by Anup Shah
This Page Last Updated Sunday, May 28, 2006
Structural Adjustment programs of the IMF and World Bank have led to a race to the bottom, where standards of living are continuously reduced. Labor, as one example of this, gets cheaper and cheaper which benefits the multinational companies, but not the workers themselves. Various international trade agreements that large corporations are able to strongly lobby favorable conditions in, are often designed in part to make resources (including work forces) cheaper.
As some corporations and industries become increasingly globalized, they effect more and more people. Take for example the situation in Massachusetts — they were trying to put laws in place to prevent or restrict corporations doing business with regimes that violate certain rights of people in some way — they were pressured by a coalition of 600 major corporations in that State, saying that this is unconstitutional. The judges agreed.
Famous brands like Nike, , and many others all do this. In some respect it is a cycle of competition driving each other to such measures to keep up and to maximize profits. Nike, for example use cheap labor in South East Asia, where they can get away from the tighter enforcement and regulations of USA and Europe. In fact, they have been exposed for using child labor, as well.
|Photo from here|
Harsh labor conditions in the toy industry for people in third world countries such as China have also led to much criticism, showing “hidden costs” to popular toys such as those based on Harry Potter, Star Wars, Pokemon, Barbie, etc.
It is interesting to note that while globalization has led to the opening up of borders for increased trade the same is not true for people. Yet, people all over the world seem be losing their national identity due to the current model of globalization. The introduction of “flexibility”, while good for businesses, can hurt workers, as the International Labor Organization (ILO) has shown.
The famous McLibel action against McDonald’s came about because of various abuses of its power and threats of legal action for any criticism about them. While individuals have tried to present some facts about various aspects of the way McDonald’s do business, some media companies have been prevented them doing so. These media corporations themselves are worried about publishing and broadcasting certain information that could lead to threats of legal action and other forms of corporate punishment even when the claims are fair and justified. (See the McLibel site for lots more information about McDonald’s and other multinational corporations abusing their power.)
Human Rights Watch have criticized the labor situation in the United States. In general, the USA provides a better standard of living, opportunities etc. than most countries. However, that does not mean that it is free from problems as well. The following quote summarizes it quite well:
Without diminishing the seriousness of the obstacles and violations confronted by workers in the United States, a balanced perspective must be maintained. U.S. workers generally do not confront gross human rights violations where death squads assassinate trade union organizers or collective bargaining and strikes are outlawed. But the absence of systematic government repression does not mean that workers in the United States have effective exercise of the right to freedom of association. On the contrary, workers' freedom of association is under sustained attack in the United States, and the government is often failing its responsibility under international human rights standards to deter such attacks and protect workers' rights.
— Unfair Adfvantage; Workers' Freedom of Association in the United States under International Human Rights Standards, Human Rights Watch, August 2000
When the going gets tough, the tough get going—elsewhere.
A meeting in Oslo suggests that the current model of the Markets and Globalization may not be the way to go. This is because when it comes to a country trying to impose some environmental or societal considerations and legislation on multinational corporations, they just move to a country where the rules and regulations aren't as strict.
One reason that this situation arises is because of the flawed structural adjustment programs which force developing nations to continuously cut back in order to export more at a cheaper rate and race to the bottom.
Take the following as examples (by no means exhaustive!):
- Coca Cola in Zambia.They have closed their operations there due to disagreements about tax exemptions.
- Another example is how the tobacco industry is now moving on to Asia as sales in USA and Europe decline and the US settlements do nothing to prevent this. India is one example where there is tremendous increase in smoking, and smoking related illnesses and death. (This link also provides some information and statistics about this issue.)
- Nike, as mentioned above, as well as many other retail companies, use cheap labor in South East Asia, where they can get away from the tighter enforcement and regulations of USA and Europe.
- Phillips-Van-Huesen have been criticized for closing a factory in Guatemala because the workers tried to form a union to protect their basic rights. A report by three human rights organizations revealed the details. It reveals how the company closed a factory in order to destroy the union and profit from lower wages by sweatshop contractors in Guatemala. You can see the full report at the Americas.org web site linked to from here.
