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In 2006 the Fair Labor Association released a study based on unannounced audits of eighty-eight factories in eighteen countries and found an average of eighteen violations in each—of excessive hours, underpay ment of wages, health and safety violations, and worker harassment. The association cautioned that this number was probably far too low as “factory personnel have become sophisticated in concealing noncompliance related to wages. They often hide original documents and show monitors falsified books.”

Auditing is important, but it is not enough. “What’s critical,” Locke said, “is rule of law.” There is a clear correlation between the purchasing power of a nation’s citizens and the power of the rule of law in that country: Countries with better incomes are more lawful, and countries with lower incomes are less so. “All studies show that when rule of law strengthens, working conditions improve,” Locke said. “So the United States might be wise to work with [low wage] nations to improve their rule of law,” and working conditions, presumably, will follow.

But logic does not link rule of law with low price. Indeed, the preferred option for many multinationals is to relocate to countries where there is little or no rule of law, where workers have little or no leverage. Some argue this trend may look bad to Western eyes, but that it has greatly benefited workers in China, India, Vietnam, and other low-wage countries. Ira Kalish is director of Global Economics and Consumer Business for Deloitte Research. “A lot of people criticize the labor standards in places like China as unacceptable,” he told me. “But they have to compare these to the lives migrant workers led before they came to the factories. The point is they are moving one rung up the ladder.”

Certainly there is truth to this argument. Life in rural China is extremely difficult and the flight from the countryside remarkable: In 1978 only 18 percent of Chinese were urban dwellers; by 2008 that figure had leaped to 40 percent. China’s rural population suffers from shortages in health care, schools, and opportunity. Chinese farmers on average are poorer than city dwellers, at least in cash. Most Chinese leave their farms not because anyone forces them to but in pursuit of a better life in the city or to earn money to send back home to sustain relatives in their native village. Influential New York columnist and old Asia hand Nicholas Kristof put it bluntly: “Anyone who cares about fighting poverty should campaign in favor of sweatshops.” In January 2009, Kristof wrote that Cambodia has “pursued an interesting experiment by working with factories to establish decent labor standards and wages. It’s a worthwhile idea, but one result of paying above maker wages is that those in charge of hiring often demand bribes—sometimes a month’s salary—in exchange for a job. In addition, these standards add to production costs, so some factories have closed because of the global economic crises and the difficulty of competing internationally.” Kristof reminds us that just a century ago the United States suffered similar growing pains on its march toward industrialization and prosperity.

Such arguments, while compelling, tend to oversimplify historic events. Workers’ rights in this country were forged in a crucible that was highly visible to consumers. The Triangle Shirtwaist fire of 1911, the worst workplace disaster in the history of New York City for ninety years, ignited the American labor movement for the very reason that the victims of this tragedy were within sight of other Americans, most of them workers themselves. It is this identification that led to the strikes, riots, and union efforts that forced reform. But the thousands of similar tragedies killing and injuring workers in Cambodia, China, and other low-wage countries happen out of sight—and out of mind—of the American and European consumers who purchase the fruits of their labor. All we see is the price, and few of us stop to think about how it got to be so low.

Robert Pollin, a professor of labor economics at the University of Massachusetts at Amherst, does not agree with Kristof and other observers that sweatshops are a necessary stage in the growth of developing economies. Sweatshops, he said, are thuggery and a form of theft. “It’s a complete failure of imagination to say that the choice is between sweatshops and starvation,” he told me. “Are we saying that a country is better off with no labor standards, no rights? The cost of wages matter; the cost of labor matters.” Yes, better treatment of workers does lead to increased production costs, as Kristof states, but this should not deter us from insisting on improvements. Pollin has done the math and calculated that increasing the wages of, for example, apparel workers in Mexico by 25 or even 30 percent would raise the price of a shirt in the United States by 1.2 percent. That is, a 30 percent increase in wages for the workers results in a leap in price of a $20 shirt to $20.24. Surveys indicate that most American consumers are willing to accept this additional cost without fuss, especially if they understand the reasons for it. So far, several small producers have taken up the challenge, but few multinationals have been willing to put it to the test.

University of Michigan political scientist Mary Gallagher told me that in China laws are increasingly more attentive to critical social problems but that they are likely to fail at the implementation and enforcement stages. The reason, she said, is foreign demand for low price. “The American manufacturers, like Nike and Reebok, do not own their factories,” she said. “They use Chinese suppliers and try to get them to comply with labor and environmental standards. But they also insist on very low prices, so the profit margins are very thin. This makes it nearly impossible to raise wages or benefits or improve working conditions, and the workers get really squeezed.”

Like IKEA, which claims to demand legally harvested wood but won’t pay a premium for it, American companies claim to demand social responsibility of their suppliers but aren’t willing to pay the price to make it happen. Basic economic principle dictates that when workers refuse to work at a given wage, the wage should go higher. But this principle does not hold true in a global economy. In China when workers make too many demands, factories can simply move inland, sometimes building new factories on farmland confiscated for the purpose by the Communist Party. Political economist Jeff Riedinger, dean of International Studies and Programs at Michigan State University and a specialist in Asian agriculture, has studied the migration of farm workers to the city. When we spoke he said that in China land grabs are common, and their impact can reach far beyond the individual farmers involved.

“What happens is that local governments collude with outside investors in order to build a housing subdivision or a factory and essentially steal the land,” he said. This is supposed to happen only for “public purposes,” but this rule is not enforced. In the best cases, the farmer is reimbursed for his land, and the village is better off. In the worst cases the farmer gets nothing or his land is “redistributed,” giving the farmer a bit of everyone else’s land so that he can start anew. Unfortunately, this reduces the land holdings of all farmers, sometimes making every farm in the village nonsustainable. Land grabs make poor farmers feel even more insecure, and even less likely to make long-term investments in their farm. When farmers see their plots shrink, they have little choice but to send their children to work in factories—at any wage. This vicious cycle has poor farmers pouring into cities to make 41-cent shoes for Concord Enterprises, while the price of food in China rises due in part to the decline in farming.

