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High Road Value Chains

If you are very keen about pursuing down-to-earth offline MBA education on exiting the severe-acute-respiratory-syndrome-coronavirus-2-governed-contactless college education, then here is a challenging research question for you to address, which is the concern of this article.

How can value chains consistently achieve desirable outcomes such as wage growth, high workplace standards, and firm profitability for all the participants? In other words, can we have globalisation benefits by way of high road value chains?

To begin with, what are we talking about here?
We are talking about the value chains, which most economists do not talk about. A value chain refers to all the value-adding activities in the production and distribution linked together concerning the making and selling of a commodity, and a production chain, as a subset of the value chain, refers to the value-adding activities in the production of a commodity. Various industrial firms in the production chain are linked through contracting and subcontracting relations as also arm’s length purchase transactions, and these firms can be classified into a minority of lead firms and a majority of supply chain firms. Value chains exist within and across countries, and it is impossible to track down all the firms or producers in the production chains.

There are three perspectives to answer the above question.

The first is the multinational-led development perspective. According to this, global value chains can play a key role in socio-economic development (in terms of social amelioration along with industrial upgradation) if trade policy facilitates the actions of the multinational companies (MNCs ) that lead these value chains. Stakeholders in all parts of the value chain do best if trade agreements and national policies focus on ensuring lead firms a return on their investment in building out supply chains, by promoting a smooth flow of goods and services, low tariffs, and strong protections for intellectual property and other investments.

The second perspective is diametrically opposed to the first one. It is the race-to-the-bottom perspective that argues that multinational-led development creates conditions for sustained poverty and labour exploitation and compression. The fierce competition to enter global value chains means that firms that cut corners will generally win the contracts. The lead firms do not have incentives to promote the development of firms and workers at lower levels of their supply chains.

The third perspective is the in-between reformist perspective—neither the first nor the second—which points out that while global value chains do not automatically promote socio-economic development, a combination of trade agreements that protect worker rights and allow space for national development as also complimentary domestic policies that help establish and upgrade productive ecosystems can bring about desirable developmental outcomes. Consumer pressure and the private benefits of innovation do mean that lead firms have some incentives to invest in supply chain upgrading. A proper linking of public, private and social forms of governance of global value chains through international and domestic institutions can do the job of promoting mutual gains development for all the stakeholders.
In empirically examining the veracity of these three perspectives, five very difficult issues should be honestly dealt with.
First, note that for a long time, an under-researched area has been why the low road exploitation of labour continues (resulting in frequent labour troubles) despite technological and organisational innovations used in global value chains to bring about quality products at competitive costs. In other words, there is industrial amelioration without social amelioration. The Human Resource Management theories and the likes about worker empowerment and good incentives for total employee involvement to facilitate technological and organisational innovations like automation (fixed as also flexible), just-in-time production and inventory control, total quality management (including total preventive/productive maintenance), six sigma, value engineering, business process re-engineering, ISO certification and the fads and fashions of management deployed for manufacturing excellence in workplaces of value chains do not have empirical validity. How quality products are produced without the quality of employment in these value chains has, therefore, been a mystery that the factory engineers and managers have shunned for unravelling to the public concerned about humane production standards. Informal/non-regular workers are increasingly making up a greater and greater share of the workforce in almost all industries and all countries. The minimum wages are becoming maximum for most workers irrespective of experience and seniority. Many do not get even the minimum. There is increasing polarisation of working conditions under capitalist development. That means there is a degradation of work and working conditions for the vast majority of workers, and the upgrading of work only for a relative few.

Secondly, given that labour protests frequently keep flaring up in the value chains, it seems that any worthwhile scope for labour welfare enhancement in them, if at all it exists, lies in the labour movements in different countries and industries coordinating among themselves, from below, through concerted actions. This needs to be researched. Global and national governance, from above, of value chains (according to the reformist perspective mentioned above) in favour of decent work for the working people, may emerge out of the pressures created by the globally connected labour movements from below. History, after all, testifies to the fact that the state and the employers do not, on their own, create good employment conditions without pressures from the employees and the bitter struggles that they wage against all odds.

