10 Lecture (Feb 14) Globalization and Poverty
Globalization and poverty Mutinational corporations and poverty (1) living wages (2) working conditions Globalization and nation-state
Poverty measures
1. 2.
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International poverty line ($1 or $2 per day) National poverty line: a threshold income above which citizens are assured a minimum nutrition level and other necessities in individual countries Poverty gap: distance below the poverty line as a proportion of the poverty line -> Poverty gap calculates how far individuals and households are dispersed from the poverty line. Thus, the poverty gap is calculated by the mean shortfall from the poverty line, and the non-poor are considered to have zero poverty gap. This measure can reflect the depth of poverty..
Figure 5.1. National Poverty Headcount (% Population) 40 39 38 37 36 35 34 1985-1994 1995-2005
Mutinational corporations and poverty: (1) living wages
Living-wage proponents : The process for setting wages according to a living-wage formula be standardized and multinational firms should adopt industry-wide standards for paying a living wage. Multinationals can well afford to pay higher wages to workers in developing countries because those wages are typically but a tiny fraction of the selling price of the product. The living wage should be mandated in all countries, not just a few, so that there is no place for employers to go.
<-> Problems. 1. Workers employed by multinationals are generally well paid, unionized, have legal protection of their rights, and receive mandated benefits. Payment of a living wage to these workers may be redundant. 2. Focusing on paying a living wage to workers employed by multinationals diverts attention from the far more serious and relevant problem of poverty and from the need to promote rapid economic growth to help eradicate poverty. 3. The goal of the living-wage proponents would be better served if they would lobby to________________________________________ ________________________and other trade barriers more generally, and __________________________________________. 4. Efforts should be made in developing countries themselves to eliminate ______________, remove barriers to trade, and dismantle ________________________________.
5. Living-wage proponents do not take into account the costs of further
processing,_______________________________. Multinational firms may be capturing oligopoly rents because of brand preferences, private labels, and name recognition that they have established. 6. Since subcontracting firms are generally independently owned, mandating higher wages for them in these circumstances would almost surely motivate them to search out ______________________________. 7. Labor-intensive manufacturing in developing countries is relatively sensitive to changes in ___________. This is particularly true for the production of ___________ ______________, which are prototype "footloose" industries.
8.
Wages vary across countries due to differences in ________________-, which typically rises with the level of ____________. However the living wage may be defined, it will be above the productivity-based market wages in some countries and below that in others. If employers are required to pay the living wage, they will tend to move to countries where the living wage is justified by _______________.
Mutinational corporations and poverty:(2) Working conditions
Conditions of work, including the right of association and collective bargaining: (1) the representation of workers and antiunion discrimination: (2) the right to strike; and (3) the threat to close plants that form unions. Encouragement of unions and collective bargaining may enhance the efficiency of labor markets and increase the productivity of workers, especially when there are monopsonistic employers. There may also be significant _______________________ effects as democratic institutions and social harmony are strengthened. <-> Is the right of association and collective bargaining the prime objective to enhance the welfare of workers in low-income countries? -> Market forces combined with judicious government policies can provide the basis for enhancing worker welfare in poor countries. -> Multinationals improve worker rights and working conditions. -> Foreign firms have lower labor costs in locations with weak labor protections. Enhanced labor rights may increase labor costs and make multinationals move to other regions.
Facts on MNCs and Wages
Affiliates of U.S. enterprises multinational pay a wage premium that ranges from 40 percent in high-income countries to 100 percent, or double the local average in lowincome countries. Workers in foreign-owned and subcontracting apparel and footwear factories in Vietnam rank in the top 20 percent of the population by household expenditure. In Nike subcontractor factories in June/July 2000, annual wages were $670 compared with an average minimum wage of $134. In Indonesia, annual wages were $720 compared with an average annual minimum of $241. In Bangladesh, legal minimum wages in export processing zones are 40 percent higher than the national minimum for unskilled workers, 15 percent higher for semiskilled workers, and 50 percent higher for skilled workers. In Mexico, firms with between 40 and 80 percent of their total sales going to exports paid wages that were, at the low end, 11 percent higher than the wages of non-export oriented firms; for companies with export sales above 80 percent, wages were between 58 and 67 percent higher. In Shanghai, a survey of 48 U.S.-based companies found that respondents paid an average hourly wage of $5.25, excluding benefits and bonuses, or about $10,900 per year. At a jointly-owned GM factory in Shanghai, workers earned $4.59 an hour, including benefits; this is about three times higher than wages for comparable work at a non-U.S. factory in Shanghai.
Facts on MNCs and labor rights
There is no solid evidence that countries with poorly protected worker rights attract FDI. This evidence is also consistent with FDI causing improvements in worker rights and working conditions. Several other factors were considerably more important than labor cost when selecting a site for FDI. Market size, political and social stability, labor quality, the legal and regulatory environment, and infrastructure were all rated as more important than the cost of labor. Labor rights that promote _______________ and enhance _______________may in fact make a particular location attractive to foreign investors. Investors prefer locations in which workers and the public more generally function in a ______________________________in which civil liberties are well established and enforced.
Globalization and nation-state
Globalization has forced states to roll back social insurance benefits and implement efficiency-oriented reforms for social services. If the government does not interfere, the market will select the most efficient institutional solutions among existing alternatives, and that most types of government intervention, except for those related to the provision of public goods, law and order, and property rights, are inimical to the operation of markets. As market integration increases and the national economy merges into the world market, government intervention produces harmful effects and thus, governments feel pressure to scale back their redistributive policies.
Expansion in trade and capital mobility in the globalized world market limits the ability of governments to maintain generous and comprehensive social protection. 1. As the national market is more deeply integrated into the world market, manufacturers in advanced industrial countries have to compete with those in LDCs. -> If investors and producers operate under more generous welfare regimes, they cannot compete as effectively with their counterparts in LDCs because of higher tax burdens, more regulatory barriers, labor-market rigidities, and less docile labor movements. -> As trade openness increases competitive pressures on exposed sectors, states have to pay more policy attention to the competitive needs of investors and producers in the tradable sectors. -> Policy makers in open economies encounter pressures for reducing social security tax burdens on domestic producers to lower labor costs and facilitate price competitiveness of exports.
2. As capital mobility increases, states have to compete to retain and attract internationally fluid investment. -> Because mobile asset holders can move their assets across national borders pursuing the most profitable rate of return on investment, support-maximizing and revenue-seeking governments have to increase business confidence and produce investment incentives. -> With international capital mobility, governments encourage international firms and financial institutions to remain in the domestic economy by alleviating the burdens of high labor costs or corporate taxes, inflationary pressures, and economic inefficiency under welfare states.