[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]



 
                    THE FIGHT AGAINST GLOBAL POVERTY
                    AND INEQUALITY: THE WORLD BANK'S
                    APPROACH TO CORE LABOR STANDARDS
                        AND EMPLOYMENT CREATION

=======================================================================

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 3, 2007

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 110-67


                                     
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
MAXINE WATERS, California            RICHARD H. BAKER, Louisiana
CAROLYN B. MALONEY, New York         DEBORAH PRYCE, Ohio
LUIS V. GUTIERREZ, Illinois          MICHAEL N. CASTLE, Delaware
NYDIA M. VELAZQUEZ, New York         PETER T. KING, New York
MELVIN L. WATT, North Carolina       EDWARD R. ROYCE, California
GARY L. ACKERMAN, New York           FRANK D. LUCAS, Oklahoma
JULIA CARSON, Indiana                RON PAUL, Texas
BRAD SHERMAN, California             STEVEN C. LaTOURETTE, Ohio
GREGORY W. MEEKS, New York           DONALD A. MANZULLO, Illinois
DENNIS MOORE, Kansas                 WALTER B. JONES, Jr., North 
MICHAEL E. CAPUANO, Massachusetts        Carolina
RUBEN HINOJOSA, Texas                JUDY BIGGERT, Illinois
WM. LACY CLAY, Missouri              CHRISTOPHER SHAYS, Connecticut
CAROLYN McCARTHY, New York           GARY G. MILLER, California
JOE BACA, California                 SHELLEY MOORE CAPITO, West 
STEPHEN F. LYNCH, Massachusetts          Virginia
BRAD MILLER, North Carolina          TOM FEENEY, Florida
DAVID SCOTT, Georgia                 JEB HENSARLING, Texas
AL GREEN, Texas                      SCOTT GARRETT, New Jersey
EMANUEL CLEAVER, Missouri            GINNY BROWN-WAITE, Florida
MELISSA L. BEAN, Illinois            J. GRESHAM BARRETT, South Carolina
GWEN MOORE, Wisconsin,               JIM GERLACH, Pennsylvania
LINCOLN DAVIS, Tennessee             STEVAN PEARCE, New Mexico
ALBIO SIRES, New Jersey              RANDY NEUGEBAUER, Texas
PAUL W. HODES, New Hampshire         TOM PRICE, Georgia
KEITH ELLISON, Minnesota             GEOFF DAVIS, Kentucky
RON KLEIN, Florida                   PATRICK T. McHENRY, North Carolina
TIM MAHONEY, Florida                 JOHN CAMPBELL, California
CHARLES WILSON, Ohio                 ADAM PUTNAM, Florida
ED PERLMUTTER, Colorado              MICHELE BACHMANN, Minnesota
CHRISTOPHER S. MURPHY, Connecticut   PETER J. ROSKAM, Illinois
JOE DONNELLY, Indiana                KENNY MARCHANT, Texas
ROBERT WEXLER, Florida               THADDEUS G. McCOTTER, Michigan
JIM MARSHALL, Georgia                KEVIN McCARTHY, California
DAN BOREN, Oklahoma

        Jeanne M. Roslanowick, Staff Director and Chief Counsel


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    October 3, 2007..............................................     1
Appendix:
    October 3, 2007..............................................    33

                               WITNESSES
                       Wednesday, October 3, 2007

Bakvis, Peter, Director, Washington Office of the International 
  Trade Union Confederation/Global Unions........................     4
Lazarus, Suellen, Senior Advisor, ABN AMRO.......................    14
Lee, Thea M., Policy Director, AFL-CIO...........................    11
Miller, Eric, President, Millers Rock Consulting, LLC............     7
Okonjo-Iweala, Ngozi, Distinguished Fellow, Global Economy and 
  Development Program, The Brookings Institution.................    13
Polaski, Sandra, Senior Associate and Director of the Trade, 
  Equity and Development Program, Carnegie Endowment for 
  International Peace............................................     8

                                APPENDIX

Prepared statements:
    Bakvis, Peter................................................    34
    Lazarus, Suellen.............................................    41
    Lee, Thea M..................................................    43
    Miller, Eric.................................................    48
    Polaski, Sandra..............................................    57

              Additional Material Submitted for the Record

Frank, Hon. Barney:
    Chairman's note regarding the testimony of Dr. Ngozi Okonjo-
      Iweala.....................................................    89
    Responses to questions submitted to Peter Bakvis.............    90
    Report entitled, ``The IFIs' Use of Doing Business to 
      Eliminate Workers' Protection: Analysis of Doing Business 
      2008 and new country evidence, ITUC/Global Unions--
      Washington Office..........................................    93
Castle, Hon. Michael N.:
    Views of the United States Council for International Business   118


                    THE FIGHT AGAINST GLOBAL POVERTY
                    AND INEQUALITY: THE WORLD BANK'S
                    APPROACH TO CORE LABOR STANDARDS
                        AND EMPLOYMENT CREATION

                              ----------                              


                       Wednesday, October 3, 2007

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:02 a.m., in 
room 2128, Rayburn House Office Building, Hon. Barney Frank 
[chairman of the committee] presiding.
    Members present: Representatives Frank, Waters, Maloney, 
Watt, Meeks, McCarthy, Scott, Green, Cleaver, Moore of 
Wisconsin, Davis of Tennessee, Ellison, Klein, Marshall; 
Castle, Jones, Hensarling, and McCarthy.
    The Chairman. This Committee on Financial Services hearing 
will come to order. The topic today is the ``Doing Business'' 
report issued by the World Bank.
    This committee does not have jurisdiction directly over the 
World Bank, and I often wish that we did, but the World Bank is 
an international organization. What we do have is jurisdiction 
over the relationship of the U.S. Government to the Bank. 
Funding requests come through us, and legislation that deals 
with the terms under which the United States executive 
directors--the voting members of the Bank board--should 
function also come through us.
    One of the major concerns of this committee, particularly 
those of us on the majority side, is the dilemma we face in a 
world in which increased wealth has been accompanied to a 
distressing extent by increased inequality. There has been a 
history in judging the success of economic development policies 
to look at countries as if they were undivided wholes and to 
talk about the increase in percentages and gross domestic 
product of this or that country. That is important, but 
increases in gross domestic product which are overwhelmingly 
enjoyed by a very small percentage of the residents of that 
country are much less of a good thing.
    We have this problem here in the United States, but it is a 
problem elsewhere in the world, where the way in which growth 
has gone forward recently--a combination of technology, of 
globalization--essentially what we have seen in recent years is 
a great freeing from constraint of capital, both technically 
and legally. Capital has been empowered to move very rapidly.
    That has very good aspects. It can get to the point where 
it does the most overall good. But it has allowed the owners of 
capital to leave everybody else very much behind in the sharing 
of these benefits.
    Now, that has been a particular problem in the United 
States. A couple of months ago, to the dismay of many in the 
business community and elsewhere, the immigration bill blew up. 
The President's ability to negotiate trade treaties was allowed 
to die. There is an effort now, led by Democratic leaders in 
the Ways and Means Committee, to put forward a treaty with Peru 
which accomplishes some of the goals the Democrats have long 
had in the areas of labor and environmental rights, but it is 
still controversial, including with many who had previously 
been advocates of that.
    And the problems with trade, the problems with what I think 
is an excessive sensitivity to foreign investment, a skepticism 
about foreign investment that is unjustified as a general 
principle, the concerns with immigration, the objections we 
have in some cases to allow businesses fully to adopt more 
productive technology, it stems in the United States from the 
unhappiness that the fruits of these policies are so unfairly 
shared.
    We did a roundtable on the paper put forward by Don Evans, 
President Bush's first Secretary of Commerce, documenting how 
badly wealth has been distributed, how much has gone to a 
relatively small number of people and how the great bulk of 
people have received nothing. This was a report put out by a 
former member of the current President's Council of Economic 
Advisers, the former Under Secretary of Commerce for Trade.
    We have a serious problem. We are trying to deal with it 
here, but it is an international problem.
    We have seen, I believe, some improvement in the 
orientation of the international financial institutions. It is 
fairly recent. During the Asian crisis, in particular, of 10 
years ago or so, I believe the IMF in particular was playing a 
very retrograde role. It was imposing on countries a degree of 
repressive economic policies that were not responsive to the 
problem. You don't solve a liquidity crisis by cutting wages, 
and it had negative social consequences.
    The World Bank has begun to address this on the one hand, 
but what I hear and from what I read in some of the testimony, 
there is a certain schizophrenia in the Bank. At least at the 
operational level on its own, the Bank talks about trying to 
pay attention to the distributional qualities. But the ``Doing 
Business'' report that the Bank puts out and some of the work 
of the IFC take a very different view.
    Essentially what we get from the ``Doing Business'' report 
is that the nicer you are to your workers, the worse you are as 
a place to do business. It is an extraordinarily, I think, 
simplistic and regressive approach. And while the ``Doing 
Business'' report, they say, ``Well, it doesn't have an actual 
binding effect,'' of course it is important or they wouldn't 
put it out. There is some evidence that it has some impact on 
some of the country assessment strategies, not on all of them.
    It is simply wrong for the major international institution 
in the world, the World Bank, to be putting out a report in 
which the worse you treat your workers, everything else being 
equal, the better you are rated. That is not only wrong in and 
of itself, but I want to go back to this other point. We have a 
certain unhappiness in America at the rise of regimes with whom 
we disagree. It is not in the interests of the world, of the 
United States for, kind of, pro-Western democracy to be 
associated with unfair economic distribution. It is, in fact, 
not a good idea in general for people to get the sense that a 
free-enterprise system, a capitalist system, means that the 
rich get richer, the middle class get nothing, and the poor get 
poorer.
    So we are not just talking here about a moral imperative to 
be fair, we are talking about what I believe is one of the most 
difficult obstacles to the kind of economic policy many in the 
business community and elsewhere would like to see. Yes, I 
think in the right circumstances an embrace of technology and 
of globalization can produce greater benefits for everybody, 
but only if we combat the natural tendency for these benefits 
to be so unequally shared.
    And no one is talking about equalization--I shouldn't have 
said equally--less unequally. Inequality is a very good thing; 
it is necessary in a capitalist system. But excessive 
inequality can become politically dysfunctional, and to the 
extent that it begins to depress consumption, depress savings 
rates, it can become economically dysfunctional. I think we are 
at that point in the world. And it troubles me to see the 
``Doing Business'' report of the World Bank reinforcing those 
tendencies, to the extent that it has an influence.
    And I now recognize the gentleman from Delaware.
    Mr. Castle. Thank you, Mr. Chairman, for holding this 
important hearing.
    Mr. Chairman, we all agree that it is important to work to 
alleviate poverty, be it here in the United States or overseas, 
where the scenes we see are sometimes heartbreaking. And I am 
glad that today we will focus more on individuals or 
populations than when we often talk about the development banks 
or the International Monetary Fund.
    Too often we talk about the success or failure of big 
infrastructure projects, such as dams or roads, or about the 
success of an IMF program in stabilizing inflation. It is easy 
to forget that we are really talking about people.
    But for people to get ahead, individually or as a 
population, they really need jobs. And for that reason, I 
believe that the ``Doing Business'' report is important. It 
gives countries a good idea of what they need to do to attract 
new jobs, and companies a good idea of what sort of business 
climate they will face.
    I know that the focus of this hearing is on whether some 
portions of the report somehow make it easier to make people 
work in conditions that would not be acceptable here in the 
United States or in Europe, and while I agree that no one 
should work in unsafe conditions, the amount of hours a person 
chooses to work, or if they choose to work on a weekend, might 
be more their choice than that of a well-employed Westerner. I 
hope we will hear a discussion of both points of view of that 
today.
    Mr. Chairman, I have a unanimous consent request to insert 
into the record a paper expressing the views of the United 
States Council for International Business, who had hoped to be 
a witness at today's hearing but were not able to be 
accommodated. These views are submitted by the Council's 
executive vice president and senior policy officer, Ms. Ronnie 
L. Goldberg, who serves both as a U.S. employer delegate on the 
ILO governing body and vice president of the International 
Organization of Employers, IOE, whose membership consists of 
representative employer organizations from 138 countries, the 
majority of which are in the developing world.
    I regret that the important voice of employers, who 
constitute one-third of the constituency of the tripartite ILO, 
will be missing from the hearing. Inserting this paper will at 
least make those views part of the permanent record. I offer 
that statement.
    The Chairman. Reserving the right to object, I would note 
that we did ask the minority to suggest two witnesses, and we 
have two witnesses who represent the minority. So, I think that 
we can't possibly get everybody, but two of the witnesses are 
here at the request of the minority.
    Is there any objection?
    Hearing none, the statement will be put into the record.
    Mr. Castle. Mr. Chairman, thank you for the submission 
statement. But if I may just add, we are not complaining about 
it at all. It is just, as you said, a function of too many 
people who deserve to be heard.
    The Chairman. I thank the gentleman. I am just not used to 
people not complaining, and I apologize.
    Are there any further opening statements?
    If not, we will proceed with the panel of witnesses. Before 
we begin, let me say that the Democratic leadership has 
scheduled a press conference for 11:15 on the subprime crisis, 
so I will be here until about 11:05, and then I will go to the 
Senate.
    I hope I do not share the fate of many of the bills that we 
have sent to the Senate. That is, I hope I will not disappear 
and that I will be seen and heard from again.
    But I will have to go over there, and the gentlewoman from 
New York will be available to chair--Chairwoman Maloney of the 
Subcommittee on Financial Institutions--and I will try to get 
back.
    The first witness is Peter Bakvis, who is the director of 
the Washington Office of the International Trade Union 
Confederation/Global Unions and represents the international 
trade union movement. They, understandably, often focus on the 
international financial institutions themselves.
    Mr. Bakvis?

