Week 4 Discussion Labor relations
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IPPT_Ch11_Budd6e.pptxChapter 11
Globalization and Financialization
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Learning Objectives
Discuss the key elements of globalization and how they affect the employment relationship and labor relations.
Outline alternative institutional arrangements for governing the global workplace and the implications of each for labor relations.
Explain various strategies for representing workers in a global economy.
Understand the labor relations challenges for managers in multinational companies.
Identify the dimensions of financialization and how they affect the employment relationship and labor relations.
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The Dimensions of Globalization
Table divided into two columns summarizes the dimensions of globalization. Column 1 notes the subject and column 2 notes their explanation.
| Subject | Explanation |
| International Trade | Cross-border flow of goods and services. Exports and imports. |
| Foreign Direct Investment (F D I) | Cross-border flow of multinational corporation investment. Purchasing or establishing foreign subsidiaries and joint ventures. |
| International Investment Portfolios | Cross-border flow of investment securities. Investing in foreign stocks and bonds (but no control over the foreign enterprise as in F D I). |
| Immigration | Cross-border flow of people. Migrating from one country to another. |
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Globalization: The Good, Bad, and Unequal 1
The Good
Trade promotes increased economic growth and income through the more efficient use of scarce resources and opportunities for increasing returns to scale. Trade also lowers prices and increases choices through competition.
Foreign direct investment boosts technology, infrastructure, and productivity.
Foreign portfolio investment provides capital for entrepreneurs and financing for government debt.
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Globalization: The Good, Bad, and Unequal 2
Improving property rights, reducing subsidies, and increasing wealth can lead to practices that conserve the environment.
Since 1990, the number of countries characterized by a low level of human development has fallen from 62 to 37, and the population in that group decreased by more than 2 billion.
The Bad
Low-cost competition from countries that violate labor rights causes domestic job losses and erosion of income and working conditions.
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Globalization: The Good, Bad, and Unequal 3
Foreign multinational companies exploit workers and the environment in poor countries that are desperate for any investment and income. Volatile flows of foreign portfolio investment destabilize fragile developing country banking systems and economies.
Economic integration with concentrated economic power undermines democracy, sovereignty, and indigenous cultures.
More than a 700 million people have to live on less than 1.90 dollars a day. Around 25 percent of the world’s population has to live on less than 3.20 dollars a day.
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Globalization: The Good, Bad, and Unequal 4
The Unequal
The world’s 85 richest people have the same wealth as the poorest 3.5 billion. The richest 1 percent receive nearly 15 percent of world income.
The world’s largest corporations are bigger than the economies of many countries.
Developed countries have policies to attract skilled immigrants while limiting unskilled immigrants. More than 50 million primary school–age children do not attend school, and over half of them are in Sub-Saharan Africa.
Child mortality rates in the least developed countries are 10 times higher than in high-income developed countries.
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International Trade 1
If there are market imperfections, the benefits and costs of international trade are distributed unevenly
Fundamental industrial relations assumption of unequal bargaining power between individual employees.
With unequal bargaining power, the benefit of trade flow disproportionately towards shareholders.
Some employees are left with low wages, long hours and dangerous working conditions.
Others can see their job outsourced to low-cost foreign competition.
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International Trade 2
Globally, just as the United States struggled with the labor problems of worker exploitation in the early 20th century, developing countries are now struggling with similar problems in the 21st century
Social dumping
Occurs when a foreign competitor is able to unfairly sell goods or services at a lower price because of lower labor or environmental standards.
Can be a problem if it undermines the tighter labor and environmental standards of the domestic country.
By making it difficult for companies to remain competitive while respecting these standards.
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Foreign Direct Investment 1
Consists of cross-border flows of investment by multinational corporations to establish partial or full ownership in foreign businesses
F D I can:
Benefit countries by bringing jobs and new technology and therefore providing the base for economic development and growth.
But also exploit workers with no alternatives degrade the environment in the absence of protections or incentives.
