chapter 11

NONUNION APPLICATION: INTERNATIONAL MANAGEMENT

The intensified competition resulting from globalization is widely associated with pressures to restrain wage and benefit costs and to increase employment flexibility (recall Chapter 10). But globalization adds significant complexities to managing multinational corporations. A multinational corporation's global strategy has two central dimensions: configuration and coordination.98 Configuration involves the location of various activities, such as whether production is concentrated in one country and exported to other markets or production is globalized into various countries through foreign direct investment. The location of suppliers and subcontractors is another element of configuration. Note that configuration decisions are not limited to production but also include research and product development, marketing, and other functions. The coordination dimension consists of the degree to which activities in different countries are harmonized or autonomous. The extent to which human resource management strategies and production techniques are required to follow one consistent model throughout the local operations of a multinational corporation is a key element of this coordination dimension. The configuration dimension affects labor relations through its effects on relative bargaining power between corporations and employees. The threat of moving production to a lower-wage country reduces labor's bargaining power.99 Multiple production locations make it more difficult for a strike to place significant financial pressure on a company. Transfer pricing—the terms at which goods and services are exchanged within a company—can hide the true profitability of specific operations from labor unions.100 Complex international joint ventures or subcontracting arrangements can also make it more difficult for unions to discern the true state of a company's operations and financial situation. The coordination dimension of global strategy and international management represents an important conflict in multinational corporations between centralization that serves global integration and efficiency, on one hand, and decentralization that serves local responsiveness and autonomy on the other. A significant task of international managers is balancing this tension—it is not a case of choosing one or the other but rather of finding the appropriate mix of both sides of this centralization-decentralization or global integration-local responsiveness duality.101 An organization in which all units are fully autonomous lacks a source of global competitive advantage such as standardized products, economies of scale, or organizational learning. In other words, where is the global synergy if all units act independently? On the other hand, a multinational corporation in which all decisions are centralized and all practices follow global uniform policies lacks the ability to capitalize on local differences and opportunities. In other words, there is little respect for diversity and a lessened sense of accountability, participation, and entrepreneurial activity. The task of international management is to find the appropriate balance between integration and autonomy. The difficulty in seeking this balance, however, is magnified by the complexity of communication within multinational corporations.102 Communication gaps can result not only from distance but also from differences in language and culture. For labor relations, the tension between integration and autonomy manifests itself in the extent to which local labor relations practices and strategies are shaped by local managers and environmental conditions versus being determined by corporatewide policies and strategies. The general international management prescription of "organize one way, manage the other way" is equally valid for labor relations in multinational corporations.103 If formal labor relations processes and structures are centralized, local managers should strive for ways to incorporate local responsiveness and problem solving. If labor relations processes are decentralized, local managers should build networks across the organization to facilitate coordination and learning. Globalization also brings particular legal challenges for international managers. On one hand are difficult questions about whether corporate actions that occur outside the United States are subject to U.S. laws (examine this yourself with the "Labor Law Discussion Case" at the end of this chapter). On the other hand is the fact that some amount of national responsiveness by managers is required because of international differences in relevant institutions, practices, and laws. For example, the U.S. Family and Medical Leave Act requires companies to provide employees 12 weeks of unpaid leave to care for newborn children and for other family and medical purposes. In the European Union, however, parental leave laws typically require 14-16 weeks of leave, and some laws also require at least partial compensation. Ensuring compliance with these different national standards is an important challenge for multinational corporations.104 The legal and institutional differences in labor relations across different countries—such as the British system of voluntary recognition of unions and labor contracts or the tightly specified German system that provides specific codetermination rights to employees—are presented in the next chapter. Terminology differences can be tricky, too—for example, "mediation" can mean very different things across countries.105 These differences must be appreciated by successful international managers and union leaders.

FINANCIALIZATION

The pressures on labor relations, and on employment more generally, brought on by globalization are magnified by another multidimensional process called financialization in which financial markets, motives, results, and institutions become more important than the production and delivery of goods and services. Financialization is like globalization in that they both consist of a bundle of interrelated structural changes in the economy, and they both affect economic and political power.106 Note that ideally, money is simply a medium of exchange and financial institutions are neutral sources of financing, but with financialization, financial motives and institutions become active players that strongly influence corporate decision-making and challenge governmental sovereignty, and thereby affect workers and all parties to the labor relations process.107 Four key dimensions of financialization are presented here (see Table 11.5). Note how these trends put pressure not only on workers and labor union leaders, but on human resource managers, too. Share Price Maximization - After seeing corporations become bloated conglomerates with low financial returns in the 1970s, the 1980s ushered in the shareholder-value movement.108 Principal-agent problems were seen as responsible for poor corporate performance as self-interested managers were able to make decisions that benefited themselves at the expense of passive shareholders, rather than the managers acting as the agents of the principals. New corporate governance structures were therefore implemented with outside directors and incentives for executives, buttressed by shareholder-friendly laws, activist shareholders, and deregulated financial institutions. Shareholders were recognized as the key owners of the corporation, with managers obligated to act the best interests of the shareholders.109 This was "a fundamental shift in the concept of the American corporation—from of a view of it as a productive enterprise and stable institution serving the needs of a broad spectrum of stakeholders to a view of it as a bundle of assets to be bought and sold with an exclusive goal of maximizing shareholder value.110" - So the shareholder value model is today's approach to corporate governance, maximizing shareholder value is the corporate and investment mantra, executives are largely rewarded through stock options, and monitoring stock prices is the focal activity of executives and investors. - This has important implications for workers and labor relations. In response to Japanese production methods, U.S. industry rationalized its operations in the 1980s (recall Chapter 10); with the rise of digital technology, employment has been increasingly marketetized; and in response to globalization, employment has been globalized.111 Each of these trends was initially driven by corporate strategies to restore competitiveness by restructuring the productive capacity of their workforce in the face of changing technology and competition. But under the pressure of maximizing shareholder value, these efforts can turn into cost-cutting exercises for the sake of increasing short-term profitability and driving up stock prices. Workers and unions are thus faced with demands for wage and benefit concessions, layoffs, and stressful restructurings, all while being asked to invest more of themselves but denied a role in corporate governance. - These issues are magnified by stock repurchases. Rather than retaining and reinvesting cost savings and earnings back into the business as was the norm before the shareholder-value movement, cost savings and earnings are increasingly being used to repurchase shares of the company's stock. This "downsize and distribute" strategy drives up the stock price which benefits not only investors but also top executives because of their sizable stock options.112 A lack of investment back in the business places further strain on the employment relationship as employees are working in outdated stores or with outdated technologies that reduce their competitiveness, leading to corporate demands for further concessions. For example, after technology outages at Southwest Airlines caused massive flight delays and cancellations in 2016, unions at Southwest Airlines publicly criticized the CEO for spending millions of dollars on stock buybacks rather than updating the airline's aging computer system. - Moreover, advances in information technology have enabled the rise of the networked firm with the potential for extensive outsourcing and splintering of the supply chain.113 Corporations, therefore, have become collections of "semi-autonomous units with responsibility for maximizing labor productivity," and these units are in competition with each other for investment from the corporate parent on the basis of financial returns.114 So human resource managers in these units disconnected from the parent might be unable to invest in high-performance work practices (Chapter 10) and reward employees even when they earn it, because the managers are unable to secure the financing from corporate leaders focused on short-term financial metrics.115 Rather, cost-control, work intensification, and other pressures that strain labor relations are predicted to occur.116 Putting all of this together, labor's share of national income has been declining for several decades while capital's share (profits) has been rising, and increased financialization appears to be an important factor behind this trend.117 Profits via Financial Transactions - A second dimension of financialization is an increased emphasis on pursuing profits through financial transactions rather than the production and delivery of goods and services. This has two elements.118 One element is the increasing importance of the financial sector. Deregulation of the financial sector allowed commercial banks to become more like investment banks and led to industry consolidation so that the small number of key financial firms are "too big to fail." Moreover, information technology has allowed sophisticated financial investments to be priced and traded.119 These changes have created a concentration of wealth in the financial sector, widens inequalities between Wall Street and Main Street, and further reinforces the primacy of financial investment over productive investment.120 This concentration of wealth also reallocates political influence in ways that do not favor labor unions. - The other element of this dimension of financialization is the increased importance of financial activities of nonfinancial firms, such as the Ford Credit arm of Ford. From 1970 to just before the financial crisis in 2008, the fraction of profits earned from financial transactions in nonfinancial firms doubled, and in manufacturing it tripled.121 This is associated with reduced employment and overall economic growth, presumably as funds are diverted away from research and development and productivity-enhancing investment.122 This leads back to the same labor relations challenges as in the previous section, such as human resources managers in nonfinancial units not having the resources to invest in and reward employees. Firms can also strategically choose its financial strategies to provide leverage in contract negotiations with its unions, for example by converting cash to debt.123 Private Equity - Perhaps the most visible and aggressive examples of wringing profits out of companies is the third dimension of financialization—private equity funds that use leveraged buyouts to take over companies that are seen as underperforming, install their own cost-cutting leadership teams, strip off assets, and then sell the pieces at a significant profit. This pushes the shareholder value ethos to the extreme by seeing companies solely as assets to be traded for maximum profit, and the private equity structure allows private equity firms to do this using financial engineering strategies that are much riskier and involve a lot more debt than public corporations are able to do, or find it prudent to do.124 - Some private equity interventions create jobs, some destroy them. On net, the evidence seems to suggest that more jobs are lost than created.125 With respect to labor relations specifically, the attitudes of private equity firms vary, just as attitudes of public corporations vary.126 At Spirit Aerosystems which resulted from purchasing a division from Boeing, management's relationship with the International Association of Machinists (IAM) improved, whereas the private equity owners of Stella D'Oro Biscuits immediately demanded significant concessions, hired replacement workers during the resulting strike, closed the plant temporarily, and then sold it to another anti-union private equity firm. The way in which private equity firms seem uniformly different from public corporations, however, is "their determination to extract higher-than-average returns" from the business, and "for union workers, this often means giving up wages and benefits that they have fought hard to win."127 The sophisticated financial engineering and debt strategies involved in private equity buyouts also means that unions need to be equally sophisticated in their understanding of these financial strategies, though the information can be hard to obtain, especially with workers and unions left out of corporate governance.128 Public Sector Budget Austerity - Aspects of financialization are affecting public sector employment and labor relations, too. At a national level, this is clearest in the case of countries with high levels of public debt where national sovereignty has been challenged by the international lending requirements of financial institutions. In Greece, for example, financial institutions like the International Monetary Fund (IMF) and the European Central Bank have become active parties in labor relations.129 Specifically, in return for loans, the Greek government enacted various changes, including cutting public sector wages and decentralizing private sector collective bargaining.130 A second loan agreement stipulated cutting minimum wages by 22 percent, and another round of austerity measures in 2018 included new restrictions on the right to strike. - In the United States, efforts to restrain or remove bargaining rights for public sector workers in Wisconsin, Ohio, and elsewhere starting in 2010 have consistently been justified by citing the need for budget austerity, including Wisconsin's "Budget Repair Bill."131 This can be seen as an extension of financialization because fiscal concerns are being prioritized over service delivery, and because budget deficits and public sector pension shortfalls were at least partly a result of the financial crisis. So public sector labor relations are not immune to the pressures of financialization. As with the other dimensions of financialization, increases in the importance of financial markets, motives, results, and institutions are putting significant pressures on all of those involved in labor relations, including workers, union leaders, and managers. Financialization is therefore important to understand.