 STATEMENT OF PETER BAKVIS, DIRECTOR, WASHINGTON OFFICE OF THE 
     INTERNATIONAL TRADE UNION CONFEDERATION/GLOBAL UNIONS

    Mr. Bakvis. Thank you, Mr. Chairman, and members of the 
committee. I thank you for the opportunity.
    My organization, the ITUC, represents 168 million members 
in 153 countries, including 10 million members of the AFL-CIO. 
Two-thirds of our members, however, live in developing or so-
called transition countries.
    The U.S. Congress, I think it is clear, took the lead in 
urging the World Bank to pay more attention to the impact of 
its policies on workers when, 13 years ago, it instructed the 
U.S. representatives at the Bank to support policies and 
``guarantee certain internationally recognized worker rights.'' 
Even though it took several years, I am pleased that the Bank 
has taken some steps to ensure that its operations are in line 
with the core labor standards.
    Starting in 2002, the Bank put itself on record as 
supporting them, after having done several years of research to 
determine if they were consistent with the Bank's development 
goals. In 2006, the Bank took the first step to ensure that the 
activities and finances don't violate the standards when its 
private-sector lending arm, the IFC, required that all 
borrowers respect them. And this year, the Bank began inserting 
the same requirement into contracts for infrastructure 
projects. Hopefully, this will put an end to child labor and 
other violations that were previously found on some Bank-funded 
sites.
    These are important steps. But in the area of labor law 
reform, the Bank is going in a completely different direction. 
The main approach is being set by the department that produces 
an annual publication, which you mentioned, called ``Doing 
Business.'' It includes an index on employing workers that 
gives the best scores to countries that have the least amount 
of regulations, whether they be minimum wages, notice for mass 
layoffs, payroll taxes to finance Social Security, and so on. 
It encourages countries to get rid of these so as to improve 
their ``Doing Business'' score, no matter what the impact is on 
workers.
    The results of this flawed rating system have been 
observed. In past years, ``Doing Business'' gave the best 
performer ranking for labor to nations that were not even ILO 
members. In ``Doing Business 2008,'' which came out last week, 
the ex-Soviet Republic of Georgia is praised as a top reformer 
because it did away with most of its worker protection rules. 
Any worker can now be fired without recourse, labor unions have 
been essentially marginalized and can be prohibited all 
together.
    The World Bank gave Georgia this top rating at the same 
time that the ILO was criticizing the country's labor practices 
for contravening four of the eight core labor standards 
conventions, including the two child labor conventions. The 
European Union is currently investigating Georgia for possible 
violation of the E.U.'s GSP.
    And which country in this vast region gets the worst 
``Doing Business'' rating for its labor standards? Slovenia, 
which has the lowest unemployment of all of those countries and 
the best labor conditions of all of the bloc of ex-communist 
countries.
    Let us take another example in our hemisphere. Haiti, which 
has almost no social program, 80 percent of its people in 
poverty, has had negative growth in the last several years, 
some very modest growth in the last couple of years, is among 
the best ``Doing Business'' performers for labor in Latin 
America.
    Brazil, which enjoys stable growth and has considerably 
improved social protection, is ranked among the worst. Other 
countries that you might be surprised to find get relatively 
good ratings for their labor policies from ``Doing Business'' 
are China, Colombia and Belarus.
    Now, it would be easy to dismiss all of this if ``Doing 
Business'' were not playing such an important role, but it is. 
The ``Doing Business'' labor indicators are used for 
determining countries' level of access to concessionary lending 
dispensed by the World Bank's IDA through a mechanism called 
CPIA. The indicators have been incorporated in the Bank's 
overall labor markets strategy. A growing number of World Bank 
and IMF country strategies have used the indicators to do away 
with labor regulations. The ITUC, my organization, documented 
16 new cases in a report last week, and I have copies of it for 
those who might be interested.
    The IMF told Jordan, where the ILO has been working with 
the government to combat abuse of workers in free-trade zones, 
that its ``Doing Business'' labor rating isn't good enough and 
it should make it easier to fire workers.
    Several countries have been told to dismantle sector-level 
bargaining arrangements so as to improve their ``Doing 
Business'' scores, even though the Bank's own research shows 
that countries with centralized collective bargaining tend to 
have lower unemployment.
    And in several countries, the Bank has included loans for 
labor regulations aimed at improving the ``Doing Business'' 
rankings, essentially made them into a conditionality for those 
loans.
    I will conclude, Mr. Chairman, with a few suggestions.
    If the Bank is to be involved in labor law reforms at all, 
which is a debatable question, I would submit, it should adopt 
the ILO's ``decent work'' agenda, which has the objective of 
maximizing employment but also pays attention to job quality, 
social protection and workers' rights.
    ``Doing Business'' should be removed from the World Bank's 
labor markets strategy, and the issue of labor should be 
removed from the mandate of ``Doing Business.''
    ``Doing Business'' should not be used in the Bank's CPIA 
mechanism to determine access to funds.
    The Bank should develop tools for assessing the qualities 
of social and labor policies with the ILO and prioritize 
projects that improve labor conditions, as it has done in one 
case that I am aware of, the ILO-led Better Factories Cambodia 
project.
    Finally, the World Bank should adopt an operational policy 
requiring that all the activities it finances conform to the 
core labor standards.
    Thank you for your attention, and I look forward to your 
questions.
    [The prepared statement of Mr. Bakvis can be found on page 
34 of the appendix.]
    The Chairman. Thank you.
    I guess the acting ranking minority member and I do want to 
note we have a new member of the committee to fill the vacancy 
very regrettably left by the death of our dear colleague, Mr. 
Gillmor. So we welcome the gentleman from California, Mr. 
McCarthy, to the committee.
    The next witness is Mr. Eric Miller, who is the president 
of Millers Rock Consulting. And he had previously worked for 
the Inter-American Development Bank, one of the IFIs.
    Mr. Miller, please.

 STATEMENT OF ERIC MILLER, PRESIDENT, MILLERS ROCK CONSULTING, 
                              LLC

    Mr. Miller. Thank you very much, Mr. Chairman, and members 
of the committee. It is a great pleasure to address you this 
morning.
    As the chairman said, I have a background in working for 
the international financial institutions, both on the inside 
and as a consultant on the outside. So that is the basis of my 
comments today, and also my experience in working with numerous 
governments.
    On employment-creation policies, the World Bank's view and 
my view is flexible labor markets create more jobs than rigid 
labor markets. Also, flexible labor markets tend to create more 
opportunities and better working conditions for women, young 
people and the low-skilled. Research suggests that the jobs 
created under rigid labor markets tend to go to men with years 
of experience. Meanwhile, the rest of the population is pushed 
into the informal sector, where they receive no social benefits 
and no legal protections.
    Let us be clear that flexible labor markets do not mean the 
absence of labor law. However, flexibility does allow firms to 
readily change the composition of their labor force as market 
conditions evolve.
    The World Bank's ``Doing Business'' report seeks to measure 
the effects of business regulations across 175 countries. One 
of its 10 categories is employing workers. Some observers have 
noted that, in certain cases, countries with more restrictive 
union-organization practices have scored better than those with 
less restrictive practices. This is the result of two factors: 
first, the focus of the study, which is the effect of 
government regulations; and second, the methodology employed 
for gathering the data, which is the standard survey practice 
of assuming what a typical worker in business looks like across 
countries.
    In most countries, the majority of workers are not union 
members; therefore, the typical worker is not a union member. 
Without using the standard statistical techniques, the ``Doing 
Business'' report would lose its focus and swiftly become 
noncomparable across countries.
    The important contribution of the ``Doing Business'' report 
is that it has made governments begin to think about the 
incentive structures inherent in their business regulatory 
regimes and how these can be improved.
    For years, many countries have made it expensive and 
complicated for entrepreneurs to establish and operate firms in 
the formal sector. Everyone agrees that it is desirable to have 
more tax-paying firms that employ people. However, national 
regulatory regimes that make the formalization process long and 
expensive runs counter to this objective. The World Bank is a 
large bureaucracy that achieves uneven results. Despite its 
imperfections, the Bank does have an important role to play in 
the fight against global poverty. The IFC's contributions in 
putting together the Equator Principles, the voluntary 
initiative among the world's commercial banks to establish a 
universal framework for establishing social and environmental 
issues, was very important.
    Undoubtedly, the Bank could do more on core labor 
standards. The important work of the Inter-American Development 
Bank in pulling together trade and labor ministers during the 
CAFTA process is a useful example. Ultimately, though, the 
fight against global poverty can only be won if large numbers 
of the poor are able to access and harness the power of the 
global economy. The wealthiest countries of the world are also 
the most globalized.
    To bring the poor fully into the global economy, countries 
need three things: good policies, such as open trade and 
transparency; improvements to the basic plumbing of commerce, 
such as ports, telecommunications infrastructure, and financial 
systems that extend credit to nascent entrepreneurs; and 
improved education and training systems.
    The World Bank has a role to play in this process. However, 
we need to examine ways in which the Bank should be 
restructured to achieve its mission more efficiently and 
effectively.
    Ultimately, however, the impetus for the reduction of 
poverty and the improvement of labor standards will come at the 
country level. Having seen manufacturing jobs go to China, many 
developing countries now understand that low wages are neither 
a desirable nor a feasible strategy for long-term 
competitiveness. The only answer is to move up the value chain, 
where they can compete on the basis of factors other than 
strictly price.
    Thank you very much.
    [The prepared statement of Mr. Miller can be found on page 
48 of the appendix.]
    The Chairman. Thank you.
    Our next witness is Sandra Polaski, who is a senior 
associate and director of the Trade Equity and Development 
Program at the Carnegie Endowment for International Peace.
    Ms. Polaski?