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Foreign Direct Investment 2
There is a potential for F D I to threaten domestic workers with job loss or plant closings unless concessions are mad.
Beyond labor cost savings, companies invest in other countries for many reasons
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International Investment Portfolios
Cross-border flows of investment securities like stocks and bonds
Benefits
Provide working capital for local companies and financing for foreign government operations.
Improve risk sharing across borders.
Allow investments to find their most productive uses.
Costs
With an exceptionally short-term focus, international financial transactions can be extremely volatile and negatively affect economics, wages, and living standards.
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Immigration 1
The cross-border flow of people
Provides an avenue for people to escape persecution and find a better life in a new country.
Unskilled and skilled immigrants can benefit the destination country if labor demand exceeds supply.
By taking jobs that no one else wants or is qualified for.
Controversial because it has disadvantages and can create winners and losers.
Potential competition for jobs and undermining of wages and benefits.
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Immigration 2
Because of language barriers, fears of reprisal, cultural differences, and other factors, immigrant workforces also bring challenges and opportunities for union organizing.
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Governing Globalization
Table divided into seven columns summarizes the economic integration arrangements. The column headers are: Subject; reciprocal trade liberalization; free trade within area; common external tariffs; free capital and labor mobility within area; common monetary and fiscal policy; and examples.
| Subject | Reciprocal Trade Liberalization | Free Trade Within Area | Common External Tariffs | Free Capital and Labor Mobility Within Area | Common Monetary and Fiscal Policy | Examples |
| International Trading System | Yes | No | No | No | No | World Trade Organization |
| Free Trade Area | Yes | Yes | No | No | No | N A F T A |
| Customs Union | Yes | Yes | Yes | No | No | - |
| Common Market | Yes | Yes | Yes | Yes | No | European Union |
| Economic Union | Yes | Yes | Yes | Yes | Yes | - |
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Free Trade via the W T O
World Trade Organization (W T O): The dominant institution for reducing trade barriers and pursuing free trade on a global scale
Has over 160 member countries.
Provides a forum for negotiating and enforcing global trade agreements (though new negotiations have been deadlocked for a long time).
The W T O promotes free trade through reduction of trade barriers such as tariffs.
Free trade prioritized over fair trade.
Fair trade: Incorporation of labor, environmental, public health, and other standards into trade agreements.
What about the I L O for promoting labor standards?
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Free Trade versus Fair Trade
Table divided into two columns compares free trade with fair trade. The column header are marked as Free trade and fair trade.
| Free Trade | Fair Trade |
| Removal of trade barriers | Addition of labor, environmental, and public health standards |
| Profits and efficiency are key; shareholders and consumers, too | Balancing efficiency, equity, and voice; concern for workers, artisans, farmers |
| Subsidized dumping is bad | Social dumping is bad |
| Beyond worst abuses, markets determine socially acceptable competitive advantage | Communities determine socially acceptable sources of competitive advantage |
| Enforced by the World Trade Organization (W T O) | Opposed by the W T O, so how to pursue? I L O? |
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Global Labor Standards via the I L O 1
International Labor Organization (I L O): A specialized agency of the United Nations (U N) focused on promoting social justice and internationally recognized human and labor rights
Created as part of the peace settlement that ended World War I, became U N agency at the end of World War II.
Most countries belong to the I L O; each sends two government representatives plus a worker rep and an employer rep
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Global Labor Standards via the I L O 2
The I L O is the undisputed chief international authority on labor standards
Primary activity: adopting and promoting conventions that specify minimum labor standards on particular issues
Nearly 200 conventions have been adopted to date.
Also, technical assistance to help implement standards.
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Global Labor Standards via the I L O 3
Adopted the Declaration on Fundamental Principles and Rights at Work in 1998
This declaration establishes a set of core labor standards, declared to be “fundamental to the rights of human beings at work”.
Freedom of association and collective bargaining.
The abolition of forced labor.
No discrimination in employment and pay.
