3.Programme Degree Title : Msc. Development Studies
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1. Name : M. Farhanul Enam 2. ID number : 542260 3. Programme degree title : MSc. Development Studies 4. Course name : The Working Poor and Development 5. Course code : 15PDSH030 6. Tutor's name : Jens Lerche 7. Coursework number : 1 [ ] 2 [ ] or 3 [ ] 9. Word Count : 2932 excluding bibliography How does neo-liberal globalisation impact on the ‘working poor’? Discuss with reference to one or two countries, and to both ‘winners’ and ‘losers’ within the population of the chosen country/countries
1. Introduction The role of neo-liberal globalization on the working poor has been dubious and found somewhat appalling since the discovery of the ‘informal sector’ by Mr. Keith Hart in 1973 in his study of urbanization in Kenya. It has created unprecedented informalization and divided the social strata in different classes of which the Precariats as Standingdefines is the most vulnerable and dangerous one. Today, the informal precarious class in the world is about 1 billion strong and have grown five times faster than the formal one (Davis M., 2006:174). With the withering away of the state-led development after the oil crisis in mid-70s, the capitalist of the north started to industrialize the south by decentralizing production and accumulating capital in search for cheaper means of production. This had led to labor flexibilization and technology diffusion which in turn created job cuts and other livelihood impediments affecting bulk of the poor population in developing economies. In this paper I shall draw upon different examples from Bangladesh that would reflect how neoliberal globalization since the early neo-liberal era of 70s till date has contributed much to the informalization of employment affecting the working poor. I shall first start by defining the two key terms ‘Neo-liberal Globalization’ and ‘The Working Poor’ with their relevant historical background and then discuss how different characteristics and dimensions of neo-liberal globalization as a process have affected the working poor.
2. Explaining Neo-liberal Globalization (NLG) Globalization as a system of integrating economies or markets is not a new phenomenon. It is the revival of the concept with a new capitalist market-led approach that started to grow about two decades ago. Having started with the Breton Wood Conference in 1944, the North came up with ‘neo’ or new idea of economic liberalism that would recover the economic recession during oil crisis and maximize profits through accessing cheaper means of production and establishing an economy without borders and low barriers to entry. There was a hegemonic consensus in mid eighties where core states of the world system subscribed to the concept of free market economy, deregulation of labor market, reduced govt. expenditure on state welfare and above all privatization. This was called ‘Washington Consensus’ or ‘Neo-liberal’ consensus. Neoliberal Globalization, therefore, refers to the rolling out of such neoliberal policy on a global scale across borders where it dictates the role of a state in the economy. For the purpose of this essay, neoliberal globalization refers to economic globalization and I shall discuss the economic dimensions only in the rest of the paper.
Labor market deregulation was a necessary condition for neoliberal globalization as regulated labor force would pose higher cost and thereby reduce profit margin for the TNCs. NLG braces commoditization of labor with less regulatory rights. It also suggests structural adjustment of organization and labor force with enhanced flexibility. Such re-structuring and flexibilization create informalization of employment with uneven and inconsistent income affecting the precariats.
3. Explaining ‘The Working Poor’ Defining the working poor is not as easy as it seems to be. There are many people who work in informal sector but are well off, whereas there are many working in formal sectors yet worse off. Being informal is not necessarily being poor and being formal not being non-poor. There are many instances where entrepreneurs deliberately subscribe to informal economy to avoid taxation but are well off. Again working poor can be found in rural or urban locations as well. Due to continuous economic growth, the social floor of minimum income keeps on changing with the meaning of working poor. However, research suggests that most of the working poor lies within the informal economy that is created by the capitalist mode of production derived from neo-liberal globalization. (Chen, 2007:1)
To simplify the understanding, the definition by ILO can be stated here: The working poor are defined as those who work and who belong to poor households. (Mazid, 2001:2) Here the degree of poverty refers to PPP-adjusted $1.25 and $2.00 per individual per day poverty lines.
Now to understand the concept of informal employment, Tomei states that it is ‘a model of employment where a core of secure, stable and protected workers coexist with a peripheral workforce lacking security of tenure and long-term career prospects in, for the most part, precarious and poorly protected jobs’ (Tomei, 1999:4) Again informal employment can be found both in formal and informal sectors where the actors are deeply integrated and coordinated in the production system.
The 2002 ILO Conference came up with a revised definition of informal activities based on perceived need to incorporate real world dynamics in labour markets including both production and employment relations rather than enterprise characteristics. This new concept of ‘informal employment’ defines it as employment without secure contracts, workers benefits or social protection and can encompass a range of different working relationships.
Thus the concept and significance of informal sector shifted from the enterprise focus to employment focus, creating a spectrum that would newly define it as informal economy.
In light of the literature stated above it can be safely assumed that (for the purpose of this paper), Working Poor are mostly those who work without social and legal regulatory rights, belong to poor households, and earns less than $2 a day.
The following sections discuss on how such informal class is growing and being affected by the process of NLG with reference to Bangladesh.