 STATEMENT OF SANDRA POLASKI, SENIOR ASSOCIATE AND DIRECTOR OF 
 THE TRADE, EQUITY AND DEVELOPMENT PROGRAM, CARNEGIE ENDOWMENT 
                    FOR INTERNATIONAL PEACE

    Ms. Polaski. Thank you, Mr. Chairman, and thanks to the 
committee for this opportunity to comment on the World Bank's 
approach to core labor standards and employment creation.
    I direct research and policy work on trade, employment and 
development at Carnegie, and previously had the pleasure to 
serve Secretaries of State Madeleine Albright and Colin Powell 
as special representative for international labor affairs, 
where I worked on many of the issues that are the topic of this 
hearing today.
    I would like to briefly mention four recent developments in 
the World Bank Group that I think are very important, three 
positive and one negative.
    On the positive score, first I would echo the comments that 
were made earlier, that the IFC recently adopted a new 
performance standard covering labor and working conditions in 
the businesses to whom it lends in the developing country. 
Previously, the IFC had standards on the environment, child 
labor and forced labor, but not on the core labor standards and 
not on broader workplace policies.
    Adopting this new standard in 2006 was very important for 
the work of the IFC itself in raising the level and performance 
of the firms that it lends to in developing countries, but also 
because it has broader impact. It has been adopted by the 
Equator Banks, and we will be hearing more about that from a 
representative of one of those banks in a moment. And I believe 
it actually paved the way for the very recent adoption by the 
main World Bank Group of a new standard on procurement 
contracts, which requires that all firms signing on to do work 
that is funded by the World Bank must observe the core labor 
standards. These are both very positive developments.
    Now, in the IFC, the new performance standard on labor is 
just now in the process of implementation. The Environment and 
Social Development Department has been charged with the 
responsibility for implementing this. It has done much to train 
the loan officers, whose ultimate responsibility it is to 
decide which firms get loans or not, and therefore to enforce 
the labor standards.
    And I think that the department that is overseeing this 
process has done a very professional and serious effort, but it 
will need a lot of support if it is to change the culture of 
the IFC with respect to working conditions, employment creation 
and core labor standards. And I think that this is work that 
deserves the support and attention of the committee and the 
U.S. executive director.
    That brings me to the negative point that I want to make, 
and that is on the ``Doing Business'' report, and specifically 
``Doing Business 2008,'' which was issued last week. I think it 
is probably the most glaring example of inconsistency within 
the Bank, in terms of promoting good workplace practices.
    The ``Doing Business'' report, as you mentioned, ranks 
countries on how business-friendly they are, and it influences 
decisions by the Bank in funding and by outside investors. The 
report covers a number of appropriate topics, such as the ease 
of establishing a new business, licensing and registration 
requirements, for example, and access to credit and financial 
markets.
    However, the section that deals with employing workers is 
seriously off-track. It creates an index made up of three 
components, labeled ``difficulty of hiring,'' ``rigidity of 
hours,'' and ``difficulty of firing.'' A perfect score for a 
country means that it is a good place to do business. A low 
ranking suggests that investors should avoid that country and 
that the government should change its labor laws.
    Let me comment on each ingredient of this index.
    The ``difficulty of hiring'' index gives a perfect score to 
countries that allow the use of fixed-term--that is, 
temporary--contracts for workers who are hired to do permanent 
tasks, with no limitations whatsoever. It gives the worst score 
to countries that limit the use of temporary contracts to no 
more than 3 years for workers if they are doing permanent work.
    It should be noted that temporary contracts are widely used 
and abused in many developing countries, notably in parts of 
Latin America, to avoid putting employees on regular payrolls 
despite the fact that they are doing permanent work. These 
contracts keep the affected workers in a precarious economic 
position, not knowing whether they will be employed at the end 
of their contract, which can often run for as short as 3 
months, renewed again and again and again.
    In some cases, the use of these temporary contracts means 
that the worker will not qualify for employment benefits, such 
as medical insurance and pensions. It discourages both the 
employee and the firm from investing in the temporary worker's 
training and skills because of the uncertainty of continued 
employment. It discourages workers from joining unions or 
organizing unions because of the fear that their contracts will 
not be renewed.
    The effect is to create precarious employment and economic 
insecurity and to slow the workplace training that is so 
essential in developing countries.
    The ``difficulty of hiring'' index also discourages the use 
of minimum-wage legislation or encourages extremely low minimum 
wages if they are set at all by governments. It assigns a 
perfect score to countries that set the minimum wage at less 
than 25 percent of the average value added per worker.
    The ``Doing Business'' team ignores extensive research 
showing that carefully established minimum-wage policy can 
alleviate poverty and improve income distribution without, in 
any way, discouraging employment creation. Instead, it rewards 
countries that set minimum-wage rules that allow firms to 
capture the largest possible share of output and productivity 
gains. This encourages sweat shops, basically, where labor is 
paid the lowest possible wage, rather than encouraging 
increased productivity based on investment in workers' skills 
and technology.
    The second ranking of the index, ``rigidity of hours,'' 
implicitly advocates rolling back any restrictions on hours 
worked. It assigns a perfect score to countries that allow 50-
hour work weeks and limit vacation time. If developing 
countries established the kind of limits that we in our country 
came to believe were sensible, such as a 40-hour work week, 
they are labeled bad places to do business.
    In a world where unemployment and underemployment are major 
economic and social problems in most developing countries, the 
idea that workers already on payrolls should be worked to the 
maximum, rather than encouraging firms to hire additional 
workers, is going in entirely the wrong direction.
    Finally, the ``difficulty of firing'' index rates countries 
that require advanced notice of termination or layoff or that 
require that the options of retraining or alternative placement 
be considered instead of doing layoff as bad places for 
business.
    The index lists the firing costs in each country, which 
amounts to the cost of advanced notice and severance pay. This 
must be understood in the context that, in most developing 
countries, there is no unemployment insurance. Severance pay is 
the only buffer for households that lose the income of their 
wage-earners. To imply that this buffer should be eliminated by 
countries without unemployment insurance endorses an approach 
of shifting all economic risk from firms to households. This 
represents an extremist view of the balance--
    The Chairman. Ms. Polaski, you are going to have to finish 
up.
    Ms. Polaski. --an extremist view of the balance that should 
be achieved.
    I won't take time, then, to mention the fourth thing, which 
is positive, which is the establishment by the IFC and the ILO 
of the new program called ``Better Work,'' which will attempt 
to replicate lessons that were learned by an innovative project 
between the United States and Cambodia, but it is included in 
my testimony.
    And I thank the committee.
    [The prepared statement of Ms. Polaski can be found on page 
57 of the appendix.]
    The Chairman. And we will get to it in the question period.
    Next we will hear from Thea Lee, who is the policy director 
at AFL-CIO and is involved in research and strategy on domestic 
and international policy.
    Ms. Lee?

