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Freedom of association: Battering ram or Trojanhorse?Teri L. Caraway aa Department of Political Science , University of Minnesota , USAPublished online: 19 Aug 2006.

To cite this article: Teri L. Caraway (2006) Freedom of association: Battering ram or Trojan horse?, Review ofInternational Political Economy, 13:2, 210-232

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Review of International Political Economy 13:2 May 2006: 210–232

Freedom of association: Battering ramor Trojan horse?Teri L. Caraway

Department of Political Science, University of Minnesota, USA

ABSTRACT

Integrating core labour standards (CLS) into the operations of the BrettonWoods institutions and the WTO has become a primary goal of the inter-national labour movement. The International Confederation of Free TradeUnions (ICFTU) and the ILO have persuaded the IMF and the Bank to acceptCLS, including freedom of association and collective bargaining. Since theycan impose painful sanctions on violators, incorporating labour rights en-forcement into the international organizations that regulate the internationaleconomy has great appeal for the labour movement. I argue that there arepotential dangers in this effort. The ILO’s understanding of freedom of asso-ciation is distinctly liberal and promotes the formation of ‘free’ as opposedto powerful trade unions. In this liberal conceptualization, many labour reg-ulations that enhance labour’s power by limiting union fragmentation andincreasing bargaining power are considered to be violations of freedom ofassociation. In practice this has meant that the ILO makes policy recommen-dations that encourage union competition and that discourage centralizedcollective bargaining. Although framed in different language, these policiesmesh well with the agenda of the Bretton Woods institutions. An analysis ofIndonesia and Argentina shows how the ILO’s understanding of freedom ofassociation has mixed consequences for the strength of the labour movement.

KEYWORDS

Core labour standards; labour rights; freedom of association; Internationallabour Organization; World Bank; International Monetary Fund

INTRODUCTION

Since the International Labor Organization (ILO) issued the Declaration onFundamental Principles and Rights at Work in 1998, the four core labourstandards (CLS) identified in the Declaration have become the pivot aroundwhich most discussions of labour rights in international fora turn. CLSinclude freedom of association and collective bargaining, the elimination

Review of International Political EconomyISSN 0969-2290 print/ISSN 1466-4526 online C© 2006 Taylor & Francis

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of forced and compulsory labour, the abolition of child labour, and theelimination of discrimination in the workplace.1 Integrating CLS into theoperations of the Bretton Woods institutions and the WTO has become aprimary goal of the international labour movement.2 With a little help fromthe US Congress and the US Treasury, the ICFTU and the ILO persuadedboth the IMF and the World Bank to accept, at least formally, all of the CLSby 2001. Predictably, freedom of association and collective bargaining metwith the most resistance, and the implications of the promotion of thesestandards are the focus of the analysis that follows.

Incorporating respect for labour rights into the work of the internationalorganizations that regulate the international economy has great appeal forthe labour movement, since unlike the ILO they can impose painful sanc-tions. Although thus far these institutions have resisted enforcing labourrights through sanctions, they have increasingly stressed CLS in their day-to-day operations and expanded their cooperation with the ICFTU and theILO. The World Bank has even incorporated CLS into the loan requirementsfor its private sector lending arm. The ICFTU continues with an assertivecampaign to use these organizations to enforce labour standards.

I argue that there are potential dangers in this effort. As the organizationwith dominion over labour standards, the ILO’s interpretation of Con-vention No. 87 on Freedom of Association and Protection of the Right toOrganize and Convention No. 98 on the Right to Organize and CollectiveBargaining is crucial for how these rights would be enforced internation-ally. The ILO’s understanding of freedom of association is distinctly liberal,which has important implications for the creation of powerful as opposedto free trade unions. In this liberal conceptualization, many labour regu-lations that limit union fragmentation and that increase union bargainingpower are considered to be violations of freedom of association. In practicethis has meant that the ILO makes policy recommendations that encourageunion competition and that discourage centralized collective bargaining.Although framed in different language, these policies mesh well with theagenda of the Bretton Woods institutions. The IMF and the World Bank’srecent acceptance of freedom of association and collective bargaining iscontingent on assuring that the economic costs of unions can be controlled,which they believe is best accomplished through union competition andenterprise-level collective bargaining. Promoting freedom of associationcould thus result in a liberalization of labour relations rather than in theempowerment of the labour movement.

The potential perils of the promotion of freedom of association will beillustrated through an analysis of two cases, Indonesia and Argentina.Indonesia represents a set of countries in which labour rights advocatesimagine that CLS enforcement can empower unions that have long en-dured state repression. While the labour reforms advocated by the ILOand supported by the Bretton Woods institutions opened the door to the

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formation of independent unions in Indonesia, they also promoted unionfragmentation and enterprise level bargaining. Labour is now free but weakand fragmented. Argentina, in contrast, has a powerful labour movement,but the ILO has challenged aspects of national labour codes that discourageunion fragmentation and that promote centralized bargaining. Freedom ofassociation is therefore a double-edged sword. It could be a battering ramthat opens space for the formation of independent but weak unions innewly democratic states, but it could also be a Trojan horse in countrieswhere powerful labour movements have benefited from laws that inhibitunion fragmentation and mandate centralized bargaining.

The paper is organized as follows. First, I highlight the evolving consul-tations between the World Bank, the IMF, and the ILO. The second sectionoutlines how the Bretton Woods institutions have entered the debate onfreedom of association and collective bargaining, and the third section fo-cuses on the ILO’s interpretation of freedom of association, illustrating theresulting policy recommendations in Indonesia and Argentina.