4. Factors/Dimensions of Globalization Process Based on different literature on globalization, it is my understanding that neo-liberal globalization is a process of integrating socio-economic resources for maximizing gains through mobilizing and optimizing factor of endowments across nations. The neo-liberal policy allows such mobilization through decentralization of production units across borders to outsource cheaper labor, deregulation of labor markets to create informal labor and economic migration, and privatization of state-owned properties to reduce social protection for the informal class.
Each of the proponents had adverse effect on the working poor. The following sections portray the effects by analysing certain sectors being victim of the vicious cycle of globalization. Decentralization and Deregulation Pressure from competition and demand of standardized products have made the firms look for a cheaper factor of production hence allowed decentralization of production units across the countries that have comparative advantage on unskilled labor. Tomei mentions that ‘this competitiveness has led to the fragmentation and relocation of production processes, through outsourcing and subcontracting, the deregulation of the labour markets, and the informalization of economic activities (Tomei, 1999:1). Ready Made Garments industry of Bangladesh is one of the early adopters of NLG. Ever since 1980s there has been tremendous growth in the export of garments due to deregulation of labor policy, trade liberalism and free movement of FDI. In 1978, there were 4 garment factories in the country. By 1995, there were 2,400 factories employing 1.2 million workers of whom 90% were women under the age of 25 years, and garments were employing 70% of women in wage employment. (Bhattarcharya 1999 cited in Carr, 2001:17). Currently, there are 2 million workers working in about 4250 RMG units of whom 85% are women. These women are pulled by opportunities from rural areas and often employed at social wage starting from half a dollar a day to just less than 2 dollar. Working conditions in these factories are below standard and often overlooked by the regulatory bodies. Many of these workers walk 3-4 miles to reach the factory in early morning and sometimes wet in rainy season (Morshed, 2007). The management is reluctant in providing any better conditions as the labor is indeed disposable and replaceable. The existing business model is designed to favor the multinationals outsourcing from these factories.
While TNCs and local garment manufacturers are the winners in the process of commodifying the labor, some other informal micro enterprises also seemed to have grown around this business in the form of buying and contracting agents. These are the brokers who get buyers and transfer them to the producers. A commercial banking channel is also used through which the Government earns export revenue. So it is the ‘fat cat capitalist’ and the government who wins but the oppressed and the slum dwellers lose.
Decentralization of production of global commodities has also contributed to the feminization of employment in the informal sector. TNCs ‘have also tapped further into the seemingly abundant female supply of labor by creating new forms of “putting out systems” whereby workers produce goods or perform tasks in their homes. This has led to the evolution of adaptive mechanisms by firms such as the vertical and horizontal chains of production networks in handicraft industries. Production is carried out by multilayered networks of parent firms, subsidiaries, contractors, subcontractors, and home-based workers that make finished goods for buyers across the world. (Beneria, L. and M. Floro; 2005:13). For example jute bags and hand made products are produced in the Northern part of Bangladesh largely by exploiting women at social wage. Here the producers run the risk of disqualified products and total loss in case of failure to meet required standards. Here again the working poor are the losers and the outsourcing companies or the micro credit providers are the winners.
Free Trade and Free Movement of Capital (FDI) The adoption of the New Industrial Policy in 1982 and the Revised Industrial Policy in 1986 led to an extensive reduction on imports tariffs that had existed in the economy of Bangladesh since independence in 1971 (Paratian and Torres 2001 cited in Sen:5). Removal of trade barriers exposed the infant industries as well as petty producers to global competition and many firms had to downsize, shut down or informalize to keep up with the competitive price.
The “Banarasi Palli”, well known for its artisans of crafted sarees, is almost dying out because of imported products from India. Lots of these artisans have been living by this profession for decades and now half of them have become jobless. The number of weavers and salesmen directly involved with the business has shrunk to 20,000 from 0.1 million (Nahar, 2010). They find it difficult to survive at the face of stiff competition posed by free trade. The average earning of a weaver is $1.14 a day. The importers, Indian capitalist firms are the winners here whereas the poor weavers are the ones who always lose out, either in terms of low wage or less demand.
Trade openness is also causing depeasantization. My personal field experience in an interview with Rice and Pulse farmers of the northern part of Bangaldseh suggest that a lot of farmers are migrating to non- farm activities as they are unable cope with the cheaper imported products that are entering the economy at lower rate. The farmers take loans to buy seed and irrigate the harvest which makes the cost higher. But they can’t even sell at breakeven due to imported products from India, Turkey and Indonesia. This has discouraged them to stay into agriculture due to low margin and low rate of return. Again neoliberals are the winners and the poor farmers are losers. A lot of farmers cannot even shift as they are indebted. Something termed by Breman as neo-bondage meaning bonded under the neoliberal conditions. In order for MNCs and TNCs to shift their production in low income countries, deregulation of capital movement was required. These large firms moved fund in the form of FDI to the host country to avoid international shock and transfer all risk on to the producers. On the other hand, in order to attract FDI, Governments had to reform and deregulate the capital market.
