REGULATE, REDISTRIBUTE, AND RETURN TO SOCIAL VALUES AND

DECENCY:

Statement of Labour Leaders to the

World Economic Forum Annual Meeting

Davos, Switzerland, 27-31 January 2010

Breaking a vicious cycle of recklessness and greed

1. The crisis generated by the reckless pursuit of risk and profit in the banking and
finance sector has cost ordinary taxpayers, workers and citizens hundreds of billions of
dollars in bailout money as well as tens of millions of job losses. Yet without the slightest
compunction, banking management and CEO’s are once again racking up massive
profits and bonuses at a time when job losses in the real economy are causing immense
suffering and unemployment is pushing the world to the brink of a far deeper recession.
The financial sector has already launched its campaign of opposition to the plans
announced by US President Barack Obama for banking and financial restructuring and
regulation, even as public anger mounts over the indifference shown by so many in the
sector to the plight of those who are bearing the brunt of the crisis.

2. The global crisis was precipitated by the collapse of the housing bubble in the
U.S. and propagated by reckless financial speculation. The underlying causes lie in
fundamental economic imbalances and inadequate governance that are the direct result
of three decades of neo-liberal economic policies, with the effect that the fruits of growth
have not been distributed to working families. The financial crisis provides clear
evidence of the failure of the light regulatory approach of the past and the over-reliance
on “self-regulation”. It is also testimony to the unsustainability of a narrow focus on short-
term gains. Now is the time to learn the lessons of this crisis and build a more
sustainable and just future.

3. President Obama’s announcement shows much needed leadership, and must

form part of an overall package of financial sector reforms. Similar laws need to be
enacted in other jurisdictions, in order to avoid the regulatory arbitrage which has been a
key factor in the genesis of the current crisis. Yet in many instances, the very same
people from the finance sector who campaigned for years to achieve a global financial
free-for-all are part of the inner circle which is advising governments or determining
policy in the wake of the crisis. Given the need for global coherence, bodies such as the
Financial Stability Board, which conducts its affairs largely in secret, must become open
to public scrutiny, and must not heed the self-interested lobbying from financiers who
have shown little if any regard for the consequences of their actions.

4. Trade union leaders and the workers we represent insist that this time
governments have to get it right. In fact, the problems of massive unemployment,
growing precarisation and deterioration of work and declining social protection are part
of a bigger picture of polarisation in our societies. This is leading to the erosion of social
and political stability around the world, instabilities that risk becoming a permanent
fixture of the new decade unless we counter short-termism, greed, lack of morality and
anti-social values and reject corporate bankers’ wish to return to ‘business as usual’ and
to continue rewarding themselves with multi-billion dollar bonus packages.
 2

5. This is an issue of fairness and solidarity. Citizens and taxpayers are being told
they have to meet the costs of the crisis twice – first through the initial financing of the
bailouts and stimulus packages and then by refunding public debts through reduced
government expenditure and higher taxes, while the elites get the benefits. Governments
must push forward with progressive fiscal reform in order to spread the costs of the crisis
fairly and to provide a sustainable solution to growing public finance deficits. They must
place the burden on the companies and executives who created the crisis in the first
place rather than on the workers, who would be the first to suffer under austerity plans in
a context where unemployment rates may rise to 20% in some OECD countries.1

Regulate, redistribute, and return to social values and decency

6. Trade unions do not accept that spending on social and public health systems,
education, infrastructure and social safety nets should be reduced in order to pay off
public debt that came about as a result of individualistic profit-seeking while the banks
and finance avoid paying the costs of their actions. Governments must take control of
the re-regulation of a banking and financial sector that has become too large and too
unstable. Overcoming bankers’ resistance to challenging and changing the system of
indefensible bonus remuneration is imperative; the continued payment of corporate
bonuses is testimony to the failure of an approach to corporate governance that is
centred on shareholder value. In addition, recent events show that the leveraged buyout,
where companies are bought on the back of massive borrowing, CEOs and directors get
windfall payments and workers often lose their jobs, remains an ugly feature of the
global economy, adding risk and deepening inequality. This needs to change.
Sustainable company management also requires rights and benefits for workers, not
only creditors and shareholders.2

