Globalization: The Real Cause Essay, Research Paper
Globalization: The real cause of unemployment in Canada?
Globalization and unemployment are among the most widely discussed subjects in an economic debate today. In Europe, for example, the tendency of unemployment to rise since the 1970s has become a centre of political conflict. Among the most effected are those politicians and their advisors whose ability to react to the dynamic changes in the market place has negatively been pursued and criticized. In Canada, unemployment has steadily been rising ever since the 1950s. Unemployment in that year was 3.6 percent; in 1960 was 7 percent; in 1980 was 7.5 percent; in 1990 was 8.1 percent, and in 1995 was 9.5 percent . Statistically, unemployment in Canada still remains at a crisis level even though we are now in the sixth consecutive year of economic recovery since the recession of the early 1990s. But it wasn t until the last couple of decades that a new cause was very quickly discovered which diverted the responsibility from politicians to a new factor called globalization.
The definition of globalization differs from discipline to discipline. But here I will just focus on the economical and political terms. An economical definition of globalization refers to an evolving pattern of cross-border activities of firms involving international investment, trade, and collaboration for purposes of product development, production and sourcing, and marketing. A political economic definition of globalization refers to the changes in the organization and functioning of capitalism, including the emergence of really integrated markets as well as globalizing enterprises and the lagging behind of supra-national institutions. But there are other more specific definitions as well. For example as Hirst and Thompson describe it a development of a new economic structure in which distinct national economies are subsumed and rearticulated into the global system by international processes and transactions in which transnational firms are the principal actors (Leisink 4, 1999).
In the same respect, a clarification of unemployment would be better for understanding many of the issues involved. The official definition of unemployment is the proportion of the labour force that is not employed and is actively seeking it. However, using this definition the concept of voluntary unemployment makes little sense (Can you be actively seeking a job you voluntarily do not want?). It has therefore become customary to speak about involuntary unemployment. This is defined as the proportion of the labour force which is actively seeking employment at the existing wage level, but unable to get it. Further complications arise with the definition of unemployment due to the discouraged worker effect (if one wants a job but is not actively seeking it because it seems hopeless) and underemployment (taking a job below your level of skills). Both mechanisms lead us to underestimate the true unemployment figure. The problems in defining unemployment are, as this paragraph has showed, significant and the distinctions should be kept in mind throughout the essay.
Before getting into any discussion, I will first try to outline the different claims by hyper-globalizers and alarmists of globalization that the real cause of unemployment in many developed countries, like Canada, is due to globalization. I will try to analyze the impacts of globalization on the labour market and to what extend it effects unemployment. In the second part of the essay, I will try to prove that all these claims by alarmists of such a phenomenon are indeed wrong and that they are applying the wrong statistical data to support their claims. Then, I will try to bring my own arguments to prove that these claims are indeed wrong or overly exaggerated. Here, three main arguments will be analyzed. One of the arguments that they (alarmists) bring forth is that increasing unemployment in developed countries is due to the movement of multinational corporations from developed into developing countries. As a result, they create jobs in developing countries rather than at home. Secondly, due to the interdependencies of the integrating of the economy and the mobility of capital, an economic recession in one country affects other regions of the world, therefore decreasing employment there as well. Thirdly, because of the increase in the application of technology, especially in globally operating companies, they have reduced the use and dependence of human labour and thus intensifying job insecurity.
For those hyper-globalizers, there is an increasing concern of the impacts of what this phenomenon will have on our lives. It intensifies economic integration, creates cultural mixtures, liberalises trading barriers, creates environmental pollution, and furthers the inequality gap between the developed and the developing nations. These are all examples of problems that we should be concerned about. But, one of the most debated concerns of a large proportion of people is what globalization has done, or will do, to their opportunities in the labour market due to the rising of multinational corporations. The number of multinational companies has risen from 7,000 in 1970 to 37,000 in 1992 . One of the reasons for this expansion has been the fact that former national companies have been merging with those from other countries, and they maintain a dependence on the largest ones. The economic power of multinational companies is greater than that of many national states. Their sales, for example, have risen to 5.5 billion dollars, 90 percent of which are made in the imperialist (northern) countries and just 10 percent of which are made in the producer (southern) countries . The economic power of the multinationals gives them an unlimited political power over national states. Therefore, alarmists of globalization claim that this phenomenon is largely responsible for the deterioration of many countries economic and social conditions.
