By Rebecca Cassler, ILRF Intern
This post is the first in a series about the relationship between organized labor and economic growth.
Over the last few decades, policy makers, analysts and pundits have often posited that the suppression of labor, be it in the form of restrictions on freedom of association, limitations placed on unions in politics and decision-making, anti-union legislation, or even anti-labor violence, is a necessary precondition for growth in developing economies. Economist Paul Krugman argues that transnational corporations with manufacturing facilities abroad do poorer nations a favor by supplying them with ‘awful’ working conditions for very little pay, since these jobs are better than the alternative - no jobs at all and rural poverty. Nicholas Kristof echoes Krugman’s arguments when he claims that denouncing sweatshops hurts the poorest more than helps them.
These arguments are based on outdated assumptions and broad generalizations about the role of labor in economic development. In fact, organized labor often plays a positive role in economic growth, undergirding greater political stability, workshop discipline, and smart growth policy contributions. Governments need to reexamine economic policies that assume a relationship between economic development and labor repression, and adjust policies to reflect current reality.
One oft-cited example supporting the argument that weak, suppressed labor is necessary for economic growth is that of the Asian Tigers (Singapore, Taiwan, Hong Kong, Korea), where GDP sky-rocketed in the 1980s and 1990s and rapid industrialization occurred, earning them the title of NICs (newly-industrialized countries). Using the Asian Tigers as their main example, writers like Chalmers Johnson, Hagen Koo and Frederic Deyo argue that weak unions are a comparative advantage in the global capitalist system. Foreign investors shy away from countries where labor is strong, and export-led growth needs the cheapest labor possible to succeed.
This theory isn’t strictly limited to academia; it has leaked into news media and is accepted by many mainstream journalists. For example, this Foreign Policy article attributes economic growth in Asia to, among other things, the lack of a strong labor movement. Similarly, this New York Times article encourages the idea that higher demands from workers are the main reason that companies relocate production facilities to areas with weaker labor organization in the “race to the bottom.”
These arguments have major repercussions for policy and public opinion, and should be critically examined. The Asian Tigers are often grouped together because of their geographic proximity to one another and their rapid industrialization during the second half of the 20th century, but the fact that they all experienced growth in conditions of labor suppression does not mean that labor suppression was the cause of this growth. The table below for example compares GDP from the mid-1980s (when the Asian Tigers were on the rise), and social freedoms across a completely different set of developing countries. Within this group there is no correlation between GDP and social freedoms. In fact, there seems to be a slightly negative relationship between social repressions and GDP.
As the Asian Tigers were experiencing rapid economic growth, there were many other countries that treated domestic labor groups similarly, and many of them experienced decline or very little growth. While looking only at the four Asian Tigers might lead people to believe that there is a relationship between labor suppression and economic growth, expanding this analysis to include other countries definitively shows that there is no relationship, and that many countries that suppress labor often have horrible economic track records. To put it simply, choosing examples for an argument based on the outcome to be examined (in this case, economic growth) leads to skewed results.
Many factors contributed to the rapid economic growth of the Asian Tigers, not least of which was access to US markets and their role as key US allies during the Cold War. If labor repression is such an important factor in economic growth, than why do the overwhelming majority of countries that maintain repressive labor policies continue to experience low growth rates?
Trade unionists all over the world, including garment workers in Bangladesh, shoe factory workers in Vietnam, and electronics factory workers in India face imprisonment when they form unions to fight for a living wage and better working conditions. Sustainable economic development isn’t possible when these workers do not have a dignified and safe way to earn a living, yet in the name of growth, governments and TNCs the world over deny workers the basic right to organize. Governments often argue that the time just isn’t right for their workers to be given the freedom to organize, as it might hurt economic development, yet this logic is built on a faulty foundation.