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22 Mar 2016

Ruth Kelly, Programme Policy Manager, ActionAid UK

Workers’ rights must be protected in the face of low-value activities with slim profit margins

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Firms in emerging sectors tell us that they often struggle to move into higher-value, higher-profit activities. In developing countries, companies are competing to offer very similar products or assembly services at lower and lower prices, and in low-technology manufacturing, the easiest way to reduce costs is to reduce wages.

Pressure to supply assembled cheap goods fast and flexibly makes it difficult for suppliers to improve conditions and increase wages. If they increase their prices, buyers are likely to change their sourcing arrangements, buying from cheaper suppliers elsewhere. This undermines the potential to improve workers’ rights in global supply chains.

We know that firms in developing countries often have dubious human rights records. Yet barriers to growth and profitability for medium-sized firms have a negative impact on job creation and workers' rights. Without decent profits, how can firms pay workers higher wages?

ActionAid's new report, What a Way to Make a Living, reflects on two years of engagement with medium-sized firms in Bangladesh, Uganda and Vietnam. In doing so, we have developed strong relationships with chambers of commerce in each of these three countries, holding joint events and carrying out research together.

Keen to join global value chains, countries like Bangladesh have pursued a model of economic development that depends on the exploitation of millions of women, forced to work in terrible conditions for little pay.

In September 2015, garment workers in Dhaka told ActionAid that jobs are scarce and employers hire at their own discretion, often recruiting on the basis of age and physical appearance. Far from offering job security and the opportunity for promotion, the garment factories provide young women with work for only 10 to 15 years of their lives.

While the garment workers we spoke to confirmed that they were getting paid the minimum wage, they also told us that their employers were funding increases in profit by cutting the number of staff on the factory floor. This means that workers now have more to do in the same amount of time, and they often end up working longer hours.

In Vietnam, new trade deals are likely to lead to a major shift in the country’s economy, away from producing machines and motorbikes and towards mass production of cheap clothes and shoes. In its burgeoning export sectors, "mostly young female workers join the labor force with non-livable wages and substandard working conditions." The increasing focus on low-pay assembly work exposes Vietnamese workers to the same commercial pressures as the women we interviewed in Bangladesh. As low-value activities become less profitable, more and more profit is associated with activities like design and marketing, which tend to be located in the global North. Intellectual property rules shore up global players' advantage in these activities, making it difficult for new players to enter the market.

ActionAid calculations show that a single fashion designer in the US, paid USD $6,133 a month on average, earns more than the combined monthly wages of 27 garment workers in Asia.

When an entire economy is characterised by low-value activities with slim profit margins, and when that economy is competing against other countries offering the same goods at lower prices, the prospects for improving workers’ rights are poor.

As living costs rise and factory workers start going on strike to demand higher wages in China and elsewhere in Asia, many analysts have suggested that sub-Saharan Africa should welcome factories seeking to relocate to where they can get away with paying workers much less. But industrialisation in Uganda and elsewhere must not and need not be based on the exploitation of women and men living in desperate poverty.

ActionAid's report argues that developing countries need robust industrial and labour policies to support domestic firms to grow in a way that generates more and better jobs.

The international community needs to make sure that trends in the structure of the global economy don't stop them.