FDI brought new technology in Oil, Cement, Pharmaceutical, Tobacco and Telecom industries in Bangladesh which basically created many job cuts and increased wage difference among skill-unskilled labor. ‘The idea that FDI may in fact bring in technology that is not labour augmenting, but may actually be labour saving may imply an absolute reduction in the overall employment’ (Nickell and Bell 1996, Pianta andVivarelli 2000, Taylor and Driffield 2000 cited Banga, 2005:5)).
Many companies entered developing markets through the process of licensing, franchise or turnkey management solutions where they engaged part timers as periphery force to their core staff who were sitting in headquarters. For example fast food chains like KFC and Pizza Hut in Bangladesh can be cited. Such accumulation of capital also encouraged rural-urban migration to serve these outlets or secondary firms growing around these primary markets. For example, in Bangladesh, to serve these retail food industry, many informal micro enterprise and own account workers developed such as printing press, waste removal services, polybag suppliers, catering service providers, security service providers etc. All these employ informal workers and sometimes even child labor.
5. Arguments for Globalization It is only reasonable to put light on the lenses of those who argue for neo-liberal globalization. L egalist view of over-regulation theory suggested by the Peruvian economist De Soto states that informalization is an outcome of an economy where improperly managed distortional government regulations that create higher transaction cost for the firms and workers and also discourage investment. This may be true for small firms in a short term scenario. However, as the firms grow and become more capital intensive, the benefits of formality can outweigh the cost and thus informalization can be expected to decline. While the incentives for becoming informal decreases, informalization yet seemed to have increased since 1970s as it was reinforced by neoliberal globalization (Beneria, L. and M. Floro; 2005:49).
Again referring to the Krugman’s two statements (1) “. . . while wages and working conditions in the new export industries of the Third World are appalling, they are a big improvement over the previous less visible rural poverty” (1998:81) and (2) “While fat-cat capitalists might benefitt from globalisation, the biggest beneficiaries are, yes, Third World workers” (1998:81).
In the first statement it is evident that the capitalist mode of production is profit seeking and appalling for the working poor as we saw in the case of RMG workers. It is understandable that most of those garment workers might have migrated from the rural areas to overcome income poverty. So Krugman’s such statement could be found true with respect to the social’s poor or the worse off but not necessarily for all working poor as it does not compensate with better living conditions.
Second statement acknowledges the fact that neo-liberal capitalists are becoming ‘fat cat’ by depriving the working poo. However, it also tries to establish the quantified aspect of job creation than the quality aspect of it. It could be true that globalization opens the door for many but it is also true it closes the same too because of specialization of labor and flexibilization. The fact that ‘3 rd World countries are the biggest beneficiaries’ therefore points to the number of jobs created only but not the wage differential, insecurity and other aspects of social income. Globalization has caused change and flexibility in labor, wage and employment patterns. It might have created jobs but had an effect on wage inequality and job security. Firms have more ability to hire and lay-off workers without recourse to them. ‘In addition, under neoliberal policies, governments have adopted labor laws that tolerate, and even promote, labor flexibility without much concern about safety nets and unemployment compensation schemes during periods of high unemployment and under employment’ (Beneria, L. and M. Floro; 2005:15).
6. Conclusion In light of the example discussed in the above sections, it is evident that neo-liberal globalization as a process of decentralization, deregulation and capital accumulation, creates adverse effects on the working poor. It has indeed reproduced poverty and created greater polarization and social exclusion (Castells, 1998 cited in Polakoff, 2007:5). Despite some seemingly beneficial proponents such as growth, freedom and flexibility, it has rather turned into a vicious cycle. Wider wage differentials, exploitation of women and children, appalling working conditions and de-agrarinization are the vestiges of neoliberal globalization process that has created unprecedented informalization of labor force. The structural adjustment programs prescribed by the rich states of the world system thus contributed to the rollback of the frontiers of the states with respect to efficient allocation of resources and people wellbeing. ‘Governments are now less able to respond to the vulnerable and disadvantaged sections of the workforce because revenues are decreasing as tariffs and taxes are reduced as part of the globalization process’ (Carr, 9). However, it is increasingly becoming evident now that the process of neo-liberal globalization has led to marginalization and informalization of the proletarians through integrating, mobilizing and re- commodifying labor (by subjecting them to competition) into the global economy.
Capitalist development is in such a state from where the reverse seems almost impossible. It is, therefore, for the good that we all can expect a fair globalization scheme in future with mutual spatial politics of production where there will more winners and fewer losers. A policy, therefore, is required to address inclusion of the underprivileged with decent work agenda that will not only secure foreign investors but also safeguard the poor producers by spreading the risk and profit throughout the value chain. References 1. Banga, Rashmi (2005, February). Impact of liberalisation on wages and employment in Indian manufacturing industries . (153). Indian Council For Research On International Economic Relations, New Delhi. Available from:
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