“Goods”?

“Goods”?

 

The Paradoxicality of Globalization

Examine the tags of the clothing on your body right now. Where was each item made? Perhaps you are in a denim jacket with fine print stating “made in Bangladesh.” Maybe a cotton T-shirt from Cambodia. That iPhone never too far away from you is produced in China. Globalization has connected each and every person in the world through free market trade. However, such an interconnection is not necessarily mutually beneficial, as in the case of moving production of wealthier countries’ goods to low-income countries. While globalization has ameliorated the high global rate of extreme poverty, multinational corporations take advantage of the lack of social policy in developing countries in order to make a greater return. Outsourcing often leads to the exploitation of the poor in a global free-trade market because companies are not regulated but left to practice corporate social responsibility on a voluntary basis. The only way to fix the structural issues of outsourcing is through greater multinational regulation and legislation.

Globalization is certainly not a new concept, but the historical origins of globalization are subject to ongoing debate. Specifically discussed in this paper is modern globalization in which technology allows countries to use economies of scale to advance with cheaper production costs. Undoubtedly, globalization was shaped by late-nineteenth-century imperialism, which could perhaps explain the current attraction to manufacturing outsourcing in developing countries. Global free market trade expanded in the twentieth century, and trade-related investment in developing countries became more prevalent. After World War II, an agreement at the Bretton Woods conference laid down the framework for international commerce and created several institutions to oversee global trade as it expanded, such as the World Trade Organization and General Agreement on Tariffs and Trade.1 The WTO and GATT regulate the global market and above all promote international free trade and lack of capital control to, in theory, benefit both importing and exporting parties. Multinational corporations based in the United States and Europe began to expand, creating global trade and supplier relationships. China opened its doors to global trade in the 1970s and began to dominate the global economy through manufacturing. As multinational corporations saw the profitability of cheap labor from the Chinese, they expanded their scope in the 1980s to harness the labor of developing countries such as Cambodia, India, Myanmar, South Korea, and more. Thus, in 1989, the terminology “manufacturing outsourcing” was born and defined as a business strategy.2

Through the lens of international economic statistics, globalization, outsourcing, and free market trade reduce poverty. In theory, wealthier countries investing in labor from developing ones provides economic stimulus for the latter through job creation. Statistically, that theory proves accurate: aggregately, extreme poverty is declining around the world. Between 1981 and 2001, after China opened its doors to global trade, the percentage of people living on less than $1 a day decreased from 79% to 27%. Shares of the world’s GDP increased from 18.6% to 40.5% for Asia from 1950 to 2003.3 Open economies, proponents of globalization, grew at 4.49% per year and closed economies grew at only 0.69%.4 In 2011, Yale Global reported that there are “approximately 820 million people living on less than $1.25 a day. This means that the prime target of the Millennium Development goals . . . was probably achieved around three years ago.”5 The World Bank found that economic growth was responsible for almost all of the significant reductions in poverty after trade liberalization.These observations demonstrate that there is a need for multinational corporations to help countries develop and prosper.

However, while poverty may be reducing, inequality has been on a steady global rise for the past two to three decades. The benefits of economic integration are quite uneven, and certain social groups are left behind and even marginalized in the process of globalization. According to Ha-Joon Chang, author of Bad Samaritans: Rich Nations, Poor Policies and the Threat to the Developing World (2007), the international organizations put in place after the Bretton Woods conference to regulate free trade (such as the World Bank, WTO, and GATT) recommend or impose policies that are supposed to help developing countries, but these policies have not produced results. These international organizations have a strong belief in the market and limited government involvement in international trade, which has created a greater divide in wealth between countries.6 According to Chang, average per capita incomes in the richest nations—the U.S., Canada, Australia, and New Zealand—was $9,268 (international dollars) in 1950 while in the poorest nations—the African nations—it was only $890. By 2003, the richest nations had an average per capita income of $28,039 while the poorest nations were left behind at $1,549. The divide grew from a 13:1 ratio to an 18:1 in a span of just over fifty years.7 But why? What is the cause of rising divide? According to Doug Bandow, “globalization and pro-growth policies do reduce poverty,” but the rise in inequality can be blamed on “poor government and non-democracy in those lagging countries.”8 Poor domestic policies, or lack of social policies entirely, to ensure the well being of citizens in low-income countries allow multinational corporations to drive wages down in hopes of greater profitability in the supply chain. Some newly industrialized countries like the “Asian Tigers” (Hong Kong, Singapore, South Korea, and Taiwan) value the economy over their people and have systematically “gotten the prices wrong” to spur industrial growth.9 Even newly industrialized governments that do have labor laws often overlook them or fail to enforce them, leading to mass impoverishment of certain workers and increased inequality.

