Previously poor countries such as Hong Kong, Taiwan, and Singapore show clearly what the issues of development really are. In all those places industrialisation started with low wage factories and worse; standards then rose rapidly and dramatically through a combination of forces within those countries. We know from experience that the more foreign investment a country gets, the more this spurs domestic companies to expand and prosper, the more pressures there are on developing country governments to liberalise, and the tighter domestic labour markets become. China today is a good example. This has two effects: it provides workers with greater bargaining power, as their skills grow and the demand increases, and also generates greater pressure on employers to find ways of attracting labour, which then leads to improvements in working conditions.
This process has a lot more chance of sustainability than the strange charade going on about codes of conduct. Many companies actively participate in this game on the terms and conditions set by their opponents and by those who do not appreciate the mechanisms whereby companies can play such an important role in helping poor countries develop.
‘The impact of transparency, social reporting and consumer and investor pressure in the west can be a virtuous circle raising standards and income for producers rather than a race to the bottom,’ says Robert Davies, CEO of the International Business Leaders Forum (quoted in Hilton & Gibbons 2005). He is correct in asserting that this is not a race to the bottom as many anti-trade, anti-globalisation critics maintain, but completely wrong in his advocacy of consumer and investor pressure in the west, social codes and so on. This is the wrong terrain for business leaders.
If you are interested in the alleviation of poverty in a country, it is hard to understand why improving conditions of work for a tiny minority of workers employed in foreign-owned or contracted factories is seen as the key to development. And especially when these workers are frequently the best paid and have the best conditions in the country already.
South Africa’s recent history is an instructive example of a developing country that prematurely adopted first world standards – a consequence of the battle against apartheid and the complex politics of business and unions in an undemocratic state. There can be little doubt that the chillingly high unemployment rate of the country – estimated to be just under 40 per cent of the working population in 2009 – is due in no small part to these inappropriate standards that have encouraged companies to mechanise in urban and rural sectors and created a powerful urban labour aristocracy that uses its political power to block reforms that would increase the labour absorbing capacity of the South African economy.
No one with any understanding of the increasingly sophisticated, complex, multi-country global supply chain approach to production can really want, afford or believe that this can be effectively monitored for compliance. It is a reflection of the world power balance that developing country governments, especially democratic ones and other organisations in those societies (business, trade unions) are not heard or listened to in the western debate about global standards. It is also an indication of the weakness of business – individual companies, collective organisations, associations of leaders – that all the signals are moving towards more and more voices calling for government regulation and increasing intervention in how business is conducted.
AUTHOR Ann Bernstein heads the Centre for Development and Enterprise, South Africa. This article is an extract from the Jobs Jobs Jobs chapter taken originally from: Bernstein, Ann. 2010. The Case for Business in Developing Economies. Johannesburg: Penguin Books. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Free Market Foundation.
Policy Bulletin / 9 October 2012