CORPORATE CODES OF CONDUCT

A corporate code of conduct is a written statement of standards that a company pledges to follow in its business activities often as part of a corporate social responsibility (CSR) initiative. The codes can be created by transnational governmental organizations (such as the ILO) or by national and local governments, but they are more frequently established by labor unions and other allied organizations or by individual corporations on their own. A code of conduct can touch on many subjects, including corporate governance, human rights, sustainability, and labor standards.80 Codes that include labor issues commonly include outcome standards, such as minimum work age, minimum wages, maximum hours, health and safety standards, and nondiscrimination, as well as process standards, including the right to freedom of association (to form unions) and collective bargaining.81 These codes are almost always voluntary, which means that compliance cannot be legally enforced; one emerging, possible exception is when an entity makes these standards part of a procurement agreement, such as a university contracting with an apparel maker for logoed sweatshirts.82 Why Corporate Codes of Conduct? - In the 1970s and 1980s, U.S. multinationals were pressured to follow the antiapartheid Sullivan Principles by desegregating their South African workplaces and promoting advancement opportunities for black South Africans. And then in the 1990s, an antisweatshop movement grew out of very visible examples of labor abuses in the supplier networks of Nike and other apparel brands.83 To counter bad publicity and damage to their brands, apparel companies starting adopting voluntary codes of conduct. Fast forward to today and codes of conduct are widespread for companies and their suppliers. Wal-Mart's supplier code of conduct is shown in the accompanying "Labor Relations Application" box and is meant to be displayed in the language of the employees in a common area in the workplaces of all suppliers along with a way to confidentially report violations. - Wal-Mart's approach is an example of a code developed and monitored by the company. Also common in the apparel industry are codes developed and monitored by non-profit workers' rights groups. One such group is the Fair Labor Association (www.fairlabor.org), a collaborative effort of universities, civil society organizations, and over 50 companies and suppliers, including adidas, Nestlé, Nike, Patagonia, and Under Armour.84 Its code of conduct requires adherence to national laws and specifies requirements for nondiscrimination, freedom of association and collective bargaining, health and safety, environmental mitigation, and compensation fulfilling workers' basic needs, along with prohibitions against forced and child labor, excessive work hours, and all forms of harassment or abuse. The code is monitored by the Fair Labor Association, which requires that employees be informed of the standards and given opportunities to report noncompliance, and accredited external monitors also conduct inspections. Companies can use product labels to demonstrate their compliance. Spurred by college student activism against sweatshops, over 150 colleges and universities require the producers of their licensed apparel to adhere to the Fair Labor Association standards. The Fair Labor Association is funded primarily by the companies and while it is not a corporate-controlled program, it is heavily corporate influenced.85 Other similar initiatives includes the ILO's Better Work program and Worldwide Responsible Accredited Production ("WRAP"). - Corporate codes of conduct are more visible in apparel, retailing, and other similar industries partly because of the value of maintaining a good consumer brand. But this form of worker activism is also connected to the nature of the supply chain.86 These industries have a buyer-driven global supply chain consisting of very decentralized production that requires low capital investment. Production is outsourced on the basis of low labor costs; turnover is high, the workforce is vulnerable, and production can easily shift to new locations. These conditions are not conducive to traditional union campaigns focused on mobilizing worker power directed at the company. Rather, labor protest flares up organically, the workers' basic human rights grievances have the potential to resonate with the public, and alliances of diverse groups, such as worker activists, human rights groups, and college students, are needed to generate publicity. Under these conditions, efforts to monitor corporate codes of conduct have taken root more than traditional union organizing. In producer-driven global supply chains, as in automobiles, with centralized production decisions in stable locations due to high investment requirements, unions are better able to build stable membership bases and alliances across multiple locations, and with worker concerns like job security that do not garner as much public sympathy, pressure is directed at the company in traditional ways, such as job actions. So the nature of the global supply chain is important when thinking about why or why not corporate codes of conduct are important in different segments of the global economy.87 Do Corporate Codes of Conduct Work? - For the reasons just described, corporate codes of conduct are particularly relied upon in the apparel and footwear industries, in which brand-conscious retailers such as Reebok, Nike, Levi Strauss, Liz Claiborne, and Polo Ralph Lauren utilize extensive contractors, subcontractors, and suppliers in Indonesia, Thailand, China, Mexico, and other low-wage developing countries. But debates continue as to how effective these efforts are at improving workers' conditions. With sufficient public and consumer pressure, these codes have the potential to address some of the worst abuses.88 In 2012, extensive negative publicity about the working conditions in the Chinese factories making iPhones and iPads caused Apple to allow the Fair Labor Association to audit those factories, and the audit resulted in an agreement to enforce stricter standards, especially pertaining to overtime and health and safety. Publicity may also increase government enforcement of existing laws, and when the codes of conduct protect freedom of association, they can also spur unionization.89 - With that said, there are also serious doubts about the widespread effectiveness of the voluntary, self-governing nature of corporate codes of conduct.90 There are still factory disasters that claim significant lives, such as the Rana Plaza factory tragedy in Bangladesh that killed over 1,000 workers in 2013.91 The number of factories, their geographical dispersion, and the complicated tiers of subcontracting make it very difficult to monitor and inspect all of the work sites.92 When codes are self-monitored, inspections might only happen after a factory's managers are given advance notice of the inspection. But research has found that surprise inspections and off-site, confidential interviewing of workers is critical.93 Monitoring also needs to be complemented by technical assistance to help managers improve their production processes.94 Lastly, research finds that inspections are significantly more likely to identity health and safety and wages, benefits, and hours of work violations than freedom of association violations.95 So while the inclusion of freedom of association standards in corporate codes of conduct is now quite widespread, this still appears to be window dressing. In other words, companies seem to be trying to balance the legitimacy of the corporate social responsibility efforts with maintaining control over their global supply chain, and unionization and collective bargaining are perceived as giving up too much control.96 Indeed, companies continue to favor China and Vietnam as production locations because their authoritarian political regimes keep labor protest in check.97 - In the global arena, the use of corporate codes of conduct to address labor issues is analogous to the use of human resource management to govern the workplace (recall Chapter 2). Like human resource management, the use of corporate codes of conduct admits that working conditions are not entirely dictated by market forces; companies have choices, and establishing conditions more favorable to workers than the market minimums can mutually benefit the company and workers. Before it was acquired by adidas, Reebok's code stated, "We believe that the incorporation of internationally recognized human rights standards into our business practice improves worker morale and results in a higher-quality working environment and higher-quality products." This is similar to the human resource management philosophy that treating workers with respect increases morale and effectiveness. In other words, the use of corporate codes of conduct rejects the market-oriented conception of labor as a commodity and also the assumption of perfect competition that protects employees from abuse; it is based on the unitarist belief of shared interests between labor and management—just like the philosophy of human resource management (recall Chapter 2). But as is also true in human resource management, corporate codes of conduct are ultimately a unilateral mechanism for establishing employment conditions that lacks a rigorous set of minimum standards and an external enforcement mechanism. Many companies might be entrusted to this voluntary mechanism, but with the potential for abuse, it is reasonable to question whether the global workplace should rely entirely on corporate codes of conduct to balance efficiency, equity, and voice.

