If Clinton Pushes, Asia’s Breakdown Could Drive Labor Reforms Forward

In every crisis, there is opportunity. But in the financial crisis still rattling Asia, the Clinton administration may be missing the most promising opportunity to point these troubled economies toward a more stable and equitable future.

The issue is the terms the international community is demanding for its multibillion-dollar financial aid packages to South Korea, Indonesia and Thailand--not to mention the other stumbling nations that may turn up at the International Monetary Fund’s window through the coming months.

Under heavy prodding from American officials, the IMF is compelling the humbled Asian tigers to renovate their rickety and corrupt financial systems. But while bolstering the rules protecting investment, the IMF is forfeiting a historic opportunity to strengthen the position of labor--and build stronger markets for exports from America and other industrialized nations.

The problem is that none of the recent IMF agreements in Asia require any reform in repressive labor laws that act to suppress wages and shrink domestic demand. That’s not an issue in South Korea, which has strong and independent trade unions. (Its troubles lie in incestuous dealings among government, business and finance.) But Thailand and Indonesia are both “among the worst” offenders in Asia in denying worker rights, says Terry Collingsworth, general counsel for the International Labor Rights Fund in Washington.

In Thailand, union activity in state-owned companies is severely restricted; it’s virtually nonexistent in the privately owned export sector, which tends to employ young, rural women at meager wages. (Workers attempting to organize are routinely dismissed, Collingsworth says.) Through arrests and intimidation, Indonesia has smothered the independent alternative to its compliant state-controlled union federation; the leader of the independent union drive, Muchtar Pakpahan, remains on trial for subversion even though he is seriously ill.

There’s a moral case for challenging such repression at a time when these countries are rattling the cup for billions in aid. But the practical argument for confronting this iron fist is even stronger.

All of these economies have been built by stressing exports and suppressing domestic demand. But the crisis shows the risk in such unbalanced development: One reason for the turbulence across Asia is China’s emergence as a competing source of even lower-cost exports.

To achieve lasting stability, many experts argue, countries such as Indonesia and Thailand need to develop more vibrant domestic markets. And the best way to do that is to raise domestic wages--which are held to artificially low levels by the inability of workers to organize and bargain collectively.

Especially in Thailand and Indonesia, emphasizing labor rights could also serve the international community’s long-term interest in dismantling the “crony capitalism” that has nearly buried these economies under bad loans. Like mushrooms, these financial excesses have thrived in the absence of sunlight. Anything that strengthens independent power centers (such as free unions) in these societies and enlarges a middle class with a stake in an honest table increases the odds of sustaining the economic reforms now being accepted under duress.

Traditionally, the reflexive argument against mandating labor-law reform has been that it injects the IMF too heavily in its borrowers’ internal affairs. But in these deals, the fund has already pushed far beyond its usual focus on broad macroeconomic policy (balancing the budget, stabilizing the exchange rate) to enforce economic policy changes stunning in both their intimacy and detail. Across the three countries, the IMF is ordering privatization of public companies, reorganization of banking regulation, and the elimination of restrictions on foreign products and investment.

Most of these reforms are long overdue, and a significant achievement for the American officials who insisted on them--particularly Treasury Secretary Robert E. Rubin and his deputy, Lawrence Summers. But after all that microsurgery, labor-law reform hardly seems like an unprecedented intrusion. “Clearly we are beyond any question of noninterference,” said Rep. Barney Frank (D-Mass.)

Frank is the co-author (with independent Rep. Bernard Sanders of Vermont) of a 1994 law requiring the United States to use its “voice and vote” to encourage IMF borrowers to “guarantee internationally recognized worker rights.” Frank believes that the administration broke that law in supporting the IMF packages to Indonesia and Thailand.

Not surprisingly, the administration disagrees: It says the law requires it to raise labor issues, but not to oppose aid if its advice isn’t heeded. And in a letter last week to Sanders, Rubin insisted that the United States did question Indonesia’s “labor market practices” during the IMF talks.

Still, no one familiar with the process would pretend that the United States pressed the issue as a central priority. The administration may have kept inside the law, but it failed to keep its eye on the horizon.

Clinton would likely have had few international allies if he had seriously demanded labor-law reform in these negotiations. But the rigor of the financial reforms in the packages shows how persuasive America can be when it lowers its head. (Even outside the IMF process, quiet U.S. pressure recently helped dissuade Thailand from further tightening its labor restrictions, unionists say.) And it’s not clear when Clinton will ever again have as strong a hand to advance worker rights across Asia. “This is the time when you have the leverage,” Collingsworth said.

If he doesn’t utilize that leverage, Clinton may soon find himself on the other side of the equation. Early next year, he’s hoping Congress will approve a $3.5-billion U.S. contribution to the IMF. But Frank says that if Clinton doesn’t pay attention to labor rights, he could face the same sort of resistance among Democrats that derailed his drive for “fast-track” trade authority. With populist conservatives such as Patrick J. Buchanan already thumping against bailouts of “the investing class,” Clinton may keenly need those Democratic votes. “When they come back to us for more IMF money,” warned Frank, “they will have to show they are serious about this.”

Ronald Brownstein’s column appears in this space every Monday.