SPEAKING FREELY
Globalization and its discontents revisited
By Gregers Friisberg

Speaking Freely is an Asia Times Online feature that allows guest writers to have their say. Please click here if you are interested in contributing.

COPENHAGEN - At the beginning of September, the big Northern European airline SAS (Scandinavian Airlines System) announced that it was laying off 170 back-office employees involved in ticket clearing and calculation and transferring the jobs to India.

When the chief executive officer of SAS, Joergen Lindegaard, returned to Copenhagen from a meeting in Stockholm, he was confronted by a mass of demonstrating employees carrying signs which read "Bombay. No Way." Lindegaard explained the company's decision saying that SAS accounts are in the red because conditions for air travel have been depressed ever since the September 11, 2001, attacks that leveled the New York World Trade Center. In the end, there seemed to be no other option than to cut costs wherever possible, he said. SAS was only, with some delay, copying the practices of bigger players like Air France, Lufthansa and British Airways.

The sacked employees and some union representatives who had come to take part in the demonstration blamed Lindegaard for thinking only of shareholder value and not considering the long-run cost structure and human resource strategy of the company, according to newspaper reports in Copenhagen.

But the transfer of jobs to low-cost countries has become almost a daily event for companies in Northern Europe, sometimes assisted by organizations such as a state-financed Danish development assistance unit. DANIDA (Danish International Development Agency), a department of the Danish Ministry of Foreign Affairs had even helped to educate workers in Bangladesh.

According to a local television news program a desktop publishing clerk in Denmark makes US$4,000 to $5,000 a month, whereas a Bangladeshi clerk makes between $150-200. The Indian subcontinent throngs with people versatile in English. Several years ago it was mostly unskilled blue-collar manufacturing jobs that were transferred, but now many skilled service jobs are being shifted to India as well.

Is it indeed "Bombay. No way"? Perhaps it is only no way for SAS employees in Copenhagen. Apparently it is far from no way for the transnational corporations that see an opportunity to save money. And what about India? Is it a way for India? It all depends on how the processes of globalization are considered and assessed.

According to the classical theory of foreign trade and international economics, international trade is not a zero sum game. All parties are supposed to gain if the markets are truly free and the forces of competition are let loose. The countries will, according to the Ricardian theory of comparative advantage, specialize in whatever they are good at producing. Therefore, an international division of labor will come about that leaves everybody better off, it is argued.

This theory was later refined and sophisticated by the Swedish economists Hecksher and Ohlin, who posit that a country's specialization depends on its endowment with the factors of production. Industry will go where there is abundant capital equipment, machines and factories. Furthermore, information and knowledge-intensive industries will be located where there is an abundance of well-educated workers with the necessary computer competencies. Where productivity is high, countries will produce more value added than in places where there is not so much capital and the educational level is low.

In that way, the enormous differences in wealth between the poor countries and the rich are explained by differences in productivity. This is also much too simplistic. The enormous income differences between the richest countries and the poorest cannot be explained just in terms of the neo-classical theory of wages, in which productivity (or rather in the jargon of neoclassical economics: the marginal rate of productivity) plays a role - ie, labor is paid according to its contribution to production.

World systems theory and the dependency school in development theory have offered other explanations. Seen from the angle of world systems theory, the international division of labor has not come about through the economic forces of the market alone. The division of labor is based on the historical development of the world capitalist system.

The terms have been dependent on power relationships. Who dominates international politics and economics, and who are the underdogs? Historically, the dominant forces were colonial powers that helped their domestic industries to the detriment of the economies of the colonies. World systems theory believes that the world economy moves in long economic cycles, the so-called Kontradieff cycles of some 40-50 years of duration. This is a questionable part of the theory. Today the dominant economic forces in the world are the multinationals and their governments. Despite the talk of globalizing markets it is still a truism that the big multinationals have domestic bases with governments that are ready to help them.

For instance, many American multinationals receive help from the US Department of Defense - the Pentagon - which gives companies enormous defense contracts. It is well known how the NASA space program made possible the miniaturization of electronic circuits that enabled the microcomputer to come into existence. Silicon Valley and other high-tech centers have been running out of steam since 2000, and the US has lost over two million private-sector jobs as a result. Nonetheless, new initiatives are underway through the National Missile Defense program to renew research and development in information technology and knowledge industries. Star Wars, as it is known, can be expected to drive American information technology forward toward new horizons with big spinoffs into the commercial production of services and products.

