The Unsilent Majority: Labor Power in the IMF Loan Conditionality

• In Event: Lightning Round: Research Design

Abstract

In the context of the economic crisis in the 1990s, the International Monetary Fund (IMF) lent to South Korea and Argentina respectively, but the IMF set less intrusive labor market conditions for South Korea while it set more intrusive labor market conditions for Argentina. Why do the two borrowing countries face different conditionality of IMF loans in the same context? To explain these differences, this study focuses on the extent of labor's bargaining power vis-à-vis the government from the perspective of labor movements in the borrowing countries. Specifically, this study argues that the bargaining environment, organizational power, and structural power of labor in the borrower countries jointly determine the extent of labor's bargaining power relative to the government. Labor's bargaining environment is measured by the degree of democratization; labor's organizational power is measured by the size of domestic labor unions; and labor's structural power is measured by the characteristics of domestic industrial structure, with labor in technology-intensive industries enjoying greater structural power than labor in labor-intensive industries. The comparative study finds that although both South Korea and Argentina had to seek help from the IMF during the economic crisis because they were in economic distress, South Korea eventually borrowed under the modified IMF labor market loan terms because of its higher degree of democratization, greater union power, and stronger labor structural power, while Argentina borrowed under the modified IMF labor market loan terms because of its lower degree of democratization, limited union power, and weaker labor structural power. Argentina can only borrow under the radical IMF labor market loan terms. In addition to the case studies of South Korea and Argentina, this paper empirically tests the core arguments based on a dataset of IMF borrowing documents from 1980 to 2000. This paper finds that the greater the bargaining power of labor relative to the government, the more lenient the IMF lending conditions.

Author

• Dancheng Li