Europe : Facing financial turbulence (and a return of the cloud ?)

In Rome on Tuesday I joined a TUAC delegation in consultations with the Italian Chair of this year’s OECD Ministerial Council meeting, the OECD Secretary General, and Ambassadors representing the Vice-Chairs from Australia and Norway, as well as the employers through BIAC. This was the most substantive preparation for a Council meeting involving the social partners in my memory, and for the first time TUAC and BIAC will participate throughout the Council meeting.

Italian labour union colleagues briefed us beforehand that the Italian Finance and Economy Minister, Giulio Tremonti, who will chair the Council after an opening by the Italian PM, Silvio Berlusconi, had a reputation for independence and was able to function in the government with considerable autonomy. Still, I was not really prepared for the extent to which we seemed to find common ground on analysis of the financial and economic crisis. When I commented that the global economy was like the volcano in Iceland, both containing the threat of new eruptions, I could see the point resonated. “It is like the question of whether there was a World War I and a World War II, or whether it was just one event, with the second phase caused by failure to resolve the problems arising out of the first phase” he said.

The Greek debt crisis was foremost in everyone’s mind, with the risk of “contagion” to other countries in the Eurozone, starting with Portugal and Spain. John Evans, TUAC General Secretary, urged the OECD to be more upfront on the Eurozone crisis, as we pressed the point that “back to business as usual” would just set the scene for the next eruption. (see 5 February entry for my comments on the emerging crisis in Greece, Spain, Portugal and Ireland).

It is not so often that as EI we get to meet with Finance Ministers – in our case it is more likely to be Education, or Employment and Labour Ministers. So it was interesting – and worthwhile – to put our case to a Minister who not only will chair a significant gathering of Finance and Trade Ministers this year (the OECD Ministerial) but also has a reputation among his peers around the world as an independent thinker.

As we left, Mr Tremonti handed out copies of a lecture he gave at the Party School of the Central Committee of the Communist Party of China in Beijing last November. Its title was “The causes and political effects of the first global crisis”. I read it on the way to Paris. It is not what you might expect from a senior minister in a right-wing coalition government. And the message that comes through clearly is that Tremonti believes we are in for even more serious upheaval unless there is a paradigm change. His answer? He calls it the “global standard” – a set of principles that should be accepted by governments as well as private actors as forming a global rule base for a globalized economy. At the OECD, he is pressing for a “Declaration on Propriety, Integrity and Transparency”. We thought it might work if linked with the “Merkel Charter” bringing together substantive parts of existing international instruments on labour standards and trade. Chancellor Merkel had convened a meeting with the Head of the ILO, WTO, OECD, IMF and World Bank in Berlin the previous week. Interesting that two right of centre European politicians are leading the move for new global standards!

Yes, we do need new global standards. But will it be too little, too late to stop the turbulence? The next day, Greek unions held a general strike. Despite the efforts of the unions to hold a massive peaceful demonstration, violence broke out, tragically taking the lives of three bank employees, and unfortunately fulfilling our often repeated warnings about the risk of breakdowns in social cohesion.

And the cloud of volcanic ash returned to close airports in Ireland and Scotland. Unanticipated and recurring natural events, a man-made disaster in the making for the Eurozone economies, a major environmental threat in the Mexican Gulf due to the breakdown of technology – all these events show that the arc of history never falls back into a neat linear progression. Those who believe so, and advocate “back to business as usual”, are engaged in wishful thinking of delusional proportions!


Links:

• Giulio Tremonti’s lecture “The causes and political effects of the first global crisis” - http://download.ei-ie.org/Docs/WebDepot/G.Tremonti%20lecture%20Communist%20Party%20Beijing%20Nov%202009.doc
  
• The “Merkel Charter” - http://www.financialtaskforce.org/2010/04/28/joint-press-release-by-german-federal-chancellor-oecd-secretary-general-wto-director-general-ilo-director-general-imf-managing-director-and-world-bank-president/

Globalization and speculation

Six years ago, at EI’s 4th World Congress in Porto Alegre, Brazil, I had the privilege of introducing the Congress theme: “Education for Global Progress”. I made the point that we tend to assume that economic progress will continue, indefinitely, without setbacks, in a kind of linear progression. But that is not the lesson of history. The reality is that in the course of human progress there are all kinds of ups and downs, surprises and shocks. In that address I identified three risks – breakdowns in social cohesion, politico-religious extremism, and irreparable damage to the environment. All three risks remain evident today. But history also has a way of coming up with surprises, of producing events that nobody had really foreseen.

