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30 Jan, 2006

Globalisation May Backfire, Labour Leaders Warn Tourism Industry

In a veiled jab at the globalising travel & tourism industry, well-known for shedding jobs with every business downturn, labour and union leaders last week used the World Economic Forum in Davos to remind governments and multinationals that economic liberalisation and free-trade may backfire big-time if continued in their present form.

The International Confederation of Free Trade Unions (ICFTU) warned that “global corporations continue to pit one government against another in their drive to pay less (tax), depriving governments of revenue which is essential to ensure decent infrastructure, public services, education and social security.”

And Juan Somavia, Director-General of the International Labour Office, (ILO, a unit of the United Nations) said that the momentum for reasonable economic reforms has weakened and many people, companies and countries feel that the rules of globalisation are not fair for them.

He added, “A creeping growth of protectionist tendencies is appearing. Demands for greater migration control with xenophobic undertones are growing.”

The comments are a warning to the travel & tourism industry as it becomes increasingly ‘commoditised’ and dominated by multinational corporations, posing a significant threat to the future of independent, small and medium sized enterprises.

In a statement distributed to participants at the World Economic Forum, the IFCTU said, “Business should remember and acknowledge that it too needs to contribute to the financing of the sources from which it gains its competitiveness, its innovative abilities and its creativity.

“Unfortunately, the blind pursuit of short term profits and growth, and the desire to always surpass last year’s dividends to stockowners, have made many multinational companies engage actively and strategically in lowering the share of their profits that is used to sustain and develop the societies they are based in.”

The statement said that “many multinationals are relocating operations to countries where corporate taxes are low and establishing subsidiaries in offshore tax havens, pressuring governments to offer them tax incentives or looking to creative book-keeping to ensure that they can keep as large as share of their profits as possible.

“This has set off a devastating spiral of tax competition between countries: for all OECD countries, the average rate of corporate taxes has decreased from around 45 percent in the mid 1980s to just above 30 percent in 2003.

“If this trend continues corporate tax rates would hit zero by the middle of the century. In the US, companies now only pay 13 percent of the federal income tax bill, while individuals pay 87 percent – by contrast in 1940, companies and individuals split the federal income tax bill equally.”

The unions said that in the EU, “the overall corporate tax rates declined from 46 percent on average in 1980 to 40% in 1991 and to 32% in 2003, declining even more with the accession of the new member states in 2004, which has off set another round of ‘we’ll-host-you-cheaper’ tax initiatives.

“This ‘beggar-thy-neighbour’ type of tax competition is leading to a damaging global loss of revenues for governments. It distorts tax structures, undermines the resources modern societies should be built on, and has negative employment consequences in many countries.

“The corporate world must realise that creativity requires investments and that it should pay its share of the financing of the sources it gains its competitiveness and profits from. It should face the fact that forcing countries to race to the bottom rates of corporate taxes will reduce its own innovation, slow its growth and undermine its prosperity.”

The ILO’s Mr Somavia also weighed in, referring to the “deficit of decent work” which he described as being “about more than just earning a living.”

Mr Somavia said, “Business also pays a heavy price for the decent work deficit, both in profits and in public acceptance and perception. Normal business operations like outsourcing, delocalization, and foreign investments are increasingly criticised for creating jobs ‘abroad’.

“In some public opinion surveys, the perception of big corporations and of the market economy among the most disadvantaged sectors of society, is turning negative. Many people are increasingly asking whether governments, the private sector, indeed democracy, can deliver on decent work.”

He noted, “One size does not fit all. The best policy combination can only be determined based on social dialogue to adapt the “whats” and the “hows” to different national realities, cultures and development levels.

“Implementation of this vision requires solid national consensus and coalition building to bring about the necessary transformations and improved institutions, in short, dialogue and good governance at the national level.”

Mr Somavia added, “The global jobs crisis is one of the biggest security risks of our time. If we choose to continue along the present path, the world risks becoming more fragmented, protectionist and confrontational. A continued lack of decent work opportunities, insufficient investments and under-consumption lead to an erosion of the basic social contract underlying democratic societies: that all must share in progress.

“Many people interpret the lack of decent work opportunities as the absence of an ethical compass in policy-making. It is time to revisit the commitments made by the global community to promote social inclusion and jobs as the basis of poverty reduction, and respect for fundamental principles and rights at work.”

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