Summer Semester 2008 – Unicert IVB
EU ENLARGEMENT
The dark side of globalisation
May 29th 2008
From The Economist print edition
Jobs come, but they soon go again
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A DECADE ago, Samorin—a small town in western Slovakia, on the banks
of the river Danube—was one of many good places in which to watch the
effect of globalisation on central Europe. The town was full of cheap,
experienced workers in need of jobs, with unemployment at 20%. Foreign
investors duly arrived, notably Samsonite, an American luggage-maker,
which set up a factory there in 1997. The town’s location helped, near a
four-way border where Slovakia, Hungary, Austria and the Czech Republic
meet in a cat’s cradle of big roads and railway lines. There are scores of
similar towns across the region that attracted jobs from higher-cost, more
highly regulated labour markets farther west.
Workers, trade unions and politicians in old Europe mourned each factory
moving east. But, as a European Commission official explains off the
record, such shifts were fully expected: offshoring "was the whole idea of
enlargement". The process, though wrenching to some, made the
European Union as a whole more competitive and spread the benefits of
global trade to every corner of Europe.
So far, so familiar. But things have moved on in Samorin. Even though
new investment and jobs are still arriving in Slovakia, and proximity still
counts, this river town has already lost a factory to offshoring. Samsonite
closed its plant in 2006, shedding all 350 staff and shifting production to
China.
Like its neighbours, Slovakia has seen wages rising fast as new jobs
arrived and many of its own people headed west. In most of the new
member countries, unemployment rates are lower than at any time since
early 2000. But rising labour costs are only part of a more complicated
story. Slovakia is still cheaper than the Czech Republic. In Samorin,
unskilled workers might earn 12,000-15,000 crowns (€380-480) a month.
Labour costs have risen faster in other new EU members too. In
overheating Latvia, pay in the fourth quarter of 2007 was 30% up on a
year earlier (see chart 1).
Samorin is a witness to the way that globalisation is fragmenting as
supply chains break into ever smaller parts, sending jobs in all directions.
The European Restructuring Monitor (ERM), an EU outfit that tracks
globalisation, has analysed about two dozen cases of offshoring from new
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Summer Semester 2008 – Unicert IVB
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members of the EU, often involving complex moves. In one example, a
German lighting company shed 400 jobs in Slovenia and sent the
manufacturing end jobs back to Germany. In another, a Hong Kongowned textile-maker shut up shop in Latvia, citing a "lack of workforce" in
the region, and shifted production to Macedonia and Vietnam.
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Slovakia is currently a European cheerleader for open markets and free
trade. In a Pew Global Opinion survey last year, Slovaks were more
enthusiastic than Americans, Swedes or Britons about multinational
companies, with 72% agreeing that big foreign companies were good for
their country, a European record (55% of French respondents thought
foreign firms were bad for them, setting a record in the opposite
direction). But will Slovaks remain so upbeat if the jobs stop coming in?
Vladimir Osvolda, the former boss of Samsonite’s Samorin factory, thinks
his fellow Slovaks have no choice. Western Europeans over 40 remember
a working life that was "very comfortable", he says: the iron curtain
shielded them from competition in central and eastern Europe, China did
not yet present a threat and strong trade unions guarded their interests.
East Europeans never had that comfortable life, he says, and never will.
Mr Osvolda lost his own job when Samsonite left; he now runs a factory
for an Italian firm. He suspects that not all his staff understood that they
lost their jobs to globalisation. All they knew was that they were made
redundant five times before, in the tough years that followed the collapse
of state socialism, so they felt resignation rather than shock.
Mr Osvolda managed Samsonite’s startup in 1997. He recalls that Samorin
felt like a mirror of a Samsonite factory in the Belgian town of Turnhout.
"They would lay off 100 staff, we would take on 100." His employers had
to deal with three trade unions when shedding staff in western Europe.
"Here, there was no trade union." Not that the Americans were ruthless,
he says. They rather overpaid people in Samorin. Labour costs were
higher than in Asia, but location trumped cost advantage. The factory’s
role was to manage peak demand for the highest-priced products. What
killed his plant was the effect of higher labour costs on suppliers, who one
by one moved to Asia. By the end, the factory was having to fly in
materials to fill urgent orders at great expense. "Samsonite was in
Belgium 30 years before they decided the perfect solution was to invest in
Slovakia," notes Mr Osvolda. The company’s Samorin business model
lasted just nine years. "Everything is getting faster and faster."