The financial crisis was foreseen, by a number of recognized economists, as well as the global trade union movement. But the warnings were ignored. On the other hand, the paralysis of European aviation because of volcanic ash from Iceland happened without warning. As the disruption to air travel quickly extended across the globe, public authorities and airlines in 20 European countries scrambled to find answers. They sought answers from specialists in the uncertain sciences of seismology and meteorology. At the time of writing, they are trying to re-open airports, and then figuring out how to manage the consequences of volcanic ash clouds that may continue to drift across the continent for months to come.

So global economic progress is taking a double whammy: first the man-made financial crisis, then an awakening of nature which impacts on a key sector of the economy.

Both of these events certainly show how the global economy is interlinked. Disruption spreads rapidly to affect all countries, albeit to varying degrees. That is the inherent down side of globalization. These events ought to demonstrate a key point that we try to emphasize again and again at Education International, and more broadly, through the Global Union movement. This key point is that in today’s world, we need cooperation, mutual support, solidarity if you will, more than ever. We need cooperation to clean up after the financial crisis, to put regulations into place to prevent a new crisis, to restore global trade, and to re-create employment. We need solidarity to confront effectively the ravages of nature: earthquakes, tsunamis, erupting volcanoes, tempests and viruses. This lesson ought to be obvious.

Speculation

Sadly other recent news items show that the obvious lessons are still ignored – that the spirit of “everyone for him/herself” is very much alive and well. In the US, the SEC has launched a case against Goldman Sachs, charging this leading bank with selling bad investment instruments as the sub-prime crisis developed, even while it continued to sell those same investments to clients. In Europe, attempts to resolve the debt crisis in Greece are hampered by massive speculation on the bond markets. It is reported that speculators, including hedge funds and the like, are now targeting Portugal. By betting against countries with economic problems, the major speculators make a lot of money for themselves while making it more difficult for rescue packages to work (since the cost of refinancing of public debt is increased).

Ordinary people pay the price for the actions of the speculators. As public sector spending is reduced, teachers and other public employees are among the first affected. Then the prospects for recovery of the broader economy are seriously jeopardized by cuts in education, health and other public services.

There are issues of values. There are also issues of the incapacity of regulatory control. Global governance (through summits and a patchwork of international agencies) is inadequate. Speculators can easily pursue their own interests at the expense of the greater good. There is growing frustration that the lessons of the financial crisis are being pushed aside by the mentality of “back to business as usual” – at least until the next crisis. Meanwhile, nature’s awakening in Iceland ought to remind us that adaptation to unforeseen change requires cooperation. Ultimately, global progress will be more likely achieved through cooperation than through competition.

EDUCATION RESOURCES AND TAXATION – A POLITICAL STRATEGY

Back to cutting of funds for public service – that is the order of the day, as many countries try to reduce their deficits going out of the crisis. The pressure is on in Greece right now, a member of the eurozone, followed by Spain, Ireland and Portugal, as well as Eastern European countries, while aid budgets for developing countries are also being slashed.

The other side of the deficit-cutting equation is the endeavor to increase revenues through taxation. An example of the fix many governments are in is the case of the tax inspectors of Greece. The government, under pressure from the European Commission and Central Bank, wants them to step up revenue collection. But at the same time, the tax inspectors’ allowances are to be cut. So they will go on strike and won’t collect taxes! Ironic isn’t it?

In a way, the same scenario is being played out on a much larger scale with funding for education. Political leaders declare that more must be invested in education. Then they cut education funds so as to reduce the deficit, and in so doing, they cut the very investment that they agreed was needed for long-term growth!

UNESCO and the UN have confirmed that we have to find a way to close a funding gap of US$ 16 billion in order to achieve universal primary education by 2015. Billions more are needed in the developing countries to develop secondary and higher education, and to invest in vocational training for skills. Investment is needed too for quality and equity in the emerging and industrialized economies. Yet resources are being cut. How can the conundrum be resolved?

Finding the resources

The resources are actually there, in the global economy. It is a question of distribution, and the key is that dirty word “taxation”. Now when politicians and ideologues say “cut taxes”, we think of yours’ and my taxes, don’t we? Nobody likes to pay more taxes, and we’d all prefer to pay less. Ronald Reagan and Margaret Thatcher played on these normal human reactions rather simply but cleverly, and they helped set in motion three decades of cuts in public sector funding. They succeeded in persuading voters that the word “tax” referred essentially to personal income taxes. (Although, over those same three decades, it became economic orthodoxy to hike up indirect taxes, such as VAT, which impact on all consumers, and disproportionally affect wage and salary earners.)

