Behind the Wire 021030

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ICFTU:
Behind the Wire

WEPZA:
Comments and Questions

Globalisation
21. The EPZs are to a certain extent a caricature of the rapid globalisation of the economy. This globalisation is seen as a threat by most workers in the industrialised countries and is often felt as a new form of exploitation by many workers in the Third World. Over recent decades, Third World trade has increased almost exponentially, but this growth has been accompanied by a serious disruption of the international economy, and in particular a shift in power relationships. The old industrialised nations, Europe and the United States, have participated in this sudden expansion in trade flows, but their share has been gradually eroded not only by Japan but also by the NICs, the newly industrialised countries of Asia and, to a lesser extent, Latin America.
21. Again it is pointed out that the problem that the ICFTU has is with the global economy and trade in general, and not EPZs. Workers seeing the threat of globalization are not at Boeing or in Silicon Valley where their jobs depend on exports. The Third World countries now take 40% of US exports and have the fastest growth. Those 747s sold to Singapore and China caused Boeing to rehire 12,000 workers in 1996-7. Industries that have gone overseas have also hired more people domestically.
The labor unions do not understand that the future growth of advanced nations depends on growth of the Third World. The ONLY way for most poor countries to develop is through manufactured exports -- their gains from raw materials and commodities having already been realized. Unless they can export more to the world, especially to the advanced nations, they will not earn the hard currencies needed to buy high tech products like airplanes. Their low cost imports will help raise the standards of living in the developed world and the products they buy will keep the workers in the advanced nations employed.
Japan has recognized this; in 1971 MITI Japan decided to get out of manufacturing shirts by 1983 because they could not afford to waste their labor force on "low-value-added" products. They got out by 1980 mostly. Their investment in shirt manufacture in poor countries has brought them great savings in shirts and new markets for their high-tech products. And many new jobs were created, not just in shirts, in the countries that attracted the shirt factories as well as in the home country of Japan.
Why should workers in advanced countries see these facts as a threat? Perhaps because unions see it as a threat and use propaganda pieces like this to spread that notion. Union membership is concentrated in the low-tech industries. Unions are threatened, not workers. The advanced nations have populations of about 1.5 billion. The poor countries have 4.5 billion. There must be a market there somewhere if it could be made to work. EPZs in poor countries help it work.
22. The gap between the different developing countries has also grown: the NICs share of total exports of manufactures from developing countries increased from 13.5 percent in 1965 to 45 percent in 1980, rising to over 60 percent in 1990. Also in 1990, the four Asian dragons (South Korea, Hong Kong, Taiwan and Singapore) accounted for 61 percent of exports of manufactures from the Third World, while the trio Indonesia, Malaysia and Thailand accounted 12 percent. 22. Rejoice in the gap. The gap has widened because once upon a time they were all poor and there was no gap. Then a few started to develop and created the gap. Now many are starting up the same development stairway. Soon there will be seven countries accounting for 60% and then ten countries. For example, China's growing exports reduced the percentage coming from the four dragons to just 43% of a much larger pie in 1996.
23. While it was the member states of GATT, now the WTO, who favoured the liberalisation of trade and the deregulation of economies, it is the multinational enterprises who have been the principal actors and prime beneficiaries of these changes. Why? "Because" explains the economist Francois Chesnais, "they led to a dual process of accumulation: on the one hand, an accumulation of capital, through internal growth and acquisitions/mergers; on the other, an accumulation of specific skills and experience in the management of numerous and widely scattered production sites, of a private internal market, and of diversification by sector. By 1980, they had acquired a lot of experience in how to exploit the disparities between countries, particularly as regards wage costs and taxation. Internationalisation held no secrets for them, nor did mobility, in terms of the capacity to invest and disinvest, to enter into and withdraw from a sector or a country without scruples, their only criteria being profit, competition and growth. 23. Multinational firms are an integral part of the economic fabric. They provide jobs, products, technology and capital just as local firms do. The liberalization of trade has brought benefits to billions of people in most countries of the world; that is why the member states support it. It has lowered consumer costs, increased overall employment, and strengthened political stability. When I buy a product, I do so in a free exchange, so that both I and the company that made the product benefit. The assertion that the companies have been the primary actors and the primary beneficiaries is absurd, they are well less than half the actors and beneficiaries.
Mr. Chesnais is wrong in believing that companies go out initially to exploit differences in wage costs and taxation. Indeed over 80 of all foreign investment is made to serve local markets better. Wage costs and taxation as factors are considered only after MANY others like market, business climate, logistics, political risk, living conditions for managers, etc. have been considered. Once the analysis is boiled down to a few possible countries, then the tax and wage factors can be evaluated.
