5:34 AM Jul 27, 1994

UNCTAD FOR HUMILITY, REALISM IN POLICY ADVICES

Geneva 27 (Chakravarthi Raghavan) -- "Humility and realism are necessary when proposing new initiatives and orientations" to policy-makers in developing countries who are confronted by bleak labour market prospects and difficulty in creating jobs, says the UN Conference on Trade and Development in a report to its Standing Committee on Poverty Alleviation.

The UNCTAD secretariat's uncommon suggestion (at a time when international agencies and secretariats vie with one another to blame the developing world for its alleged failures of governance and state interventionism) is in a report on the effects of structural adjustment programmes on job creation and alleviation of poverty.

There are an estimated 120 million unemployed and 700 million under-employed, according to the UN's figures in an overview for the World Social Summit.

And according to the World Bank (using a poverty line of per capita annual income of $370, 1985 purchasing power parity dollars), the number of poor in the world totalled 1,133 million.

Referring to the decades of frustration (in the developing world) on the creation of quality jobs as part of the efforts to reduce poverty, the report points out that while benefits of growth have been dispersed throughout society, even reaching the poorest and most vulnerable, labour market segmentation have become worse with growth.

It has proved easier for governments to provide education, health and other basic needs than satisfy the basic human need of decent employment for all, UNCTAD says.

The difficulty of creating quality jobs at a pace sufficient to keep up with population growth and migration has been compounded in recent years by the debt crisis and the adjustment policies that have followed.

And the competitive pressures of an increasingly integrated global economy and the labour force liberalization dimensions of structural adjustment policies have further eroded the prospects of secure and adequately paid jobs for most of the population of the developing world.

Recommending in this context a measure of humility and realism in proposals for new initiatives and orientations, the UNCTAD secretariat adds that to begin with it needed to be acknowledged that to the extent there is to a trade-off, the quantity of jobs created for the poor should take precedence over the question of their quality.

Also, the goal of job creation policies should be to induce absorption of the poor in the labour market and not rely only on 'workfare' projects that fail to bring the poor into the mainstream and move them into improved economic self-sufficiency.

To the extent development and growth have been unbalanced in the past, one way to increase the number of jobs, including better conditions of self-employment, would be initially to focus job creation efforts on disadvantaged areas and, as much as possible, include women among targeted groups. Redressing that (past) imbalance would of itself help generate jobs and gainful occupations in the disadvantaged areas.

The measures for inducing creation of more jobs should include informal sector liberalization policies, provision of basic infrastructure and security of land tenure for informal urban settlements, grant of loans to small-scale entrepreneurs in urban and rural areas, extension of basic infrastructures to backward rural areas, and development and dissemination of improved seeds to increase output of small producers in land-poor and water-scarce rural areas.

"While no panacea, such an eclectic approach has the advantage that it can induce significant mutually reinforming effects important in creating additional jobs for the poor:"

The UNCTAD report notes that notwithstanding the apparent trend towards a growth in casual, low-paid jobs, urban employment situation of the poor worsened significantly in the 1980s due to the debt crisis and the subsequent stabilization and structural adjustment programmes.

The unemployment rate of the poor rose to three times the rate of that of non-poor (middle classes). The situation was worse for under-employed urban poor, with the informal sector becoming saturated by crowding-in of unemployed and underpaid workers, many from the formal sector. This was at the same time when demand for informal-sector goods and services declined on account of recession and economic hardship.

The employment situation for the rural poor did not change as radically. Many retreated into subsistence agriculture. But where currency devaluations and trade liberalization encouraged production of export crops, the increased profitability of mechanized labour led to labour displacement and eviction of tenants in rural areas where land ownership was highly concentrated.

Developing country governments, UNCTAD says, have indeed made valiant attempts to create jobs for their labour force, in most cases seemingly without success as far as the poor are concerned.

Surveying various policies followed, and results achieved, in the 1960s, 1970s and early 1980s across a range of countries, the report notes that disappointing results of industrialization and growth in creating good-quality jobs for the poor has induced many developing countries and international organizations to reexamine their assumptions.

As a result of macro-economic constraints on economic stimulus, laissez-faire approaches are receiving active consideration via labour-market liberalization policies as part of the SAPs. In this view the market is seen as an 'efficient arbitrator', and intervention and regulation in factor and goods markets are seen as reducing job creation, while economic reforms are seen as drawing the poor into the development process. Legislation raising wage levels above marginal product of labour is seen as a disincentive to employment creation.