Not all east Europeans are as philosophical as Mr Osvolda. The big test will
come if (or when) growth rates in the ex-communist block slow to match
those in old Europe and pay falls in real terms. Companies with strong
trade unions—mostly former state concerns—have already seen strikes
over pay. Romanian workers recently downed tools at a Renault subsidiary
that makes the Logan, a low-cost car (see article). Nils Muiznieks of the
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Summer Semester 2008 – Unicert IVB
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University of Latvia says his country is too small to dream about keeping
out foreign threats. For those who are not happy with their prospects, he
says, "the policy option here is not protectionism, it’s emigration."
Meglena Kuneva, the Bulgarian member of the 27-strong European
commission, draws a dividing line, not between old and new Europe but
between "lazy and zealous Europe". The new members will thrive as long
they do not become lazy, she says.
To date, the newcomers’ governments have remained fairly liberal on
matters such as flexible labour markets and tax policies (their support for
free trade is spottier). Slovakia’s prime minister, Robert Fico, won office
as a fiery left-wing populist, for example, but was then careful to leave in
place business-friendly policies like a flat tax, devised by a previous
government. Günter Verheugen, now EU commissioner for enterprise and
industry, has been touring some of the new member countries, urging
governments to prepare for rising labour costs. The newcomers’ success
was based on three things, says Mr Verheugen: cheap labour, skilled and
motivated workers, and an existing industrial base. Now costs are rising
but productivity is growing painfully slowly, from a low base. The
newcomers face the same problem as Spain and Portugal did on entry:
relying too heavily on foreign investors to bring technologies and jobs,
rather than creating indigenous centres of research and development. In
the longer term, if new EU members "cannot compete on costs, they have
to compete on quality and innovation", says Mr Verheugen. The cliché that
eastern Europe is crammed with highly educated boffins and poetryspouting intellectuals has long been disproved. In the OECD’s latest PISA
survey of educational standards in science, reading and mathematics, only
young Estonians and Slovenians performed above the OECD average in all
three. Young Bulgarians and Romanians were way below average (see
chart 2).
Body-shopping
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Alarmingly, the idea has taken hold across central and eastern Europe
that the most pressing crisis is a shortage of people. Every day,
newspapers report plans to ship in Vietnamese textile-workers, Ukrainian
road-builders or Moldovan waiters to fill vacancies. There may well be
some immigration, but it will not be the cure-all some seem to expect. In
sleepy Samorin, the "migrant workers" are from the poorer east of
Slovakia, a few hours’ drive away, but the locals see even eastern Slovaks
as a race apart. They get drunk and sometimes fight, says Irvin Sarmany,
a municipal official. Some blame the newcomers for a rash of burglaries.
Miroslav Beblavy, director of the Slovak Governance Institute, a thinktank, argues that the newcomers’ governments should start by improving
their policies at home. Employment rates in Slovakia, Hungary and Poland
hover at or below 60% of the working-age population, compared with
Denmark’s 77%. “You can’t complain about labour shortages when so
many people are not working,” he says. Across the region, governments
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have failed to keep people over 55 in the workforce, an urgent problem
because ex-communist populations are greying fast. Millions of Roma are
widely seen as "unemployable". Large numbers of young people now go to
university. Too many are studying fashionable things like social sciences
rather than engineering or computing.
Small, mundane changes would help. In some countries workers who have
taken early retirement would lose their pensions if they went back to
work. Bulgaria has no laws covering temporary work. At his new factory in
Samorin, Mr Osvolda has started recruiting toolmakers and other
specialist workers from eastern Slovakia. But he notes that once he has
persuaded skilled workers to uproot themselves and move 300-400km
westward, some of them will keep going to Britain or Ireland to earn two
or three times more. Everything is becoming more mobile, making life
more complicated. But many central and eastern European workers
remember the days when they were not free to move. They are a tough,
flexible bunch and do not think the world will stop for them. The EU is
lucky to have them.
