Global Big Business: Improving Labor Standards in Developing Countries
Global Big Business: Improving Labor Standards in Developing Countries

Global Big Business: Improving Labor Standards in Developing Countries

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  • Published: September 16, 2017
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Improving labor standards in developing countries is most effectively facilitated by the might of global big business.

Let's debate. The pursuit of higher profits has driven major corporations to expand globally. This expansion facilitates both the import and export of goods and recognizes that many companies now have potential customers beyond their domestic market. Thanks to advancements in communication and logistics, geographic barriers are more easily overcome.

The utilization of lower labor costs in developing countries by big businesses, especially those producing tangible goods like electronics and apparel, is exemplified in the automobile industry due to advancements. Although some evidence suggests that global manufacturing worker productivity increases with higher labor costs (Rodrik, 1997), low-skilled workers in developing countries can produce identical products as their counterparts in higher-income countries at a fraction of the cost, even after fact

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oring transportation expenses. However, this practice has sparked intense international debate since no comprehensive international labor laws exist to ensure worker protection equal to that of developed countries. Critics argue that this makes workers vulnerable to exploitation motivated by profit over human rights (Hu-Dehart, 2002), which may be due to capital's international expansion while labor standards have not kept pace according to George Ross.

According to the statement 'This causes the problem' (2000), big businesses in developing countries may be content with domestic labor laws, prioritizing profit over ethics. This could result in the neglect of humane working standards in favor of productivity and competitiveness. This aligns with Richard B.'s views.

According to Bilder (2006), while TNCs contribute significantly towards economic integration, they do not do enough to counterbalance the negative impacts of worker integration. If implementing labor standards

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could potentially reduce a company's profits, the standards may have to be lowered or the company might outsource from a different country. Drezner (2000) argues that this issue places immense pressure on developing nations and results in a competition for capital that prioritizes global commerce over workers' rights. Unfortunately, there are cases where this observation has proven to be true; in 1998, the ILO identified fundamental, indivisible human rights that all workers worldwide are entitled to (Dearden, 2003).

The ILO, with 175 member countries including China and India, endorses certain fundamental rights for workers including freedom of association, collective bargaining, elimination of forced labor and hazardous child labor, and non-discrimination in employment. Despite their endorsement, these basic rights are not legally binding and do not offer sufficient protection against unsafe or inhumane working conditions.

It can be inferred that transnational corporations (TNCs) in industrialized countries either trust their own national laws to provide sufficient protection against poor labor conditions, or they accept the possibility of such conditions. The Kader toy factory in Bangkok suffered a massive fire in May 1993, which killed 188 workers and injured 469 others. The fatalities were partly attributed to the locked fire exits that prevented workers from escaping and the injuries resulted from workers having to jump from the building to escape. If Western labor standards, such as those in the Regulatory Reform (Fire Safety) Order, had been enforced, the tragedy would have been less severe since the provision of adequate escape routes is mandatory. Unquestionably, hazardous labor conditions persist in manufacturing industries across the developing world.

According to a 2003 report on China's labor standards and globalization, some factories

in China have recorded a high number of severed limbs and fingers. In Shenzhen City, over 10,000 certified cases were reported among a migrant population of 3-4 million (Chan, 2003). The lack of health and safety standards in these factories would not be acceptable in developed countries even though they produce goods for Western consumption. Although international laws do not mandate similar working conditions across trading nations, the principles behind the laws that enforce Western working conditions aim to benefit all human workers regardless of their location. Drusilla K Brown argues that prohibiting domestic production of goods by our children while importing goods produced by illiterate children in neighboring countries is morally meaningless (Brown, 2001, p105).

Although it is true, approximately 8.4 million children are stuck in the most severe form of child labor in developing nations, a treatment that would be unlawful and socially condemned in the US or UK. This implies that transnational corporations intentionally disregard labor regulations in developing countries.

