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.
Globalisation, the Asian Crisis & the Future of Australia Conference - 16 March, 1998 -1-
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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
Globalisation, the Asian Crisis & the Future of Australia Conference - 16 March, 1998 -1-
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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.
'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 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 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 anti-NAFTA 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 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 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 neo-classical 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 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 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 'first-world' 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.
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.