Posts Tagged ‘Economic Development’

Film Review: Canning Paradise

Posted: May 15, 2013 in Films, Natural Resources
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English: Bluefin tuna.

English: Bluefin tuna. (Photo credit: Wikipedia)

‘Canning Paradise’ is a 90 minute documentary primarily about the commercial tuna fishing industry being established near the town of Madang in Papua New Guinea, but also more generally about the globalised economy rubbing up against traditional ways of life.

Papua New Guinea recognises traditional land ownership in its Constitution, which is fortunate for traditional villagers as they rarely have formally recognised land titles. This provision makes it difficult for the  Government to appropriate land for development. The film also explores the benefit this has had in preventing PNG from becoming a peasant economy.

The village of Madang is a little different because it was formerly a Catholic mission. A court case found that the Catholic Church owned the village’s land and its surroundings, which it on-sold to the Provincial Government in 1991. The Government has decided to open it for development by establishing a so-called Pacific Marine Industrial Zone (PMIZ). This sounds like it is an export processing zone (EPZ) but it isn’t, it’s a title only, no special laws have been passed to exempt companies in the area from normal laws, which is what happens in EPZs.

The Philippino canning company RD Tuna have set up in the area with a number of fishing vessels. Under the deal, the PNG Government receives only 2-8% of the profits in royalties, which amounts to about $50 million. The tuna ends up in one of RD Tuna’s three brands: Diana, Dolly and Dolores.

The PMIZ has numerous issues, for example its rusty vessels do not meet environmental standards which PNG does not have the resources to police effectively.

RD Tuna also mostly employs flown-in Philippino workers rather than locals. Both the company and the Government support the in-house, company-friendly union. When 500 of the Papuan workers went on strike in 2010 over low wages, wage theft and freedom of association, most of them were sooner or later terminated. It seems that the people of Madang are not destined to share in the bounty being extracted right off their shores.

‘Canning Paradise’ is a well made film: not in the sense of being slick, but in the sense of being true to its subject. It conveys the complexity of this issue in depth, resisting the temptation to propose quick solutions. The interviewees were unanimously of the view that a traditional economy has a value even if it can’t be readily expressed in dollars, but beyond that there was no sense at all of a clear way forward. I guess that’s reality: few problems are capable of having straighforward, elegant solutions like you will see proposed in a 4-minute TED talk.

The DVD is available from Ronin Films.

*Postscript: This is the 150th post on fairforall.org. The site recently received it’s 15,000th visit – thanks for your support!

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Companies relocating to save on wages ruin it for everybody

Posted: June 6, 2012 in Economic Development
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Employment Exhibition

Employment Exhibition (Photo credit: Modern_Language_Center)

The notion of modernity leading to a better life is so ingrained that it is almost mythical. However it’s not inevitable, as citizens of the United States are now learning, and as the Japanese have known for the last two decades. I argue that workers in less prosperous parts of the world face the prospect of being stuck on an even lower rung on the ladder.

The incentive of wages

However sophisticated we think we are, rewards and punishments still work. Even people who are not under economic strain will relocate to less favourable locations, lured by nothing more than a higher salary.

Wages do not even need to be increased to lift performance. Many companies have hit upon the idea of incentivising workers compete against one another for scarce rewards. Samsung, for example, has a practice of firing the worst-performing 5-7% of it’s workforce every year, keeping everyone swimming towards the top like a school of fish fleeing a predator.

Lost knowledge

Human Resources, as a discipline, twigged half a century ago to the inadequacy of behavioural psychology as a basis of motivating employees beyond a certain point and making the most of their contribution. Work (in the developed world) has increasingly been re-structured to meet people’s higher-order needs for self-fulfilment.

Capital mobility is preventing this story from being repeated for workers in developing nations and let me explain why.

Global companies are not in the game of waiting about for the workforce of a particular country to improve their education and skills and start suggesting improvements to processes that would reduce costs and raise productivity. Take the Foxconn factory in Shenzhen for example. iPhones and iPads are basically manufactured by hand because labour is so cheap – cheaper than robots. A hundred years ago manufacturers were strongly geographically situated and over time their workers’ salaries would rise and processes would be improved. Today that’s no longer how it works. As the wages of the workers of Guangdong increase, the companies sourcing their products are simply moving on to lower cost countries, or even lower cost regions still inside China: Vietnam, Cambodia, Bangladesh (no doubt Burma will join that list soon). To stay with the same example, Foxconn is moving to Brazil and Chengdu. Why wouldn’t they? They never had any deep connection with Guangdong in the first place. This is sad in its own right; if only there were more high-ground employers like Alta Gracia or Olam who pay their workers more than the market rate.