- In April 2002, as Alternet.org reports, Levi Strauss & Company, “a brand practically synonymous with the U.S.A., decided to shutter virtually all domestic production and shift its manufacturing overseas.” Earlier, in 1992, the Washington Post had exposed Levi’s exploitation of Chinese prison labor to make jeans and throughout the 90s, various apparel companies had been accused of various forms of exploitation and sweatshop labor in poorer countries. Levis tried to introduce a code of standards, but it seems that Levis too has been feeling the competition pressure and in order to maximize profits and reduce costs, now also feels compelled to join the herd, so to speak, and go for cheaper labor costs.
- Even baby foods have
an impact on poorer countries. Multinational companies, such as Nestle,
that create breast milk substitutes promote their use very heavily in
many developing countries, as a replacement for breast feeding
altogether. This is shown to have negative health effects on babies.
UNICEF in their 1995 State of the World’s Children report describe how
millions of children needlessly died due to not being exclusively
breast-fed for the first six months. UNICEF, the World Health
Organisation and others came up with a code of conduct to ensure
responsible advertising and promotion of substitute products. 118
governments accepted. Only the United States didn't. However, John
Madeley described the reaction that Nestle and others had, as a result:
Nestle and other babyfoods companies have put pressure on governments not to introduce strong codes. Gabon, Pakistan, South Africa, Sri Lanka, Swaziland, Uganda, Uruguay and Zimbabwe came under pressure in 1997 and 1998. “In Zimbabwe, Nestle reportedly threatened to disinvest from the country if strong measures were introduced”, alleged Baby Milk Action.— John Madeley, Big Business Poor Peoples; The Impact of Transnational Corporations on the World’s Poor, (Zed Books, 1999) p.63
in Germany, United States etc, the government is at the whim of the
larger more powerful corporations as this quote provides an example of:
In Germany, where revenue from corporate taxes has fallen by 50 per cent over the past 20 years, despite a rise in corporate profits of 90 per cent, a group of companies, including Deutsche Bank, BMW, Daimler-Benz and RWE, the German energy and industrial group, thwarted in 1999 Finance Minister Oskar Lafontaine’s attempt to raise the tax burden on German firms, threatening to move investment or factories to other countries if government policy did not suit them. “It’s a question of at least 14,000 jobs,” threatened Dieter Schweer, a spokesman for RWE. “If the investment position is no longer attractive, we will examine every possibility of switching our investments abroad.” Daimler-Benz proposed relocating to the US; other companies threatened to stop buying government bonds and investing in the German economy.
In view of the power these corporations wield their threats were taken seriously. Within a few months Germany was planning corporate tax cuts which would reduce tax on German companies below US rates. As one of German Chancellor Gerhard Schroder’s senior advisers in Washington commented at the time, “Deutsche Bank and industrial giants like Mercedes are too strong for the elected government in Berlin.”— Noreena Hertz, Why we must stay silent no longer, The Guardian/Observer, April 8, 2001
And it is difficult for whichever political party may be in power, to try and make a change, due to this very threat of moving on. Hence, whether it is industrialized countries, or developing countries, a convergence to similar policies is apparent. (And, hence, for example, criticism that UK’s “New” Labor of Tony Blair being just the same as the “Old Tories” of Margaret Thatcher, or the similarities between Al Gore and George Bush policies with the only real difference being how to carry them out!) John Bunzl of the The Simultaneous Policy Organization, or Simpol, highlights this well:
In exploiting countries in this way [threatening to move elsewhere if regulations and standards impact their “competitive” advantage], TNCs [transnational corporations] can obtain both free government subsidies at tax payers' expense and can, either directly or through the auspices of the World Trade Organisation, deter or prevent governments from imposing stricter employment conditions or environmental regulations this securing ever-higher profits for their shareholders. They can also draw trade unions in to playing their game which unions willingly do, if somewhat uneasily, in order to safeguard their members' interest. This adds a false but compelling air of legitimacy to the case put by the corporations. With governments fearing a loss of votes, unions fearing a loss of membership and employees fearing for their continued employment it all amounts to a neat trick that governments of whatever party can ill afford to question for fear of the corporation concerned moving production elsewhere. Their willingness to acquiesce in this game is understandable, for with other nations only too ready to welcome any corporation ready to set up a new factory, not to play would be self-defeating and would lay governments open to the charge of not acting in the “national interest”. (Emphasis added).
