Private Equity Investments and Labour: Current Trends and Challenges of Trade Unions

Maria Alejandra Caporale Madi

José Ricardo Barbosa Gonçalves

The 2008 global economic crisis revealed how deeply the social life of the working class has been affected by deregulated finance. In this setting, the impact of private equity funds on working conditions has been attracting lots of attention since private equity funds - such as Blackstone, Carlyle Group or Texas Pacific Group - have been responsible for the employment standards of tens of millions of workers. Truly, as workers are confronted with over US $ 1-trillion in worldwide concentrated private equity buyout power, the relevance of private equity funds is outstanding in an analysis of the perspectives of mergers & acquisitions, employment and organised labour.

Maturing Contradictions: the 2010 Public Sector Strike in South Africa

Claire Ceruti

The huge strike in August by South African public sector workers brought the number of strike days in 2010 to the highest ever. Teachers and hospital staff struck for three weeks despite police harassment of picket lines and a series of court interdicts to prevent police, soldiers and nurses from striking(1). The strike started after members forced their leaders to reject government’s ‘final offer’ of 7% and R700 (€70) housing allowance. After seeing the government’s lavish expenditure on the 2010 soccer world cup, strikers found it difficult to believe that government could not meet their demands. The public servants were asking for an 8.5% wage increase and R1000 (€100) a month housing subsidy. However, the strike was much more than a wage strike: three years ago, public sector workers struck during the dying days of the regime of previous president, Thabo Mbeki, while the 2010 strike was a major test of his successor, Jacob Zuma and thus of the unions’ strategy for social change.

The struggle against pension reform in France

Philippe Légé

In 2010, France has experienced an intense social struggle. The triggering factor was the pension reform which the government of Prime Minister François Fillon argued was necessary to “save the pension system”. The French system relies on compulsory basic and supplementary state pension schemes financed mainly by contributions (proportional to wages) and taxes decided at national level. According to the government, because of the growing number of retired people and an ageing population, it is necessary to raise the legal retirement age from 60 to 62 (and from 65 to 67 for a full pension) in order to encourage people to work longer. But the trade unions are very sceptical about this reasoning, for the average age at which workers cease activity is 58.8 years. And 60% of workers are not in employment when they claim their pension rights: they are either unemployed, or invalid. For example, “25% of nurses and 40% of auxiliary nurses are invalid when they retire” (Lambert 2010). In the first part of this article, the terms of the debate will be analysed, and in the second part the struggle around the pension reform will be discussed.

Trade, employment and development: Back on track?

Richard Kozul-Wright

In today’s world of increased economic and political interdependence achieving a broad-based, rapid and sustained growth in incomes and employment involves even more complex policy challenges than in the past. This was the case before the recent crisis, but it is even more so as policy makers in both developed and developing countries look for ways to mitigate the damage from that crisis and build a more sustainable recovery.

The International Labour Organisation (ILO) worries that the kind of integrated policy framework and the accompanying degree of policy coherence required to respond effectively to the crisis within and across countries is still not in place. In particular, the kind of mutually supporting links between macroeconomic policies, social protection systems and active labour market measures are still not established to ensure both an inclusive (job-rich) recovery and to realize the Millennium Development Goals (MDGs) within an acceptable time frame.

Talking about an Energy and Jobs Revolution

Kumi Naidoo
© Jeremy Sutton-Hibbert / Greenpeace

Creating decent new jobs, fighting poverty and curbing catastrophic climate change have historically been seen as three distinctive challenges, pursued by a trio of different movements: trade unions, development organizations and environmentalists. This should no longer be the case. In the past few years, as climate change has become ever more of a pressing issue and the international financial institutions have once again proved incapable of creating employment or fighting poverty, people and organizations have realized that it is in our collective interest as citizens of the world to pursue a green industrial policy. This should start with a re-evaluation of the way we produce and distribute energy.

Greenpeace's Energy [R]evolution, developed in conjunction with over 30 scientists and engineers worldwide, proposes a radical shift in the way the world produces, distributes, and ultimately consumes energy. It is a roadmap for moving energy production closer to the point of use. Under the current system, we produce large amounts of energy at a few centralised locations and send that energy over very long distances to where it is consumed. This system is inflexible, often wasteful, and leaves large swathes of the world’s population unserved and without access to any energy.

Social forces drive financial insecurity

Seeraj Mohamed

The frequency of financial crises has increased and we are concerned about how soon to expect the next one. The liberalisation of cross border capital flows has increased the possibility not only of contagion from crises elsewhere but that financial profligacy in one country is easily exported to another. Economic policymakers have a duty to protect their country from contagion, global financial volatility and the domestic adoption of profligate financial practices by asserting policy sovereignty. The global trade union movement can play an important role by fighting for policies that limit the power of finance.