There are other hidden costs in this quick fix, as there often are. During this transfer, all of those workers’ learning is lost, and the processes transplanted to the new location are just as inefficient as the original ones. That doesn’t show up in the company’s balance sheet, however, analysts on Wall Street simply rejoice at the new cost saving.

Meanwhile the workers of Guangdong are left to find other occupations. They bring their experiences with them of course but China is not exactly famous for its innovative business culture, so I’m yet to be convinced that workers with manufacturing experience are putting their knowledge to work in more advanced manufacturing in large numbers, selling higher-value products. The Chinese Government has figured this out in the last few years and is trying to push companies in that direction but it’s an open question whether they have what it takes. The country’s slow-moving but comfortably dominant state-owned enterprises are at risk of crushing nimbler private enterprises.

Meanwhile the workers of Cambodia, Vietnam et al are bequeathed senselessly inefficient processes. It’s a lose-lose-lose proposition. The sourcing company doesn’t win either, it merely survives to fight another day. The only winners are its investors and those of its consumers who remain content with cheap or at least cheaply-made goods.

Fairer than fairtrade

Posted: May 8, 2012 in Books, Consumer campaigns
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fairtrade products

Conor Woodman has recently put out a second book Unfair Trade, as a follow up to his 2011 book The Adventure Capitalist (the film version of which I reviewed here). The two books sit together well: the first is a travelogue with the unique twist that Conor is aiming to get back home having made more money than he’s spent. The second is a more circumspect look at how trade in and from developing countries could lift more people out of poverty than it currently does.

I found it to be inspiring but also unsettling. Conor gently shows the greater effectiveness of market-driven means to prosperity as against the simplicity of fairtrade solutions, which is a hard message to accept.

He uses fairtrade coffee as an example. To obtain fairtrade certification, a company need only promise that it will always pay, at a minimum, the fairtrade price of US $2.81/pound. However the market price has been far in excess of that for the last five years ($5.73 at time of writing) – it’s a pretty easy promise to make! In exchange coffee sellers get the aura of fairtrade certification.

Meanwhile, other companies working fairly with developing-world suppliers do not get the branding aura they deserve because they are not certified - three examples being Ethical Addictions, the Rare Tea Company and Olam International‘s work in Cote D’Ivoire. These companies go even further, paying suppliers roughly double the market price because they can connect their goods to users interested in their particular blends. Sounds pretty fair to me, but you’d never know it from the label.

Conor also points out that fairtrade organisations receive income from companies to use their logo and they spend it roughly equal proportions on marketing and administration – the money is all spent in the developed world. Food for thought indeed!

The book is available on Amazon UK, including e-book and audio editions.

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An economy for people, not vice-versa

Posted: February 14, 2012 in Economic Development, Statistics
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Imagine a world where leaders worried foremost not about GDP figures, inflation and interest rates, but rather about actual wellbeing: that citizens live healthy, fulfilled lives. Imagine if we had a means of measuring that instead. It’s too easy, unfortunately, to be prosperous and still miserable.

Opinions on this diverge pretty widely:

  • Some argue that, once you reach an income that can meet your basic needs (say $50,000) more money isn’t going to make you much happier.
  • Others point to studies that show that happiness will increase with increased income but the law of diminishing returns applies: a $20,000 pay increase increases the happiness of a person earning $250,000 a lot less than it does a person earning $50,000 per year.
  • Finally, there have been studies warning that obsession with material progress will actually come at the cost of happiness and wellbeing.

It looks like the third view is having its moment. France, Canada and the UK have all announced that they will start measuring national wellbeing by means other than GDP. A vision of the future, I wonder?

The United Nations has long used a rough quality of life index called the Human Development Index though it gets nothing like the attention that Gross Domestic Product does. There are also niche providers of organisation-level Quality of Life surveys, such as UK-based qualityofworkinglife.com (QoWL). Melcrum Consulting publishes another. (Interestingly, the countries and cities consistently at the top of these rankings are always Scandanavian, Australasian and Swiss.)