Thirdly, do industrialists and their top managers seriously utter the words like ‘cooperative labour relations’ or ‘worker empowerment’ or ‘total employee involvement? If so, what do these utterances really mean in their actions? Or, are these the utterances, on their behalf, of the Human Resource Management ideologues? If so, these propagandists should decipher these terms for us through honest empirical research. For, they are the high-society academics who have generated theories of innovative capitalism improving a lot of the workers inside workplaces through, inter alia, ‘long term relations’, ‘information sharing’, ‘gains sharing’, ‘union-free fair grievance redressal mechanisms’, ‘empowerment’ and the like evangelism. Are they just indulging in a fictitious promotion of social upliftment so that their careers might flourish from publications about uplifting the labouring masses?

Fourthly, are there any forces or institutions, if any, at work that are effectively influencing the businesses and governments to shed their narcissistic, megalomaniac, authoritarian and sectarian zero-sum games and the associated predatory philosophies and practices and assume responsibility for the whole of society including the working classes?

Fifthly, in a systems view of international business based on an integrated analysis of outsourcing/subcontracting, offshoring and foreign direct investment, it is proposed that the value chain/supply chain rather than the single firm should be taken as the basic unit of the analysis of strategic accrual of efficiency gains. However, such a welcome refinement in the analysis is useless for the sake of social upliftment unless three things from the viewpoint of labour are factored into the governance of value chains. The international lead firms (brands and contract manufacturers) for which the local units produce should be made equally responsible as employers along with local employers. They must be made equally responsible under labour laws for ensuring decent wages and working conditions and collective bargaining rights to workers. Moreover, the labour laws must be universally applicable to all workers including informal sector workers. Most importantly, there should be no invisible/illegal participant in the tiered structure of value/supply chains. As solidarity across the value chain in a particular country and international solidarity across the value chain in a particular industry is an important determinant for effective collective bargaining and effectiveness of the struggles for labour rights, the role of solidarity to challenge the socially disastrous movements of capital in search of cheap labour and cheap working conditions should be researched. How the countervailing power of labour can rise with the labour movements creating their national media in a context where labour has become invisible due to increasing corporatisation and monopolisation of the media with an in-built systematic anti-labour agenda, also needs to be researched.

How private governance (corporate codes of conduct and monitoring), social governance (civil society pressure on business from labour organisations and non-governmental organisations), and public governance (government policies to support gains by labour groups and environmental activists) can coalesce to become synergetic governance for economic as also social amendment of value chains is the million-dollar question for research and political action.

The question we began with, turns out, eventually, to be the question above.

Otherwise, we will always be back to square one, which is that there are efficiency gains of economic (industrial) upgrading in value/supply chains without ethical gains of social upgrading.

Let us not forget that we should normatively seek change in terms of realisation of the high road possibilities for all the stakeholders in the global value chains in the contemporary worldwide context of high road for some, and low road for many—high road for capital and low road for labour. What is the point of academics, businessmen, politicians and social administrators not resonating together the need and praxis for economic development with social inclusion?

What we positively see in the world as it is, is growth without inclusion. The voices covering it up have been reverberating—like banal and vulgar heavy-metal rock-music—and we have been tirelessly and shamelessly hearing them since long.

It is high time we bid farewell to those noises.

By Annavajhula J.C. Bose, PhD Department of Economics, SRCC

References Adrian Wood. 2001. Value Chains: An Economist’s Perspective. IDS Bulletin. 32 (3).A.J.C. Bose and S. Pratap. 2016. Value Chains and Worker Illfare: Some Comments. Business Analyst. 37 (1).Gary Gereffi and Joonkoo Lee. 2016. Economic and Social Upgrading in Global Value Chains and Industrial Clusters. Why Governance Matters. Journal of Business Ethics. 133.Mark Casson and Nigel Wadeson. 2013.The Economic Theory of International Supply Chains: A Systems View. International Journal of the Economics of Business. 20 (2).
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