Political economists have long debated whether globalization started a “race to the bottom” throughout the developing world — that is, a lowering of labor and environmental standards as governments fiercely compete to attract multinational corporations and supply chain contracts.
The evidence that this is the case, however, is decidedly mixed. In some cases, globalization can worsen labor standards, and international investment agreements can sometimes shift bargaining power toward multinational firms and away from developing countries’ governments. But, in other instances, globalization offers mechanisms to improve the conditions faced by workers. Moreover, the sources of poor working conditions are often as much domestic as they are international.
Trade and international investment agreements — along with the liberalization of domestic financial sectors — make it easier for companies to move between countries. This allows firms to seek more efficiency in their production; to diversify their location to guard against political and economic risk; and to source inputs from the lowest-cost producers. But at the same time, most workers — particularly less skilled workers — have fewer options, especially in countries with a labor surplus.
If governments, activists or workers insist on better working conditions, profit-seeking multinational firms could credibly threaten to relocate. Workers, with limited voice relative to capital, are left with little choice but to accept globalization on corporations’ terms. But is the situation really so bleak?
Certainly, technology and transportation innovations serve to enhance cross-national competition for investment, for subcontracts and for market share. But, even in a world of mobile corporations and regional and global supply chains, the races aren’t always to the bottom, and the winners aren’t always (only) corporations.
Multinational firms often care not only about costs, but also about the quality of their finished goods and labor force; about reputation (with shareholders as well as consumers); and about good governance in host economies. Significant evidence suggests that multinationals pay a wage premium relative to domestically owned employers. And, all else equal, developing countries that attract more directly owned multinational production offer more protection to workers.
The vast majority of employment related to global markets, however, does not take place in the directly owned subsidiaries of multinational firms, but rather in firms that subcontract production. Some subcontractors, such as Foxconn and Formosa, are themselves large and multinational. But many subcontractors — especially in complex and long supply chains — are small, geographically dispersed and focused on minimizing costs. In such locations, it is difficult even for well-intentioned firms and sophisticated rights advocates to monitor respect for labor standards. Private and private-public regulatory initiatives can help workers capture gains under these circumstances, but their success is not based solely on strong labor inspectors and human resources managers, or even from the attention of consumers and shareholders on poor work standards. They must also achieve buy-in from local and national governments. Private regulation often complements — rather than replaces — public governance.
Therefore, if we want to increase the autonomy of developing countries and their workers, we need to pay attention to politics within developing countries as well as trade and investment negotiations at the international level. Domestic labor laws — and their implementation in practice — make a major difference. Repressing workers can serve not only the interests of foreign firms but also the desires of local elites, who might prefer to avoid political challenges and economic demands from labor unions and abundant, but less skilled, workers.
Changing governments’ incentives is key: If multinational firms and their home country governments are willing to link labor- and human rights-related opportunities with investment and trade opportunities, and do so sincerely (rather than as a veil for protectionism at home), we can begin to right the important balance between domestic capitalists and domestic workers.
Working conditions in many parts of the world are far from ideal. Globalization and technological changes have made it easier to find and publicize instances of forced labor, child labor, poor working conditions and limits on workers’ capacity to organize and bargain. But, for many workers, the alternative — marriage and rural work at a very young age — may be worse than the supply chain status quo: an urban factory job that provides a modicum of autonomy.
The trick, then, is to identify the conditions that allow developing countries to participate in global production networks, but to also ensure that these countries — and groups within those countries — can reclaim some voice with regard to foreign corporations and domestic elites. While this outcome is far from automatic, it is not impossible.