Is the G20 “Enhanced Structural Reform Agenda” serious about inclusiveness?

Last week, the G20 Finance committed to a new — but yet to be made public — “Enhanced structural reform agenda”. Ministers also called for the “benefits of growth” to be “shared more broadly”. Will the two fit together? And, will they lead to policy change?

The G20 Finance Ministers and Central Bank Governors meeting in Chengdu, 23–24 July, was the last in a series of Ministerials held in the run-up to the Leaders’ Summit, 4–5 September Hangzhou, under this year’s Chinese presidency. Other Ministerials were held on Agriculture (3 June), Energy (29–30 June) Trade (9–10 July), and on Labour & Employment (12–13 July). As the last meeting before the main event in Hangzhou, the content of the G20 Finance communiqué should give a good indication of what will happen when the Leaders’ meet in September.

The statement has the usual “we re-iterate” commitments language. Ministers re-iterate their “determination to use all policy tools — monetary, fiscal and structural — […] to achieve […] strong, sustainable, balanced and inclusive growth”, with the usual warning that “monetary policy alone cannot lead to balanced growth” and to “refrain from competitive [currency] devaluations”. Several on-going initiatives are acknowledged: the launch of a “Global Infrastructure Connectivity Alliance” which is a central priority of the Chinese presidency, IMF financing & sovereign debt restructuring, the programme of work of the Financial Stability Board (cf. FSB Chair letter to the G20), the implementation of the OECD BEPS action plan and the (post-Panama Papers) strengthening of tax transparency standards (cf. OECD SG report to the G20), money laundering, climate finance and the development of “green bonds”.

So far so good. All of the above was to be expected to appear in the communiqué. Compared with the recent G20 Finance statements however, there are two novelties that stand out: (i) the unusual wording (for finance ministers and central bankers) on the need for growth to be “shared” within societies and (ii) the endorsement of a blueprint “enhanced structural reform agenda”.

Let’s start with the new wording on growth. “The benefits of growth”, we are told, “need to be shared more broadly within and among countries”. The outcome of the Brexit vote in the UK is flagged out as a wake-up call. On the margins of the Summit, Jack Lew, the US Treasury Secretary, said:

“The [UK] referendum reinforces the importance of concentrating on shared growth. […] The benefits of growth [should] not just go to the bottom lines of businesses or investors, but also [to] working families and the middle class.” He added that the G20 needed to “redouble efforts” to boost “shared growth”.

The concern about growth not being shared and not being inclusive enough echoes the Labour & Employment Ministerial that took place two weeks before in Beijing and which committed to “improve income for the bottom 40%”. It follows the same line as the pledge by the G20 Leaders’ last year in Antalya to “enhance inclusiveness of our policies”.

But what are the concrete policy implications of such a statement? Terms like “shared growth”, “inclusive growth” and “inclusiveness” can have different meanings, but they are all linked to the evidence of rising inequalities, pre- and post-crisis, of the growing gap between the “bottom 40%” and the top 1% and the shrinking of the middle class.

At the OECD, the prevailing view is that reducing inequalities, and hence enhancing the “inclusiveness” of policies, can be achieved by reducing skills gaps and mismatches within and between generations and by adding a few layers of safety nets for the poor and the deprived.

For trade unions however, it might take more than that to effectively reverse the income inequality trend. It is essentially about putting an end to a +20 year trend of weakening of the bargaining power of the working people (cf. TUAC paper on the role of collective bargaining in reducing income inequality). A trend that has resulted in weak wage levels that are disconnected from productivity gains, in precarious jobs increasingly becoming the norm, job and income insecurity for all, including the higher skilled and the middle class.

In its latest statement to the OECD Ministerial in May last, the TUAC called for an end to “past policy errors that have weakened labour market institutions [and] replace collective rights with individual responsibilities”. This is also the key message of trade unions to the G20 leaders meeting in Hangzhou: to obtain a “refocused structural policy agenda that rebuilds strong labour market institutions to create quality jobs and to reduce income inequality”. On that, the G20 Labour & Employment Ministerial in Beijing in July offers some encouraging signals in pledging to promote coverage of and compliance with minimum wages and collective bargaining.