       STATEMENT OF THEA M. LEE, POLICY DIRECTOR, AFL-CIO

    Ms. Lee. Thank you very much, Mr. Chairman, and members of 
the committee. I appreciate the opportunity to come here today. 
I would like to thank you for holding the hearing today on this 
important topic.
    We believe that the fight against global poverty and 
inequality must include as an integral element the promotion of 
decent work, as the International Labor Organization has 
defined it. Both my colleagues, Peter Bakvis and Sandra 
Polaski, have spoken about the importance of decent work, which 
is not just about employment creation but also about the 
protection of workers' human rights. There is a growing body of 
research showing that observing fundamental workers' rights is 
good for growth, not an obstacle.
    Some have tried to create a false dichotomy, insisting that 
we or workers or the government must choose between decent work 
and any work, between rights and a job. We disagree 
fundamentally with this premise. It is both bad economics and 
bad politics. A vibrant democracy and a strong middle class are 
essential to sustainable development, not an inessential 
luxury.
    The subject of today's hearing is the World Bank and the 
World Bank's approach to core labor standards in its mission to 
reduce global poverty and raise living standards. The World 
Bank's record, as the chairman mentioned, is mixed on this 
issue. There has been much criticism of the conditionalities 
imposed by the World Bank in its mission to end poverty, and 
questions raised as to whether those conditionalities have been 
imbalanced toward undermining progressive government 
initiatives and undermining the rights of workers.
    As other panelists have said, there has been some progress 
at the World Bank in recent years with respect to core labor 
standards, and we recognize and honor the progress that has 
been made, particularly with respect to the IFC and to some of 
the research that has been done.
    However, we also would like to add our voice to the 
criticism of the ``Doing Business'' report as the most glaring 
example of inconsistency within the World Bank, and also as 
emblematic of the failure of the World Bank to engage in 
meaningful policy coherence dialogues with other international 
institutions. The United States belongs to both the World Bank 
and the International Labor Organization. We shouldn't be 
promoting one set of goals at the ILO and then allowing another 
institution to undermine those very same goals.
    I would submit to you that the ``Doing Business'' report, 
particularly the most recent version, is an international 
disgrace. It might be appropriate for a business organization, 
let us say the International Chamber of Commerce, to put out a 
report that is so one-sided in its views about what a good 
business environment is. But it is not appropriate for an 
intergovernmental agency committed to ending poverty to send a 
message to both governments and to businesses that the way to 
attract business, the way to develop in a global economy is to 
undermine protections for workers.
    The ``Doing Business'' report classifies most protections 
for workers as investment impediments. It ranks human-rights 
abusers as stars and downgrades democratic countries with 
strong labor institutions and protections. Contrary to what 
some World Bank officials have said, this is not a neutral set 
of indices. It is a powerful policy document that has been used 
to determine loan eligibility in important World Bank reports.
    One of the key issues is whether the ``Doing Business'' 
report undermines the World Bank's own stated goals and puts 
the World Bank at odds with other international institutions.
    The World Bank endorsed the Millennium Development Goal of 
eliminating extreme poverty. Yet the ``Doing Business'' report 
penalizes countries that have a minimum wage unless it is less 
than 25 percent of average value-added per worker. This comes 
to less than a dollar a day in most sub-Saharan African 
countries, which is the threshold for extreme poverty. So in 
this case, the World Bank is actually instructing countries not 
to implement minimum-wage provisions that would keep full-time 
workers out of extreme poverty, and in doing so, it is 
undermining the objective that the World Bank declared to be 
its overarching goal in 1999.
    Let me sum up by saying that, in terms of the interactions 
between the ILO and the World Bank, there have been many high-
level discussions about coherence, and meetings between the ILO 
and the World Bank. There have been many commitments to achieve 
better policy coherence between the ILO, the World Bank, the 
IMF and the WTO. And so far, we appreciate that meetings have 
been held, we appreciate that conversations have occurred, but 
we would like to see those conversations reach down into the 
mainstream of World Bank policy.
    To the extent that a publication like ``Doing Business'' 
exists, and it is the flagship publication of the World Bank, 
the most-read, the most-cited publication of the World Bank, 
and it comes out with a contrary message, an undermining 
message to protections for workers, this is an enormous 
problem. We hope that the U.S. Congress, in its instructions to 
the U.S. executive director to the World Bank, will use all the 
influence it has to ensure that the World Bank sends a single 
set of messages in conjunction with its sister institutions, 
particularly the ILO.
    Thank you very much for your attention, and I look forward 
to your questions.
    [The prepared statement of Ms. Lee can be found on page 43 
of the appendix.]
    The Chairman. Thank you.
    Our next witness has three very important qualifications. 
First, she was the finance minister and foreign minister of 
Nigeria, the first woman to hold those positions. Before that, 
she was the corporate secretary of the World Bank Group. And 
she was also my very delightful seatmate on our trip to Davos 
last January.
    And in all three capacities, Dr. Ngozi Okonjo-Iweala, we 
welcome you. Please go ahead.

STATEMENT OF NGOZI OKONJO-IWEALA, DISTINGUISHED FELLOW, GLOBAL 
   ECONOMY AND DEVELOPMENT PROGRAM, THE BROOKINGS INSTITUTION

    Ms. Okonjo-Iweala. Thank you, Mr. Chairman. I am very 
honored to be here today and to testify before you on this very 
important issue.
    You have already done my task for me of explaining that I 
see this from different, multiple angles. But most of all, I 
think that the value I can bring to this hearing is speaking 
from the point of view of a policymaker who has had to struggle 
with the issues that are being discussed here and with the kind 
of recommendations being talked about in the ``Doing Business'' 
report.
    And I must say that I am somewhat taken aback by the 
interpretations that I have heard about countries, this report 
instructing countries to do things in certain ways. Because 
that is certainly not the way on the ground that we saw this 
report when I was minister of finance in Nigeria and had to 
work with it every day.
    First of all, as countries, we increasingly like to make 
our own policies in the context of our own circumstances. And 
therefore, I think we see these reports as providing additional 
information, and not instructions or conditionality, because 
that is not the best way to work with us, with our countries.
    The ``Doing Business'' report has served as a very useful 
guide in terms of looking at those things that a country can do 
to enhance its position in terms of creating jobs. And I think 
that what has happened is that, looking at it perhaps from the 
World Bank side, is a struggle between protection of workers 
and flexibility for the labor market. This is an everyday 
struggle that we have. And the way we read the report is as a 
report that is trying to give information on balancing that 
very complex difficulty of: How do you ensure that you have an 
economy and a labor market that is flexible enough so that jobs 
are being created?
    The biggest problem we face in our countries is the 
creation of jobs. More than 50 percent of our population are 
youths under the age of 25. And if we don't work hard to look 
at creating jobs for these youths, we will have trouble, even 
more serious problems of inequality, which the honorable 
chairman referred to.
    But we do not see that we can create these jobs on the back 
of our workers. No country ever grew or will ever grow on the 
back of unhappy workers. So we have always paid attention to 
how can we improve the situation with our workers, making sure 
we applied the minimum codes and standards which my country has 
signed up to.
    And I hasten to say that we are not there yet in Nigeria, 
that we have a ways to go, in terms of implementing. But, 
really, that is our objective. We don't see it as contradictory 
to creating jobs, but rather that we need to maintain this 
flexibility in the labor market, while also making sure that 
our workers enjoy the minimum standards and codes that we have 
signed up to at the international level.
    I am, therefore, surprised from the point of view of a 
practitioner to hear that this is the way the ``Doing 
Business'' report is seen, because we certainly do not see it 
that way. We see it as an important guide which we factor as 
one more element in our decision-making. And we have to make 
our own codes and rules in the country and observe our own 
particular situation and decide what would be most favorable 
for our workers.
    We also see that, in the report, there are many countries 
that observe high codes and standards for labor but are also 
tops, in terms of ``Doing Business.'' So we really don't see 
this as contradictory. The United States ranks very high, 
Denmark ranks very high, many other countries rank very high in 
``Doing Business'' and in treating workers well. So this is not 
a contradiction, for us.
    What we have to do is what policies can we look at that are 
good for our country, that will both enable us to get workers 
employed so that we can attack poverty, so that we can deal 
with the increasing problem of inequality that the honorable 
chairman referred to, whilst at the same time making sure that 
our workers have the basic treatment that they need.
    So I want to submit that the report is an ingredient in the 
decision-making of developing countries. We do not regard it as 
instructions to us to do one thing or the other.
    And I think that, in the modern era, this idea of 
conditionality, you know, getting the Bank to make countries do 
things as a condition for getting its loans doesn't work 
anymore. Countries have to believe in what they are doing. And 
we believe in decent standards for our workers.
    And second of all, we don't see a contradiction between 
being a good country that respects workers and creating jobs. 
And I think that this is what the report is trying to do.
    Thank you very much, Mr. Chairman.
    The Chairman. Our final witness has made reference to the 
Equator Principles, and one of the organizers and 
administrators of the Equator Principles is Suellen Lazarus, 
who is a senior advisor at ABN AMRO, here in Washington.
    Please, Ms. Lazarus.

