World Bank, IMF and Labour Rights

I’m posting below an interesting missive from Peter Bakvis, the Washington representative of the International Trade Union Confederation, on an intersting shift of position on labour rights by the IFI.s

“The World Bank has issued a memorandum to its country and sector

directors instructing them to stop using the “Employing Workers

Indicator” (EWI) of its highest-circulation publication, “Doing

Business” (DB). The ITUC has criticized the DB labour indicator because

it gives the best ratings to countries with the lowest level of workers’

protection and has been used by the IFIs to push dozens of developing

countries to undertake labour market deregulation.

In the memo that the WB sent yesterday, Bank staff are informed that

“the EWI does not represent World Bank policy and should not be used as

a basis for policy advice or in any country program documents that

outline or evaluate the development strategy or assistance program for a

recipient country”.

The World Bank will furthermore remove the EWI from its Country Policy

and Institutional Assessments (CPIA), which the Bank uses to establish

countries’ overall level of eligibility for loans and grants allocated

by the Bank’s concessionary lending arm, the IDA. The WB posted the

content of the memo on its “Doing Business” web site today.

The IMF took a similar step several months ago, in August 2008, when

IMF management told regional directors and mission chiefs that “in light

of various methodological problems with the index, … mission teams

should refrain from using the EWI in any public documents …”. The IMF

kept this directive confidential until today, but the EWI has not

appeared in most Fund country policy documents, such as Article IV

consultation reports, since late 2008.

The World Bank also announced that it intends to convene a working

group that would include the ILO, trade unions, employers and others to

advise the Bank on revisions to the EWI, the development of a new

“worker protection indicator” and an examination of DB’s “Paying Taxes

Indicator” (PTI), which deals with contributions to social protection

programmes and other tax issues.

The IFIs’ decision to suspend the use of the DB labour indicators

follows several years of criticism of the indicator by the ITUC, Global

Unions Federations and many national affiliates. Unions were

particularly critical of that fact that the IFIs used the indicators to

pressure individual developing-country governments to dismantle or

weaken workers’ protection legislation, such as rules on minimum wages,

maximum hours, advance notice and recourse in case of dismissal, and

limitations on short-term contracts.

The ITUC first wrote the WB about its concerns in October 2003, a few

weeks after the Bank published the first edition of DB. It subsequently

raised the matter in eleven statements sent to the IFIs and in three

detailed papers outlining the methodological bias of DB and its use by

the IFIs in 23 specific countries to push for the weakening of labour

regulations. Numerous trade union delegations raised the issue with WB

officials, most recently during the high-level union-IFI meetings of

January 2009 in Washington where ITUC, GUF and national trade union

leaders berated the Bank for its continuing use of DB to promote labour

market deregulation.

The ILO and some governments expressed criticisms of the DB labour

indicators starting around 2006. Last June, the World Bank’s own

Independent Evaluation Group issued a report in which it questioned the

methodology of the EWI and the PTI and noted that it had found no

evidence for DB’s long-standing claim that countries with higher EWI

ratings (and less labour regulation) showed improved performance in

employment creation.

The Bank recently initiated exchanges with a small group of

Washington-based critics of the DB labour indicator to discuss how the

criticisms could be addressed and how to develop alternative approaches

that promote decent work. The group included representatives from the

ITUC and AFL-CIO and a prominent academic labour economist. It also

included a representative of US Rep. Barney Frank, a Massachusetts

congressman who is chairman of the financial services committee of the

US House of Representatives and has been a vocal critic of the DB labour

indicator.

During hearings on the topic in October 2007 (at which the ITUC and

AFL-CIO testified), Frank said: “It is simply wrong for the major

international institution in the world, the World Bank, to be putting

out a report in which the worse you treat your workers, everything else

being equal, the better you are rated. … Excessive inequality can

become politically dysfunctional, and to the extent that it begins to

depress consumption, depress savings rates, it can become economically

dysfunctional. … And it troubles me to see the ‘Doing Business’ report

of the World Bank reinforcing those tendencies.”

