The Global Division of Labour

The globalization of societal life looks back upon a long history (O’Rourke and Williamson 2002; Osterhammel and Petersson 2006; Stearns 2009). Our present time excels, however, in having made globalization a first-rate topic of social science research, public debate and politics. Among many other themes, the distribution of affluence in the world is of special importance. The unequal distribution of affluence worldwide has become an ever more significant problem for global politics since the end of the Second World War at the latest (Sen 1992, 1999). A variety of territorial and cross-national conflicts can be ascribed to the unequal distribution of affluence worldwide (Senghaas 2004). For the time being, international terrorism is fed to a considerable extent by the worldwide inequality as regards participation in global affluence. In the course of time, an extremely unequal level of development has been attained in the world’s different regions (Shorrocks and van der Hoeven 2004; Kanbur and Venables 2005; Nederveen Pieterse and Rehbein 2009; Peet and Hartwick 2009; Kremer et al. 2010). Compared with 1950, the global gross national product (GNP) per capita increased to 250 per cent its value by 1992 (adjusted by purchasing power).

Global free trade is generally considered the dynamic force of unleashing entrepreneurial profit maximization. The businesses operating on the world market are released from national restrictions of social partnership and public responsibility. Production is shifted to countries with the lowest wage level and the lowest social standards. Alongside this building up of production in low-wage countries, production sites are closed in high-wage countries. This development is accompanied by a growing pressure on wages and indirect labour costs. A race to the bottom seems to develop, reducing affluence and social standards in the high-wage countries without involving a perceptible building up of affluence and social standards in the low-wage countries at the same time. Whereas the national welfare state has subjected economic profit maximization to moral regulation, global free trade seems to imply a complete liberation of the economy from any moral restrictions. Nevertheless, this argument applies only inasfar as the national welfare state’s morality is taken as standard. It is, however, an in-group morality whose reverse side is an out-group morality excluding the mass of the world population from the affluence of the rich countries (Weber 1927: 356).

The liberalization of trade all over the world is among the most far-reaching forces of social change in our time, and it is also a much debated one. On the one hand there is the promise of increasing wellbeing for the whole world, while there is the fear of rising inequality, social disorganization, loss of cultural diversity and ecological damage on the other. The literature reflects this tension between optimistic and pessimistic views (see e.g. Tayne 2005; Hertel and Winteres 2006; Shale 2011; Hudson et al. 2013; Dunn 2014; Shields 2014). Global free trade need not inevitably trigger a race to the bottom in social standards but it can potentially broaden the scope of social standards not only in the industrialized nations of the world but also in developing countries. However, it forcibly brings about a structural transformation in which national and transnational integration are accommodated and a shift occurs in investment from a non-productive (consumptive) to a productive use of financial resources. In this context we will not examine how the structure of social policies changes within this framework in the industrialized countries of the world in general and the European welfare states in particular.

Studies carried out by Dollar (1992), Sachs and Warner (1995) and Edwards (1998) have demonstrated a long-term significant and positive correlation between openness and economic growth. A study conducted by Greenaway et al. (2002) arrives at the same conclusion but refers to the timelag of effects exerted on economic growth by trade liberalization. Rodriguez and Rodrik (2001) criticize those studies because of their weak empirical foundations and econometric flaws. One critical point is the appropriate operationalization of openness. Because openness entails more aspects than trade alone, it is required to take into account also the openness of financial, capital and labour markets. Measuring openness by the percentage of imports and exports in the GDP implies a problem of endogenousness, according to Rodriguez and Rodrik (2001). In their eyes, the growth of trade may be more a consequence than a cause of economic growth. Frankel and Romer (1999), as well as Irwin and Terviö (2002), address this problem by extending their equations. They instrumentalize, for example, openness with size of population and size of country, as well as distance between trade partners. According to Rodriguez and Rodrik (2001), this strategy entails the problem of the instrument’s correlation with other variables in the equation that exert an influence on economic growth independent of trade.

The debate about the international division of labour, coming along with expanding world trade, has gone through a number of phases characterized by dominant definitions of the situation since the 1950s (cf. Held et al. 1999). At the beginning, economic development theory and sociological modernization theory expected continuous advancement of developing countries along the tracks of the industrial countries as a result of capital inflow and educational upgrading of the population. In the 1960s, 1970s and 1980s, Dependencia theory pointed to the unequal terms of trade, and world systems theory to the shift of exploitation to the relationship between capitalist core countries and developing peripheral ones. The outcome should be increasing inequality between industrial and developing countries (Sunkel 1969; Cardoso and Faletto 1979; Hopkins and Wallerstein 1982). On the tracks of the Uruguay Round of the GATT and its successful transformation into the WTO in 1994, the teaching of free trade in the tradition of Adam Smith (1776/1952) and David Ricardo (1817/1977) has become the dominant position. From this perspective, each participating country should benefit from global labour division (Bhagwati and Hudec 1996).