There is a widespread view among them that in the dawn of the new millennium, doing business has become a different concept with a different meaning in the global village, especially among the multinational corporations. In the era prior to globalization, the idea of doing business had just one concept and goal: profit. But now in an era of globalization, the whole idea of business has a new dimension. It is no longer just about making money, but also about competition. Every action of the multinational corporations is in lieu of competition. But this is not only due to the fact that competition is becoming a new priority for corporations, but also the conditions that globalization poses in which it encourages big corporations to compete through the openness of the economies. If any one corporation chooses not to compete, it will be forced out of the market. For example, treaties like the North Atlantic Free Trade Agreement (NAFTA) between the United States, Canada, and Mexico, allows multinational corporations to produce in better ways by reducing costs. For example, a Canadian company can produce in Mexico using cheaper labour and yet sell the same product in its home country at the existing local price, therefore making a profit in the process, which will give a competitive advantage. Consequently, other companies will be forced to repeat these actions, as failure to do so will result in their losing market share. The result of this is that companies become involved in an intense war of competition. As it is evident, the goal of competition is adopted survival purposes due to the phenomenon of globalization. As author Martin Hans-Peter claims, competition in the global village is like a flood tide no one can escape it (Hans-Peter 115, 1997). For these corporations, the ability to survive the flood tide of competition depends on their skills to adjust to such inevitable happenings as globalization. This can be achieved through modern logistics and low transportation expenses only in those developing countries since in the era of globalization, the services of large segments of the population can be more easily substituted by the services of other people across national boundaries. Therefore, multinational corporations such as Nike have changed their operations into those of transnational corporations (TNCs) in which they don t have a permanent production base. They no longer have their factories and production lines in their own countries, but are simply placing production orders with shifting manufacturing plants located wherever the lowest labour cost may be at a given time. For instance, Nike gets its shoes punched and sewn by 120,000 Indonesian employees in Indonesia where the company s sub-contractors pay a daily wage of less than $3 per worker . Also such places are attractive companies such as Nike for manufacturing and production as labour regulations are weak (for example, health and safety standards) and firms don t face any union repression or the worry about social welfare schemes, such as pensions. The Canadian packing corporation, Kanapack International Ltd , is another example. Its manufacturing factories are in Guangdong, China because the labour is much cheaper there compared to Canada. But what really concerns alarmists is that, broadly speaking, these TNC are responsible for about 80 percent of total foreign direct investment (FDI) around the world but they only employ about 3 percent of the world s labour force . When these corporations don t have their production bases at home, they are able to move from place to place depending on where production expenses are the cheapest. The flexibility of moving from place to place, where the labour is the cheapest, allows TNC to gain a competitive advantage. But, this is done at the expense of its own labour market as these jobs could have been made available to the people of it s own country. As Oliver Landmann claims, there is a seemingly strong correlation between the decline in the share of manufacturing employment and the increase in manufactured imports from developing countries for a sample of advanced industrialized countries (Wagner 182, 2000).
They also claim that the effects of globalization not only increase unemployment but also deteriorate the conditions of developed countries labour market. There has been an ongoing debate between the OECD (Organization for economic co-operation and development) countries over the impact of increased economic linkages between the developed and the developing nations regarding the quality of employment of those developed countries such as Canada. The basic argument for a linkage between increased global economic integration and the rising concern for the deteriorating of the standards of employment is fairly strait-forward. As was mentioned above, if goods can be can be produced more cheaply with much lower wages in developing countries, and if those goods and services can be exported freely back to those developed countries, it is obvious that TNCs will explore there. This will result in a loss of jobs for the domestic market. However, if governments in the developed countries want to remain attractive to TNCs and to keep their production and manufacturing at home, then they will be forced to equalize downwards on their market wages, benefits, and working conditions at the same level as those industrialized countries. As leading Canadian industrial relations academic M. Gunderson argues: the economic forces of free trade, global competition and capital mobility put pressure on countries to harmonize their labour regulations, and these pressures tend to be in the direction of harmonizing downwards towards the lower common denominator As an example, consider the Employment Standards Act in Canada. This statute allows every worker the right to a minimum level of work standards within the country. Under the pressure of this statute, employers have to worry about health and safety regulations, compensation, wages, vacations, and other issues of the sort for every employee. However, if the Canadian government realizes that it is loosing many of its major firms to the lower cost countries, it may be forced to reduce these minimum standards even further, thereby lowering the overall working standards within the Canadian economy.
