International Program on Urban Governance

Inequity in Newly Industrialized Countries

Essay

Student: Cosmin George Chitu

January 2013

1. Prologue

Before starting my analysis of inequity in newly industrialized countries I want to explain some of the reasons that encouraged me to take a different perspective. I do not by any means claim that theories like the flying geese model are bad in nature. I also do not have the required academic background in economics that would allow me to criticize such theories in an objective way so I will limit my inquiry only to those aspects of life over which I have a better understanding. I do believe that there are some biases in what concerns the current views over questions like economic growth. First of all it is very common to look upon the GDPs and draw conclusions about a certain countrys economic situation and make predictions. However this method does not reflect the way in which the revenues are being distributed. If a small percentage of a nations population triples its profits in one year while the rest of the population registers no increases, the GDP will point out economic growth. In this sense the gaps between classes are becoming more and more obvious. The causes generating these facts are too many to be discussed in this paper so I will focus only on one: the way foreign companies profit (and sometimes exploit) due to developing countries desire to attract FDIs. Another bias is the relation between the academic sphere and social reality. Nowadays due to the evolution of IT and ICT the quantity of information accessible to vast numbers of individuals is amazing. From this point of view we live in a truly unique period of human history. This process should translate in an increased awareness and in some regards this statement is true. People all over the world are starting to realize that the current situation is by far the best and in some extreme cases they act in violent ways. However there is a maintained cognitive discrepancy between researchers, academics, intellectuals on one hand and the ones who are the main victims of inequity. How much can we accomplish by looking at numbers and developing new theories? Im not saying it is a bad thing. As humans our defining characteristic is our capacity to think and create. Nonetheless, in my

own personal view, I think the academic environment (especially the humanities related fields of research) tends to place itself in a metaphysical state of perceiving things where conclusions, even if they are based on the existing realities, are filtered through a wide array of methodologies, debates and opinions and this whole process can sometimes fail to genuinely represent the ones who are being studied, quantified and inserted into statistics. This is why I believe that the real stories lie somewhere behind the numbers and outside the think tanks or universities. The world can be experienced in many ways, more enjoyable by some and more tragic by others. The purpose of this paper is to find a balance between different perspectives.

2. Genesis of inequity

Inequity has been part of human civilization since its primitive beginnings. The long history of violence, domination, enslavement and racism stands as a proof for inequity among people. It is true that things are nowadays much better compared to the past. Overall quality of life has increased significantly in the last two centuriesat least in developed countries. Health care systems have evolved a lot and they can provide quality services to a large number of people. Working conditions are regulated all over the world and the standardized 5 day workweek is a norm. Transportation is cheaper and more accessible than it was before. So is information. Technology is also helping us live a better life. We can say that in many aspects our era is the indeed superior. However the rapid industrialization of the past century that continues today has some negative outcomes. Pollution, depletion of natural resources, ecologic disasters, social inequity, subsiding spirituality and the overall dehumanization of consumers all of these are just some of the effects of economic development. Of course some things have been there long before humanity entered the era of Industrial Revolution. Social inequality has been a defining trait of all civilizations. We might claim that due to the evolution of political thought and

the support of capitalists systems, the issue of social disparities is less obvious nowadays than it used to be. And this is true for those living in developed countries. However, for the rest, the situation is different. If we look as the world today we can see that there is still a long way to go until we reach a fair state of existence for everyone. For now around 1.2 billion people still live in extreme poverty1. It has become almost normal to believe in the normality of the current situation. Members of the affluent societies have little understanding of how they are influencing the current state of affairs and how much they contribute to maintain alive this paradigm. A cheap imported product in a developed country translates into a low wage in a developing country. And sometimes even if the product is not so cheap, the manufacturer will seek to minimize the production costs as much as possible. And usually the best way to do this is to look for those places where the labor force and resources are cheap and the law can be easily avoided through corruption. Different economic tools are used to do so. It can be about a states desire to attract FDIs and thus establish Special Economic Zones/Export Processing Zones or it can be a loan granted by an international financial organization that will allow certain large corporations to enter developing countries and exploit their resources. This kind of practice is best described by John Perkins in his book Confessions of an economic hitman (2004). He unveils the process in which large corporations with the support of the US government and financial institutions like the World Bank try to indebt developing countries and afterwards force them into giving them the rights to exploit local resources. In a way it doesnt even matter so much what methods are being used to lower the production costs. As Naomi Klein puts it: From El Paso to Beijing, San Francisco to Jakarta, Munich to Tijuana, the global brands are sloughing the responsibility of production onto their contractors; they just tell them to make the damn thing, and make it cheap, so there's lots of money left over for branding. Make it really cheap. (2000; 150) The idea is that the current global economic system cannot survive if all the countries are equally developed. To constantly sustain an increasing consumption there has to be an

This refers to those who live under the international poverty line of $1.25 a day.

imbalance between developed countries and developing ones. And this fits best the large corporations who outsource their manufacturing process (or some services like customer support) and sell their products/services in more prosperous countries.