By putting "scruples" into his sentence, Mr. Chesnais implies that companies do not have them. Most companies do, just as most unions and most politicians do. But there are some bad actors in each group, and these individuals are subject to legal and criminal action in the countries where they break the law, and sometimes in other countries as well.
24. "Then there is the human element" continues Philippe Fremeaux. "Most people feel the effects of globalisation. They feel it even more when their governments, by conviction or by reason, are more sensitive to the demands of multinational enterprises than to those of their own people." 24. "Most people" is a phrase that indicates the writer hasn't made a survey. We doubt that "most people" even know when a government decision affects a multinational enterprise and how that decision affects them. It would be nice if they did, for the business environment would be even more favorable.
25. Suddenly, "hundreds of millions of people realised they would have to compete for their jobs with workers who may live on the other side of the world". Nothing is local any more, everything seems to be bound up in an international system that people don't really understand and that only the multinational enterprises, who operate at the world level, seem to have any control over. 25. Now it's "hundreds of millions of people" which means "no survey". The local Walmart Store in the USA with its low prices makes people aware of the international supply of low-cost goods and, by doing so increases their standard of living. Few people buying these products work at factories making them; this has been the nature of industrial specialization for three hundred years. Nothing has been local for longer than unions have existed. The unions are looking back to the "good old days" that never were.
We are quite sure that the multinational enterprises are not aware that they control the international system. It is the enduring fantasy of people who like central planning to think that if they are not doing the planning someone else is. It shows a lack of understanding of how markets work. No entity or group of entities controls the global economy to their advantage. It can't be done by labor, governments, or corporations.
International transactions
26. Nobody knows who is producing what or where it is produced. Robert Reich, US Secretary of Labor, gives an eloquent example: "When an American buys a Pontiac Le Mans from General Motors, they are unknowingly entering into an international transaction. Of the 10,000 dollars they pay General Motors, about 3,000 ends up in South Korea for routine assembly, 1,850 goes to Japan for sophisticated components (engine parts, electronics) 700 to Germany for the design, 400 to Taiwan, Singapore or Japan for smaller parts, 250 to Great Britain for advertising and marketing and nearly 50 dollars to Ireland and Barbados for data processing. The remainder, less than 4,000 dollars, will end up in the pockets of the strategists in Detroit, lawyers and bankers in New York, lobbyists in Washington, insurance and health care workers throughout the country and General Motors shareholders throughout the world". ----- (The Work of Nations, Knopf, New York, 1991) 26. Continuing the above argument we are in agreement. "Nobody knows who is producing what or where it is produced" -- nor do they care. It used to be effective for unions to raise the xenophobic argument against imports -- but the argument is no longer exploitable. If the product satisfies the market, it does not matter if it is international.
Robert Reich, being one of the last grand planners in government, conveniently leaves out that several thousand dollars of this sale ends up in state, local, and federal government coffers as sales tax, income tax, property tax, excise tax, import duties, or one of a hundred other taxes. Or that the buyer had to earn about 16,000 dollars in order to have 10,000 to spend. The remaining 6,000 going to taxes to help support Robert Reich's salary and staff. He also does not point out that the computers and presses he used to write and print his book were also made from imported components. "It's the economy stupid"
Relocation
27. The proliferation of export processing zones is linked to the phenomenon of the relocation of activities which used to be based in the industrial regions of the North. Trade union organisations from the North inevitably see these zones as responsible for the decline and collapse of employment in the old industrial regions. The extent to which the South is responsible, however, is a very controversial issue. 27. "Relocation" covers the broad movement of an industry over years to a new geographic location (i.e. the relocation of the New England Textile industry to the Southern US in the 1920s and 30s). Only rarely do factories close down overnight and move. They usually expand to a new region and keep operating at their original location as well. The process takes time and allows for adaptation to new conditions.
Trade union organizations see the threat of zones because they are unwilling to look at stagnant work rules, and antiquated union activities as a reason for the failure of their employers to stay competitive. They also failed to recognize that the types of jobs being created in the industrial "north" were more productive than the old-line industrial work of their members.
The South is responsible because it is there. What is controversial about that?
