the past years, but unemployment is lower there so it is less of a crisis issue. Apprenticeships are also falling in France, so we need to prioritize this.

When you look at the other side of the coin and you reduce minimum wages at the bottom end of the labour market, as in Greece or Spain, it doesn't solve the problem. Young people emigrate. As is now happening, there will be a political reaction against so much austerity and the failure to provide any hope. 

On female employment, some positive things have been said by the Turkish Government on increasing women's participation to meet the 25-25 target (reduce the gender gap in workforce participation by 25% by 2025). These include income support and early child care support.  

These are very practical measures...

Yes, and they work. The other issue is the imbalance in gender issues in the labour market. It's not just about employment opportunities; it's about good employment opportunities. So, the ITUC is studying some estimates and reckons the global wage gap is close to 20% between men and women who do the same work.  The OECD and the ILO came out with figures between 16% and 18%. It's not because of low productivity, it's not because women are more stupid. It's basically because of prejudices. This is another big priority for the trade union movement.

Turkey has grown rapidly in economic terms over the last decade or so. This focus on inclusiveness by the Turkish Presidency includes the involvement or consideration of developing countries in G20 discussions. What lessons can developing countries learn from Turkey's economic rise?

I think, in a general sense, one of the major changes over the last 20 years has been that emerging economies, such as Turkey, are becoming major players in terms of GDP. The issue is how to create balanced, sustainable growth with the gains distributed fairly. Turkish inequality is around 50% in the Gini coefficient; but it is falling. The fact that the Turkish Presidency has put this on the agenda is very important.

You can always look on the negative side about how unevenly growth is spread, how much is ecologically sustainable and how much overinvestment there has been in infrastructure. I think the political economy issues will also be in the spotlight. Will Turkey be respecting neighbours? Will they see unions and social partners as a positive factor?

There was an interesting article in the Financial Times a few weeks ago. It was looking at Tunisia and asked: how did Tunisia manage to have a relatively stable presidential election in which the results were accepted, whilst its neighbours were falling apart? The conclusion was that this happened because Tunisia was blessed with strong trade unions. It's surprising for the Financial Times to make this conclusion, perhaps, but I think there is relevance to Turkey.

I'm intrigued to see the evolution of developing countries. Brazil is going through a difficult time because it did not quite solve its underlying problems but, nevertheless, if you look at the 2000s, Brazil was an interesting model. It managed to reduce inequality. It reduced the Gini Coefficient by 6 points over ten years, which was an achievement.

The core issue is, rather than just a get-rich-quick model of development, countries need to focus on how to get balanced growth distribution, sustainable growth, inclusive growth, and a model which is based upon the respect of human rights.