Civil society, including trade unions should campaign for economic policies that protect countries from financial crises and contagion. Global trade unions are well placed to co-ordinate these campaigns across countries. Widespread financial liberalisation leads to increased socio-economic insecurity and loss of jobs, factors which weaken the social fabric and create increased hardship for the poor. The rich are able to diversify their investment portfolios and move their wealth abroad if necessary. They can weather the storms of financial instability and crises while the poor are stuck in the eye of the storm.

On the urgency of stopping global warming

Willi Semmler

Christian Schoder

Parts of the labour movement still have strong reservations towards measures aimed at reducing the carbon intensity of production in order to mitigate global warming. The public debate is dominated by fears that environmental policies harm the working population in the North as well as in the South by increasing unemployment. In line with this public opinion, governments are reluctant to implement mitigation policies on the national or international level. They impose market-based abatement regimes which are in line with orthodox economic theory but ineffective in practice. In this article, we want to rebut these concerns by pointing out that global warming may follow a self-enforcing pattern which is increasingly costly to reverse, thus harming the world's population more and more. Moreover, we argue that mitigation policies may have a positive impact on employment if done properly. After discussing different mitigation policies, we conclude with the policy recommendation of immediate and ambitious action.

Paying for Inequality: The Costs of NAIRU-based Macroeconomics

Servaas Storm

C.W.M. Naastepad

Mainstream macroeconomics is in a deep crisis in the wake of the financial collapse of mid-2007 and the ensuing Great Recession. What the crisis has revealed is that the remarkable macroeconomic performance of the US and the UK from 1995 to 2006 was just a façade. Hiding behind it, a mountain of unsecured credit and housing debt was accumulating, as a constantly expanding network of secondary markets seemed to be sharing the risk created by such debt, apparently diminishing the risk exposure of individual holders. How that debt mountain collapsed is well known. Mainstream economists did not in any way foresee the crisis, bringing out the failure of the orthodoxy of an entire era in economic thought, teaching, practice and policy advice. As Citigroup’s chief economist Willem Buiter writes (in the Financial Times): “the typical graduate macroeconomics and monetary economics training received at Anglo-American universities, during the past 30 years or so, may have set back by decades serious investigations of aggregate economic behaviour and economic policy-relevant understanding. It was a privately and socially costly waste of resources.” We believe that the theory of the non-accelerating-inflation rate of unemployment (NAIRU), which belongs to the core of graduate macroeconomics and monetary economics, is seriously implicated in creating the crisis. NAIRU theory helped shape the broader macroeconomic conditions within which the spectacular macroeconomic imbalances could build up and eventually lead to collapse. The NAIRU approach must be discarded to provide the space for “serious investigations of aggregate economic behaviour”.

Corporate governance in a radically changed world - a fresh look at the Rhineland model

Richard Tudway

The collapse of the global financial system raises critical issues in corporate governance, particularly in Anglo American jurisdictions. The global financial crisis, triggered by events in the US and the UK, has destroyed global wealth and output on a huge scale. In spring 2010, world stock markets recorded an astounding $20tr loss in value from highs of some $61tr in December 2007 (World Federation of Exchanges, March 2010). OECD growth slumped in the immediate aftermath of the crisis but has since recovered, though very slowly as growth in advanced economies is expected to remain broadly unchanged at 2.5% in 2011 according to the IMFs World Economic Outlook. Recent data on the US and the UK may yet herald a slide back into recession. Indeed, according to the OECD September forecast, the annual rate of growth in the G7 countries will fall to around 1.5% in the second half of 2010, a full percentage point lower than its forecast in May 2010. In the case of the US, fears that weak employment numbers in September may foreshadow a double-dip recession have prompted further quantitative easing by the Federal Reserve. The Made in America financial crisis and the role of the Anglo American model of corporate governance urgently needs to be re-examined.

FIFA 2010 World Cup: fair play on the pitch but foul play for workers

Crispen Chinguno

South Africa hosted the 2010 FIFA World Cup behind unprecedented fanfare and rituals. Nearly a billion viewers watched this showcase worldwide. However, few would ever be privy to the dark side behind this façade. Debate on the event was largely dominated by questions related to the capacity of South Africa to host such a mega event, as well as discussions on business profits, or socio-political and symbolic benefits. FIFA reported that it was the most commercially successful World Cup ever. The event was ironically hosted in the world’s poorest continent and hence brought to fore the contradictions of opulence and poverty. It raised questions on who really benefited from the event and what it represented. Did it make any contributions in alleviating the plight of the workers and the poor? This column is a ‘snap-shot’ of some of the debates and contradictions.

What does wage-led growth mean in developing countries with large informal employment?

