GLOBALISATION AND ITS LABOUR MARKET
EFFECTS - WHAT DO WE KNOW AND WHAT
SHOULD WE DO?
by Tim Harcourt
Research Officer
ACTU
Speech to:
Globalisation, the Asian Crisis and the Future of Australian Industry
- Jobs and Infrastructure Conference
Tom Mann Theatre
136 Chalmers Street
Surry Hills, Sydney
16 March, 1998
D No. 24/1998
Copies of this speech are available on request from the ACTU Library, LIN, 393 Swanston Street,
Melbourne 3000 or on the ACTU Internet site: www.actu.asn.au.
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CONTENTS
1.
Introduction
1
2.
'Globalisation' and 'Globalphobia' 2
3.
Globalisation and Labour Markets 9
4.
Trade Union Strategies 15
5.
Summary 17
References
Attachments
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1.
Introduction
Thank you for the invitation to speak at this important conference. The
Globalisation debate is something that the trade union movement should
play an active part in and not just be on the fringes. We should also not
accept that there is one form of 'globalisation' that dominates the world
and that it is in some way, inevitable.
The global economy is made up of both international and national
economic institutions. The globalisation model that is preferred by
international capital markets and promoted (naively) by neo-classical
academic economists does not have to be the one accepted by the
labour movement.
It is important that we have a say in shaping the economic institutions of
the global economy to ensure that there is a social and labour dimension.
I want to do three things in my paper today:
First, I will outline the globalisation phenomenon that is becoming the
major public policy issue of the 1990s.
Second, I will focus on the globalisation and labour market literature, to
analyse what the research evidence says about the effects of
globalisation on wages and employment.
Third, I will highlight some of the strategies pursued by the labour
movement in Australia and internationally in response to globalisation.
2.
'Globalisations' and 'Globalphobia'
The phenomena of 'globalisation' or 'globalphobia' is the subject of
furious public policy debate in the 1990s. Some of it relates to
international financial market speculation (that has almost crippled
financial institutions in the Asian region), some to the conduct of
transnational companies and some to 'cultural globalisation' (eg alleged
threats to national culture and language). This has led to some strange
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political alliances forming into pro and anti-globalisation camps. For
instance, the extreme Left, who oppose international capital and
transnational company influence over sovereign governments, may find
itself in alliance with the extreme Right (which opposes both 'foreign'
capital and 'foreign' people) on many globalisation issues.
The
Multilateral Agreement on Investment (MAI) or the role of the WTO and
APEC are examples of this. Similarly, some pro-globalisation advocates
on the Right do not object to the influence of Geneva in the form of the
WTO but they may object to the same Geneva influence in the form of
the International Labour Organisation (ILO) over domestic labour laws.
This has made for some strange political bedfellows in national political
debates all over the world. The anti-globalisation mood in the 1990s
(and the diverse groups attracted to it) has been well documented by
Rodrik (1997). He sums up the causes of the globalisation in concise
fashion when he notes:
"The process that has come to be called "globalisation" is exposing
a deep fault line between groups who have the skills and mobility
to flourish in global markets and those who either don't have these
advantages or perceive the expansion of unregulated markets as
inimical to social stability and deeply held norms. The result is
severe tension between market and social groups such as
workers, pensioners, and environmentalists with governments
stuck in the middle." [Rodrik (1997) p.2 ]
I would agree with this except I would not describe the Australian
Government as being 'stuck in the middle' particularly given the partisan
role it has played in industrial relations (eg Rio Tinto, Waterfront).
Rodrik notes three 'sources of tension' between the global markets and
social strategy. Firstly, reduced barriers to trade and investment
increase the opportunities for highly skilled groups (who can cross
borders) but reduce the opportunities for the low and semi-skilled groups
in the labour market (who cannot cross borders as easily).
Secondly, globalisation can potentially conflict with domestic social
preferences for goods and services. For instance, a country's preference
for certain safety or health standards on goods may be no longer
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enforceable under WTO processes which insists that goods be treated
equally no matter what their national origin (or production process).
Thirdly, globalisation has made it difficult for government to maintain
social safety nets and provide social insurance. This has occurred even
though (as Rodrik (1997) points out, p.4-6) the countries with the most
open economies, spend the most on social insurance and provide the
most social protection.