Then there are corporate taxes. The same orthodoxy said they had to be reduced as much as possible, in order to encourage employment. National enterprises had political clout and were adept at using the employment/investment card to defend their interests. So revenue was tightened all round, and it become the conventional electoral wisdom that cutting public resources was the right thing to do.

But while this debate went on, over those same three decades, the world’s economies became globalized. We have global companies, global supply chains, global financial markets, and the players in these phenomena of the global economy can largely avoid paying taxes at the national level. It is that lack of symmetry between global generation of wealth, and failure to contribute to national public needs, that is very much at the heart of the conundrum.

This is the story that the voters need to hear about. We can have debates about personal or corporate taxation at the national level. But unless we address the fact that global entities largely escape their taxation obligations, we will continue to be stuck in a political dilemma. The resources are there in the global economy. The question is how to get them to communities, where they are needed for investment in education, health and other areas of social need.

Taxing global companies and their transactions

This week about 80 civil society organizations, including ITUC and TUAC, put the case to the IMF for a Financial Transactions Tax (FTT). Such a tax would generate enough resources to fund achievement of the Millennium Development Goals (MDGs) including the US$ 16 billion funding gap for education. Moreover it would help stabilize financial markets. The G20 has already mandated the OECD to tackle the issue of tax havens, although there is still a long way to go to deal with the corporate, as distinct from the personal use of tax havens. But nobody has really got to grips yet with the central question of global tax avoidance by global companies. These companies have ways to minimize their taxation that national companies do not have – through smart accounting across their global empires. Recently, the French public television channel, Antenne 2, ran a documentary revealing how little global companies (including French-based ones) paid in comparison with national companies – especially the small and medium enterprises which provide most employment. The resources for investments in education and other public sector needs are right there – in the accounts of the global companies.

An epic struggle

Make no mistake. An epic struggle is underway. We see that in the US, where a reform-minded President is confronting powerful interests. We saw it in Davos last week, where the chairman of the largest private equity firm in the world warned the Australian government of an investment “chill” following efforts to collect taxes on a windfall deal by one of his rivals.TPG, another private equity firm, made an estimated 400% profit (yes that was 400%) out of a complex takeover and refloating of a major national retailer. The bankers are resisting mightily the G20 leaders attempt to recover taxpayers’ bailout money or to tighten regulation of the financial sector. They actually find a return to the bonus culture to be justified, and they use amazing arguments to avoid paying a fair share of taxes on those bonuses.

In these circumstances, while confronting those abuses, it would also makes sense to go for a political strategy aimed at showing the voters in democracies that global corporations must be required to pay fair and reasonable taxation. We are not putting the focus here on individual taxpayers, nor on national small and medium enterprises – but on global corporations. Voters generally do not know that, through large-scale tax minimization, resources from the global economy are being withheld from nations and communities.They must be informed. Governments must be shown that winning access to these resources is the way forward. Then, and only then, will we see easing of pressures on public sector funding, pressures which affect education investment and future prospects in virtually every country.



Links:

To the IUF's Private Equity Buyout Watch article - Blackmailing the Taxman, from Davos to Sydney http://www.iufdocuments.org/buyoutwatch/2010/02/blackmailing_the_taxman_from_d.html#more



for the communiqué just issued by the ITUC for the G7 finance ministers’ meeting taking place this weekend in Iqaluit, Nunavut, Canada.

http://download.ei-ie.org/Docs/WebDepot/G7%20Finance%20Meeting%20Must%20Resist%20Bankers%20Backlash.pdf

Reforming funding for EFA

The Global Monitoring Report 2010 (GMR) released in New York on 19 January warned that the world is not on track to achieve the goal of universal primary education by 2015. With 72 million children still out of school, the aftershock of the global financial crisis threatens to deprive millions of children in the world’s poorest countries of an education (link: http://www.unesco.org/en/efareport/).

As GMR Director Kevin Watkins stated there remains a great financing gap – 16 billion US dollars – which has to be closed in order to achieve the goal. And Kailash Satyarthi, Global Campaign for Education, stated that, yet again, the most vulnerable children are the ones who miss out. UN Secretary General Ban-Ki Moon said “education should never be an accident of circumstance”.

These issues were laid squarely on the table at the World Economic Forum in Davos last week. EI pointed out that the so-called “Fast-Track Initiative” is simply not doing the job. Too few countries benefit, there are too few donors, there is too much bureaucracy, and there is not enough involvement of key stakeholders. So EI is pressing for a new approach, such as a Global Fund for Education, with strong stakeholder participation, including the voice of teachers. EI’s proposal for reform of funding for EFA is winning support – but we are not there yet.

