China Blues: Capitalism, Corporations and Human Rights
Western corporations and economists regularly promote the idea that trade with China has had, and will have, a civilizing effect on the institutions there. As adjunct scholar Stuart Anderson writes:
“U.S. corporations act as a liberalizing force, helping to strengthen the private sector, establishing alternative centers of power, and creating subtle but important pressures for democratic reforms. They also tend to raise wages and labor standards in the countries in which they operate.”
Regardless of the merits of the statement, Anderson as a former director at the Cato Institute is hardly an unbiased scholar. The Cato Institute is a libertarian think tank headquartered in Washington, D.C. by Charles Koch, chairman of the board and chief executive officer of the oil conglomerate Koch Industries, Inc.
Western companies have already had an impact on China's civil society. They have increased business standards and demanded a legal infrastructure. Continued economic liberalization is sure to raise business standards further and help cultivate an institutional infrastructure based on the rule of law. The changes will occur first in the non-state sector (especially in the southern coastal provinces) and then spread throughout China as competition and openness become the norm.
Progress is a pleasant idea. Moreover it is a nice favor for us to bring our profound concepts to the Chinese. However, given my suspicious mind, I couldn’t help wondering if there could be another side to it.
It is no great secret that corporations have been attracted to China mainly because of its nearly unlimited supply of cheap labor. In effect, labor becomes a national commodity and China plays a key role in setting global wage norms. As an article for the Institute for Policy Studies explains:
It is the linchpin of what Morgan Stanley chief economist Stephen Roach has called “global labor arbitrage” in which corporations move from one labor market to another to take advantage of cheaper labor. The result is a global “race to the bottom” in which workers and their communities are put into competition with each other to see who can provide the lowest-cost labor and the most corporate-friendly conditions. According to Roach, this global labor arbitrage is also now acting as “a powerful structural depressant on traditional sources of job creation in high-wage countries such as the United States.
That much has been understood for quite some time and it has led to CEOs decrying the fact that American workers are too demanding and require a higher wage than their Chinese counterparts. They argue that the excessive demanded organized labor has made the United States an undesirable place to do business.
Still, it seemed interesting that so many powerful groups would rise up against one particular reform bill.
‘Complicity, Campaigns, Collaboration and Corruption: Strategies and Responses to European Corporations and Lobbyists in China’, Globalization Monitor, published in 2010 exposed a slightly different, slightly sinister aspect.
Despite the professed concern for human rights in China, Western transnational corporations have been more than willing to relocate production. Moreover, they have actively used both their economic and political clout to work against proposed improvements to the Chinese labor laws. So while preaching the benefits of Western corporate involvement in China, EU and US corporations have been freely attempting to influence Chinese legislation.
Given recent events in Wisconsin, the methods are strikingly familiar.
A 2010 report from the Hong Kong-based NGO Globalization Monitor revealed how lobbying tactics have been adapted to Chinese circumstances and the concept of guanxi (connections or personal ties). Developing the personal touch with government agencies is of crucial importance, building trust and offering favours, which often crosses the line into full-blown corruption.
The American Chamber of Commerce (ACC) and the European Union Chamber of Commerce in China (EUCCC) have played a key role in lobby efforts. When the Chinese government sought to review its labor laws in 2006, primarily to introduce the right of workers to have contractual agreements, the two coalitions lobbied against any improvements in labor protections.
Acting through the American Chamber of Commerce in Shanghai, Wal-Mart and other corporations, including Google, UPS, Microsoft, Nike, AT&T, and Intel were squarely against the Draft Contract law.
US based corporations have repeatedly argued that they are raising human and labor rights standards abroad. For example, the American Chamber of Commerce in Hong Kong asserts among its “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.”
But US based corporations are trying to block legislation designed to improve the remuneration, treatment, health and safety, and other standards of Chinese workers.
Business is attracted to China not only because of its labour costs but also because of its efficiency. If regulation starts to affect that and flexibility, then companies could turn to India, Pakistan and South-East Asia.
A subtle threat for Chinese authorities? When international unions howled at the lobbying, the resultant media attention forced the European Chamber of Commerce to backtrack somewhat.
In a detailed report “Behind the Great Wall of China” Global Labor Strategies, a newly formed non-profit organization, undertook a closer examination into both the law and the corporations’ objections. Not surprisingly, they found that the protections found in the law under discussion were the very ones that would have made a real impact on the rights of workers.
For example, foreign corporations would prefer to maintain the present system which has created a large underclass of worker with no rights.
Access to labor rights and benefits—however limited—depends on the existence of a written labor contract signed individually or collectively by workers and companies.
Another provision of the law would have allowed workers greater ease in changing jobs. Before the law, an employer could penalize workers if their bosses determined that the worker had access to proprietary knowledge; secret information specific to the corporation, such as, chemical formulas and processes.
The problem, of course, is that the employer was free to decided what was and what was not “propriety.”
Among other provisions in the bill that the coalitions protested against included
- Limited probationary period
- Payment for training
- Severance payments
- A pathway from temporary to permanent work
- A fair system for lay-off
The US-China Business Council writes, “It is not feasible to state that an employer’s regulations and policies shall be void if they are not adopted through negotiation with the trade union. . . . Requiring the consent of the trade union before such changes can be made is overly burdensome and may prevent important company policies from being implemented in a timely manner. . . Final authority and responsibility for company policies should rest in the hands of the employer.”
However, China’s legislature rejected the pleas and the threats from foreign investors and their lobbies and passed the new labor law in June of 2007 Still, the unions and independent observers agree that, due to the lobbying, the final laws were watered-down. In the end, regardless of the legislation on the books, the core problem will be enforcement and implementation.
Said Ellen David Friedman, a U.S. labor organizer who's worked with developing trade union groups in China, "U.S. corporations have used their considerable power and influence there to weaken the labor laws that are being proposed. They are in essence acknowledging that what they have liked about doing business in China is the very, very cheap labor and the low level of enforcement."
Since the law was approved, however, Chinese authorities seem intent on enforcing the protections. Surveys by Western chambers of commerce of executives show growing disenchantment in the last year and a sense that doing business in China is growing harder.
Along with the labor laws, China has also filed more than a dozen trade cases to limit imports, imposed a series of “buy Chinese” measures and limited exports of some minerals to force multinationals to move factories to China.
The multi-national executives have decided that the Chinese government was not so easy to intimidate. The executives are beginning to worry Chinese policy makers are becoming increasingly convinced that, given the shocks in the banking systems in the West in comparison to the expanding Chinese economy, Western policies of free trade and open markets do not work as well as previously thought, and that new industrial policies are worth trying. A New York Times article, regarding the concerns of foreign investors in China, states:
“They say, ‘Don’t show us broken models; we’re looking for a completely different way,’ and you see a much greater willingness to experiment with completely untested policies,” said a senior executive at a multinational who insisted on anonymity for fear of retaliation by Chinese regulators.