THE ILO AND THE BRETTON WOODS INSTITUTIONS

The ILO has actively engaged the Bretton Woods Institutions since thelate 1980s. Initially, these efforts focused on influencing policies related toemployment promotion and labour markets, but over time, core labourstandards also became an important area of concern (Hagen, 2003). Thedevelopment of these consultations is reflected in the inclusion of the ILOin some of the Bretton Woods institutions’ joint structures. In 1994, theFund and the Bank granted the ILO observer status at its annual meetings,and following the World Summit for Social Development in March 1995,contacts intensified (Hagen, 2003; ILO, 1996a). In 1999, the ILO obtainedofficial observer status at the IMF/Word Bank Development Committees(ILO, 1999a). The deeper incorporation of the ILO into these institutionalstructures was partially a result of pressure from the US Treasury regardingCLS (Rubin, 1999; Wade, 2001). In addition to the ILO’s participation inthese joint institutions, it has also actively encouraged the Bank and theFund to incorporate CLS into their work.

Surprisingly, the IMF accepted CLS before the World Bank. The IMF in-vited the ILO to the meeting of the Interim Committee in October 1995,where it agreed that CLS were relevant and should be supported (ILO,1998a). From that point on, the IMF adopted the position that each insti-tution had its own domain, and the Fund pledged to defer to the ILO’sexpertise on labour standards (Hagen, 2003: 19).3 By 1996, the IMF hadbegun to encourage field-level collaboration with the ILO in all countrieswhere both the ILO and IMF were active. With the onset of the AsianFinancial Crisis, joint consultations with the ILO increased significantly(ILO, 1998a). Both the IMF and the World Bank came to accept that dealingwith the crisis required a broader set of policies that centered not only on

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structural adjustment but also on mobilizing social support for solutionsto the crisis (Hagen, 2003: 20; ILO, 1999a). By 1999, the ILO was grantedofficial observer status at the IMF’s Interim Committee, and in the sameyear, the IMF hosted a special seminar on labour standards, where it onceagain affirmed its support for CLS (Fisher, 1999). In October 2000, the IMFannounced that its country-level evaluations would include consultationswith trade unions (Hagen, 2003: 21).4

The World Bank was a more reluctant partner than the IMF (ILO, 1998a).The Bank consulted with the ILO before the publication of its World De-velopment Report, Workers in an Integrating World (1995), but it objected toincluding strong language about labour standards (ILO, 1996a). Accord-ing to the Bank, Article IV of the International Bank for Reconstructionand Development’s Articles of Agreement prohibited political interventionin donor countries, and thus prevented the Bank from promoting labourrights (Holzmann, 1999). In spite of this disinclination, the World Bank con-tinued to develop staff contacts with the ILO during the ensuing years, andin 1997 the head of the World Bank attended the 87th session of the Interna-tional Labour Conference at the ILO (ILO, 1997). In 1998, the InternationalDevelopment Agency (IDA), the ‘soft-money’ arm of the Bank, emphasizedfurther collaboration with the ILO on CLS in its 12th Replenishment deci-sion. The Action Plan adopted required the Bank to improve the diagnostictreatment of CLS in its Country Assistance Strategies (ILO, 1999a), whichled it to develop a toolkit on CLS, with the ILO’s assistance, for Bank staff(ILO, 2000). The Bank had little choice but to take these steps, as the priceset for the replenishment of the fund by the US Congress was an assess-ment of core labour standards (Hagen, 2003: 24). In 2003, the Bank pledgedto include respect for CLS as a condition for loans from its private sectorlending arm, the International Finance Corporation (IFC) (ICFTU, 2003b).5

The Bretton Woods institutions have thus integrated CLS into some oftheir operations. Yet the Bank and the Fund are still ambivalent about CLS,especially with regard to freedom of association and collective bargaining.The reasons underlying this hesitation are intimately related to economictheorizing about the effects of unions and labour standards on economicoutcomes.

THE BRETTON WOODS INSTITUTIONS: GOOD VERSUSBAD UNIONS

The Bretton Woods institutions are far better known for promoting labourflexibility than for endorsing CLS, and their support for unions has beenless than enthusiastic. Although they are reluctant supporters of unions,over the last decade the position of the Bank and the Fund on both CLSand unions has evolved. Thinking about CLS at the Bretton Woods insti-tutions has been influenced by two streams of economic thought. The first

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is connected to the debates about the impact of CLS on international tradeand investment, and the second is related to arguments about the effects ofunionization and collective bargaining on economic efficiency and growth.

With respect to trade and investment, some economists have consideredthe enforcement of labour standards through trade and investment laws tobe a disguised form of protectionism (Bhagwati, 1995, 2004; for useful re-views, see Aidt and Tzannatos, 2003; OECD, 1996, 2000). Defending labourstandards, especially through trade sanctions, raises the costs of produc-tion in countries with lower labour costs and hence has a similar effect asraising tariffs. Recent empirical studies contracted by the Bank and the IMF,however, have disputed the claims that respect for CLS harms trade andeconomic growth in developing countries. One study, for example, foundthat improving labour standards enhanced rather than harmed economicefficiency (Martin and Maskus, 1999: 3). Similarly, a study published bythe IMF found there to be little evidence that weak labour standards affecttrade or foreign investment (Golub, 1997). Another Bank study found, sur-prisingly, that deficient CLS usually diminished export competitiveness(Maskus, 1997), and materials used in the World Bank Institute’s LabourMarket Policies Course in 2003 cited numerous studies showing little rela-tionship between CLS and economic outcomes (Mwamadzingo and Egulu,2003). This research conducted at the Bank and the IMF, while suspiciousof using trade sanctions to enforce labour standards, is significant becauseit weakened one of the main arguments for opposing CLS. Indeed, the ev-idence suggested that respect for labour rights would improve rather thanhurt economic performance.

