Has the IMF gone soft and fuzzy on Trade Unions ?

Has the IMF  gone soft and fuzzy on Trade Unions?

For years you could take it for granted that if anything were ever said by the International Monetary Fund about trade unions it would be wholly negative. Like its next door neighbour, the World Bank  the consensus of what passed for economic thinking over the last thirty years was that no good would come from unions or the minimum wage. Of course little was ever said as the IMF was about Macroeconomic stability and balance in the global economy. Unions were a domestic matter for countries to address but if you were to have the misfortune of sitting down with an IMF economist for dinner you would almost certainly receive a  long and tedious lecture on the sins of the minimum wage and the evils of trade unions. It was simple enough both raised wages above market levels and therefore decreased the level of employment. But in a stunning turnaround the IMF has produced a research paper by two of its research economists Ms Florence Jaumotte and Carolina Buitron, writing in the March issues of the IMF’s publication  Finance and Development, argue how important the demise of trade unions is in explaining the growth of income inequality in  the developed countries.

Such a conclusion is hardly astounding but what is stunning is that it was said at all. To ever imagine that the IMF would say something positive about trade unions is, to those familiar with it, almost in the domain of economic science fiction. But suddenly the rise of massive income inequality over the last thirty years all over the world and the threat that it poses to both political and economic stability has now been seen by many economists as a real impediment to economic growth and stability in the global economy.   Concentrating too much wealth in the hand of the very rich has now become a real impediment to growth and political and economic stability.

The demise of unions in developed countries is seen by most as a direct result of globalization and de-industrialization. Trade unions in developed countries used to be largely concentrated in the manufacturing and industrial sectors and not in government as is more common in many developing countries. These have declined massively as a result of globalization and technical change. For example, and the US is not particularly exceptional,  in 1950 one third of the non-farm workers in the USA or 15 million workers were in the relatively highly unionised areas such as manufacturing.  The numbers of workers in the traditionally unionized blue collar sectors declined massively over the last sixty years. Employment in manufacturing in the USA was decimated between 2000 and 2010 with employment in the sector falling  from 17 million at the beginning  to 11  at the end of the period. The causes are fairly well known- increased technical efficiency and automation along with globalization and the shift of production China and Mexico along with the devastating effects of the global economic crisis which began in 2008. With manufacturing employment in decline and with a host of anti-labour governments from Reagan (who was pro-labour in Poland but viciously anti-labour at home) to Bush junior unionisation rates in the USA have fallen from 20% of the labour force in the USA at the beginning of the Reagan era in 1982 to 11% in 2014.  After 30 years of conservative anti-labour policy in the USA, the effects of globalization of markets and automation have put US trade unions in the manufacturing sector on the endangered species list.

The consequence of this is that unions, which were traditionally an important political force in society to speak for the  direct commercial  interests of workers no longer have the numbers, the resources and the political pull to do so. What the IMF researchers have shown is that even correcting for the technological and globalization changes about half of the increase in the wealth of the  richest 10% of the global population can be explained by the demise of unions and the decrease in the their power and influence in developed countries. Unions have first and foremost helped to push up wages of their members as well as those on minimum wage levels. But perhaps just as importantly unions always had a countervailing effect on  the political classes because of their ability to oppose self interested polices of wealthy national elites.

What is just as interesting is what is driving this apparent change in the IMF? Has the Fund suddenly, under the leadership of Christine Legard,  gone  soft and fuzzy? Hardly! In the Greek bailout negotiations the IMF has been as brutal as ever to the interests of workers. The world has changed since the period of high-globalization which peaked in 1995 with the signing of the Uruguay Round trade agreements and the creation of the World Trade Organization. The change in many of the organizations is more than just cosmetic because the changed circumstances of the global economy post-2008 require a more nuanced approach to economic management. But no-one should be confused as these institutions have not in essence changed. The IMF is there to protect the international monetary system as it stands now and there is not a market that they have found that they do not love desperately.    

These are the views of Professor Roman Grynberg and not necessarily those of any institution with which he is affiliated.