The globalisation debate can involve a number of social and economic
issues. For instance, environmental groups have been concerned about
trade liberalisation undermining environmental standards and
protections. It has been argued, for example that health standards on
food have been jeopardised as importers have claimed that quarantine
regulations are a 'disguised' form of protectionism. The latter issue has
been quite prominent in the NAFTA debate for instance, where antiNAFTA campaigners have claimed that health standards have fallen
because imported Mexican foods have not been subject to the same
health regulations that are required in the USA and Canada.
This is an example of where globalisation conflicts with domestic social
'norms' or values.
However, it is the effect of globalisation on labour markets which is of
most direct concern to trade unions. This may come in various guises.
For example, the most common way is the opening up of national
economies to traded goods and services. Whilst there has always been
an element of openness in all industrialised economies (particularly in
Australia) the increased volume in trade in recent decades as a result of
the GATT and other trade reforms has heightened awareness of the
impact of trade. Investment flows are also important, with international
capital becoming more mobile and the labour market behaviour of
transnationals is also a key influence.
Many labour market problems are blamed on 'globalisation' for popular
appeal, especially at election time. For instance, the US Republican
Presidential candidate Patrick Buchanan, in 1996, was quick to blame
globalisation and the United States' trade deficit with Japan for real wage
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deterioration and job loss for American workers in manufacturing.
However, the same candidate did not put forward such pro-worker views
on minimum wage legislation, trade unions, collective bargaining and
labour laws.
Globalisation (and Japan in particular) were more
convenient targets.
Ross Perot spoke of "great sucking sounds" (ie Mexico sucking away
American jobs) in terms of NAFTA, but he too, is not know for being a
friend of labour. The candidates of the American Right also tend to
complain of trade problems with Asian countries (eg Japan or China) or
Latin American countries (eg Mexico) but never complain about, say,
Canada, or England.
Now, what does this mean for us in Australia?
First of all its important that we don't get tied up with the 'fortress
Australia' mentality. We can't isolate ourselves from the world. Believe
me the North Korean or Albanian road to economic development is not a
winner.
Second, we must be careful because some economic nationalism and
isolationism can be associated with anti-immigration (and often racist)
sentiments.
The Australian union movement has been built on immigration.
Immigrants have always made up a large proportion of our ranks.
Statistical Evidence from the ABS shows that immigrants (especially of
non-English speaking background) are more likely to join a union than
the Australian born. (see Australian Bureau of Statistics (1997)).
In addition, much of the anti-immigration sentiment coincides with attacks
on indigenous Australians too. The union movement should keep our
distance from these groups and maintain our support for the anti-racist
coalition in Australian society.
However, this does not mean we need to support the free market
orthodoxy on globalisation and international trade. The same orthodoxy,
we must remember opposes labour market regulation too. In fact, we
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should use the debate to promote our traditional labour market
institutions as being more necessary in the face of globalisation.
As Rodrik's study shows economies with comprehensive social
protections - such as social safety nets and labour market regulation tend to be open economies and successful ones at that. Globalisation is
a reason for more comprehensive labour market protection not less. [See
charts from ILO World Labour Report 1997-98 in Attachment 1].
Furthermore, there is no logical reason why deregulation of financial
markets and product markets should be accompanied by labour market
deregulation. The labour market is fundamentally a different institutions
because it involves human factors.
As Nobel Laureate and Emeritus Professor of Economics from MIT,
Robert M. Solow says:
".....the labour market is a social as much as an economic
institution - and the interaction between human beings cannot be
interpreted in the same way as the supply and demand for dead
fish."
[Solow (1990)]
The view put by free market economists that labour market deregulation
should follow globalisation is not based on empirical evidence nor is it
founded on an understanding of history.
The worst explanation of this misconception was provided by a neoclassical academic economist turned politician, Dr John Hewson. When
giving the Alfred Deakin Lecture in Melbourne in 1992, in the midst of his
effort to lose the unlosable election, Hewson said:
"It is the historic destiny of the Liberal Party to send industrial
arbitration and protective tariffs to join white Australia in history's
dustbin."
I am not convinced that there is a policy link that says "both started at
this point in history, therefore both should go". For instance as women
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got the vote at the same time as tariff protection and arbitration should
that go as well?
