Tuesday, 31 January 2012










“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)


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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). 
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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.
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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. 




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





  • Documentary: A Decent Factory by Thomas Balmès, Making Movies and Margot Films, 2004.
  • Gugler, P. and Shi, J. Y. J. (2009) Corporate Social Responsibility for Developing Country Multinational Corporations: Lost War in Pertaining Global Competitiveness? Journal of Business Ethics 87:3–24
  • Hainmueller , J., and Hiscox, M. 2006. Learning to Love Globalization: Education and Individual Attitudes Toward International Trade. Accessed: 28 January 2012.
  • Hanson, G. H. (2007) “Globalization, Labor Income, and Poverty in Mexico,” in Globalization and Poverty, ed. by Ann Harrison (Chicago: University of Chicago Press), pp. 417–56.
    IMF (2007) IMF World Economic Outlook: Globalisation and Inequality, pp. 31-56.


  • Murphy, J. 2011. 
    • Causes of the Global Financial Crisis. BS2537 International Management. Cardiff University. 
  • Needle, 2010. Business in Context. 
  • Nicita, A. (2004) “Who Benefited from Trade Liberalization in Mexico? Measuring the Effects on Household Welfare,” World Bank Policy Research Working Paper No. 3265 (Washington: World Bank).
  • Tsui, E., 2012. China pushes minimum wage rises [Online]. Available at:http://www.ft.com/intl/cms/s/0/847b0990-36a2-11e1-9ca3-00144feabdc0.html#axzz1l6RseszR. [Accessed: 30 January 2012] 
  • UNCTAD, 2007. World Investment Report. Geneva. 
  • Zhou, W.D. (2006) ‘‘Will CSR work in China?’’ Business for Social Responsibility. Summer 2006.

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13 comments:

  1. Justforthefun400407845 February 2012 at 23:00

    I agree with your point that there is a degree of exploitation in the sweatshops that supply the MMC in these low wage countries, however comparably to other factories in the area those of the MNC's have a much better standard of working conditions. It was found in a recent study that workers in factories that supply the MNC's can earn up to three times as much as they would in a local factory.
    Yes comparably to western factories the conditions are very poor however comparably to what these workers are used to the conditions are actually rather good.

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  2. Anonymous6 February 2012 at 05:14

    This comment has been removed by the author.

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  3. 400405876 February 2012 at 11:16

    Hello team,

    The fact that globalization has permit company to lower working condition is probably non deniable. At some point, companies are competing on a world market which is doubly focused on money. The consumer is focused on the price is going to pay and the shareholder on the money he is going to receive at the end of the year. In this context it makes sense that company accept to outsource an important part of their production in foreign countries, where working conditions are really lower and the wages almost insulting.

    We can of course point some unacceptable decisions that have been made, like making children work for Nike for instance. But, according to me, the real debate is how our multicultural world society and how individuals can influence the market in order to reward companies who are implementing better working conditions.

    Globalization has to been coupled with international regulators which are taking care of human rights and which control the decency of working conditions. Such organizations exist, in military, financial or even environmental fields. It is totally possible to create a world institution taking care of working conditions and enforcing some basic laws.

    Secondly, as consumers, we have to interrogate ourselves about what we really want to consume. It is important to prefer brands that are known for their concern about working conditions and who are committing themselves in a human respect process. By applying these simple consumer behaviors, consumers can influence the world market and reward companies with good working conditions.

    With these simple rules, it permits to companies to keep making money without applying bad working conditions.

    FX
    ID : 40040587

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  4. 40036513 - 0076 February 2012 at 12:54

    I agree with the above comment that as consumers we should be the ones who make an active approach in ensuring that we do not buy products from companies that take advantage of its employees. Although this information can be difficult for us to obtain, so there must be numerous preventative measures in order to make this less attractive to companies eg. government regulation, NGO's and media publication.

    Although 'justforfun' makes a good point regarding the pay rate of those working at a MNC versus a local company. And conditions of these MNC's are usually way better then those of local companies.