These findings led the World Bank to soften its stand on some of the CLS.It embraced the prohibitions on forced and child labour and on discrim-ination relatively early but baulked at accepting freedom of associationand collective bargaining (Hagen, 2003: 23; ILO, 1999a). The Bank justifiedthis reluctance in two ways. First, it defined freedom of association andcollective bargaining as ‘political’, which meant that it could not imposethese conditions on countries (Bakvis, 2002; Holzmann, 1999; World Bank,2000). The Bank and the Fund parted company on this count. Althoughboth opposed efforts to attach conditionality to CLS, the IMF was willingto work behind the scenes to encourage compliance much earlier than theBank, and it avoided, at least publicly, parsing the standards into ‘political’and ‘nonpolitical’ categories (Fischer, 1999).

Freedom of association and collective bargaining were stumbling blocksbecause they relate to unions. Although the Bank has accepted these rightsas universal, it also argues that unions often pursue policies that have detri-mental economic effects. Initially, the Bank used this argument to opposeendorsing the CLS on freedom of association and collective bargaining.Given that the Bank was obligated to encourage economic development,it could not advocate freedom of association and collective bargaining if

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respect for these rights slowed economic growth. While acknowledgingthat empirical evidence about the impact of unions on economic growthwas mixed, the Bank would not endorse freedom of association and col-lective bargaining unconditionally (Bakvis, 2002; Holzmann, 1999; Rittich,2003; World Bank, 2000).

The IMF had a slightly different position. At an IMF conference on labourstandards, Stanley Fischer (1999) of the IMF commented:

We believe that anyone who looks at the CLS, who might have reser-vations about various aspects of very strong unionization that mightkeep workers out of jobs and so forth, e.g. the issues related to insid-ers and outsiders, that are real issues that concern macroeconomists,that anybody who looks at the CLS is not going to get terribly worriedabout these issues. There is a basic set of principles that I think mostreasonable people could subscribe to in those standards.

Thus, while sharing the Bank’s ambivalence about unions, the IMF ac-cepted all of the CLS. At the same conference, Fischer (1999) later addedthat the IMF could support all of the CLS in principle without necessarilyaccepting every outcome that they caused.

The position of the Bretton Woods institutions regarding freedom ofassociation and collective bargaining is connected to a long tradition ofeconomic writing about unions. In their exhaustive review of the literatureon the economic effects of unions and collective bargaining, Aidt andTzannatos (2003) observe that economists have overwhelmingly high-lighted the monopoly costs of unions and their activities as rent-seekers.Since the higher wages unions secure are passed on to consumers viahigher prices, and since unions increase wage inequalities between union-ized and nonunionized workers, economists have argued that the effortsof unions to raise the wages of their members have negative spillovereffects in the rest of the economy. Moreover, when workers secure wagegains that are not reflected by worker productivity, firms must cut backinvestment, which slows economic growth. These costs are exacerbatedfurther when unions, often in conjunction with employers, lobby to securegovernment regulations that protect their jobs and earnings. Higher wagesand job security benefit unionized workers but result in economic lossesto the rest of society.

These views are crucial for understanding the evolution of thinkingabout freedom of association and collective bargaining at the Bank and theFund. Just as economists loathe monopolies and oligopolies held by firms,they also lament the market power that unions can secure by controlling thesupply and the cost of labour. Thus, while noting some positive potentialcontributions of unions, the Bank’s World Development Report in 1995 alsohighlighted both the dangers of monopolistic behavior and the predilec-tion of unions for opposing reforms that the Bank advocated. The Report

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concluded that this behavior could be avoided or reduced in particulareconomic and regulatory environments. Specifically, the Report stressedthat unions are more likely to have positive effects when product marketsare competitive and when bargaining takes place at the enterprise level,since both of these factors reduce a union’s capacity to secure large wageincreases. The Bank also took the position that there was no need to limitthe number of unions in each enterprise. Since competition between firmsassures efficient economic outcomes, so, too, would competition amongunions. The potential for unions exercising monopoly power could bestbe averted by assuring an environment in which unions competed againsteach other and in which collective bargains took place at the lowest level,the enterprise, hence assuring that the competition between firms in similarproduct markets would force unions to limit wage demands.

Ultimately, both the Bank and the Fund adopt a utilitarian approach,which was voiced somewhat amusingly by the economist JhagdishBhagwati (1999) at a conference at the IMF:

There are good unions and bad unions. There is [sic] good unionpractices and bad union practices. So just to say that we must haveunionization is fine. I mean, I do think it’s important. But it has to gowith a whole slew of things which we need to worry about. I say thisbecause we know the unions in Argentina. Mr. Blair would not wantto bring them back into modern Britain in the same form. In India,where unions really say you can’t do anything to a worker, even ifhe or she never turns up and has another job. These are not partic-ularly conducive to well-being, because it undercuts your ability togrow, and particularly in poor countries, to pull people into gain-ful employment . . . so you really have an insider/outsider problemin a development context . . . I’m talking about consequential ethics,not about rights, the right to unionize, which is, of course, a goodthing; but at the same time its consequences from a utilitarian pointof view, the social well-being of a whole lot of even poorer people iscompromised.

Freedom of association and collective bargaining must therefore take placein ways that promote good unions. Labour regulation is therefore crucial –regulations that fragment labour and prevent it from exercising marketpower, akin to a monopoly, are ‘good;’ those that encourage consolidationand convey considerable market power to unions (e.g. through industry-wide collective bargaining that covers all workers regardless of whetherthey are unionized) are ‘bad’. Bhagwati’s mention of Argentina, whichinevitably comes up as the bad boy in these discussions, is notable, as ithas among the most powerful unions in the developing world.

