Liberalisation in Banking Services Does not Have the Stated Effects
Summary of a case study of ABN Amro in Brazil
Myriam Vander Stichele
SOMO (1), December 2001
See also: Niet iedereen wint bij de offensieve inzet van Nederland in de WTO. Resultaten van een case study over ABN Amro in Brazilië Somo, 14 December 2001
The mandate of the Dutch Minister of Trade at the Doha Ministerial Conference of the WTO stated that the strategy for a new agreement on trade in services (GATS) was an offensive one, aiming at a substantial market opening in a broad range of services sectors. The EU had to implement an ambitious strategy when the European Commission (EC) negotiated for its member states, including The Netherlands.
Unbalanced Dutch mandate for GATS
This official Dutch mandate in which some services sectors were particularly targeted clearly reflected the positions of business. The employers’ organization VNO/NCW had earlier stated it was interested in liberalization of the sectors later mentioned in the Dutch mandate: financial services, post, telecommunication, maritime transport and consultancy. At the European level, business has been equally been very successful in shaping the EU mandate on GATS through the European Services Forum. The WTO negotiations on financial services, which were finalized at the end of 1997, were directly influenced by the Financial Leaders Group (some forty CEOs of leading banks and insurance companies) and their lobbyists. EC Trade Commissioner Brittan even phoned the lobbyists from the negotiation room to find out if the negotiated results were satisfactory to them. Remarkably, the same person became the chair of an influential lobby group of the financial services sector after he left the European Commission and is now also Vice- President of investment bank UBS Warburg.
Dutch non-governmental organizations have in vain asked the Dutch government to take account of defensive interests such as equal access to basic services - including for the poor, guarantees for freedom of regulation by public authorities to aim at sustainable and socially responsible services, in the Netherlands and in developing countries.
Regarding financial services, the Dutch Ministry of Economic Affairs and the Ministry Finance only stress the positive effects of liberalization of financial services: market opening leads to more competition resulting in lower prices, more innovation, better service, more employment than when banks are in the hands of (state) monopolists. In this way, there is no difference if the banks are locally or foreign owned. In order to improve their competitiveness, Dutch banks aim at making their operations as efficient as possible and there are no indications that this disadvantages the poorer clients, according to the ministries. For these reasons, a government document states that developing countries must open their financial sector for foreign banks. SOMO's case study has looked in how far these positive effects have materialized in the operations of an internationally operating Dutch bank, ABN Amro, in a developing country, namely Brazil which ABN Amro (2) considers its third "home market". A summary of the case study follows.
Not more efficiency through liberalization
Costs for bank clients have traditionally been high in Brazil and the competition of foreign banks in Brazil has not changed that situation, according to a recent analysis (3). ABN Amro knows it is not more efficient than other banks in Brazil. Due to the policies of the Central Bank of Brazil, all banks can make enormous profit. ABN Amro concedes that it does not intend to lower prices but rather wants to keep the high profit margins. Foreign banks have the reputation to be more secured but clients have to pay higher prices for their services.
More competition leads to bad services for poorer clients
The strong competition among international banks, which has followed the liberalization of financial services, has put high shareholder value as the main business strategy. This means making as much (short term) profit as possible. ABN Amro and other banks are therefore more and more targeting the wealthiest individual and corporate clients in search of the most profitable activities. In the Netherlands, home country of four major international banks, this leads to closing and reorganizing many branches. As a result, bank services are leaving out of poor city areas and remote villages. Through ’market segmentation’ ABN Amro and other banks try to service poorer clients in the cheapest possible way, including through internet (while very poor clients have no computer). Some services that poor clients use have become very expensive for them. More over, it is not possible any more to go inside a branch to get cash below the sum of EUR 450. Small sums of cash can only be obtained from the machine outside. This resulted in many complaints by older people who cannot read well or who feel insecure outside.
In Brazil, ABN Amro services all clients but client segmentation also aims at servicing the poorer clients in the cheapest way. Improvements of services through more automation, internet banking and mobile phone banking are especially beneficial to not so poor clients. A large part of the poor population of Brazil does not use the bank and is not the target group of ABN Amro. The latter tries especially to expand in the richest parts of the country.
Not more jobs
In the period of expansion between 1991 and 2000, ABN Amro was able to enter 22 more countries, up to 73 countries and territories outside the Netherlands. During that period, employment in The Netherlands only rose with 288 employees with large fluctuations (between 1991 and 1996, more than 6000 employees lost their job). However, between 2001 and 2004, again 6750 jobs have to cut in The Netherlands.
Due to mergers and acquisitions, the number of employees of ABN Amro outside The Netherlands has almost doubled between 1991 and 2000. No figures are easily available about how many employees have lost their jobs and how many new people were employed. Figures for Brazil are also not easily available but analysts claim that ABN Amro has sacked quite some employees and new people were employed, amongst others to change from services at the counter to services to richer clients. Trade Unions fear that jobs will be shed or payment and working conditions will be lowered after ABN Amro has taken over some regional state banks.