The union should also not have to accept there is only one model of the
global economy. For example, we do not have to accept the terms of
such treaties as the MAI being negotiated in the OECD. The MAI (as
currently proposed) gives multinational companies the right to sue
national governments (even if those governments take action in the
national public interest). The MAI reverses the onus on exemptions in
terms of the 'roll back' provisions too - making national government justify
their own measures. The MAI is a bill of rights for international capital in
a world that does not provide an enforceable workers' bill of rights.
The union movement does not have to accept the MAI nor should it
accept a WTO without provision for the inclusion of core labour
standards.
Now, if I can turn to the labour market literature.
3.
Globalisation and the Labour Market
The advance of the globalisation has lead to a vigorous debate in
economics about the effect of trade liberalisation on labour markets. As
the literature is vast, I want to concentrate today on the debate about the
effects of trade liberalisation on wages and employment.
The advocates of trade liberalisation and globalisation usually argue
about the "efficiency gains", "gains from trade", "comparative advantage"
and the elimination of "dead weight losses". However, there is little
reference made to the income distribution consequences of policy advice
based on the international trade models, nor is there much attention paid
to the adjustment process in labour markets resulting from trade policy.
Much of the theoretical debate has focussed on the effects of trade on
developed country wages. Economic theory has offered several
competing theories on this link. These include the 'Heckscher-Ohlin',
'Stolper-Samuelson', and '"Factor-price equalisation' models. The
Heckscher-Ohlin model of international trade and the Stolper-Samuelson
theorem on protection and real wages came to prominence in the 1940s
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whilst the "factor price" equalisation model has been revived in recent
debates, particularly in the arguments between Adrian Wood and others
on the impact of international trade on the wages of 'first-world' unskilled
workers.
The debate is basically about whether trade is a 'large' or 'small' factor in
the decline of the wages of the unskilled relative to the skilled in 'firstworld' economies.
A summary of the studies is provided in the attachment [Attachment 2].
This debate between 'large effects' and 'small effects' has been extended
to other issues. For instance, Richard Freeman is sceptical about trade
being the main culprit in the plight of unskilled workers. Freeman (1995)
sees other forces at play such as technological advances or political
events (such as the reunification of Germany and its effect on German
labour markets). Whilst noting Woods' distinction between past and
future trade liberalisation, and modestly noting that "Economists do not
have a good record as soothsayers", Freeman is not convinced that
future liberalisation will hurt unskilled workers in developed countries.
He notes that domestic labour market conditions play an important role.
For instance, nurses, teachers, retail workers and other in service
industries all have their pay determined by domestic (not global)
conditions. Accordingly, Freeman is sceptical that trade agreements
(such as NAFTA, or the EU arrangements) will have a large effect on
wages and employment as he notes:
"Wildly heralded trade agreements such as the US-Canadian
Agreement, the Common Market, and NAFTA have not dominated
our wages and employment in the way their advocates or
opponents forecast."
[Freeman (1995), pp.31-32]
From a non free market neo-classical perspective, Ajit Singh points out
the flaws in the Wood analysis in setting up a "North-South" division
between the developed and developing world.
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Singh (1997) believes in a pro-growth strategy in the industrialised world
to assist developing world trade. He rejects the post-1980 labour market
flexibility doctrine as the policy solution to the labour market problems of
both the developed and developing economies which he argues is
implicit in the economic models of both sides of the trade and wages
debate.
This is also the argument of James K. Galbraith (1996) who disagree
with conventional economists attempts to cause division between the
"north and south" of the global economy.
Notably, all the neo-classical economists do not advocate trade
protection, even if they do believe that trade hurts unskilled workers.
Wood, for instance supports employment subsidies to assist unskilled
workers in the industrialised world rather than trade tariffs or subsidies.
Belman and Lee of the Economic Policy Institute (EPI) in Washington
DC, in their survey, have concentrated on the trade effects on
employment.
In terms of US manufacturing employment, Belman and Lee noted three
effects:
First, the major impact on US manufacturing employment rather
than wages in the last two decades.
Second, the greater impact that trade had in the 1970s and 1980s
(and presumably the 1990s).
Third, the important role of intersectoral labour mobility, where
workers may lose jobs in manufacturing but be employed in the
service sector (typically at lower wages).