Two observations:

  1. A quality of life index provides a more meaningful insight into the degree to which people in developing nations are not living the life they would like to. I am suspicious of dollar comparisons since they do not take account of difference in purchasing power parity or (more to the point) different expectations of what constitutes the good life.
  2. These issues are interconnected. People in the developed world stockpile needless commodities in their efforts to keep up with the Joneses. This produces the demand to make ever more commodities, sucking more and more people into the low-cost manufacturing sector. I often think of the statistic that China manufactures 95 billion ballpoint pens a year – one a month for every man, woman a child on the planet. Is that ridiculous enough yet? Maybe our priorities do need realigning.

Vested interests push the ‘spend, spend, spend’ message so tenaciously that political leaders tend to assume it’s just normal. It’s pretty courageous of the governments mentioned above to have taken this step.

Below: Infographic of a Quality of Life survey specific to Europe


uSwitch Quality of Life infographic

Further reading:

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Bureaucracy isn’t the enemy

Posted: January 17, 2012 in Ethical decision-making, Labour History
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English: The Buddhist Institute was founded on...

The Buddhist Institute - one of Cambodia's most prominent civil associations

Last week I reported about wrangling in Cambodia regarding a proposed law to regulate associations.

I thought it might be worth exploring what might lay behind the civil groups and NGOs distrust of the government’s intentions (other than the not-so-distant memory of government repression).

One concern is that the government will mis-use its regulatory power and intervene in associations’ internal affairs.

A second is the law will give vested interests another lever with which they can put the squeeze on ordinary Cambodians.

Both are possible. However that is the half empty side of the glass. On the flip side, a closer relationship between government and associations also brings the possibility of two positive changes:

1. More bureaucracy means a shift from charismatic authority to Rational-legal authority. In plain English: Decisions are more likely to be made consistent with previous decisions and other related policies. They become less arbitrary and more predictable. In such an environment, interest groups have to make better use of argument by analogy and court advocacy to bring about change, instead of merely appealing to the powers that be. In short they will need to professionalise.

2. By working closely with associations, the government legitimises them and obliges itself to work with them. In developed nations, the experience has been that bureaucrats, politicians and interest groups start to work in a symbiotic manner. This is sometimes called “the Iron Triangle“. Regulation is a two-way street; it cannot be imposed without some kind of feedback loop. That gives civil associations a way to press their case which – at least in Cambodia – they have not had until now.

The wealthy have always been able to gain access to politicians; bureaucracy at least levels the playing field somewhat. I am optimistic that this change will bring about more good than bad, even if it is prima facie cumbersome. The challenge, I suspect, will be preventing it from being undermined by corruption.

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National self-interest

Posted: November 7, 2011 in Economic Development
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Trevor Long, Taken by Trevor Long September 21...

Image via Wikipedia

Events of the last week have brought something home to me: it is no wonder that unions remain national in scope. Whereas transnational corporations are ubiquitous, there are only a handful of genuinely transnational unions (i.e. not counting those with coverage of both the USA and Canada). Even the ambitious Service Employees International Union (SEIU) couldn’t break into overseas markets.

In a world where corporations have highly disciplined unanimity of purpose worldwide, workers have only the ten umbrella global union federations to co-ordinate cross-border campaigns. These are very loosely bound, barely more than forums really. Occasionally they have had successful campaigns where the interests of the workers in all nations are in alignment, e.g. the IUF Nestle campaign, but the central offices (generally located near the ILO in Geneva) have considerably less influence than the national affiliates.

I can see cross-border organising only getting harder in the near future, and here are two recent examples to show why:

  • The Australian airline Qantas is currently embroiled in an epic dispute with three unions representing the ground staff, engineers and pilots. At the heart of the dispute is Qantas’ plan to employ more of its staff overseas.
  • At the same time, the iconic Italian car manufacturer Fiat is threatening to decamp from Italy because skilled workers in nearby Poland will work for €8 per hour rather than €28 per hour.

This offshoring debate isn’t news, but this time around there is a critical difference. It was easy in 1991 and 1992, during the NAFTA debate, to explain that the economy can create new jobs to replace those that move away. In 2011 and 2012 it is a different story. Job security has risen up the scale of developed world workers’ concerns.

In this climate, how on earth can the workers of countries in North America, Europe, Japan and Australia be expected to campaign for those in other countries? It would be okay if their own prosperity was still rising or at least stable, but the generosity of spirit is understandably less when they see their own entitlements under threat – and especially so when ‘offshore workers’ are going to benefit in their stead.

I saw an isolated exception last week when the American United Steel Workers union publicly castigated Freeport-McRohan over the ongoing strike at the Grasberg Mine in Indonesia.

