Race to the Bottom Hypothesis

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ESRC Centre for Business Research, University of Cambridge Working Paper No. 279

By Professor Ajit Singh Faculty of Economics and Politics University of Cambridge Cambridge CB3 9DE Email: as14@econ.cam.ac.uk Tel: +44 1223 350434 Fax: +44 1223 740479


Ann Zammit Independent Consultant currently with UN Research Institute for Social Development

March 2004

This working Paper forms part of CBR Research Programme 2 on Corporate Governance

Abstract There is a protracted stalemate between rich (the North) and poor (the South) countries over the question of minimum labour standards in developing economies. This paper is a sequel to Singh and Zammit (2000). It considers afresh key issues in the controversy. While fully recognizing the moral, political and philosophical dimension of this complex issue, the paper concentrates on the central economic question of the “race to the bottom”. It emphasizes the difficulties of establishing labour standards in the vast informal sectors in developing countries and suggests that the ILO conventions 87 and 98 should be amended to properly reflect these concerns. It also argues that ILO core conventions should be broadened to include the right to decent living. The overall conclusion is that labour standards are important indicators of economic development but their promotion is best achieved in a non-coercive and supportive international environment such as that provided by the ILO.

JEL Codes: J80, J83, O10, F10 Keywords: Labour standards, Globalisation, Informal sector, Economic Development.

Acknowledgements This paper is forthcoming in Oxford Review of Economic Policy. The authors are grateful to the Editors and to two referees for their constructive comments. It is a pleasure to acknowledge the assistance provided by the CBR and the ILO for this project. The usual caveat applies.

Further information about the ESRC Centre for Business Research can be found on the Internet at the following address: www.cbr.cam.ac.uk

1. Introduction: The Context and the Current State of the Controversy The question of establishing minimum labour standards in developing countries as a foundation for globalisation raises complex issues in many dimensions – economic, political, moral and philosophical. The subject is also deeply divisive as it pits workers of the North (the rich countries) against those of the South (the poor countries). For the last twenty years the United States and a group of advanced countries, US trade unions, and the International Confederation of Free Trade Unions (ICFTU), have led a concerted campaign at GATT and subsequently at the World Trade Organisation (WTO) for instituting higher labour standards in developing countries. Developing countries have, however, resolutely opposed any discussion of labour standards at the WTO regarding these as thinly veiled protectionist devices.1 The labour standards at issue are those embodied in the various ILO Conventions (see Table 1). Of these, freedom of association and collective bargaining (Nos. 87 and 98), freedom from forced labour and discrimination (Nos. 29, 105, 111) and abolition of child labour (No. 138, subsequently amplified by the Convention Concerning the Elimination of the Worst Forms of Child Labour, Convention No.182), are regarded as the basic principles of the ILO. At the 1998 ILO conference, the Declaration of Fundamental Principles and Rights at Work, embodying the seven core conventions in Table 1, was unanimously adopted by the member states. By doing so, the nations of the world accepted the obligation to implement the core conventions by virtue of their membership of the ILO, whether or not they had ratified the conventions themselves. The Declaration, however, stated explicitly that labour standards should not be used for protectionist purposes. It...
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