Once in power, therefore, politicians of whatever party effectively have no choice but to remain confined within the policy parameters dictated by global markets and competition. Now subject to pseudo-democracy, the simple conclusion we must reach is that it no longer matters much for which party we vote. This predicament and resulting voter ambivalence consequently presents our political parties with a distinct problem: how to make themselves and their policies different from those of other parties when in fact the markets allow no such differentiation. How can they maintain to the electorate the illusion that they have the power to improve society, or preserve what is best in society, when the markets preclude such “value judgements”? In a vain and desparate attempt, they are forced to employ increasingly elaborate rhetorical tricks and stunts commonly known as “spin”. Hence the rise to prominence of Spin Doctors. For centre-left governments, attempting to reconcile their traditional social democratic values with free-market realities is resulting in the most pathetic exercises in rhetorical hair-splitting in an attempt to distract traditional left-of-centre supporters from the reality of having to submit to the liberal dictates of world markets. (Emphasis added).
— The Simultaneous Policy; An Insider’s Guide to Saving Humanity and the Planet, John M. Bunzl(New European Publications, 1999), pp. 19 - 21
Problems of paying fair wages
The Seattle WTO Ministerial Conference in 1999, most remembered for the enormous protest, raised another interesting perspective.
Seattle saw President Clinton and others suggest that the WTO include core labor rights and sanctions and so forth if these were violated. At first glance, this seemed like a remarkably enlightened suggestion, especially for all those activists who have been campaigning on these things for years. However, a question of why the US would want to do such a thing is natural, given that past records on economics and trade do not suggest that there are many humanitarian concerns!
In fact, many in the developing countries saw this as reeking of protectionism and that it would be too costly for the poorer nations to be able to afford such dramatic changes given the poverty and dependency they are in. It would also make it look as though the poor countries are the culprits and not hold any accountability to the foreign multinationals who demand these conditions before “investing” in that nation. As we see in the structural adjustment section on this site, the conditions are such that capital can pick up and go elsewhere if there are such conditions.
While in the mainstream media’s eyes the developing countries were looked at negatively for their “incomprehensible” reaction, a number of commentators in developed and developing countries did raise better perspectives, and a couple are quoted here as an example:
What about labor rights and support for U.S. laws banning imports of goods made by child labor or slave labor? Are such laws really protectionism in disguise?
Such laws, as well as provisions about labor and environmental standards in WTO treaties given how the WTO operates, can become new vehicles for protectionism and imperial manipulation. Suppose only violations of labor or environmental standards are recognized grounds for trade sanctions under new WTO rules. Effectively, only third world countries would be subject to complaints. Worse, third world countries would have waived their rights to retaliation when subjected to protectionist measures disguised as protections of labor or environmental standards. It is important that first world labor unions and environmental organizations recognize that our third world counterparts have good reason to worry that such provisions can easily become the new rationale for protectionism at their expense and for punishing regimes resistant to U.S. imperial policies. The AFL-CIO was oblivious to this legitimate concern going into Seattle and angered third world allies in the anti-globalization coalition as a result. While they did not abandon their call for labor standards in trade treaties, fortunately the AFL-CIO rethought the issue and passed some important resolutions reaching out to third world workers at its Executive Council Meeting February 16-17, 2000 in New Orleans.