Internationalism—the spread of economic exchange across geographic boundaries—is as old as human history. It exploded when seventeenth century colonial empires sailed the globe in search of raw materials and new markets. Colonies provided resources and sometimes human capital in the form of slaves. Today’s globalization is a variation of this inexorable trend, abetted by far more efficient communication and transportation systems. But contrary to the writings of Tom Friedman and others, the world’s playing field is not always flattened by this effort. Quite the contrary, in at least one sense it has become lumpier: More than 80 percent of the people in the world live in nations with growing income disparity. Urbanization made possible by world trade is no panacea: Slum growth is outpacing urban growth by a wide margin.

In 2001, China became the newest member of the World Trade Organization (WTO), signaling its full acceptance into the global economy. WTO rules require
unconditional
Most Favored Nation status (MFN) be granted to all its members. The U.S. endorsement of China’s entry into the WTO meant that Congress would no longer conduct an annual review of China’s status as a trading partner. Officially, then, the United States and other WTO members have endorsed China’s labor practices, upon which foreign corporations continue to build their own practices. Roughly two-thirds of the increase in Chinese exports over the past dozen years can be traced to non-Chinese-owned global corporations and their joint ventures—with Wal-Mart being the largest.

 

 

 

THE AMERICAN CHAMBER of Commerce in Shanghai (AmCham) and the U.S.-China Business Council, while publicly supporting China’s reforms, have quietly lobbied fiercely against them. Just a month after serious reforms were proposed in March 2006, AmCham sent a forty-two-page document to the Chinese government on behalf of its 1,300 members—among them Microsoft, Wal-Mart, Dell, Google, UPS, Nike, AT&T, Ford, and Intel—demanding a list of revisions and reversals of what it termed “rigid” regulations. Among other things, AmCham objected to rules making it more difficult to fire workers or to hire so-called temporary workers on multiple-year contracts. They objected also to guarantees that permanent workers have some sort of binding agreement of employment that ensures timely payment at a minimum rate. This final reform is particularly critical in China where labor law is predicated on written labor contracts signed either individually or collectively. In theory all workers in China are required to have contracts, but in reality untold millions of workers—in particular migrants—do not, leaving them completely vulnerable to exploitation and abuse. Without a written contract, Chinese laborers have no evidence that they are employed, and employers can simply deny their existence.

Laced throughout AmCham’s objections were thinly veiled threats to curtail investment and hire fewer workers in China if the new law was implemented. The strategy worked. According to a lawyer who represented American business interests: “Comments from the business community appear to have an impact. Whereas the March 2006 draft offered a substantial increase in the protection for employees and a greater role for union than existing law, [the new draft] scaled back protections for employees and sharply curtailed the role of unions.” Outraged global human rights organizations shamed some players—notably Nike and the European Union Chamber of Commerce—into reversing their stands. But AmCham held firm, and its tireless efforts weakened key provisions, sharply scaling back protections for employees and limiting the role of unions—this despite AmCham’s boast of “universal principles” that “American business plays an important role as a catalyst for positive social change by promoting human welfare and guaranteeing to uphold the dignity of the worker and set positive examples for their remuneration, treatment, health and safety.” Siva Yam, president of the U.S.-China Chamber of Commerce, summed matters up with some reluctance “As long as consumers are looking for the lowest possible costs,” he said, “[regulations are] not going to have a long-term impact.”

 

 

 

ROUGHLY 25 PERCENT
of the global workforce is now Chinese. Given such enormous firepower, China inevitably sets the norm for wages and working standards in the global supply chain. American corporate interests have chipped away at those standards and wages in order to maximize profits and influence, and to serve their shareholders. The chronic disregard for workers’ rights in China’s foreign-invested private sector threatens wages and working conditions around the globe, including the hard-won gains of American workers.

Labor scholar Robert Bruno, a political economist at the University of Illinois, has observed that most Americans tend not to think of themselves as “workers.” This demands some level of cognitive dissonance because most of us do work for a living. But in a society where salesclerks in discount stores are called “associates” and garbage collectors “sanitary engineers,” the term “worker” has lost meaning. Bruno is certain that this is no accident, and explained why in one of several conversations we had over many months.

“The Labor Department classifies 45 percent of Americans as ‘working class,’ but Americans all consider themselves part of the middle class. It’s hard in America to be working class. There has been such a concerted effort to ‘disappear’ that concept, to bury the very idea of the working class. If you compare our culture now with the 1930’s and 1940’s, there’s been an ‘erasure’ of the working class. Labor issues just aren’t talked about, not by most people. Take the newspaper. There’s a business section but very little about labor issues. There used to be a good number of labor reporters, but now I think there are about two. And kids don’t read about the labor movement in high school textbooks. And how many ministers preach sermons about the sanctity of labor on Labor Day Sunday? I can tell you: not many. We identify as consumers, as citizens, as members of a religious group or ethnic denomination. We get worked up about cultural issues—not work issues. We don’t identify around class, and that leads many of us to lobby against our own best interests.

“Corporate giants have become our heroes,” he continued. “We are so focused on the dream of wealth that we identify with billionaires, with whom we have nothing in common. Where fifty years ago we had labor identity that pit workers against management, today we have a system that pits worker against worker. And that includes workers in the United States against workers in the developing world.”