The authors also note the spillover effects of the "loss of wage
leadership"' from the manufacturing sector which may also be a source
of poor wage performance throughout the US economy. This, however
does not consider other reasons for real wage deterioration - such as the
erosion of US labour market institutions.
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This is where the difference between US and Australian labour market
institutions is important. Our stronger unions and stronger wage fixing
institutions are especially important in the face of large changes in trade
volumes.
Much of the literature focus just on trade flows, however, the OECD
(1997) has surveyed the trade and 'other' effects including the role of
technology in the globalisation process. The OECD notes several
globalisation effects.
1.
The substitution of labour for capital and technology in
industrialised countries (which helps skilled workers but not the
unskilled).
2.
The effect of 'outsourcing' to low wage countries.
3.
Re-location of firms from high wage to low wage countries.
This approach by the OECD, takes into account the broader effects of
the globalisation, not just the effect of trade prices on labour markets.
The OECD survey finds it difficult to distinguish between the effects of
trade from technology on the labour market but still notes that the
majority of the studies surveyed conclude that ".....trade has played a
small role in labour market outcomes, especially shifts in relative
employment and wages for unskilled labour in OECD countries." [OECD
(1997) p.113].
Notably, one study mentioned by the OECD [Machin, Ryan, and
VanReenan] noted the importance of labour market institutions in
lessening the impact of trade on workers. The study notes:
"No impact of industry import and export intensities is found, but
labour market institutions seem to play an important role: in the UK
and the US, industries with higher unionisation levels experienced
less downgrading of the relative wages and employment of
unskilled workers." [OECD (1997), p.116]
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This shows why workers gain from being a union member, especially in
the face of increased trade liberalisation.
In conclusion, we can only say that the evidence on trade and labour
markets is mixed. A major problem is that the globalisation advocates
have been narrow in their focus and have asserted that trade
liberalisation will ultimately benefit workers and the community but have
rarely shown how. On the OECD's own admission, distributional issues
have not been at the forefront of the analysis. Of those who do admit
that there are winners and losers from trade liberalisation most are not
sure how to 'compensate' the losers. Furthermore, some globalisation
advocates, in domestic economic debates, are attacking the very social
protections that are designed to assist the losers (eg the Industry
Commission). This has caused a crisis for the trade liberalisation
advocates who are trying desperately to re-package their public relations
message (eg see DFAT's "Trade Liberalisation: Opportunities for
Australia" leaflet).
Alternatively, those opposing globalisation have not always identified
whether it is globalisation or other phenomena that are causing workers
and the community harm. Furthermore, many globalisation sceptics are
unable to show why the "closed economy" counterfactual would have
been more beneficial.
4
Trade Union Strategies
No matter what the effects of globalisation on workers it is important that
the trade union movement put in a number of strategies at both
international and local level.
These include:
1.
The provision of labour standards in international trade agreements
and fora (eg the 'social clause' in the WTO, and similar provisions
in APEC, regional trade agreements, and the MAI).
2.
Advocacy of workers-rights and labour standards in World Bank
and IMF programs.
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3.
Codes of Conduct for multinational companies on labour standards
(eg Reebok, Levi Strauss, FIFA).
4.
International labour co-operation. For example:
-
International union action against mining giant Rio Tinto, led
by former Australian Prime Minister Bob Hawke (the union
group met in Johannesburg in February 1998 at a meeting
hosted by South African President Nelson Mandela).
5.
Industrial campaigns on globalisation issues. For example: the
very successful 'fair wear campaign' by the TCFUA on outwork. It
has been argued that the tariff reductions in the TCF industry has
forced local companies to use outworkers.
The 'fair wear
campaign' has seen a number of retailers agree to sign the
TCFUA's code of conduct on outwork. Campaigns that highlight
the social, economic and regional consequences of poor trade
policy can be effective.
6.
Recruitment campaigns on globalisation (why unions are needed
now more than ever).
7.
Continued involvement in trade and industry policy and labour
market and training programs.
Not all strategies on globalisation are confined to "trade" and
"international" issues. For example, education and training reform of the
1980s and award restructuring have done much to lessen the impact on
low skilled workers of globalisation in Australia. This high-skill, highwage, high-productivity approach contrasts favourably with the
"concession bargaining" approach of US unions in the late 1970s and
early 1980s.