No globalisation of labour relations
In The Netherlands, the loss of the thousands of ABN Amro jobs in the 1990s and in 2001-2004 has not resulted in forced redundancies. Good labour relations and trade union rights achieved all kind of arrangements to make workers leave. This has however not alleviated the unrest amongst the personnel.
In contrast, reorganization and redundancies outside The Netherlands are handled quite differently. The managers receive shorter periods for implementing the reorganization and if allowed by law, redundancies can been forced upon.
Brazilian trade unions complain that their relation with ABN Amro is not as good as in The Netherlands. The trade union relations and communication with the bank are difficult and little progress is made to improve labour conditions as requested. At the ABN Amro headquarters, the relation with the trade unions in Brazil is considered to be fine. However, the difference of treatment can for instance be seen how RSI (mouse arm) is being treated: in The Netherlands, ABN Amro employees can use a unique RSI prevention center and the banks have signed a covenant with the government to reduce RSI problems in a concrete way. In Brazil, there is little readiness at ABN Amro to recognize RSI problems, often only with the help of trade unions. Once recognized, employees have only sickness leave and a longer job guarantee before being dismissed.
Remuneration and working conditions at ABN Amro in the Netherlands are very satisfactory according to the trade unions, although they complain against the enormous salary increases for the top management of the bank. A special collective labour agreement has been agreed upon which sets the working conditions and salary policy at ABN Amro specifically. In Brazil, some trade union representatives complain that the general collective labour agreement for the bank sector is not being implemented by ABN Amro, especially as it relates to working hours. Wages of ABN Amro employees are average for the bank sector in Brazil but some lower categories of employees are even getting less than average.
To conclude, while ABN Amro globalizes its services and has strategies and financial targets that are set for the company world wide, labour relations are left to the local management and are not as good as at the home country of the bank.
Benefits to women limited
Many employees at ABN Amro are women", around 51% in the Netherlands and more than 40% in Brazil. In The Netherlands, the latest figures of 2000, indicate that women remain the traditional majority in the lowest ranked jobs and a small minority in the top jobs. The same situation is to be found in Brazil where in practice it is difficult for women to become for instance branch manager while ABN Amro has no special policy to tackle gender discrimination. From a gender perspective is important to notice that the banking sector is an important creator of jobs for women but that it does not allow women to easily move up the promotion ladder.
Failures of voluntary corporate responsibility
ABN Amro adheres to the principle that corporate responsibility is to be left to companies themselves and not be regulated by the government. It has published new ‘business principles’ in November 2001 which do not go as far as a voluntary code of conduct, and are very vaguely worded. The ABN Amro business principles do not tackle the issue of the difference in labour relations and working conditions in the different countries where the bank operates, nor does it refer to basic labour rights as agreed upon in ILO conventions. As usual, the implementation of the business principles is not being monitored by an independent body, which makes it difficult to evaluate. Why did trade unions have to lobby for years before ABN Amro stopped financing a Dutch dredger company operating in Burma a country that was internationally being condemned for oppressing its population by the government which used earnings from foreign companies?
Also, it was only after years of NGO pressure that the bank conceded that its (indirect) financing of palm oil plantations in Indonesia had detrimental environmental effects and that it was necessary to set up concrete environmental guidelines for its lending process. This proves that ABN Amro’s subscription to the voluntary Business Charter for Sustainable Development (1992), the launch of its "corporate values" (1997), the membership of the World Business Council for Sustainable Development (2000) and the Dutch organisation on corporate responsibility (Vereniging Ondernemen & Maatschappij), the use of World Bank and OECD guidelines for environmental impact assessments and its own environmental reporting did not prevent the environmental problems in Indonesia.
This lack of effectiveness of voluntary codes or principles designed by business itself and the lack of stated positive effects of liberalization of financial services indicates that there is a need to do the a thorough impact assessment as a basis for the necessary measures at the governmental and international level, inside and outside the WTO, that avoid that globalising and competing financial services have a negative social and environmental impact in the countries they operate.
References
1. The Centre for Research on Multinationals (SOMO) is based in The Netherlands and does research for non-governmental organisations and trade unions on the behaviour of transnational corporations, the trade and investment agreements in which they operate, and the implementation of codes of conduct. For more information about this case study, please contact:
Myriam Vander Stichele
SOMO (Centre for Research on Multinational Corporations)
Keizersgracht 132, 1015 CW Amsterdam
Tel. +31/20-639.12.91;
Fax +31/20-639.13.21.;
e-mail: m.vander.stichele@somo.nl
This case study research was financed by NCDO and Hivos but the contents is the sole responsibility of the author. Input was provided by Observatorio Social in Brazil.
2. ABN Amro bank in Brazil is called ABN Amro Bank/Banco Real
3. "Specialising or Scaling Up" in ‘LatinFinance’, Supplement, September 2001, p. 31.
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