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  5. 40041209electrifying6 February 2012 at 17:26

    I agree with the comments above that people should be wise in their purchasing. And although they might not know the hidden details of all factories and how they operate (if they are within the rules and regulations) people should become aware and make the right choice. But to me, I still see people lining up at the Nike store to purchase their new running shoes or sportswear. Even though people are aware of how Nike exploits their works, we still proceed to purchase their product. But why is this? I believe it is because what we read in the news papers and see on TV really doesn’t come alive to people unless they see it for themselves or actually live it. It is convenient for people to shop at big MNC because they know the product that they are buying which is trusted and used by the masses.
    On the other hand, there are companies like Toms which sells shoes. For every pair of shoes that the consumer buys, Toms will donate a pair to child in a third world nation. A One to One program. But the shoes are made in China and Argentina. Are they made by the people that are receiving the shoes as well? People feel a satisfaction when they purchase the shoes. They feel they are ‘giving back’ to society. Is this a convenience for the consumer? Toms says that they operate in fair and safe environments for all their employees. This makes the consumer aware that by purchasing their product that workers are not exploited with their wages and working condition. Globalization has created this company and made it who it is today.

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  6. 51836190 blablabla6 February 2012 at 20:11

    I agree that the working practice and the labor conditions have been improved because of the globalization. As all of us know, if we want to be the top organizations of the world, we need to globalize our own company. How to make ourselves' image be more possitive? We need to focus on the problem of the labor conditions. Improving the labor conditions can help the organization be more responsible to their workers.

    Moreover, I think the inequality between working conditions and income around the world that is because there is different consumer price in different cities. No doubting, the different technology level is the main reason of the inequality gap. That's why it is very difficult to try to make it balanced.

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  7. Anonymous7 February 2012 at 06:08

    Thank you for this article, that was well written and very clear. I agree with you when you say that, Globalization has led to improvement for labor and working conditions, mainly in terms of wages in developing countries such as China. Nonetheless, I assume that this is not sufficient at all and I would rather think that globally, Globalization has not led to the improvements that could have been brought. This could have been possible if we had paid more attention on human beings while only focusing on gaining profits at all costs.

    I would also like to bring something to your attention. That is the degradation of working condition of workers in developed countries in the service field (the most important one). These workers suffer from stress, caused by the competitive pressure that Globalization implies. It is a new form of “bad” working conditions and this should also be taken into account. Moreover, a new phenomenon is also to be known. It is about companies from low-wages countries that are hired in developed countries. They come to work there with their own workers and unfortunately according to their own regulations. Thus, in Poland, a Chinese company was in charge of the construction of a highway and the workers were suffering from inacceptable working conditions (no day free, 12 hours of work per day, wages promised not before the end of the construction …). It is absolutely incredible to know that such a thing is even possible in a European country, where the labor and working conditions are supposed to be “acceptable” and this makes me stay pessimist about the improvements broughtby Globalization.

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  8. 40041467anxious7 February 2012 at 07:54

    Maybe globalization has improved labor and working conditions but I strongly thing that it also deteriorates them in many cases. It is sure that globalization led to better labour laws and better security measures but I still thing that all this is just official. In my opinion, all these rules are not really respected.
    We can take the example of Nike. This powerful and famous brand exploited its chinese employees. They were forced to work more than 12 hours per day in miserable conditions. Moreover Nike used to exploit children !
    We also can take the FTAA example : The FTAA is the fruit of the globalization. However, it is very well-known that this economic community is of benefit to a minority. The labour conditions are strongly deteriorating and FTAA protects the MNEs interest at the expense of the citizen rights.

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  9. 2012 4221 Elena Lombardo7 February 2012 at 09:32

    Hello i-zone! :)
    To begin with I must say I have not only found your blog interesting but also feel that I have learned something new. I would like to discuss what stated by you in the 'exploitation' section. It is clear that not all multinational companies, or even the majority of them, exploit and take advantage of their workers.

