“Globalization has made labor and working conditions considerably worse”.
In this blog, we are going to critically discuss and evaluate to what extent and how Globalization has affected the working conditions for employees in all sorts of organizations. Although many people firmly believe that Globalization has made life considerably worse for several people, we argue that working practice has actually been improved since the world became more internationalized.
There are several definitions of Globalization, and it is covered extensively in academic literature. “Globalization is a process in which the world appears to be converging economically, politically and culturally. Aided by the development of communication and information technology, national borders are now becoming irrelevant. Many sources are being used, including labor on a global scale like never before” (Needle, 2010).
It is without question that multinational corporations around the world have, over the last few decades, moved their production and manufacturing to 3rd world countries. As domestic and international competition intensify, large organizations have also used these locations to outsource what their production and manufacturing in order to reduce their cost base. The main areas of research the world that we focus on in which labor conditions have been in question include India, China and South Asia. However the South American countries and Mexico have also been used a lot more recently for such activities. Despite the concerns from activist groups such as the International Labour Organization and the World Trade Organization, we actually believe that Globalization has improved labor conditions has had a net positive effect on labour.
The reason why this myth about Globalization exists is because there is a general accepted standard of what working conditions should and should not be. NGO’s and many charities such as Unicef are constantly trying to ‘help’ the situation. We realize, and acknowledge, the marked inequality between working conditions around the world. For example, a bin man in London could earn between $600 and $700 a week for a normal routine. In contrast, a bin man in Jakarta, who works in a considerably tougher environment, earns a maximum of $22 a week (BBC, 2012).
Globalization and labour conditions
Decreases in Manufacturing
The argument which proposes that globalization is negative often highlights the Manufacturing phenomenon which has swept through manufacturing industries in Developed Countries. In the 1950’s 34% of all employees in the United States worked in manufacturing jobs, but by 2002 this number had drastically declined to only 13% (Hagenbaugh, 2002). This decrease is attributed to the outsourcing of manufacturing jobs to countries with lower wages and labor costs - typically, the East. The number of jobs in production in developed countries has declined in many areas including the production of textiles, apparel and steal (Hagenbaugh, 2002).
A good example of where this has had a large impact on labor is the American Auto Business. American car dealers, such as Ford and GM are struggling to compete with foreign companies such as Toyota, who’s lean production and Just-in-time management gives them competitive advantage. In 2007 GM only employed 80,000 US workers compared to the 450,000 employees 25 years earlier. The American car companies are burdened with the payment of additional benefits to current and retired employees such as healthcare and pensions. Therefore, many companies are forced to cut back on the number of employees. (Schifferes 2007)
As the number of manufacturing jobs decrease, many countries rely more on service jobs instead. The number of US employees working in the service field has increased between 1950 and 2002 from 59% to 80% (Schifferes 2007). These service industries provide a less stable economy because they do not provide tangible wealth for the country.
Weakened Unions
Globalization has attributed to the weakening of unions in developed countries. As jobs are being outsourced many employers either cannot afford to, or choose not to meet union demands. Those companies who do not outsource jobs are often forced to pay their employees at a lower rate in order to keep up with the competition forcing unions to lower their demands. Those companies who do outsource positions are receiving their labor at low cost and therefore no longer need to comply with the unions. They have been provided with an alternative option. Therefore, unions are finding it difficult to promise their members high wages and benefits. Without these guarantees there is very little incentive for workers to join unions. A union’s power is directly correlated to its membership. As membership decreases, so does their influence. (Scruggs, Lange 2003)
Income Inequality
Perhaps the most argued drawback of globalisation is that it increases income inequality. Comprehensive IMF research from 2007 looks at factors behind the inequality gap in both developed and developing economies and the main results they present are as follows:
Class Polarization in Advanced Economies
Due to the outsourcing of jobs in manufacturing and similar fields, jobs have shifted from unskilled labor to roles requiring a higher skill level (Burtless 2007). A majority of a country’s work force falls into the lower and middle classes whose jobs have decreased in numbers. The remaining jobs require more education and experience, such as medicine, education, research and technology (Burtless, 2007).
Do to this fact, there has been increased polarization between the lower and upper classes of developed countries. Between 1979 and 2004 the market income of Americans in the 95th percentile increased by 51% while those in the 20th percentile only increased 4% (Burtless 2007).
When referring to the Gini Coefficient (a statistic measuring economic inequality where 0 represents all people having equal incomes and 1 meaning all income is received by 1 person) this polarization has occurred in several developed countries. This shows that fewer people hold the majority of a countries wealth.
Exploitation
Critics of globalisation claim that free trade agreements and trade internationalisation easily give rise to sweatshops in developing countries where unions and regulations are weak. Surveys have found that in some countries it is common for institutions – which act as suppliers to MNCs – to withhold workers pay (China Labour Bulletin, 2007). A 2004 documentary of Nokia’s investigations of supplier labour conditions in China showed, for example, that the supplier would manipulate payroll records to make it look like employees were paid a just salary. In fact, when compulsory deductions for rent and food as well as overtime hours were accounted for, employees were actually paid less than minimum wage (A Decent Factory, 2004).