     STATEMENT OF SUELLEN LAZARUS, SENIOR ADVISOR, ABN AMRO

    Ms. Lazarus. Mr. Chairman, and members of the committee, 
thank you for inviting me this morning. It is a pleasure to be 
here.
    ABN AMRO is a Dutch bank with operations worldwide and a 
strong commitment to sustainable development. Prior to joining 
ABN AMRO, I worked for 23 years at the World Bank and the 
International Finance Corporation. My responsibilities included 
serving as advisor to the U.S. executive director of the World 
Bank, working as principal investment officer in IFC for major 
projects in Asia, serving as special assistant to IFC's 
executive vice president, running IFC's syndications 
department, and working with IFC's vice president for 
operations on major policy issues.
    In the fall of 2002, as director of the syndications 
department, I was asked by IFC's executive vice president to 
structure a small meeting of banks to discuss environment and 
social issues in project finance lending. The origin of this 
meeting was at the request of the head of risk management of 
ABN AMRO.
    The Bank had experienced some financial losses due to 
inadequate environmental controls in several projects. They 
were also finding that environmental and social risks were 
making projects increasingly complicated, but the Bank lacked a 
systematic way to deal with these challenges. Their approach of 
turning down projects on environmental grounds simply was not 
working. It neither improved the environment, nor was it good 
for business. Projects that the Bank would decline were readily 
picked up by the neighboring bank. There was a clear need to 
level the playing field.
    Hosted by ABN AMRO and IFC, the first meeting of the banks 
was held in London in October 2002. Despite some initial denial 
that there was a problem, within a few hours the banks 
concluded that if they were to keep doing project finance 
business, they needed a better approach to environmental and 
social risk management. While they had expected appropriate 
environmental management from clients, the banks agreed that 
they often were unclear on what standards were applicable and 
did not enforce and monitor environmental covenants.
    Eight months later, in June 2003, the Equator Principles 
were launched here in Washington, when 10 banks announced their 
adoption. The Equator Principles are a voluntary set of 
guidelines developed and adopted by banks to identify, assess, 
and manage environmental and social risk in project finance 
lending. These standards now also encompass the core labor 
standards.
    The framework for the Equator Principles is based on the 
environmental and social standards of IFC. There are now, we 
are pleased to say, 54 financial institutions worldwide that 
have committed to using the Equator Principles. These include 
banks in such countries as Chile, Argentina, Brazil, and South 
Africa, as well as in the European countries and the United 
States. We estimate that 80 to 85 percent of the global project 
finance market is now covered by the Equator Principles.
    In April 2006, IFC revised its social and environmental 
performance standards to incorporate the core labor standards, 
along with a range of other changes. The banks had to then 
determine if they would incorporate IFC's new standards in the 
Equator Principles.
    How to implement the expanded labor policies was one of the 
more difficult issues during the revision process. Many of the 
banks were active in countries where the right to organize and 
collective bargaining were not allowed. Did this mean that they 
had to stop working in these countries?
    The understanding that, in such countries, our clients 
instead needed to provide grievance mechanisms and ensure 
adequate working conditions and terms of employment provided a 
great deal of comfort.
    Ultimately, at ABN AMRO, we concluded it was about risk 
management. Not addressing the human element is a risk for the 
project and for the bank lending to the project, regardless of 
the country we are working in. Companies that deal effectively 
with labor issues demonstrate good management. And good 
managers are good clients. To us, incorporating labor standards 
is conducting business responsibly, and prudently.
    Today, environmental and social standards, including review 
of a company's labor standards, are an essential component of 
risk management at ABN AMRO. The Equator Principles have 
allowed us to have greater expertise in advising our clients 
and improving the risk profile of our projects. Our clients 
appreciate that there will be one standard assessment process 
and a focus on internationally recognized environmental and 
social standards. Through this transparent and consistent 
approach, their costs are reduced, and difficult issues are 
addressed up front.
    The development and application of the Equator Principles 
has been a major step forward for the financial industry. We 
have concluded that the Equator Principles are, indeed, good 
for business.
    Thank you.
    [The prepared statement of Ms. Lazarus can be found on page 
41 of the appendix.]
    The Chairman. Thank you.
    I would just say, Mr. Miller, you mentioned rigidity is a 
bad thing, but my problem is, as I read the report, it does not 
seem to differentiate between good and bad kinds of rigidity or 
legitimate protections and excesses.
    Do you think that--I mean, it did seem to me that there was 
a sort of a--anything that made for any kind of protection 
became rigidity, and there really wasn't a differentiation 
between good and bad kinds. Do you think the report adequately 
differentiates between good kinds of protections and 
excessively rigid ones?
    Mr. Miller. Certainly the question of rigidity versus 
flexibility is a continuum. It is not an absolute that, if you 
have an absolutely flexible labor market with child labor and 
bonded labor, that it is better than having a situation like 
France, with a 35-hour work week, where it is very difficult to 
hire people.
    I think that we need to look at the fact that most people 
want to be somewhere in the middle, where there is labor law. 
Most countries have labor laws, and those labor laws are 
enforced.
    The Chairman. I appreciate that. But as I read the ``Doing 
Business'' report, it didn't seem to make the distinction you 
were just making. It seemed to me, that in their measurement, 
less was always better. Is that an inaccurate reading? I mean, 
that they did not take the more measured approach you are 
taking, but that, the less you had, then the less rigid you 
were, and more flexible you were, and the better off you were.
    Mr. Miller. Well, I think that it is important to look at 
where--at why the report is being prepared and how it is being 
prepared.
    The Chairman. Well, no, it is important for me to look at 
what the report says. Do you think that the report accurately 
reflects that notion? Because it did seem to me that less was 
always better in that report.
    Mr. Miller. I think that the question is that, that is not 
the what report is focusing on. It is looking--
    The Chairman. Well, excuse me, Mr. Miller. I understand 
that, but the fact that that is not what it is focusing on 
doesn't mean it doesn't also say that. And the focus consists 
of a lot of things. I guess I won't keep trying to get you to 
answer that one question, but when people don't want to answer 
the one question, I draw inferences. It may focus on that, but 
it does say what it says, as part of it.
    Let me ask the other witnesses if they would have--that 
does seem to me to be the issue, that it is not a case of an 
intelligent discrimination about what is or isn't good labor 
protection, but rather a kind of, ``if it is in there, it is no 
good.''
    Ms. Lee?
    Ms. Lee. Thank you, Mr. Chairman.
    Yes, I think that is exactly the problem with the report, 
that it makes no distinction between necessary social 
protections for workers and rigidities that might inconvenience 
or impede investment.
    What we would like to see is that you start from a bottom 
line, which is to start with the work that the ILO has done to 
identify what are the basic protections that workers deserve, 
and never try to encourage any government to go below that, to 
work workers long hours without any day of rest, without any 
protections from arbitrary firings and so on.
    Within that context, if you start with the base of the ILO 
protections, then it is legitimate for governments to make the 
kinds of trade-offs that Dr. Okonjo-Iweala was talking about, 
where governments do need to make trade-offs between trying to 
figure out how to attract investment to create jobs and how to 
protect their workers.
    But we need a baseline, and that baseline is missing from 
the ``Doing Business'' report.
    The Chairman. Well, I appreciate that.
    I have a report here that we will put into the record, if 
there is no objection, and it does have the defect that I was 
hoping it wouldn't have, which is ``less is always better,'' 
and if you don't have any protections, you just get more points 
in that report.
    Yes, Dr. Okonjo-Iweala?
    Ms. Okonjo-Iweala. Thank you very much.
    While I agree that perhaps the report would need to be more 
crystal clear in the future on this issue, I do point to the 
fact that, in a reading of the report, the report endorsed or 
made clear that the fundamental principles and rights of 
workers to all the basic things that has been agreed in the ILO 
conventions is important and should be respected. This is part 
of the report.
    However--and it refers to the fact that excessive rigidity, 
so that is what we are looking at, things like excessive 
rigidity--
    The Chairman. But, Doctor, that is not--you are making a 
case for the report that the report doesn't make. In the 
ratings, I don't see that distinction at all. In fact, while it 
says we like the ILO, when it does the ratings, the absence of 
ILO standards helps you in the ratings, and the presence would 
hurt you, in many cases.
    Ms. Okonjo-Iweala. That is why I say, Mr. Chairman, that 
the report needs to make crystal clear. Because in the 
discussion in the report itself, it talks about the issue that 
the fundamental core labor standards have to be respected.
    The Chairman. I understand that. The rhetoric is there, but 
the rating system has to catch up. So I would say it doesn't 
have to be crystal clear; it has to not be internally 
contradictory. And I think that is a problem that--maybe it is 
cultural lag, but there still is this problem. You and Mr. 
Miller both say, ``Well, okay, but don't look at what it says. 
Look at the focus. Look at the other things it says.'' But we 
can't not look at the things it says. And they ought to correct 
them and stop saying those things if they don't mean them.
    Ms. Polaski?
    Ms. Polaski. Directly to your question, Mr. Chairman, the 
rating itself, if you look at the way it is constructed, 
absolutely does give higher marks for lower regulation. The 
less regulation, the higher the mark; the more regulation, 
regardless of how carefully--
    The Chairman. With no balance. Less is always better.
    Ms. Polaski. Absolutely less regulation makes you a better 
place to do business. And that is the ranking, at the end of 
the day.
    The Chairman. That would include if, in fact, you didn't 
follow some of the ILO standards, you would get a better 
ranking in that particular situation than if you did, correct?
    Ms. Polaski. That is correct.
    The Chairman. All right. Well, then, if that is not what 
they mean, I have a simple suggestion: Write it better. Don't 
send very sophisticated people who are well-meaning here to 
say, ``Oh, yes, but you have to read it in context,'' etc.
    You know, I will tell you this. People say, ``Oh, don't 
take it out of context.'' Every time I say, ``Oh, well, I was 
quoted out of context,'' I really mean, ``I wish I didn't say 
that, and next time I will say it better.'' So, next time, they 
should say it better.
    The gentleman from Delaware.
    Mr. Castle. Thank you, Mr. Chairman.
    My question is going to be basically simple. It is going to 
be to all of you, but a couple of you have made comments that 
got my attention. Mr. Miller said something to the effect of 
national regulatory schemes that limit the establishment of 
business, for example. And Dr. Ngozi has been involved locally 
in Nigeria, as well as in international organizations, dealing 
with the issue of enforcement of various rules, laws, and 
regulations.
    And I don't mean to speak for anyone here, but I think most 
of us would agree that most of those things that we are 
concerned about, in terms of employment practices, we could 
probably find agreement upon in this committee. But I worry 
about the intersection between the international institutions, 
the World Bank, and the other international institutions and 
the countries, and the enforcement of these principles.
    I guess I need a one-on-one lesson on exactly how the 
international institutions actually go about enforcing some of 
the principles of which they are concerned. Is it the 
persuasion of rankings, or is it making or not making loans? Or 
what is it that is done that gives you the ability to influence 
some of the outcomes that you want?
    Mr. Bakvis. Sure.
    Well, it is a publication of the World Bank and is used--
you know, we have documented dozens of cases--in World Bank and 
IMF reports. These are institutions that lend monies to 
countries, so that gives them a very powerful incentive, 
compared to, for example, the ILO, whose power essentially is 
the power of moral suasion. The ILO can tell countries they are 
violating the core labor standards, as it did in the case of 
Georgia, as I mentioned. But beyond that, it can't use any 
pressure on them. However, the World Bank and the IMF, by 
bringing this into a vast number of their country reports, 
making them loan conditions in some cases that we cite in our 
longer report, they do have the possibility to impose these 
things.
    Now, I would like to mention that one central tenet of 
``Doing Business'' is the claim that you have to get rid of 
these labor protections because that will create more jobs. 
Now, they cite studies, and they actually miscite them. The 
basic methodology was developed in an article that was 