The elimination of child labor.
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Global Labor Standards via the I L O 4
The I L O relies on publicity, diplomacy and technical assistance, not legal or economic punishment, to encourage compliance with its labor standards
So no sanctions available, unlike the W T O for free trade violations.
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International Labor Standards Via U.S. Free Trade Agreements
The United States has negotiated its own free trade agreements with some countries, such as Australia, Jordan, and Singapore
Most visible examples
North American Free Trade Agreement (N A F T A, 1992) – Free trade agreement among the United States, Canada, and Mexico.
And its proposed successor, the United States-Mexico-Canada Agreement.
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N A F T A and its Labor Side Agreement
N A F T A and other free trade agreements allow capital mobility but not labor mobility
What about labor rights?
North American Agreement on Labor Cooperation (N A A L C) (equals N A F T A side agreement)
Intent: to address labor’s fears that low Mexican wages might undercut United States competitiveness.
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N A F T A’s Labor Side Agreement 1
North American Agreement on Labor Cooperation (N A A L C)
Provides 11 guiding principles that the three countries commit to promote, including union activity, nondiscrimination, equal pay, minimum wages, and workplace safety.
These are not uniform standards and are not enforced through trade sanctions.
Explicit emphasis in the N A A L C is on cooperation to promote compliance with existing domestic laws.
No new laws are required, nor are there restrictions on future laws.
Compliance depends on the “sunshine factor”, adverse publicity that stems from the public N A A L C proceedings (the “naming and shaming” of violators).
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N A F T A’s Labor Side Agreement 2
A poor track record remedying union-related violations, but
Enhanced educational activities and cross-border understanding (foundation for rights protection in future?).
Opportunity to generate public concern over trade and labor issues.
Complaint process provides the opportunity for greater cross-border cooperation among unions.
They are legitimate participants in the N A A L C process, not outside protesters (W T O).
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N A F T A’s Labor Side Agreement 3
Led by the Canadian labor movement, N A F T A caused a shift in the attitudes of the Canadian and United States labor movements that went from seeing Mexican workers as “foreign workers” who are the problem, attitudes often tinged with racist stereotypes, to seeing them as partners in their struggle.
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Moving Beyond N A F T A
In subsequent U.S. free trade agreements, there has been an evolution towards requirements not only to enforce domestic laws but also to abide by the I L O’s core labor standards
Labor chapters now appear within U.S. free trade agreements.
The most recent example is the United States-Mexico-Canada Agreement (U S M C A) which was negotiated in 2018.
This will replace N A F T A and the N A A L C if it is ratified by the three countries.
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U S M C A’s Labor Chapter
The U S M C A requires the three countries to fulfill the following:
“Each [country] shall adopt and maintain in its statutes and regulations, and practices thereunder,” the rights provided by the ILO’s core labor standards.
“Each [country] shall adopt and maintain statutes and regulations, and practices thereunder, governing acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health.”
“No [country] shall fail to effectively enforce its labor laws through a sustained or recurring course of action or inaction.”
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Labor Chapters 1
Labor chapters in U.S. free trade agreements rather than side agreements is significant because alleged violations of labor standards are addressed using the same dispute resolution procedures as trade disputes, and includes the possibility of monetary penalties
A mixed track record of success, however.
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Labor Chapters 2
For some, this bilateral or regional approach is better than a universal (W T O) approach.
Politically more feasible.
Agreements can be better taiIored to specific issues.
Non-government actors like unions and human rights groups can be better incorporated into monitoring and enforcement.
But critics concerned with fragmented standards.
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European Union
The European Union (E U) is an integrated community of over 25 European nations
Common external tariffs.
Extensive capital mobility across the member countries.
Elements of common monetary and fiscal policies such as a common currency (the euro).
Even attempts to coordinate foreign policies.
Common labor standards (focus here).
Residents of the E U are allowed to freely work in any E U country.
Fear over the effects of mass immigration on income, jobs, public services, public safety and national identity was the key factor in Britain’s vote to leave the E U.