The workers negatively affected by the lack of social regulation are typically those in the manufacturing sector of developing countries. In the mid 1960s, 95% of America’s clothes were made domestically and by 2015, 97% were made abroad.10 The reason? The garment industry in wealthier countries, like the United States, is infamous for using low-wage labor in developing countries in order to create a greater gross margin on products. Most corporations in the garment industry enter into an outsourcing agreement with suppliers abroad that is not vertically integrated—meaning they subcontract orders. Suppliers in places like Bangladesh are desperate for work and are willing to negotiate on production prices because of the competitive manufacturing market in newly industrialized economies. The pressure on suppliers abroad is consistent with the lower cost of products in wealthy countries. With the fast fashion industry dominating with stores like H&M and Zara, a consumer in the United States is able to purchase an average t-shirt for as little as $3.00, less than half of the going price-value ten years ago.11 However, with downward pressure in pricing and mass orders, the only margin that is squeezed is that of the worker.12 Workers in manufacturing have to work faster and for less money than ever. Companies producing in Bangladesh and similar locations argue that they are paying the basic living wage for workers abroad, but if that wage is not determined or enforced by the domestic government, how can one trust a profit-hungry entity to determine that number? Workers are at the mercy of the market, for sudden downturns in demand also allow merchandisers to cancel or reduce orders at a moment’s notice, resulting in shorter working hours, layoffs, and lower pay. Since only manufacturing is subcontracted, not any of the “value added” processes like design, workers are stuck on one rung of the ladder, never able to move upward in pay. Furthermore, with lack of enforcement of labor laws in Bangladesh, suppliers cut corners by disregarding safety measures in factories. As a recent result, more than one thousand workers were killed after a building collapsed in Dhaka at Rana Plaza in 2013.13 But the multinational corporations that manufactured there were not blamed, despite the lack of auditing their suppliers. In fact, the year after the building collapse, and several other manufacturing supplier fires, was the most profitable for the fashion industry in history.14

Many other developing countries adjust domestic policy to allow for the Race to the Bottom hypothesis, which posits that in a world unhindered by restrictions on trade and capital flows, investors will pursue the highest rate of return, wherever that may be found.15 Developing countries are desperate to attract multinational corporations, thus social regulation and human rights violations are overlooked. Safety nets, environmental standards, and acceptable labor costs and protections could all raise production costs or risk lower profit margins. Nations that go counter to the RTB hypothesis lose out on global competition. In Cambodia, garment workers took to the streets protesting for a minimum wage of at least $160 per month, up from their original $84.16 This was the first time that Cambodian workers were able to get together to protest the issue because often in developing countries, unions are typically too segmented to make any policy change. However, the police began to open fire on protestors and for two days Cambodia remained a battleground. As a result, five were killed, twenty-three were arrested and forty were injured.17 One of the women involved in the protest stated, “We are not asking for much, we just want a proper salary to make a decent living with dignity.”18 Yet, the government did not negotiate on wages due to the desperation for business from multinational brands. In Cambodia, the government also routinely avoids local enforcement of labor laws, leaving corporations free from responsibilities other than determining the profit for the next quarter. Similarly, policy in South Korea is competitively advantageous for business. South Korea has been labeled “Welfare Laggard” because of the drastic cutbacks in social security and labor market protections following the advancement in open market trade.19 The Supreme Court in South Korea legally expanded the scope of employer’s managerial needs and gave more consideration to employer’s interest than to the concerns of employees, introducing, for example, social insurance policies based solely on employer contributions. While South Korea does have a Labor Standards Act, amendments were made to it in 1998 that made it easier for employers to lay-off employees by eliminating the need for court orders to effect dismissals. Furthermore, corporations found ways around the Labor Standards Act. For example, they could use “honorable retirement” in order to fire employees in factories or hire only non-standard workers. Non-standard workers are those that fall outside of the LSA benefits, income taxation, social protection or entitlement to certain employee benefits due to short job duration, low wages, outworkers without employment contracts, or non-declaration of employees. Summarily, non-standard workers are entirely vulnerable to manipulation or overworking by threat of immediate job loss without the protection from the LSA.20 Preferences for hiring non-standard employees at subcontracting production plants increased during modern globalization because corporations were able to avoid compliance with the LSA and other required collective contracts and company incentives. While only 8.5% of people are the absolute poor in South Korea, the majority of that percentage is made up of non-standard workers.21 The problem is not only the corporations taking advantage of loopholes, but the government not enforcing penalties for employers that neglect their legal obligations. Workers are unable to attempt to stand up for higher wages as in Cambodia because of fragmented labor groups. Ultimately, in the cases of both Cambodia and South Korea, the governments believe that protective policies for their people would interfere with the concept of the “economy first.”22