Globalization: The term is frequently used—often negatively—but what does it mean? And what does it have to do with labor relations? Financialization: Maybe that's a term you haven't heard. What does it mean, and what does it have to do with labor relations? In brief, globalization is increased economic integration among countries, whereas financialization is the increased importance of financial markets, motives, results, and institutions relative to the production and delivery of goods and services. Globalization and financialization are intertwined. They are facilitated by free-market public policies and advances in information technology. Globalization opens up greater financial opportunities while adding competition that can reduce financial returns; financialization deepens global integration while increasing the pressure on organizations to search globally for ways to generate the highest financial returns, which in turn pushes them to lobby for free trade agreements and other instruments of globalization.

Globalization and financialization are each a bundle of interrelated structural changes that "have similar consequences in the distribution of power, income, and wealth, and in the pattern of economic growth."1 Consequently, both are important pressures on labor relations—and employment more generally—in the United States and around the world in the 21st century. Increasing foreign trade puts competitive pressures on, and opens up new opportunities for, companies and workers. Expanding multinational corporations undermine nationally focused labor unions and government regulations while also demanding new skills and knowledge for managers. Increasing capital mobility makes it easier to move jobs around the globe. In the labor relations environment, globalization both decreases the demand for unskilled labor in the United States and makes labor easier to replace. In other words, globalization reduces labor's bargaining power. U.S. unions are therefore struggling to preserve the legitimacy of collective bargaining in the face of the pressures of globalization. This has been a painful process in industries such as steel and textiles that have collapsed and reduced manufacturing communities in the northeastern and midwestern United States to a rustbelt. Financialization magnifies these pressures. Globalization and financialization also raise broader issues. Deepening economic and financial integration brings increased social and political integration that threatens local cultures, standards, and ways of life. Options for foreign subsidiaries, outsourcing, joint ventures, and the like bring both opportunities and challenges for managers and labor leaders. These options are shaped by various international institutional arrangements such as the World Trade Organization (WTO) and the European Union—or free trade agreements such as the United States-Mexico-Canada Agreement (NAFTA 2.0)—and by the responses of organized labor and other groups that push for enforceable international labor standards, antisweatshop codes of conduct for corporations, and transnational collective bargaining. Similarly, financialization is driven by institutional arrangements related to corporate governance, private equity, and banking regulations. As these subjects are presented in more detail in this chapter, note how the institutional arrangements enhance or undermine the viability of traditional collective bargaining. Moreover, looking at institutional arrangements reveals a range of alternatives for governing the global workplace to balance efficiency, equity, and voice. Understanding globalization and financialization is therefore important not only for labor relations but also for broader employment, business, and social issues.

GOVERNING THE GLOBAL WORKPLACE

Globalization can be regulated in various ways by diverse institutions. In spite of occasional rhetoric by politicians, the primary U.S. policy is to promote free trade by reducing tariffs and other barriers to trade. The United States therefore negotiates free trade agreements with specific countries, such as the United States-Mexico-Canada Agreement, and participates in the multilateral global trading system administered by the World Trade Organization (WTO). Going even further in economic integration, the European Union is a free trade area that also includes free capital and labor mobility as well as common monetary and fiscal policies (see Table 11.4). But how are employment terms and conditions determined in these global systems? Who has the authority to determine pay and policies? This is the question of what form of governance or rule-making is associated with different global regimes. As discussed in Chapter 2 (recall Figure 2.5), four intellectual schools of thought point to alternative methods that are viewed as best for setting employment terms and conditions: free markets (the neoliberal school), human resource management (human resource management school), labor unions and government regulations (pluralist industrial relations school), or a system that significantly alters capitalist power relations (critical industrial relations school). These same schools yield similar perspectives on how the global workplace should be governed. The free trade emphasis of U.S. policy is a free market mechanism for global workplace governance, and is based on neoliberal beliefs. Critics of unbridled free trade, however, believe that institutional intervention is necessary to protect workers (and the natural environment) from suffering the negative effects of social dumping and other pressures of globalization. Protections for workers can be pursued through the creation and enforcement of explicit international labor standards, increased enforcement of national laws, transnational employee representation or unionism, or voluntary corporate codes of conduct. Enforceable labor standards are analogous to using government regulation to govern the global workplace, as championed by the pluralist industrial relations school. Two options are discussed in this chapter: global standards through the International Labour Organization (ILO), and increased compliance with existing national laws in support of ILO standards through provisions attached to specific free trade agreements, such as NAFTA or its successor (the United States-Mexico-Canada Agreement). And just as the pluralist industrial relations school also favors independent employee representation for solving labor problems in a domestic context, this school also advocates for transnational employee representation and unionization. Two alternatives are presented in this chapter: European Works Councils in the European Union and various attempts at transnational collective bargaining and labor solidarity. Lastly, using corporate codes of conduct to establish labor standards in the global arena is similar to relying on human resource policies to establish standards in the domestic arena—in both cases compliance is voluntary and relies on education and self-interest, reflective of the assumptions of the human resource management school. Because of the importance of globalization for labor relations and business, these institutions are each important in their own right. But the WTO, ILO core labor standards, labor standards in free trade agreements, the European Union and its European Works Councils, examples of transnational collective bargaining, and corporate codes of conduct should also be considered as a set of alternatives for governing the global workplace.

