|BUSINESSWEEK ONLINE : DECEMBER 13, 1999 ISSUE|
|NEWS: ANALYSIS & COMMENTARY
Commentary: Labor Standards: Try a Little Democracy
Developing countries such as China and India are united in their opposition to the idea of global labor standards, and they made their views heard loud and clear at the World Trade Organization's gathering in Seattle. They insist that standards--such as freedom of association and health and safety rules--would give the U.S. and other developed nations an excuse to keep out products made in low-wage countries. They don't buy the argument made by U.S. labor unions and others that the world's trading system won't be fair until trade sanctions are used to enforce broad labor rights.
To make their point, more than 100 intellectuals from developing nations put out a highly emotional statement drafted by Columbia University trade economist Jagdish N. Bhagwati. Labor standard proponents, they charge, should be exposed as protectionists who ''stand against the trading interests of the developing countries'' to ''advance their own economic interests.''
WRONG COURSE? But recent research should cause democratic developing countries from India to Chile to reconsider their position. A study of 93 nations by Harvard University trade economist Dani Rodrik shows that democracies pay higher wages than autocracies for a given level of manufacturing productivity. This suggests that wages are not being set by the free market. It also means that autocracies that consistently pay out in wages a smaller share of per worker output have an unfair trade advantage.
So, by not forcing such countries to adhere to broad labor standards, the WTO may essentially be allowing repressive countries to maintain their edge. ''Developing countries have legitimate fears that labor rights can be a pretext for Western protectionism, but it also may be that autocracies repress their workers and hide behind the protectionist argument,'' says Rodrik.
His China-India comparison is telling: Both are huge developing economies, but with diametrically opposed political systems. India's low-wage democracy had an annual average manufacturing output of $3,118 per worker from 1990 to 1994, Rodrik found. Its average manufacturing wage: $1,192 a year. By contrast, China, with a similar productivity level of $2,885 per worker, pays its factory labor just $498 a year.
Of course, many factors are at work behind this huge gap. Differences in education and national savings rates are two of the most important. But Rodrik's findings indicate that India and other democratic developing countries may be working against their own interests by opposing WTO-enforced labor standards. Why? Because the standards would compel repressive nations to compete with them on more equitable terms.
Rodrik's conclusions are still somewhat tentative, largely because the underlying data are not entirely reliable. The wage and productivity figures, which apply only to manufacturing, come from U.N. surveys of 93 countries dating to the 1960s. They include benefits, bonuses, housing, and family allowances. But not all countries define wages the same way. As a backup, Rodrik also looked at more rigorous stats kept by the U.S. Bureau of Labor Statistics on the manufacturing sectors of 29 nations starting in 1975. He converted all numbers to U.S. dollars using contemporary exchange rates and found that both studies told a similar tale.
His political rankings also can be challenged. Rodrik tapped a widely used survey by a Washington (D.C.)-based human rights group called Freedom House, which ranks countries annually on civil liberties and political rights. It categorizes the countries as Free (the U.S., India, Argentina); Partly Free (Mexico, Malaysia); and Unfree (China, Vietnam). As a second source, he used rankings from a survey called Polity conducted by the Harvard-MIT Data Center. Both studies involve subjective judgments but come to similar conclusions, Rodrik found.
When he combined the wage series with the political ones he found strikingly large differences between democracies and autocracies. At any given productivity level, factory workers in Free countries earn 30% more on average than those in Partly Free ones--and 60% more than those in Unfree nations. The difference can't all be attributed to repressive practices. For example, democracies may spend more money on education, which would lead to higher average wages, points out Harvard University labor economist Richard B. Freeman. Still, he says, Rodrik's comparisons show that ''there is a link between democracy and wages.''
That link is even apparent during political transitions. The share of productivity represented by a worker's wages plunged an average of 11 percentage points in democracies that fell into dictatorships, Rodrik found. This conclusion came from examining three-year averages in the periods preceding and following regime changes in 1980 in Turkey, in 1976 in Argentina, in 1973 in Chile, and in 1964 in Brazil. By contrast, labor's share jumped four points in eight countries that moved from autocracy to democracy, including Greece (1974) and Hungary (1989).
While the new line of thinking is provocative, some experts argue that labor issues are simply too thorny for a trade organization such as the WTO to handle. Bhagwati, for example, says that while he thinks every country should respect basic labor standards, he doesn't think it's workable for the WTO to enforce them.
By contrast, the AFL-CIO, the primary labor standard advocate, wants the WTO to adopt so-called core labor rights that have been promulgated by the International Labor Organization and endorsed by most countries. These include the right of association and collective bargaining, a ban on forced labor, minimum-age laws, and rules on health, safety, and hours of work.
POWERFUL TOOL. Bhagwati, however, points out that many countries have different views about what constitutes compliance. For example, most countries, even dictatorships, claim to practice gender equality. But virtually no one does completely, not even the U.S., where women still often earn less than men in comparable jobs. ''If you took that standard seriously, all countries would have to cease trade,'' says Bhagwati.
Other economists worry that global labor standards could curb development in autocracies, hurting workers more than helping them. ''By imposing trade restrictions, you could make it less likely that those countries will escape the repressive conditions,'' says Edward E. Leamer, a trade economist at the University of California at Los Angeles.
Still, prodding autocrats to respect workers' rights can also be a powerful tool for liberalization. Workers who unite to demand better conditions on the job are likely over time to want a greater say in the political process, too. In the end, global labor standards could mean much more than higher wages and a level playing field for poorer democracies.
By Aaron Bernstein
Bernstein covers labor issues from Washington.
To read a letter to the editor about this story, click here.
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Commentary: Labor Standards: Try a Little Democracy
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