    What isn't clear to me is why, some of the companies which are world widely known to behave in such manners, whether in the past or at present, still seem to be operating successfully and are not majorly affected by the repercussions of such behaviours.

    Taking into account that one of the drivers of globalisation is the ability, as never before, to access large amounts of information and communicate from all over the globe instantly, what is the excuse? What I mean to say is, surely many of the consumers who purchase from such companies and therefore contribute to not only the survival of the business but also to the facilitation of such acts are fully aware of the consequences on other human beings. Finally, yes, institutions such as international regulators do have a major impact on the ethical aspect of multinationals operations, but, the consumers do tend to have a bigger influence.

    What needs to happen in order to ensure exploitation is completely exterminated, is a change in the mentality of consumers, multinationals and to a certain extent workers. This along with the introduction and enforcement of necessary regulations from local governments and international regulators can finally ensure a positive change.

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  10. 2012 4221 Elena Lombardo7 February 2012 at 09:34

    In addition to the above comment... My student ID: 40037988

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  11. 40036943Wanderer7 February 2012 at 10:15

    Hello, i-Zone

    First of all, I would like to say that your blog is very instructive and full of relevant examples which facilitate the comprehension of the topic.

    I think that the way you constructed your explanations and arguments is very good because you gave arguments for both sides of the problem.

    I totally agree that the way people perceive the gap between labour conditions in different countries is sometimes exaggerated by the mass media and institutions.

    In my point of view, in the first part where you talk about the exploitation of developing countries, you should mention a new concept that has appeared recently when the process of globalization became more rapid. Some researchers talk about neocolonialism which is a neologism that appeared in late 60s and which defines the way developed countries use or sometimes abuse developing one and former colonies.

    I think the second part of the blog fully describes that the vision of big multinationals is sometimes erroneous. Capitalism is not always a bad thing if it is correctly applied.

    Anyway, good job!

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  12. 51204174superbbb7 February 2012 at 11:46

    In my opinion, it is difficult to say that how much salary is under paid in different countries. As the living standard is different in countries, it is hard to use the currency to express. For example, a meal in Mc Donald in Hong Kong cost HKD$ 25 , in England cost HKD$ 80 . Can we said the meal in Mc Donald in England is expensive according to the living standard in England?

    MNCs always mention to social responsibility. However, they always do something that is violating it. People always said they will stop buying the products which is made by sweat factory, but actually not many people can do it. It is true that MNCs afraid losing customer loyalty, they afraid that their customers turn to their competitors. For me, I think that if the customer really stops buying products which are from the sweat factory, this operation will scare MNCs and therefore stop cooperating with sweat factory.

    We want to save the children or poor from the sweat factory. If we keep buying the product which is made by them, we just keep hurting them. Should we start to stop buying them?? Or can we just make a program that we will not buy the product from sweat factory on a particular day and let the MNCs know how is the profit decline if customers stop buying from them ?

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  13. 40037976 International Blogger7 February 2012 at 19:11

    Thanks a lot guys, some very interesting points here and an all round interesting read. For me it seems that this whole debate is one of relativity. It appears to us in the west that working conditions in the east have gotten worse through globalization and western firms outsourcing production. In reality however it is only due to globalization and media attention that we have been able to see working conditions in developing countries, and we immediately (understandably so) compare them to working conditions in the west, which automatically makes the conditions in the east look bad. Before western MNC'S started outsourcing to places like Asia we in the west had little reason to see or hear about working conditions abroad. however since globalization began and firms started moving east we suddenly started to see these sweatshops and large scale factories where the employees work long hours are treated badly, and receive very little renumeration. We didn't however see the conditions before the western firms moved in. Relative to what they were used to, workers in developing countries have actually had their working conditions greatly improved. Those working for western countries are often paid a lot more than those who don't (albeit still very little in comparison to the west) and the general standard of living for those in developing countries has generally increased.

    As consumers we shouldn't make comparisons between conditions in the east and west but should compare the labour conditions in the east before and after western firms moved in and set up shop.

    ReplyDelete

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