Globalization and Socio-economic Rights

There have been arguments raised that socio-economic rights (I interpret socio-economic rights to mean those that give rise to positive duties- like for instance the right to education, right to health etc) cannot be enforced in the globalized era. In the first part of this essay I argue that such an argument is not justified.  However, I argue that there are serious concerns that could potentially lead to the trampling of socio-economic rights and unless the solutions suggested are adopted in the future globalization could broaden the gap between the have and have-nots. These are the issues that the second half of my essay focus on.

Broad arguments that suggest that socio-economic rights have no role to play in the globalized era

There have been two broad arguments that are often raised to suggest that there is no role for socio-economic rights in the globalized era.

First, it is argued that a globalized world is one where there is no State regulation and in such a world it is inconceivable to impose positive duties on States.

Such an argument is an unrealistic explanation of what globalization entails. The assumption that globalization requires deregulation is mistaken. The World Trade Organization (“WTO”), the protector and promoter of globalization, itself imposes duties upon States to regulate certain activities. For instance, the TRIPS agreement of the WTO imposes positive duties on States to impose a “Product Patent” regime. In some situations, States are required to impose countervailing duties on manufacturers as part of their “anti-dumping” commitments.

Furthermore, globalization is based on efficiency in production and better work conditions and a better educated work force (which can be created only by the State enforcing the socio-economic rights of welfare and education) lead to an increase in efficiency of production. [1]

Second, it is argued that only those human rights that further globalizations ought to be enforced and that socio-economic rights, being expensive to implement imposes impediments to globalization (arising out of increased labour costs and taxation).

Such an argument takes a narrow view of what globalization is and what the effects of socio-economic rights are. This argument assumes that the costs of enforcing socio-economic rights outweigh the benefits. This is not true. In the long run, enforcing socio-economic rights creates a better educated and more productive work force as elucidated above.

Moreover, globalization needs to be looked at as a means to the end of achieving welfare and welfare is achieved only when the capabilities of individuals (to use Sen’s terminology) increases and people have more realizable options before them.[2]

Thus, the arguments that are used to suggest that socio-economic rights have no place in the globalized world are more in the realm of fantasy than reality. However, this does not mean that globalization does not cause difficulties with respect to enforcing socio-economic rights. The next section analyzes these difficulties.

Concerns to a socio-economic rights regime caused by globalization

Impediments to socio-economic rights being given an important places in the globalized economy can be divided under two broad heads :

A)    The Race to the bottom argument

The argument is as follows:

Every country looks to build on what its strengths are. Just as countries that are highly technology driven seek to overhaul rivals by further improving their technology, economies that thrive on labour intensive manufacturing seek to develop a comparative advantage over other similar economies by further reducing labour costs. In other words, everything else (political stability, transportation, infrastructure such as roads) being the same, big businesses set up their manufacturing units in countries where the labour is cheapest. This provides these “cheap labour countries” an incentive to make labour even cheaper by further lowering standards (like lowering the minimum wage). This would lead to a race to the bottom.

Ian Begg[3] and others like Hall and Soskice[4] argue that there is no proof of a race to the bottom and that countries adapt to reach an equilibrium. However, these thesis are either premature (Hall and Soskice’s article was written in 2001 where the effects of globalization were not fully known) or based on a study of the first world (Ian Begg) and are not persuasive with respect to the problems faced by the third world. The race to the bottom argument continues to be a very realistic argument. After all, a country that has a high rate of unemployment would rather attract foreign companies that would recruit locals who would otherwise be unemployed, albeit for a very low wage.

As a solution, it has often been suggested that a “social clause” be included under the WTO, which lays down certain minimum standards as regards labour conditions. Infact USA and France threatened not to ratify the WTO Agreement without the imposition of a social clause that laid down certain minimum standards.[5] However, this was opposed by the third world countries on the basis that this would reduce their comparative advantage which was cheap labour. What then is the solution?

Solution-

The solution lies in using the profits of a successful business in improving labour conditions. This solution is based on understanding how economies develop.

As Sachs elucidates[6], a country develops only when resources are invested in higher education and technological innovation. According to him, there are 5 different types of growth- a) Endogenous growth- where a country is technologically well off and continuous improvement in technology leads to a continued increase in efficiency (like USA), b) Catching up growth- For a country to catch up with the leaders, technology has to diffuse through and this should be coupled with home-grown innovation (like China) and for this to take place there needs to be investment in higher education and technology, c) Resource based growth- The strength of the economy depends on whether there is a resource boom or failure. Technological growth will help reduce this dependence (for instance genetically modified seeds may produce higher yields even with less rain), d) Malthusian decline- These countries have excess population which is largely uneducated and hence there is no technological development. The way for these countries to come up is through basic education, e) Economic isolation- These countries are landlocked and blocked from trade routes but manage to succeed through focus on Information Technology (eg- parts of India like Hyderabad and Bangalore).

What we can see is for a country to move from one stage of development to the next, what is essential is development in higher education and technology.

