Archive for the ‘Books’ Category

21st Century citadel

Citadel for 21st Century aristocrats?

One thing absent from this blog is a ‘Theory of Everything’, reducing everything back to one fundamental explanation. The closest I’ve come may be a recurring line that humans tend to make decisions in a reactive way, a.k.a. short-termism. Locke and Spender’s book Confronting Managerialism: How the Business Elite and Their Schools Threw Our Lives Out of Balance certainly provides a grand unified theory of everything wrong with the world of commerce, including the issues with globalisation that I highlight on this blog and a lot more besides.

The idea can be summed up very briefly: “managerialism” (as distinct from management) is the belief that membership of the management caste and its codified knowledge gives one an entitlement to govern, and not just to govern companies but governments and nonprofit institutions as well. This knowledge is acquired in business school. Yet, the authors argue, business school education is disconnected from real life. It describes the world in quantitative terms that assume perfect, closed systems and ignores tacit knowledge. It mistakes the balance sheet for reality. Despite its hubris, Business education had no role in instigating the biggest revolutions in business in the last 40 years: the quality revolution and the tech start-up phenomenon, both of which happened in spite of rather than because of what people learn in business school.

That wouldn’t be so bad if managerialism was a purely theoretical belief but business schools are not fringe organisations; people instilled with these notions do become real-world managers. The result is managers who, with their excessive emphasis on financialisation, believe their main task is to drive up the stock price, not to make products well. Products are of secondary importance only. The results speak for themselves: tottering companies in the Anglophonic world that lurch from one stock price boosting initiative to the next, undermining their own long-term value before being bought out or collapsing under their own weight (not that the responsible executives care, having long since departed for new pastures). Locke and Spender contrast this with German and Japanese firms where managers do not think of themselves as a caste apart and adopt more collaborative governance styles aimed at the long-term prospering of the enterprise for the benefit of all involved including, not least, customers.

Locke and Spender also comment on the failure of Christian Churches in the English-speaking world to provide a moral counterbalance to the amorality of Business School education (something I too noticed last year in this post). In both the Chinese and Islamic worlds, economics is paired with ethical imperatives. By contrast, ethics as taught in Business school is subservient to economic values and therefore ultimately futile:

self-interest in financial firms cannot be a “good” unless their market trades are involved in wealth creation. Since they are not, and business schools are doing nothing institutionally to promote financial markets as wealth-creating entities, business school talk about ethics is a concoction of fantasy (p. 173).

Ouch.

My only criticism of the book is that it spends lots of time talking about cultural differences which is all very illuminating but I expected more space would have been allocated to business education specifically. I’d suggest William Deresiewicz’s Excellent Sheep might make a better starting point for anyone interested.

Postscript

Right on the second page, there is an acknowledgment of former Christian Brother Godfrey Regio’s film Koyaanisqatsi as the source of the book’s subtitle “How the Business Elite and Their Schools Threw Our Life Out of Balance”. In a pleasing circularity, the end credits of Koyaanisqatsi acknowledge the work of former Jesuit Ivan Illich for ‘inspiration and ideas’ and Illich, fittingly, is best known for a book titled Deschooling Society.

I wrote about Illich’s ideas in this post.

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Talking Union

 by Paul Garver

Insuregency Trap cover image

Eli Friedman’s Insurgency Trap: Labor Politics in Postsocialist China is indispensable for anyone trying to understand what is happening with hundreds of millions of internal migrant workers in China today. Postsocialist China has become the world’s largest manufacturing center and exporter to the rest of the world, and the future of Chinese society and of the global economy hinges on whether the new Chinese working class remains excluded from its social and political system.

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Olympus E-PM2 with Tokina 80-400mm

Olympus E-PM2 with Tokina 80-400mm (Photo credit: hto2008)

I was really looking forward to reading ‘Exposure: Inside the Olympus Scandal‘. Perhaps unfortunately it has parallels to the fictional ‘Rising Sun‘ so I was hoping for a similarly dramatic story of moral uprightness in the face of wrongdoing. Maybe some readers found that to be the case, but as I worked through the book I thought the ethics of the situation became murkier.

In brief: Briton Michael Woodford was made President of Olympus in 2011. Just a few months into the job he became aware of an accounting fraud when it was leaked to independent magazine Facta by an anonymous employee. He tells his executives to investigate it but gets stonewalled and, when he pushes the issue, the board dismisses him.

