INTRODUCTION
I wish to first of all extend my sincere congratulations to the Director, Board and Staff of the National Insurance Office on the occasion of its 37th anniversary.
I also wish to express my sincere gratitude to the National Insurance Office for the honor bestowed upon me to deliver this evening the keynote address with as topic “the CARICOM Single Market and Economy (CSME) and the Free Movement of Labour Across the Region and its Implications for Social Security“.
The topic is very timely, because it is being held at a time when the Community must finally fulfill its landmark promise made to its people by ensuring that the core elements of our CARICOM Single Market and Economy are in place on 31 December 2005, but preferably before this date.
You will recall that in 1989 in Grand Anse, Grenada, our Heads of Government decided at their Tenth Meeting “to work expeditiously together to deepen the integration process and strengthen the Caribbean Community in all of its dimensions to respond to the challenges and opportunities presented by the changes in the global economy.”(Grand Anse Declaration, page 1).
Our Heads thus decided to establish a Single Market and Economy. In a couple of weeks time, in July we will enter the 15th year of that eminent promise and while some significant progress has been made I believe we must still echo the words of the West Indian Commission, namely that it is “Time for action“.
Notwithstanding the fact that it is still “Time for action” I must at once point out to you that the Governments of Barbados, Jamaica and Trinidad and Tobago have committed themselves to become ready for our CARICOM Single Market and Economy during the course of this year and have taken or are busy with concrete steps to realize this commitment.
THE CARICOM SINGLE MARKET AND ECONOMY
The main motives for the establishment of our CARICOM Single Market and Economy as indicated before were the changes in the global economy.
I believe that it is necessary to discuss these changes briefly before discussing our CARICOM Single Market and Economy in order to provide the appropriate context in which our integration efforts must be viewed.
Globalisation
When speaking about changes in the global economy one term, one phenomenon always comes to the fore, namely globalization.
Raymond Torres defines globalization in a publication of the International Labour Organisation, entitled “Towards a socially sustainable world economy” as :
“a process of rapid economic integration among countries driven by the liberalization of trade, investment and capital flows as well as technological change. Compared with previous episodes of economic history, globalization involves enterprises and workers of nearly all the world’s countries, in the goods as well as in the services sector. Consequently, the majority of the world’s labour force is experiencing the effects of international competition, whereas in the past usually only industrial workers were at the receiving end” (Towards a socially sustainable world economy, page 1).
Thomas Friedman argues in “The lexus and the olive tree” that :
“The globalization system is a bit different. It also has one overarching feature – integration. The world has become an increasingly interwoven place, and today, whether you are a company or country, your threats and opportunities increasingly derive from who you are connected to.” (The lexus and the olive tree, page 8); and
“The driving idea behind globalisation is free-market capitalism – the more you let market forces rule and the more you open your economy to free trade and competition, the more efficient and flourishing your economy will be. Globalisation means the spread of free-market capitalism to virtually every country in the world. Therefore, globalisation also has its own set of economic rules – rules that revolve around opening, deregulation and privatizing your economy, in order to make it more competitive and attractive to foreign investment.” (The lexus and the olive tree, page 9)
Globalisation became the dominant economic phenomenon after the fall of the Wall, when the market economy model “survived” the planned economy model as economic model, even though it has been argued by various scholars that globalization has been in existence for centuries though in other forms.
Globalisation has been and still is greatly facilitated by the continuous developments in information and communication technology (ICT) to the point where it is nowadays considered unstoppable and irreversible.
Notwithstanding this fact I must immediately add that opinions on globalization differ very much and range from the system which will drive us towards prosperity to the system that will increase social inequalities.
It is therefore no wonder that the World Commission on the Social Dimension of Globalisation in their final report indicates that :
“we seek a globalization with a social dimension which sustains human values and enhances the well-being of people, in terms of their freedom, prosperity and security. Globalisation is seen through the eyes of women and men in terms of the opportunity it provides for decent work; for meeting their essential needs for food, water, health, education and shelter and for a liveable environment. Without such a social dimension, many will continue to view globalization as a new version of earlier forms of domination and exploitation” (A fair globalization, page 5)
Strengthening of our Community
All members of our Community are small and vulnerable states. In some cases it might be even better to refer to them as vulnerable micro states.