3. Rise of corporations

Peter Chowla describes in his article Comparing Corporate and Sovereign Power (2004) how the world economy is currently dominated not by countries but rather by multinational companies. He did a comparison between the worlds largest 100 entities by annual revenue (billion dollars, 1999) using as sources data from the World Bank - 2004 and Fortune magazine - 2000. The results, as seen in Table 1, are striking, with only 29 countries figuring in the list of the top 100 international entities in terms of revenue. The G7 countries and Brazil managed to outpace all corporate actors, but firms outnumber sovereigns 29 to 21 in the top 50. Even some OECD countries, such as Greece Ireland, did not rank in the top 100, while other new OECD members such as Hungary and the Czech Republic have lower revenues than the top 200 corporations. Only four developing countries made into the top 200, those being the ones with the largest populations (China, India, Indonesia and South Africa); while a handful of middle-income countries Brazil, South Korea, Mexico, Iran, Poland, Turkey, Israel, Russia and Argentina ranked within the top 200. Only 33 nations placed in the top 200 entities in the world in terms of revenue (Chowla, 2004; 3-4) It is indeed an intriguing result that shows how much financial power the big companies actually have. What is even more important is the fact that compared to governments, multinational enterprises have no responsibility in what concerns the welfare of the people. Of course there is the concept of Corporate Social Responsibility however this is, in my view, more like a marketing tool rather than a genuine strategy to improve peoples lives. In a way it is supposed to be like that. The role of a company is to grow and raise its stock

market value in order to bring profits to those who own it. Nonetheless it is a quite frightening to realize that nowadays companies are surpassing states in terms of finances. The fact that the majority of governments rank far below the top 200 corporations in revenue and that about half of them have absolutely no access to capital markets is a sobering indication that these sovereigns are likely to have little influence in the international arena as compared to multinational corporations. (Chowla, 2004; 5) It is a novel paradigm and it is an incipient one. This is why the outcomes are yet to be understood. Some of the negative effects are already visible and they range from massive ecological disasters in developing countries where large oil and mining companies operate/operated to the infamous sweatshops where major clothing brands had they apparel manufactured. These extreme cases stand as a proof that sometimes money comes first and there some enterprises have a lack of remorse when it comes to the quality of other peoples lives. So when it comes to economic growth there are some moral questions involved: is it all worth it? Can we make a trade-off between industrialization and the demise of more humanistic values? Is profit more important than our own planet? I think answers can very a lot as people from more developed countries fail to see beyond the numbers. Being materialistically rich doesnt mean your life is better. Developed countries like Japan, South Korea or Hungary have some of the highest suicide rates in the world which makes us reconsider the benefits of living in a rich country. The consumerist society has become the backbone of capitalism. We are all encouraged to constantly contribute by buying things we dont actually need. The perpetual cycle of producing, selling and buying is what keeps the world spinning. However I believe we are spinning in the wrong direction. Some people still believe that it is rightful to exploit others as long as their lives are being improved a little bit. It is sad that there are people who think its all right for sweatshop workers to work for 14 hours a day for a few dollars than to do nothing at all. This kind of rhetoric is widely spread in the West and by instilling a feeling that its better to have an extremely low paid job than have none at all, people unconsciously become accomplices to those companies that use less ethical methods to make profits.