The fraud in question was a loss incurred all the way back in the late 1980s during Japan’s property slump, when an investment turned sour. Company insiders had kept it out of the accounts all that time before deciding to realise the loss in 2008 by purchasing a phoney company and counting the $700 million debt as an ‘advisory fee’. Woodford wryly comments that, had it been real, it would have been the largest advisory fee in history.

But that’s as far as the scandal goes. There’s no hidden agenda, no underworld involvement, not even any personal enrichment arising from these shenanigans. The perpetrators were motivated purely by the desire to protect their own company. A victimless crime then? Not exactly; the shareholders were clearly being misled, however massaging of ugly facts is so commonplace in Japan that it’s difficult to call it wrongdoing (see earlier post about laws vs norms). The Economist described the Olympus affair as “not so much a scandal as a state of mind”.

Is it just a simple clash of Anglo American vs Japanese values? Woodford didn’t think so. He argues forcefully while at Olympus (and again in his book) that such practices are rotten and need to change. Japan’s closed-rank corporate culture, he says, did wonders for the country in the postwar era but now that those companies have grown up they need to be able to adapt to changing circumstances. Unquestioning deference does not allow people to take the necessary risks to fight off competitors, notably including those in next-door Korea. Woodford passionately wants Olympus to succeed but sees its own corporate culture as its biggest challenge. How much impact his actions will have in the long term remains to be seen.

Here he is talking about his experience on Australian television:

Shareholder value versus value to other stakeholders

On the narrower question of the fraud itself, I can empathise with the unknown people who were trying to correct the damage. They remind me of the hapless crew of the Battleship Yamato who continued to man the guns even when the ship’s fate was sealed. Woodford comes from an Anglo-American perspective of shareholder capitalism. In his view the profitability of the company is the number one value. The Japanese, on the other hand, see the company in a more embedded fashion: it exists in a web of relationships including the other members of its keiretsu conglomerate, suppliers, customers, employees and factory towns. It sounds noble to make the company face the music, but what effect does it have on the ongoing wellbeing of all those stakeholders? (If that sounds touchy-feely, don’t laugh; the U.S. Government used exactly these justifications to rescue both the financial industry and General Motors)

Faced with such ludicrously high responsibility, it’s not hard to see why the poor devils working in Olympus’s back offices opted to delay the day of reckoning. I’m not saying it was the right call, just that it’s understandable with the pressure they would have felt.

Harvard Business Review ran an article last month titled ‘Long CEO Tenure Can Hurt Performance’. It compared the stock return of several companies against the length of tenure of their CEO and, sure enough, the short-term CEOs saw the greatest rise in stock price. What was omitted was whether the companies stock prices performed better after the CEO in question departed; not as well, I suspect. However that is a tactical argument. The real point is that bundled into the article is the Anglo-American assumption that the share price is the measure of a company’s worth, and what it accomplishes in the real world is only an adjunct to this. I’m not convinced.

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Mujeres saharuis en la maquila

Mujeres saharuis en la maquila (Photo credit: gaelx)

I’ve written a few times about Latin American workers (see links below). Here at last is a broad description of attempts to cross-border advocacy in Latin American apparel-producing countries and North American apparel-consuming countries.

The book uses four 1990s campaigns as case studies:

  • Guatemala: Phillips Van-Heusen
  • El Salvador: Gap supplier Mandarin International (Taiwanese-owned)
  • Honduras: Kimi (Korean-owned), supplier of retail store-label clothes
  • Nicaragua: Chentex (Taiwanese-owned), another supplier of retail store-label clothes

The picture is not a pretty one. These four campaigns attained the rare victory of union recognition but, after that, their companies invariably relocate. The wonders of Capital Mobility. It makes me think of trying to stop a vacuum cleaner by holding its nozzle; it can simply detach the nozzle and use another (I’m sure there are better metaphors … suggestions are welcome!) Even so, the author writes, capital is not omnipotent and with better co-ordinated campaigns could be held to account. The world is only so big and brands in this day and age should have nowhere to hide.