published a few years ago in the Quarterly Journal of 
Economics. And they quote that particular article as saying 
that countries that have more regulation, as they measure it, 
push people into the informal sector; so more people work in 
the informal sector, the informal sector is larger. If you 
actually read the article, the study they cite doesn't say 
that. It is misstated in ``Doing Business,'' and I think that 
is important.
    So it is not a surprise that you get the situation where 
``Doing Business'' says that Afghanistan, Armenia, Georgia, 
Haiti, and Mongolia--which I don't think many people would 
consider economic success stories--get better rankings for 
their labor scores than Finland, Korea, the Netherlands, 
Norway, Slovenia, and Taiwan, which all have very low 
unemployment, high working conditions, and very good social 
protection measures.
    So I think it is a thoroughly imperfect and flawed 
indicator to use to tell countries this is what you should be 
doing to create more jobs. It does not do that. They haven't 
proved it through economic research.
    And if you peruse the rankings, you can see how ridiculous 
it is.
    Mr. Castle. Ms. Lee, you had your hand up?
    Ms. Lee. Thank you. I wanted to respond to your excellent 
question about how the different international institutions go 
about enforcing their principles.
    Just to build on what Peter Bakvis said, if you start from 
the ILO, and you mentioned earlier the IOE, the International 
Organization of Employers, what is extraordinary about the ILO 
is the tripartite structure of employers, workers, and 
governments from 181 countries represented. The idea that those 
three groups from more than 180 countries were able to reach 
consensus on the core labor standards should give that 
tremendous weight. Yet, as Peter Bakvis said, the ILO has no 
enforcement power whatsoever. It can sanction, it can 
discipline, it can scold its members, but it doesn't have the 
capacity to impose any economic consequences, even for 
egregiously bad behavior.
    If we are serious about the commitment that we made at the 
ILO to respect, promote, and realize the core labor standards, 
then we need to make sure that the other international 
institutions, like the IMF and the World Bank and the WTO, that 
do have economic power, are incorporating the principles of the 
ILO into their work. This will ensure that we put some economic 
consequences behind the commitment we have already made.
    Thank you.
    Mr. Castle. My time is up. I think Mr. Miller wanted to 
answer, Mr. Chairman, if we can get his answer.
    Mr. Miller. Thank you.
    The process of actually implementing the core labor 
standards--and when we understand core labor standards, we mean 
prohibitions on child labor, prohibitions on forced labor, 
prohibitions on employment discrimination, and prohibitions on 
collective bargaining and the right to organize, all of which 
are included in the National Labor Relations Act here in the 
United States.
    We have to understand that the process of developing loans, 
which is ultimately the most powerful mechanism that the World 
Bank has, is a dialogue between an institution and a 
government, which is long and requires a very extensive country 
bias. I think that, oftentimes, people begin to imagine that 
you can simply impose these things, but as was noted earlier, 
countries are sovereign, and they are making their own policy 
decisions, and they have a degree of skepticism about the 
effectiveness of the work of the international financial 
institutions.
    So I think that, while it is important for the World Bank 
to look at getting people together to have a dialogue on how 
one can deal with child labor in the developing worlds as they 
have done, it is not as simple as simply saying, ``Well, you 
must implement these things, or you must inform your labor 
ministry.'' That implies taking a loan, which oftentimes 
requires congressional approval, and I cannot imagine this 
Congress agreeing to increase the public indebtedness of the 
United States for something that it did not support.
    Mr. Castle. Thank you.
    Mr. Green. [presiding] The Chair recognizes subcommittee 
Chairwoman Maloney for 5 minutes.
    Mrs. Maloney. I thank the gentleman for recognizing me.
    I thank all of the panelists for your statements today.
    One indicator in the ``Doing Business'' report is the 
employing workers indicator. This indicator measures the extent 
to which country labor markets are flexible, the assumption 
that flexibility creates employment. However, the employing 
workers indicator gives more favorable employing workers 
ratings to Saudi Arabia, which systematically discriminates 
against women--women cannot even drive a car to work there--and 
Georgia, which continues to repress unions, than to Finland or 
to Sweden, high-productivity economies with fine worker 
protections. This indicator gives recurrent violators of 
fundamental workers' rights, including Belarus, China, Saudi 
Arabia, Swaziland, and Uzbekistan, a higher rating than most 
countries of Western Europe.
    Can someone explain to me how a country that violates 
fundamental workers' rights, represses women or bans unions can 
be seen as a good thing for employment, earning a country a 
higher rating? I invite anyone to respond.
    Mr. Bakvis. I cannot justify that.
    Mrs. Maloney. Thank you.
    Ms. Polaski.
    Ms. Polaski. I think that one of the fundamental problems 
with the ``Doing Business'' report is what you have just 
identified. There is not good research underlying the employing 
workers section of the report. The references cited, which have 
been mentioned here, do not say the things that they are 
credited as to saying, and to the extent that any sources are 
cited, they are very thin, and they lie at one extreme of the 
research spectrum.
    There is a lot of labor market research which says that a 
sensible balancing of the rights of workers with those of firms 
is going to produce better results in terms of overall 
employment, in terms of poverty reduction, in terms of income 
distribution, and in terms of clear labor standards.
    I think that a serious problem with the report is that it 
is not based on sound economics, it is not based on sound 
research, and I think that is one reason why the committee 
should think about instructing the U.S. executive director to 
work toward taking that section out until it can be 
reconstructed on a sounder basis.
    Mrs. Maloney. Well, I will talk to the chairman about 
achieving that result. Thank you.
    I would like to ask about the paying taxes indicator. My 
understanding is that the paying taxes indicator quantifies the 
cost of total mandatory contributions in payroll tax, 
retirement, unemployment, maternity, housing or health 
insurance, and it encourages countries to have these 
contributions set as close to zero as possible.
    ``Doing Business 2008'' highlights fining those countries 
that reduce pensions, maternity, and health insurance or 
compensation for workplace injury: Albania, Bulgaria, Mexico, 
Moldova, the Netherlands, Romania, Slovenia, South Africa, and 
Uzbekistan.
    Why should we be rewarding countries that are reducing 
pensions, maternity leave, health care insurance or 
compensation for workplace injury? What does the paying taxes 
indicator use to include the possible benefits these items 
have?
    Yes.
    Mr. Bakvis. Well, I think your question puts the finger on 
a very important issue, which is that there is definitely a 
bias against countries that adopt all of these kinds of social 
protection measures that are very important and that are part 
of what should be seen as development goals if they finance 
them through payroll taxes. In countries that shift the burden 
to consumption taxes, value-added taxe, or income taxes--as 
Denmark did, for example--it is not counted.
    Now, we see this as a bias against developing countries 
because value-added taxes do not exist in developing countries. 
They do not have that option. Income tax systems are very 
undeveloped in developing countries. Payroll taxes are 
something that are simpler to implement; they can identify 
payroll, and it is possible to gain revenues from them. So, 
when you are telling a developing country, you can no longer 
finance these things through payroll taxes, you are, 
essentially, going to get rid of them--get rid of maternity 
leave, get rid of pensions, get rid of the health benefits or 
whatever that are financed by these taxes. So we think this is, 
really, a very nefarious message for the World Bank to be 
giving to developing countries.
    Mrs. Maloney. Can Mr. Miller respond? My time is up, but we 
look forward to your comment, Mr. Miller.
    Mr. Miller. Briefly, I think that--while one could read the 
report in that way if one chose to, I think it is an 
overstatement, and I think that it misses the focus of the 
report. I think it is important to see these things on a 
continuum; that lower taxes on businesses are generally better 
than higher taxes.
    The unfortunate thing about the ``Doing Business'' 
indicators is that it was born as a process of trying to 
approximate the impact of business regulations across 
countries, and it has become something which has been demanded 
to be quantitatively perfect. It is not quantitatively perfect, 
and I think that one can make fair criticisms of the ``Doing 
Business'' report.
    However, I think what is important about it is its impact 
on helping to begin the process of dialogue within countries on 
reducing business regulations, and so one can make a criticism 
about this particular submeasure or that particular submeasure, 
but I read it as being based on sound statistical practice.
    Mrs. Maloney. Thank you.
    Can she comment?
    Mr. Green. Of course.
    Ms. Okonjo-Iweala. Thank you very much for recognizing me. 
I just wanted to add to that, that, indeed, it is true that the 
improvements can be made, and it is not quantitatively perfect, 
but we do not also, in making policy, look at it as something 
that is a perfect report in which we have to, you know, go 
according to every single indicator. It is a report that lets 
us know where it is as countries they are having the greatest 
problems in terms of creating employment and improving the 
economy and getting access to jobs for the poor. And that is 
the way we read it, and I think it would be a shame if it is 
not read correctly in that light. That is certainly the way 
that we applied it.
    Again, I hasten to say that countries have a great deal of 
autonomy. I want to come back to that. The idea that some 
institution can force you to do something, or you can load up 
conditionality on the back of a loan is a dated idea, and lots 
of studies have been done by Danny Roderick, David Dollar, and 
others to show this does not work. A country has to believe in 
what it is doing, not because some institution comes to impose 
it.
    So I think we are looking and seeing that having proper 
labor standards and codes for workers is the right thing to do, 
and I think that this report is a guide. It is not an 
instruction.
    Thank you.
    Mr. Green. Thank you.
    We will now recognize the current ranking member, the 
gentleman from North Carolina, Mr. Jones.
    Mr. Jones. Mr. Chairman, thank you.
    At this stage of life, the only way I can get here is to 
fill in for somebody else.
    So I want to thank you for this presentation. I have a lot 
to learn; I have been in Congress for 14 years, and I have 
really found this to be very interesting and educational. So, 
from that standpoint, I want to thank you.
    I want to ask--Ms. Lee, I will start with you because my 
concern as a Republican and as a conservative is what I have 
seen happening to not only this country, but--can we do a 
better job, when we pass these trade agreements, of helping the 
workers and the environment? Can we do a better job than we are 
doing now?
    My reason for that question is from the World Bank report, 
but when you really come down to it--and I think the doctor 
said this just a moment ago--a Nation that is relatively 
strong--of course, many of us are concerned about the debt of 
this country, but that is another issue. I remember the Central 
American Free Trade Agreement debate. I remember meeting with 
several elected officials from the five Central American 
countries and some priests and some preachers and elected 
officials, and they were so concerned that we are doing nothing 
to help the low end of the population because we are not more 
forceful in the area of environment and labor standards.
    Ms. Lee. Thank you so much, Congressman Jones, for the 
question.
    Absolutely, we can do more, and we should do more to help 
workers and the environment through our trade agreements and 
also through our interaction with the international financial 
institutions. In representing American workers, we see every 
day that our members are impacted by unfair terms of 
competition. When workers in other countries cannot bargain 
collectively for their fair share of the wealth that they 
create, they are undermined; their lives are impacted, and our 
members lose their jobs.
    So these issues are important in a moral sense, that we 
care what happens to workers in other countries, and they are 
important in an economic sense, because this is about the terms 
of competition. That is why it is so important that an 
institution like the World Bank should live up to its mandate, 
which is to reduce poverty and inequality and to raise living 
standards in the rest of the world. In order to do that, there 
has to be a lens which is broader than a narrow private 
investor's lens. We have to look at the world with a social 
dimension and try to figure out what it would take to empower 
workers, to build a strong middle class, and to build stronger 
democracies in developing countries. There is no question that 
the challenges the developing countries' governments face are 
tremendous. They are trying to attract foreign investment in a 
tough global economy. If the message that they get from 
investors, from financial institutions, and then from 
international intergovernmental organizations is, ``The way you 
attract foreign investment is to undermine the bargaining power 
of your workers by weakening labor standards, and by making 