THE DEBATE OVER GLOBALIZATION

Globalization increases economic integration along four major dimensions: international trade, foreign direct investment, international investment portfolios, and immigration (see Table 11.1).2 To varying degrees, all four dimensions have been linked in theory to employment opportunities, working conditions, living standards, income inequality, consumer choices, prices, life expectancy, child mortality, educational attainment, cultural diversity, endangered species and biodiversity, deforestation, pollution, crime, democracy, peace, and human rights.3 In fact, increased globalization has been accused of both improving and worsening all these critical elements of human life. Moreover, international investment and multinational corporations have penetrated virtually every corner of the globe. As such, the world has been characterized as flat—because of information technology, "it is now possible for more people than ever to collaborate and compete in real time with more other people on more different kinds of work from more different corners of the planet and on a more equal footing than at any previous time in the history of the world"; as "the global competitive playing field [is] being leveled . . . the world [is] being flattened."4 Globalization is therefore the subject of intense debates (see Table 11.2). International Trade - The first dimension of globalization is international trade: the cross-border flow of goods and services—in other words, imports and exports. The benefits of international trade are clearly revealed in textbook economic models as well as in Adam Smith's 1776 classic The Wealth of Nations.5 In short, free trade across countries allows consumers and producers to benefit from specialization. If one country has a comparative advantage in producing one product, such as computer software because of an educated population, and another has a comparative advantage in something else, such as clothing, then both countries are better off by specializing in what they are best at and trading for the other goods. Scarce resources are used more efficiently, productivity is higher, and greater income is produced. Additional benefits from free trade arise from increasing the size of markets (so that companies can take advantage of increased economies of scale) and by reducing the monopoly power of domestic companies (so that domestic companies become more efficient). Countries benefit from increased growth and income while consumers enjoy lower prices and greater choices. Ideally, increased wealth can also be used to conserve the environment, promote public health, and improve education. - However, if there are market imperfections, the benefits and costs of international trade are distributed unevenly, resulting in winners and losers.6 Recall the fundamental industrial relations assumption of unequal bargaining power between corporations and individual employees (especially those lacking savings, education, and a social safety net). With unequal bargaining power, the benefits of trade flow disproportionately toward shareholders; some employees are left with low wages, long hours, and dangerous working conditions, others can see their jobs outsourced to low-cost foreign competition. Globally, just as the United States struggled with the labor problem of worker exploitation in the early 20th century, developing countries are now struggling with similar labor problems in the 21st century. - Consequently, it is important not to gloss over the human and social costs of job loss. With the decline of the U.S. steel industry, for example, single cities saw the disappearance of thousands of high-paying jobs and resulting sharp increases in unemployment, small business failure, and crime. The loss of 40,000 manufacturing jobs in the Youngstown, Ohio, area triggered the closing of 400 local businesses, the loss of $414 million in personal income, and significant reductions in tax revenues for public schools (as many as 75 percent in some cases).7 As for the personal costs, consider the recollection of one ex-steelworker in Homestead, Pennsylvania: "When [the steel mill] shut down, and when guys did lose their jobs—people with fifteen, twenty, thirty years on the job—the psychological and social damage was a hundred times more than the economic. . . . Within four years of the place shutting down, I had eighty-one guys that I knew of personally—not just knew of, but knew personally—who died of strokes, cancer, heart attacks—including seven suicides—within a period of three-and-a-half years after the mill shut down. All under the age of sixty.8" - Similar stories have been repeated elsewhere with the decline of autos, textiles, and other industries. Images of the decline of Flint, Michigan, in particular were starkly captured by the film Roger and Me. - Disparities across countries raise concerns with social dumping. In international trade, dumping occurs when a foreign competitor is able to unfairly sell something at a lower price than domestic producers, where unfairly means because of a subsidy, not because of greater efficiencies. In such a case, the low-priced goods are seen as being "dumped" into the domestic market. Social dumping occurs when a foreign competitor is able to unfairly sell something at a lower price because of lower labor or environmental standards—for example, no minimum wage floors, lack of safety regulations, or absence of pollution standards—and thereby "dump" social problems of low wages and poor working conditions on another country or location. As an example of the vast labor cost differentials between countries that give rise to fears of social dumping, monthly wages for garment workers are $200 in Bangladesh, $250 in Vietnam, $270 in China, and over $1,800 in the United States.9 Social dumping can be a problem if it undermines the tighter labor and environmental standards of the domestic country by making it difficult for companies to remain competitive while respecting these standards. As we will soon discuss, labor and environmental groups in the United States and Europe therefore continue to push for fair trade rather than free trade—that is, the addition of labor and environmental standards for international trade. Foreign Direct Investment - A second component of globalization is foreign direct investment (FDI), which consists of cross-border flows of investment by multinational corporations to establish partial or full ownership in foreign businesses. Examples of FDI include opening a new factory, call center, or other operation in another country, purchasing a foreign-owned company, or entering into a joint venture with a foreign enterprise; the global reach of many companies is further extended by global networks of suppliers (see Table 11.3). In 2017, global FDI exceeded $1.4 trillion.10 - Companies may invest in other countries for many reasons.11 By investing in Chinese factories, U.S. companies can, for example, lower their labor costs, diversify a company's labor pool and talent base, avoid independent unions, have an authoritarian state limit worker protest, take advantage of tax breaks, provide access to raw materials, reduce transportation costs to some destinations, open up new markets, and help win contracts to sell products to Chinese businesses and the government. The benefits of FDI for the host country include new capital for investment, higher-paying jobs, new technology, more products and competition, and opportunities to learn new management practices and share in research and development activities. Indeed, FDI has been instrumental in some success stories of such developing countries as Singapore and Malaysia.12 - However, there is also the potential for FDI to threaten domestic workers with job loss or plant closings unless concessions are made. Indeed, the jobs that can now be done by anyone from anywhere in the world are seemingly limitless.13 Many technical jobs have been moved to India—including software programmers, computer engineers, financial analysts, and even the saying of special intentions (requests by individuals for a priest to pray for a family member or friend). So the threat of job loss is real. - Moreover, FDI can further exploit workers with no alternatives and degrade the environment in the absence of protections or incentives. These problems are especially acute in export processing zones, which are special areas of developing countries dedicated to attracting and supporting multinational investment and production.14 Developing countries hope these zones create employment, bring in foreign exchange, and stimulate economic development. Export processing zones typically include explicit incentives such as duty-free importing and exporting, reduced taxes, and publicly provided infrastructure. Critics believe that some areas also include under-the-table inducements like lax enforcement of labor laws and government assistance in keeping out independent unions. An example of an export processing zone is the maquiladora sector in Mexico (see the accompanying "Labor Relations Application" box). International Investment Portfolios - International investment portfolios—cross-border flows of investment securities like stocks and bonds—are a third dimension of globalization. In contrast with FDI, this is foreign indirect investment and unlike FDI, this form of global investing occurs by institutional and individual investors who own foreign stocks and bonds or invest in international mutual funds. Shareholder activism, especially by large institutional investors such as union pension funds, might therefore seek to influence perceived problems with labor and environmental exploitation, such as concerns with the working conditions faced by workers making Samsung smartphones in Vietnam. - International investment can be beneficial: It provides working capital for local companies and financing for foreign government operations, improves risk sharing across borders, and allows investments to find their most productive uses.15 But a large segment of international investing involves hedge funds and other professional investors engaging in currency speculation. This speculative, short-term focus causes high volatility in the foreign exchange markets that handle $5 trillion of transactions each day.16 Such volatility destabilizes fragile developing country economies and can have severe negative effects on wages, job opportunities, and living standards. Immigration - The fourth and final dimension of globalization is immigration, the cross-border flow of people. While immigration is similar to other dimensions of globalization in being a form of interconnection among countries, it is essential to remember that immigration involves real people. This makes it more difficult to predict the effects of immigration in any particular situation, but also highlights that immigration policies have a large impact on individual lives and on the communities in which immigrants live.17 Nearly 260 million people live outside their countries of birth.18 Like the other dimensions of globalization, immigration can be beneficial. As FDI and international portfolio flows allow capital to seek its highest rate of return, immigration gives labor the same opportunity. In other words, immigration provides an avenue for people to escape persecution and find a better life in a new country. By taking jobs that no one else wants or is qualified for, both unskilled and skilled immigrants can benefit the destination country if labor demand exceeds supply. Immigrants also bring new cultures, foods, and ideas. - But like the other dimensions of globalization, immigration is controversial because it has disadvantages and can create winners and losers. In particular, most immigrants to the United States are low-skilled. This does not negatively affect most U.S. workers, but it appears to provide additional competition for low-skilled workers, especially high school dropouts.19 These workers therefore suffer from lower wages while employers and consumers benefit from lower labor costs and prices. Because of language barriers, fears of reprisal, cultural differences, and other factors, immigrant workforces also bring challenges and opportunities for union organizing.20 - The United States has restricted the number of immigrants allowed to enter legally and work in the country since the 1920s because of a variety of complex fears including perceived threats to jobs, wages, social services, and national security. U.S. immigration law favors family reunification, and this is the basis for most legal immigration to the United States. There are also a limited number of work visas available for skilled workers. Some argue that this program should be expanded in order to enhance the skill base and entrepreneurial activity of the economy while others fear that this would undermine the employment opportunities for existing skilled workers.21 Undocumented immigration is also a very controversial topic, and U.S. employers are legally obligated to verify that each employee is eligible to work in the United States.22

