Academic journal article International Journal of Labour Research

Value Chains, Underdevelopment and Union Strategy

Academic journal article International Journal of Labour Research

Value Chains, Underdevelopment and Union Strategy

Article excerpt

The dynamics of international trade within industries is best captured by the expression "global value chains" (GVCs).1 The old notion of international trade as trade in finished goods - for instance, British cloth against Portuguese wine, as in David Ricardo s (1817) famous example - is no longer a valid point of reference. Production processes in the field of manufacturing and services have been divided into numerous and different tasks, which have become tradable internationally. Looking at traded goods by stage of processing, intermediate goods now have the largest share of overall trade with a value of US$7 trillion, followed by primary goods at US$4 trillion, consumer goods at US$3.8 trillion and capital goods at US$2.7 trillion. Almost 50 per cent of intermediate goods come from developing countries (UNCTAD, 2015a). Developing countries are increasingly integrated in the world economy through the global value chains (Milberg and Winkler, 2013).

In this article, we ask whether international trade, and specifically trade within GVCs, leads to better working conditions and social and economic improvements in countries in the global South. We find that markets do not automatically lead to better working conditions and social and economic advancement; rather, the opposite is generally the case: unregulated markets have the tendency to push developing countries towards a socio-economic position that reproduces underdevelopment. The increasing integration of developing countries in GVCs has not changed this in any meaningful manner.

The union strategies discussed here should therefore combine two elements. First, unions should fight for decent working conditions (see ILO, 2008). But decent working conditions are insufficient if a country is not able to catch up in skill levels, technology and finally real GDP per capita. Economic improvements, measured as increasing GDP per capita, do not automatically lead to social progress; but without economic growth, social advancements in developing countries tend to be limited. Unfortunately, the market mechanism, including international trade and capital flows, does not lead to an endogenous process of catching up in almost all cases. This means that unions should also care for policies which go beyond decent working conditions. In the second section of this article the mainstream arguments for free trade and capital flows are briefly discussed. The third section focuses on GVCs and compares their two main pillars: foreign direct investment (FDI) and subcontracting. Section four presents strategies for decent work and development from a union perspective.

Traditional analysis of trade and international capital flows

Free trade is almost universally embraced by mainstream economic analysts as a sure-fire way to maximize the welfare of all nations, including developing countries. The basis of this thinking can be found in the theory of comparative advantage, as formulated by David Ricardo (1817), where all nations can benefit from international trade. In the original formulation, two countries, England and Portugal, under the assumption of capital and labour immobility and full employment, produce both cloth and wine. Due to given hypothetical productivity levels, England needs more workers than Portugal to produce a certain amount of cloth and wine. However, it is assumed that the productivity deficit in England is greater in wine than in cloth production. The basic idea is that both countries should specialize according to their comparative advantage - England in cloth and Portugal in wine. England would then import wine from Portugal, and Portugal cloth from England. Both countries benefit from the international division of labour in the form of increasing output and consumption, even though England is less productive in all industries in comparison to Portugal. Hence, even less developed countries can increase their standards of living if they choose free trade. …

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