Multinational corporations prioritize increased profits, which often leads to a reluctance to implement cost-saving measures or justify expenses that do not directly enhance profits. Despite this, improving labour standards in developing countries is not considered a sufficient reason to accept a reduction in margins. Professor Peter Odhiambo, head of Kenya’s National Tobacco Free Initiative Committee, believes that ‘Multinationals are lethal, unethical and corrupting… They think they can arm-twist third World governments with threats of labour unrest and loss of revenues’ (Christian Aid, 2005). The power to influence or manipulate governments characterizes big business, leading to criticism of an uncontrollable ‘race to the bottom.’

The competition is to attract investments to the country, with the aim

of improving living standards. However, the participants in this race to the bottom believe that any investment is valuable. In his analysis of foreign investment, Drezner suggests that unrestricted globalization leads to a global decline in labor and environmental standards. The easing of trade and investment policies allows companies to search the world for the highest possible returns. (Drezner, 2000).

According to Professor Odhiambo, pursuing multinational companies without considering the consequences for workers who produce the traded goods results in the attainment of 'highest returns'. This is because these workers are low-skilled and can be easily replaced, making it commercially illogical to prioritize their well-being. In instances where international labor laws are non-existent or vague, companies are responsible for their own actions. However, Jack Straw's 2001 comment contradicts this view. He argued that while we should encourage corporate responsibility, we can't leave companies to regulate themselves globally, similar to our domestic economies. Prof Odhiambo is not opposed to big business trade itself, as without it, he and the tobacco farmers he represents would be unemployed.

The pressure on companies, such as British American Tobacco, to maximize profits within a capitalist economy, combined with the lack of regulation has resulted in domestic labour standards being ignored. This failure to implement standards has led to chemical poisoning among Kenyan tobacco farmers due to a lack of protective clothing (Christian Aid, 2002). According to Chan (2003), the de-regulation in wage-setting under China's economic reforms has enabled local governments to disregard labour exploitation. Initially implemented to attract TNC investment, the de-regulation has caused a decline in labour standards. The "race to the bottom" is a concern for academics and activists globally,

impacting low-skilled workers worldwide, including those in Europe and the US.

The abundance of low skilled workers is the reason why this race currently only affects this type of labor. Education and training come with globalization, which is one of the perceived benefits of TNC operations in developing countries. Multinationals may appoint managers or directors in low-income countries if their skills match the needs of these corporations, as suggested by Prof Odhiambo. If this transfer of skills continues, there would be no need for European or American headquarters, and entire corporations could move to developing countries and profit from export and sale to developed countries, which would price competitors out of the market. This process would industrialize developing countries, creating greater demand for the products previously only exported and further growing the business.

The outsourcing of call centres to India, where labour standards are relatively high, provides a glimpse into a broader trend. If this trend persists, it could lead to an improvement in labour standards and higher wages in the country, triggering a competition for industrialization among other non-industrialized nations. Theoretically, large corporations could leverage free trade to bring about industrialization on a global scale. It is widely acknowledged that developed countries have stricter laws and higher labour standards compared to developing countries.

According to Mike Moore, the former head of the WTO, countries that have embraced openness and freedom have improved the income of their workers while reducing poverty. As a result, labour standards have increased. Conversely, closed countries remain undeveloped, poor and cut off from rights and freedoms (Moore, 1999). If big businesses continue to expand at their current rate, they could play a significant

role in improving labour standards as Marx acknowledged that an increase in productive capital can lead to an increase in demand for labour which results in higher wages. However, Saadia Toor disputed Moore's theory as "patently false" (2001), citing the rise in mortality and inequality in Eastern Europe and Central Asia as evidence that big business is not a solution for low labour standards suggested by Moore.

Although the majority of business service outsourcing is located in India, where Forbes Magazine predicts a 10% yearly rise in wages, big businesses have the power to improve labor standards by choosing to pay workers above average wages, thereby recruiting better workers as suggested by Drezner (2000). As Marx stated, ‘The most favourable condition for the worker is the growth of capital’ (Marx & Engels, [1848], 2002). This has become crucial as the search for capable personnel in India's outsourcing companies intensifies, according to Forbes.