Davos was however the setting for some frank talking on the role of teachers. EI’s General Secretary told a well-attended private session with leading CEOs and university leaders: “Just putting an unqualified person in front of a class of 250 children doesn’t provide education for them”. Fred van Leeuwen was immediately backed up by UNESCO Director General Irina Bokova. Although this was a private session, and “off the record”, you can read Ms Bokova’s comments on the UNESCO website: (http://www.unesco.org/new/en/unesco/about-us/who-we-are/director-general/). “Education is a cause that must be taken up by the G8, the G20, and the international financial institutions” Ms Bokova said to a special WEF plenary session on education the next day. Queen Rania of Jordan said “Education is not just another social issue, it’s the social issue – one that underpins progress in all global challenges we face today, from alleviating poverty, hunger and HIV to building stability, fighting climate change, and more”.

Governments have the prime responsibility, but the private sector can support through advocacy and working with the education unions, said Fred. The biggest challenge is to recruit enough qualified teachers, and professional development is the other key factor in educational quality, he added.

In coming weeks, I’ll be working through the WEF’s Global Agenda Council on Education – and with other EI, CGE, and Global Union colleagues - on the issue of reform of funding for EFA. We simply have to break through on that if we are to achieve the EFA Goal, and to give 72 million children a chance.

Links:

• EI warns that public spending cuts will slow economic recovery
  http://www.ei-ie.org/en/news/show.php?id=1184&theme=ei&country=global
• Global Campaign for Education urges improved education funding http://www.ei-ie.org/en/news/show.php?id=1177&theme=educationforall&country=global

Blocking Reforms

The sense of near-panic that pervaded Davos 2009, one year ago, has gone. For the financial sector, it is back to business as usual. For the captains of industry from the real economy the worries are still there. For they know that there will be no recovery of the real economy without recovery of jobs – and the latest ILO report released this week is not good for the OECD countries. The emerging economies, like China, India and Brazil, are doing better, but not the 30 industrialized economies in the OECD group.

Labour leaders are getting more of a hearing in Davos this year. ITUC, TUAC and UNI are pressing the case for reform of financial markets, and EI is working for reform of international cooperation for Education for All. We are getting a hearing, and I guess that must be a step in the right direction.

But is there any real change in the air? That is the big question. Wherever we raise the case for reform, the defenders of business as usual come back with their tired arguments. One of the expressions heard often around Davos this week was “Don’t they get it?” The answer, unfortunately, but realistically, is “No, they don’t”.

Despite the worst financial crisis since the Great Depression of the 1930s, despite a near meltdown of the global economy just one year ago, short-term profit-taking is alive and well, and those who benefit most will do “whatever it takes” to keep it that way by blocking reforms that were agreed as necessary just a few short months ago.

There were fewer major political leaders in Davos this year. They were back home, like the US leadership trying to reset the drive for reform, like the German and Australian leaders who judged they needed to address domestic issues, or they were in London at the conference on Afghanistan.

Today, EI General Secretary Fred van Leeuwen meets in private session with Forum constituents to urge them to throw their weight behind reform of international cooperation for financing of education. Industry leaders from the real economy seem to understand that Education for All is part of the key to real and sustainable recovery. We’ll see if they are willing to help overcome those who want to block reform.

Links:

• EI warns that public spending cuts will slow economic recovery
  http://www.ei-ie.org/en/news/show.php?id=1184&theme=ei&country=global
• Global Campaign for Education urges improved education funding http://www.ei-ie.org/en/news/show.php?id=1177&theme=educationforall&country=global

Careful optimism and tough realities

At year’s end, the signals for the future of the global economy are mixed. On the one hand, recovery of the financial markets continues – with some fluctuations. On the other hand, all the experts state that unemployment will remain stubbornly high – some improvement is foreseen in the US, China, Brazil, India, Australia – but in general 2010 will be a year of confronting very tough times, for millions of working families.

Time-lags mean that public revenue in many countries will get worse before they get better, with the threat of so-called “exit strategies”, to write down debt, looming for all our public services, notably education. And great uncertainties are still there for Greece, Venezuela, Ukraine, Ireland, Italy, Spain, Portugal – the list goes on.

And the developing countries in all this!

Maybe cautious optimism for the experts. But tough, tough realities for many, many people!

Dubai World - Fast Track/Global Fund for EFA

Dubai hit the headlines last week, shaking financial markets with the news that its flagship investment company, Dubai World, had announced a delay in meeting payments on billions of US dollars of debt. As one financial newspaper put it “Dubai montre que la crise n’est pas finie” (Le Temps, Economie, 27 novembre 2009).