In France some 150,000 industrial jobs have been shed since 2000. On October 8, the French paper Liberation mentioned the specter of a France without factories. French textile production has been halved since 1995. Other European countries also reported big job losses in the industrial sector. The transfer of jobs from North America and Europe to Latin America and particularly Asia has led to debates about deindustrialization in the Western world. These areas are losing their industrial base, surely a very dangerous development.

It is not correct, however. These arguments grossly exaggerate the problems. It is true that the US economy not only shed lots of jobs, but that it has also run into enormous balance of payment difficulties and a big federal deficit. European economies, on the contrary, do not exactly look weak. It is true that unemployment in France and Germany is hovering at about 10 percent of the work force, which is quite serious, but export performance and the balance of payments are very healthy in both countries. Germany had a trade surplus of 135 billion dollars in the 12 months to July 2003. Other European countries also had big surpluses. That reflects a strong competitive position.

The Europeans are well aware of how the Americans have managed to stay on top of the economic Ivy League. They cannot compete head on with the Pentagon defense contracts, though there are, on a smaller scale, important and also cross-border defense contracts in Europe as well. The Airbus, which seems to be overtaking Boeing as the leading supplier of big jet planes, is a result of joint cooperation between European countries. In March 2000 in Lisbon the European Union summit of heads of state and prime ministers - the European Council - passed a resolution stating that the European Union should "become the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion".

This has been called The Lisbon Strategy. The Internet and other important information technologies are part of this strategy. With an independent global positioning system (GPS) underway, and new technologies being developed, the Europeans are seeking to keep up with the Americans in the struggle to stay ahead in the global economic race. The European project as such is an instrument to further this goal. By creating an inner market of 340 million, soon to be 450 million people, competition is reinforced and cross-border mergers become necessary for companies to survive.

According to neoliberal dogma, the way for an economy to position itself under globalization is to promote education and research. Only in that way is it feasible to add value that makes it possible to pay the work force correspondingly well. It is easily forgotten that the actual positioning is often a matter of using thousands of "dirty tricks", such as protective tariffs based on arguments of the other party dumping goods, technical or environmental norms and standards and multiple other "invisible" ways of protecting the internal market.

Otherwise, it would hardly be possible for workers in the developed countries to make 20 to 30 times as much as comparable workers in poorer countries. This wage differential is of course based on world market rates of exchange. In terms of purchasing power the differences are not that big, even though they are still quite substantial.

The European employees who have lost their jobs probably do not feel that the "social cohesion" of the Lisbon Strategy works - at least not for them. They are victims of the cost-cutting of corporate capital. It is capital that is roaming the entire globe for profitable sales and investments. Sometimes this may be beneficial to the so-called developing countries. Sometimes it may not be. Generally, however, poor countries welcome multinational investment. Often it means technology transfer and jobs. Sometimes it destroys jobs.

The big risk for developing countries arises when foreign direct investment leads to subordination of their economies. They may gain jobs and foreign exchange by exporting to the world market, but at the same time, they are enrolled in a division of labor that is not a reflection of the idyllic visions of comparative advantage. It would be more to the point to call it a disadvantage. They risk being held in a division of labor that means exporting cheap goods to the West, in exchange for expensive goods and services. Services, especially, are expanding rapidly and are becoming increasingly expensive for poor countries to purchase.

The purchase of cheap goods from poor countries and sales of expensive goods the other way is called unequal exchange in some world systems theory. The existence of unequal exchange has been hotly debated among economists. Under ideal free market conditions it should be competed away.

Market conditions are not ideal though. Capital can move freely about the world. There is no such freedom for labor. And the freedom of goods and services is limited as well. Some simple World Trade Organization statistics may show that unequal exchange is perhaps not a phenomenon on the decline, but that instead, there is a likelihood of it actually increasing.

Table 1: Exports of commercial services, in $US millions.