This also ties in with the Standard Theory of Changing Comparative Advantage propounded by Krueger and Leamer.[7] Based on this theory all countries initially export only primary products like agricultural products. With the capital arising from profits in trade in primary products, countries may adopt two different approaches based on the availability of raw materials in the country. If the country is rich in raw materials the capital is used to extract these raw materials. Trade in these raw materials leads to an increasing capital that flows back into the same country. A raw material deficient country would use the capital to become industrialized and would enter the manufacturing sector. Capital would further increase due to the trade in manufactured products. This increased capital is then invested in technological innovation which leads a country to the pinnacle of development.

Therefore, for a country to move from one stage of development to another, it is essential that the capital increase from the previous stage is invested in the further development of the country.

However, where all the big businesses that ultimately rake in the profits are based on the first world and all the manufacturing is in the third world, no further development of the third world countries take place. In other words, all the world’s capital accumulates in the first world to improve conditions drastically for the relatively fewer employees present whereas all the cheap labour accumulates in the third world countries with no capital being invested to improve the conditions of work.

The solution therefore lies in ensuring that there is a more uniform spread of capital and labour.

One method is for States to step in and impose heavy taxes on manufacturing. However, States may be hesitant to take this step due to the race to the bottom argument.

A second alternative is to make labour mobile. In the third world, labour is cheap because supply far exceeds demand. If labour is mobile, a number of the labourers in poorer countries would move to countries where the conditions for work are better. This would reduce the supply in the poorer countries thereby making labour more expensive. In other words, there will be a migration of labour to the capital intensive areas. This theory is backed by statistical estimates by Bob Hamilton and John Whalley.[8] The proof of this theory also lies in the success of the EU regime, which is possibly the only area in the world where labour is truly mobile.

B)    The Institutional problems-

Policies/ regulations of major international institutions like the WTO, IMF and World Bank cause countries to disregard enforcement of socio-economic rights.

(i) Substantive problems-

The WTO imposes obligations on States to treat nationals of all other States on par with eachother (Most Favoured National clause) and no less favourably than they treat their own nationals (National Treatment Clause). This could lead to a potential problem where foreign nationals could be indirectly discriminated against where local businesses are rewarded by States for adopting a pro-human rights stance (like in South Africa, businesses are given benefits if they have “black” employees and blacks are defined with reference to apartheid. Since similar benefits will not be available to foreign business who would not have as many “black” employees, it could be argued that these businesses are being treated less favourably).

Solution-The solution lies in interpreting the WTO provisions in the light of human rights treaties’. Article XX of the GATT, 1994 provides an exception for among other things measures that are necessary to protect human health, public morals etc. While this has been given a narrow interpretation in the Tuna Dolphin case, a broader interpretation may be given, in the light of Article 31(c) of the Vienna Convention on the Law of Treaties (which states that international treaties should be interpreted in light of the relevant rules of international law). Such an approach was taken in the Shrimp Turtle case.

(ii) Problems of power politics-

A number of provisions of the WTO Covered Agreements have said to have come about only because of arm twisting by the developed world. One such instance was the provision for including Product Patents.[9]

Similarly, the IMF and World Bank, which are dominated by first world representatives, are known to impose “anti- human rights” conditions on third world countries in order to grant them loans.

Solution-The only solution is for the third world countries to put up a united front and there is evidence of this already happening with some success (for instance the provision for compulsory licensing was introduced only because of insistence from the third world block).

Conclusion

Thus, globalization and socio-economic rights are not necessarily antithetical to each other; however unless the problems identified in this essay are addressed the current globalization era could act as an impediment to the successful enforcement of socio-economic rights.

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[1] S Fredman Human Rights Transformed pp 40 – 58.

[2]J Sachs ”Globalisation and Patterns of Economic Development” [2000] 136 Weltwirtschaftliches Archiv Review of World Economics 579 -597.

[3] Iain Begg, Juraj Draxler,  Jørgen Mortensen Is Social Europe Fit for Globalisation? A study of the social impact of globalisation in the European Union (March 2008).

[4] P Hall and D Soskice ”An Introduction to Varieties of Capitalism” in P Hall and D Soskice (eds) Varieties of Capitalism: The Institutional Foundations of Comparative Advantage (OUP Oxford 2001).

[5] Joachim Betz and Raj Kumar Sen, ”The International Debate on the Introduction of a Social Clause and Indian Labourer”, Indian Labour in the Post Liberalization Period; “Materials and Cases on Labour Law 1”, Compiled by Prof kalpana Kannabiran and Dr. N.Vasanthi,p.151.

[6] J Sachs ”Globalisation and Patterns of Economic Development” [2000] 136 Weltwirtschaftliches Archiv Review of World Economics 579 -597.

[7] Kyn Andeson, “Environmental and Labour Standards”, edited by Anne O Krueger, “The WTO as an International Organization”, 1^st ed.2003, p.234.

[8] Bob Hamilton & John Whalley, ” Efficiency and Distributional Implications of Global Restrictions on Labour Mobility”, 14 J. DEV. ECON. 61, 70 (1984)

[9] Fatoumata Jawara & Aileen Kwa, “Behind the Scenes at the WTO”, 1^st ed.2003