However our smallness does not only concern landmass, but more importantly the size of the labour force, the consumer population and existing natural resources, while our vulnerability relates to economic and other shocks, natural disasters and the rigid structure of our economies.
Being small, vulnerable states has as major consequence the fact that there are limited opportunities for economic growth, which without doubt will impact on our human and social development.
Integration was and is thus our only option to survive in the current global economic constellation, because it helps to debilitate the effects of our smallness and vulnerability by pooling all our resources, including human resources.
Integration was and is also necessary to give us a stronger voice at the negotiation table and in the end in the global economy by negotiating arrangements, which provide us with special and differential treatment.
Integration was and is also necessary to ensure that we cooperate closely in areas which impact on human and social development, such as education, health and social security to name just a few of these areas.
Our Heads of Government therefore envisaged that the CARICOM Single Market and Economy would assist Member States to achieve their national objectives, such as full employment of all factors of production, improved standards of living and work; sustained economic development and expansion of trade and effective economic relations with other countries, in a regional framework.
Our single market
Our CARICOM Single Market and Economy is essentially about the creation of a single, seamless economic space. Conducting business in this single space should be as easy as conducting business in a single country, whereby the different Member States should be compared by parishes, districts, regions or whatever the appropriate term is.
In our CARICOM Single Market and Economy there must be a shift from relying only on national markets and resources to a greater reliance on regional markets and regional resources.
Furthermore there must be a shift from a concentration on intra-regional trade in goods to a focus on the competitive production of goods and services for both the intra-regional market as well as the extra-regional markets.
Our CARICOM Single Market and Economy will expose producers of goods and services in the Community to increased competition and thus will provide them with an opportunity to adjust their business processes and to take advantage of new investment opportunities, before they are confronted with competitors outside the Community.
The core task in creating the CARICOM Single Market and Economy is the removal of restrictions to enable the free exercise of national treatment rights and effect delivery of Market Access commitments in respect of the operation of the market system, particularly :
– the free movement of goods;
– the free movement of services;
– the free movement of persons;
– the free movement of capital; and
– the right of establishment
Especially critical are the new areas, which seek to transform the common market for goods into a genuine single market and economy, namely free movement of services, persons and capital and the right of establishment, since the free movement of goods have largely achieved.
It is important to note that the CSME will only deliver benefits if the process of internal market liberalization is completed by the removal of the identified restrictions.
FREE MOVEMENT OF LABOUR
The Free Movement of Skills is as indicated before one of the key pillars of the CSME and thus a critical element of the economic and trade agenda as well as the regional labour agenda.
The Free Movement of Skills basically entails the elimination of the requirement for permits for work and residency and is incorporated in the Revised Treaty of Chaguaramas in Article 45, which states :
“Member States commit themselves to the goal of free movement of their nationals within the Community” (Revised Treaty of Chaguaramas, page 30)
Besides in the Revised Treaty, Article II of the Charter of Civil Society for the Caribbean Community, which is dealing with Respect for Fundamental Human Rights and Freedoms, states that these fundamental human rights and freedoms include :
“Freedom of movement within the Caribbean Community, subject to such exceptions and qualifications as may be authorized by national law and which are reasonably justifiable in a free and democratic society” (Charter of Civil Society, page 10)
Notwithstanding these articles the Conference of Heads of Government decided to implement free movement in a phased manner, starting with categories, which were granted the right to seek employment or to engage into gainful employment, either as wage earner or non wage earner.
Free movement in our Community is thus specifically linked to some kind of economic activity.
The approved categories of wage earners are currently : graduates, artistes, musicians, sports persons and media persons. All other wage earners still need a work permit to work in another Member State.
Self-employed service providers and persons, who are establishing commercial presence, are the approved categories of non wage earners. Based on the United Nations Central Product Classification (UNCPC) Code self-employed persons would be in a position to undertake all kinds of economic activities. One can thus safely argue that in the case of self-employed persons total free movement would be achieved by 31 December 2005. In the case of Barbados, Jamaica and Trinidad and Tobago total free movement of the self-employed would be achieved during the course of this year.