I don’t see a way out of this. The workers of the developing world are going to have to do it on their own. Either that of the global union federations need to alter the way they operate, away from a consensus model and more towards a truly federal model, including a division of powers. Hard to imagine it happening though.

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More on the Qantas dispute

The cultural gap between Equity and Equality

Posted: October 28, 2011 in Ethical decision-making
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The second paragraph of the Declaration of Independence of the United States of America begins:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights,

More than two centuries later, Americans and other Westerners still stride the planet convinced of the obvious universality of their values. They can hardly be blamed, as there is a lot of apparent evidence to support this view: Western brands have been on the march. Visit any city around the world and, upon disembarking, you’ll be greeted by the familiar sights of KFC, Coco Chanel, even Marlboro. Similarly parliamentary, electoral democracy has spread in past decades. It seems to be a one-way story of the adoption of enlightened Western ways and rising prosperity to follow.

Tiananmen Square Protest (tian_med)

This guy is a hero in the West but 1989 fizzled in China. Why?

Research shows that countries retain sharp divisions in the emphasis they place on individual versus collective values. Generally countries in the Western tradition have a higher emphasis on the individual and those in the Confucian tradition have a high emphasis on the collective. These traditional values have persisted into modern times despite the removal of Confucianism as the official Chinese religion.

These findings are known and accepted but do not seem to be translating into managerial education.

The result is that American or British businesspeople turn up in ‘non-Anglo’ countries poorly equipped to motivate and build rapport with local workers. Notably they carry with them the baggage of America’s highly antagonistic labour relations but for now I want to highlight something else: compensation.

The central motivational factor under a manager’s control is the allocation of extrinsic rewards. (Ralston et al., p. 70)

How is compensation to be divided?

The dominant view in the West is that reward should be, to some extent, related to the person’s output. This is equity-based reward.  The dominant Confucian assumption, however, is that an equal distribution -regardless of output- is ‘fairer’ because it is more conducive to the group cohesion. This is equality-based reward.

(Incidentially there is a third approach: Rewards are distributed according to need. Under this approach a breadwinner for a large family would be paid more than a single person without dependents doing the same job)

What flows from this? For one, it explains how executive pay has been able to run so far ahead of average workers’ pay in the United States especially.

More relevantly, it explains why many national and plant managers make their own lives difficult by implementing reward-for-output. Not only is it not appreciated, it probably causes friction.

This is not to say that rewards can never be shaped towards encouraging performance in Eastern cultures, just that they need to be directed towards the group.

My point in all this is that well-meaning labour activists in the West who want to assist their brethren in the developing world ought to consider that it might not be appropriate to promote a wage-setting apparatus similar to the one in their home country, complete with tiered salary grades and assumptions about the relative worth of different kinds of work. It might be like forcing a square peg into a round hole.

Source:

  • Ralston D, et al, The relevance of equity values in Eastern cultures, in ‘Whose Business Values? Some Asian and Cross Cultural Perspectives’ (1995) edited by Sally Stewart and Gabriel Donleavy

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Film Review: Around the World in 80 Trades

Posted: September 22, 2011 in Films
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English: Conor Woodman in Around the World in ...

Image via Wikipedia

Conor Woodman’s 4-part series documenting his trading adventures around the globe is educational and heart-warming.

Conor gives away his City of London financial services job and hits upon the novel idea of trading face-to-face with people around the world. He sets off on a trip spanning three continents. His aim is to buy low, transport the goods himself, and sell high at the next destination.

To maximise the contrast with his former job, most of the countries he chooses to visit belong to the global South which represents a minority of global trade, GDP-wise. The 25 least developed nations collectively account for 1% of global GDP.

The doco presents the ups and the downs of his escapades, and they are by no means all successful for him. Selling particularly proves to be harder than he anticipates. Full of confidence in his strategy, Conor deals open-handedly with the sellers he meets. Sometimes that favour is not reciprocated. Other times he founders because of lack of cultural nous (for which he can hardly be blamed!) Then other times it’s just plain bad luck.

What I really enjoyed about the series is that it puts a human face on globalisation and the movement of commodities. Our Kenyan coffee beans didn’t magically arise from the Kenyan soil and send themselves our way, they were planted and tilled by real life Kenyan farmers who are either working at it right now, as you are reading this, or will be tomorrow.

Here is the first ten minutes of Episode 1:

The full series runs for about 200 minutes.