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Summer Semester 2008 – Unicert IVB
Europe GDP/person change over time
Chart 1: Percentage increase after one year of labour
cost, DP and inflation per country
Chart 3: EU15 trade with the EU new 12
Summary-writing:
Chart 2: OECD average and national learning scores
for reading, maths and science.
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Could you please write a summary of the
information contained in these graphs.
Concentrate on at least 2 of the graphs. You
should write around 90-100 words.
Please write your summary on a separate
sheet of paper. Make sure your name is
clearly legible, and count the words used.
Summer Semester 2008 – Unicert IVB
Reading Comprehension – UniCERT 4B – Friday, June 13th 2008
Please provide concise answers in English. You may lose marks if you include irrelevant
material or material which is not in the text. To demonstrate comprehension, you should use
your own words as much as possible: if you are specifically asked to explain the meaning of
a passage in your own words, do so. Use the words of the text in a recognizable way (i.e. use
quotation marks, for example) where this is necessary and relevant.
Lines 0 - 21
1. At the end of the 90s Samorin was a kind of laboratory. In what sense might we be justified in
saying this?
2. 'Cat's cradle' is a game with string in which the hands and fingers are used. Why is it used as a
metaphor here?
3. In your own words, describe the attitude of unions and politicians to European offshoring.
4. "Such shifts were expected". What status or weight does this statement have?
5. The 'real agenda' of Enlargement was what, according to an EC source?
6. Explain:
i)
ii)
iii)
"off the record" (ll.12-13)
"though wrenching to some" (l.14)
"proximity still counts" (ll.18-19)
7. In what sense have "things moved on" in Samorin?
Lines 22 - 39
8. What evidence does the text give of the situation in E. Europe being "a more complicated story"?
9. The situation in Samorin is proof of what specific developments in the global economy?
10. ERM is "an outfit that tracks globalization". Explain what this means.
11. What is "complex" about the offshoring processes documented by ERM, making use of the
examples cited here?
Lines 40 - 72
12. Which metaphoric expression is used to characterize Slovak respondents' more 'upbeat' attitude
to foreign investors in contrast to others' greater scepticism?
13. East Europeans never had a comfortable life like the Western Europeans, Osvolda says, and
never will
i)
ii)
because they were always threatened by China
because Westerners do not wish to give up their comfortable life
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Summer Semester 2008 – Unicert IVB
iii)
because the collapse of the Iron Curtain has left them open to the forces of
globalization
because they did not (and in the future are unlikely to) enjoy the relative comfort
provided for the West by what he sees as the securities of the Iron Curtain years
iv)
14. Samorin felt like a mirror of a Samsonite factory in the Belgian town of Turnhout
i)
ii)
iii)
iv)
because of the similar population structure and levels of unemployment
because of the diametrically opposed developments in staffing policies
because pay levels in the two towns were similarly high
because like Turnhout, Samorin was merely a short-term location for Samsonite
Lines 73 - 107
15. According to the author(s) of the article, the big test of globalization for the populations of
Eastern Europe
i)
ii)
iii)
iv)
will come if they are slow to match up with the growth rates achieved in 'old
Europe'
will depend on having strong trade unions to defend their economic interests
will come when the economic development of the ex-Iron Curtain countries
resembles that of former non-communist Europe
will be decided by the zeal of new Europeans
16. The author(s) write(s): "their support for free trade is spottier"(l.88). Who and what is meant by
this remark?
17. Günter Verheugen thinks that the development problems increasingly faced by the ex-communist
EU members
i)
ii)
iii)
iv)
are above all due to an abundance of boffins and poets in the national elites
are primarily due to the poor performance of some Eastern Europeans in the PISA
surveys
are caused by the poor quality of the industrial base and the workforce
are reinforced by the neglect of long-term development of domestic R&D
capabilities
Lines 108 - 140
18. Interpret the reasons the author(s) may have had for titling the last section of the text "Bodyshopping".
19. Why, according to the text, is it a problem that East Europeans are "greying fast"?
20. Everything is becoming more mobile, making life more complicated. This remark, attributed here
to Mr Osvolda, refers mainly to
i)
ii)
iii)
iv)
specialist workers from Eastern Slovakia and Roma pouring into Samorin
young people going away to study rather than staying to work
the strong competition for skilled workers ready to migrate faced by Samorin
retirees who return to work after 55
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