One can trace multinational corporations’ exploitation and the Race to the Bottom theory through the opening of new trade markets, such as in Myanmar. Opening new markets without stable social policies in place attracts investors and businesses looking for new low-cost labor markets. An abundant supply of low-wage labor exists in Myanmar, but the United States had imposed an import ban in 2003 on products from Myanmar because of the unstable government and violent suppression of pro-democracy demonstrations.23 Many Asian countries, including Myanmar, began their process of industrial development through the establishment of an export-oriented textile industry. During this time, the United States, the European Union, and Japan made up 77.8% of total apparel imports globally.24 Thus, the United States ban on imports hit the economy hard, as many European countries also became reluctant to purchase products from Myanmar due to boycott campaigns.(Asian countries, including Japan, are not generally sensitive to the democratic and human rights issues of apparel-exporting countries, so Myanmar continued to cater to primarily the Japanese.)25 However, the United States lifted the ban on imports from Myanmar in 2012, and now the country has entered into the Race to the Bottom. Myanmar over the past five years has had to expand production capacity to meet increased demands and remain competitive in the market. Average monthly wages in Myanmar were between just $32 and $43 in 2008. Laborers that work twenty-seven days per month with eighty-eight hours overtime will earn around $84, on par with the current Cambodian wages.26 After the trade embargo was lifted, over eight hundred labor strikes were seen across the country in response to the exponential increase in demand and lack of change in wages.27 Myanmar also has a high labor turnover ratio because of lack of regulation associated with the release of employees. In turn, the threat of termination—stops many laborers from protesting for improvement in conditions in the first place. Furthermore, wages in Myanmar are determined principally by market forces and the government does not interfere in markets, change wage levels, or control the exchange rate of the Kyat.28 This makes Myanmar quite desirable for multinational corporations because of the low cost and lack of compliance regulation, and large American companies such as Gap, Inc. have jumped on the profit opportunity.29 While the economy may be on the rise, the wages of the poor working in Myanmar certainly are not.

Corporate Social Responsibility is a now common term across businesses that accounts for the way companies do indeed regulate themselves in the global market. CSR is a voluntary business practice in which companies decide themselves to contribute to better societies and cleaner environments around the world. The basis of CSR is on the Global Compact created by the United Nations. The Global Compact, a value-based platform—not a regulatory instrument, suggests that companies follow basic universal principles like human rights, labor rights, and sustainability.30 However, as stated previously, it is a mere suggestion, not an actual regulation. Furthermore, companies have begun to use the concept of CSR as a public relations campaign. According to Janet Dine (2010), a Professor of International Economic Development law at Queen Mary University:

Corporations have . . . set out to persuade the public that the very raison d’être of commerce has changed, and to co-opt the environmental debate. Companies are no longer insidious faceless corporations interested in profit at any cost, they were now caring corporations concerned about communities, consumers, and children. They were committed to pollution prevention, to people, to the planet. There was only one problem with this strategy—on the whole, they were lying.31

The issue lies in the fact that good governance and “social responsibility” can mean something different to everyone. The United Nations’ Global Compact is far too vague to even determine guidelines, nonetheless influence actual regulation. Companies, instead of putting an end to the exploitation of manufacturing workers in developing countries, foster programs with buzzwords like “worker education” and “sustainability” without actually changing the operations of their businesses. According to Barbara Briggs, the Director for the Institute of Labour Rights, companies will send their code of conduct and explain conditions in subcontracted factories; they will say that they have no forced labor, no child workers, respect for women, fair minimum wages, and more. However, when Briggs proposed the Decent Working Conditions and Fair Competition Act—an act giving the Federal Trade Commission the power to prohibit the import, export, and sale of goods made with sweatshop labor or any substandard conditions both domestically and internationally—companies complained that such an act would be an impediment to fair trade.32 The act was introduced to the United States Congress in 2005 and debated for two years, but never became law because of a lack of congressional and presidential support.33 In sum, multinational corporations want to keep voluntary codes of conduct and it is easy to infer why. Voluntary codes need to be replaced with a test, for which companies cannot study.