4. Pilipino Case Study

In her book No Logo (2000) Canadian author Naomi Klein offers a realistic image of how industrialization can be used as a tool for modern slavery instead of helping societies develop. She takes a closer look at those Export Processing Zones spread all over the world. Created with the intention of attracting foreign direct investments, these designated areas offer a wide range of advantages for those companies willing to outsource their production and thus help catalyze the industrialization of hosting countries by bringing in the much needed technology. The theory behind EPZs is that they will attract foreign investors, who, if all goes well, will decide to stay in the country, and the zones' segregated assembly lines will turn into lasting development: technology transfers and domestic industries. To lure the swallows into this clever trap, the governments of poor countries offer tax breaks, lax regulations and the services of a military willing and able to crush labour unrest. To sweeten the pot further, they put their own people on the auction block, falling over each other to offer up the lowest minimum wage, allowing workers to be paid less than the real cost of living. (Klein, 2000; 157) In a sense these areas, even if they belong to a certain state, are extracted from the local taxation framework and act as a different legal entity. Combined with corruptible authorities this can lead to abuses and exploitation. And it did happen in many cases: in the Philippines, Sri Lanka, Malaysia, Vietman, India, Bangladesh, China and many other countries. Its not only in Asia South America has its share of scandals on this topic. The most surprising thing is that even if the international companies get caught they can easily continue by generating a system of contracting outsourced manufacturers. These manufacturers can subcontract on their own and this leads to a chain reaction. When all the delegated producers compete with each other to win contracts and they lower their prices as much as they can. And the ones who suffer the most are the workers who are required to work in improper conditions and become victims of harsh regulations that allow

the subcontractor to abuse its employees and fire them when they are dont obey. Because unions or strikes are forbidden, the workers have no means to change this unfair system. In Sri Lanka for example it is illegal to do anything that might affect the countrys exports. Even the freedom of speech is being suppressed as criticizing the situation is forbidden. One famous case is the Cavite Export Processing Zone in the Philippines. The Cavite Economic Zone or Cavite Export Processing Zone (CEPZ) comprises 275 hectares of land encompassing the towns of Rosario and General Trias in the province of Cavite. It is located 30 km south of Manila. It became active in 1995. This is a world of its own where some of the workers live in shanty towns scattered around the zone and the rest live in bunker-style dormitories which are basically renovated pigpens because the structures are part of a converted farm. The whole industrial complex hosts more than 380 factories of which only a fraction pay taxes. Even if the area has the highest per capita investment in all of the Philippines the city that is legally responsible for that zone Rosario cant even provide the basic needs for its population like proper water supplies or health care services. All the companies who have their products manufactured there are saving huge amounts of money while the municipality cant afford to clean up the mess that the factories leave behind. This is a tragic paradox because the governments consider the problems in the export factories as a matter of foreign trade policy, not a labor-rights issue. Because of that they are willing to turn a blind eye to all the abuses. It is a sad thought realizing that those who are supposed to protect their own people allow such unethical practices. In one instance a 35 year old woman, mother of five died after working after working every day for 14 hours. Her name was Carmelita Alonzo and she was employed by V.T. Fashion. This company is a Taiwanese invested garment factory located in the Cavite Export Processing Zone in Rosario. The company produced skirts, jackets, dresses, short pants, vests, and blouses for the Gap, Guess, Jones New York, Eddie Bauer, May Co, Macy, Liz Claiborne, Ellen Tracy, Head, Benetton, Ruff Hewn, LeQ, Chachi, Ralph Lauren, and Banana Republic. (Greenfield, 1997) She worked as a seamstress and she was denied to take a medical holiday after she requested it due to suffering from pneumonia. She developed an infection in her lungs after working the whole day in high temperatures during day time and then continuing her tasks

in the night when the climate got colder. She was hospitalized and died after 11 days. She received only 155 pesos (at that time - 5.96US$) as the daily minimum wage. Its needless to say that this some was not enough to cover even the basic needs of her family. Curiously, less than a month after her death the factory where she worked was burnt down in a fire. Workers were made to work from 7 am to 9 pm during weekdays, 7 am to 7 pm on Saturdays and 6 am to 2 pm on Sundays. Rest periods were usually an hour during lunch time and 30 minute in the afternoon. Less than half of the workers were regular workers. Most were employed on 3 to 4 month "apprenticeship" contracts or as contractual workers with employment contracts of only 5 months. Others were employed on 6 month contracts. (Greenfield, 1997). Having uneducated and unexperienced workers from rural areas is a plus for foreign companies because it is harder for them to understand their own rights. And because they are kept in a controlled environment where they have to obey very strict regulations (in some cases even smiling was forbidden) the idea of organizing themselves in unions is a kind of utopia. And even in the rare cases when these workers manage to form syndicates there is another problem unemployment. The company might pack its equipment and leave for a better place where the labor force is cheaper and unorganized. This is why companies usually prefer to hire unmarried young women because it is easier to control them. V.T. Fashion factory had 1046 workers and 90% were women aged 17-30. In her book Factory Girls: From Village to City in a Changing China (2008) Leslie T. Chang depicts in minute details the lives of 3 female workers who work in the worlds largest textile factory - Dongguan in China. Even if the conditions are way better than in some EPZs it is a very interesting biographical work. The psychological pressure of living and working in such factories is extremely high. Suicides are not uncommon and when a woman gets pregnant the best thing to do is to get an abortion in order to avoid getting fired. These are the tragic outcomes of globalization. In order for a fraction of the worlds population to prosper the rest of the planet is pushed into misery. The Philippines' experience of "industrialization in brackets" is by no means unique. The current mania for the EPZ model is based on the successes of the so-called Asian Tiger economies, in particular the economies of South Korea and Taiwan. When only a few