The author, Ralph Armbruster-Sandoval, explains how pressure in each case was applied across borders, at both ends of the supply chain. He calls this the Keck-Sikkink or Boomerang Model (p. 22). Mis-coordinated boomerang campaigns, he argues, keep allowing the ball to be dropped after a short-term victory.

He sets out the history of overlapping pressure groups, something I’ve noticed before. Apparently the Workers Rights Consortium (WRC) was set up in 1999 specifically by people unhappy about the compromise-solution of the Fair Labor Association (FLA) which, among other things, does not insist on a minimum living wage (p. 12). The FLA are now famous as Apple/Foxconn’s inspectors (more on them next month). Likewise the IGLHR, formerly NCLC, was set up in 1981 by people unhappy with the AFL-CIO‘s pro-US foreign policy approach during the Cold War (p. 82). The AWU-APHEDA spat in Australia is another symptom of the same division. People have long memories.

Even allowing for these historical differences, there is a recurring difference in approach between groups that push the need for independent unions, and groups that push for independent monitoring (p. 13). I wish I’d learned this sooner. Throughout this blog I’ve looked at campaigns run by both camps and I’ve been somewhat biased towards the AFL-CIO approach. As a union official, it’s hard not to be. I just don’t see how you can have a successful campaign without involving the people who stand to benefit from it; you’ll end up with a result on paper that is not enforced.

In Keck and Sikkink’s (1998) model, domestic non-state actors establish ties with NGOs, creating transnational advocacy networks (TANs), who, in turn, put pressure on their respective states to bring about social change. This model […] is quite useful but it inadvertently places too much emphasis on TANs, making them seem like they are the “saviors” of the “poor, downtrodden masses” …

[T]heir model gives one the impression that domestic non-state actors cannot independently determine their own fates without “outside assistance”. (p. 103)

and again:

[W]omen maquiladora workers have often been framed as “victims” while U.S.-based consumers and activists are seen as “saviors”. (pp. 149-150)

However you need the consumer advocacy to open up the space for organising; it’s not often there as a given. Indeed weak labor regulation is usually one of the reasons production has been moved to these countries to begin with. It’s all very comforting to prefer organising over distant advocacy but it might not always be practicable. Consider the IGLHR report into the KYE Systems factory, maker of Microsoft peripherals (which I covered here). The only options for a local partner are the Chinese state union or unrecognised local NGOs whose leaders risk prison.

If it were ever used properly, the boomerang model would actually render the dilemma moot. Successful campaigns draw on moral and material leverage (p. 59). As one wit (@WithoutDoing) recently put it on Twitter:

For something to be changed it must be both pushed and pulled (12 Oct)

This is absolutely not a theoretical debate. The two camps need to have more than a passing regard for one another, they need to actively co-operate. Using the example of the Salvadoran maquila (garment) industry, the author notes:

Consensus between the NLC, AFL-CIO and UNITE existed, on the surface, during the Gap campaign. In reality, tensions ran high. It should be pointed out that all three groups did work together, but their strategic and historical differences generated unnecessary conflict. The NLC distrusted the [local peak groups’] involvement in the Gap campaign because of their previous ties with AIFLD [the pro-US foreign policy outfit which generally sought to undermine leftist regimes in Latin America]. AIFLD’s uncritical stance towards El Salvador’s human rights abuses generated dissent within the AFL-CIO, sparking the establishment of the NLC in 1981 […] The NLC rejects working with all “corrupt” centrist unions like the CTD, CTS and CNTS […]

The ACILS, AFL-CIO and UNITE also claimed that the NLC’s campaigns are too “media-driven” and that they leave workers defenseless after they are inevitably fired. These organisations suggest that the NLC should work towards empowering workers and making them (rather than consumers, students, or [NLC leader] Charles Kernaghan) the primary agents of change, on the ground, through unionization.

These perspectives highlight a crucial, though unstated point: officials from the NLC, UNITE, the AFL-CIO and ACILS generally mistrust each other (p. 82).

Touchez!

People need to focus on this bigger picture, an awful lot depends on it.

As to the issue of Capital Mobility, Armbruster-Sandoval suggests region-wide organizing as a means of limiting companies’ tendency to ‘cut and run’ (p. 133). It had not been launched at the time this book was published but the Asia Floor Wage campaign does exactly that.