Much of the reporting in financial papers has turned around the question of whether Dubai is an isolated case that could be contained, or was a harbinger of more shocks to come, “like the canary in the cage”, as one paper put it. Just as the OECD and the IMF began to speak cautiously about recovery from the crisis, the announcement by Dubai World renewed doubts that spread quickly around the global community.

For the Dubai announcement came on top of other signs that all is not well. Four Eurozone countries, Portugal, Ireland, Greece and Spain, face increasing difficulty in financing their public debt. Experts say the risk of sovereign default, as in the case of Iceland, is increasing. Meanwhile, public sector budgets are being slashed, with a direct impact on schools and teachers.

Investors are hoping that if any one of the four Euro zone countries faces the dire prospect of sovereign default, the other Eurozone countries would come to the rescue. In the case of Dubai World, similar hopes that neighboring Abu Dhabi would come to the rescue remain unanswered for the time being. Meanwhile, several Central and Eastern European countries, notably Hungary, Latvia and Ukraine, face similar situations. In their case, the IMF has intervened, with the well-known problems of conditionalities, with dramatic consequences for schools and teachers.

So even if OECD and IMF Global Indicators seemed to be pointing in a better direction, there is plenty of room for doubt. As unemployment remains high in the wake of the crisis, as public revenues continue to decline, there is an additional risk of more shocks that could knock this timid recovery right off course.

Fast Track/Global Fund for EFA

Ironically Dubai was also the setting for a major conference I attended 2 weeks ago – the meeting of the World Economic Forum (WEF) Global Agenda Councils. Best known for its annual meeting in Davos every January, WEF has embarked on an ambitious programme to engage some 1500 individuals from diverse backgrounds – business, governments, civil society and academia – in a comprehensive “redesign” of global institutions. WEF Founder Klaus Schwab suggests that the world is desperately in need of such an ambitious undertaking to address three fundamental problems:
a) Global market failures;
b) Sovereign state failures;
c) Inter-governmental failures.
The initiative is pursued through 76 “Global Agenda Councils”, each composed of about 20 people. While none speaks for his or her government, agency, company, university or organization, they bring together in each Council both depth and diversity of experience. I participated in the Global Agenda Council (GAC) on Education Systems together with Kailash Satyarthi, GCE Chairperson.

There is an important difference between this initiative and the Davos annual meeting or the regional meetings convened by WEF around the world. Davos is the occasion for hundreds of panel discussions and networking, with no attempt to record conclusions – the value is said to be in the exchanges. The Global Agenda Councils, on the other hand, have been invited to bring forward recommendations, and proposals as to how those recommendations can be implemented. This makes the process more than a “talk-shop”. It is explicitly action oriented.

The intellectual and conceptual drive behind the process comes from people like Rick Sammans, who was Chief Adviser on International Economic Affairs to former US President Clinton, and Mark Malloch-Brown, former Administrator of UNDP and UK Minister of Development in the Blair and Brown governments.

The GACs hold regular “virtual meetings” using video-conferencing over the internet, with documents and opinions exchanged on a dedicated website platform. They met physically in Dubai 20-22 November.

The GACs are grouped together in nine “clusters”, the GAC on Education Systems being in the cluster entitled “Creating a Values Framework”. In Dubai, opportunities were provided for interaction within and between “clusters”. The process there was a wild ride: the opposite of sedate processes in the UN and agencies like UNESCO or the ILO. It was fast-moving, stimulating, chaotic, at times perplexing. But ultimately, I think, productive.

The important thing is that out of this process is emerging a real opportunity for breakthrough on issues which are critical to EI and its member organizations, notably on the global mechanisms for driving forward towards Quality Education for All.

With other Global Union leaders present in Dubai, I wondered at the setting in which we found ourselves. Anita Normark, General Secretary at the Building Workers’ International, was invited with some construction executives to the top of the Burj Dubai Tower, the world’s tallest building, which was supposed to open next month. Anita enquired into the working conditions of the thousands of non-unionized workers on that spectacular building site – all brought in by labour agencies from Asia and African countries. This is the darker underside of the glamour of Dubai.

That glamour has been tarnished by the announcement of Dubai World. There are lessons to be drawn here more broadly about the human cost of exuberant speculation, and about the global impact of such speculation. Dubai wanted to be the centre of world attention, constructing the tallest building, inviting the WEF, and so on. It has however become the centre of attention in a less desired and less glamorous way.