NON-INFLATIONARY ECONOMIC GROWTH IN AUSTRALIA, DEVELOPMENT OF HUGE INFORMAL SECTOR IN GHANA AMONG ISSUES DISCUSSED BY SOCIAL DEVELOPMENT COMMISSION

27 February 1997

Press Release
SOC/4418

NON-INFLATIONARY ECONOMIC GROWTH IN AUSTRALIA, DEVELOPMENT OF HUGE INFORMAL SECTOR IN GHANA AMONG ISSUES DISCUSSED BY SOCIAL DEVELOPMENT COMMISSION

19970227 As Consideration of 'Productive Employment And Sustainable Livelihoods', Session's Priority Theme, Continues

Australia had achieved non-inflationary economic growth and restructuring without exposing workers to the uncertainties of a deregulated labour market, the Commission for Social Development was told as it undertook second panel discussion this morning on "productive employment and sustainable livelihoods", the priority theme of its current session.

Ralph Willis, Member of the Australian Parliament, told the Commission that a unique Accord between the Australian Government and unions had balanced moderate wage increases with significant improvements in non-cash benefits in the form of increased government expenditure on education, health, housing and community services. Governments dedicated to low inflationary growth should also seek to achieve substantial employment growth, he said.

The failure of the formal economic sector in Africa had led to the development of a huge informal sector, David Boateng, Minister for Employment and Social Welfare of Ghana, told the Commission. By undertaking massive divestiture programmes, African governments had conferred on the private sector the role of the new engine of growth. Even highly educated Africans were moving towards self-employment, he added.

Gustavo Yamada, Vice-Minister of Social Promotion, Ministry of Labour and Social Promotion of Peru, said that his Government had enacted legislation which had sought to reward competent workers while providing incentives to companies which offered job training. While striving to achieve full employment, his Government was conscious of the need to avoid creating macroeconomic problems.

Discussing the panel presentation, delegates spoke of the need to harmonize the pursuit of macroeconomic objectives with those of full employment, expressing curiosity and concern over how various countries had handled problems of labour, productivity, resources, and regional cooperation. The representative of China told the Commission how his country had solved the

problem of rural unemployment, and Mr. Boateng spoke about how, in its structural adjustment programme, Ghana had balanced the needs of its workers with those of the Bretton Woods institutions.

Also participating in today's panel discussion were Magda Kosa Kovacs, Member of Parliament and former Minister for Labour of Hungary, and Katherine Hagen, Deputy-Director of the International Labour Office. The panel was moderated by Michel Hansenne, Director-General of the International Labour Office.

The Commission for Social Development will continue its consideration of "productive employment and sustainable livelihoods", the priority theme of the current session, when it meets again at 3 p.m. today.

Commission Work Programme

The Commission for Social Development met this morning to undertake a second panel discussion on its priority theme for the current session: "productive employment and sustainable development".

Discussion

KATHERINE HAGEN, Deputy Director-General of the International Labour Office, said that political commitment was the most fundamental requirement for achieving full employment. In that regard, the commitment to full employment made at the Copenhagen World Summit for Social Development was of capital importance. Deteriorating conditions of employment were a grave problem in the current world economic situation. A starting point of efforts to reverse that problem would be a recognition of its human, social and economic costs. She said several factors mitigated against full employment, including globalization and technological change; reconciliation of the competing claims of fiscal balance and low inflation, on the one hand, with higher growth and job creation, on the other; and growing inequality, which diminished the voice of the poor and unemployed. She hoped that the objective of full employment would be borne in mind as the United Nations system's reform process.

DAVID BOATENG, Minister for Employment and Social Welfare of Ghana, described the unemployment crisis in Africa, where the failure of the formal sector had led to the development of a huge informal sector. To overcome that unpleasant situation, most African governments had embarked on massive divestiture programmes, in effect conferring on the private sector the role of the new engine of growth. He pointed out that even the highly educated who could not afford to be unemployed for long periods of time had not been spared, and had found themselves drifting into self-employment. The severity of the crisis in many African countries had been accentuated by a rural-urban drift.

