Domestic policies to implement workers’ rights have trade-offs with international trade’s impact on labor markets. It is important to consider that labor markets and their regulation are undergoing sweeping reforms due to the progress of international trade negotiations in developing countries. Improved labor rights create a solid base for strong and stable economic growth and attract foreign direct investment (FDI). Attracting FDI contributes to job creation and therefore to poverty reduction.

In the past decade, international pressure, sometimes followed by the threat of commercial sanctions, has been the catalyst for many countries to review their laws to ensure respect for internationally recognized labor rights, especially those named by the 1998 International Labor Organization (ILO) Declaration. This article aims to show the status of child labor, forced labor, and the efforts of concerned governments and other stakeholders to set the investment climate in the right direction.

Expanding global service and production networks can accelerate growth in developing countries. The expanded networks can then successfully harness competition to encourage efficient investment. Efficient investment does not simply mean more investment; recent research demonstrates surprisingly little short-run correlation between investment levels and growth. Instead, investment and its productivity are inextricably linked to domestic policies that, when taken together, broadly make up the local investment climate.

Sound enabling policies, including good governance, institutions, and property rights, can help attract more domestic and foreign private investment. Policies that promote competition and entrepreneurship increase the efficiency of such investment. Institutions are made and run by people; it is these people who should remain at the center of any policy decisions. This is why labor policy is an important factor in garnering investment and promoting sustainable development and growth. Meanwhile, complementary public investment adds to overall productivity growth.

A stable macroeconomic environment is essential for a country to realize its investment potential. Sound policies in good governance, institutions, and property rights contribute to a positive investment climate, which is essential to accelerating growth and reducing poverty. Good public governance, which includes transparent rules, low corruption, and respected property rights, encourages investment and promotes economic growth. Many countries try to use specific investment policies, such as tax incentives, to attract investment or to channel it in particular directions. Such schemes are often poorly designed, inadequately implemented, costly, and primarily benefit investors who would have invested anyway. Various ILO studies demonstrate the importance of rules governing rights and obligations of employees and employers in promoting a stable environment.

In many countries, public and private barriers have either discouraged private investment or have channeled it into less productive activities that reduce economic growth.

But promoting a positive investment climate does not imply a laissez-faire approach to the economy. Rather, it requires active government efforts to reduce barriers that stifle entrepreneurship and competition. In his speech at the Third Annual Global Development Conference in Rio de Janeiro in December 2001, Brazilian President Fernando Henrique Cardoso emphasized the importance of global requirements in correcting the investment climate: “More than ever before, scientific and technological breakthroughs have come increasingly close to the world of labor. Upgrading the skills of the labor force is no longer an option: it has become an imperative.” Investment is made in human and non-human resources, but humans make the non-human assets work.

The 1998 ILO Declaration

The most basic labor rights have been codified by the ILO in the 1998 Declaration of Fundamental Rights at Work after some developed countries tried to include them at the WTO’s Singapore Meeting in 1996. The declaration outlines five “core labor standards” (CLS) that all labor markets should strive to meet: freedom of association, the right to collective bargaining, abolition of forced or compulsory labor, elimination of child labor, and freedom from discrimination.

The arguments for enforcing these rights rely on a moral and reputational basis that uses the “Follow Up Mechanisms” developed by the ILO. However, enforcement has noticeable economic implications as well. A growing number of people highlight the economic benefits of these core labor standards, which are well summarized by Economic Policy Institute economists Josh Bivens and Christian Weller. They note that improved worker rights have contributed to higher productivity growth, and thus faster economic growth, better distribution of income among people and between workers and firms, and more stable and strong local demand, which reduces the chance of a financial crisis.

Labor standards and their implementation did not merely arise to promote economic growth. They also emerged as a new and important area of concern for socially responsible investors, especially in the “problematic” footwear, apparel, and toy industries. For most investors involved with this issue, the fundamental matter of concern is the protection of human rights in the workplace. This is why there is a strong movement to consider the core labor rights defined in the 1998 ILO Declaration as “universal human rights.” The ILO Declaration on Fundamental Principles and Rights at Work declares inter alia that all member states, whether they have ratified the relevant conventions or not, have an obligation due to their membership in the ILO, to respect, to promote, and to realize in good faith and accordance with the Constitution, the fundamental rights which are the subject of those conventions.

The 1999 Report of the Director General to the International Labor Conference addressed decent work. In his report, Director General Juan Somavia emphasized that the “primary goal of the ILO today is to promote opportunities for women and men to obtain decent and productive work in conditions of freedom, equity, security and human dignity. The ILO is concerned with all workers. All those who work have rights at work. The ILO is concerned with decent work. The goal is not just the creation of jobs but the creation of jobs of acceptable quality.” Somavia also pointed out “two fundamental assumptions: that free markets are sufficient for growth, and they were very nearly sufficient for social stability and political democracy. ...confused technical means of action—such as privatization and de-regulation—with the social and economic ends of development. They became inflexible and did not take the social and political context of markets sufficiently into account.” Increasing doubts about the efficacy of these prescriptions after a decade of experience in the transitional economies came to a head with the recent crisis in emerging markets.