	Bolivia	Honduras	Mexico	Denmark	Ireland
1980	80	74	4,383	4,685	1,315
1985	88	89	4,436	5,391	1,229
1990	133	121	7,222	12,731	3,286
1995	174	221	9,585	15,171	4,799
2000	207	429	13,563	24,385	16,638
2001	221	426	12,547	26,956	20,033
2002	?	?	12,590	26,949	26,200

Source: WTO

The table shows the development of commercial services exported from two of the poorest countries in Latin America, Honduras and Bolivia; one of the richest, Mexico; and two small European Union countries, Ireland and Denmark. For a number of reasons, the latter two countries have developed into successful globalizers within the European Union. Their population is only between 4 and 5 million each. Each country, however, is capable of exporting far more value in commercial services than 100 million Mexicans living in a country that borders the huge US market and is a member of the North American Free Trade Agreement.

This, however, does not seem to help the country alter its role as a producer of cheap mass-produced industrial goods to a producer of sophisticated machinery and services. Maybe its location is responsible for keeping Mexico subservient because it is not ready to compete on an equal footing with the US and Canada. These two highly developed countries can set the conditions for mutual exchange.

Ireland and Denmark on the other hand have found very remunerative niches in the multinational-initiated division of labor, far better than poor landlocked Bolivia, or Honduras, in Latin America. The latter country has most kindly been given the task of producing textiles in its sweatshops. But what is the price of a shirt or a pair of blue jeans compared to the price of prescription drugs, banking services or architectural design?

The answer is blowing in the wind. The division in the world today is no longer between primary producers in the Third World and industrializers in the first. It is perhaps between operators of mass production in the Third World and the knowledge-based information industry in the first. Thus, inequality has reproduced itself on a higher level, and there is not less inequality as a result. On the contrary: Knowledge based production tends to increase inequality. According to the new 2003 Human Development Report from the UNDP (United Nations Development Program) the incomes of 52 countries have fallen in the last decade. Many of these have opened up to global markets. Some have tried to fulfill the terms of the Washington consensus.

The inequalities created under the conditions of the present system of knowledge-based capitalism are, to put it mildly, staggering. The market value of a company like Microsoft is over US$300 billion. That is five to six times the firm-book value. For the year ending June 2003, total revenues were more than $32 billion dollars, with net income nearly $10 billion. Seven million Hondurans, on the other hand, produce a gross domestic product of $6.6 billion annually according to the World Bank. The 500 CEOs of the S&P 500 companies in the US had median compensation packages of more than 3.5 million dollars in 2002, according to The Economist magazine. The minimum wage in the US is under $6 an hour.

The biggest Danish business group is the AP Moeller Maersk Group. In 2002 it made pre-tax profits of nearly $3 billion dollars, or almost half as much as the total GDP of Honduras. In the annual list of the most valuable brands in the world, made by Business Week, 62 of the highest placed brands were American. Coca-Cola and Microsoft topped the list with brand values higher than the GDPs of most countries.

The knowledge-based multinationals are offloading chunks of their labor-intensive back-office operations to developing countries. It is important, however, to keep in mind that most value-creating operations are still carried out in business centers in the rich countries, where they continue creating still bigger surpluses. Information and knowledge based economic activities are often highly monopolistic or oligopolistic. Patents and copyrights protect these economic sectors. That makes it possible to earn big profits on the production of medicine, software, automated machine tools and other such items.

The challenge for India and Bangladesh seems to be that they should not get stuck in the back office operations of multinationals, but should instead try to go upmarket to more remunerative positions in the value chain.

The SAS employees are victims of neoliberal globalization. They are more privileged victims than the starving coffee farmer in Honduras or the underemployed rickshaw driver in Dacca, but victims nonetheless. It does not have to be so. Neoliberal globalization is a social construction. This way of constructing markets and economic exchange is not a result of universal scientific laws, even though one might get that impression, for instance, in neoclassical economic textbooks. The neoliberal order with its unequal exchange of economic value is man-made. Therefore it can also be changed by man. What is required is political action for the construction of another kind of economy.

Speaking Freely is an Asia Times Online feature that allows guest writers to have their say. Please click here if you are interested in contributing.