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Policymaking in the European Union
Noninflationary economic growth (not labor and social standards) is a priority of the E U
“the social caboose would be pulled by the economic locomotive”.
But there are concerns over labor and social issues (for example, social dumping from low-wage E U countries).
Charter of Fundamental Rights of the European Union
Specifies a number of workers’ rights.
E U-level political institutions can issue follow-up laws that enact specific sections of the charter.
for example, the “European Works Council” directive.
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European Works Councils 1
For companies with significant operations in at least two E U countries, a European Works Council is a transnational, company-level committee of employees from these different operations
Has consultation and information rights on issues that affect workers in more than one country.
Not bargaining, but consultation and information sharing to create a cooperative dialogue.
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European Works Councils 2
European Works Councils represent another approach to addressing workers’ concerns in a global context
Through information sharing and consultation between multinational corporations and their multinational workforces.
In practice, European Works Councils (E W C) can be divided into four categories
Symbolic E W C: passive and fulfill the minimum requirements of the directive by a single annual meeting in which management provides limited information and the representatives do not try to engage in a dialogue.
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European Works Councils 3
Service E W C: active information flow but primarily services national unions by passing along the information received.
Project-oriented E W C: have built internal capabilities to pursue projects beyond the scope of the required meetings with management.
Participative E W C: includes active consultation and perhaps joint projects with management.
Intriguing, but exact way to make them effective is unclear
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Transnational Collective Bargaining
With increased globalization and multinational corporate activity, labor unions are under pressure to collaborate across international borders
Takes various forms, from solidarity messages to joint action.
But little support from treaties and public policies; rather, labor movement needs to create its own institutions for international solidarity.
International Trade Union Confederation (I T U C): The apex of international labor organizations.
Facilitates cooperation and communication among national unions and global union federations (G U Fs).
Information and research.
Lobbying and pressuring M N Cs to adopt codes of conduct.
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The Structure of the International Labor Movement
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International Labor Solidarity in Practice 1
Barriers to transnational labor collaboration
Language barriers.
Cultural, religious, and ideological differences.
Fears of losing domestic autonomy.
Legal constraints.
Differences in union structures and goals.
Employer resistance.
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International Labor Solidarity in Practice 2
So the starting point for building transnational collaboration is through international solidarity actions in support of organizing campaigns or bargaining disputes in one country.
True transnational collective bargaining (unions in more than one country negotiating jointly with the same company) is rare.
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Corporate Codes of Conduct 1
Written statements of standards that a company pledges to follow in its business activities
Can be created by transnational governmental organizations or by national and local governments.
More frequently established by labor unions and other allied organizations or by individual corporations on their own (CSR).
These codes are almost always voluntary
So compliance cannot be legally enforced.
Relies more on negative publicity and corporate goodwill.
So they are more effective where the maintenance of a strong consumer brand is important (for example, apparel).
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Why Corporate Codes of Conduct? 1
Corporate codes of conduct are more visible in apparel and similar industries also because of the nature of the supply chain
These industries have a buyer-driven global supply chain.
Decentralized production with low capital investment that is easy to move.
Low labor costs are key; high turnover among a vulnerable workforce.
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Why Corporate Codes of Conduct? 2
These conditions are not conducive to traditional union campaigns mobilizing worker power directed at the company
Rather, labor protest flares up organically, the workers’ basic human rights grievances have the potential to resonate with the public, and alliances of diverse groups including college students, needed to generate publicity.
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Corporate Codes of Conduct 2
Codes that include labor issues commonly include outcome standards such as:
Minimum work age.
Minimum wages.
Minimum hours.
Maximum hours.
Health and Safety standards.
Non discrimination.
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Corporate Codes of Conduct 3
As well as process standards including the right to freedom of association (to form unions) and collective bargaining.
