Globalization and Labor

Among the concerns frequently raised by those who fear global integration is an assertion that globalization leads to a deterioration of labor conditions for the world's workers.  This can be an emotionally charged issue, particularly when argued by a group of employees who have been affected by a particular change in their company or industry that has caused an immediate loss of their jobs.  It has always seemed, however, that an empirical analysis of this issue has been hard to come by.

Ben Muse in a recent post entitled "Is Globalization Good for the World's Workers" spotlights a recently published book by Robert Flanagan, a professor of labor economics and policy analysis at the graduate school of business at Stanford.  Professor Flanagan's book Globalization and Labor Conditions: Working Conditions and Worker Rights in a Global Economy takes on at least one part of this issue head on.  Among his conclusions are the following:

• Countries that are open to international trade have superior labor conditions to those that are not open to international trade;
• Wages and working conditions in multinational companies are superior to employment conditions in locally owned and operated firms.

These conclusions come as no surprise to people who have worked with the international operations of global companies and is consistent with observations made elsewhere in this blog, but it is reassuring to finally see a thorough analysis by someone with Professor Flanagan's credentials validate these observations.

As with any significant and rapid change, the global integration of commerce will inevitably result in temporal dislocations, and I would never diminish the personal anxiety of individuals directly affected by this process.  What must be kept in mind, however, is that globalization (1) is inevitable and, as importantly (2) is a positive thing in total.  Accordingly, to the extent interest groups seek to provoke policies which address the displacement of workers in particular companies or industries, those policies should be narrowly tailored to help ameliorate the immediate pain and should not be drawn so broadly as to undo much of the greater good that is going on as a result of globalization itself. 

The protectionists and isolationists among us should read this book before they push us further along the road of hunkering down in our bunker, hoping the world doesn't come knocking on our door for fear they want to devalue the world's labor supply.

Comments

[Preferred Theater Seating and Stadium Seats]

September, 2007 Indianapolis, Indiana

Is Globalization good for America? Stadium and theater seating manufacturers go to third world countries.

The large outsourcing of U.S. manufacturing jobs that began years ago continues today. Michigan, a furniture manufacturing center, lost thousands of manufacturing jobs in the last few years. North Carolina experienced a similar fate, as has every state in the U.S.

U.S. stadium and theater seating manufacturers have in recent years outsourced and manufactured seating in third world countries, for example Mexico, China and Malaysia. However, Preferred Seating, located in Tennessee, is struggling upstream to supply manufacturing jobs here in the U.S. Preferred Seating wants to grow the business in the U.S., create jobs and contribute to the U.S. economy.

The larger seating manufacturers who have the capital to build factories in third world countries make larger profit margins when they import seating parts from countries where labor and materials are less expensive. These companies argue that the public benefits from lower prices for their products. However, they sell their auditorium seating and theater seating for the same price as U.S. manufacturers, but make more profit. While these companies are making stronger sales, they are adding few jobs.

A seating manufacturer stated in “The Grand Rapids Press, Grand Rapids Michigan, Jan 23, 2005 the following:

“Absolutely, every company should be looking at China and offshore production, whether or not they actually do it. The good old days are just that – old, and the climate will never be the same. It’s now a global world where people don’t buy (just) from their country anymore. They buy the product that fits their needs, and a lot of it has to do with cost.”

While standards of living have increased as third world countries become more industrialized, they have fallen in developed countries. Was it not the industrialized revolution in the U.S. that contributed to the U.S. becoming a world super power? Losing our manufacturing base will make us more vulnerable to those countries we are allowing to manufacture our products. Most of these companies have very different world views and ideologies. This type of dependency has not always been positive for the U.S. For example, depending on the Middle East for oil affected our economy when war came to this area of the world.

Lower wage, unskilled earners are affected the most. They do not have skills that can be applied to other jobs. Education, with the ability to change careers, is the key to survival. The only answer that political and business leaders have agreed to so far is the necessity of an educated, adaptable workforce. But who is going to pay for the massive reeducation of the dislocated labor force, taxpayers?

We may enjoy lower pricing for products. Companies will make more of a profit by outsourcing. However, in my opinion the cost and risk to America is too great for the short term benefits.

Author: Frank Sumner
Preferred Seating
Indianapolis, Indiana
Tollfree 866-922-0226
http://www.preferred-seating.com

[Craig Maginness]

Frank:

Thanks for the comment.

First off, I want to stress that I fully agree that the process of globalization results in individual displacements and hardships which very much need to be part of a supportive government economic policy. What shouldn't be part of that policy is anti-globalization protectionism that hurts the many in an effort to protect the few.

A few additional observations:

You indicate that all states have lost thousands of manufacturing jobs as a result of globalization. Without getting into how you classify jobs, there can be no argument that total employment has increased dramatically over the past 10 years. Similarly, GDP in the US has continued to grow at a robust rate, particularly for an already developed economy. So while there have certainly been sector specific pockets of displacement, there has most certainly been a net benefit to the people in the US in terms of both jobs and dollars -- to my opening point.

Second, you state that to your observation in your industry, the foreign manufacturers with a cost advantage don't pass that cost advantage on to consumers through lower prices but instead "sell their [products] for the same price as US manufacturers." If that is true, then you need to ask yourself another question -- faced with two identically priced products, why are customers choosing to buy the foreign manufactured products? Is it more dependable quality? Is it more responsive customer service? Having conceded that selling price is not the issue, you have the opportunity to examine your company to see where you are falling short and improve your business so that it becomes more competitive.

When faced with new innovative competitors, whether domestic or foreign, we all need to spend less time playing the victim and blaming others and more time rolling up our sleeves and getting to work on how we are going to win in the long run. Can we improve our existing business model? Do we need to concede our old space and reinvent our business in an area where we can again hone our competitive edge?

Throughout the robust history of the marvel that has been the US economy, companies and whole industries have come and gone as changes in technology, communication, transportation and cultural preferences have evolved -- sometimes slowly and sometimes seemingly overnight. We've continued to excel by embracing change and making our ability to capitalize on opportunities our greatest strength.

Craig