In its memo issued today, the World Bank states: “… other development

goals [than the business climate, which is the focus of “Doing

Business”] must also be given appropriate weight. These include issues

as diverse as political stability, social safety nets to shield

vulnerable parts of society from intolerable levels of risk and

protection of rights for workers and households as well as for firms. In

the current global economic crisis, the WBG [World Bank Group] is

looking at the advice, policy instruments, strategies and other tools at

our disposal to ensure that we help governments meet this array of

development policy challenges.”

The IMF’s earlier memo instructing its staff to cease using the DB

labour indicators was also preceded by extensive exchanges with the ITUC

that took place almost a year ago. The discussions looked into several

cases where IMF staff had formulated specific labour market deregulation

recommendations to governments on the basis of the problematic DB

indicator.

Below are the notice about these actions posted by the World Bank on

its “Doing Business” web site and an ITUC communiqué on the matter, both

of them issued today. The web link for the Bank’s note on the EWI is:

http://www.doingbusiness.org/documents/EWI_revisions.pdf

Best regards,

Peter Bakvis

ITUC/Global Unions – Washington Office

888 16th Street NW, suite 400

Washington, DC 20006

Phone: 202-974-8120

Fax: 202-974-8122

E-mail: pbakvis@globalunions-us.org

__________________________________________

Revisions to the EWI Indicator

Doing Business is one of the World Bank Group’s flagship publications,

and over the years it has proven to be a powerful tool in the hands of

governments determined to improve the climate for business. The

business climate is one aspect of development policy, and the WBG

emphasizes that other development goals must also be given appropriate

weight. These include issues as diverse as political stability, social

safety nets to shield vulnerable parts of society from intolerable

levels of risk and protection of rights for workers and households as

well as for firms.

In the current global economic crisis, the WBG is looking at the

advice, policy instruments, strategies and other tools at our disposal

to ensure that we help governments meet this array of development policy

challenges. It is important that government actions focus on the needs

of the labor force and lower income households as well as those designed

to help businesses to survive and grow.

During this period of economic crisis, we are also scaling up our work

on social safety nets through lending and analytical work. Issues of

access to benefits such as unemployment insurance and social security

are a key part of this work.

In light of these challenges, unprecedented in their scale, and

building on the changes we signaled in last year’s Report, both

immediate and longer-term actions will be taken with regard to the

Employing Workers Indicator (EWI) in Doing Business. In the

short-term:

* Adjusting the scoring in the Doing Business 2010 report (to be

launched in September 2009) regarding provisions for fixed term workers

and standards for severance payment, mandatory days of rest and night

work and holidays, and minimum wage levels, in order to accord favorable

scores to worker protection policies that comply with the letter and

spirit of the relevant ILO Conventions, recognizing that well-designed

worker protections are of benefit to the society as a whole.

* Removing the Employing Workers Indicator (EWI) as a guidepost in

the Country Policy and Institutional Assessments (CPIA). A guidance

note will be issued clarifying that the EWI does not represent World

Bank policy and should not be used as a basis for policy advice or in

any country program documents that outline or evaluate the development

strategy or assistance program for a recipient country. The note will

emphasize the importance of regulatory approaches that facilitate the

creation of more formal sector jobs with adequate safeguards for

employees’ rights and that guard against the shifting of risk from firms

to workers and low-income families.

This year’s Doing Business 2010 will include a commentary explaining

these steps.

In addition, we will convene a working group including representatives

from the ILO, as the international standard setting body, trade unions,

businesses, academics and legal experts. This group can serve as an

important source of advice on revising the EWI and on the establishment

of a new worker protection indicator, as well as offering broader ideas

on labor market and employment protection issues — with a view to

creating regulations that help build robust jobs with adequate

protection in the formal sector that can withstand future crises.

The following thoughts provide a basis for more detailed terms of

reference for the working group:

* An evaluation of the first round of the revisions to the EWI set

out above and discussion of further revisions.

* The development of a new worker protection indicator (WPI). This

indicator could cover such matters as how a country is adhering to core

labor standards and using law, regulation and other instruments of

government to ensure that workers are adequately protected, including in

the event of unemployment.

* Broader labor market, employment and social protection issues,

including an examination of the Paying Taxes Indicator (PTI).