In the last decade, however, the Chinese government took an active role in improving working conditions and CSR standards to become a more attractive and competitive partner to global brands and socially aware corporations (Zhou, 2006 and Gugler and Shi, 2009). As will be discussed later, working conditions and wages have increased dramatically in China by some 27%, reflecting the governments efforts to curtail these violations (Tsui, 2012). According to a KPMG report (2011), the minimum wage levels in China are now four times greater than in other South and South East Asian countries, making firms move their production to countries such as Bangladesh, India, Indonesia and Vietnam. Critics of globalisation view this as evidence of the exploitative nature of outsourcing – where low cost is the only condition for production decisions.
The Other side of Labour’s Globalization
The Role of the Media
While all the aforementioned concerns indeed highlight the shortcomings and detrimental effects of Globalization on Labour, it also overstates its effects and belies the vast benefits which it has brought. Indeed, the media is constantly feeding us with stories of child abuse and poor labour conditions big brands such as Nike, Walmart and Apple (Businessweek, 2006). This link contains more details: Sky TV - Nike Sweatshops and the Sydney Olympics
Our own over-stating of these small and relatively unrepresentative events comprises what Hainmueller and Hiscox (2006) describe as an attitude and education based reaction to globalization; i.e. that we are subtly brought to our perceptions of globalization by virtue of our formal and informal education. Their research found out that attitudes to Globalization were strongly influenced the economic ideas which the population was exposed to. In this vein, we have always been fed with the notion that globalization has been detrimental to the global labour force, and our own innate tendency - as emotional beings - to sentimentally place greater emphasis on the rare unfortunate event than the greater positive outcome, has constituted immensely to this myth of globalization being detrimental to labour worldwide.
Our own over-stating of these small and relatively unrepresentative events comprises what Hainmueller and Hiscox (2006) describe as an attitude and education based reaction to globalization; i.e. that we are subtly brought to our perceptions of globalization by virtue of our formal and informal education. Their research found out that attitudes to Globalization were strongly influenced the economic ideas which the population was exposed to. In this vein, we have always been fed with the notion that globalization has been detrimental to the global labour force, and our own innate tendency - as emotional beings - to sentimentally place greater emphasis on the rare unfortunate event than the greater positive outcome, has constituted immensely to this myth of globalization being detrimental to labour worldwide.
Wage Push
Secondly, there is evidence to show that globalization actually increases wages in Developing country by an interesting mechanism which Tomohara an Takii (2010) describe in their research as wage spillovers. This occurs when the higher wages offered by foreign establishments in local markets puts pressure on local establishments to raise their wage level to stay competitive. Indonesian local establishments, for example, saw increased wages in the presence of FDI because a spillover channel resulted from a reference wage effect, which operated through bargaining and employee enlightenment that they could earn more elsewhere (Tomohara an Takii, 2010). Indonesia is but an example of one country where this has happened, there are a multitude of research papers out there which find exactly the same wage spill effect in local markets (Sayek and Saglam, 2011). Furthermore, studies by the UNCTAD’s World Investment Report has found that in the last 25 years Multi-National Enterprises - the drivers of globalization - the number of workers employed in foreign markets by MNE’s has increased by 300% (UNCTAD, 2007). This effectively means that employment in domestic markets has been rising enormously over the years, providing people with incomes and livelihoods all over the world. Currently, 3% of the world’s populace are employed by MNEs (UNCTAD, 2007).
Lastly, while it is argued that Globalization has resulted in the export of jobs abroad, it cannot be argued that it has, on average, created a lot more jobs even though they are displaced across the globe. Financial giants like Citi employ over 200,000 employees in over 100 countries, Barclays employs 170,000 in 82, and there are several others which have given people in Hong Kong, Nigeria, Ghana and other parts of the world a means to a livelihood.
Income Inequality
Indeed research by Hanson (2007) in Mexico showed that labour income in regions exposed to international business increased by 10 per cent compared to regions less exposed to this FDI. This work concludes that the effect of increased labour income resulted in a 7 per cent reduction of poverty rates in high-exposure regions relative to that of low-exposure regions (Hanson, 2007). These findings can be interpreted in two ways; one person will say that this is evidence for globalizations income inequality- people in one area are now better off than others. The other will notice that this has given some people a livelihood and has given .Thus, the Mexican expereince is a good example of globalisation’s positive effect on income inequality.
In addition to this, we present another challenge to the popular myth that globalisation has destroyed the manufacturing industry. The changing nature of the global economy is inevitable, and this should not be taken as a negative sign of globalization but rather as a recognition of the changing nature of business. The technology revolution which completely changed the agricultural industry and drastically reduced the number of people needed to tend to farms is taken as a sign of the changing times. Why is the change from a manifacturing based economy to a service based economy, in that case, so frowned upon?