For decades, several big brands including Nike have been accused of sourcing products from factories in countries that not only had low-wage labor, but governments that stood against independent unions, were unwilling or unable to enforce labor laws, and were quick to use repressive measures to put social discontent to rest. Nike was also accused of forced overtime, violation of minimum wage laws, lack of workplace health and safety measures, dismissal of employees for trying to unionize and arbitrary abuse in their factories.34 Activists from the anti-sweatshop movements began to target Nike at the beginning of the 2000s because the brand is a leader in the industry and certainly can afford to pay higher wages to workers overseas. However, by targeting Nike with smear campaigns, Nike only increased public relations campaigns to cover up unethical low-cost labor in the supplier process. Nike holds corporate identity very highly and claims to be a socially responsible company that helps the disadvantaged in physical fitness. So, such accusations certainly had an undesirable affect on the brand’s identity. After the accusations, in 2005, Nike was the first company in the fashion industry to publish a complete list of the factories with which they work, including a detailed report revealing conditions and pay in its factories.35 However, with self-reporting of supplier relations through internal auditing, it is difficult to trust the seeming transparency. Furthermore, documenting a list of suppliers is simply not enough to create global effectual and structural change. By spotlighting certain companies for the mistakes of all grievances are concentrated solely on the suspect rather than the entire industry.

Many different movements like the Anti-Sweatshop movement and the Fair Trade movement have tried to illuminate the issues surrounding outsourcing to low-income countries, but none of these movements have resulted in significant change. The Anti-Sweatshop movement worked against subjugation and focused on the rights to autonomy, social regulation, and participation in social life for workers.36 It rallied for the idea that higher productivity indeed comes from healthy members in the community. It worked for higher wages and decreased inequality and poverty in developing nations. The movement is seen as a hybrid by focusing on materialist issues of wealthier nations causing the downward pressure on pricing and the effects on workers in developing countries from such issues.37 But, as stated, it has yet to create effectual change other than educating people on corporations participating in the Race to the Bottom.38 The Fair Trade movement is a social movement whose stated goal is to help producers in developing countries achieve better trading conditions and payment of higher prices to exporters.39 The Fair Trade movement works through a certification process in which products receive a stamp of approval on products with the insurance that a product has been made ethically. While in theory, a certification process would work to ensure that workers in low-income countries are not exploited. However, Fair Trade focuses on adding a small percentage to fair market pricing, and since the market prices are flawed by lack of domestic policy, it is ineffective in creating actual change.40 Fair Trade is unable to address issues like ethical trade, child labor, and child slavery. Fair Trade products are also sold through intermediaries that raise the prices of the goods because the production prices are higher than other options, but in reality only a small fraction of the cost of the good is still going to the producer.41 While the goals of the movement are valid, it is only less-unfair trade rather than a model that eliminates injustice.

The only way to start to tackle the problem in the outsourcing of developing countries that arose from globalization is for the United States to issue regulation that ensures no exploitation has occurred in the manufacturing of products. While this solution seems idealistic, The United States implemented similar legislation regarding the Blood Diamond trade called the Clean Diamond Trade Act.42 Funds derived from the rough sale of diamonds were being used by rebels and state actors to finance military activities, overthrow legitimate governments, subvert peace movements, and commit horrifying atrocities against unarmed civilians. According to the summary of the CDTA, more than six million people were driven from their homes in Sierra Leone.43 At first, president George W. Bush issued two executive orders in 2001 (EO 13194 and EO 13213) effectively banning the importation of rough diamonds from Liberia and Sierra Leone.44 Then, the United States Congress in 2003 enacted the Kimberley Process Certification Scheme as a part of the Clean Diamond Trade Act.45 The Kimberley Process is controlled under a system determined by the president to meet the standards, practices, and procedures of imports and exports. The importing authority of diamonds is the US Bureau of Customs and Border Protection. The CBP ensures that rough diamonds are only imported from countries that participate in the Kimberley process. Companies must be transmitted on a CBP form and must arrive in a sealed container from the exporter. Importers must fax a copy of the certification to the CBP and file an annual report that includes total import and export activity. The export authority is the Census Bureau, and regulation is similar for exporting just with added internal transaction reporting. All electronic export information must be filed to the Census Bureau and the exporter is responsible for preparing appropriate Customs documents. This Kimberley process ensures that the diamonds are clean from the ongoing conflicts, thus establishing a trade system which takes into consideration human rights. A similar process to the Kimberley process could be enacted to fix the issues surrounding multinational corporations taking advantage of workers in developing countries. This process is a much more effective way to regulate products made with sweatshop labor than the Decent Working Conditions and Fair Competition Act because of the strict multi-layer enforcement guidelines rather than leaving enforcement up to the Federal Trade Commission. Hopefully, a stricter enforcement plan based on the Kimberley Process would help a similar act gain traction in the legislative and executive branches. For, an executive order, like the two issued to expel Blood Diamond trade, would be rather influential in passing an act through congress. Nevertheless, reward does not come without risk. Intervening in free trade means that the United States would have to hope that the European Union implements similar policy as they did in the embargo on Myanmar, or else the United States will not stay competitive economically. However, in the case of Blood Diamonds, fifty-four participants representing eighty-one countries joined the Kimberley Process Certification Scheme.46 If the United States, a global leader, enacted regulation with participating countries, justice would come for the low-income laborers in developing countries: finally creating effectual and structural change in poverty and inequality.