According to the statement, IT professionals can effortlessly switch companies to secure higher paying jobs. The outsourcing policies of major corporations must consider staff retention, indicating that labor outsourced in developing nations cannot be easily replaced. The abundance of unskilled laborers maintains low wages and labor standards, necessitating enhanced working conditions and wages for certain staff as significant enterprises begin outsourcing more demanding tasks to developing countries to sustain their competitive edge. Consequently, companies can demand more from developing nations' employees, who can also demand improved conditions, thereby elevating labor standards.

Although global big business is often perceived as the most powerful in improving labour standards in developing countries, it should be noted that pay is not considered in the core working rights of the

ILO and by London-based pressure group War on Want. According to Guillermo Rogel, Director of International Programmes at War on Want, the two main factors that denote fair labour standards are the right to form or join a trade union and adherence to domestic labour laws. While a minimum wage may be a part of these laws, their mere existence shows concern for the welfare of workers, which is more significant. Despite many activists calling for universal laws governing labour standards, the ILO has struggled with this issue since its inception, with some countries willingly enacting and enforcing labour laws.

Cambodia has a ‘bilateral agreement’ with the USA which links labour standards to trade and is monitored by the ILO (Chan, 2003). Companies such as Tesco’s audit their suppliers’ factories to monitor supplier activity. However, Rogel is critical of this approach as he asserts that the audits are often prepared for and the conditions are made to appear better than they actually are. Additionally, staff may be monitored and too afraid to express their concerns.

In 2007, War on Want reported that flower companies in Colombia prepare for audits to obtain certification. The report titled 'Growing Pains' by War on Want sheds light on the substandard labor conditions prevalent in Colombian flower farms, which are second only to Holland as global exporters of flowers. Workers endure long hours of up to 15 hours without access to safe drinking water. The report examines the effectiveness of voluntary codes like the International Code of Conduct for the Production of Flower Cutters (ICC). However, despite numerous standards and codes being created, voluntary measures fail to protect workers adequately

due to reasons such as non-existent unions ensuring regulatory compliance, lack of independent auditing and confusion over adherence to multiple standards.

(2007) The main issue lies in the impracticability of enforcing international laws and the insufficiency of voluntary codes, rendering them easy to evade. Moreover, implementing international labour laws may infringe on nations' basic right to autonomous decision-making. Ross asserts that during a 1996 campaign to enforce minimum social guarantees via the ILO's core social rights, developing countries fiercely opposed the proposal by asserting that it would rob them of legitimate competitive advantages in the market (2000). Ultimately, conformity restricts adaptability, which often serves as the distinctive attribute for numerous developing countries' labour standards.

'Abundance of young women' is advertised by Asian governments who readily work for transnational capital at a meager wage and without perks, says Hu-DeHart (2002). Ross (2000) observes that child labour, sweatshops, and oppressive domestic outwork abound in some Asian countries. These labour standards may not sit well with those against globalization, but they may just be a component of the changing process. During the industrial revolution in this nation, it wasn't rare for minors to work 19-hour days for practically no pay. Although the Factory Act of 1833 prohibited children under nine from working and limited the working hours of those while they were up to 18 years old, Nardinelli (1980) stated that "rising real income and technological change" were the primary causes of the downfall of child labour. The nation's economy realistically needs to improve before child labour and other low labour standards are eradicated.

Mike Moore emphasized that poverty is the leading factor behind intolerable working conditions and increasing trade and

business, and not decreasing it, is the solution to this issue. To improve labour standards, it is necessary to have the support of significant businesses, which require an incentive. Progress and profits serve as incentives, just as they did during the industrial revolution. The absence of universally enforced laws is because they are not mandatory, and following them can lead to reduced profits. If there exists a positive correlation between profits and labour standards, then significant businesses would undoubtedly become the most effective influence in enhancing labour standards in developing nations.

For labour standards to be transformed, cultural attitudes towards the welfare of a country's people must be prioritized by both big businesses and domestic governments. China currently mandates that the minimum wage should not be lower than 40% of the average wage for a specific area, such as Guangzou and Shenzhen. These two cities were the first in China to legally seek foreign investment, but the minimum wage to average wage percentage is the lowest in the country. Despite China's apparent prosperity, an estimated 200 million people still live in poverty.