everything comfortable for foreign investors,'' that is a dead-
end road. Ultimately, they are going to cheapen labor, but they 
are not going to be creating a strong, vibrant middle class 
that will allow us in the future, we hope someday, to have a 
stronger reciprocal trading relationship.
    Thank you.
    Mr. Jones. Is China an example?
    When I look at the environmental conditions in China, which 
are so deplorable, and yet we have sent so many jobs to the 
Chinese--we have a $300 billion, roughly, I think, trade 
deficit--again, if the World Bank--and, Mr. Bakvis, I think you 
said it in your statements. Is it your responsibility, do you 
think, to be more assertive as it relates to some of these 
issues that we are talking about with the environment and with 
the labor standards? I think you mentioned that, at this point, 
you have not been that assertive as an organization. Excuse me.
    Mr. Bakvis. Yes.
    Well, as I mentioned in the introduction, two-thirds of our 
members are in developing countries, and obviously we are very 
concerned. And I think Ms. Lee just explained some of the 
factors that motivate the AFL-CIO and also developing 
countries.
    Now, you mentioned China. That is an interesting case. I am 
not an environmental expert, but I do work a lot on labor 
issues. Now, China, over the past 20 years, has evolved from a 
low-income and relatively equal, in terms of distribution of 
income, country into one of the most unequal countries--middle 
income, but one of the most unequal countries--in terms of 
income distribution today, to the point that the Asian 
Development Bank came out with a report last month calling 
attention to this and seeing it as something very alarming for 
the long-term development potential of China.
    Now, why has China become so unequal? Well, one issue is 
the way they have treated the rural sector there. They have 
shut down services to the rural sector. Everything is going to 
the new upper and middle classes. Another major problem is that 
it is a country that does not respect the core labor standards. 
Trade unions, outside of a very strictly controlled, 
government-run body, are not allowed. Workers are put in jail 
when they try to found independent trade unions. Therefore, in 
effect, wages are being artificially pushed down by the fact 
that workers cannot exercise their full rights, and that is one 
of the reasons you have this terrible inequality now that has 
developed in China.
    What has the World Bank done? Well, you know, we were 
somewhat shocked last year. The World Bank prepared a policy 
paper on social and labor policy where it told China the so-
called ``international labor standards''--and they called it 
like that and put it in quotation marks--are something you 
should not really pay attention to except to the extent that 
you have to abide by them to prevent protectionist measures. 
Now, for the World Bank to be saying that to China, which is 
one of their biggest client countries, ``Do not pay attention 
to these standards,'' I think, comes out of the whole ``Doing 
Business'' approach. It is very serious.
    The World Bank could make a positive contribution, as Mr. 
Wolfensohn did when he was president a few years ago--he said 
to China, ``Improve your rights; improve your social 
policies.'' But to be telling China today, ``Do not pay 
attention to these things,'' that is only going to make the 
situation worse.
    Mr. Green. Yes. I have been informed that we have a series 
of votes that are imminent, and so as to avoid trying to have 
you come back at a later time, we are going to ask that the 
members stay within the 5 minutes, and that we move as 
expeditiously as possible.
    With this said, we will now recognize the gentlelady from 
New York, Mrs. McCarthy.
    Mrs. McCarthy. Thank you, Mr. Chairman.
    This might be a little bit off the beaten path, but in the 
Budget Committee and even in Financial Services, when we had 
the World Bank in front of us, for a lot of the questions that 
I asked, I never really got a solid answer.
    It seems to me that the World Bank has a trickle down, so 
they have the money on the top to the countries, and yet, from 
everything that I have seen, and certainly through 
documentaries and everything else, these microloans, actually, 
in many ways do a very good job. One of the documentaries I 
just saw over the weekend was of a leper colony in India. They 
had built a village. They had no income. It was all off the 
government. A private, inside organization in India started 
doing microloans. The village today is the most successful 
village out of all the areas around the leper colony. They 
started a barbershop. A woman had one cow; now she has five 
cows.
    I mean, is the World Bank doing enough on the microloans to 
help from the bottom up? Because when you work with people from 
the bottom up, it gives them the respect; it gives them the 
opportunity to see what life could be like, you know, in, 
obviously, trying to move up to be middle-income families.
    I was just wondering if anybody had--Mr. Miller.
    Ms. Lazarus. I can probably respond to that. I think that 
there are a couple of things I would say.
    First of all, the World Bank funds a major organization 
called CGAP, the consultive group for action for the poorest, 
which is a resource on microfinance operations. It is funded by 
both the World Bank and other donors, and it fosters 
microfinance work globally.
    I think it is important to remember that the World Bank, of 
course, lends to member governments. Most often microfinance 
operations are done by nongovernmental organizations or by the 
private sector. So much of the funding of microfinance lending 
is happening in the World Bank Group through the International 
Finance Corporation, the IFC, which does private-sector 
lending, and they have a very large microfinance operation 
where they are helping to develop microfinance institutions and 
lending to them. The policy work about the creation of 
microfinance institutions and helping governments set up 
frameworks for allowing the flourishing of microfinance 
institutions is happening through CGAP.
    Mrs. McCarthy. But once we give money to ``the 
government,'' how do we track that it is actually being used to 
do what it is supposed to be doing on the oversight?
    Ms. Lazarus. ``We,'' meaning the World Bank, or--
    Mrs. McCarthy. Yes.
    Ms. Lazarus. --once the World Bank lends to a government?
    Mrs. McCarthy. Right.
    Ms. Lazarus. Oh. The World Bank requires that the 
government report. They have an audit function. There are 
checks and balances, so there is a country supervision program.
    Ms. Okonjo-Iweala. Maybe I can speak.
    Perhaps to complement what Suellen said, on the ground, 
when you sign the loan agreement, you also undertake that you 
will receive missions from the World Bank that are cost 
supervision missions, you know, that will come to see how the 
loan is functioning. The government itself also has to--because 
the government implements the project, it has to set up a 
mechanism to track how the project is going and how the loan is 
being used or the credit. So, when the supervision mission 
comes, typically both the government officials and the 
officials in the World Bank go to wherever the project site is, 
and, of course, records are kept, and you have to show what has 
been disbursed, where it is going and all that.
    That does not mean that, you know, projects are perfect and 
that you do not have issues, but there is a tracking mechanism 
you sign onto. Where the ability does not exist, they often 
provide technical assistance to help build it so that the loans 
can be properly tracked. And the government also has an 
interest in tracking actual--you know, when you borrow, you 
have to pay back that money, so you have to make sure that you 
have mechanisms to make sure the money is going where it is 
supposed to go.
    Mrs. McCarthy. Mr. Miller.
    Mr. Miller. One of the things that, I think, would be 
useful for the World Bank to look at is to examine the lessons 
of the Multilateral Investment Fund at the IDB, which was set 
up to finance innovative projects for the private sector in 
Latin America and in the Caribbean, because I find often that 
the World Bank's approach is rather too rigid because dealing 
with entrepreneurs is very difficult.
    When I was running a USAID project in Panama, I spent a lot 
of time working with entrepreneurs, and the process can be 
time-consuming, but you really have to get down to that micro 
level, and you find that people on the ground have a lot of 
really good ideas, but I do not find that there are really 
sufficient grant mechanisms in place to allow those ideas to be 
actualized.
    Mrs. McCarthy. Thank you. My time is up.
    Mr. Green. We will now recognize the gentleman from 
Georgia, Mr. Scott, for 5 minutes.
    Mr. Scott. Thank you very much.
    Let me start off by asking, how much of the World Bank's 
funding comes from the United States?
    Ms. Lazarus. As someone who worked at the World Bank, I can 
probably say, first of all, I do not know the exact number 
anymore, but the World Bank's share--I am sorry, the United 
States' share in the World Bank is somewhere around 16 to 17 
percent.
    I think that it is important to remember that the World 
Bank--and we are talking about the IBRD, the International Bank 
for Reconstruction and Development. The share capital for the 
Bank was paid in many years ago. The Bank now funds itself by 
borrowing in the capital markets. So the amount of money that 
the United States has actually put in is not significant. What 
the United States does do, as all member governments do, is 
they back up World Bank bonds in the market. So, if there were 
to be a default on the World Bank bonds, the member governments 
have guaranteed them. It is called ``callable capital.'' So the 
actual contribution, in monetary terms, of the United States is 
quite small; it is the shareholding that is significant.
    Mr. Scott. So the World Bank borrows from countries and 
charges an interest rate to countries?
    Ms. Lazarus. The World Bank borrows in the capital markets 
just like any other bank. It funds itself, and then it lends to 
governments, and the differential between its borrowing rate 
and its lending rate is how it funds its operations.
    Mr. Scott. Okay. Then, with that understanding, as the 
World Bank plans to lower its interest rates, it charges 
middle-income countries. There is a plan to do that, to borrow 
money and then pledge to significantly increase the aid for the 
poor nations.
    Do you believe there is a specific plan in place to ensure 
that these funds are used effectively in addressing employment 
strategies of some of the poorest nations?
    Ms. Lazarus. I just want to make a clarification. There are 
two separate arms of the World Bank. There is IBRD, the 
International Bank for Reconstruction and Development, which 
does lend to the middle-income countries and is talking about, 
as you said, lowering rates; and then there is the 
International Development Association, which lends to the 
poorest countries, and that is the money--the IDA 
replenishments that are under discussion now, the current IDA 
replenishments--that governments each contribute, and that is 
where there is scope for putting in the kinds of conditions 
that you are talking about.
    Mr. Scott. I guess what I am trying to say is, is there a 
plan in place, though, to accurately account for these funds in 
relationship to their effectiveness in coming up with sound 
employment strategies?
    Yes, Mr. Bakvis.
    Mr. Bakvis. Well, I think the short answer is ``no.''
    The World Bank has adopted a labor market strategy recently 
which uses the acronym MILES, which stands for different 
elements of the labor market strategy. We were quite concerned 
when this strategy was adopted last year that the ``I'' stands 
for ``investment climate,'' and it is stated in that document 
that the ``Doing Business'' labor market indicators will be 
used as the instrument to help countries develop a correct 
investment climate for employing workers.
    You know, again, as several of us have tried to point out, 
this is an extremely imperfect, erroneous approach to 
developing employment. Economic literature does not back it up. 
The studies that have been invoked to justify the whole 
methodology have either referred to industrialized OECD 
countries that are not applicable--and, in fact, that have been 
discredited by studies done by the OECD itself--or in one case, 
the Bank cites an article which actually says the opposite of 
what it claims it says, namely, that the rigidity of labor 
markets, as they measure it, stimulates growth of employment in 
the informal sector; that is, unprotected jobs.
    So, if this is to be part, and it is, of the overall labor 
market strategy, no, the Bank does not have a proper strategy 
for employment creation.
    Mr. Scott. Thank you, sir.
    Mr. Green. We will now recognize the gentleman from North 
Carolina, Mr. Watt.
    Mr. Watt. Thank you, Mr. Chairman. I will try to be brief.
    Ms. Lazarus, I was here for the testimony and had to leave, 
but I heard all of the witnesses, and you seem to be the only 
one who never really expressed an opinion about whether this 
``Doing Business 2008'' report was constructive or 
counterproductive in the way it addressed the labor standards 
issue. I think I understand where everybody else has come from. 
Maybe you did not get on this panel with the intent of getting 
into that discussion. I am just wondering whether you had an 
opinion about that.
    Ms. Lazarus. Thank you for your question.
    The point that I would make is that the ``Doing Business'' 
report, the audience of the ``Doing Business'' report, is in 
addition to countries looking at how they rank relative to one 
another, it is also private-sector companies looking to invest 
in developing countries, looking to go overseas. Companies do 
pay attention to that report, and the rankings make a 
difference for them.
    So I would say to the extent that you are encouraging 
companies through that report to invest in one country over 
another, it is inconsistent with the way private-sector 
financial institutions and the IFC are looking at those 
countries or are looking at companies in those countries, 