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5
Summary
In this paper, I have attempted to outline the current debate on the
effects of 'globalisation' on the labour market and the positive trade union
strategies to deal with those effects.
The survey of the evidence shows that the advocates of trade
liberalisation have not been able to convince opinion makers that
benefits will automatically flow to workers and the community from trade
liberalisation.
Some have ignored distributional effects, some have argued that we all
will be winners, whilst other have argued that there will be "winners" and
"losers" but the "losers" will be compensated.
There is plenty of evidence out there that gives reason for us to be
sceptical about their claims. However, similar suspicion should also
apply to those who advocate isolationism (which is simply not an option).
The appropriate response I believe consists of the following elements:
1.
We should not accept or reject globalisation outright but make our
presence felt in how it should be shaped and formed. After all,
Bretton Woods in the 1940s and the Asia Crisis now shows that
international institutions do matter and are there for the influencing.
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2.
We should not underestimate the role of Australian's labour market
and social institutions in partly absorbing the effects of
globalisation.
3.
We should take a hard-headed view of the analysis of globalisation
and labour markets and always put the onus on the globalisation
advocates to show evidence of its benefits in terms of living
standards.
4.
We should not underestimate traditional trade union industrial
campaigns.
The Australian union campaigns on globalisation can be effective as
evidenced by the recent TCFUA Fairwear Campaign and similar efforts
by the AMWU in the car industry.
Globalisation can be an effective recruiting tool especially if there is a
perception that globalisation gives increased bargaining power to
employers. Evidence from the OECD (as cited) showed that a trade
union presence in a workplace has a positive effect on wages and
employment, even in the face of trade liberalisation.
In summary, globalisation is not a trend or fashion, but is part of the
bargaining challenge that trade unions face in advancing our members'
interests.
It should not be treated as the end of the world, but as another
opportunity in terms of union recruitment and organising.
Afterall, we've got nothing to lose...but a world to win.
References
ACTU (1994) Trade in the Asia Pacific Region: An ACTU Guide
ACTU (1995) APEC - What Should Unions Do? Melbourne.
ACTU (1997) Trade Unions and APEC, Melbourne.
ACTU (1997) Australia in Relation to APEC:
Senate Inquiry into APEC, Melbourne.
ACTU Submission to Australian
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ACTU (1998) Living Wage 1997/98 ACTU Written Submission, Melbourne
AFL-CIO (1997) NAFTA Expansion: Off the fast track, on the right track, AFL-CIO
Public Policy Department, Washington DC.
Australian Bureau of Statistics (1997) Trade Union Members, ABS Cat. No.
6325.0 (various).
Belman, D and Lee, T (1997) "International Trade and the Performance of US
Labor Markets" in Blecker, R (ed.) US Trade Policy and Global Growth - New
Directions in the International Economy, Economic Policy Institute, ME Sharpe,
New York.
Bhagwati J. and Kosters M. (1994) Trade and Wages: Levelling Wages Down?,
Washington DC, AEI Press.
Bronfenbrenner, K (1997) "The Effects of Plant Closing or Threat of Plant Closing
on the Right Of Workers to Organise" Submitted to the Labor Secretariat of the
North American Commission For Labor Co-operation, Cornell University, Ithaca,
New York.
Burtless G (1995), "International Trade and the Rise in Earnings Equality", Journal
of Economic Literature, Vol XXXIII, June, pp.800-816.
Canadian Labour Congress (CLC) (1996) The Social Dimensions of North
American Economic Integration. CLC Ottawa, Canada.
Commonwealth of Australia (1995) Report of Labour Standards in the Asia Pacific
Region, Report of the Tripartite Working Party on Labour Standards. (Also
referred to as 'The Duffy Report').
Commonwealth of Australia (1997) Trade Liberalisation:
Australia, Canberra.
Opportunities for
Deery,S and Mitchell (1993) Labour Law & Industrial Relations in Asia Longman
Cheshire, Melbourne.
Fahrer,J and Pease,A (1994) "International Trade and the Australian Labour
Market" in International Integration of the Australian Economy Reserve Bank of
Australia Conference proceedings, Sydney.
Freeman, R (1995) "Are Your Wages Set in Beijing?" Journal of Economic
Perspectives Vol 9, No 3, Summer.
Frenkel, S (ed.) (1993) Organised Labor in the Asia-Pacific Region ILR Press,
Ithaca, New York.