In spite of the Bank’s distaste for freedom of association and collectivebargaining, by 2001 the Bank gave in and put itself on record as accepting

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all CLS. Bakvis (2002: 7) suggests that this was probably due to both theBank’s recognition that a pick-and-choose approach was no longer pos-sible and the accumulating research that showed little empirical supportfor the negative economic consequences of CLS. In my view, it is the lat-ter that matters most. The OECD (1996, 2000) had already published twostudies that corroborated the conclusions of existing World Bank research,and a group of researchers at the Bank had been preparing an exhaustivereview of the empirical literature on the economic effects of unions and col-lective bargaining. This research was eventually published in 2003 (Aidtand Tzannatos, 2003). Trade unions greeted the book with glee (ICFTU,2003c), as it revealed ‘little systematic difference in economic performancebetween countries that enforce the two relevant labor standards [freedomof association and collective bargaining] and countries that do not’ (4).

But unions have celebrated prematurely, since the book fails to discon-firm many of the arguments that cause economists to regard unions withambivalence at best and disdain at worst. The ultimate conclusion of thebook is that the jury is still out on many issues. The authors found strongsupport for wage markups and mixed results about the economic impactof collective bargaining. For example, the study finds that bargaining co-ordination had beneficial economic effects in the 1970s and 1980s but thatthese beneficial effects do not hold up in the 1990s. Aidt and Tzannatosalso conclude that greater union density increases the size of the wagemarkup and has a negative effect on employment growth and output indeveloping countries. The study also finds, on the one hand, that widecoverage for collective agreements reduces the size of the wage markup,but on the other, that broad coverage is associated with relatively poor eco-nomic performance. In the end, the authors conclude that whether unionshave positive or negative effects depends ‘on the economic, institutional, andpolitical environment in which unions and employers interact’ (5) and that anal-ysis should proceed on a case-by-case basis (4). The book thus does notrebut the contention that there are ‘good’ and ‘bad’ unions. How does thisunderstanding of good and bad unions mesh with the ILO’s conception offreedom of association?

THE ILO AND FREEDOM OF ASSOCIATION

Although the ILO has rejected the utilitarian argument that prevails at theBretton Woods institutions, the ILO’s own understanding of freedom ofassociation and collective bargaining meshes well with the institutionalmechanisms that the World Bank in particular has identified as creating‘good unions’. This convergence is the result of the ILO’s liberal under-standing of freedom of association. Convention No. 87 on Freedom of As-sociation and Protection of the Right to Organize and Convention No. 98 onthe Right to Organize and Collective Bargaining are the two conventions

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that address the CLS pertaining to freedom of association and collectivebargaining. Convention No. 87 is comprised of several key components:

Article Two: ‘Workers and employers, without distinction whatsoever,shall have the right to establish and, subject only to the rules of theorganization concerned, to join organizations of their own choosingwithout previous authorization’.6

Article Three: provides that unions have the right to control their in-ternal affairs (e.g. elections, constitutions, etc.) free of governmentinterference.Article Four: prohibits governments from dissolving or suspendingunionsArticle Seven: stipulates that, ‘The acquisition of legal personality byworkers’ and employers’ organizations, federations and confedera-tions shall not be made subject to conditions of such a character as torestrict the application of the provisions of Articles Two, Three andFour thereof’.

Convention No. 98 requires that workers be protected from anti-uniondiscrimination and acts of interference; it also calls on governments toencourage the development of voluntary negotiation between employers’and workers’ organizations.

The ILO’s application of Conventions No. 87 and No. 98 can be foundin its Digest of Decisions of the Committee on Freedom of Association.7

According to Paragraph 247 of the Digest, countries are free to determinethe precise way that freedom of association and collective bargaining areinstitutionalized, as long as national legislation does not violate the spirit ofthe Conventions. But where does the ILO draw the line? How does the ILOdetermine that workers are ‘free’ to join a trade union of their choosing?Does it matter if bargaining is conducted at the enterprise, industry, ornational level?

In delimiting the practical application of Convention No. 87, the ILO haspaid particular attention to the use of registration requirements, limits onunion competition, and regulations that give some unions advantages overothers. With respect to registration, the state may set conditions as long asthey do not set the bar too high. For example, legislation may stipulate aminimal number of members required to form a union, but if the minimalnumber it too high, then it constitutes a violation of freedom of association.Precisely how many workers the ILO considers to be excessive is unclear,but it regards a minimum requirement of 100 (paragraph 254) and of 50(paragraph 255) to be excessive but of 20 to be acceptable (paragraph 256).The ILO has also objected to setting percentage thresholds at the enter-prise level, concluding that legislation that requires a union to have morethen 50 percent of the workers as members violates freedom of association(paragraph 294). The ILO construes these regulations as barriers to entry.

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Freedom also means permitting multiunionism at all levels, from theenterprise to the national. Laws that prohibit, directly or indirectly, the es-tablishment of a second union in an enterprise violate Article 2 (paragraphs280–282 and 294). Legislation that allows only one union in a given occupa-tional, geographic, or economic category, are also deemed to be in violationof the Convention (paragraphs 276 and 277). ‘Freedom’ is also interpretedas the ability of workers to determine the form of their organizations (e.g.sectoral versus occupational versus enterprise unions, paragraphs 275 and279), so national legislation must not give preference to particular types ofunions. Legislation that requires organizations to be regional in scope there-fore violates Convention No. 87 (paragraph 284). Legislation that inhibitsmultiunionism or that mandates particular kinds of unions is analogousto anti-competitive practice.