Self-employed persons and existing economic enterprises also have the right to move their managerial, supervisory and technical staff.
Article 46 of the Revised Treaty provides for the enlargement of classes of persons, who should be entitled to move and work freely in the Community.
This provision clearly indicates that Member States are aware that total free movement of labour is not yet achieved, but merely a work in progress, which most likely will go beyond 31 December 2005.
The free movement of graduates, artistes, musicians, media workers and sports persons is currently fully operational in all Member States, except Montserrat, St. Kitts and Nevis, Antigua and Barbuda and Barbados.
Other arrangements impacting on the movement into the Community
Besides the free movement arrangements in the CARICOM Single Market and Economy our Community will also experience free movement in the context of the General Agreement on Trade in Services (GATS).
Since this movement will also have implications for social security I will highlight the key GATS-provisions relating to movement of natural persons.
The GATS provides for four modes of supply of a service, namely:
– Mode 1 cross border supply;
– Mode 2 consumption abroad;
– Mode 3 commercial presence;
– Mode 4 presence of natural persons.
Mode 3 and Mode 4 are the most relevant modes of supply of a service when talking about free movement and comparable with the movement of self-employed persons and their key staff in our Single Market, which is no surprise, since our arrangements are all GATS/ World Trade Organisation (WTO)-compliant.
Mode 4 however is meant to be temporary and most WTO members have only made commitments with respect to senior executives and managers, persons representing an advanced level of training and expertise and business visitors.
SOCIAL SECURITY IN THE CARICOM SINGLE MARKET AND ECONOMY
Before addressing the implications of the CARICOM Single Market and Economy and the free movement of labour on social security, I believe that we first must have a basic understanding of social security, furthermore why social security becomes critical in a Single Market and Economy and finally an understanding of what is currently in place in our Community to deal with social security.
I will try to highlight at appropriate moments the experience of the European Union for reasons of comparison, since the integration arrangement of the European Union is more advanced and in some cases has served as a model for Caribbean integration
Definition of Social Security
There is no single, universal definition of social security. This statement already implies that even international law is not providing a clear definition.
The International Labour Organisation defines social security as :
“The protection which society provides for its members – through a series of public measures – against the economic and social distress that otherwise would be caused by the stoppage, or substantial reduction, of earnings resulting from sickness, maternity, employment injury, unemployment, invalidity, old age and death; the provision of medical care; and the provision of subsidies for families with children” (Social Security Principles, page 8)
Danny Pieters defines social security as follows :
“The protection society provides for its members against the threat of economic loss and of specific costs through a process of social solidarity” (A first Guide to Social Security, syllabus Comparative study of the social security systems in Europe)
Usually the International Labour Organisation Convention No. 102, which is listing nine benefits, is used as a guide in order to have a common starting point in discussions.
The listed benefits are :
– medical care;
– sickness benefit;
– maternity benefit;
– unemployment benefit
– family benefit;
– employment injury benefit;
– invalidity benefit;
– old-age benefit;
– survivors’ benefit (Social Security Principles, page36)
Social security in my opinion is best described by looking at its aim.
According to the ILO :
“The aim of social security is to provide assistance, financial or otherwise, in the event of loss or reduction of income” (Social Security Principles, page 35)
Regional integration and social security
At first sight, regional integration and social security do not seem to have much in common and this is certainly the case in integration arrangements, which only focus on the free movement of goods and customs unions.
However when the integration arrangements advances to a higher form with other elements, such as a genuine Single Market and Economy, appropriate arrangements for social security become essential in order to facilitate the movement of labour as a key factor of production.
The experiences of CARICOM and the European Union are similar in this regard, because in both integration arrangements the move to a single market and economy resulted into the inclusion of social security.
Another lesser known reason why social security became critical in the European Union was the need to ensure fair competition by avoiding false competition by having some countries pay social security and others not.
With respect to the manner in which social security is brought within the integration arrangement the approaches of CARICOM and the European Union are vastly different.
This difference is mainly a result of the fact that the European Union has supranational power and furthermore is in a position to make Community Law by issuing binding instruments, namely : regulations, directives, recommendations and decisions.
