Making globalisation pay

By Khaled Diab

Big corporations are using the banking crisis as an excuse for exploiting cheap labour. Is it time for a global minimum wage?

4 February 2010

For beer lovers, Belgium is the nearest place to heaven on earth. The country's 125 or so breweries produce an estimated 800 standard beers, each of which is served in its own distinctive glass. This mushrooms to nearly 9,000 when special editions are included.

Given this ocean of booze, you would expect that the temporary loss of a handful of beers would cause hardly a ripple. In a country where beer receives the kind of appreciation reserved for wine in other cultures, the recent threat to supplies of some of Belgium's favourite tipples captured headlines and caused distress.

The “Beer Crisis”, as it became known, was caused by striking workers blockading three breweries owned by the world's largest beer giant, AB InBev, which, among other things, produces the popular but bog-standard Stella Artois and the more upmarket Abbey beer Leffe.

The immediate cause of the blockade was AB InBev's plans to trim its Belgian workforce by 300 (with another 500 to be scrapped in the UK, Germany, the Netherlands and Luxembourg), ostensibly because of falling beer consumption in western Europe.

Despite the inconvenience to the beer-drinking public, most Belgians are sympathetic with the strikers. “We're with the strikers,” declared one regular at a café in Halle. “If the beer flows dry, that is only a relative problem.”

This is because, InBev (previously known as InterBrew), though it is admired for raising the global profile of Belgian beer, has become infamous for its cavalier attitude towards its workforces, which have endured several ‘restructurings' in recent years to cut costs, while the management pays itself lavish bonuses, engages in expensive prestige acquisitions (such as the US makers of Budweiser), and exports jobs to countries where labour is cheaper.

Faced with this public relations disaster and the loss of market share to smaller breweries, InBev's management has backed down for the time being and the blockade is being lifted.

Workers at the nearby Opel plant in Antwerp have not been so fortunate. Despite an offer of a €500 million bailout from the Flemish government, and voluntary pay cuts agreed by the unions, troubled US car giant GM has decided to close the 85-year-old Antwerp plant, axing 2,600 jobs in the process. The decision is all the more puzzling because the plant still turns a healthy profit.

It seems that InBev and GM are taking advantage of the current financial crisis. Both are shifting jobs to countries where labour is cheap, while GM seems to be subsidy shopping and has successfully pitted the German government against the Belgian government.

And they are not alone. With their massive revenue streams and the mobility to shift their assets rapidly, countless multinationals have used globalisation to hold governments to ransom and stack the global trading system unfairly in their favour by ‘outsourcing' their operations to so-called low-cost countries while selling their output in higher-cost wealthy countries.

So what can be done to curb this kind of corporate excess and greed and put a brake on this undignified race to the bottom?

One idea could be to develop an international minimum wage and integrate the concept into the architecture of the World Trade Organisation, especially since the Doha round of trade talks is ostensibly aimed at triggering sustainable development. What could be more sustainable for the global economy than affording all workers a decent income?

But, even assuming that WTO member states can muster up the political will to set such a global standard – after all, both rich and poor countries would have their own reasons for opposing it – attempts to set an international minimum wage would face umpteen practical hurdles.

For example, if you set it as an absolute amount, what would you take as your reference? Universalising, say, western European levels would be unaffordable for developing economies and unfair to European workers who have to contend with some of highest costs of living in the world.

Instead, we could determine a minimum standard of living to which all workers should be entitled and use that to calculate a fair wage for each country using purchasing power parity. However, given the magnitude of global income disparities, this would disadvantage local companies in poorer countries who, compared with multinationals, do not possess the resources to pay such wages – nor can the domestic markets they cater for absorb the extra cost.

So, until we have true global economic convergence, it would be far better to start the process of fairer trade at home, and more strictly regulate our multinationals. Today's giant corporations are often likened to small countries. However, there are important differences: they are not tied down by geography and, given the paucity of international regulations, they can get away with practices that would be considered unscrupulous or even illegal in their home territories.

Just as the vast majority of developed economies from which most multinationals hail have minimum wage systems in place, it's time global corporations were made to apply similar practices in their overseas operations in poorer countries.

In addition to an absolute rock bottom wage which they cannot go below, multinationals should be obliged to implement an indexed salary system in which workers in their overseas operations cannot earn less than, say, half of what a worker doing a similar job in their home territory earns.

Complaints are bound to be heard about how this interferes with the efficient functioning of the free market. But I doubt CEOs and top managers would be so blase if it was their own jobs that were to be outsourced. I'm sure India and other developing countries are teeming with intelligent, capable entrepreneurs who could probably do a better job than many of our current crop of avaricious business leaders, and at a fraction of the cost.

Besides, the free market already functions inefficiently – the rich domestic markets of multinationals are still quite well-protected fortresses. And, though we may have freer movement of goods and services than in the past, the movement of labour is severely restricted. In a truly free market, workers would go where the best-paying jobs are, rather than the jobs going to where the worst-paid workers are.

More importantly, at its core, economics is about human wellbeing and if free-market orthodoxy fails to deliver on this, then something needs to be done to balance efficiency against ethics.

This column appeared in The Guardian Unlimited's Comment is Free section on 31 January 2010. Read the related discussion.