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. …