The prevalence of the ‘hukou’ system in Chinese working life is a contributing factor to the limited mobility of migrants, which ultimately leads to poor labor standards. Companies in industrial cities give migrants loans to purchase the necessary papers for work, which can cost a month’s wage. However, in return, these companies either withhold a portion of their pay or the papers themselves, thereby making it difficult for migrants to find better job opportunities. Additionally, because migrants often travel alone and live on-site with their employers, they are at a higher risk of being

subjected to subpar working conditions.

Local authorities benefit from the system as migrants pay taxes without receiving local welfare benefits like healthcare. The government-controlled workers’ union lacks the power to challenge systems such as ‘hukou’, indicating an intentional effort to keep wages low and attract TNC investment. However, a 1998 ILO report refutes the notion that TNCs avoid countries with strong trade unions, suggesting that the Chinese government restricts union power for political reasons. Given this apparent lack of concern for citizen welfare, Chan’s statement, ‘In the race to the bottom, China is defining the bottom,’ is unsurprising.

(2003) Currently, China places emphasis on economic development, leading to unfavorable working conditions for the Chinese working classes. Reebok, a British sports apparel manufacturer, produces 51% of its footwear in China and has faced accusations of sweatshop utilization. However, the company refutes these claims and established the Fair Factories Clearinghouse, a non-profit organization committed to enhancing the working conditions of the apparel industry. According to a Reebok procurement executive cited by Associated Wire Press, Chinese labor law goes unenforced.

If the enforcement of labor standards were to be upheld in China, it would greatly benefit millions of workers. However, according to their own employees, Reebok, a company worth $8 billion, ignores poor labor standards and continues to operate in China. This raises questions about their commitment to abolishing exploitative practices.

In order for the International Labour Organization (ILO) to effectively improve labor standards worldwide, it is crucial for major companies like Reebok to adhere to core requirements such as the right to collective bargaining. However, voluntary codes and recommendations can easily be disregarded, leaving the ILO seemingly powerless compared to

big business in terms of influencing standards in developing countries.

Ultimately, customer opinion holds significant power in a capitalist economy. Customers have the freedom to choose which companies they support, and this can greatly impact a company's success.

Large companies place great importance on their reputation, and intangible assets like goodwill and brands can significantly increase a company's value. While consumers may sympathize with workers in developing countries, their desire for competitively-priced goods is often still a top priority, as evidenced by Primark's success. However, negative publicity and public opinion can severely damage a company's reputation and result in significant profit losses. As a result, big businesses understand the significance of safeguarding their reputation.

Multinational firms are now aware that public opinion directly affects their profits, as customers are concerned about the conditions in which products are manufactured (Drezner, 2000). Consequently, these firms are held accountable for their treatment of workers in developing countries. Despite the perception that manufacturing under poor conditions may be a risk only if caught, increased media coverage of poor labour standards has made this risk a growing threat. To combat this threat, Transnational Corporations (TNCs) are implementing Corporate Social Responsibility (CSR) policies. The concept of modern CSR emerged before the Rio de Janeiro Earth Summit in 1992 when Stephan Schmidheiny founded The World Business Council for Sustainable Development (WBCSD). The WBCSD collaborates with firms like Coca Cola and Dow Chemical and organisations such as Greenpeace and the World Bank. While Christian Aid notes that corporate enthusiasm for CSR is not necessarily driven by a desire to improve the communities in which they operate, TNCs continue to adopt these policies to enhance

their reputations.

Companies prioritize their reputation, potential harm caused by public campaigns, and profitability according to a 2004 statement. The World Business Council for Sustainable Development (WBCSD) prioritizes sustainable manufacturing and fair treatment of workers in developing nations through member-led research. While some may view this as defensive PR, consumer pressure has proven effective; in 1997, PepsiCo withdrew from the Union of Myanmar due to humanitarian concerns despite it being one of the only places where they outperformed Coca-Cola.