CARICOM on the other hand still resorts to intergovernmental agreements, because so far Member States were or are unwilling to relinquish some of their sovereignty for the benefit of the Community. These agreements must be signed, ratified and in most cases enacted into domestic legislation.
Let me here also point out quickly that in the Revised Treaty you have a couple of provisions dealing with social security, such as :
Article 46.2.b.(iv), which calls for :
“harmonization and transferability of social security benefits” (Revised Treaty, page 30); and
Article 75.2.(b) dealing with :
“conclusion of reciprocal social security agreements among Member States in order to facilitate the movement of skills” (Revised Treaty, page 52).
Our Heads of Government on 1 March 1996 signed the CARICOM Agreement on Social Security in Georgetown, Guyana. The purpose of the Agreement is to protect the entitlement to benefits of CARICOM Nationals and to give them equality of treatment when they move from one Member State to another.
In particular the Agreement provides for the totalisation of all contributions made to several social security organizations in order to determine benefits and the payment of payments to beneficiaries free of any deductions for administrative or other expenses anywhere in the single space.
The CARICOM Agreement covers the following payments ;
a. invalidity pensions;
b. disablement pensions;
c. old age or retirement pensions;
d. survivors’ pensions;
e. death benefits in the form of pensions (CARICOM Agreement, page 6 of web-edition)
In the European Union Regulation 1408/71 of 14 June 1971 was adopted to coordinate the social security systems in Member States. The coordination is often referred to as the open method of coordination.
With open method of coordination :
“Is meant a systematic method of spreading best practices which aims at achieving greater convergence towards set goals, while respecting national diversity. As the EU Commission clearly outlined in its social policy communications, this method should not only bring clarity regarding the combat of social exclusion, but also monitor the debate on the modernization of social protection across Europe. With this method, the European Union undertook the challenge to mainstream the social protection reforms of the member states. Apart from setting policy objectives and launching concrete benchmarks, the Open Method of Coordination focuses on a periodic monitoring and evaluation of social protection systems” (The social security systems of the Member States of the European Union, page v)
The Regulation applies to the following branches of social security :
(a) sickness and maternity benefits;
(b) invalidity benefits, including those intended for the maintenance or improvement of earning capacity;
(c) old-age benefits;
(d) survivors’ benefits;
(e) benefits in respect of accidents at work and occupational diseases;
(f) death grants;
(g) unemployment benefits;
(h) family benefits (Regulation 1408/71, legal materials syllabus).
A comparison between CARICOM and European Union reveals that in the European Union more areas are covered as the European Union also included sickness and maternity benefits, unemployment benefits and family benefits. Most of these benefits are however currently not offered by the Social Security Organisations in our Region.
Furthermore it is clear that social security is used in a much broader sense in the European Union, because the combat of social exclusion is also considered an important aspect of the Open Method of Coordination.
The CARICOM Agreement on Social Security for some time now has been one of the best, if not the best implemented CARICOM Single Market and Economy related measure, since all Member States with an existing social security organization have fully operationalised the Agreement, resulting in the fact that in most Member States CARICOM Nationals are already enjoying benefits under Agreement.
THE IMPLICATIONS OF THE CSME AND FREE MOVEMENT OF LABOUR FOR SOCIAL SECURITY
CARICOM Agreement on Social Security
When talking about social protection the CARICOM Agreement on Social Security can be considered the major supportive measure in our CARICOM Single Market and Economy with respect to the free movement of labour. The Agreement has implications for social security as social security organizations are obliged to take into account contributions made to another social security organization in our single economic space in order to determine the benefit to which a claimant is entitled.
In Member States where claimants have insufficient contributions to qualify for a pension, social security organizations are also obliged to pay a portion of the full benefit, which a claimant would have received under their national legislation if the contributions requirement was completely satisfied. Without the Agreement in place social security organizations would have paid nothing or in some cases a grant. One can thus safely argue that the Agreement is resulting in costs, which organizations in the past would not have paid.
However a more positive view is that the Agreement is eliminating the negative consequences of migration / free movement at a later stage, by ensuring that persons who are retiring are not burdened by insufficient completed contribution periods to qualify for a pension and thus will suffer a significant drop in income.