WALL STREET BONUSES: WHAT THEY COULD PAY FOR

3
According to the Attorney General of the State of New York, Andrew Cuomo , the nine largest US
banks which collectively received USD 175Bn in government support as part of the Troubled
Asset Relief Program (TARP) granted USD 32.6Bn in bonuses to their employees in 2008. This
sum would have paid for:
- Financing the gap to achieve universal primary education, adult literacy and childhood care and
4
education in the 68 low-income countries for three years ;
- More than doubling the US 2008 level of ODA, bringing it in line with OECD average; i.e., 0.41%
5
of Gross National Income, compared with 0.18% currently ;
6
- Cancelling the remaining debt of all Heavily Indebted Poor Countries (HIPC) .

7. Along with the US proposals for structural reform of banking, the UK and the US
governments have proposed that some form of levy be imposed on all big banks’

1
To read trade union proposals to the G20 Pittsburgh Summit (September 2009), see: http://www.ituc-
csi.org/IMG/pdf/0909t_g20_Pittsburgh_en_2_.pdf
2
To read trade union proposals on financial regulation to the St Andrews G20 Finance Ministers' Meeting (7-
8 November 2008), including the role of the Financial Stability Board (FSB), see http://www.ituc-
csi.org/IMG/pdf/0911t_g20_standrews_final_final.pdf
3
http://www.oag.state.ny.us/media_center/2009/july/july30a_09.html
4
http://www.unesco.org/education/gmr2009/press/efagmr2009_Highlights.pdf
5
http://www.oecd.org/dataoecd/48/34/42459170.pdf
6
http://siteresources.worldbank.org/INTDEBTDEPT/Resources/468980-
1240603491481/Debt_PocketBroch_Spring09.pdf
 3

bonuses and it is likely that other countries will follow suit. Such taxation will fill some of
the holes in public finances and it should further handicap big banks from getting bigger
as the tax would be based on the size of their assets. Trade unions strongly support this
proposal but we want to take it further. Fairness has to be brought back into the
equation. Polluters must pay and it is time for the banks which polluted the world
economy to pay a much larger share in reducing public debt.

8. Above and beyond this, there needs to be a strictly regulated upper limit on
corporate bonuses and CEO pay. Changing the current form of bonus structures driven
by short-termism, reckless behaviour and speculation requires a cap on bonuses and
earnings. We support a ceiling of no more than 20 times average earnings for the
salaries of CEOs and a limit of bonuses to 100% of salary as an absolute maximum.

9. Introducing international taxation for short-term financial transactions would curb

excessive risk-taking and speculation by traders across all jurisdictions – thus ensuring a
level playing field. It would provide vital new funds for financing the public debt incurred
as a result of the crisis, tackling climate change and increasing official development
assistance. A comprehensive Financial Transactions Tax (FTT) needs urgently to be
implemented.

10. Governments now need to deliver on the commitments which they have made at
successive G20 meetings and in other fora. The above three proposals are all
technically feasible and need to become the basis of a new set of ethical rules in the
financial sector. But political courage and will is needed if we are serious about
rebuilding momentum to reform the financial system so that it once more serves the
needs of the real economy.

Responding to the immediate jobs crisis

11. The persistent and deepening jobs crisis demonstrates the urgent need for a far
more coherent and internationally co-ordinated jobs-oriented recovery strategy than has
been put on the table so far. This strategy must have creation of decent and sustainable
jobs as its primary focus, to get people back to work and kick-start private sector
demand. The global trade union movement is gravely concerned that fiscal stimulus
packages to date remain inadequate in size and insufficiently focused on employment7.
According to OECD and ILO reviews of responses to the crisis in over 40 countries, the
fiscal stimulus measures still do not sufficiently focus on employment and social
protection. Moreover, they have failed to tackle the lack of social protection and the
dramatic decline in individual wealth held in pensions. The effects of the crisis are being
felt most by those whose pensions fall under unprotected ‘defined contribution’ schemes
that provide no pension security at the age of retirement