The ILO considers freedom not only to encompass the virtually unre-stricted right to establish unions in any form but also equality of treatment.For example, the ILO regards labour laws that promote union consolidationthrough the granting of monopolies of representation in certain spheres ofactivity, or through requiring organizations to be formed at certain levels,to violate freedom of association, since such regulation prevents workersfrom forming organizations of their own choosing. Similarly, the ILO hasfound that legislation that gives preferences to some trade unions and notothers, based on government recognition, is highly suspicious and couldconstitute an act of discrimination, since it places ‘one organization at adisadvantage in relation to the others’ and ‘may either directly or indi-rectly influence the choice of workers regarding the organization to whichthey intend to belong, since they will undeniably want to belong to theunion best able to serve them, even if their natural preference would have ledthem to join another organization’ (paragraph 303, see also 309 and 312,my emphasis).

This liberal interpretation of freedom of association views ‘freedom’ asa market for unions in which entry barriers, competition, and equality oftreatment must be respected. A regulatory environment of free compe-tition, however, has potentially negative effects on the power of unions.Low membership requirements and multiunionism at the plant level fa-cilitate fragmentation and encourage new unions to poach members fromenterprises that are already organized rather than to organize workers atununionized enterprises. Ease of entry also means ease of exit, so disgrun-tled members are more likely to exercise exit rather than voice. Offeringspecial privileges to the most representative union has been an importantway to encourage union consolidation – it increases incentives for joininglarger unions, raises the costs of exiting and forming a new union, andhence decreases the potential for fragmentation.

The ILO is conscious of these consequences and addresses them ex-plicitly in the Digest, noting that by using the language ‘organizations

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of their own choosing’, the International Labor Conference ‘did not pro-nounce . . . as to whether, in the interests of workers and employers, a uni-fied trade union movement is preferable to trade union pluralism’ (para-graph 286). In the next paragraph, the Committee notes that:

While it may be to the advantage of workers to avoid a multiplicityof trade union organizations, unification of the trade union move-ment imposed through state intervention by legislative means runscounter to the principle embodied in Articles 2 and 11 of ConventionNo. 87 . . . The fact that workers and employers generally find it intheir interests to avoid a multiplication of the number of competingorganizations does not, in fact, appear sufficient to justify direct orindirect intervention by the State, and especially, intervention by theState by means of legislation.

Thus, workers must freely choose to join together voluntarily, withoutbeing given any sort of compulsion or incentive from the government,and if union monopoly comes out of this free choice, then the ILO finds itacceptable as long as the possibility of diversity exists (paragraph 291).

In addition to promoting union fragmentation, the ILO’s understand-ing of freedom of association also has consequences for the level at whichcollective bargaining occurs. Convention No. 98 does not stipulate howcollective bargaining should be organized, and in principle the ILO is neu-tral about enterprise versus industry versus national bargaining, as longas the government does not impose the level at which bargaining shouldtake place (paragraph 851). In other words, workers should ‘freely’ de-cide the level at which they desire to conduct bargaining. The Conven-tion fails to mention how representation should be handled in cases ofmulti-unionism, and the ILO has not objected to letting the most repre-sentative union be the exclusive bargaining agent, provided that there areobjective criteria for establishing which union is the most representative(paragraph 310).

The obvious question that follows is ‘most representative’ at what level?A union could be the most representative union at the enterprise levelbut have far fewer members than other unions at the industry or occu-pational level. In cases in which bargaining takes place at the regionalor national level, the ILO has taken the position that workers should beentitled to choose the organization that represents them at those negoti-ations (paragraphs 828 and 843), which implies that all unions, not justthe majority union, should be included. In practice, the ILO accepts ex-clusive bargaining rights but in principle considers them to conflict withthe spirit of the Conventions, since legislation rather than workers de-termine which organization represents them. If taken to its logical ex-treme, the ILO’s understanding of ‘freedom’ finds any system of col-lective bargaining that mandates a particular level of bargaining or that

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conveys exclusive bargaining privileges to be in violation of ConventionNo. 87.

In sum, the ILO’s interpretation of both Conventions finds many prac-tices that discourage fragmentation and that centralize bargaining to beproblematic. As the analysis of Indonesian and Argentina will show, thisfree market understanding of freedom of association should be of concernto unions and labour advocates.

FREEDOM OF ASSOCIATION AS A BATTERING RAM:INDONESIA

In order to understand the role that the ILO played in Indonesia after thefall of President Suharto in 1998, it is necessary to explicate briefly thesorry state of labour relations in Indonesia during the Suharto years. Un-der Suharto, the state recognized only one union, Serikat Pekerja SeluruhIndonesia (SPSI), which was thoroughly dominated by the state and didlittle to advance the interests of workers (Hadiz, 1997). The weakness ofthe union was also reflected by the small percentage of the economicallyactive population that it represented – less than 1 percent (Manning, 1993).The regime acted to prevent the emergence of independent unions throughstrict registration requirements and military and police harassment (AsiaWatch, 1993a, b; Bourchier, 1994; Hadiz, 1997). The repression of these in-dependent unions garnered much international attention, including fromthe ILO (Glasius, 1999; Hadiz, 1997; Jones, 2000).