Those persons in most cases would have approached the Government for assistance in order to maintain a certain standard of living, so the Agreement in my opinion is relieving the Government of this responsibility, at least partially.
Net migration good for social security
Generally speaking social security organizations should welcome persons, who are moving to their country, because net migration of productive persons is good for social security as it enlarges the contribution base of the respective organizations.
Derek Osborne, who did an assessment on the state of social security in the CARICOM Single Market and Economy points to the fact that :
“for several countries, the reports of regional national censuses conducted in 2000 and 2001 suggest that outward migration exceeded initial country expectations and population growth was lower in the most recent decade than the one before. For many social security schemes, the last few years have brought very little growth in the number of active insured persons, but continued growth in the number of persons receiving pensions” (Osborne Report, page 6).
In fact, the International Labour Organisation in a press release on the occasion of the publication of a report, entitled “Towards a fair deal for migrant workers in the global economy“, which is being discussed at the International Labour Conference in Geneva in the period 1 – 17 June 2004, indicates :
“the economic effects of immigration on receiving countries are mainly beneficial, with the newcomers rejuvenating populations and stimulating growth without inflation” (press release [ILO/04/19], page 1)
The enlargement of the contribution base is and will become even more critical in the immediate period ahead due the following four reasons :
1. In most, if not all Member States, life expectancy rates at birth are well in the seventies and older people are living longer compared to a couple of decades ago. The result is that our population is aging and this trend is irreversible. The expectation worldwide is a steady growth in the proportion of the elderly.
Kotlikoff and Burns indicate the following about the growth of the elderly population in the United States and beyond :
“When it comes to aging, we also point out that the United States is not alone. The entire developed world and large parts of the developing, including China, are in the process of getting much, much older. This won’t be a one-time event. The United States and its very best buddies will not only be getting old; they will be staying old” (The coming generational storm, page xv)
“These remarkable demographic changes are unique in human history. They are also unstoppable. They will transform our world at the personal, national, and international levels. In particular, they will exact a fiscal toll that will shake our economy and those of Japan and Western Europe to their very foundation” (The coming generational storm, page xv).
The infusion of productive persons will ensure that the dependency ratio, which is the ratio of those 65 and older to those 20 to 64, does not become too high.
A high dependency ratio means that you have a very small number of persons in the 20 to 64 cohort who are contributing to social security and thus enabling Organisations to take care of the 65 and older cohort.
To give an example : a high dependency ration can mean that each retired person is supported by 2 active persons.
In order to deal with the future financial challenges some social security organizations have opted to increase the normal pension age and or to increase the contribution rate.
Barbados for example increased the normal pension age from 65 to 67 and the contribution rate from 14.25% to 16.25 %.
2. While the life expectancy of the elderly is increasing, because of AIDS the life expectancy of the young may be decreasing. In most Member States the prevalence rate of HIV/AIDS is 1% with the epidemic being more prevalent among the younger age groups as 73% of the diagnosed cases is between 15 and 44 years. In the Caribbean Region the number of people living with HIV/AIDS is estimated between 350.000 to 500.000. Furthermore approximately 200 persons living with aids die every day of AIDS related conditions.
This means that the HIV/AIDS pandemic from a social security perspective is resulting in a significant reduction of our contribution base as persons, who would have contributed to organisations for a number of years are being slashed away or not able to work or simply not allowed to work.
On top of this, young women between ages 15 and 19 years are 3 to 6 times more vulnerable than young men in the same age group, meaning that reproduction of the population will suffer with severe consequences for our future work force and also the future contribution base of social security organizations.
3. The coverage rate of the self-employed is very low in most Member States, meaning that most self-employed persons do no not contribute to social security, at least for themselves.
Derek Osborne, indicates that :
“The greatest failing of regional social security schemes thus far is their inability to cover the majority of self-employed persons. While coverage rates are estimated at 25% in Barbados and around 15% in The Bahamas and St. Kitts and Nevis, most other schemes receive contributions from fewer than 10% of their self-employed” (Osborne Report, page viii)
The low coverage of self-employed means that a portion of active persons are not contributing to social security now and thus are not supporting Social Security Organisations to take care of the current retired population.
Furthermore these persons might be left without a secure source of income in the future.