Blog Extension
So what trend in quality in labour standards can we expect in the developing countries? Will the development definitely, even if slowly, increase the working conditions or is there a legitimate risk of deterioration in some industries and economies? To analyse this we would like to draw parallels to the study of unconditional wealth into the economies of the African continent.
Unconditioned wealth – where the money invested do not come attached with regulations, requirements or milestones for humanitarian development – has been criticized by international organizations since China’s presence as an investor in Africa has grown stronger. The difference between foreign aid given by China and that given by western nations is this conditionality of funds.
The western side of the debate over Chinas involvement in Africa mainly criticizes the following two points: 1) Chinas’ political agenda and its domestic, regional and international implications for political and economic support to dictators and corrupt governments and 2) the fear that Chinas unconditioned investments will undermine the development that the World Bank and IMF has supported through their aid schemes. Keenan (2008) researched the implications of unconditioned wealth on human rights and social development in African nations subject to Chinas unconditioned investments. In this context the standard of local labour conditions is a major impact on social development. His study concluded that unconditioned wealth raises the probability of negative humanitarian development in an economy. Further he highlights that this risk is particularly due to non-existing governance of the use of funds (and not related to the origin the origin of the funds themselves).
Literature on the resource curse has shown that it actually hurts democracy in developing countries when these countries have a rich supply of natural resources and revenue inflow from them (Mehlum et al 2006). The reason is that the only source of wealth in these countries generally is political power. Hence, people in power are incentivized to hold on to that power, spearing no expenses to do so (Keenan 2008).
As this brief overview of literature suggests, the effects of international trade and globalization is dependent on the strength and quality of domestic institutions as well as capital allocations between the general public. In this view, some developing nations may not be in an optimal state to receive the investments in their unconditioned form – especially not if increased state resources only strengthens the power of the state vis-à-vis its own citizens.
Just as worker rights and protection evolved with industrialization in the now developed world, globalization (which brings a wave of industrialization to the poorer countries) can spark the development of unions and worker protection and rights through e.g. a growing concern for health and safety standards. The research in unconditioned wealth reminds us though, that unconditionality of investment risks deteriorating this development if the institutional environment is not responsible and strong enough to protect the interests of the weak.
All in all, regulators need to be aware of the effect of unconditioned investments, either local regulator put in place regulation and institution to protect employers or legislation in developed countries to make sure MNCs protect the workers where they go.
Consumer responsibility
It is indeed a worthwhile suggestion that consumers
should use their pockets to judge a companies corporate responsibility, yet
every person comes across people who are completely unconcerned with any issue
which does not directly affect them, or anyone on their horizon. While it would
be ideal for customers’ buying habits to completely reward or punish a firm’s
ethical behavior, the sad truth is that still, a number of consumers do not. Research
has shown that consumers should be willing to tolerate some unethical
behavior as long as they feel their investments and outcomes remain
proportionately equal according to Equity theory
(Alexander, 2002). Perhaps more consumers feel that the unethical behaviors of
companies are proportionate to their own Investments.
The Myth of the Service Sector
The degradation of workers and their
welfare in the Service Sector is but one side of the coin. The global economic
shift from engineering and manufacturing came as a direct result of
technological advancements which allowed companies to automate AND outsource
production cheaply and efficiently. As a result of this, a number of people
would have been laid off, or lost out of jobs either way, as this change swept
through global economies and completely shifted the labour force (Murhpy, 2011).
What coincidentally happen at the tail-end of, or while this was happening, was
the rise of the service sector, fuelled by growing customer interactions form
companies and service centred businesses and conglomerates such as grocery
stores and computer retail giants (Murphy. 2011). Without the rise of the
service sector it is hard to fathom where the over-flow of human capital would
have gone. In fact, some can argue that the service sector has provided an area
which citizens of economies could move to, and so while the change has brought
about less benefits and rarified fixed pension schemes amidst contract-bound
and short-term working patterns, this does not change the fact that it has
provided a catching net to shelter economies as manufacturing employment
crumbled. Indeed, by 2009, Walmart employed more than the 20 largest American
manufacturing firms combined (Murphy, 2011).
Conclusion
There is a wealth of evidence which shows how beneficial globalization has been for labour and working conditions. As stated, The increasing commitment of governments to protect its citizens from exploitation and abuse by profit hungry MNCs, as China has done recently by increasing is minimum wage (Tsui, 2012) means that even those instances of exploitation is on the decline.
Referrences
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- Citigroup, 2012. About Citi. Available at: http://www.citigroup.com/citi/corporate/history/index.htm. Accessed: 31 January 2012.
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- Documentary: A Decent Factory by Thomas Balmès, Making Movies and Margot Films, 2004.
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