Social Development Commission - 3 - Press Release 4418 5th Meeting (AM) 27 February 1997

He said that the Government of Ghana had embarked on a response that included providing infrastructural facilities in the rural areas to stem that drift and encourage economic activity. Budgetary allocations had been made for that purpose. Agriculture, which had been in decline for a long time, was being revived through various initiatives, although it was clear that agricultural development alone would not provide the answer. The Government was encouraging a new sense of partnership among various sectors of the country, and international donors as well.

MAGDA KOSA KOVACS, Member of Parliament and former Minister for Labour of Hungary, said that although employment was the general concern of all, its characteristics were different in her country, where the transition crisis had affected those most vulnerable to poverty and unemployment. In addition, it had reduced the resources and means available to alleviate the social and economic problems that arose. Describing the structure of unemployment in Hungary, she pointed out that a minority had found work after several months, but most of the unemployed had remained so for very long. Many, in fact, had become "statistically inactive". Noting that unemployment had risen to 20 per cent of the country's population, she stressed that "vulnerable ones" included most of the unemployed whose survival depended on the State, some of whose jobs had disappeared with the restructuring of the economy. Another group of the unemployed included the young and the ageing, and yet another group included those who had, for a long time, enjoyed no unemployment benefits. She pointed out, however, that the profile of those affected changed from time to time, depending on the government in power and the policies being carried out. She hoped that the dynamism of the Government's efforts would yield results in combating poverty and unemployment. The Government was obliged to act in a slow-paced, prudent way, balancing its priorities, because of the modest resources at its disposal.

RALPH WILLIS, Member of Parliament and former Federal Treasurer, former Minister for Finance, and former Minister for Employment and Industrial Relations of Australia, said that many had pointed to the substantial growth of employment in the United States over the last two decades -- in comparison with western Europe -- as a testimony to the virtues of a deregulated labour market. But Australia had achieved similar levels of employment growth within a highly regulated labour market.

Over the past 13 years, Australia had operated a unique income policy known as the Accord, he said. The Accord was an agreement between Government and unions that provided or moderated wage outcomes in return for significant improvements in social security benefits and for major enhancement of the "social wage" -- non-cash benefits in the form of increased government expenditure on education, health, housing and community services. The goal of the Accord had been to maximize both economic and employment growth in the context of improving living standards.

Social Development Commission - 4 - Press Release 4418 5th Meeting (AM) 27 February 1997

He said the results of the Accord had included 3.7 per cent economic growth over 13 years; 2.2 per cent annual employment growth -- the highest in the countries of the Organisation for Economic Cooperation and Development (OECD); 5 per cent inflation; 7 per cent increase in real wages over 13 years; and a more competitive Australian economy. Despite strong growth, unemployment remained high, declining from 10 per cent at the beginning of the Accord period to 8.5 per cent at the end. Long term (more than 12 months) as a percentage of overall unemployed increased from 20 to 30 per cent.

The Accord generated high economic growth without removing worker protections, he said. It protected low-income earners better than deregulation would have, and demonstrated that the economy could be restructured, including substantial tariff cuts, without damaging overall employment growth. The Accord had also provided for the rapid expansion of female employment. Governments should make employment growth a primary policy target, not just a residual benefit.

GUSTAVO YAMADA, Vice-Minister for Social Promotion, Ministry of Labour and Social Promotion of Peru, said that labour legislation in the country in recent years had been modelled after the developed economies. A number of reforms involving a package of incentives had been undertaken by the Ministry to improve productivity and the protection of workers. Noting that the "open unemployment" rate was 8 per cent of the general unemployment rate, he stated that the programmes in place rewarded competence workers, and also gave encouragement to companies who offered additional job training to their workers.

He pointed out that an imbalance of supply and demand in labour was partly responsible for the high unemployment statistics: despite an apparent excess of supply in the aggregate labour area, that was not the case across the board, which was why the Ministry was emphasizing training. That would put workers in appropriate jobs, thus avoiding sectoral unemployment.