Of course it would be a good thing if labor rights were made more secure and labor standards were improved anywhere in the world. The issue, however, is whether progressives in the U.S. should pressure the U.S. government to pass and enforce laws against imports from offending countries or to insist on such provisions in WTO treaties. I believe there are more effective and less dangerous ways to achieve this goal and to protect American workers from competition with third world workers who are even more exploited.
Many third world unions and grassroots organizations appreciate help from first world progressives in their campaigns for labor rights and standards. They would like us to help publicize abuses—particularly when our multinational corporations are the perpetrators. They like any financial or organizational aid we can provide—with no strings attached. Sometimes they like us to organize consumer boycotts—when they ask for them. Occasionally, when their struggle is at a crucial stage, third world movements for human, political, and labor rights ask us to pressure our governments and/or international organizations to take up economic sanctions, as was the case in the struggle against apartheid in South Africa and is now the case in the struggle for democracy in Burma. But there is a difference between responding to requests for international solidarity and promoting measures many of our third world allies oppose.
Moreover, precisely because third world workers are terribly exploited, their employers will pass on much of the cost of improvements in labor standards achieved through international trade treaties to their employees in the form of lower wages. Since the primary concern of the AFL-CIO is to arrest the “race to the bottom” effect of trade liberalization, they can more effectively protect their interests by supporting programs that improve the bargaining power of third world workers more than international labor standards do. For example, campaigns supporting land reform and cessation of U.S. military aid to totalitarian regimes are far more likely to reduce the “race to the bottom” effect of international trade. The crucial question is not whether the initiative for standards or sanctions comes from capitalist politicians or from the U.S. human rights/labor/left communities. The crucial question is whether the initiative comes as a request from those we want to help in third world countries. If so, we should be as responsive as possible.
— Robin Hahnel, Imperialism, Human Rights, and Protectionism; A question and answer session on globalization, ZNet, February 2001
[A]ttempts to enforce labour standards through trade sanctions are likely to cause economic harm to most exporting developing countries, at least in the short to medium term, while doing little or nothing to improve their labour standards. Indeed, under wholly plausible circumstances, this approach could be seriously counterproductive and reduce standards overall. What is more, any cut-back in developing country exports due to sanctions will not provide protection to labour and industry in the advanced countries for long (if that were the objective). This is because the most severe competition for advanced countries comes from the small number of newly industrializing countries (NICs) whose productivity growth rate is much faster than that of advanced countries.
[W]hat cannot be gained regarding labour standards through multilateral channels such as the WTO, where consensus is required, is now being pursued though bilateral and regional agreements … The current initiatives of advanced countries intended to make core labour standards in effect compulsory by threatening sanctions are regarded by developing countries as being protectionist. They question why a country like the US, which has not ratified many of the core ILO conventions and whose own degree of unionization is barely above the average for developing countries, should push so hard for using trade measures as a weapon to enforce labour standards including the right to unionize.
— Ajit Singh and Ann Zammit, The global labor standards controversy: critical issues for developing countries, South Centre, October 2000
In an Economist article, Globalisation and its critics, September 27 2001, the following is offered in discussion of the issue of quest for profits, regulation, fair wages, etc:
For example, suppose that in the remorseless search for profit, multinationals pay sweatshop wages to their workers in developing countries. Regulation forcing them to pay higher wages is demanded. The biggest western firms concede there might be merit in the idea. But justice and efficiency require a level playing-field. The NGOs, the reformed multinationals and enlightened rich-country governments propose tough rules on third-world factory wages, backed up by trade barriers to keep out imports from countries that do not comply. Shoppers in the West pay more—but willingly, because they know it is in a good cause. The NGOs declare another victory. The companies, having shafted [British slang for something like “betrayed”] their third-world competition and protected their domestic markets, count their bigger profits (higher wage costs notwithstanding). And the third-world workers displaced from locally owned factories explain to their children why the West’s new deal for the victims of capitalism requires them to starve.
Well, in short, NO! Yet, that is what the Economist and possibly extreme versions of the “liberalism” ideology seem to hint (although it may be politically incorrect to actually ever say it explicitly).