 

  1. Chang, Ha-Joon,“Bad Samaritans: How Rich Country ‘Help’ Hurts The Developing World: Interview with Ha-Joon Chang” Multinational Monitor. September/October 2008. Retrieved April 19, 2017. http://yeoldeconsciousnessshoppe.com/art259.html
  2. Bandow, Doug. “Globalization and Poverty: The Engine of Economic Growth and  Development.” Institute for Faith, Work & Economics. 2013. https://tifwe.org/wp-content/uploads/2013/10/Globalization-and-Poverty-Bandow.pdf
  3. Joyce, Joseph P. 2008. “Globalization and Inequality Among Nations.”  2008. Accessed April 19, 2017.  https://www.wellesley.edu/sites/default/files/assets/departments/economics/files/joyce-inequal2.pdf
  4. Bardhan, Pranab. “Does Globalization Help or Hurt the World’s Poor?: Overview Globalization and Poverty.” Scientific American.  March 24, 2006. Accessed April 03, 2017. https://www.scientificamerican.com/article/does-globalization-help-o-2006-04/
  5. Molloy, Baylee. “Does Globalization Harm the Poor?” Institute for Faith, Work & Economics. March 31, 2016. https://tifwe.org/does-globalization-harm-the-poor/
  6. Chang,“Bad Samaritans: How Rich Country ‘Help’ Hurts The Developing World: Interview with Ha-Joon Chang”.
  7. Ibid.
  8. Bandow, “Globalization and Poverty”
  9. Ibid.
  10. Morgan, Andrew, director. The True Cost. 2015. Digital download from http://truecostmovie.com/
  11. Ibid.
  12. Ibid.
  13. Ibid.
  14. Ibid.
  15. Rudra, Nita. “Globalization and the Protective Welfare State: Case Study of South Korea,” in Globalization and the Race to the Bottom in Developing Countries: Who Really Gets Hurt, 152-179. New York: Cambridge University Press, 2008.
  16. Morgan, The True Cost.
  17. Ibid.
  18. Ibid.
  19. Rudra, “Globalization and the Protective Welfare State.”
  20. Ibid.
  21. Ibid.
  22. Ibid.
  23. Kudo, Toshihiro “Myanmar: Promised Growth with Restored Market Access?” in The Garment Industry in Low-Income Countries: An Entry Point of Industrialization, edited by Takahiro Fukunishi and Tatsufumi Yamagata, 177-212. Basingstoke, Hampshire: Palgrave Macmillan, 2014.
  24. Ibid.
  25. Ibid.
  26. Ibid.
  27. Ibid.
  28. Ibid.
  29. Howland, Daphne. “Gap Inc. Reveals Problems With Working Conditions At Myanmar Factories.” Retail Dive. August 29, 2014. Accessed September 26, 2017. http://www.retaildive.com/news/gap-inc-reveals-problems-with-working-conditions-at-myanmar-factories/303524/
  30. The United Nations. “United Nations Millennium Development Goals.” Accessed April 19, 2017. http://www.un.org/millenniumgoals/poverty.shtml.
  31. Dine, Janet. (2010). “Corporate social responsibility” in Companies, International Trade, and Human Rights, 222 – 249. Cambridge: Cambridge University Press.
  32. Decent Working Conditions and Fair Competition Act. S. 367, 110th Congress. 2007.
  33. The True Cost, dir. Andrew Morgan.
  34. May, Steven k, George Cheney, and Juliet Roper, eds. The Debate over Corporate Social Responsibility. New York: Oxford University Press, 2007.
  35. Ibid.
  36. Ibid.
  37. Ibid.
  38. Ibid.
  39. Haight, Colleen. (2011, July). “The Problem with Fair Trade Coffee,” Stanford Social Innovation Review, Summer 2011. https://ssir.org/articles/entry/the_problem_with_fair_trade_coffee
  40. Ibid.
  41. Ibid.
  42. U.S. Department of State, “Clean Diamond Trade Act.” April 25, 2003. Accessed April 19, 2017. https://www.state.gov/e/eb/diamonds/lnks/77438.htm
  43. Ibid.
  44. Ibid.
  45. Ibid.
  46. Ibid.
 
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