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Do Corporate Codes of Conduct Work? 1
With sufficient public and consumer pressure, these codes can address some of the worst abuses
But there are serious doubts about the widespread effectiveness of the voluntary self-governing nature of corporate code of conduct
Number of factories, their geographical dispersion, and the complication tiers of subcontracting makes it very difficult to monitor and inspect all of the work sites.
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Do Corporate Codes of Conduct Work? 2
Research finds that inspections are significantly more likely to identify health and safety wages, benefits and hours of work violations that freedom of association violations
Companies seem to be trying to balance the legitimacy of the corporate social responsibility efforts.
While maintaining control over the global supply chain.
Unionization and collective bargaining are perceived as giving up too much control.
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Do Corporate Codes of Conduct Work? 3
Indeed, companies continue to favor China and Vietnam as production locations
Their authoritarian political regimes keep labor protest in check.
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Governing the Global Workplace 1
Table divided into two columns summarizes the governing of the global workplace. The column headers are marked as Subject and explanation.
| Subject | Explanation |
| Neoliberalism | Free trade is optimal; international labor standards are harmful trade barriers |
| H R M (Unitarist) | Voluntary, self-monitored codes of conduct can effectively promote international labor standards by aligning employer-employee interests |
| I R (Pluralist) | Fair trade (via enforceable international labor standards) and transnational unions are necessary for redressing global imbalances in bargaining power |
| Critical | International working class solidarity and deep structural reforms are needed to prevent labor exploitation by globally-mobile capital |
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Governing the Global Workplace 2
Table divided into three columns summarizes the governing of the global workplace. The column headers are marked as School of thought; national mechanism; and global mechanism.
| School of Thought | National Mechanism | Global Mechanism |
| Neoliberalism | Free Markets | Free Trade |
| H R M (Unitarist) | H R M Policies | Corporate Codes of Conduct |
| I R (Pluralist) | Laws, Labor Unions | Intl Labor Standards, E W C, Solidarity |
| Critical | Worker Control | Worker Control |
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International Management
Globalization adds significant complexities to managing multinational corporations
Configuration - Involves the location of various activities.
Affects labor relations through its effects on relative bargaining power between corporations and employees.
Coordination - Consists of the degree to which activities in different countries are harmonized or autonomous.
In labor relations, the tension between integration and autonomy manifests itself in the extent to which local labor relations practices and strategies are shaped by local managers and environmental conditions versus being determined by corporate-wide policies and strategies.
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Financialization 1
The pressures on labor relations, and on employment more generally, brought on by globalization are magnified by another multidimensional process called financialization
Financial markets, motives, results and institutions become more important than the product and delivery of goods and services.
Financialization is like globalization:
They both consist of a bundle of interrelated structural changes in the economy, and they both effect economic and political power relations process.
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Financialization 2
Ideally, money is simply a medium of exchange and financial institutions are neutral sources of financing
With financialization,
Financial motives and institutions become active players that strongly influence corporate decision making and challenge government sovereignty.
So financialization affects workers and all parties to the labor relations process.
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The Dimensions of Financialization
Table divided into two columns summarizes the four key dimensions of financialization. The column headers are marked as Subject and explanation.
| Subject | Explanation |
| Share Price Maximization | Cost cutting to boost financial returns rather than productive competitiveness. Stock repurchases rather than reinvestment. |
| Profits via Financial Transactions | Pursuing profits through financial transactions rather than the production and delivery of goods and services. Increasing importance of the financial sector and the financial activities of nonfinancial firms. |
| Private Equity | Leveraged buyouts to buy and then sell companies after cost-cutting and asset-stripping. |
| Public Sector Budget Austerity | National economies subjected to international financial requirements. State and local governments focused on budget reduction. |
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Share Price Maximization 1
After seeing corporations become bloated conglomerates with low financial returns in the 1970s, the 1980s ushered in the shareholder-value movement
Shareholders were recognized as the key owners of the corporation, with managers obligated to act at the best interests of the shareholders.