So how can this seemingly be right and seemingly be wrong? Well, it is the range of discourse within which a point is made that affects how you view this. That is, the assumptions, etc affect perspectives:
- If we talk about these wages within the confines of the current implementation of the globalization system, this is perhaps how it has to be.
- However, let’s just take a tiny step outside and just ask some simple questions such as: why do these corporations have to go outside their own region? why should the poor produce sneakers or other products mostly for export? What good is that going to do them to earn so little money? What good is that money going to do when there is not much else to buy? And so on. We start hitting a major difference in perspective that is at the heart of this.
- The poor countries ideally have to build their own industries, with their own internal markets etc.
that, they will have their own distribution networks. Right now, they
are a source of cheap resources (such as all those cash crops, the
export-oriented economies—or mostly resource export-oriented, etc). With
poorer nations selling resources and commodities elsewhere such as to
wealthy nations, while buying from them the finished products made from
those resources and commodities means the poor pay more than what they
got! If products can be easily produced within the same region, it leads
to better growth in those regions due to multiplying and circulation of
wealth. It is worth quoting J.W Smith, again, on what was mentioned on
this site’s structural adjustment page:
[I]f a society spends one hundred dollars to manufacture a product within its borders, the money that is used to pay for materials, labor and, other costs moves through the economy as each recipient spends it. Due to this multiplier effect, a hundred dollars worth of primary production can add several hundred dollars to the Gross National Product (GNP) of that country. If money is spent in another country, circulation of that money is within the exporting country. This is the reason an industrialized product-exporting/commodity-importing country is wealthy and an undeveloped product-importing/commodity-exporting country is poor. (Emphasis Added)
Developed countries grow rich by selling capital-intensive (thus cheap) products for a high price and buying labor-intensive (thus expensive) products for a low price. This imbalance of trade expands the gap between rich and poor. The wealthy sell products to be consumed, not tools to produce. This maintains the monopolization of the tools of production, and assures a continued market for the product. [Such control of tools of production is a strategy of a mercantilist process. That control often requires military might.]— J.W. Smith, The World’s Wasted Wealth 2, (Institute for Economic Democracy, 1994), pp. 127, 139.
- A multiplier effect of their money would be created as it circulates around their economy, not around someone else’s (i.e. the TNCs, and other countries)
- Wealth in the poor country would be created more rapidly.
- Much of the production and distribution we now see are wasteful of resources, capital and labor in this way because they are largely owned by foreign investors, or influenced heavily by foreign actors. Poorer countries are dependent on export-oriented economies, and much of the production flows to the wealthier regions. (And the effort that goes into maintaining these disparities and keeping real competition from the poor countries at bay is also wasteful.)
- Addressing this could eliminate much in terms of environmental degradation from distribution (although perhaps be offset by new local (national or regional) industries, which must be countered with alternative/sustainable/less wasteful use of resources, etc.)
- Free—but somewhat managed—trade between like nations, within regions etc would be beneficial to all involved. “Free” trade in its current form between unequal nations is itself unequal and continues inequality as a result.
- Furthermore, the freeing up of labor in wealthy countries through elimination of wasted distribution and wasted capital, combined with efficient job-destroying technologies that we have today, means there would be more unemployment—but that should be used to society’s advantage: we should share remaining productive jobs—that would reduce the workweek for all. This is detailed much more in this web site’s section behind consumption and consumerism.
Some might fear these suggestions, thinking they are communist or something, but they are not. These are all capitalist theories. There is nothing anti-capitalist about this. Instead, it is addressing a key issue of enhancing rights (economic rights) to all. Of course, this is not saying that there should be no international trade whatsoever, but that at least for the development of the current third world, the international setting should be something along the lines of the first world assisting by trading tools that help create industry (what some call tools of production) in those countries. Adam Smith, Henry George and others have all pointed to aspects of this. Of course, politics has meant that some of these theories have been distorted from original intent, or there may even be problems within the original theories. J.W. Smith for example, highlights well that philosophically much of this is possible:
Elimination of poverty is simple:
The impoverishment of the developing world is understandable once one learns how “plunder by trade” locks the world into violence and war.
