World Bank backs trade unions

In a dramatic move away from its traditional adherence to free-market doctrines, the World Bank has embraced trade unions.

Its latest annual development report, published yesterday, concludes that unions, collective bargaining and government intervention in the labour market can increase prosperity for the world's poor.

In another departure, World Bank teams involved in arranging loans for developing countries will now consult representatives of workers about proposed loan conditions and projects.

However, the report, Workers in an Integrating World, has been condemned by development activists. They accused the bank of hypocrisy because it criticises some unions and opposes including minimum labour standards in international trade agreements.

The report argues that tackling low incomes, poor working conditions and insecurity can help reduce poverty and foster economic growth.

Alongside the classic World Bank advice to liberalise trade and adopt free-market policies in other areas, it recommends intervening in the jobs market.

Michael Walton, who directed the report, said: "The issue is not deregulation but sensible re-regulation of the labour market."

The most surprising change of tack is the World Bank's support for collective bargaining and a role for unions, which it now says can help raise workplace productivity and reduce inequality.

But it criticises unions that protect a minority of well-off workers at the expense of others. "Where they exist in systems where patronage or protection is the norm, they will do their best for their members in getting a share of the gravy," Mr Walton said.

The report cites countries such as Kenya and Malaysia, where only a small proportion of the labour force is unionised, as examples.

The World Bank also recommends legal protection for vulnerable groups of workers. This would include an all-out attack on child labour - its legal prohibition, an expansion of subsidised education and extra help for the poorest families forced to send their children out to work.

Yet it strongly rejects demands - by the UN's International Labour Organisation among others - for minimum labour standards in international trade agreements.

The World Bank reckons big countries would exploit such standards as an excuse for protectionist measures against small ones.

Karen Hansen-Kuhn of The Development Gap, a group based in Washington, disagreed.

She said of the World Bank: "They live in a fantasy world in which those profits translate into better wages and working conditions rather than in the real world of very unequal power relations between local unions and increasingly trans-national capital."

In line with its normal free-market conclusions, the bank sees continuing progress towards free trade with no strings attached as holding the greatest hope for poor countries.

It says trade is good for workers: the countries with the highest ratio of exports to gross domestic product have enjoyed the most rapid growth in wages.

Mr Walton challenged the view that the growth of exports from the third world was responsible for high unemployment and low wages in industrial countries, arguing that the benefits of more trade would outweigh the costs for both groups.

"This period could be the beginning of a new golden age," he said.