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Galbraith, James K. (1996) "Uneven Development and the Destabilisation of the
North : a Keynesian view." International Review of Applied Economics, Vol 10.
No.1.
Harcourt T. (1997) Labour Issues in APEC, A Paper for the Australian APEC
Study Centre, Melbourne.
ICFTU-APRO (1997) International Trade, Investment and Competitiveness: Trade
Union Strategies in a Globalising Economy, ICFTU-APRO Singapore.
Martin, H-P. and Schumann, H (1997) The Global trap: Globalisation and the
Assault on Democracy and Prosperity. Zed Books, UK
Mishel, Lawrence and Voos (1992) (ed) Unions and Economic Competitiveness,
M.E. Sharpe, New York.
Public Services International (1997) "International Trade Agreements and Trade
Unions: Briefing Notes", PSI, France.
OECD (1995) Trade and Labour Standards:
Paris.
A Review of the Issues, OECD,
OECD (1997) Employment Outlook - July 1997, OECD, Paris.
Lawrence, Robert Z. (1994) "Trade, Multinationals and Labour." in International
Integration of the Australian Economy Reserve Bank of Australia Conference
proceedings, Sydney.
Rodrik, Dani (1997) Has Globalisation Gone Too Far ? Institute for International
Economics, Washington D.C.
Sengberger W. and Wilkinson F (1995) "Globalisation and Labour Standards" in
Michie J, and Grieve Smith J., Managing the Global Economy, Oxford University
Press, Oxford, UK.
Solow, R (1990) The Labor Market as a Social Institution, Basil Blackwell, Oxford.
Singh, Ajit (1997)" Expanding employment in the global economy: the high road
or the low road? in Markets ,Unemployment and Economic Policy, Routledge,
London.
Wood,A (1995) "How Trade Hurt Unskilled Workers"Journal of Economic
Perspectives Vol 9, No 3, Summer.
World Bank (1995) Workers in an Integrating World - World Development Report
1995. Oxford UP, World Bank, Washington D.C.
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ATTACHMENT 1
Charts from ILO World Labour Report 1997-98
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Study
A. Wood (1994) and (1995)
Issues
Factor content analysis - measures impact
of trade with 'south' on the wages of
unskilled workers in the 'north'.
R. Freeman (1995)
Tests whether "Your wages are set in
Beijing" by reviewng conceptual linkages
between trade and the labour market.
A. Singh (1997)
Tests the Wood analysis in terms of
economic strategies for both 'North and
South' (industrialised and developing
world).
James K. Galbraith (1996)
Tests Keynesian theory on question of
North-South trade in manufacturing,
industrial location from North to South,
rising wage inequality and unemployment
in the North.
Tests the impact of trade and structured
change on workers' wages bill and
employment share.
Machin, Ryan and Van
Reenan (1996) cited in
OECD (1997)
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Results
Finds the impact of trade to be 10 times the
magnitude of previous 'small effects' studies.
Makes the assumption that all manufactures'
imports are non-competing (other than processed
primary products) and that productivity in the
'south' is the same as in the 'north'.
Believes that the impact of trade on wage
inequality is exaggerated. Argues that much of
the labour market has wages not according to
domestic conditions. Regards other factors technology and political events as more important
than trade flows.
Rejects 'North-south' division inherent in Wood
analysis. Questions Wood's assumptions and
argues that any study that assumes a neoclassical labour market in North and South
economies is deficient. Argues that a pro-growth
strategy for the 'North' is ultimately beneficial for
the 'South'.
Argues that Keynesian theory best captures the
dynamics of the North-South relationship and
especially the influence of Northern
macroeconomic policy and North business cycles
on industrial trading patterns.
Found in the UK and USA that industries with
higher unionisation levels experienced less
downgrading of the relative wages and
employment of unskilled workers.
Belman and Lee (1997)
Surveys empirical tests of the effect of
trade on manufacturing employment in the
US.
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Four main conclusions are drawn:
1.
Employment effects greater than wage
effects.
2.
Negative consequences of imports for
wages increased in 1970s and 1980s.
3.
The large employment effects of trade
suggest considerable job mobility (often from
manufacturing to the service sector).
4.
Loss of wage leadership in manufacturing
has affected wage bargaining throughout the
economy.