Archive for the ‘Economic Development’ Category

English: Palm oil from Ghana with its natural ...

English: Palm oil from Ghana with its natural dark color visible, 2 litres Español: Aceite de palma de Ghana con su color oscuro natural, 2 litros (Photo credit: Wikipedia)

Ethical consumption is not going to solve the world’s problems, and here’s why.

To Western eyes, we only know the goods that are ‘Made in China’ that make it to our shores, so we can be tempted to think that they are representative of the country’s entire production, which would be wrong.

I’ll use Indonesia’s stats as an example.

Indonesia’s formal economy produces about $1 trillion of goods and services each year. The informal economy, which is not reported and not measured, is much larger than the formal economy. So many Indonesians working in small workshops, driving rickshaws, and so on are paid in cash and do not pay taxes.

Even within that smaller area which is the formal economy, only 15% (or 1 in 7 workers) are making goods for export, much of it raw materials such as palm oil and copper. So these companies that form part of the supply chain connected to Western consumers but are largely locally-based businesses, not employees of multinationals. Incoming foreign investment – where the operations are substantially controlled by overseas interests – represent about 5% of the economy, so it is generating perhaps 7-10% of economic activity or about 1 in 15 formally-employed workers.

Do-gooders have to remember their limitations. Even if every Western company invested in Indonesia magically stuck to all the core ILO standards overnight (ha!) it would hardly put a dent in solving the issues of Indonesia’s workers.

Besides, there is something slightly offensive in the notion that Westerners need to come in and fix things. Indonesians (and Indians, Cambodians, etc) understand their country’s challenges better than we do.

Having said all that, I’m not denying it has its place. I do think something is wrong with the world if consumers don’t care whether the person who made their household products was paid fairly, had reasonable hours and a safe workplace, regardless of where in the world they are located. I’m just saying we ought to think of ethical consumption more in this transactional manner only and not as a magic wand.

Read on:

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.

Lobster Trap

Lobster Trap (Photo credit: Wikipedia)

I’ve started reading Conor Woodman’s recent book, Unfair Trade. Once finished, I’ll post a full review, however it’s already given me some food for thought.

In the first chapter, Conor explains the perils of lobster diving as practised near Bilwi, Nicaragua. The locals dive many times per day in total ignorance of the risk brought about by such frequent decompressions.

Lobster trapping would be a less hazardous alternative but for the locals, the cost of entry is out of their league (about $1,500: 50 traps at $25-30 a piece).

The hapless divers tried to strike to improve their conditions but their customer, an intermediary food processing company, stared them down. The only other lever that can be pulled are the CSR commitments of the companies at the other end of the supply chain, such as Red Lobster restaurants. Even assuming that a ban on dive-caught lobster is helpful, Conor quickly illustrates how it is impossible to know the origin of any particular lobster and no one has set up any serious form of monitoring.

Just when it seemed like a lost cause, enter microfinance.

Yes it will certainly be better if, in the medium-term, the divers can secure some enforceable right to collective bargaining however if you want to assist people get out of the poverty trap you can do so today by making a loan through Grameen FoundationKiva or a similar organisation. It makes the difference between the likes of Conor’s guide, Wally, having some kind of self-determination and being stuck in a vicious cycle of low wages and poor equipment.

The only criticism I’ve heard of microlending is one study which found that people who received funds easily were less inclined to take care of it. I’m not convinced that this is a widespread issue though.

You won’t see the labour movement promoting this as a solution, which is fair enough since collective bargaining would give the Miskitos the leverage to improve their lot on a widespread basis. However you have to be realistic about how attainable that is in Nicaragua in its present state of economic development. In the meantime, concerned individuals can at least “do something” to give real assistance.

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English: Anti-WTO banner by Indonesian Migrant...

Image via Wikipedia

Concerned rich-world folks must frequently look across to workers in other countries making their goods in miserable conditions and want to help. The problem is, charity can sometimes be disempowering and can hinder rather than help workers’ attempts to solve issues for themselves.

Unions, the entities closest to the action and run by people involved firsthand, are surely the best-placed vehicle to advance workers’ rights. So why is it that sweatshops remain prevalent in Indonesia after so many years?

Let’s start at the beginning

For many decades, the predominant strand of unionism in Indonesia were the corporatised official unions falling under the umbrella of the FBSI peak body (re-named SPSI in 1985). FBSI worked closely with the governing Golkar super-party and saw itself as ‘covering the field’. Due to their close relationship with the government their mission was also to assist the overall national development, even if that meant occasionally soft-peddling on workers’ concerns.

Yet it is not so easy to eradicate ideas. Other strains of unionism could not be kept away: firstly the more radical, more Marxist anti-employer strain, and secondly a limited-scope kind which wanted to remain focused on improving workers’ socio-economic interests without becoming entangled in politics and the compromises that inevitably follow.

Activists were not allowed to register unions with either of those objectives, so they instead formed NGOs to pursue their agenda. Initially the NGOs were formed for euphemistic purposes but as time went on they became more and more open about their labour focus.

The 30 year period of official corporatist policy and a historically sharp gap between the working and middle classes combined to create a lasting divide between working class unionists and middle-class intellectuals. The latter struggled perpetually with the problem that they did not ‘belong’ to the group on whose behalf they were acting:

There is no guarantee that [middle-class NGO workers] share workers interests, because feelings of pity are not a form of class-consciousness (p. 124)

On the other hand, some were far-sighted enough to embrace this and saw their involvement as being only temporarily necessary:

We have sought to prepare workers who are capable of leadership and critical thought, and who are independent and self-sufficient. We have tried to minimise the dependence of workers and worker organisations on the NGO that facilitates them (p. 125)

In 1998 Suharto resigned and Golkar’s hegemony came to an end. In the 14 years since, a gradual adjustment has been going on. Unions have had an easier time registering and operating without government intimidation. Both changes have also made NGOs less relevant; the unions of Indonesia are now beginning to stand on their own feet.

Today there are three national trade union confederations, confusingly named KSBSI, KSPI and KSPSI. Whilst the ensuing division and rivalry no doubt weakens the voices of the workers it could be lessened with effort. The current arrangement at least allows ideologically diverse activists to each operate in their own spheres.

So, if you want to assist the sweatshop workers of Indonesia, don’t simply send your money to Oxfam – help them to get their story out. Consumer awareness might not be the most potent weapon by itself but it greatly amplifies work being done on the factory floor.

Preconceptions erased

I found this book to be a real preconception-buster. My picture of Indonesian workers had been that they are generally non-union and that this is a state of affairs maintained by companies seeking to keep wages low and a government keen to attract foreign investors. In fact there are more prosaic reasons why few Indonesians are union members:

  • Firstly, most people (about 70%) work in the informal sector and are not paid a wage or salary that could form the basis for collective bargaining. Moreover only a minority of the other 30% are employed by overseas-owned interests;
  • Secondly, labour activists have had the advantage of overseas donors for a long time and do not seem to have adjusted to the need for revenue from member dues.

[T]he availability of large amounts of external funding from international sources made the difficult work of due collection unattractive, especially for large trade unions (p.171)

many trade unions have yet to establish effective and transparent internal processes or to raise enough money through dues to fund day-to-day union operations (p. 165)

Lastly I was surprised by the similarity to the flavors of unionism here in Australia, despite differences in culture, governance and economy: the corporatists (here: the ACTU-ALP under Hawke; there: the FBSI-Golkar), the Revisionists who want to focus on union objectives but not broader political ones, and the Marxists who are, well, the same everywhere.

The book is available on

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Thought-provoking article about bridging the ‘solidarity divide’:

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 (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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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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