This dialogue and review of a flagship publication in light of these

changed circumstances can enable Doing Business to increase its

development impact at a time of economic strain for both businesses and

employees worldwide.

A memo outlining these actions regarding the Employing Workers

Indicator of the Doing Business Report was sent by World Bank Operations

Policy and Country Services Management to Country and Sector Directors

this week.

Monday, April 27, 2009

__________________________________

ITUC welcomes World Bank’s suspension of “Doing Business” labour

indicator

Brussels, 28 April 2009: The ITUC welcomed the decision of the World

Bank to instruct its staff to stop using the “Employing Workers

Indicator” (EWI) of its highest-circulation publication, “Doing

Business”. The ITUC has long criticized the EWI because it gives the

best ratings to countries with the lowest level of workers’ protection

and has been used by the World Bank and IMF to pressure developing

countries to undertake labour market deregulation.

“In the context of the current global economic crisis, where 50

million more workers could become unemployed this year and pressures to

decrease wages and workers’ living standards are intensifying every

day,” said ITUC General Secretary Guy Ryder, “it is significant that

an important development institution like the World Bank is turning the

page on a one-sided deregulatory view on labour issues and proposing to

adopt a more balanced approach where adequate regulation, improved

social protection and respect for workers’ rights will be given a

higher profile.”

In a note on revisions to “Doing Business” made public today, World

Bank management informed its staff that “the EWI does not represent

World Bank policy and should not be used as a basis for policy advice or

in any country program documents that outline or evaluate the

development strategy or assistance program for a recipient country”.

The Bank will furthermore remove the EWI from its Country Policy and

Institutional Assessments (CPIA), which the Bank uses to establish

countries’ overall level of eligibility for loans and grants allocated

by the Bank’s concessionary lending arm, the IDA.

Ryder offered the Bank the ITUC’s full cooperation in developing an

alternative approach that promotes the creation of decent work. He

emphasized that the World Bank Group has already made considerable

strides concerning respect for the ILO’s core labour standards (CLS),

starting with the requirement three years ago by the IFC, the Bank’s

private-sector lending arm, that all of its projects conform to the CLS.

More recently, the World Bank incorporated a CLS requirement into its

master procurement documents and led a process to include CLS clauses in

the harmonized standard bidding documents used by all multilateral

development banks.

The ITUC pointed out that the IMF took a similar step concerning the

“Doing Business” labour indicator in August 2008, when IMF

management instructed staff that mission teams should refrain from using

the EWI in any of the Fund’s public documents because of various

methodological problems associated with the index.

The ITUC initially wrote the World Bank about its concerns with the

“Doing Business” labour indicator in October 2003, a few weeks

after the Bank published the first edition of the report, and the union

body subsequently raised the matter in detailed analyses where it called

attention to the indicator’s use in pressuring numerous

developing-country governments to weaken labour regulations.

The ILO and some governments and legislative bodies also expressed

criticism of the “Doing Business” labour indicator in the past three

years. The Financial Services Committee of the US House of

Representatives, chaired by Rep. Barney Frank, held hearings on the

topic in October 2007 at which the ITUC testified. During the hearings

Frank said: “Excessive inequality can become politically

dysfunctional, and to the extent that it begins to depress consumption,

depress savings rates, it can become economically dysfunctional. … It

troubles me to see the ‘Doing Business’ report of the World Bank

reinforcing those tendencies.”

In its note on the “Doing Business” labour indicator issued today,

the World Bank states that it proposes to give appropriate weight to

“issues as diverse as political stability, social safety nets to

shield vulnerable parts of society from intolerable levels of risk and

protection of rights for workers and households as well as for firms”.

“The Bank’s decision to pay greater attention to issues such as

these is consistent with the commitment of G20 leaders at their London

summit to ‘build a fair and friendly labour market for both women and

men’,” said Ryder. “We invite the Bank to work closely with the

ILO on this theme,” he added, noting that the G20 statement called

upon the ILO to assess appropriate employment and labour market

policies.

The actions taken by the World Bank regarding the Employing Workers

Indicator of the “Doing Business” report are described in a note

posted today on the Bank’s “Doing Business” web site:

http://www.doingbusiness.org/documents/EWI_revisions.pdf

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