The competitive position of a garment factory we studied in Barbados in 1980 (a branch operation of a multinational producer aimed at the US market) turned negative at about that time. But the company fought to stay in Barbados for 8 more years before finally being forced to close. It even made full test runs to supply Europe under the Lome Convention, but could not overcome the combination of rising wages (caused by the increasing opportunities opening in Barbados, and increased transport costs (caused by the government setting air cargo rates to protect the government's own carrier). The same government manipulation of cargo rates also forced the closing of the Barbados $20 million Intel factory which could not compete into the US market with Intel's similar plant at Penang, Malaysia. In part because of an unusually favorable air cargo rates 12,000 miles from Singapore to the USA in comparison to the Barbados government cargo airline charges for 1,500 miles.
The part played by the south in proactively seeking development is not controversial, it is commendable.
28. "The economy" writes Pierre Sohlberg in "Alternatives Economiques", "does not operate as a zero sum game, where one side's gain is inevitably the other side's loss. It can operate in a positive sense, whereby everyone gets richer." 28. Agreed, as with globalization.
29. Take France, a country where there has been heated debate on the question of relocation not only at the world level but also within the European Union, with the "no" vote in the referendum on the Maastricht treaty coming very close to victory. According to research by France's foreign trade ministry (Mathieu and H. Sterdynalk, "L'Emergence de l'Asia en Developpement Menacetell l'emploi en France?" ----- (OFCE Review, January 1994), France lost 200,000 jobs over 20 years through trade with low wage economies in Asia, representing a 0.5-0.6 percent increase in unemployment. " 29. Could France afford to protect those jobs and remain in the European Union?
With Germany importing shirts from Slovenia into an emerging free trade EU, how could France compete for its domestic shirt market without going offshore to Tunisia and elsewhere? Besides, France was selling high tech products of its skilled workers to Tunisia, which it would not have sold unless Tunisia earned hard currency from exporting shirts to France. How many high-skill jobs did France protect during the 20-year slow reduction averaging 10,000 jobs per year? The Ministry of Foreign Trade article apparently doesn't say, but should have mentioned. The context is important when you quote numbers.
France also lost several million jobs to trade-union-induced work rules, an inflexible labor market, and high taxes accounting for about half of its 12% unemployment rate.
30. "It can therefore be said that an additional 0.5 percent unemployment is the price to be paid for a fraction of the South overcoming its poverty" states A. Weinberg in the Human Science review. 30. It cannot be generalized this way. He forgets the high skill jobs protected and expanded by the process. A single figure is an oversimplification unless it refers to a particular kind of job (e.g. garments).

ICFTU: Behind the Wire	WEPZA: Comments and Questions
Globalisation
21. The EPZs are to a certain extent a caricature of the rapid globalisation of the economy. This globalisation is seen as a threat by most workers in the industrialised countries and is often felt as a new form of exploitation by many workers in the Third World. Over recent decades, Third World trade has increased almost exponentially, but this growth has been accompanied by a serious disruption of the international economy, and in particular a shift in power relationships. The old industrialised nations, Europe and the United States, have participated in this sudden expansion in trade flows, but their share has been gradually eroded not only by Japan but also by the NICs, the newly industrialised countries of Asia and, to a lesser extent, Latin America.	21. Again it is pointed out that the problem that the ICFTU has is with the global economy and trade in general, and not EPZs. Workers seeing the threat of globalization are not at Boeing or in Silicon Valley where their jobs depend on exports. The Third World countries now take 40% of US exports and have the fastest growth. Those 747s sold to Singapore and China caused Boeing to rehire 12,000 workers in 1996-7. Industries that have gone overseas have also hired more people domestically. The labor unions do not understand that the future growth of advanced nations depends on growth of the Third World. The ONLY way for most poor countries to develop is through manufactured exports -- their gains from raw materials and commodities having already been realized. Unless they can export more to the world, especially to the advanced nations, they will not earn the hard currencies needed to buy high tech products like airplanes. Their low cost imports will help raise the standards of living in the developed world and the products they buy will keep the workers in the advanced nations employed. Japan has recognized this; in 1971 MITI Japan decided to get out of manufacturing shirts by 1983 because they could not afford to waste their labor force on "low-value-added" products. They got out by 1980 mostly. Their investment in shirt manufacture in poor countries has brought them great savings in shirts and new markets for their high-tech products. And many new jobs were created, not just in shirts, in the countries that attracted the shirt factories as well as in the home country of Japan. Why should workers in advanced countries see these facts as a threat? Perhaps because unions see it as a threat and use propaganda pieces like this to spread that notion. Union membership is concentrated in the low-tech industries. Unions are threatened, not workers. The advanced nations have populations of about 1.5 billion. The poor countries have 4.5 billion. There must be a market there somewhere if it could be made to work. EPZs in poor countries help it work.
