Interest Groups

More on Trade and Labor Rights

Dec 20 '12

I want to expand a bit on Henry’s post about trade and labor rights. There is some very good research that shows a positive effect of trade on labor rights in developing countries. For example, this article (ungated, pdf) in the American Political Science Review by Brian Greenhill, Layna Mosley, and Aseem Prakash demonstrates that the labor rights of exporting countries improve not as a function of their overall trade-openness but as they export more to countries with higher labor standards. They refer to this as a “California effect,” named after the idea that high fuel efficiency standards in California raised fuel efficiency everywhere as car makers adjusted production to Californian standards. This is the opposite of the more familiar “ race to the bottom” where producers drop standards to the lowest common denominator in order to remain competitive.

Yet, Layna Mosley shows in her book Labor Rights and Multinational Production that some forms of multinational production are more likely to produce races to the bottom than others. She identifies subcontracting of the variety that Henry blogged about as the most likely to prompt competitive races to the bottom. Subcontracting is fiercely competitive, focused largely on lowering production costs, based on short-term relationships, and has murky chains of accountability. By contrast, directly owned foreign investment creates longer time horizons and better opportunities for activists and others to hold foreign parties responsible for violations of labor standards (see also this article, pdf ungated).

What this and other research shows is that “the limits of voluntary compliance schemes are manifest,” as the  background paper for the World Development Report (WDR) mentioned by Henry puts it. The competitive pressures in subcontracting are generally too large to be ameliorated by political consumerism and companies worried about their brand names. Yet the research also shows that lower labor standards are not an inevitable byproduct of economic globalization as some (not Henry) would have it. This gives hope that better “aligning incentives so that brands, their suppliers, and governments actually implement those standards” (WDR paper) can indeed ameliorate the problem without resorting to protectionism. It also implies an important role for government regulation in ensuring that open markets function appropriately. The WDR paper has a lot more on that.