INTERNATIONAL LABOR STANDARDS VIA U.S. FREE TRADE AGREEMENTS

In addition to being part of the WTO, many countries negotiate their own free trade agreements with specific partners, such as the Malaysia-New Zealand Free Trade Agreement. With respect to the United States, the most visible free trade agreements are the North American Free Trade Agreement (NAFTA, 1994) and its pending successor, the United States-Mexico-Canada Agreement. But the United States also has free trade agreements with Australia (2005), Peru (2007), Korea (2012), and others. Of particular relevance here is that starting with NAFTA, U.S. free trade agreements have increasingly sought to address labor standards.33 NAFTA and Its Labor Side Agreement - NAFTA eliminated tariff and nontariff trade barriers among the United States, Canada, and Mexico, allowed companies based in any of the three countries to invest, sell services, and bid on government contracts in all three countries, and protected intellectual property rights.34 Note, however, an important asymmetry in NAFTA that is also common in other free trade arrangements: Companies are free to invest in all three NAFTA countries, but individuals are not free to work outside their home countries. In other words, NAFTA and other free trade agreements allow capital mobility but not labor mobility.35 - NAFTA included a side agreement, the North American Agreement on Labor Cooperation (NAALC), to address labor's fears that low Mexican wages might undercut U.S. competitiveness, put downward pressure on U.S. wages and working conditions, and cause widespread plant closings.36 In other words, the NAALC is intended to prevent social dumping; a separate side agreement similarly focused on environmental protections. The NAALC provides 11 guiding principles that the three countries commit to promote—including union activity, nondiscrimination, equal pay, minimum wages, and workplace safety—but these are not uniform standards and are not enforced through trade sanctions. Rather, the explicit emphasis in the NAALC is on cooperation to promote compliance with existing domestic laws. No new laws are required, nor are there restrictions on future laws. The NAALC dispute resolution procedures are best thought of as public consultation without significant enforcement powers.37 Compliance depends on the "sunshine factor"—adverse publicity that stems from the public NAALC proceedings—or in other words, the "naming and shaming" of violators.38 The Effects of NAFTA and Its Labor Side Agreement - Evaluating NAFTA is controversial. From Ross Perot to Donald Trump, politicians have criticized NAFTA for harming U.S. workers. In the aggregate, these claims are largely exaggerated.39 But if one focuses on particularly vulnerable workers—high school dropouts in areas dependent on industries like footwear that were brought into direct competition with Mexico—then there have been significant negative consequences, including lower wages.40 These negative consequences are not limited to low-skilled workers in these particular industries; rather, they tend to affect all low-skilled workers in a vulnerable local labor market. With respect to the NAALC, there is not a strong pattern of victories for organized labor and workers' rights advocates.41 Mexican workers fired for union activity, for example, have not been reinstated due to the NAALC. On the other hand, the NAALC partners have been successful in educational activities and in increasing cross-border understanding. And the submission process also provides the opportunity for greater cross-border cooperation among unions. - It is this last element that seems to have generated the most lasting effects. Specifically, unlike protests against the WTO in which labor is an outsider, the NAALC machinery provides a legitimate mechanism for labor to express and seek resolution of grievances, and also specifies procedural rules that require cross-border contact. This provides the basis for unions in the three countries to cooperate in repeated, concrete ways, which in turn has created some enduring, transnational union relationships.42 Moreover, led by the Canadian labor movement, NAFTA caused a shift in the attitudes of the Canadian and U.S. labor movements that went from seeing Mexican workers as "foreign workers" who are the problem—attitudes often tinged with racist stereotypes—to seeing them as partners in their struggle.43 These attitudinal changes go beyond NAFTA—the U.S. labor movement now openly embraces organizing immigrant workers and the AFL-CIO supports comprehensive immigration reform that includes a pathway to citizenship for undocumented workers. So while the NAALC machinery was limited, it appears to have been the surprising catalyst for other changes. Moving Beyond NAFTA and Its Labor Side Agreement - While NAFTA was the first U.S. trade agreement to address labor standards, remember that the NAALC only required enforcement of domestic laws. In subsequent U.S. free trade agreements, there has been an evolution toward requirements not only to enforce domestic laws but also to abide by the ILO's core labor standards.44 Moreover, unlike the NAALC which was a side agreement, the labor provisions of subsequent trade agreements have their own labor chapter within the free trade agreement. The most recent example is the United States-Mexico-Canada Agreement (USMCA) which was negotiated in 2018. This will replace NAFTA and the NAALC if it is ratified by the three countries. Chapter 23 of the USMCA requires the three countries to fulfill the following: * "Each [country] shall adopt and maintain in its statutes and regulations, and practices thereunder," the rights provided by the ILO's core labor standards. * "Each [country] shall adopt and maintain statutes and regulations, and practices thereunder, governing acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health." * "No [country] shall fail to effectively enforce its labor laws through a sustained or recurring course of action or inaction." - There are also provisions regarding compulsory labor, violence against union leaders and workers, and discrimination. - That labor standards are now included as labor chapters in U.S. free trade agreements rather than as side agreements is significant because it means that alleged violations of labor standards are addressed using the same dispute resolution procedures as trade disputes, and includes the possibility of monetary penalties.45 Complaints (called "submissions") alleging a labor violation are submitted to the Office of Trade and Labor Affairs within the U.S. Department of Labor which then investigates. If consultation and dialogue steps fail to address a violation, a panel hearing can be held just as for commercial violations, and a ruling issued. In this respect, U.S. free trade agreements have stronger labor standard requirements than those negotiated among many other countries where dispute resolution is limited to dialogue and cooperation.46 - Even these stronger provisions, however, are not without controversy.47 On the one hand, they appear to increase the number of labor inspectors and inspections in Latin American countries.48 On the other hand, critics point to the ambiguities in the standards (e.g., "acceptable conditions") and cite ongoing violations in various countries, especially regarding the repression of independent labor unions.49 The number of labor submissions is modest (see all of them at https://www.dol.gov/agencies/ilab/our-work/trade/fta-submissions), the process is slow, and only one has reached the panel hearing stage (see the "Labor Relations Application" box Did Guatemala Violate CAFTA-DR's Labor Chapter?). - While having pitfalls as well as potential, the older NAALC approach and the current labor chapter approach each illustrate possibilities for trying to balance efficiency, equity, and voice in the global workplace. For some, a bilateral or regional approach is better than a universal approach as would be the case under the WTO not only because it is politically more feasible but also because agreements can be better tailored to specific situations, and nongovernmental actors like unions and human rights groups can be better incorporated into monitoring and enforcement.50 For others, however, bilateralism and regionalism run the risk of creating fragmented standards with unequal enforcement, uneven application, and uncertain legal status.51 These debates are extensions of those over the appropriate level of government regulation in the domestic context, such as whether it is better to establish local, state, or national minimum wages.

