Race to the Bottom
from the book
When Corporations Rule the World
by David C. Korten
published by Kumarian Press, 1995
While competition is being weakened at the core, it is intensifying
among smaller businesses, workers, and localities at the periphery
as they become pitted against one another in a desperate struggle
for survival. What the corporate libertarians call "becoming
more globally competitive" is more accurately described as
a race to the bottom. With each passing day it becomes more difficult
to obtain contracts from one of the mega-retailers without hiring
child labor, cheating workers on overtime pay, imposing merciless
quotas, and operating unsafe facilities. If one contractor does
not do it, his or her prices will be higher than those of another
who does. With hundreds of millions of people desperate for any
kind of job the global economy may offer, there will always be
willing competitors. Faced with its own imperatives, the core
corporations can do little more than close their eyes to the infractions
and insist that they have no responsibility for the conditions
of their contractors.
Descriptions of the working conditions of millions of workers,
even in the 'modern and affluent" North, sound like a throwback
to the days of the early industrial revolution. Consider this
description of conditions at contract clothing shops in modern
affluent San Francisco:
Many of them are dark, cramped and windowless.... Twelve-hour
days with no days off and a break only for lunch are not uncommon.
And in this wealthy, cosmopolitan city, many shops enforce draconian
rules reminiscent of the nineteenth century. "The workers
were not allowed to talk to each other and they didn't allow us
to go to the bathroom," says one Asian garment worker . .
. Aware of manufacturers' zeal for bargain-basement prices, the
nearly 600 sewing contractors in the Bay Area engage in cutthroat
competition-often a kind of Darwinian drive to the bottom....
Manufacturers have another powerful chip to keep bids down Katie
Quan, a manager of the International Ladies Garment Workers Union
in San Francisco, explains, "They say, 'If you don't take
it, we'll just ship it overseas, and you won't get work and your
workers will go hungry.'"
In 1992 a [Department of Labor] investigation of garment shops
on the U.S. protectorate of Saipan found conditions akin to indentured
servitude: Chinese workers whose passports had been confiscated,
putting in eighty-four-hour weeks at sub-minimum wages.
The line between conditions in the South and the North as
defined by geography becomes ever more blurred. Dorka Diaz, a
twenty-year old textile worker who formerly produced clothing
in Honduras for Leslie Fay, a U.S.-based transnational, testified
before the Subcommittee on Labor-Management Relations of the U.S.
House of Representatives that she worked for Leslie Fay in Honduras
alongside twelve- and thirteen-year-old girls locked inside a
factory where the temperature often hit 100 degrees and there
was no clean drinking water. For a fifty-four-hour week, she was
paid a little over $20. She and her three-year old son lived at
the edge of starvation. In April 1994, she was fired for trying
to organize a union.
When the black women who toiled over knitting machines in
a Taiwanese-owned sweater factory in South Africa for fifty cents
an hour made it known that with the election of Nelson Mandela
they expected "a union shop, better wages and a little respect,"
the Taiwanese owners responded by abruptly closing their seven
South African factories and eliminating 1,000 jobs. Low as the
wages were, the cost of labor in South Africa is twice that of
labor in Brazil or Mexico and several times that in Thailand or
China. Noting that prospective foreign investors have turned wary
of South Africa, the New York Times suggests, "There are
doubts about the Government's long-term commitment to capitalism,
about whether Mr. Mandela can contain the expectations of the
impoverished majority." In the world of big money and multimillion-dollar
compensation packages, greed is a worker who wants a living wage.
In many Southern countries, to say that conditions verge on
slavery is scarcely an exaggeration. China has become a favorite
of foreign investors and corporations seeking cheap labor and
outsourcing for offshore procurement at rock-bottom prices. Business
Week described the prevailing conditions of Chinese factory workers:
In foreign-funded factories, which employ about 6 million
Chinese in the coastal provinces, accidents abound. In some factories,
workers are chastised, beaten, strip-searched, and even forbidden
to use the bathroom during work hours. At a foreign-owned company
in the Fujian province city of Ziamen, 40 workers-or one-tenth
of the work force-have had their fingers crushed by obsolete machines.
According to official reports, there were 45,000 industrial accidents
in Guangdong last year, claiming more than 8,700 lives.... Last
month ... 76 workers died in a Guangdong factory accident.
