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OSEC Congressional Testimony

Testimony Prepared for United States Secretary of Labor Robert B. Reich Committee on Banking, Finance, and Urban Affairs Subcommittee on International Development, Finance, Trade, and Monetary Policy [06/28/94]

Chairman Frank and members of the Subcommittee:

It is a pleasure to appear before Subcommittee on International Development, Finance, Trade, and Monetary Policy to discuss international labor standards. Chairman Frank deserves credit for tackling a subject whose importance is matched only by its complexity. In light of that complexity, this hearing serves a valuable purpose: continuing the conceptual spade work that is the prerequisite to any sound public policy. As his adversaries will attest, the chairman has proven to be dangerously skillful at such intellectual arm-wrestling. And ordinarily, I'd approach this hearing with some trepidation. But I know he'll take it easy on me when the panel turns to questions because of my unique status as the only cabinet member from Massachusetts.

Our discussion comes in a year when we mark some important anniversaries in the evolution of international labor standards, and when world events demand renewed attention to this issue. The International Labor Organization reached its 75th birthday this year, and President Clinton has reaffirmed our country's long-standing commitment to ILO's cause. This year also marks the 50th anniversary of the Declaration of Philadelphia, perhaps the most ambitious attempt so far to articulate an international position on labor standards.

This evolution continues today. And it proceeds as the issue of international labor standards gains an extra degree of salience, symbolized by the recognition at Marrakesh that labor standards must be taken into account in formulating the work for the new World Trade Organization. When I travelled to Europe earlier this month to discuss this topic with the entire membership of the ILO, I also met with GATT Director-General Peter Sutherland on plans for incorporating labor standards into this historic global trade pact. At the OECD Ministerial meeting in Paris, I participated in discussing and adopting a work program on the topic. And we are now working with the U.S. Trade Representative to further develop the U.S. position for the Preparatory Committee meeting of the WTO.

But more than any international agreement, the accelerating integration of the global economy makes it ever less possible for advanced countries like ours to wall ourselves off from labor practices in other countries. As economies become increasingly interwoven with each other, we must either actively accept some share of responsibility for how our economic partners conduct their affairs, or else passively accept complicity.

The implications, however, remain complex, and subject to confusion. At least a few participants in the debate appear to cherish their confusion, and remain remarkably immune to explanation. For example, I published an essay on this topic not long ago in which I argued that developed countries have a legitimate interest in labor standards abroad, but that in expressing that interest and giving it force they must be pragmatic, must respect developing nations' special circumstances and their urgent need for growth, and must beware the hazards of using trade sanctions as the main instrument for advancing international labor standards. This struck me as a rather common-sense position, but it provoked the ire of the Economist. The editors of the Economist declared themselves to be in vigorous opposition to my position on this issue, and expressed this opposition in an article that makes, so far as I can tell, the following points: The developed countries have a legitimate interest in labor standards abroad, but in expressing that interest and giving it force they must be pragmatic, must respect developing nations' special circumstances and their urgent need for growth, and must beware the hazards of using trade sanctions as the main instrument for advancing international labor standards. (I will confess that I briefly reconsidered my position upon discovering the Economist to be in broad agreement with it, but on reflection found it sound nonetheless.)

Yet aside from a few journalistic strongholds of resolute confusion, we seem to have advanced beyond the conceptual gridlock that has plagued the international community for so long. Few are willing to suggest openly that labor conditions, however egregious, are strictly internal affairs. Nor today are there many candid advocates for the opposite extreme, which argues that standards in every nation must be identical to those attained in the most advanced economies. We have achieved that essential prerequisite for consensus -- an agreement to look to the middle ground.

Now as we map that middle ground, let me begin by asserting the legitimacy of defining some absolute standards to which every country is expected to conform. Some labor practices simply place countries outside the community of civilized nations. How can these core labor standards be defined? Any such list will certainly include goods produced by prison or slave labor. Some forms of child labor -- such as work by very young children -- will also be found to violate universal norms, even in the poorest countries. Nor is poverty a valid pretext for restricting freedom of association and organization or the rights of workers to bargain collectively.

Beyond a short list of core labor standards, judgements must become more conditional. The international community clearly cannot attempt to dictate levels of working hours, minimum wages, benefits or health and safety standards uniformly matching those of the United States and other industrialized nations. The belief that developing countries must grow richer in order to improve living and working conditions, and that they must trade if they are to grow richer, has merits. Yet this observation contains within it an implicit acknowledgement that standards should not be and are not static, that a country's ability to offer its citizens better working lives rises with development, and that international expectations may properly rise as well.