In 1995 the ILO’s Committee on Freedom of Association concluded thatlegal impediments in Indonesia negated ‘the right of workers to estab-lish organizations of their own choosing’ (ILO, 1995). The ILO argued thatgovernment favoritism of SPSI constituted ‘an act of anti-union discrim-ination’ and that the registration system at the national level impededcollective bargaining (ILO, 1996b). At one point Indonesian law requiredunions to have at least 1,000 plant level units in at least 100 districts and in20 provinces; these requirements prevented independent unions from reg-istering. Since only registered unions could bargain collectively, only SPSIcould legally represent workers. The ILO recommended that Indonesiadramatically reduce the registration requirements and adopt legal provi-sions that punished anti-union discrimination and employer interferencewith the formation of a trade union.

The Indonesian government did little to address the ILO’s concerns untilafter the fall of Suharto in May 1998. Keen to reduce the glare of interna-tional publicity on Indonesia’s labour rights abuses, the new Habibie ad-ministration ratified Convention No. 87 in June 1998. In August, Indonesiainvited an ILO Direct Contacts Mission to assist with the labour reformprocess (ILO, 1999c). The Mission prepared an analysis that called for ma-jor changes in labour law; since the IMF supported the ILO’s position, the

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ILO’s bark had bite (Boulton, 2003; De Meyer, 2000; Fisher, 1999; Hagen,2003: 20; ILO, 1999c). Based on input from the ILO, the Indonesian gov-ernment set a time table for the passage of three bills: the Trade UnionAct, the Labour Dispute Settlement Bill, and the Manpower Developmentand Protection Bill (later renamed the Manpower Act) (Boulton, 2002). TheTrade Union Act, enacted in 2000, and the Manpower Act, passed in 2003,had important provisions concerning freedom of association and collectivebargaining.

The Trade Union Act addressed the most persistent criticisms in ILO re-ports: anti-union discrimination, employer interference, and the use of reg-istration requirements to prevent independent unions from forming andbargaining collectively. The Act set the minimum requirement for forminga union at an extremely low level, with groups of ten or more workers al-lowed to form a union. The law allowed the formation of unions not only atthe enterprise level but also in business sectors, added strong sanctions fordiscrimination against union members and employer obstruction of union-ization efforts, and designated unions as authorized bargaining agents.Although the law required unions to register, they only had to submit aconstitution, bylaws, and a list of founding members and union officers. Inprinciple, registration was simply notification, since as long as these basicdocuments were submitted the state had no right to reject an application.

Although freedom of association smashed SPSI’s monopoly and createdan institutional environment in which new unions could legally representworkers and conduct collective bargaining (Ford, 2000), it also facilitatedextreme fragmentation. By June 2005, there were 87 federations and threeconfederations registered in Indonesia. All of the large unions have split,some multiple times, and the majority of federations are split-offs fromexisting unions. When leadership disputes emerge, or when new leadersreplace old leaders, disgruntled leaders exit the union and take part ofthe membership with them by reregistering plant level unions. Moreover,since only ten workers are required to form a union, and since they arenot required to affiliate with a federation, there are thousands of unaffil-iated plant-level unions.8 The only incentive that prevents fragmentationis that representation in the tripartite committees that determine regionalminimum wages, settle labour disputes, and write implementing rules forlabour laws is based (in theory) on membership.9

While the Trade Union Act restored freedom of association and en-couraged union fragmentation, the Manpower Act regulated collectivebargaining and promoted enterprise-level negotiations. According to theManpower Act, only registered unions could conduct bargaining. Unionsrepresenting more than 50 percent of the workers in an enterprise couldact as the sole bargaining agent. Should none of the unions represent morethan 50 percent of the workers in the enterprise, unions could form coali-tions to reach the 50 percent threshold or could bargain together, with

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representation being roughly proportional, or the sole union could repre-sent all workers in the plant if a majority of workers voted to allow theunion to represent them in negotiations with the employer.

Since the majority union can bargain exclusively, a powerful incentiveexists for unions to strive to organize more than 50 percent of workersin an enterprise. Many unions are being established at well below thisthreshold,10 so the percentage of plant-level unions that have successfullyconcluded a collective bargaining agreement is low.11 A possible fix for thissituation is to institute some form of sectoral or regional bargaining, butthe Manpower Act, while permitting sectoral or national bargaining, doesnot facilitate such bargaining. The law lays out detailed procedures fordetermining plant-level representation in collective bargaining but omitsmention of such procedures for higher levels of bargaining, which in effectdiscourages such bargaining. This legislative omission, combined with theextreme fragmentation of Indonesian unions, makes sectoral or nationalbargaining nearly impossible. Not a single Indonesian union, or coalitionof unions active within a sector, has negotiated a national agreement thatcovers multiple employers throughout an industry.

Thus, the Indonesian case shows that while freedom of association actsas a battering ram that smashes state-backed union monopolies, it has notfostered a stronger labour movement. Labour is free but weak in Indonesia.Labour legislation has encouraged precisely the situation that the IMF andthe Bank consider to be ideal – fragmented and competing unions thatconduct bargaining at the enterprise level.

FREEDOM OF ASSOCIATION AS A TROJANHORSE: ARGENTINA

Argentina is the polar opposite of Indonesia. Although labour was also re-pressed during the military dictatorship (Drake, 1996), the populist legacyof Peron bequeathed Argentina with a powerful labour movement thatrepresented a significant proportion of workers.12 Indeed, Argentina isusually considered to have one of the strongest labour movements in thedeveloping world. One reason for the strength of Argentina’s unions is thatlabour laws encouraged the consolidation rather than the fragmentationof unions. The law provided for union control over social welfare funds,union monopolies within a given sector of activity, and collective bargain-ing at the industry level. Buchanan has observed that ‘the vertical unionframework constituted the labor movement’s major source of strength’ inArgentina (1995: 136). As Murillo notes, ‘monopolies of representation forcollective bargaining and social security administration curtailed unioncompetition’ and acted as selective incentives for members (2001: 49–50).Since bargaining covered all workers in an industry, bargaining coverageis high in Argentina, which also bolsters union strength. There are also

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strong incentives for union consolidation. Argentine labour law distin-guishes between unions that are merely registered and those that haveofficial recognition. Registered unions are legal and can represent workersin many circumstances, but unions with official recognition acquire a set ofexclusive rights, including the right to bargain collectively, administer thesocial welfare funds, and to use the check-off system. Since official recog-nition was given to the most representative union in an area of activity, itconveyed significant benefits to the union obtaining such status, and exitwas a costly option for disgruntled union leaders.