countries had the zones, including South Korea and Taiwan, wages rose steadily, technology transfers occurred and taxes were gradually introduced. But as critics of EPZs are quick to point out, the global economy has become much more competitive since those countries made the transition from low-wage industries to higher-skill ones. Today, with seventy countries competing for the export-processing-zone dollar, the incentives to lure investors are increasing and the wages and standards are being held hostage to the threat of departure. The upshot is that entire countries are being turned into industrial slums and low-wage labour ghettos, with no end in sight. As Cuban president Fidel Castro thundered to the assembled world leaders at the World Trade Organization's fiftieth-birthday celebration in May 1998, "What are we going to live on?... What industrial production will be left for us? Only low-tech, labour-intensive and highly contaminating ones? Do they perhaps want to turn a large part of the Third World into a huge free trade zone full of assembly plants which don't even pay taxes?" (Klein, 2000; 159)

5. Conclusions

Living in a global economy that becomes more and more dependent on large corporations and seeing some of the negative outcomes should make us think about the situation no matter what our profession of educational background is. When politics and private financial interests collide usually the results are not for the best of those who should benefit. I refer here to the people who end up living in poisoned environments or work in subhuman conditions. It is a harsh reality however being aware can make a difference. By understanding what is the real price for developed countries to maintain their level of development we can see how unequal the world actually is. We must not ignore the fact that some of the products in our closets or some components in our digital devices were manufactured by low paid workers who can only dream of living the lives we have.

50,000 workers at the Yue Yen Nike Factory in China (Dongguan) would have to work for nineteen years to earn what Nike spends on advertising in one year. Wal-Mart's annual sales are worth 120 times more than Haiti's entire annual budget; Disney CEO Michael Eisner earns $9,783 an hour while a Haitian worker earns 28 cents an hour; it would take a Haitian worker 16.8 years to earn Eisner's hourly income; the $181 million in stock options Eisner exercised in 1996 is enough to take care of his 19,000 Haitian workers and their families for fourteen years (Klein, 2000; 148)

I am not in the position of offering solutions because I dont have any. I can only hope that things will change for the better as people gain more access to information and raise their awareness. Weve seen how the Internet and social media help oppressed people all over the world to unite and change their governments. Weve seen the Arab Spring, Occupy Movement, the protests in Turkey and Egypt and now we see how Ukraine is trying to change for the better. Its a sign of hope and a sign that people are no longer willing to accept the current situation. We are all seeking a better life however some of us need it more than others. As long as we continue understanding the unfairness of our current state we are on the right path. I believe that the solutions are not in statistics and numbersI believe that the answers in us and we only need to look harder in order to find them.

Bibliography

Leslie T. Chang (2008) Factory Girls: From Village to City in a Changing China, New York: Spiegel & Grau . Peter Chowla. (2004). Comparing Corporate and Sovereign Power.Journal of the Development Studies Institute. 1 (1), 1-5. Naomi Klein (1998) No Logo: Taking Aim at the Brand Bullies , Great Britain: Flamingo 2000. Pedro Olinto, Kathleen Beegle, Carlos Sobrado, and Hiroki Uematsu. (October 2013). The State of the Poor: Where Are The Poor, Where Is Extreme Poverty Harder to End, and What Is the Current Profile of the Worlds Poor?. Economic Premise. 125 (1), 1-8.

Online sources & Youtube videos:

Gerard Greenfield (2014) Codes of Conduct and Carmelita: The Real Gap, Available at:http://www.corpwatch.org/article.php?id=3030 (Accessed: 17 January 2014 )

http://www.youtube.com/watch?v=D2PRrNyCYuQ http://www.youtube.com/watch?v=V2kBWpSWmPg http://www.youtube.com/watch?v=9Qzm7MCusGM http://www.youtube.com/watch?v=M5uYCWVfuPQ http://www.youtube.com/watch?v=sEm7nsD-xBk http://www.youtube.com/watch?v=Fve0xjEyk4U