For the workers in the current stage of globalisation of production, the danger of a race to the bottom seems real. On the other hand, given the potential benefits of globalised production, one could argue (and indeed hope) that that does not have to be the only consequence. The prevailing gloomy scenario is mainly due to a misplaced emphasis on a static and narrow interpretation of competitiveness in terms of financial costs of per unit of production. And the adoption of a slightly longer term and broader perspective could perhaps lead to a different situation.
Why is a static view of competitiveness inadequate even from the point of view of profitability and competitiveness? The simple reason is that competitive edge based on low cost of unskilled labour does not last indefinitely. Once surplus labour is exhausted, and labour market tightens up, an economy will be required to adopt other means of maintaining competitiveness. Even while surplus labour exists and it is possible to keep production lines operational without raising real wages, there is often a cost in terms of productivity and efficiency of workers. Likewise, unsafe and poor work environments also may have negative consequences for productivity. While happy workers are likely to be more productive, safe and healthy places of work can be more conducive to improvement in productivity.
Apart from economic aspects of costs and competitiveness, an important aspect of today's global market is perception about the conditions in which goods are produced. Consumers are becoming increasingly aware of and sensitive to such conditions, and buying intermediaries are facing growing pressures arising from ethical considerations. In such an environment, a single-minded pursuit of cost efficiency is likely to be a short-sighted strategy. And that is illustrated by the global outcry caused by successive accidents in the ready-made garment industry of Bangladesh. It is a measure of global concern about the conditions characterising the global value chain that major retailers who source their imports from factories in Bangladesh have initiated remedial plans and are providing financial support. Although those initiatives have their limitations (only half the factories are being covered by the inspection, and conditions in other factories may be worse), they nevertheless indicate that sweatshop conditions are no longer acceptable in work places that form part of the global value chain.
Cambodia's experience provides an illustration of the ability of a country to maintain its export market even by keeping wage rate and conditions of work at acceptable levels. Development of the economy of that war-torn country started in the early 1990s, and the growth of export-oriented industries, especially ready-made garments, started even later. But right from the beginning, the country was keen to earn a reputation in export markets by maintaining a minimum standard of labour. As the country was honouring rights at work and was maintaining acceptable conditions of work, it was indeed able to earn a reputation in export markets and did get some advantage. During the quota regime, the country benefited directly through that system. It was also possible to sustain that success after the withdrawal of the quota system.
A key factor in Cambodia's success in simultaneously ensuring acceptable standards of labour and maintaining export markets was an agreement with the USA in 1999 under which the country agreed to adhere to the rights of workers and the USA agreed to increase the annual quota of imports from the country. Interestingly, Cambodia has been doing quite well in the US market even after the quota system in garment imports was abolished. This experience shows that low wages and compromise with working conditions are not essential for maintaining competitiveness in the export markets. Of course, there is still a long way to go for Cambodian factories as well. And examples like that of Cambodia are not common.
HOW TO PREVENT THE RACE TO THE BOTTOM? The danger of a race to the bottom remains because it is not easy to see the benefits of the high road to growth, and short-term profit motive usually leads one to the easy path that apparently looks lucrative. What then is the way out? A combination of measures would be needed. But before going to that, it would perhaps be useful to say a few words about the hierarchy of improvements needed in the world of work, although singling out a few areas should not imply that others are not (or less) important. But the areas that are mentioned below are aspects that must not be compromised under any circumstances.
The first area of non-compromise is safety in places of work. The worst situation one can think of is where security of life is threatened, and that must top the list of unacceptable aspects of work environment. Accidents like the disaster at Rana Plaza in Bangladesh should provide the wake-up call (if any was needed), and necessary measures must be adopted to prevent any such accidents in future irrespective of the level of development of a country, the type of industry and the type of contract under which a worker is working. Security of life must top the agenda for bringing about improvements in the world of work.
The second area where improvement needs to be made on a priority basis is the wage rate - with particular focus on ending gender discrimination, and its periodic adjustment. Since existence of trade unions and collective bargaining are only exceptions, workers are often at the mercy of employers with respect to wage rates, compensation for overtime work, and other allowances. Even timely payment of wages and allowances often becomes an issue. Adjustments of wages to growth of productivity and cost of living are not usually made unless there is intervention from governments. Even then, usual arguments of jeopardising competitiveness and inability to pay are invoked in order to keep adjustments to the barest minimum possible. All such practices must end and modalities of wage determination and adjustment must be straightened out. Â
Third, dignity of people who work to produce goods and services for the world cannot be compromised in a discussion on human development. And the basic pre-requisite for ensuring that is to give them a voice in matters relating to their work and life which in turn requires that the fundamental principles and rights at work be honoured. And that would mean giving the workers full right to form their associations and bargain with employers through the trade unions.
Coming back to measures needed to bring about the kind of improvements mentioned above, the basic question is how private enterprises can be encouraged to move in the required direction. It is quite clear that they are not likely to do so on their own, and that's where the issue of public policy and governance of the labour market comes in. There are two levels at which this issue needs to be addressed - national and international. At the national level, appropriate legislations are needed in the areas mentioned above (as well as on other relevant issues). However, compliance requires not only legislation but also the willingness and capacity of governments to implement them in an efficient and transparent manner. Unless implemented, even the best of the legislation and other policy pronouncements will not be of much effect.
But action to improve the terms of employment and working conditions will inevitably face resistance unless producers can find a way of passing on at least a part of the additional costs involved to their buyers. And that's where the role of the global community also comes in. If there is real commitment to meeting basic standards in the world of work, that would have to be reflected in the willingness to incorporate them in price negotiations. In other words, consumers (and buyers who act on their behalf) in the importing countries would have to underwrite, to some extent at least, the cost increases resulting from wage adjustments and improvements in working conditions. In this connection, it would be useful to remember Amartya Sen's observation: "The increasingly globalised world economy calls for a similarly globalised approach to basic ethics and political and social procedures". A "globalised approach" would require national-level action to work in tandem with action from beyond the national boundaries.
Democracy, freedom of expression and an active media - both national and international - can play a valuable role in the implementation of ethical standards in the world of work. This has been demonstrated, to some extent at least, in the wake of the Rana Plaza disaster in Bangladesh when both national and international media became active in bringing out the roles and responsibilities of various partners in the global value chain, viz., producers and international buyers, and putting pressures on them to adopt and participate in remedial measures. However, the responsibility of the media should extend beyond ex post reporting (that can sometimes verge on mediatizing of incidents) to more pro-active journalism, pointing out on a regular basis the need for interventions and improvements. [The first part of the article was printed on April 14]
The author, an economist, is former Special Adviser, Employment Sector, International Labour Â
Office, Geneva. rizwanul.islam49@gmail.com
Is race to the bottom inevitable?
Rizwanul Islam concluding his two-part article on globalisation of production | Published: April 16, 2015 00:00:00 | Updated: November 30, 2024 06:01:00
Share if you like