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Relationship Between The Labour Standards And Economic Development

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“The modern multinational corporation is an economic, political, environmental, and cultural force that is unavoidable in today’s globalised world”. (Chandler and Mazlish, 2005: 19) With the advent of globalization, multinational corporations (MNCs) have emerged as the “key agent of change, the dynamic force driving global integration” that has greatly influenced the governance, politics and the world economies (Friedman 2005: 9). The phenomenal growth of MNCs since 1980s had an impact on every sphere of modern life [1] . Most visible in its economic sense is the liberalisation of international trade and free flow of capital across borders.

Today large numbers of developing countries have entered into international trade arrangements, which have significantly shaped the global patterns of trade and international division of labour. This has led to increased competition between global firms, and expansion of technologies and communications. This competition is crucial to achieve economies of scale. In the contemporary world, MNCs from the global North seek to access cheap and low-skilled labour, by outsourcing their business units on contracts to small and medium enterprises (SMEs) based in the developing countries (Mintz, 2009). Thus, MNCs are increasing their power through mergers and acquisition. They are the global firms that manage production, revenues, and investment beyond their borders along with a pool of international human resources [2] .

Although, MNCs have been providing livelihood opportunities in the host countries, nevertheless they have been engaged in Sweatshop labour in the producing countries. In recent years, these Sweatshops “have mushroomed in many Asian countries”, that violate labour standards laws (Thekkudan, and Tandon, 2009). In this context, the concern to establish minimum labour standards for developing countries has raised an array of issues, relating to economic, political and moral spheres which are contentious and have not been resolved [3] .

For past two decades attempts have been made by the United States, along with other advance country governments, and the International Confederation of Free trade Unions (ICFTU), to establish multilateral rules in the World Trade Organisation (WTO) to enforce higher labour standards globally. These groups demand that market access in the North should be conditioned on raising standards in the South, to avoid “race to the bottom” in wages. They also propose to take strict trade measures against countries deemed unable to maintain core labour standards. (Singh and Zammit: 2004). However, this initiative did not materialize as developing countries opposed this idea and obstructed any advances by adhering to veiled protectionist strategies. Even though, the enforcement of labour standards does not appear to be a priority for WTO, the issue of violation of labour rights remains unsettled (Chan and Ross, 2003: 1014).

This paper focuses on the emergence of the ‘global business revolution’ which has taken place since 1980s and the manner in which it has affected labour standards in developing countries. The central aims of the paper are firstly, to assess the key issues in this ongoing debate on international labour standards in the literature; and secondly, to analyse the ability of big businesses to improve labour standards in the labour intensive, export-oriented work force.

The paper is structured into three sections: i) an overview of the international labour standards, and exploration of the controversy around core labour standards; ii) MNCs effect on Foreign Direct Investment, Employment and Wages; iii) this section examines the evolution of global production networks and value chains; this will assess the impact of global production on working conditions in the informal sector focussing on the labour intensive apparel industry and Super Markets; iv) a brief look at the potential role NGOs to form partnership with global big business in improving standards.

In assessing the ability of MNCs on labour standards, the paper argues that, MNCs invest in selective countries that has certain level of infrastructure and thus, affects their labour standards. The paper further argues, although MNCs are the most powerful in improving the labour standards of the host countries, however, they are not the only stake holders to improve standards. The other stakeholders such as host governments, NGOs, ILO, and Trade Unions have the power to influence labour standards, hence all these stakeholders are interconnected in a complex socio-economic and political relationship.

I) Labour Standards and Developing Countries: The On Going Debate

This section focuses on the divergent views of developed and developing countries on global trade and labour standards. To understand the on going debate on international labour standards, it is important to discuss the larger economic and political context in which they exist. The battle between advocates and opponents of the standards arises from economic and political conflicts. In order to asses the ability of MNCs to improve standards, it is essential to be clear about what is meant by labour standards and why they are highly contentious.

The international labour standards are meant to be policy measures aimed at helping countries from the global south to raise their population’s standard of living. This includes people from the formal as well as rapidly growing informal economy (Luce, 2005; Thekkudan, and Tandon, 2009). The contested labour standards are embodied in ILO 1998 Declaration of Fundamental Principles and Rights at Work, as the benchmark for measuring labour standards. According to the ILO, “these conventions are fundamental to humane working conditions in any country, regardless of level of development” (Luce, 2005: 2). For this reason, these standards can also be considered as rights [4] . Of these the following are considered to be core labour standards (CLS), i) freedom of association and right to collective bargaining; ii) freedom from forced labour; iii) the abolition of child labour and iv) the elimination of discrimination in the workplace. These standards were collectively accepted by the ILO member nation states who pledged to uphold them however they have failed to do so (Singh and Zammit, 2004). Elliot and Freeman (2003) state that, the freedom of association standard is most violated by the employers. In addition to the above CLS, Singh and Zammit (2004) have argued that the core standards should also include “the right to a decent living”. Although, developing countries are the alleged beneficiaries of these standards, the idea to apply these standards has been opposed by them. This will be discussed further on.