The Alarmists second main concern is that unemployment is a result of the interdependency between economies. Globalization not only has dislocated the whole structure of the economy, but has also created a system where each region is heavily interdependent on the other. Any slight changes or downturns in one economy will have the same effect on the other. A perfect example of this notion of interdependency can be illustrated from the effects of the collapse of the Japanese house market on the Canadian Lumber Industry in 1997. Canada has always been Japan s leading trading partner in lumber where an estimated 2.6 billion board feet were shipped to Japan 1996. However, the Japanese house market was hit by numerous complex factors that ultimately resulted in the stoppage of British Columbia s lumber shipments. The result of this occurrence had a huge impact on employment lines in the province. Over 5,000 workers received layoff notices due to the sudden decrease of employment. Therefore, globalization of the market forces and government policies were blamed due to the interdependencies of the Canadian economy on its exports to Japan.
The perception that the nature of jobs and employment in industrialized nations has been shifting more into technology-intensive has also raised a growing concern among the alarmists on employment instability. New culture within business emphasizes ideas such as restructuring, downsizing, flexibility, re-engineering, and outsourcing . These have all become part of the whole notion of staying competitive. By introducing new information technologies, the companies are able to achieve long run economies of scale, which in turn allows them to remain competitive. This strategy can not only increase productivity and efficiency, but also reduce time, resources, and expenses in the long run by eliminating low-skilled employees. As a result, long run job security has become an issue for workers, especially in sectors such as agriculture, service, and manufacturing where major dislocation of workers on a massive scale has been moved by the corporate sector. Case studies of Japanese car transplants in Canada broaden this picture by giving a more direct impact of major transnational corporations on the labour market. The lean production has intensified the work effort, employment security in the long term is doubtful, labour costs are cut by contracting-out or by the introduction of work teams, making supervisors redundant (Leisink 15, 1999).
A major factor contributing to this job insecurity is the continuously changing skill requirements for employees with the introduction of new information technologies. The increasing importance of knowledge, technological change and associated changes in workplace practices are some of the profound changes that are contributing, either directly or indirectly to increased insecurity faced by workers. Firms will eliminate low skilled workers and keep only those high skilled labourers who can cope with the demands of the new information technologies and systems. For instance, the Human Resource and Development of Canada found that the impact of computer-based technologies in Canadian firms, created only high-skilled jobs while most of the jobs that were eliminated were low skilled jobs (McMullen 1996). Also, for example, the proportion of the unemployed that has been permanently laid off has increased from an average of 38 percent per year in 1976 to almost 48 percent in 1995 . In addition, despite the fact that overall, average tenure remains unchanged, the proportion of jobs lasting less than 6 months has increased significantly over the last fifteen years – from 46 percent of all jobs over the 1981-85 period to 54 percent over the 1991-94 period . Rifkin, too, noted that the only new sector emerging is the knowledge sector, made up of a small elite of entrepreneurs, scientists, technicians, computer programmers, professionals, educators, and consultants. While this sector is growing, it is not expected to absorb more than a fraction of the hundreds of millions who will be eliminated in the next several decades. Furthermore, there is a very high correlation between technology and skill level, where firms with higher technology employ more highly skilled workers (Black 6, 1998) while leaving the low skilled workers unemployed.
As unemployment is increasing, it seems that trade unions can do nothing about it in the face of rising globalization. In the past, trade unions were able to do what they have been doing all their lives: to fight for job security, out of competition wages, favourable and safe working conditions, health care, and education and training for their bargaining units. But unions at this level are seeing much of what they have achieved being undermined by global financial and industrial decisions. The union s bargaining and collective rights to increase employment and the quality of employment are slowly being eroded by multinational corporations because governments simply do not have the power they use to.
All the issues raised could not have surfaced without the favouring conditions for a liberalisation of barriers. Critics attack the Neo-liberal theory of free trade and liberalization of markets because it assumes that from liberalized trade, there will be full employment since workers displaced from some job move to others. They claim that this model is clearly unrealistic in the context of the high and rising rates of unemployment in many advanced countries, including Canada. Unemployment may be the result of the theory s macro-economic policies, but it is nonetheless the context in which liberalization of free trade and investment has been taking place.