The shareholder value model is today’s approach to corporate governance
Maximizing shareholder value is the corporate and investment mantra
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Share Price Maximization 2
Executives are largely rewarded through stock options
Monitoring stock prices is the focal activity of executives and investors
Important implications for workers and labor relations
There have been many corporate strategies to restore competitiveness by restructuring the productive capacity of their workforce in the face of changing technology and (global) competition.
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Share Price Maximization 3
But under the pressure of maximizing shareholder value, these efforts can turn into cost-cutting exercises for the sake of increasing short-term profitability and driving up stock prices (not restoring competitiveness).
Workers and unions are faced with demands for wage and benefit concessions, layoffs, and stressful restructurings, all while being asked to invest more of themselves but denied a role in corporate governance.
Pressures of workers are magnified by stock repurchases
Before the shareholder-value movement: earnings and cost savings retained and invested back into the business.
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Share Price Maximization 4
Under financialization: Cost savings and earnings are increasingly being used to repurchase shares of the companies stock.
This “downsize and distribute” strategy drives up the stock price.
Benefits investors and also top executives because of their sizeable stock options.
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Profits via Financial Transactions
A second dimension of financialization: an increased emphasis on pursuing profits through financial transaction rather than the production and delivery of goods and services
Increased importance of the financial sector.
Creates a concentration of wealth in the financial sector and widens the inequalities between Wall Street and Main Street.
Reallocates political influence in ways that do not favor labor unions.
Increased importance of financial activities of nonfinancial firms.
Financial strategies prioritized over manufacturing.
Financial strategies chose to provide leverage in contract negotiations (converting cash to debt).
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Private Equity 1
Third dimension of financialization: private equity funds that use leveraged buyouts to takeover companies that are seen as underperforming
Perhaps the most visible and aggressive examples of wringing profits out of companies.
Install their own cost-cutting leadership teams.
Strip off assets, and then sell the pieces at a significant profit.
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Private Equity 2
Some private equity interventions create jobs, some destroy them
On net, the evidence seems to suggest that more jobs are lost than created.
With respect to labor relations, the attributes of private equity firms vary (as do attributes of public corporations).
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Public Sector Budget Austerity 1
Aspects of financialization also affects public sector employment and labor relations
Countries with high level of public debt have had national sovereignty challenged by the international lending requirements of financial institutions.
In Greece, for example, financial institutions like the International Money Fund (IMF) and the European Central Bank thereby became active parties in labor relations.
In return for loans, the Greek government enacted various changes, including cutting public sector wages and decentralizing public sector collective bargaining.
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Public Sector Budget Austerity 2
Aspects of financialization also affects public sector employment and labor relations
Effort to restrain or remove bargaining rights for public sector workers in Wisconsin, Ohio, and elsewhere starting in 2010 have consistently been justified by citing the need for budget austerity.
An extension of financialization because fiscal concerns are being prioritized over service delivery, and because budget deficits and public sector pension shortfalls were at least partly a result of the financial crisis.
Public sector labor relations are not immune to the pressures of financialization
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The Structure of the International Labor Movement - Text Alternative
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The flowchart shows the structure of the international labor movement.
Table divided into four columns shows the structure of the international labor movement. The column headers are marked as National union; country; affiliated to national federation; and affiliated to global union federation.
| National Union | Country | Affiliated to National Federation | Affiliated to Global Union Federation |
| I G METALL | Germany | German Trade Union Confederation, D G B | Industri A L L |
| E V G | Germany | German Trade Union Confederation, D G B | International Transport Workers’ Federation |
| G M B | Great Britain | Trades Union Congress | Industri A L L |
| Unite | Great Britain | Trades Union Congress | International Transport Workers’ Federation |
| U A W | United States | A F L–C I O | Industri A L L |
| Seafarers International Union | United States | A F L–C I O | International Transport Workers’ Federation |
The flowchart also shows that the German Trade Union Confederation, D G B, Trades Union Congress, and the A F L–C I O are affiliated to the International Trade Union Confederation.
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