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Samsung Galaxy S III

Samsung Galaxy S III (Photo credit: John Biehler)

If ever there was a serious contender for the title “iPhone killer”, the Samsung Galaxy S III is the closest thing I’ve seen. It’s time to take a closer look at its maker.

Samsung already sells considerably more handsets than Apple, but they don’t get anything like the amount of attention that Apple does, at least in English-speaking media. It’s not surprising: Most of their sales are made outside the USA, their stock isn’t listed on the NYSE and their product launches are in the Korean language (and in Seoul).

Korea is a pretty big player. The population of North and South combined is nearing that of Japan. Samsung looms large in South Korea’s national identity. It generates nearly 20% of the country’s GDP, a proportion that hasn’t changed much in years (AMRC, p. 48). The company’s economic output of $250 billion is larger than most national economies. At the World Expo, currently underway in Korea’s port city of Yeosu, Samsung has its own pavilion.

Like other trans-national corporations, Samsung outsources production around the world, often to places where manufacturing has lower wage cost.

The rise of Samsung and its operations throughout Asia are the subject of the first half of the book Labour in Globalising Asian Corporations published by Asia Monitor Resource Center (the second half deals mostly with Toyota).

The chapters are written by different authors and are a little episodic so, other than the general theme, the book doesn’t have an over-arching narrative. Each chapter is a meticulously pieced-together portrait of the company’s workforce, particularly Chapter 1 which makes a sweeping tour through Korea’s economic history right back to the Japanese occupation in the 1930s, the time of Samsung’s formation. It that respect it is an invaluable resource for students and others interested in alternative economics.

The book carefully documents the company’s shortcomings, mostly with respect to wages. In its home country Samsung uses a strategy of providing reasonable pay but banking on its prestige as an employer to squeeze the workforce to work harder and sacking the bottom 5-7% of performers every year as a matter of course.

The company has a declared ‘no union’ policy which it promotes by various means:

  1. Historically when workers in Korea itself start agitating for better pay, the company has given raises, neutering any union message.
  2. Outsourcing to suppliers that are separate companies on paper but actually controlled by Samsung management.
  3. In Korea and South-east Asia the company has succeeded in registering paper unions so that activists can’t obtain official recognition, and/or having real unions dissolved over minor administrative impediments.
  4. In Malaysia it also got the cooperation of the government to prevent unionization as part of the package of sweeteners to bring investment. This sounds outrageous but is possible because Malaysia has not ratified the ILO Convention on freedom of association.

It’s strange that Korea’s corporations are so virulently anti-union when Japanese companies learned a long time ago to work with them.

Samsung, owned and operated from Korea, also presents a challenge unlike anything I’ve covered to date. Whilst it is a public company it is not like other global brands, in which the largest stockholders are pension funds and no single fund owns a substantial holding. Samsung is a chaebol, a colossal interlocking network of companies all controlled by Lee Kun-hee and his family. The national government has only taken timid steps to wind back the chaebol system, despite its weaknesses such as overproduction which became apparent during the 1997-1998 economic crisis.

With no unions, little regulation and not even a fig-leaf of shareholder accountability there aren’t a whole lot of options to counter the power of the Lee Family. Social movement activism seems to be on the rise though. Last month a large meeting of three dozen activist networks took place in Seoul, making ten years of the International Campaign for Responsible Technology and they had Samsung squarely in their sights, holding a large protest outside the company’s headquarters.

The focus of this protest is occupational deaths among Samsung employees resulting from leukemia. The company has taken no action to improve safety (oddly this issue is not covered in Labour in Globalising Asian Corporations, even though it was only published a couple of years ago).

Their campaign is making some headway: on June 21st the country’s National Human Rights Commission requested that the Ministry of Employment and Labor change the rules to make it easier to prove that workplace injury and disease is attributable to the employer.

Chaebols still have to negotiate just like anyone else when their workforce is organised (it’s getting to that point that is the problem in Samsung). Just over a week ago, truck drivers belonging to the Korean Transport Workers Union achieved a 9.9% pay rise after a week-long strike. Samsung doesn’t have magic powers to prevent unionisation, just good lawyers.

Labour in Globalising Asian Corporations is available in hard copy from Asian Monitor Resource Center. It’s also available on their website in PDF. The sections relating to Samsung are:

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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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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 Amazon.com:

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