Although they didn't directly oppose the political regime, their actions made their stance clear. Pepsi's spokeswoman, Elaine Franklin, criticized Coca Cola's opinion on Myanmar's political situation in a 2004 New York Times article, stating that "it is pretty arrogant of any company to decide to make its own foreign policy." However, it is important for corporations to actively work towards positive changes in public opinion by engaging with suppliers to improve their labor standards. As public opinion shifts towards social consciousness and skepticism, it is up to large retailers to be socially responsible and transparent in their processes from raw material acquisition to point of sale. This will not only increase their reputation, but also make them more competitive in the market. Former Shell chairman, Mark Moody, stressed the importance of proper behavior for corporations as they can face consequences from the international court of public opinion (Christian Aid, 2004).

The absence of an effective international legal system to challenge poor labor standards is emphasized in this statement. It acknowledges the capacity of global public opinion to act with a strong sense of justice and compassion when crimes are committed. This sentiment is not just superficial threats, as

consumers possess the ability to damage a company's reputation or even lead to its demise due to a loss of trust or feelings of guilt by association. Toor argues that the exploitation of wage-labor by capital will persist so long as this relationship exists within a capitalist free-market. Despite this, the consumer remains the most powerful player in this market, since companies' success or failure largely depends on their reputation and brand image.

As long as consumers prioritize price over the origin of their products, big companies will continue to lower costs through any means possible. Consequently, consumers have the greatest ability to enhance labor standards in developing countries. For more information, refer to Bilder's "The Emergence of Transnational Labor Law" in The American Journal of International Law.

Article 100, pages 725 to 733, by Drusilla K. Brown (2001) discusses the placement of labor standards in the international trade agenda in "The Journal of Economic Perspectives", volume 15, issue 3, pages 89 to 112.

Chan, Anita. "A Race to the Bottom." China Perspectives [Online], 259. Available at: http://chinaperspectives.revues.org/document259.

Two sources have been cited in this HTML document: Nick Dearden's 2003 book "Core Labour Standards: Enforcing Fundemental Freedoms" published by War on Want in London, and Daniel W Drezner's 2000 article "Bottom Feeders" in Foreign Policy.

p64 – 70. The Factory Act 1833 was published by HM Government in 1833. Christian Aid's Behind the Mask: The Real Face of CSR is a book from 2004 published in London by Christian Aid.

London-based Christian Aid published a book titled "Hooked on Tobacco" in 2002, while Forbes discusses the top six outsourcing mistakes in an article on their website from 2004, which

can be accessed at http://www.forbes.com/2004/05/26/cx_ld_0526mistakes.

The following sources were cited on 03/01/2008:

HMSO (2005) Regulatory Reform (Fire Safety) Order. London: The Stationary Office.

Hu DeHart, Evelyn (2002) Working for Change: Activists Take on the Global Sweatshop. The Women's Review of Books.

Marx, Carl & Friedrich Engels ([1848] 2002) The Communist Manifesto. London: Penguin. 19 (5). p18.

Nardinelli and Clark's book, "Child Labour and the Industrial Revolution" published in 1980 is cited alongside a New York Times article from 1996 which discusses Pepsi's preference for sales over politics in their business dealings with Myanmar. The source for the article can be found at http://query. nytimes. com/gst/fullpage.

The article "Sense and Nonsense in the Globalization Debate" by Dani Rodrik (1997) can be found in Foreign Policy (volume 107, pages 19-37). The citation code for accessing the article is html? res=9407E4DE 1039F931A15751C0A960958260 [Cited 02/01/08].

Rogel, Guillermo (2008) conducted a personal interview with the author on 15/01/08. In addition, Ross, George (2000) wrote an article titled "Labor Versus Globalization" in The Annals of the American Academy with issue number 570.

The information from Save the Children (2008) on child labor, which spans pages 78-91, can be found at http://www.savethechildren.org.

Smith, David A (2001) Globalization and Social Problems. Social Problems. 48 (4). uk/en/31_58.htm?gclid=CLLRscHT-ZACFQhFMAod8leLrg [Cited 10/01/08]

The Annals of the American Academy published an article titled "Child Labor in Pakistan" by Saadia Toor in 2001, covering pages 429 to 434. This article is included in the book "Coming of Age in the New World Order."

p194 - 224.

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