But what about the G20 Finance? Beyond its general concern about growth that needs to be shared, is it taking “inclusiveness of policies” and inequalities seriously? This is where the other novelty, and key deliverable of this G20 Finance meeting comes in: the endorsement of a new “Enhanced Structural Reform Agenda” consisting of no less than 48 “guiding principles” to which an undisclosed number of indicators are added to help monitor implementation of these principles.

At the time of writing, the 48 principles and the associated indicators have not been made public. They have been negotiated behind closed doors with no stakeholder consultation — at least as far as trade unions are concerned. At this stage, all we have are the headings, the nine “priority areas” agreed at the April meeting of the G20 Finance:

  • Promoting Trade and Investment Openness
  • Advancing Labour Market Reform, Educational Attainment and Skills
  • Encouraging Innovation
  • Improving Infrastructure
  • Promoting Fiscal Reform
  • Promoting Competition and Enabling Environment
  • Improving and Strengthening the Financial System
  • Enhancing Environmental Sustainability
  • Promoting Inclusive Growth

What can we expect on the content of the 48 principles when, at last, they are made public? First off, they might have a strong OECD flavour. While both the IMF and the OECD submitted papers to the G20 Finance in April, it appears that the OECD took the lead, among international organisations, in shaping the principles. In the G20 Finance communiqué, the OECD is in fact asked “to help assess G20 progress and challenges within the structural reform priority areas”.

Based on the OECD submission in April, we can expect the usual emphasis on trade liberalisation and de-regulation: a series of recommendations to further reduce trade barriers (tariff, non-tariff, behind the border), promote trade and investment treaties, eliminate “restrictive regulations” and “excess burden of regulatory compliance” on private businesses. The heading on “Promoting Fiscal Reform” could, however, entail a shift away from the classic regressive tax reform OECD blueprint dating back to the Going for Growth edition of 2009. That could be assumed based on the latest OECD G20 submission on “tax design for inclusive economic growth”.

The fact that under the nine “priority areas” a stand-alone chapter on “Promoting inclusive growth” is featured, is both good and bad news: good news, because it is there, bad news because if it is there, it may not be in elsewhere in other policy areas. Considering the OECD views on tackling inequality, that chapter could well end up with a focus on access to education and training and financial literacy coupled with better safety nets to compensate for the “adverse impact of pro-growth policies on inequality”. In other words: an incomplete picture from a trade union perspective.

The acid test for the importance and orientation of the “inclusiveness” of the G20 Enhanced Structural Reform Agenda will be the content of the “labour market reforms” chapter. Will it be a continuation of the past or, akin to the G20 tax policies, offer a change of direction or at least a modest shift in focus?

When reading the OECD note from April, it looks like we can expect no real change. The call to “rebalance protection from jobs to workers” may sound attractive considering the Danish model of “flexicurity” — but can the Danish model be exported across all G20 countries? Thus far, OECD discussions have brought far more attention to the “flexi” and far less to the “(se)curity” part. And while the OECD concern for reducing “labour market duality and informality” is a legitimate one, past experience shows that it is an implicit call for weakening employment protection legislation even further — giving more freedom to employers to get rid of workers at short notice. Finally, the proposition to make wage setting mechanisms more flexible and “more responsive to local conditions” can be seen as a call for an end of sector-wide, branch-level collective bargaining agreements. While the OECD submission concedes that this package could depress workers’ wages, it claims that this “may be mitigated” by simultaneous reforms in the area of competition and bankruptcy: “The price reduction resulting from product market reforms eases the downward pressure on the real wage and at the same time, labour market reforms facilitate the necessary reallocation of workers”.

In sum, a relatively classic formula for labour market de-regulation, and for individualisation and transferring risks from employers onto workers. A recipe that may get lower prices via increased competition, but a recipe that compresses wages and creates more overall precarity and insecurity for workers and their families. Not exactly something anybody would see as too inclusive.