1.2.7 In praise of cheap offshore labour?
Claims over the benefits of globalisation and the exploitation of cheap offshore labour generate strong feelings and, not surprisingly, divide opinion between those who favour the global marketplace and its detractors. The issue turns on whether the constant search for ever-cheaper manufacturing and service locations is seen as a good or a bad thing. It may appear odd, at first, to suggest that exploiting the poor of another country can, on any measure, be regarded as a good thing, but Paul Krugman (1997), the well-known US trade economist, and Martin Wolf (2004), the chief economic commentator of the Financial Times, argue that it is short-sighted not to believe so. In an article entitled ‘In praise of cheap labour: bad jobs at bad wages are better than no jobs at all’, Paul Krugman set out the broad argument:
The only reason developing countries have been able to compete with the [developed world] is their ability to offer employers cheap labour. Deny them that ability, and you might well deny them the prospect of continuing industrial growth, even reverse the growth that has been achieved. And since export-orientated growth, for all its injustice, has been a huge boon for all workers in those nations, anything that curtails that growth is very much against their interests. A policy of good jobs in principle, but no jobs in practice, might assuage our consciences, but it is no favour to its alleged beneficiaries.
(Krugman, 1997, p. 4)
Krugman accepts that workers in poor countries who produce goods for the already privileged of this world are paid very little. But he argues that, wherever these re-export industries have taken hold, there has been an identifiable improvement in the lives of ordinary people. In part, this is because the outside firms seeking to source their operations at a lower cost almost invariably pay more than local companies. They do so, he points out, not because they are of a more generous nature, but simply to entice workers to move to their factories, from the surrounding rural areas or wherever. An Indonesian woman, for instance, perhaps one of those in Figure 8 , leaves her family and the countryside to sew clothes for Nike to earn the higher wages and is better off financially than the members of her family that she left behind. As more firms move work to the area – this time, say, a Taiwanese or a Hong Kong firm – factories start to compete with one another for workers, and wages are bid up as the pool of available labour is absorbed. Krugman describes this as a ‘ripple effect’ through the economy as wages rise steadily and the country moves out of abject poverty to something that, while far from wonderful, is certainly a measurable improvement on livelihoods that were available before.