GLOBALIZATION AND FINANCIALIZATION: ECONOMICS AND ETHICS

It is easy to reduce globalization and financialization to purely economic phenomena dominated by discussions of trade statistics, trade barriers, foreign direct investment, and financial returns. In the textbook economics model, increased economic integration, free trade, and international capital mobility improve aggregate welfare in the long run, and short-run issues are dismissed as "adjustment costs." The economics of globalization are certainly important and should not be overlooked, but it is also critical not to overlook the broader effects of globalization on individuals, unions, communities, cultures, the environment, and nations. Globalization has brought many benefits to people around the world but has also closed U.S. factories, hollowed out entire communities, brought sweatshops to other countries, and placed great strains on the environment. Financialization, too, brings about winners and losers. Globalization and financialization, therefore, raise important ethical issues.132 It can further be argued that everyone—including corporations and consumers—has a moral obligation to do their fair share in addressing these ethical challenges and in improving well-being around the world.133 And yet both globalization and financialization lessen the extent to which a company's success is tied to a particular community (see the Ethics in Action case). Rather, production and sales are globally distributed (globalization) and short-term financial transactions are more important than producing goods and services (financialization). So companies are less likely to support longer-term community-specific investments in education and infrastructure.134 With respect to labor relations, private sector unions are struggling to maintain the viability of collective bargaining in the face of intertwined globalization and financialization pressures. The threat of moving production to low-wage countries has labor on the defensive and undermines labor standards; financialization has widened inequality and diverted investment away from the shop floor. Traditional industrial unions like the United Steelworkers and United Auto Workers have lost thousands of members in their core industries and are now general unions with very diverse memberships. With the New Deal industrial relations system under fire from globalization and financialization, it is important to consider alternative institutional mechanisms for governing the global workplace. Some of these arrangements, especially enforceable international labor standards and transnational collective bargaining, have the potential to support domestic-level collective bargaining, while a continued emphasis on free trade and financial returns rather than fair trade and broadly shared prosperity is likely to keep labor on the defensive in many countries. Sharp disagreements persist as to which institutional arrangements will best provide efficiency, equity, and voice in the 21st century. The key to understanding these disagreements lies in appreciating the different models of the employment relationship—neoliberalism, human resource management, pluralist industrial relations, and critical industrial relations.

