The present world capitalist order is characterized by deepening inequality amidst economic growth as well as increasing labor precarity amidst fantastic bonuses given to the world’s CEOs. This, in summary, is the criticism of the trade unions and civil society organizations (CSOs) worldwide against what they denounce as neo-liberal economic globalization. Oxfam International asserts that half of the world’s wealth is owned by just one percent of the world’s population, and that eight people have as much wealth as the bottom 50 percent of humanity. A powerful CSO ally, Pope Francis, minced no words in describing this scandalous global inequality: “savage capitalism”.
Rising inequality can be seen in the consumption or expenditure patterns among income classes, particularly between the top 20 percent and the bottom 20 percent. A World Bank East Asia report in 2011 noted that in the Philippines the top 20 percent outspend the bottom 20 percent by about nine times, in Cambodia by about eight times, and in Thailand by seven times.
Rising inequality can also be seen in the declining share of wages in GDP. In Building a Sustainable Future with Decent Work in Asia (2011), the International Labor Organization reported that “Wage growth is lagging behind labor productivity growth, and the share of wages in national GDP is declining throughout the region”. The decline is most dramatic in China, with the All-China Federation of Trade Unions (ACFTU) officially estimating the decline of the wage income share vis-à-vis the GDP to be 20 percent since the liberalization or globalization of the economy. Such disproportionate sharing of income has contributed to the waves of labor disputes in China, which are rarely reported in Philippine media.
The skewed distribution of jobs and incomes is most vividly reflected in the production and marketing of goods done by Factory Asia. The latter refers to the global value chain (GVC) set up by multinational corporations in different Asian countries to take advantage of cheap Asian labor.
While Asia is a beneficiary in terms of jobs, its share of wages is woefully low. This is best illustrated in the case of iPod, which is designed and marketed by the Americans and assembled by Taiwanese-owned factories in China (see Table 1). As documented by the US Congressional Research Services, an iPod sold in 2006 at the American market at $299 gave American companies $163, parts suppliers from other Asian countries $132, and only $4 to Chinese workers doing assembly work.
The foregoing pattern of iPod wage distribution is a global one, meaning the same pattern obtains in various GVCs established by transnational corporations (TNCs) in different globalized industries. Trade unions and CSOs call this growth pattern a Race to the Bottom. The race means global capital moves in and out of countries in search of the cheapest, malleable and productive labor. In this race, TNCs and big national firms tend to ignore global labor, social and environmental standards in the pursuit of global profit-making activities.
Table 1.
iPod earnings and jobs in US, China and other countries, 2006
Jobs | Number of employees | Total Earnings (in US$ million) |
US engineers & professionals
US non-professionals US production
China engineers & professionals China non-professionals China production
Other foreign engineers & professionals Other foreign non-professionals Other foreign production |
6,101
7,789 30
555 0 11,715
3,265 4,892 7,445 |
US$M 525.2
219.2 1.4
5.6 0 18.0
126.0 (Japan, SKorea) 96.5 72.3 (Japan, SKorea) |
Source: Rising Economic Powers and the Global Economy:
Trends and Issues for Congress, by R. Ahearn, 2011, US Congressional Research Services.
Trade union organizers blame the Race to the Bottom as one reason why there is a terrible weakening of the labor movement almost everywhere. Global capital is able to fly in and out of deregulated national markets in search for the cheapest production platforms, which include union-free EPZs. The race even pits host countries against each other in their frenzied drive to attract global capital. Hence, the Race to the Bottom means sacrificing global and national labor, social and environmental standards in order to win foreign investment. Some companies are also allowed to undertake excessive or extended outsourcing (sub-sub-sub-subcontracting) just to avoid the regularization of workers and save on labor cost by maintaining a pool of cheap replaceable workers.
Exhibit A: In Subic, Hanjin has a large shipbuilding and repair yard covering over 300 hectares. Since its operations, over 50 construction workers had reportedly died due to poor health and safety working conditions. However, Hanjin has evaded responsibility for their deaths by claiming that all these workers were hired and employed by independent contractors, not by Hanjin.
The trade unions and CSOs also blame the Race to the Bottom for the global financial crisis. Under neo-liberal globalization, those engaged in Factory Asia put their excess capital and profits into speculative businesses, including the imagined future values of commodities and the bundles of so-called “collaterized debt obligations” or CDOs. Super profits extracted by the few in their Factory Asia and GVCs were invested, Ponzi-style, in hedging funds. Eventually, financialization led to huge bubbles which burst into a full-blown global financial crisis in 2007-2010.
The Race to the Bottom is one major reason why there are huge imbalances in the global supply of goods and the global demand for the same. The global “over-production” of goods, especially those produced by the TNCs under their Factory Asia in China and other countries, finds the market narrowing because of the global “under-consumption” of the same goods because the workers and farmers producing these goods have declining wages and incomes under an unequal and unjust global sharing of wages and profits. In short, the crisis of over-production has a twin: the crisis of under-consumption.
Thus, in the ensuing competition among the big corporations and the TNCs in globalized markets, the locals and the non-tradeables get clobbered or are simply sidelined. The huge expansion of the informal economy, which accounts for over half of the employed in the Philippines and Asia, is considered by the neo-liberals as a failure of the economy to deepen global integration. The reality is that the ranks of the informals have been swelling because the locals and the non-tradeables are unable to compete in the market dominated by the big players. They are also discriminated by economic programs that openly push for global and regional integration.
In sum, trade unions and CSOs argue that financial crises and economic bubbles are likely to recur and societies are likely to convulse due to deep social and economic divisions — if there are no bold major reforms at the global, regional and national levels. They find the G20 debates on the financial rules in the post-GFC period too narrow and limiting. What the world needs today is a just and transformative economic integration, which puts people at the center of every community building and national development program.
A just and transformative economic integration requires a re-building of the Social Contract forged by tripartite social actors in the 1930s and 1940s (after World War II) in many countries. In the United States, President Franklin Delano Roosevelt, facing a national crisis of survival, adopted a twin policy of social activism and Keynesian-style spending to tame the 1929-1933 Great Depression. Apart from massive government pump priming and massive spending for social assistance for the poor, Roosevelt moved for the strengthening of unionism and collective bargaining. In Western Europe, the foregoing Roosevelt programs were further strengthened through the institutionalization of a welfare state regime that provides universal social protection for the citizenry and gives utmost importance to the role of unions in industry and in society.
A just and transformative economic integration also means an overhaul of the neo-liberal economic program and the adoption of new rules on global, regional and national economic arrangements. In brief, a new architecture of globalization, where people are at the center, should be developed. For the Philippines and other developing countries, this implies development planning that goes beyond the value chain framework of TNCs and neo-liberal economics.