The generation of jobs and the reduction of jobs were going side by side, he continued, noting that the country was fully committed to achieving full employment. That implied greater employment levels, as well as reduction in underemployment. The Government was also conscious of the need to avoid creating greater macroeconomic problems as it tried to reduce unemployment.

The representative of Pakistan suggested the need by the Commission to harmonize the pursuit of macroeconomic objectives with those of employment.

The representative of the Netherlands challenged the panellists to elaborate on the question of using the international community "as a tool" to support the development of full employment in individual countries.

Social Development Commission - 5 - Press Release 4418 5th Meeting (AM) 27 February 1997

Mr. BOATENG drew attention to a pattern in his country, Ghana, citing the example of car repairers. Unlike in the advanced world, he said, car repairers could be found on the road side all over the country undertaking all kinds of jobs. The challenge was to encourage them and standardize their training, and to enable them to find the tools to work. That also applied to other artisans. Continuing, he said that the Earth was the only place where life existed "as we know it". If the resources being channelled into seeking life on other planets were used here, all of the social and economic problems being dealt with by the Commission would disappear.

Mr. WILLIS called for pressure on governments to do what had been determined to be a worthy objective: employment. If there were no pressures, governments would do nothing. The Commission, he said, was in a wonderful position to do that.

The representative of China said that economic issues and employment issues were closely related and should be integrated. China had solved the problem of unemployment in the rural areas by stabilizing agriculture. It promoted agro-industry to complement industry in the cities. Industrial development in the rural environment enabled them to build capital to execute infrastructural development so that the populations would not emigrate to the cities.

A representative of the International Confederation of Free Trade Unions (ICFTU) asked how Ghana had managed to balance the needs of its workers with the demands of the Bretton Woods institutions.

Mr. BOATENG said that from 1966 through the 1980s the economy and infrastructure of Ghana had declined. Following that period, Ghana's effort at structural adjustment had sought to stall economic decline, expand exports, rehabilitate the national infrastructure and divest itself of State-owned business. Many social problems had arisen during that adjustment phase. Workers were provided limited severance and a voluntary retraining programme was financed by the World Bank. Workers were made to pay one half the cost of equipment and tools required by retraining.

Ghana then began looking very closely at the restraints that hindered the informal sector, he continued. Many informal operators were in technical violation of numerous local regulations. The national Government intervened in those disputes and subsequently developed industrial facilities and training programmes.

Ms. KOVACS said that the informal sector was playing an important role in the transition economies; the continued expansion of that sector was expected.

Social Development Commission - 6 - Press Release 4418 5th Meeting (AM) 27 February 1997

Mr. WILLIS said that countries had to work within their unique national circumstances in developing macroeconomic policies. The International Monetary Fund (IMF) and World Bank programmes of debt relief for very poor countries was seeking to relieve pressure on economies in which debt repayment sometimes amounted to more than 100 per cent of exports. Criteria for determining eligibility for those programmes depended upon fiscal consolidation, as well as upon committing to allocate a certain percentage of their budgets to social spending.

Mr. YAMADA said that regional cooperation was working well in Latin America. Officials from Chile, Argentina and Paraguay had shared their experiences with Peru with respect to economic strategies. There was no cause for pessimism. Several cases of high growth and simultaneous poverty- reduction had been seen, particularly in South-East Asia.

In Latin America, Chile had achieved high economic growth rates of 6 to 7 per cent through consistent government policies. Some 40 per cent of the Peruvian Government's budget was dedicated to social spending, even as it was maintaining low inflation and a near-zero fiscal deficit. A free market devoid of social stability could not produce consistent and lasting growth.

Mr. BOATENG said that governments needed to provide training, tools and soft credits to the informal sector. Those efforts would improve productivity and the quality of services in the informal sector. At the regional level, the Economic Community of West African States (ECOWAS) was attempting to link informal sector associations in Ghana, Benin and Togo outside of the government framework.

* *** *