22. The gap between the different developing countries has also grown: the NICs share of total exports of manufactures from developing countries increased from 13.5 percent in 1965 to 45 percent in 1980, rising to over 60 percent in 1990. Also in 1990, the four Asian dragons (South Korea, Hong Kong, Taiwan and Singapore) accounted for 61 percent of exports of manufactures from the Third World, while the trio Indonesia, Malaysia and Thailand accounted 12 percent.	22. Rejoice in the gap. The gap has widened because once upon a time they were all poor and there was no gap. Then a few started to develop and created the gap. Now many are starting up the same development stairway. Soon there will be seven countries accounting for 60% and then ten countries. For example, China's growing exports reduced the percentage coming from the four dragons to just 43% of a much larger pie in 1996.
23. While it was the member states of GATT, now the WTO, who favoured the liberalisation of trade and the deregulation of economies, it is the multinational enterprises who have been the principal actors and prime beneficiaries of these changes. Why? "Because" explains the economist Francois Chesnais, "they led to a dual process of accumulation: on the one hand, an accumulation of capital, through internal growth and acquisitions/mergers; on the other, an accumulation of specific skills and experience in the management of numerous and widely scattered production sites, of a private internal market, and of diversification by sector. By 1980, they had acquired a lot of experience in how to exploit the disparities between countries, particularly as regards wage costs and taxation. Internationalisation held no secrets for them, nor did mobility, in terms of the capacity to invest and disinvest, to enter into and withdraw from a sector or a country without scruples, their only criteria being profit, competition and growth.	23. Multinational firms are an integral part of the economic fabric. They provide jobs, products, technology and capital just as local firms do. The liberalization of trade has brought benefits to billions of people in most countries of the world; that is why the member states support it. It has lowered consumer costs, increased overall employment, and strengthened political stability. When I buy a product, I do so in a free exchange, so that both I and the company that made the product benefit. The assertion that the companies have been the primary actors and the primary beneficiaries is absurd, they are well less than half the actors and beneficiaries. Mr. Chesnais is wrong in believing that companies go out initially to exploit differences in wage costs and taxation. Indeed over 80 of all foreign investment is made to serve local markets better. Wage costs and taxation as factors are considered only after MANY others like market, business climate, logistics, political risk, living conditions for managers, etc. have been considered. Once the analysis is boiled down to a few possible countries, then the tax and wage factors can be evaluated. By putting "scruples" into his sentence, Mr. Chesnais implies that companies do not have them. Most companies do, just as most unions and most politicians do. But there are some bad actors in each group, and these individuals are subject to legal and criminal action in the countries where they break the law, and sometimes in other countries as well.
24. "Then there is the human element" continues Philippe Fremeaux. "Most people feel the effects of globalisation. They feel it even more when their governments, by conviction or by reason, are more sensitive to the demands of multinational enterprises than to those of their own people."	24. "Most people" is a phrase that indicates the writer hasn't made a survey. We doubt that "most people" even know when a government decision affects a multinational enterprise and how that decision affects them. It would be nice if they did, for the business environment would be even more favorable.
25. Suddenly, "hundreds of millions of people realised they would have to compete for their jobs with workers who may live on the other side of the world". Nothing is local any more, everything seems to be bound up in an international system that people don't really understand and that only the multinational enterprises, who operate at the world level, seem to have any control over.	25. Now it's "hundreds of millions of people" which means "no survey". The local Walmart Store in the USA with its low prices makes people aware of the international supply of low-cost goods and, by doing so increases their standard of living. Few people buying these products work at factories making them; this has been the nature of industrial specialization for three hundred years. Nothing has been local for longer than unions have existed. The unions are looking back to the "good old days" that never were. We are quite sure that the multinational enterprises are not aware that they control the international system. It is the enduring fantasy of people who like central planning to think that if they are not doing the planning someone else is. It shows a lack of understanding of how markets work. No entity or group of entities controls the global economy to their advantage. It can't be done by labor, governments, or corporations.