Although the Chinese government reportedly is trying to tighten
up on standards, it has faced enormous problems of unemployment
since its decision to free up market forces. Tens of millions
of rural workers are streaming to the cities. Urban unemployment
stood at 5 million in mid-1994, a 25 percent increase in a year.
Two million workers lost their jobs in Heilongjiang province in
1993 alone. Millions more urban workers face pay cuts, and half
of the government-owned enterprises that employ approximately
half of the urban workforce are losing money, creating prospects
of massive layoffs and plant closings. Government efforts to tighten
up on standards in this "free-market miracle" are also
hampered by skyrocketing rates of crime and corruption.
In Bangladesh, an estimated 80,000 children under age fourteen,
most of them female, work at least sixty hours a week m garment
factories. For miscounting or other errors, male supervisors strike
them or force them to kneel on the floor or stand on their heads
for ten to thirty minutes.
It isn't only in the garment industry. In India, an estimated
55 million children work in various conditions of servitude, many
as bonded laborers-virtual slaves-under the most appalling conditions.
Each child has his or her own story. A few months after his rescue
from forced labor, Devanandan told a reporter that he had been
coaxed to leave home by a promise of wages up to $100 a month
for working at a loom two hours a day while going to school. When
he agreed, he found himself locked up in a room where he ate,
slept, and was forced to work knotting carpets from four in the
morning till late evening for pennies in pay.
Former Indian Chief Justice P. M. Bhagwati has publicly testified
to observing examples of boys working fourteen to twenty hours
a day: "They are beaten up, branded [with red-hot iron rods]
and even hung from trees upside down." The carpet industry
in India exports $300 million worth of carpets a year, mainly
to the United States and Germany. The carpets are produced by
more than 300,000 child laborers working fourteen to sixteen hours
a day, seven days a week, fifty-two weeks a year. Many are bonded
laborers, paying off the debts of their parents; they have been
sold into bondage or kidnapped from low-caste parents. The fortunate
ones earn a pittance wage. The unfortunate ones are paid nothing
at all. The carpet manufacturers argue that the industry must
have child laborers to be able to survive in competition with
the carpet industries of Pakistan, Nepal, Morocco, and elsewhere
that also use child laborers.
As we rush to enter the race to the bottom in a globally competitive
world, it is sobering to keep in mind just how deep the bottom
is toward which we are racing.
The Limits of Social Responsibility
Within the apparel industry, a few socially concerned firms
such as Levi Strauss, Esprit, and The Gap are attempting to live
by their values. They are proving that a responsible, well-managed
company need not tolerate the worst of the conditions described
above, but they face the same competitive pressures as others
in their industry. Almost inevitably, such firms find themselves
developing split personalities. In the end, they finance their
public good works and the good pay and conditions of their headquarters
staffs by procuring most of the goods they sell through contractors
that offer low wages and substandard working conditions.
Consider specifically the case of Levi Strauss, a company
widely acclaimed as a leader in the realm of corporate responsibility.
In April 1994, the Council on Economic Priorities gave Levi Strauss
an award for its "unprecedented commitment to non-exploitative
work practices in developing countries." In 1984, the company
was named one of the hundred best companies to work for in America.
In June 1992, Money magazine ranked it first among all U.S. companies
for employee benefits. Bob Haas, chief executive officer (CEO)
of Levi Strauss, was featured in the August 1, 1994, cover story
of Business Week titled "Managing by Values," which
emphasized his belief that social responsibility and ethical practice
are good business.
In 1985, Bob Haas, as CEO and a member of the Levi Strauss
family, led a $1.6 billion leveraged buyout of the company, taking
it private specifically to prevent a takeover by outside speculators.
The fact that 94 percent of the stock is in Haas family hands
has given the company more flexibility in maintaining its social
commitment than a publicly held company might have in an era of
Under Haas's leadership, Levi Strauss has set strict standards
with regard to the work environment. As evidence that they mean
it, the Levi Strauss board of directors voted unanimously to close
out $40 million a year in production contracts in China in protest
of human rights violations. When the company found that its contractor
in Dhaka, Bangladesh, was hiring girls as young as eleven as full-time
seamstresses, it worked out an agreement by which Levi Strauss
would continue to pay the wages of these girls while sending them
to school and paying for their uniforms, books, and tuition. When
they reach age fourteen, the minimum employment age set by International
Labor Organization standards, they will return to work. By the
standards of the industry, Levi Strauss is a candidate for sainthood.