Jayati Ghosh

The past decade has been one in which export-led economic strategies have come to be seen as the most successful, driven by the apparent success of two countries in particular - China and Germany. In fact, the export-driven model of growth has much wider prevalence as it was adopted by almost all developing countries.

This was associated with suppressing wage costs and domestic consumption in order to remain internationally competitive and to achieve growing shares of world markets as far as possible. Managing exchange rates to remain competitive, despite either current account surpluses or capital inflows, became one of the major elements of this strategy. This was associated with the peculiar situation of rising savings rates and falling investment rates in many developing countries, and to the holding of international reserves that were then sought to be placed in safe assets abroad.

Reform Options for Financial Systems

Rainer Stachuletz

Hansjörg Herr

The neoliberal globalisation project gained momentum in the late 1970s through free market policies in the United Kingdom and the United States. Domestic and international financial systems have been increasingly liberalised and deregulated with the following important results:

a) Integration of financial systems

The deeper integration of international financial markets resulting from the deregulation of capital flows, together with the switch to flexible exchange rates after the breakdown of the Bretton Woods System, created a new source of shocks and uncertainty, as well as a new field of speculation.

Precarious work makes for a precarious recovery

Ronald Janssen

This week, trade unions in Europe will stage massive protests against the sharp turn economic policy in Europe has taken. After having saved the banking system from total collapse, governments throughout Europe are not only cutting public services and social benefits. On top of this harsh fiscal austerity, several member states also intend to inject an even greater dose of flexibility into their labour markets. These governments adhere to the conventional wisdom that, by allowing business to get rid of workers more easily, employers will advance in time the decision to (re)hire workers. In turn, the additional purchasing power coming from the frontloading of jobs would support aggregate demand and accelerate economic recovery.

Working for decent work for all everywhere

Juan Somavia

The global crisis has, once again, illustrated how central decent work is to the lives of women and men everywhere, to the stability of families and peace of communities. Encouragingly the crisis has also set off bold and decisive decisions to counter the downturn. Useful lessons can be drawn from the last 18 months during which the prevailing economic consensus was turned on its head. Rising to the challenge of the global jobs crisis requires a thorough rethink of the relationships between economic growth and employment. A high level of productive employment should be an objective of the same order as low and stable inflation and sound public finances.

Short-run stabilisation policies will not do: the case for a Keynesian New Deal at the European and global level

Eckhard Hein

The world economy is still struggling with its most severe crisis since the Great Depression of the late 1920s and 1930s. On the one hand, the present crisis began as a financial crisis which started with the collapse of the subprime mortgage market in the US in summer 2007, which then gained momentum with the breakdown of Lehman Brothers in September 2008 and reached another climax with the Euro crisis in early to mid 2010. On the other hand, the present crisis began as a real crisis well before the financial crisis, with an economic downswing in the US. The financial crisis and the real crisis reinforced each other, and the world economy was hit by a decline in real GDP in 2009 – something not seen for generations. Major regions in the world are only slowly recovering from this decline, in particular the Euro area, the UK and Japan. Furthermore, none of the economies which have been hit severely will have returned to the pre-crisis growth path by the end of 2010. Therefore, massive underutilisation of productive capacity, high unemployment and a downward pressure on wages will have to be tackled in the future.

The German economic model emerges reinforced from the crisis

Stefan Beck

Christoph Scherrer

For years, the business press has portrayed the German economic model as hopelessly atavistic in the face of dynamic Anglo-Saxon financial innovation and comparatively high growth rates. Recently, however, the economic historian Werner Abelshauser argued that the financial crisis would vindicate the German model of capitalism. In his view, the fading lustre of Anglo-Saxon capitalism, in particular its model of corporate governance and dominance of shareholder value, should again lead to the German or “Rhenish” model of diversified quality production and its institutions becoming more attractive.

We argue here that Germany’s response to the crisis has reinforced the central strategies and core institutions of the German economy. At the same time, the model has become more and more exclusive and has begun to foster European and international economic imbalances.

Trade, labour and the crisis: Time to rethink trade!

Esther Busser

Trade has been one of the main transmission channels of the financial and economic crisis to developing countries where many jobs were lost in export sectors. This was largely due to a reduced demand for goods in industrialised economies as well as to a lack of access to credit for the financing of exports.

At the international level, calls against protectionism (that is, increasing barriers to trade) have been manifold. These calls have been made in the International Labour Organisation (ILO) Global Jobs Pact, G-20 Declarations and government declarations in organisations such as the World Trade Organisation (WTO) and the Organisation for Economic Co-operation and Development (OECD). Despite these calls and the common understanding that closing off markets would have negative effects and risk a further deepening of the crisis, several countries have resorted to protectionist measures.