TRANSNATIONAL EMPLOYEE CONSULTATION IN THE EUROPEAN UNION

Part of the rationale for creating a North American free trade zone through NAFTA was to counter the expanding European Union (EU). The EU is an integrated community of over 25 European nations. As evidenced by the debates over Britain's vote in 2016 to leave, the EU is more integrated than a simple free trade area like the one created by NAFTA (recall Table 11.4). Rather, the EU includes common external tariffs, extensive capital mobility across the member countries, elements of common monetary and fiscal policies, a common currency (the euro), legislative powers, and attempts to coordinate foreign policies. Unlike free trade arrangements under the WTO and NAFTA, residents of the EU are allowed to freely work in any EU country. This free movement has allowed workers, especially those from eastern Europe, to seek better employment opportunities elsewhere in Europe, but has also caused controversies as construction firms and other companies from lower-wage European countries have established operations in higher-wage countries using low-paid workers who are "posted" from their home countries.52 Indeed, against a backdrop of fear over the effects of mass migration on income, jobs, services like the national health system, public safety, and national identity, the key factor in Britain's vote to leave the EU was concern with the difficulty of limiting migration into Britain while in the EU. Policymaking in the European Union - Though the main impetus for European unification has been preventing additional European wars, noninflationary economic growth (not labor and social standards) is a priority of the EU. So economic concerns prevail over labor and social concerns (as in the WTO and NAFTA). In other words, the EU has long embraced the "reasoning that the social caboose would be pulled by the economic locomotive."53 Nevertheless, there has been concern with labor standards because of respect for basic human dignity and fears of social dumping from member countries with lower standards and labor costs—such as Portugal—to countries with more generous standards and higher labor costs—such as Germany.54 - As a result, the Charter of Fundamental Rights of the European Union specifies a number of workers' rights, including freedom of movement, equal treatment and compensation for men and women, health and safety protections, annual leave, access to training, guarantees of information and consultation, the freedom of association to join labor unions, and the right to engage in collective bargaining and to strike.55 And because the EU is more than simply a free trade zone, the EU-level political institutions can issue follow-up laws that enact specific sections of the charter. A number of binding directives has been passed by the European Council of Ministers that obligates the EU-member countries to achieve specific results.56 For example, a 2008 directive mandates equal pay and working conditions between temporary workers and regular employees. In 2017, the EU also adopted the European Pillar of Social Rights which commits the EU and its member countries to 20 key principles in three areas: equal labor market opportunities, fair working conditions, and social protection and inclusion. However, the commitment to a "European Social Model" has been called into question by (a) recent trends toward the use of nonbinding "soft law" recommendations and social dialogue instead of enforceable "hard law" directives, and (2) European Court of Justice rulings that favor the free movement of goods and services over workers' rights.57 European Works Councils: Definition and Operation - The EU policy that is of particular interest to the subject of labor relations and employee representation is the directive "on the establishment of a European Works Council or a procedure in community-scale undertakings and community-scale groups of undertakings for the purposes of informing and consulting employees" (generally referred to as the "European Works Council directive").58 This is also important to consider in the context of globalization because European Works Councils represent another approach to addressing workers' concerns in a global context—that is, through information sharing and consultation between multinational corporations and their multinational workforces. - For companies with significant operations in at least two EU countries, a European Works Council is a transnational, company-level committee of employees from these different operations that has consultation and information rights on issues that affect workers in more than one country. The process for creating a European Works Council requires a request by 100 employees from two countries. Because EU directives allow individual countries to determine implementation details, the European Works Council directive specifies minimum standards: Councils must meet with management at least once a year, must be informed and consulted regarding the "progress of the business," and "The meeting shall relate in particular to the structure, economic and financial situation, the probable development of the business and of production and sales, the situation and probable trend of employment, investments, and substantial changes concerning organization, introduction of new working methods or production processes, transfers of production, mergers, cutbacks or closures of undertakings, establishments or important parts thereof, and collective redundancies (Annex 2)." - A company's European Works Council can also request a meeting with management when there are exceptional circumstances, such as a plant closing. Expenses are paid by the company. Additional details such as the council's size, allocation of members, location and duration of meetings, and procedure for consultation are left up to individual companies and their employees. The requirements for what information must be provided and whether employee representatives are elected by the employees or appointed by elected union officials are determined by the national law of the country in which the company is headquartered.59 - The rationale for this directive is to enhance employees' rights to consultation and information that pertains to their company and employment situation. Note carefully that this does not grant workers the right to bargain: Specific terms and conditions of employment such as wages are not negotiated by European Works Councils (though within each country, some workers might be represented in collective bargaining by national unions). Rather, a European Works Council lets employees learn about their company's financial health and future plans (the information aspect) and have a voice in providing feedback and ideas about these plans (the consultation aspect). These are viewed as important workers' rights, but the EU directive also states the belief that "harmonious" development of economic activities will be aided by informing and consulting with employees. Rather than creating a bargaining relationship, the European Works Council directive is intended to create a cooperative dialogue between labor and management. European Works Councils in Practice - Since the European Works Councils directive leaves many operational aspects to be worked out by companies and their works councils, the actual nature of a European Works Council is a contested affair shaped by the power and interests of those involved.60 This, in turn, results in a diversity of European Works Councils in practice, and the nature of any particular council may evolve over time. With that in mind, it's useful to divide actual European Works Councils into four categories: symbolic, service, project-oriented, and participative.61 Symbolic European Works Councils are passive and fulfill the minimum requirements of the directive by a single annual meeting in which management provides limited information and the representatives do not try to engage in a dialogue. A service European Works Council has a more active information flow but primarily services national unions by passing along the information received by the council. Project-oriented European Works Councils build their own internal capabilities and pursue projects—such as comparing employment conditions across plants in the company—beyond the scope of the required meetings with management. A participative European Works Council is the most advanced form and includes active consultation and perhaps joint projects with management. - Although symbolic European Works Councils contribute little toward employee representation, the other forms have greater potential. At BMW, the activities of the European Works Council have been modest, but they provided a mechanism for British and German union leaders to develop communication and trust—which was important when the British union leaders engaged in traditional negotiations with BMW management.62 The European Works Council at Nestlé is an example of a participative council. The works council and management established a consultation procedure for discussing plant closures and for implementing equal opportunity policies.63 At Unilever, the European Works Council has actively pursued activities outside the annual meeting with management. The top two officials meet monthly, and this European Works Council has developed a system to integrate information received by the European-level council and the workplace-level works councils in each country. A handbook of guidelines for corporate restructuring has also been developed, and the European Works Council has been actively involved with management in implementing Unilever's restructuring initiatives. - A common thread in many success stories, however, is the presence of strong national unions.64 The BMW, Nestlé, and Unilever examples all include union leaders as council members. In contrast, McDonald's has been successful in marginalizing a union presence in its European Works Council, and in fact a majority of the council members are salaried managers even though 90 percent of McDonald's employees are hourly workers; the council is therefore merely symbolic.65 That individual council members come from very different national systems (Chapter 12) not only raises language issues and the reality of national over European identity but also means that there are challenges resulting from very different expectations about what employee voice should consist of (e.g., bargaining or social dialogue) and the fact that those from countries with stronger unions might see that as a better route for influence.66 Research also indicates that European Works Councils have been more successful in providing workers with information than in providing a means for consultation.67 European Works Councils are an intriguing option for representing employee interests in a global economy, but the exact route to making them effective is difficult.

GLOBAL LABOR STANDARDS VIA THE ILO

The International Labour Organization (ILO) is a specialized agency of the United Nations focused on promoting social justice and internationally recognized human and labor rights. The ILO was created in 1919 as part of the peace settlement that ended World War I; it became the United Nations' first specialized agency at the end of World War II. Most countries now belong to the ILO, which has a unique tripartite structure: Each country sends two government representatives plus a worker representative and an employer representative. The ILO is the undisputed chief international authority on labor standards, and its primary activity is adopting and promoting conventions that specify minimum labor standards on particular issues. Nearly 200 conventions have been adopted to date. Technical assistance to help implement these standards is also provided.29 Against a backdrop of growing concern with labor issues and globalization, the ILO adopted the Declaration on Fundamental Principles and Rights at Work in 1998. This declaration establishes a set of core labor standards: freedom of association and collective bargaining, the abolition of forced labor, no discrimination in employment and pay, and the elimination of child labor, which are all declared to be "fundamental to the rights of human beings at work." However, labor standards—core or otherwise—are not legally enforceable. The ILO relies on publicity, diplomacy, and technical assistance, not legal or economic punishment, to encourage compliance with its labor standards.30 Consequently, supporters of the ILO labor standards try to work with international bodies to increase the visibility of the standards, and ideally to make them enforceable. This has resulted in the World Bank requiring companies that borrow money from its International Finance Corporation to agree to follow the ILO's core labor standards.31 For a more comprehensive approach, note again that unlike the ILO, the WTO has the authority to issue rulings and impose trade sanctions. Consequently, a commonly proposed way to establish universal, enforceable global labor standards would be to marry the expertise of the ILO with the power of the WTO.32 Adding a social clause to global trade agreements that would require countries to adhere to the ILO's core labor standards would let the WTO impose trade sanctions on countries that violate these standards (as is currently the case for countries that establish illegal trade barriers such as tariffs). But as noted above, leaders of developing countries and free trade economists see labor standards as protectionist trade measures to protect developed country jobs. So efforts to link ILO labor standards to WTO trade regulations have yet to be successful; instead, the WTO defers to the ILO on labor standards. Conceptually, the pursuit of enforceable labor standards is analogous to a government regulation model of governing the workplace (recall Chapter 2) on an international scale. A uniform set of rules and standards is established, and violations can be punished. Even though this has not occurred on a global basis because of a lack of enforceability of the ILO conventions, there has been movement in this direction on a regional basis in country-specific free trade agreements. This is the topic of the next section. Keep in mind that debates over global and regional enforceable labor standards parallel debates over the wisdom of domestic government regulation—especially the difficulty of establishing universally applicable laws and the negative efficiency consequences of interfering in free markets.