So while it is neither fair nor realistic to insist that labor standards within developing countries must be identical to those in richer countries, it is appropriate to expect labor standards to improve as economies develop. That is the course our own nation followed. And this expectation for others reflects both moral and material interests. Countries with rising mass living standards offer growing markets for other countries' exports and thus all countries have an economic stake in broadly shared prosperity abroad. Free trade is not an end in itself, but a means to rising living standards worldwide, more jobs and better jobs. But if a country pursues policies that hold down living standards and limit to a narrow elite the benefits of trade and development, the promise of open commerce is perverted and drained of its rationale.

If the world can legitimately expect rising labor standards and rising living conditions to accompany third-world growth, then what criteria -- beyond the violation of those core absolute norms concerning prison labor, slavery, child labor and blatant restrictions on freedom of association and organization -- should guide the international community?

Let me suggest to you a two-part test. The first concerns democratic institutions. The second concerns trends.

Labor conditions are determined by both economic and political factors, and it is difficult to disentangle the effects of each. But the existence of democratic institutions -- that is, multiple parties, freedom of speech and the press, clean elections -- does give cause for confidence that low wages and poor working conditions are related to economic constraints. The less democratic the country, the greater the grounds for suspicion or concern that labor standards are being suppressed in order to serve narrow commercial interests or a misguided mercantilist impulse on the part of the elites.

Where there are reasonably robust democratic institutions, we can presume that labor conditions reflect what the country can afford, given its level of development. But what of countries where democratic institutions are weak or absent? For these countries, trends in labor standards and economic inequality offer a second yardstick. Low-wage workers should become better off, not worse off, as trade and investment boost national income. The gap between rich and poor within a nation should tend to narrow with development, not widen. If a country lacks democratic institutions and fails to disseminate the benefits of growth, other countries might justifiably conclude that low labor standards are due not so much to poverty itself but to political choices that distort development and warp the economy's structure.

The tentative framework I have laid out so far deals only with diagnosis, not with prescription. It frames the goals, but is silent on how to reach them. That leaves for us a final question: what response should the international community make to policies that affront the set of standards it comes to articulate? This question is related to, but distinguishable from, the criteria that should trigger international concern.

Here, let me limit myself to three general principles. First, it is clearly preferable for any action to be authorized and implemented multinationally, in order to increase the odds that intervention will be effective.

Second, there should be a menu of potential responses to labor-standard abuses, varying in both the nature and the severity of their effects. This range could include specific incentives to motivate change and technical assistance to clear the path to improvement, "sunshine" provisions in order to highlight abuses, ineligibility for international grant and loan programs, and targeted trade measures. The United States already has a number of mechanisms for promoting adherence to labor standards. For example, under current law a country's eligibility for investment guarantees and trade preferences may depend upon its demonstrated respect for workers' rights. Expanding such incentives to other international activities, such as multilateral development grant and loan programs, may be a promising option.

The third principle, which gives force to the other two, is pragmatism. The purpose of any intervention must be to bring about change in the offending nations. Scrupulous assessment and analysis, at each stage, must inform the international community's efforts to improve labor standards. And we must not lose sight of the fact that trade itself -- by opening an economy to external influences and empowering a wider range of internal interests -- can be a catalyst for progressive change.

Multinational efforts, to be sure, are seldom easy to conduct in any sphere of activity. Yet the mere fact that success depends on the skill of negotiators and diplomats is no reason to dismiss the effort as wooly-headed internationalism. Those who claim that any multilateral action is doomed to failure show more cynicism than the evidence supports. Such reflexive pessimism ignores, for example, our success in arranging for the North American Free Trade Agreement (NAFTA) to be accompanied by an historic labor side agreement that promotes labor standards and bolsters their enforcement in the United States, Mexico, and Canada.

Some critics of the multinational approach also predict that if the U.S. commits itself to a particular level of international labor standards, interest groups will use this stance to import their own narrow protectionist agendas. There is some degree of validity to this worry. International trade is a highly charged issue in domestic politics, and protectionists have shown themselves remarkably willing to march under a variety of banners. But this worry underestimates the capacity of those concerned about labor standards to recognize when their good motives are being manipulated in the service of a narrow cause. And to repeat, our repertoire of responses must be expanded to give a wide range of options other than trade policy.

Developing a detailed program for advancing international labor conditions will occupy us until the century's end and probably beyond. I thank you, Mr. Chairman, for moving this discussion forward this morning. Let us waste no time in continuing.

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