The Political Economy of Child Labor and Its Mpacts on International Business

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RIGHT OR WRONG, PERCEPTIONS THAT GLOBALIZATION LEADS TO EXPLOITATION OF CHILDREN ARE BECOMING AN IMPORTANT PROBLEM FOR INTERNATIONAL BUSINESS.

Child labor is linked to global business directly and, more commonly, indirectly. Critics blame increased trade and financial flows for increased child labor, and those criticisms have undermined the legitimacy of further trade and financial liberalization. Companies--including multinationals such as Nike, Wal-Mart, Ikea and the Brazilian subsidiaries of U.S. and European automobile manufacturers--have responded with a range of initiatives. Unless business responses alleviate the worst forms of child labor, the legitimacy of continued trade and financial liberalization will continue to be undermined by perceptions that liberalization disproportionately hurts children, especially child workers.

Children have worked for as long as families have needed all hands to pitch in. Beyond defining work as a means of survival, however, defining what work is appropriate for children and what (if anything) to do about inappropriate work involves more complex judgments--especially for firms doing business in the global economy.

The International Labor Organization estimates that around the world 250 million children between the ages of five and fourteen work, about 120 million of them fulltime. [1] Some of these children work in factories and other workplaces in the formal economy, but the vast majority work in informal enterprises, agriculture and in homes. International firms are part of this economy not only if they hire children, but also if they buy goods or services from children or from companies that make such purchases.

International business has come under increased pressure from social activists, trade unions and others to help find new solutions to end exploitative work for children and to help them get the education and training they need to become productive adults. Companies in the spotlight include respected multi-national corporations as well as many other lesser-known businesses.

Child labor has been a concern of the formal, industrial economy since the beginning of the Industrial Age. By the end of World War II, however, most developed countries had passed laws against child labor, at least in industry. Child labor had declined in developed countries in any case, due to a combination of several factors. These include the increasing sophistication of technology in the workplace (reducing the demand for low-skilled workers), greater productivity and consequently higher wages (reducing the need to send children to work instead of school) and higher school attendance (reducing the supply of child labor).

Child labor re-emerged as a public concern in the 1980s and 1990s. This time, worry was expressed across a broad spectrum of opinion--from United Nations agencies, to non-governmental organizations, educators, social workers, trade unions, cause-driven investors, and the news media--that "globalization" was increasing the incidence of child labor. [2] This time, "child labor" meant more than only children in industry. "Child labor" is now understood to mean children working in both the formal and informal economic sectors, in legal work and illegal occupations such as bonded labor, slavery, soldiering, and prostitution. That poses a new question: What kind of "child labor" should be of concern to international business?

From the disparate groups mentioned above has emerged a global campaign to eradicate child labor. One of the best-known parts of this campaign involves an effort to ban from international trade goods made by children. This linkage between child labor and trade makes child labor at least an indirect concern for many businesses. Even if firms do not themselves employ children, they operate within a global system of commerce, manufacturing, procurement and trade that--in part--does.

The balance of this paper explores the business economics of child labor in four parts. The first part outlines three dimensions of business links--direct and indirect--to child labor. The second part discusses the basic question that must be answered before any further discussion begins: What is child labor? Defining the difference between all child work and "child labor" is key to any assessment of the scope of the problem as well as appropriate responses. The paper then discusses the basic economics of child labor and some of the ways in which economic theory fails to account for the actual political economy of child labor. The next section presents examples of industries and firms that have been accused of using, or benefiting from, child labor, and how some have responded to the criticism. This section will draw from the previous discussions to assess trade and child labor. A conclusion will sum up lessons about international business and child labor.

International Business and Child Labor: Three Dimensions

Business' role in the economy of child labor has at least three dimensions, both in the formal and informal economic sectors. The three dimensions are:

DIRECT: A firm or enterprise employs children directly.

As mentioned, the majority of direct employment is in the informal sector, where children take part in performing services, small-scale manufacturing, various agricultural occupations and work in the home. Many of these children are "hidden" workers, because they only work in their homes and thus do not show up in formal labor force statistics. Although many of these children are working under family supervision, full-time home work can bar a child from attending school; and many home-based activities can be as hazardous as work performed outside the home. [3]

In the formal sector, when children are employed, it is usually in businesses featuring fierce competition among producers, low barriers to entry, and labor-intensive work for relatively low-skill labor requirements. Examples are the garment and shoe industries. [4] Also in this category are occupations (e.g. diamond-cutting in Surat, India) in which children are trained in a skill from an early age.

Direct employment also encompasses plantation agriculture producing such raw products as coffee, tea and sisal. Although plantation agriculture differs from the other examples because of its organization and relative capital intensity, several factors still discourage parents from sending their children to school instead of bringing them to work. These include traditional patterns of employment and payment; lax enforcement of labor laws allows the hiring of children; and the lack, inadequacy, and expense of schools and child care.

It should be noted that some international firms hire children directly, and the products of these children's work is used by other companies in developed countries, as will be explained in the definition of the next dimension of business' relationships to child labor.

INDIRECT: Goods and services produced by children are purchased from other firms.

This dimension is increasing as formal sector firms purchase goods and services made by informal sector firms or enterprises, goods made in traditional home settings, and goods made by enterprises that have themselves outsourced production to home workers. [5] In some cases, firms have been initially unaware that such production has a child-labor component. Examples of companies that have discovered inter-firm connections to child labor include importers (Ikea [6]) who sell hand-made rugs from India, Pakistan and Nepal; marketers of soccer balls (Nike, Reebok, Adidas [7]); sellers of coffee picked by children (Peet's, Starbucks [8]); and Brazilian automobile manufacturers (General Motors, Ford, Mercedes-Benz [9]) that used steel produced with charcoal made by children and their families. Retailers and brand-name licensers of merchandise made in sweatshops where children are employed also fit into this category.

Even in the United States, children have been found to provide products to major corporations. In 1997, an investigation by the Associated Press followed "the work products of 50 children to more than two dozen companies including Campbell Soup Co., Chi-Chi's Mexican restaurants, ConAgra, Costco, H.J. Heinz, Newman's Own, J.C. Penney, Pillsbury, Sears and Wal-Mart." [10] (The AP reported that every company contacted condemned child labor, and some launched investigations into their suppliers' …