Administered wages, to the extent they don't link wages and productivity, are condemned, while 'flexible wages' are viewed as sending appropriate market signals to guide human capital formation and compete in international markets.

Setting wages in line with market forces rather than equity objectives is advocated as part of civil service reform and rationalizing public sector employment, while promoting income security for redundant workers where social safety nets don't exist for unemployed are criticized for discouraging employment creation and restricting labour mobility.

A footnote brings out that these policies are advocated by the World Bank whose own army of over 6000 professional economists, whose own salaries and working conditions are about 25 percent above those of other international bureaucracies and not determined by market forces.

UNCTAD cites other views that laissez-faire approach neither corrects market failure nor protect welfare of the poor and some element of interventionism is necessary to establish minimum conditions of work and taking certain labour market factors out of competitive arena.

Uncontrolled competition, if it results in toleration of exploitative child labour and subhuman working and safety conditions as countries compete to attract FDI, is potentially harmful. An active minimum wage policy is essential not only for those getting it, but as a reference point for everyone else.

Analysing the job-creation potential of urban informal sector, by liberalizing the sector from onerous regulations and constraints as well as providing credits and infrastructure facilities for home-based enterprises, self-employed artisans and other own-account workers, the secretariat says the challenge to policy-makers would be to maximize employment creating potential of home-based industries while seeking to ensure decent working conditions for workers in such industries.

As most micro-enterprises can't afford their own power generators and water facilities, public utility hookups are very important. Also important are availability of startup loans, with interest rates set at real, positive but not exorbitant levels.

Such policies, the report suggests, could double the informal sectors contribution to metropolitan income, raising it to about eight percent of gdp and thus for a substantial increase in low-paid, unskilled jobs that the poor seek. But the policy package should coincide with economic recovery, since an increase in micro-enterprises without a corresponding increase in demand would result in cut-throat competition that would further depress wages.

The report also stresses the importance of job creation in the rural sector, particularly in countries where agriculture is still the dominant sector as in the least developed countries and much of Africa.

The challenge is to give small scale producers the help needed to enable them to graduate from subsistence to surplus production -- which would only be correcting long-standing distortions and biases of past growth patterns.

The assets and services needed by the rural poor include feeder roads, irrigation, credit, suitable technology focusing on traditional crops, preservation of the environment and enhancement of productive role of women and encouragement for off-farm income-generating activities.

Much labour in rural areas could be absorbed through a combination of measures to boost agricultural productivity and expanding and diversifying farm and off-farm activities.

House-holder and community credit schemes to provide funds for those lacking collateral assets (such as those in FAD-sponsored schemes in Bangladesh, Indonesia and several sub-Saharan African countries) could be one element of such a package.

A second element would be to invest in infrastructure public works projects, emphasizing participation of beneficiaries in identification and design -- rural feeder roads, small and low-cost irrigation schemes, groundwater tapping not exceeding rate of replenishment in arid and semi-arid areas, measures to tackle erosion through contour bunding etc.

A third element would be to develop increased farm output in marginal rural areas through research relevant to small-scale producers in marginal soil and rainfed areas -- so far a deficient area of activity. A promising way in these areas would be to apply biotechnology advances relating to drought-resistant crops able to fix their own nitrogen in the soil, reducing or eliminating chemical fertilizer use.

Biotechnology, like the green revolution in the past, could raise labour demand per unit of land and extend employment opportunities.

But, transfer and diffusion of biotechnology could pose problems. The national and international research centres that developed the green revolution technologies are now confronted with the problem of how to continue their public-good role of collaborating and transferring improved technologies among and within developing countries if these centres are denied access to advances made in biotechnology research that are protected by intellectual property rights.

While the research of private biotech firms is propelled primarily by short-term profit-driven motives, UNCTAD notes that this profit motive does not preclude some firms from collaborating with their governments as donors and with the UN system in non-profit, public-service partnership ventures aimed at developing improved seeds for small producers in soil-poor, water-short rural areas.

However, a footnote cites as examples only health sector collaboration between WHO and some private companies in eradication of guinea worm as well as the UNDP/WHO/World Bank teaming up with Merck pharmaceuticals to develop and test in Africa a drug to treat river blindness.

Many NGOs of the South and North have been critical of such collaboration, seeing them as making Third World public guinea pigs for tests without the safeguards required in the North.