FREE TRADE VIA THE WTO

The dominant institution for reducing trade barriers and pursuing free trade on a global scale is the World Trade Organization (WTO). The WTO is an international organization of over 160 member countries that provides a forum for negotiating and enforcing global trade agreements. The WTO promotes free trade through reduction of trade barriers. The most obvious trade barrier is a tariff (a tax on imports), but there are numerous others. Nontariff trade barriers include quotas (numerical restrictions on imported units), domestic subsidies (which make it more difficult for foreign firms to compete with a subsidized domestic firm), discriminatory government procurement policies (which also favor domestic producers), and regulations such as import licensing and product standards, which can be manipulated to favor domestic companies. The WTO seeks to reduce all these trade barriers. While efforts to further reduce tariffs in recent years have stalled due to inter-regional conflicts, the WTO member countries approved a trade facilitation agreement in 2017 which seeks to reduce trade costs through improvements like faster border clearances. The WTO Supports Free Trade, Not Fair Trade - A key ongoing controversy is the difference between free trade and fair trade. Free trade is the removal of all trade barriers. Fair trade is the incorporation of labor, environmental, public health, and other standards into trade agreements and the ability to impose trade sanctions on countries that violate these standards. This is labeled fair trade because it is believed that adding these social clauses to trade agreements can prevent social dumping and avoid a "race to the bottom" in wages and working conditions. In other words, promoters of fair trade distinguish between legitimate and illegitimate (socially unacceptable) sources of comparative or competitive advantage.23 An abundance of natural resources or differences in worker productivity are legitimate, but what about slavery? Should a country enjoy a comparative advantage because it uses slaves? This debate can extend to other possibly illegitimate practices: Child labor? Racial discrimination? Suppression of unions? Abuse of the environment? To date, many countries have opposed the inclusion of such standards in the WTO's free trade system. Opposition is particularly strong among the leaders of developing countries because they see labor standards as depriving their countries of their low labor costs comparative advantage.24 So attempts to add labor and environmental standards to the overall WTO framework have failed; instead, WTO policy is that international labor standards are the responsibility of the International Labor Organization.25 - Note, however, that the WTO system allows individual countries to establish standards that are "necessary to protect public morals [or] ... human, animal, or plant life or health" or conserve "exhaustible natural resources" as long as such standards are not trade barriers. As an example, the United States established the requirement that all tuna be caught with nets that are safe for dolphins. Labor activists would like to see the United States and other countries refuse to import goods from a country that violates basic labor standards or environmental standards.26 Some countries, however, claim that such requirements are disguised trade barriers. The WTO has the authority to resolve trade disputes over these issues, and a country found in violation must change its trade policy or pay damages. Refusal to do so can result in trade sanctions. - Those who emphasize the efficiency gains of free markets (recall the neoliberal school from Chapter 2) see free trade as optimal and therefore think national standards like dolphin-safe nets should be invalidated by the WTO as illegal trade barriers. For those who question the fairness of free markets (recall the industrial relations school from Chapter 2), the push for free trade looks more like a way to satisfy the "desires of transnational corporations in search of lower cost labor and freer regulatory environments."27 For those in this camp, then, fair trade with basic labor and environmental standards is needed, not unfettered free trade. This can be achieved through a broader interpretation of the WTO allowance of standards that are "necessary to protect human, animal, or plant life or health," but this has not yet happened on a widespread basis; rather, WTO rulings in trade disputes generally support free trade and the removal of national standards.28

TRANSNATIONAL COLLECTIVE BARGAINING

With increased globalization and multinational corporate activity, labor unions are under pressure to collaborate across international borders.68 This transnational collaboration ranges from simple messages of solidarity to sympathy strikes, from sharing information to conducting coordinated lobbying or public pressure campaigns, and from helping establish unions in developing countries to coordinating collective bargaining. Corporate global initiatives are facilitated by free trade arrangements such as the WTO and NAFTA, but international labor union activities rarely are. In fact, laws restricting sympathy strikes, secondary boycotts, and affiliations of labor unions with international federations all hamper transnational collaboration.69 The NAALC procedures under NAFTA pushed some unions to work together across borders, and another exception is the European Works Council directive because unions can use European Works Councils to develop networks and alliances with other unions.70 But more generally, unions cannot rely on international treaties or public policies to facilitate transnational collaboration, and the labor movement has instead created its own institutions for international solidarity. Institutions for Fostering International Labor Solidarity - The apex of international labor organizations is the International Trade Union Confederation (ITUC).71 The ITUC is a worldwide federation of national union federations such as the AFL-CIO (United States), Trades Union Congress (Great Britain), Deutscher Gewerkschaftsbund (DGB, German Trade Union Confederation), and over 300 others from more than 160 countries representing 200 million union members around the world. The ITUC resulted from the merger of two long-standing federations, the western-oriented International Confederation of Free Trade Unions and the leftist World Federation of Trade Unions, to try to strengthen international union solidarity and have more influence in the global sociopolitical-economic system. - The ITUC's main objectives are to facilitate consultation, communication, and cooperation among unions. To pursue these objectives, the ITUC collects and publishes information and research to keep unions abreast of developments in other countries. The ITUC also provides education and training to union leaders and financial assistance to emerging labor movements. In the international arena, the ITUC is an important advocate for organized labor, especially when lobbying transnational organizations such as the World Trade Organization. The ITUC is also pushing for multinational corporations to adopt codes of conduct that respect basic workers' rights (discussed in the next section). - The ITUC cooperates closely with nine global union federations (see www.global-unions.org). Global union federations are "international associations of national trade unions representing workers in specific industries, industry groups, occupations, professions, or other sectors of employment such as the public services."72 For example, the International Federation of Journalists includes more than 180 unions from over 140 countries that represent 600,000 media professionals. Although these are international federations like the ITUC, the global union federations are composed of national unions, not national union federations (see Figure 11.1). The global union federations promote transnational collaboration through information exchange, publicity, education, and various solidarity actions.73 International Labor Solidarity in Practice - There are significant barriers to transnational labor collaboration: in addition to being expensive, there can be language barriers, cultural, religious, and ideological differences, a lack of interconnected social networks, fears of losing domestic autonomy, legal constraints, differences in union structures and goals, and employer resistance.74 Consequently, the starting point for building transnational collaboration is through international solidarity actions in support of organizing campaigns or bargaining disputes in one country.75 The International Transport Workers' Federation has led campaigns supporting global delivery workers for over two decades (see the accompanying "Labor Relations Application" box). During a United Mine Workers of America coal strike, unions in Australia, Colombia, and South Africa conducted 24-hour sympathy strikes at mines and factories owned by the same multinational parent corporation.76 In 2016, workers from various European countries participated in coordinated protests against a GE restructuring plan. In 2018, airport workers at 35 locations in 10 countries, including the United States, Australia, South Korea, and Indonesia, held a "Our Power Is Global" Day of Action to raise awareness of their low pay, while Amazon warehouse workers in multiple European countries all walked out on Black Friday to protest low pay and dangerous working conditions. - In addition to these international solidarity campaigns, global union federations are being increasingly successful in getting multinational corporations to sign international framework agreements in which the corporations pledge to respect workers' rights such as organizing labor unions and having safe workplaces. Some agreements go further; for example, the services industry global union federation Uni negotiated a framework agreements with G4S, the world's largest security firm, that provides for union access to workers, employer neutrality, and a dispute resolution procedure in addition to a pledge to respect the ILO's core conventions, while Uni pledges to help prevent unauthorized work stoppages. The implementation of framework agreements is left to unions in each country.77 The GS4 agreement paved the way for union organizing success in South Africa and several other countries, but unions in India did not have success.78 Indeed, if unions have little leverage, these framework agreements are reduced to voluntary corporate codes of conduct. - Whether these international solidarity campaigns and international framework agreements give domestic unions sufficient leverage to confront the pressures of globalization, or whether these efforts need to develop into true transnational collective bargaining alliances is an open question. In the meantime, true transnational collective bargaining—in which unions in more than one country negotiate jointly with the same company over wages and other economic items—is rare. U.S. and Canadian Chrysler workers were covered by a single UAW contract in the 1970s, but the U.S. and Canadian situations were so similar that one can question whether this was truly international bargaining. Some transnational collective bargaining occurs in flag-of-convenience shipping—shipping companies who are granted flags from developing countries for a small fee. Without a real attachment to these countries, these companies are effectively unregulated by national laws. The ITF has negotiated roughly 150 contracts with shipping companies that have been able to dodge national unions. These agreements, however, must be enforced by national unions at their local ports—for example, by refusing to unload a ship if it does not demonstrate compliance with the negotiated standards for wages and hours.79 As with the other forms of international labor solidarity, then, the effectiveness of transnational labor collaboration crucially depends on the strength of domestic labor unions in their home countries.