International transactions
26. Nobody knows who is producing what or where it is produced. Robert Reich, US Secretary of Labor, gives an eloquent example: "When an American buys a Pontiac Le Mans from General Motors, they are unknowingly entering into an international transaction. Of the 10,000 dollars they pay General Motors, about 3,000 ends up in South Korea for routine assembly, 1,850 goes to Japan for sophisticated components (engine parts, electronics) 700 to Germany for the design, 400 to Taiwan, Singapore or Japan for smaller parts, 250 to Great Britain for advertising and marketing and nearly 50 dollars to Ireland and Barbados for data processing. The remainder, less than 4,000 dollars, will end up in the pockets of the strategists in Detroit, lawyers and bankers in New York, lobbyists in Washington, insurance and health care workers throughout the country and General Motors shareholders throughout the world". ----- (The Work of Nations, Knopf, New York, 1991)	26. Continuing the above argument we are in agreement. "Nobody knows who is producing what or where it is produced" -- nor do they care. It used to be effective for unions to raise the xenophobic argument against imports -- but the argument is no longer exploitable. If the product satisfies the market, it does not matter if it is international. Robert Reich, being one of the last grand planners in government, conveniently leaves out that several thousand dollars of this sale ends up in state, local, and federal government coffers as sales tax, income tax, property tax, excise tax, import duties, or one of a hundred other taxes. Or that the buyer had to earn about 16,000 dollars in order to have 10,000 to spend. The remaining 6,000 going to taxes to help support Robert Reich's salary and staff. He also does not point out that the computers and presses he used to write and print his book were also made from imported components. "It's the economy stupid"
Relocation
27. The proliferation of export processing zones is linked to the phenomenon of the relocation of activities which used to be based in the industrial regions of the North. Trade union organisations from the North inevitably see these zones as responsible for the decline and collapse of employment in the old industrial regions. The extent to which the South is responsible, however, is a very controversial issue.	27. "Relocation" covers the broad movement of an industry over years to a new geographic location (i.e. the relocation of the New England Textile industry to the Southern US in the 1920s and 30s). Only rarely do factories close down overnight and move. They usually expand to a new region and keep operating at their original location as well. The process takes time and allows for adaptation to new conditions. Trade union organizations see the threat of zones because they are unwilling to look at stagnant work rules, and antiquated union activities as a reason for the failure of their employers to stay competitive. They also failed to recognize that the types of jobs being created in the industrial "north" were more productive than the old-line industrial work of their members. The South is responsible because it is there. What is controversial about that? The competitive position of a garment factory we studied in Barbados in 1980 (a branch operation of a multinational producer aimed at the US market) turned negative at about that time. But the company fought to stay in Barbados for 8 more years before finally being forced to close. It even made full test runs to supply Europe under the Lome Convention, but could not overcome the combination of rising wages (caused by the increasing opportunities opening in Barbados, and increased transport costs (caused by the government setting air cargo rates to protect the government's own carrier). The same government manipulation of cargo rates also forced the closing of the Barbados $20 million Intel factory which could not compete into the US market with Intel's similar plant at Penang, Malaysia. In part because of an unusually favorable air cargo rates 12,000 miles from Singapore to the USA in comparison to the Barbados government cargo airline charges for 1,500 miles. The part played by the south in proactively seeking development is not controversial, it is commendable.
28. "The economy" writes Pierre Sohlberg in "Alternatives Economiques", "does not operate as a zero sum game, where one side's gain is inevitably the other side's loss. It can operate in a positive sense, whereby everyone gets richer."	28. Agreed, as with globalization.
29. Take France, a country where there has been heated debate on the question of relocation not only at the world level but also within the European Union, with the "no" vote in the referendum on the Maastricht treaty coming very close to victory. According to research by France's foreign trade ministry (Mathieu and H. Sterdynalk, "L'Emergence de l'Asia en Developpement Menacetell l'emploi en France?" ----- (OFCE Review, January 1994), France lost 200,000 jobs over 20 years through trade with low wage economies in Asia, representing a 0.5-0.6 percent increase in unemployment. "	29. Could France afford to protect those jobs and remain in the European Union? With Germany importing shirts from Slovenia into an emerging free trade EU, how could France compete for its domestic shirt market without going offshore to Tunisia and elsewhere? Besides, France was selling high tech products of its skilled workers to Tunisia, which it would not have sold unless Tunisia earned hard currency from exporting shirts to France. How many high-skill jobs did France protect during the 20-year slow reduction averaging 10,000 jobs per year? The Ministry of Foreign Trade article apparently doesn't say, but should have mentioned. The context is important when you quote numbers. France also lost several million jobs to trade-union-induced work rules, an inflexible labor market, and high taxes accounting for about half of its 12% unemployment rate.
30. "It can therefore be said that an additional 0.5 percent unemployment is the price to be paid for a fraction of the South overcoming its poverty" states A. Weinberg in the Human Science review.	30. It cannot be generalized this way. He forgets the high skill jobs protected and expanded by the process. A single figure is an oversimplification unless it refers to a particular kind of job (e.g. garments).

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ICFTU:Behind the Wire

WEPZA:Comments and Questions

ICFTU:
Behind the Wire

WEPZA:
Comments and Questions