But it is sobering to see how constrained even a Levi Strauss
Although Haas asserts that Levi Strauss has made every effort
to keep as many of its production jobs in the United States as
possible, during the 1980s, it closed fifty-eight U.S. plants
and laid off 10,400 workers. According to Haas, if the company
had made its decisions on purely economic grounds, its remaining
thirty-four production and finishing plants would all have been
closed in favor of overseas production.
Even at its plants in the United States, the core-periphery
phenomenon is evident. When the authors of The 100 Best Companies
to Work for in America visited the Levi Strauss plant in El Paso,
Texas, they found that Money magazine had ranked the company number
one on the basis of the benefits enjoyed by its headquarters staff,
not by staff at its plants. The benefits received by the El Paso
production workers were little different from the marginal conditions
at other local textile factories. The authors decided not to include
the company among the 100 best in the book's revised edition.
We have focused here on U.S.-based multinationals, because
their dysfunctions seem to be spreading through the world like
a cancer. By way of 1994, a binge of corporate restructuring in
Europe, similar to that in the United States, had pushed Europe's
unemployment rate to 10.9 percent. Even these rates, high as they
are, may mask a much deeper dysfunction. In Belgium, unemployment
was 8.5 percent in 1992, but 25 percent of the workforce was living
on public assistance. Persistent joblessness is resulting in growing
social unrest, exacerbating racial tensions, and sparking a vicious
backlash against immigrants. Joblessness is especially acute among
youth, whose unemployment rate s twice that of the general population
and still rising. On March 25, L994, 50,000 students marched down
a Paris boulevard, "taunting police and chanting slogans
demanding jobs." A survey of 3,000 European teenagers found
them "confused, vulnerable, obsessed with their economic
Pointing out that the unemployment rate in Europe has averaged
about 3 percentage points higher than in the United States, The
Economist cautioned "no trade barrier will keep out the technological
changes hat are revolutionizing work in the rich world; and a
trade war is sure o destroy more jobs than it saves. It counseled
Europe to respond by emulating the United States to reduce the
social safety net benefits that give the unemployed little incentive
to seek work," minimum wages that cost young workers their
jobs," employer social security contributions hat reduce
demand for labor, and "strict employment-protection rules"
hat discourage firms from hiring by making "it hard, if not
impossible, ~ lay off workers once they are on the payroll."
To those who point out hat the quality of jobs in America has
deteriorated as a consequence f such policies, The Economist has
a ready answer:
Too many [of the jobs being created in America], say the merchants
of gloom, are part-time, temporary and badly paid. The real wages
of low-skilled workers have fallen over the past decade. Yet in
comparison with Europe, this should be seen as a sign of success,
an example-of a well-functioning labor market-not a failure. As
manufacturing has declined, America and Europe have both faced
shrinking demand for low-skilled labor. In America, the relative
pay of these workers was allowed to fall, so fewer jobs were lost.
European workers, by contrast, have resisted the inevitable and
so priced themselves out of work."
In short, Europe's unemployment problem is a result of overpaying
the poor, taxing the rich, and imposing regulations on European
firms that limit their ability to get on with serious downsizing.
The Economist editorial pointed to moves by various European countries
to reduce minimum wages, cut payroll taxes, and loosen employment-protection
laws as signs of hope for Europe. Business Week offered similar
To ensure it remains competitive once the down-cycle wanes,
Europe must be willing to see more of its low-value-added manufacturing
jobs move to Eastern Europe and elsewhere.... And it must reduce
farm subsidies while continuing to hammer away at high wages and
corporate taxes, short working hours, labor immobility, and luxurious
social programs. If Europeans don't follow these prescriptions,
this recession may be doomed to be more than just a cyclical one....
Putting up trade barriers will only insulate Europeans from the
discipline they need to maintain.
Although they are running a bit behind the United States,
the evidence suggests that European companies and governments
are increasingly heeding this advice, which means that the unemployment,
racial tension, and social unrest currently plaguing Europe are
almost certain to spiral upward. We may presume that The Economist
will then praise Europe for its success.