The Peronist General Confederation of Labour (CGT) was by far thelargest organization and it benefited the most from these legal provisions.Much of the Peronist legislation was suspended during the dictatorship(Drake, 1996), and the first democratic government led by Alfonsin tried toweaken Peronist unions by pushing forward labour reforms that increasedminority representation in union secretariats and that decentralized collec-tive bargaining (Buchanan, 1995; McGuire, 1997). Peronist unions success-fully opposed these efforts, however, and they secured the reinstitution ofthe labour laws that brought tremendous benefits to them (Cook, 2002: 7).The CGT also fought off later attempts by Menem to weaken these pro-visions through decrees in the 1990s (Cook, 2002: 12–13 and 15–16) andmanaged to reverse a labour law enacted by the de la Rua governmentthat imposed decentralized collective bargaining (Cook Forthcoming).13

Aspects of Argentine law that limit competition, however, have comeunder attack by the ILO. For example, the ILO considers the distinctionbetween registered unions and those with official recognition, and the dif-ferential benefits that this categorization involves, to be in violation ofprinciples of freedom of association. The ILO has criticized the require-ment that an existing organization with official recognition could only bedisplaced by another organization if it had considerably more (10 percent)members than that which already received official recognition. The ILOfound this requirement to be too stringent and thus in violation of Con-vention No. 87.14 The ILO also disapproved of the requirement provisionsthat prevented enterprise level unions from obtaining recognition if an-other base-level union and/or another union already operated within thegeographic area or category of activity. Likewise, Argentine law made itdifficult for unions representing particular occupations to gain recognitionif another association that covered that activity already existed. In orderto obtain recognition, they had to make a case that there was a differenttrade union interest that the existing union could not represent (ILO, 1990).Consequently, the ILO considered the law to favor organizations that rep-resented an area of activity rather than enterprises or professions, whichit found to violate freedom of association since it prevented workers fromforming enterprise-level or professional unions (ILO, 1991). Finally, the ILOalso objected to the exclusive rights that recognition conveyed, arguing that

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it unduly influenced the choice of workers about which organization to join(ILO, 1989, 1991). The ILO did not in principle oppose the provision thatonly the most representative union could conduct collective bargaining,but it questioned other exclusive rights and considered the requirementsto acquire official recognition to be imprecise and excessive (ILO, 1999b).

In 1991, the Argentine Government countered that:

the mere fact of registration confers upon all trade union associationsthe acquisition of legal personality and the exercise of rights suchas the right to petition and to represent the collective interests of anactivity or category of workers, the right to set contributions or duesfrom their members, and to hold meetings or assemblies withoutneeding to obtain prior authorization . . . Sections 29 and 30 of the Act[23551] do not therefore diminish the right of workers to establish infull freedom, to join or leave organizations as set out in the provisionsof Article 2 of the Convention. The aim is to avoid the fragmentationof the trade union movement, which could in itself be in violation of theConvention. (ILO, 1991, emphasis added)

In other words, workers were free to choose to join organizations thatdid not have official recognition – the government did not prevent theseorganizations from operating legally and did not impede workers fromaffiliating with them. Recognition might influence workers’ choices but itdid not constrain them. When the Government appeared before the Com-mittee on the Application of Standards in 1998, it added that the distinctionbetween unions that were merely registered and those with official recog-nition was meant ‘to avoid excessive minority representation which was afactor in the fragmentation and loss of bargaining power’ (ILO, 1998b).

As of June 2004, Argentina had not addressed the fundamental concernsof the ILO (2004). In 2001, the government issued a decree that addressedsome issues raised by the ILO. The decree allowed all registered unions torepresent the interests of their members and conferred to them the same taxstatus as that of a non-profit organization (Cook, forthcoming). Neverthe-less, the ILO’s concerns about the bias against enterprise and occupationalunions and about allowing workers rather than legislation to determinethe form of representation and the level of bargaining are unlikely to beappeased by these changes.

In the case of Argentina, the ILO’s understanding of freedom of as-sociation, if implemented, would result in greater fragmentation of thelabour movement and the emergence of more decentralized bargaining.This push is especially disturbing when one considers how closely thisagenda, meshes with the IMF’s demands on labour reform. For the lastdecade, the IMF has pushed strenuously for Argentina to decentralize col-lective bargaining, to promote labour flexibility, and to open the union-runhealth plans up to competition. Argentina’s unions are the epitome of the

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‘bad’ unions that create large economic costs, and the IMF places muchof the blame for Argentina’s poor economy on the absence of significantlabour reform (IMF, 2004). The decentralization of bargaining, of course,would significantly weaken the labour movement, especially if that is com-bined with promoting flexibilization, which the IMF has been more success-ful in imposing on Argentina (Cook, 2002). As Etchemendy has observed,

. . . the more decentralized and fragmented collective bargaining is(ideally, one-to-one between employer and worker), the less powerworkers will wield as a class. In other words, the broader the scopeof deregulation is, the more labor becomes a commodity governedby the laws of supply and demand like any other commodity in themarket. (2004: 274)

Fortunately, the CGT is a powerful union and has been able to resist this on-slaught. But if freedom of association as currently understood by the ILObecomes fully integrated into international agreements with enforceablesanctions, the IMF and the World Bank could ironically begin promotingtheir labour agenda in Argentina through pushing for greater respect for‘freedom of association’. Rather than a battering ram, freedom of associa-tion could be a Trojan horse.