More strikes in China … very unharmonious

Posted: September 13, 2011 in China
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Chongqing Taxi

Image by foxxyz via Flickr

Evidence continues to mount that the Chinese authorities are deliberately looking the other way when it comes to labour unrest. They don’t really have a choice. They either allow workers to get what they want in the form of moderate wage increases or face massive social dislocation from people who can’t keep their heads above water, financially.

In the last few years the number of known strikes has continued to increase, most visibly amongst taxi drivers in cities including Hangzhou, Zhengzhou, Qionghai, Foshan, Mengzi and Shanghai.

The particular issues vary but they are all essentially protesting over the same thing: meeting rising costs of living. In some cities the issue is the cost of fuel, in others it the government’s failure to increase taxi fares, in others it is over the proliferation of unlicensed taxi cabs.

Interestingly not only has this taken place without any sort of crackdown, the mainstream press has been allowed to report on it, suggesting that it is less frowned on.

Demographic pressure

Even though the Chinese labour market seems inexhaustible to the ears of Westerners, it is still fairly mobile and low-end manufacturers are under pressure to find people who will work bottom-end wages. There are now more options out there. Their response has been to move up the value chain, making more high-end goods such as laptop computers and iPads where the output justifies the higher pay. The same progression took place in Japan and then Korea.

Where does China’s anemic official state union fit into this? Hardly at all, it seems. Generally wage increases have been won by ad hoc worker coalitions working on their own. Supply and demand seems to be enough to force up wages when people feel the pressure enough. I wonder what will happen in five to ten years when, analysts suggest, growth slows down.

Sources:

NGOs: Job well done, but don’t overstay your welcome

Posted: August 30, 2011 in Cambodia, Economic Development
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MDG pictograms

The Millennium Development Goals

One year ago, wearing another hat, I attended the UN’s ‘Advance Global Health – Achieve the MDGs’ conference in Melbourne.

The forum is held annually – it is a means by which the UN takes the global pulse to see what issues it should focus on.

The conference was huge by Australian standards, with 1,500 delegates in attendance, most of them representing NGOs from around the world, delivering services to reduce infant mortality, improve maternal health, improve schooling, and so on. The UN wanted to hear how things are progressing.

Generally the news is good, and in some countries it is exceptionally good. The MDG (Millenium Development Goal) benchmarks won’t all be reached by 2015, but the world is definitely trending in the right direction. One dramatic example: The number of people living on $1.25 a day or less in Vietnam fell from 64% to just 22% in thirteen years.

Clearly there is a place for well-resourced development organisations, but they have to know when to step back, too. My abiding memory of the conference was Elena Jeffreys of the Scarlet Alliance. She drew attention to the fact that there can sometimes be a cluttered NGO ‘marketplace’ and the better-known, better-resourced organisations can suck all the oxygen out of it – taking up the media and funding opportunities. The problem, she said, is that they are often self-appointed, yet their voices are being heard at the expense of the more representative but less savvy local organisations. The largest union in Cambodia is the home-grown Women’s Network for Unity. If you’ve ever heard of it, you have done well. There are over 1,000 NGOs working in Cambodia and it is always easier to get media comment from native English speakers.

Ms Jeffreys goes further than that and suggests that rich-world NGOs will often come in and start lobbying in a fashion that is actually counterproductive to existing local efforts. She summed up:

Give us our rights; we can do the rest.

Dr. Claudio Schuftan of the People’s Health Movement echoed her sentiments. He said people in developing nations should not be seen as mere beneficiaries. “Rather,” he said,

we are mobilising rights holders to make their own claims.

This message could be challenging for the relief and development industry. At some level they generally see their organisations as needing to persist indefinitely into the future. Their work will remain necessary, but it will be capable of being done by local organisations and that is infinitely more desirable than having rich outsiders swoop in to resolve problems.

The adjustment could be difficult. It’s exciting and pleasant-sounding to expand to a new country; harder to announce that you are withdrawing from one. Almost sounds like a failure. Yet that is what needs to be done, sooner or later.

The way of the future can be seen in countries such as Chile and Malaysia, which have reached a medium level of wealth per capita and have fewer outside relief agencies operating there. Their neighbours Indonesia and Peru, however, retain a mindset that outsiders should come in and help. We are right at the point where many countries are switching from the latter to the former mentality.

Making Progress on the MDGs

See which countries have made the most progress by clicking on the map above. Image by Gates Foundation via Flickr

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Video:

This video formed part of the opening of last year’s conference

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