4. The informal sector is growing in most Member States. The extent of the growth is not known and difficult to assess as in this sector you will also find persons who are employed in the formal sector.
Social security would be interested in persons who are only making a living in the informal sector, but it will mean that organisations will have to offer other benefits next to long term benefits in order to attract persons working in the informal sector on a voluntary basis. Health care has been cited during successive Meetings of Heads of Social Security as the benefit people would be most interested in, but most organisations do not offer these benefits.
These four reasons make an influx of productive persons necessary in order to enhance the contribution base of social security organizations and to reduce the dependency ratio. In this context one can argue that the free movement of labour and other forms of legal migration can have among other things a very positive impact on social security.
Consequences of competition
Globalisation and trade liberalization will expose our producers of goods and services to fierce competition. Competition is and will also be an inescapable reality in our regional integration arrangements.
As indicated before the CARICOM Single Market and Economy is meant to give regional producers an opportunity to adjust their businesses / operations and to take advantage of new opportunities, before they are confronted with competition from outside the Community.
It has been recognized however that if these adjustments are not made and these opportunities are not ceased dislocations may arise. In the worst form it will mean that uncompetitive businesses will have to close, resulting in the loss of jobs.
Social Security Organisations may thus be called upon to play a temporary “bridging role” with other organizations, such as Labour Exchange Agencies and Training Centers. In this scenario social security organizations may have to pay an unemployment benefit for a definite period, while the recipient is being trained to perform another job in the labour market.
Payment of unemployment benefits should only take place during a transition period under stringent conditions, one being that a person must accept a job, which was sourced by the Labour Exchange Agency.
Unemployment benefits are currently only offered in Barbados, so there is need to have some discussions on this issue in the very near future.
Derek Osborne suggests to :
“introduce a modest unemployment benefit scheme with a separate contribution rate that will provide income protection for workers who are involuntarily laid off. The Barbados experience indicates that such a system, if managed properly, can work well in the Caribbean, as it has both positive effects on the unemployed person as well on the entire economy” (Osborne Report, page xiii).
In Barbados 1.5% is paid for unemployment benefits.
Regional opportunities for investment
One unexpected implication for social security is the opportunity which the CARICOM Single Market and Economy will offer social security organizations with respect to the investment of their funds.
The assessment, which was done by Derek Osborne revealed that ;
“Most social security funds are not optimally invested, mainly due to their large size relative to local economies and the limited investment opportunities that are available. To improve investment efficiency and returns, several schemes have gradually placed small portions of their funds in regional and /or international investments” (Osborne Report, page x).
A fully functioning CARICOM Single Market and Economy might offer more investment opportunities to social security organizations.
In this context I can inform you that Caribbean Export is currently doing an assessment of investment opportunities in the services sector in Member States on behalf of the Secretariat.
CONCLUDING REMARKS
The CARICOM Single Market and Economy and the free movement of labour will not have severe implications for social security in the Region, especially if social security organizations ensure their long term sustainability by implementing reforms in a timely manner.
Due to foresight one important challenge, namely the need to ensure that persons, who have worked in several Member States can still qualify for a pension, have been dealt with effectively by implementing the CARICOM Agreement on Social Security.
However other important challenges remain, such as the extension of social security coverage to self-employed persons, especially given the fact that total free movement for self-employed persons will be a fact later this year in Barbados, Jamaica and Trinidad and Tobago and in December 2005 in all other Member States.
Increasing competition might also put pressure on social security in the CARICOM Single Market and Economy as uncompetitive businesses may close, resulting in loss of jobs and thus contributors and maybe the need to pay unemployment benefits, if Member States opt to introduce an unemployment benefit system.
The CARICOM Single Market and Economy, once fully operational might offer social security organizations various investment possibilities and thus a chance to diversify their investment portfolios.
Final remarks
Malcolm X once said “the future belongs to those who prepare for it”.
The CARICOM Single Market and Economy, the free movement of labour, the CARICOM Agreement on Social Security and the social security systems in our Member States are all in their own specific way meant to prepare us for our future. In these times of global uncertainty and insecurity all are meant to provide us with some kind of security, be it as a Community or as an individual.
Thank you.