CONCLUSION

So, what does this mean for international labour activists? The first impli-cation is that unions should be wary about entrusting the ILO with theresponsibility of being the arbiter of international labour standards. TheILO’s reputation for the consistent application of Conventions is admirable,especially when compared to the selective application of labour standardsby the US government and the vagueness of labour standards in manytransnational labour rights enforcement mechanisms (Scheuerman, 2001).However, the ILO is a tripartite body in which unions, employers, andgovernments are represented. The construction and application of stan-dards necessarily represents compromises among the three parties, andlabour activists would be wise to consider the history behind particularcompromises before embracing the ILO’s interpretation of standards andaccepting technical assistance that gives effect to them.

The second implication is that unions need to counter the liberal inter-pretation of freedom of association. Given that unions are concerned (orshould be) with empowering workers through collective organizations,unions need to place more attention on labour reforms that discourage frag-mentation and that create national institutions that convey market powerto unions through collective bargaining. Of course, centralization carriescosts, namely that minority voices are marginalized. The challenge is tofind a balance that gives voice to workers while creating powerful unions

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that can fight for them. Freedom of association as currently understoodby the ILO, does little to advance this agenda and risks promoting thetypes of labour institutions preferred by the international financial insti-tutions – fragmented unions that bargain at the enterprise level. A liberalunderstanding of freedom of association weakens labour movements incountries like Argentina and hampers the consolidation of trade unions innew democracies like Indonesia.

Finally, I would also like to suggest that imposing CLS through the en-forcement of universal standards by international organizations such as theWorld Bank, the IMF, and the WTO, is fraught with peril. Compa (2000)and Rittich (2003) note that CLS are perceived to be relatively uncontro-versial because they are conceptualized as human rather than economicrights. Of course, as the analysis of Compa and Rittich highlight, theserights have economic consequences, and for this reason many of the inter-national financial institutions have embraced them reluctantly. The danger,of course, is that by focusing too much on these rights as human rights, theeconomic rights that unions are legitimately concerned with get pushed tothe side. Universal rights are stated in very general terms (Rittich, 2003), sowhether they empower or weaken workers will often depend on contextand implementation. Since securing economic gains for workers dependson the power of unions, more attention needs to be paid to advancingan agenda that promotes institutions and labour regulations that do this.With freedom of association and collective bargaining institutions, appealsto universal and abstract standards risks leaving the details up for grabs,which could have unexpected and undesirable effects on the future powerof the labour movement.

NOTES

1 See http://www.ilo.org/dyn/declaris/DECLARATIONWEB.INDEXPAGE,accessed on 17 September 2004.

2 Information about the International Confederation of Free Trade Union’s(ICFTU) efforts can be found on its excellent website, http://www.icftu.org.

3 This deferral to the ILO is palatable for the IMF because international labourstandards are largely silent on issues of labour flexibility.

4 In 2000, the ICFTU conducted a survey of its affiliates and found that abouthalf had been contacted by the IMF (ICFTU, 2000).

5 The ICFTU has tried to hold the World Bank to its word, and after the ICFTUpublicized labour rights abuses by Grupo M, the Dominican Republic’s largestexport processing zone operator, the IFC required Grupo M to respect all of theCLS as a condition of the loan (ICFTU, 2003a).

6 The text of all ILO conventions can be found at http://www.ilo.org/ilolex/english/index.htm.

7 The Digest represents a compilation of key rulings of the Committee on Free-dom of Association that together constitute the ILO’s official position on howfreedom of association should be implemented. Diversity of opinion certainly

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exists in the ILO, especially between country offices and the Geneva headquar-ters. In this paper, the focus is on the official position of the ILO. The Digest isavailable at http://www.ilo.org/ilolex/english/index.htm.

8 This legal framework also fails to prevent employers from registering companyunions as legitimate unions.

9 In theory because the registration process does not require proof of member-ship, so representation has been based on claimed rather than actual mem-bership. Since claimed membership figures are so unreliable, the governmenthas recently embarked in an effort to verify membership. Unions must presenteither photocopies of membership cards or signed statements by workers at-testing to their membership in the union.

10 This assessment is based on field research in numerous industrial areasin Indonesia (Bandung, Bogor, Bekasi, Tangerang, Surabaya, Sidoarjo, andGresik), where the author collected data from local Manpower offices and in-terviewed numerous union officials.

11 In July 2004, the Ministry of Manpower reported that there were 18,352 plantlevel trade unions and only about 9,100 collective labour agreements (ILO/USADeclaration Project 2004). These figures are probably high. National data isnotoriously inaccurate since local Manpower offices no longer report to centralauthorities. In most cases, data collected by the author both from unions andfrom local Manpower offices showed that far fewer than half of unions haveconcluded collective labour agreements.

12 Drake estimates that even after the repression of the 1970s and early 1980s,Argentine unions enrolled about 48 to 56 percent of wage earners. In 1984, 67percent of wage earners in the industrial sector belonged to unions (1996: 176).

13 The new law also rolled back many provisions that increased labour flexibility.14 In 2003, the government proposed to amend this to 5 percent (ILO, 2003).

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