because, within our lending, my bank's lending, to a particular 
company, we would require the company to meet certain labor 
standards that might be different than those required by the 
country in which they are operating.
    There are ways to overcome that by the way the client 
itself manages the company, but there is an inconsistency 
between the way we are wanting to operate and the standards 
that we are going to be imposing--requesting our clients to 
meet--and the way that particular report ranks countries.
    Mr. Watt. Now, that is the business side of it.
    The gentlelady from Nigeria, whose name I cannot pronounce, 
made it pretty clear that sophisticated countries that deal 
with the Bank, such as Nigeria, the United States and other 
countries that have some experience with the Bank, probably do 
not view anything in this 2008 report as a conditionality.
    In your experience, would some of the countries that did 
not have the experience and the knowledge of dealing with the 
Bank view this in a different way? Would they view this report 
as an invitation to drive down their labor standards to create 
a more business-friendly environment?
    I am asking both Ms. Lazarus and Ms.--
    Ms. Okonjo-Iweala. Okonjo-Iweala.
    Mr. Watt. Say it again.
    Ms. Okonjo-Iweala. Okonjo-Iweala.
    Mr. Watt. Okonjo-Iweala. That is a beautiful name.
    I would like both of your opinions about that.
    Ms. Okonjo-Iweala. Well, perhaps in the past I would have 
said--you know, in the 1980's and 1990's--the Bank had a very 
heavy weight in terms of the issue of conditionality and in 
making countries do things, you know. You know, some people 
call it ``buying development'' or ``buying compliance.'' There 
was a very heavy weight on that because many countries did not 
have access to alternative sources of capital, and so they had 
to do whatever the Bank or the Fund said.
    I think the world has evolved. I am not saying--
    Mr. Watt. But isn't that true still for some--I mean, it is 
probably not true of Nigeria, obviously.
    Ms. Okonjo-Iweala. Yes.
    Mr. Watt. Isn't it still true for a number of countries 
that deal with the Bank?
    Ms. Okonjo-Iweala. There are some countries that are 
poorer, you know, where the Bank and the Fund may still have 
that kind of weight. So I am not saying that does not exist.
    What I am saying is the incidence or the ability of these 
institutions to do that, very frankly, in today's world is 
diminishing because the overall aid architecture is changing. 
There are so many foundations, funds, bilaterals, and other 
people who are coming in that the ability of these financial 
institutions to really work in that way with the countries has 
changed. But I want to say that does not mean that the Bank and 
Fund are not important. It is just that they are--and IDA is 
crucial for that reason. I am just saying that they are 
recognizing that it is counterproductive to force a country to 
do something, because the minute you turn your back, they will 
reverse it. So they are working differently to make countries 
understand and believe that this is important for them.
    Mr. Watt. My time has expired, but I would welcome Ms. 
Lazarus' opinion on the same question briefly. I do not want to 
deprive the other members of an opportunity to speak.
    Mr. Green. I am going to ask that the summary be very brief 
because we have other members who have not been heard.
    Ms. Lazarus. Well, I really do not have much to add. It 
would be difficult to speculate, from my position, on the 
impact of this report with governments.
    Mr. Watt. Okay. That is fine.
    I yield back.
    Mr. Green. Mr. Cleaver from Missouri is recognized for 5 
minutes.
    Mr. Cleaver. Thank you, Mr. Chairman.
    The one disappointment--well, there were a number of 
disappointments, but one disappointment that I have to mention 
in the ``Doing Business 2008'' is the absence of the World 
Bank's supporting sustainable and renewable economic 
opportunities for developing nations. It is a little difficult 
for me to believe that a report, ``Doing Business in 2008,'' 
could exempt, leave out, forget one of the most significant 
issues of our time, which is the climate change. And I believe 
that we are on the cusp of a new industrial era as companies 
begin to move toward green products, and so it seems to me in 
sub-Saharan Africa, and particularly where the desert is moving 
about a half a mile southward a year, and where people have 
been subjected to colonialism and neocolonialism and now just a 
number of ``isms,'' that the World Bank is not trying to 
support sustainable and renewable economies, because what is 
going to happen is, you know, 25 years from now they will be 
where China is in starting a new coal-fired plant every week, 
producing 500 tons, each plant 500 tons, of sodium dioxide, 
which is going to push them further and further back 
economically, because by then we are going to have carbon taxes 
or cap and trade or whatever.
    Was there intentionality in leaving that out, or did you 
forget?
    Yes, sir.
    Mr. Miller. The report focused on business regulations, and 
it has a certain set of indicators, and I think the Bank does 
regard those issues as something that is very important.
    For example, their antigas-flaring initiative has been 
something which has been very positive. But the ``Doing 
Business'' report looks at a certain snapshot. It acknowledges 
that there are many other issues which need to be incorporated, 
but you cannot put everything into one report, and I think it 
is important to see this as one contribution of many.
    Mr. Cleaver. Yes, except this is so significant now. I 
mean, 27 nations of the EU have already moved toward revamping 
their entire economy based on climate change, based on the 
greening of the world, and so if we are not going to address 
this issue with Third World nations, and particularly sub-
Saharan Africa, we are pushing them further and further behind.
    Ms.--
    Ms. Okonjo-Iweala. Okonjo-Iweala.
    Mr. Cleaver. I was going to say that.
    Ms. Okonjo-Iweala. I think that the honorable gentleman 
certainly has a very important point.
    The climate change issue is crucial for sub-Saharan African 
countries, and I would like to say that, for this reason, you 
know, maybe the ``Doing Business'' report needs to look at how 
you can encompass that. But there is an arm of the World Bank 
that addresses the sustainable development and climate change 
issues, and believe me, we experience them, you know, in 
Nigeria, you know, in repeatedly trying to interject into the 
projects we are doing a consciousness for the environment. In 
fact, one of the things that--complaints that the Bank has 
encountered, you know, in many cases is, you know, how 
countries--you know, that there is quite a heavy presence on 
the environmental issues, and countries would like to have the 
ability to work better with the Bank to make sure these issues 
are integrated into what they are doing.
    So they are there, but that does not mean that, you know, 
this report cannot also look at that. The only thing is that, 
you know, then if there is a report that looks at regulation, 
you might ask yourself is this the best vehicle, or should they 
sharpen the vehicle that is already existing to take charge of 
these issues? Otherwise this report will get all out of 
proportion.
    Mr. Cleaver. Thank you.
    Mr. Chairman, this is the best this committee has run since 
I have been here.
    Mr. Green. Thank you for your kind comments.
    We will now hear from the gentlelady from Wisconsin for 
approximately 5 minutes as the vote is imminent. I think we 
have time if you have questions. The Chair recognizes you.
    Ms. Moore of Wisconsin. Well, thank you, Mr. Chairman. What 
a privilege.
    Let me just get right to one of the series of questions 
that I had, in the interest of time. I guess I want to be the 
devil's advocate here, because many times, I believe, Mr. 
Bakvis, you have indicated that there is absolutely no research 
backing up the employing workers section. But we have seen it 
played out, at least here in America, that businesses continue 
to strive to pay no pensions, no health care, to jettison the 
minimum wage for workers, to try to provide part-time work so 
they do not have to pay unemployment compensation. We have seen 
no notices before layoffs, dismissals, because their interest 
is in that short-term capital, and while there might be some 
benefits, as you see it as organized labor, worker 
satisfaction, worker safety, the bottom line is that slavery 
worked in terms of providing people long-term wealth. Child 
labor works.
    So, while you have said that they have no research to 
demonstrate that it does not, what strong, empirical data do 
you have that it works? Particularly when people put these 
hedge funds together, and they are in pursuit of short-term 
capital, quite frankly, they want to exploit the workers.
    Mr. Bakvis. Well, I think what is clear is that is not a 
long-term development strategy for any country to exploit 
workers, to prevent them from getting more education and being 
more skillful workers and, therefore, contributing to overall 
growth. The point I made earlier is that this is not a recipe 
for job creation even when you do not take account of the kinds 
of jobs that are being created.
    Ms. Moore of Wisconsin. But it sounds good to say you are 
creating jobs while you are making your big boom money.
    I want to address a question to Dr. Okonjo-Iweala. I cannot 
say your name.
    Yes, ma'am. Ms. Lee.
    Ms. Lee. Can I add something quickly on that subject?
    Ms. Moore of Wisconsin. Yes.
    Ms. Lee. It is an excellent question, and it is the 
difference between an individual company making short-term 
profit and achieving broader social goals. There is no question 
that companies want to have fewer labor market regulations and 
constraints, but the question is whether it is good for 
economic growth and for society and for the long-term picture, 
particularly in a developing country. I would say a couple of 
things.
    One is in terms of the minimum wage. What the research 
shows is that a higher minimum wage leads to lower turnover, 
higher productivity, and more investment in workers. In fact, 
there is an offsetting advantage to companies when there is a 
higher minimum wage. There can be the higher productivity that 
offsets the higher wage.
    It is also the case that if governments do not invest in 
education, health care and infrastructure, they do not have a 
healthy workforce, and they cannot have the productivity that 
they need over the long term.
    So I just want to say that there is a difference between 
the narrow interests of a single company and the social 
interests that the World Bank should be trying to promote.
    Thanks.
    Ms. Moore of Wisconsin. Precisely.
    So that is why I am a little bit perplexed, Dr. Okonjo-
Iweala, about your indicating that conditionality is not the 
rule of the day. It seems to me that this ``Doing Business'' 
report that the World Bank is putting out--I mean, I did not 
know about this report before this hearing. It is very 
distressing to me that they are using the proceeds and the 
resources of the World Bank to recruit people who literally are 
looking for opportunities to exploit people.
    As to conditionality, I am wondering if these heavily 
indebted countries, of which we are now trying to look for ways 
to relieve that debt, are in debt because of the 
conditionalities that we have imposed upon them.
    You can answer that, too, Ms. Lazarus, if you would like 
to.
    Ms. Okonjo-Iweala. Let me start. Thank you very much for 
pointing this out.
    I would say that, first of all, on the report itself, this 
has never been presented to us. When I was in office for 3 
years, as to, ``Here are a set of conditions you have to 
obey,'' no, that has never been the case, and that is the 
truth. The report was presented to us as a guide, you know, for 
us to compare ourselves to other countries to see where we are 
in terms of encouraging an environment in which both our 
domestic--this is not only for foreign investment, but what are 
we doing as a government that would encourage our own domestic 
sector to invest as well as those abroad.
    Then secondly, on the issue of the--
    Mr. Green. I am going to have to ask that you summarize 
very quickly.
    Ms. Okonjo-Iweala. Okay.
    They have actually worked to help reduce debt. My country 
got some backing from them, and we got $10 billion written off, 
and I want to thank you and the U.S. Government for the role 
you played through your presence in the Bank for that.
    Thank you.
    Mr. Green. Thank you.
    The gentlelady, I think, has about 5 minutes before the 
vote, 4 minutes.
    Let me just close with these comments. Dr. King reminded us 
that life is an inescapable network of mutuality tied to a 
single garment of destiny; that what impacts one directly 
impacts all indirectly.
    My suspicion is that, in this global economy, a slight 
modification or a tweaking of this premise may be necessary, 
because what impacts one directly now in some distant place can 
impact workers in this country directly. We are finding that 
capital seems to flow to the place where, to borrow a term that 
I am not exactly fond of, the market is flexible, and with that 
flexibility, we are finding that jobs are flowing along with 
that capital.
    I sincerely hope that the asset test that the World Bank is 
continuing to project will at some point indicate that less is 
not always better, and that workers are human beings; that not 
only are they to be protected within this country but also 
without this country, because, in the final analysis, the 
global economy is looking at a single workforce as opposed to 
multiple workforces in various places on the planet.
    I thank all of the witnesses for your comments. It has been 
very enlightening.
    Without objection, the record will remain open for 30 days 
for members to submit written questions to these witnesses and 
to place their responses in the record.
    The hearing is now adjourned.
    [Whereupon, at 11:51 a.m., the hearing was adjourned.]


                            A P P E N D I X



                            October 3, 2007


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