3) Labour standards in the Informal Sector:
The majority of the labour force in the developing countries works in the informal sector as tenants, farmers, wage labours, and self-employed small enterprise holders. The following table shows, the depiction of dual economy (formal and informal) that exists in developing countries. The table 1 illustrates the large number of workers in various developing countries work for small enterprises with 1-4 or 5-9 workers. The percentages range from 77 percent in Indonesia and to 90 percent in Sierra Leone. Whereas the labour force in the U.S. working for enterprise with less than 10 workers was only about 4 percent.
This raises issues about effective implementation of labour standards and improved wages and working conditions of these diverse groups of workers in the informal sector. Singh and Zammit note, that given the heterogeneous group of people working in the informal sector, it is particularly difficult to implement labour standards in the both urban and rural areas, and in agriculture (2004: 25). Confining labour standards to the formal sector would increase the disparity within the society (Singh and Zammit, 2004: 17). Further this will create social and economic exclusion of people who are already marginalized by being part of the informal sector. They propose to modify the ILO conventions 87 and 98 concerning freedom of association and right to engage in collective bargaining to provide platform to various organisations to represent needs of informal sector workers. In this regard, local governments can play an important role to obtain representation and redress for people working in this sector.
Hence, evidence show that improved core labour standards and other labour standards are linked with fast structural change and industrialization of the economies. Work in the formal industry is structured to provide facilities of trade union, as contrast to SMEs in agriculture and informal sector. The higher productivity in industry creates opportunities for improvements of labour standards. The evidence also suggests that employers in the industrial sector who have investment in the enterprise tend to promote core and other labour standards to increase the level of productivity and level of commitment of their workforce.
II) Global Big Business and Labour Standards:
This section analyses the influence of MNCs on labour standards in the developing countries. It focuses on theory and then on a labour intensive manufacturing sector, namely apparel retailers and supermarkets. This section will explore the effects of MNCs on foreign direct investment (FDI), employment and wages, and the evolution of the global supply chain. To this end, it will briefly consider whether multinationals are partial to investing in less developed countries that have weak workers rights.
1) Global Big Business and Foreign Direct Investment (FDI) in Developing Countries:
Foreign direct investment has played a significant role in the integration of developing countries into globalization process that characterizes the world economy. In recent years, there has been a shift in the economic policy of the developing countries by eliminating the import substitution and liberalizing their economies (Chundnovsky, and Lopez, 2006: 72-73). At micro level, FDI has been influential in accessing international markets and integrating functions, such as marketing, distribution, obtaining technological and organizational capabilities required for producing and exporting goods and services. In this way, FDI has increased the economic competitiveness of the host countries. Stiglitz argues that, Foreign direct “investment brings with it not only resources, but technology, access to markets,â€¦ valuable training, an improvement in human capital” (2000: 3-4). However, Dunning (1993: 284) disagrees and notes that, many countries today are dependent on TNCs as providers’ of resources and jobs, while TNCs are only interested in maximizing their profits.
The contribution of FDI to economic development of a host country depends not only on volume but also on quality. The type of investment, the industry and its location and the kind of assets provided by TNCs will depend on the role played by its affiliates within the global network MNCs. The developing country profile not only attracts the amount and kind of investment, but also its contribution to competitiveness, growth, human and social development. These attributes for attracting FDI compel countries to compete with each other as they fear that the investment will go to higher, more aggressive bidding country (Oman, 1998:4; Chundnovsky, and Lopez, 2006:75). This is exemplified by Malaysia’s foreign investment policy discussed further on.
There appears to be a shift from North-South competition towards a gradual inclusion of South-South competition. This emerging shift is visible in labour-intensive industries in the South. The World Bank report (1995) indicated that almost 80 percent of the worlds’ low-middle income countries account for the total industrial workforce. The evidence shows that “the share of manufactures in developing country exports rose from 20 percent to 60 percent between 1960 and 1990” (cited in Chan and Ross, 2003: 1014, for original see World Bank 1995: 16). Because of the mobility, MNCs have moved production and profits across national borders in order to reduce their tax burden. This has created an environment in which nations compete against each other by offering lower taxes to MNCs. Exports markets from the North have sparked intense competition that threatens labour standards in the South. Corporations “lobby national governments to acquire favours to operate their business in a tax free zone, and operate in sympathetic regulators’ environment” (Chandler and Mazlish, 2005: 35). For example, Malaysia has since 1980s attracted small manufacturing operations from semiconductor MNCs and provided them tax breaks for a period of five to ten years and has issued guarantees against the formation of workers unions.
It can be argued that increased mobility of capital under liberalization and globalization puts pressure on wages and working conditions. Global corporations can intimidate workers and their organizations by threatening to exit and relocate elsewhere which can have negative implications for local workers, and their organization as well as the government itself. This can be shown from the below mentioned graph of US apparel industry. This Figure 1 illustrates the south – south competition in the apparel sector, which part of labour intensive industry. It is important to note that endowment as discussed earlier plays an important role to push one country out of the competition and brings another in. Where this pushes wages down and provides an opportunity to improve technical resources, competition at the same time creates new industries. This figure shows that when the US moved out of the apparel industry, China and Hong Kong and later Mexico joined this sector. (Chan and Ross, 2003: 1016). The figure also shows that the MNCs are always seeking to capture the emerging economies to expand their share of profits and thus influence the local industry.