Eliminating poverty is not philosophically complicated; Eliminate the monopolization of land, technology, and finance capital and equalize pay for equally productive work, both within internal economies and between trading nations. Once all nations and all people have access to technology and their labor is paid equally for equally productive work, the buying power of labor in different nations, and within nations, will equalize. Eliminating those monopolies will instantly distribute a share of the wealth to all members of society even as economic efficiency increases and produces more wealth. This is a more cooperative and democratic capitalism that will assure all rights for all people.
— J.W. Smith, Institute for Economic Democracy
(For more about the waste aspect, also see the latter parts of this site’s section on behind consumption and consumerism, especially the page on waste.)
So, one might naturally ask, if it is this “simple” why haven’t the poor done this? There is in some respects, a simple answer but one that demands a lot of explanation! The simple answer to this can be found in in things like politics, greed, dominance-politics, etc. For example, international economic institutions like the World Bank and IMF, with the influence of economically and politically powerful nations, have been able to push through policies, which are known to be destructive (as even admitted by former Chief Economist of the World Bank and Nobel prize winner. (See this web site’s section on Structural Adjustment Policies or SAPs, for more including links to article from Joseph Stiglitz (that former Chief Economist) and others on how SAPs creates poverty and destroys any real chance of developing one’s own nation.)
In fact, instead, things like SAPs open up poor countries economy for “Foreign Direct Investment”, for “constructive engagement” etc. But these are often “constructive” for the multinationals, not always for the host country, because there is “investment” to create sweatshops, “constructive engagement” to extract resources, and so on. There is little “constructive investment” in helping these countries build their own industries. So, such investments might look like they create jobs in the poor countries, but compared to the real potential of what the poor countries could achieve, this is very little, and much potential for poverty alleviation instead is lost. And while some mainstream commentators may not like to talk about it, the effects of colonialism etc are still felt—the same countries are still poor; their resources are still plundered away (instead of through force it is now largely through unequal trade). (See also this site’s section on corporations and human rights for more on this issue of constructive engagement.)
Furthermore, the above argument from the Economist lends well to corporations who do not actually wish to engage in competition that will threaten their current success:
- Because people everywhere are pretty much equally productive, then factors like access to industry, technology, education etc can enhance that productivity.
- Structural Adjustment is almost an assault on such things, and the poor are not only poorly paid for the work they already do, but are denied technology, industry, education, health etc, to build their own industries and economies.
- Furthermore, you get companies closing off in the first world and establishing in the third world, where they can say they are being “constructive” because they bring technology, know-how etc. However, this is a con; it is not to really and effectively help the poor build their own industries, their own buying power, and their own wealth. Instead, it is a way for companies to reduce costs but with social effects on all sides—the workers of the wealthy country lose out, while workers of the poor get exploited. Because on both sides then ordinary people lose out, and the poor cannot build their own industries etc, as a result, the threat of real competition leads to what J.W. Smith describes aptly as capital destroying capital.
Our merchants and master-manufacturers complain much of the bad effects of high wages in raising the price, and thereby lessening the sale of their good both at home and abroad. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people.
— Adam Smith, The Wealth of Nations, Book I, (Everyman’s Library, Sixth Printing, 1991), pp. 87-88
The Economist article doesn’t really consider political aspects in this, and instead uses only some aspects of these capitalist theories, which, contrary to what seems to be popular belief, are not magical or natural forces without alternatives! Regardless of whether or not the theories themselves are sound, or not, or partially, (which is a huge topic unto itself!), they are heavily manipulated by political interests as has always happened throughout history. Hence, while in theory there may be many good points, in reality politics (power play) leads to supporting only those aspects of those theories that fit one’s “interests” and so rhetoric and reality are far apart.
(See also, for example, this link, to an interview with Noam Chomsky who discusses labor issues with regards to NAFTA.)