Although Japan, with unemployment below 3 percent, continues
to be the full-employment champion of the industrial world, there
is evidence that the commitment there to lifetime employment has
begun to break down and that a growing number of Japanese are
experiencing the pinch of joblessness. A series of economic shocks
has leaf Japanese managers to look to the United States for lessons
on increasing efficiency. According to Michael Armacost, former
U.S. ambassador to Japan:
Japanese business leaders-who just a few years ago thought
they had nothing further to learn from us-are examining American
business practices with renewed interest and emulating some with
interesting results.... Daiei, one of the country's largest chain
stores, says it will seek to reduce retail prices by 50 percent
over three years.... Wal-Mart Stores recently established links
with two of Japan's supermarket chains.... Japanese executives
are now studying America's experience with corporate downsizing,
merit-pay packages and investment practices.
Armacost goes on to urge American trade negotiators to focus
on pushing for regulatory reforms to accelerate these processes.
With or without U.S. tutelage, it is already happening. Domy
Co., a discounter, is importing Safeway cola for sale in Japan
at forty-seven cents a can, undercutting the price of local beverages
by 55 percent. It sees great potential for imports of Safeway
lemon-lime soda, cookies, and bottled water. The Japanese government
has relaxed size limits on new retail outlets as well as limits
on store hours and business days- with the consequence that retailers
are seeking the wide-open spaces of the suburbs, and strip malls
are springing up throughout the countryside. Retailers are turning
to cheap imports, with China as a preferred source. The burgeoning
discount retailers have become the darlings of the Japanese stock
market. Faced with price cutting based on low-cost imports, Japanese
companies have been restructuring to increase their efficiency.
In January 1995, an accord was announced between the United
States and Japan under which U.S. investment houses would have
the right to participate in the management of Japanese pension
funds. Wall Street investment managers may soon be positioned
to give the Japanese lessons in their home territory on the money
game, predatory finance, corporate cannibalism, and managed competition.
The trend toward concentration in the retail sector is spreading
rapidly to other countries, partly as a consequence of changes
in trade rules that open domestic markets to the large retail
chains. On January 14, 1994, only two weeks after the North American
Free Trade Agreement (NAFTA) went into effect, Wal-Mart announced
its move into Canada, which began with the purchase of 120 Woolco
discount department stores from Woolworth Canada. Business Week
called it "a full-scale invasion of the Canadian market."
Investors rushed to sell holdings of Canada's major retail chains,
which were believed to be ill-equipped to meet Wal-Mart's price
competition. Canadian retailing consultant John Winter predicted
that by the late 1990s, "half of the Canadian retailers you
see up here now may not be in business.
With the signing of NAFTA, U.S. retailing giants were poised
to quickly "conquer retailing" in Mexico as well, but
according to Business Week, "Mexico's army of bureaucrats,
steeped in protectionist habits, is plaguing them with mountains
of paperwork, ever changing regulations, customs delays, and tariffs
of up to 300 percent on low-priced Chinese imports favored by
the discounters. Mexico thought that it had a free-trade agreement
with the United States to become the major low-wage supplier of
the U.S. market. It seems to have balked when confronted with
the reality that U.S. retailers intended to use NAFTA to open
Mexico to goods produced by even lower paid Chinese workers.
The complaints of the U.S. retailing giants aside, we might
conclude that the Mexican government showed better sense in putting
up a few roadblocks to slow the assault of the mega-retailers
than it did in spending millions to promote NAFTA in the first
The dream of the corporate empire builders is being realized.
The global system is harmonizing standards across country after
country- down toward the lowest common denominator. Although a
few socially responsible businesses are standing against the tide
with some limited success, theirs is not an easy struggle. We
must not kid ourselves. Social responsibility is inefficient in
a global free market, and the market will not long abide those
who do not avail of the opportunities to shed the inefficient.
And we must be clear as to the meaning of efficiency. To the global
economy, people are not only increasingly unnecessary, but they
and their demands for a living wage are a major source of economic
inefficiency. Global corporations are acting to purge themselves
of this unwanted burden. We are creating a system that has fewer
places for people.
Corporations Rule the World