12. And unless action is taken, the worst is still to come. Latest projections by the
International Labour Organisation (ILO) and the Organisation for Economic Cooperation
and Development (OECD) indicate that unemployment rates in the industrialised
countries are still rising fast and will continue rising throughout this year. The situation
could have been far worse without significant levels of government support for the

7
ILO-IILS (ed.), The Financial and Economic Crisis: A Decent Work Response, Geneva 2009, p. 8.
 4

economy. Yet some countries are already talking of public expenditure cuts and
reversing stimulus measures, which given the weakness of private sector demand would
risk catalysing a further collapse in demand, deepening the jobs crisis and worsening its
social impacts. With stimulus packages in a number of countries due to come to an end
in the coming months, it is of vital importance that these be renewed and reinforced, and
that they include a strong focus on employment. A premature exit strategy would only
repeat the mistakes of past crises.

13. Furthermore, the quality of jobs created matters. The expansion of precarious
forms of work and deregulation of the labour market, increased wage flexibility and cuts
in unemployment benefits are not the answer to the employment crisis – it should be
stressed that the insecurity of working people over recent decades was a significant
contributor to today’s recession. A major challenge faced by both industrialised and
developing countries is how to build labour market security in a globalised economy.
Labour market flexibility must not be achieved through the severing of the standard
employment relationship, the erosion of workers’ fundamental rights or reductions in
workers’ welfare.8 Investment in transforming economies into a low-carbon future should
be a key focus of stimulus, with an emphasis on “just transition” to ensure that workers
and their communities affected by the move to a green economy have decent jobs and a
secure future.

14. Trade union leaders urge that the following key issues be addressed by the
World Economic Forum to help search for solutions in fighting an enduring jobs crisis
and the spectre of a jobless recovery, and avoiding a further and deeper recession:

• A greater proportion of recovery package expenditure must be committed to

employment creation and measures must be targeted so as to have the strongest
impact on employment;

• Governments must invest more in public works, especially those that can create
jobs quickly and be transformational in moving to an environmentally sustainable
economy, thus helping lay the basis for governments to conclude a fair and
ambitious international agreement to tackle climate change;

• Short-time working and job subsidy schemes should be strengthened where the
alternative is unemployment, to minimise the inflow of workers into
unemployment;

• The scarring effects of youth unemployment must be avoided through job

guarantees and expanded education;

• Poverty and social exclusion should be targeted through a stronger focus on

social security measures in responses to the crisis, which can also support
demand;

• Emerging and developing countries must be given the resources and policy
space to implement universal social protection and to provide the decent jobs
that can contribute to the global growth of demand.

8
To read the Trade Union Proposals for the G20 Employment and Labour Ministers Meeting (Washington
D.C., April 2010), see: http://www.ituc-csi.org/ituc-tuac-beating-the-jobs-crisis.html?var_mode=calcul
 5

Conclusions

15. 2010 marks the beginning of a new decade. What will be remembered from the
old? Global recession, in the form of an all-encompassing economic crisis that caused
unemployment to surge globally and let poverty and inequalities grow while sending
living standards, economic activity and trade into a tailspin; inadequate action to tackle a
climate crisis that threatens us all; a massive increase in personal enrichment by
bankers and financial speculators without an ounce of decency or regard for the welfare
of our societies; and an overwhelming deep-rooted public distrust of the prevailing global
economic and financial systems, which is rapidly undermining confidence in
governments everywhere. The potential for serious social unrest is substantial, and is
likely to become a reality unless governments face up to their responsibilities to govern
in the interests of the many and get the world economy onto the correct path.

16. The new decade provides a new opportunity to create an economic development
model that puts people, the environment and the public interest first. Trade unions want
to seize that opportunity and to take part in shaping the global agenda so as to improve
the state of our world. We want a model for a balanced economy in which the financial
sector once more serves the needs of the real world, a new model based on balanced
wage-led growth rather than financialisation and excessive, unsustainable profits. Such
responsible and sustainable solutions must be a priority for all participants in the World
Economic Forum 2010.