8 Labour in the Global Economy:

challenges, adjustment and policy

responses in the EU

GIJSBERT VAN LIEMT

1 Introduction

Globalization, that catch word of our time, is provoking mixed reactions

in the industrialized world. Most see it as inevitable. Many defend it as a
positive phenomenon. Many others - workers in particular - are
uneasy about the effects it is having on them and feel defenceless, unable
to protect themselves against what they consider to be its negative
consequences.
Globalization, or the growing interdependence of national economies,
results from basically three groups of factors: (i) enabling factors - these
are principally faster, cheaper and more reliable telecommunications and
international transport; (ii) government policies to promote trade
liberalization and external capital liberalization; and (iii) corporate
strategies - today, companies both sell and purchase more abroad. They
sell more abroad through exports and through the relocation of activities
to principal markets or low cost production sites. They also buy more
abroad: the enhanced feasibility of splitting up production in stages has
made it easier to subcontract parts and components. International
subcontracting is assuming a prominent role in this.
Although globalization is in large part a spontaneous development -
there is little that can be done to influence the enabling factors and the
corporate strategies - it is also influenced by government policies.
Governments have wanted to lower barriers to international capital flows
and they continue to negotiate the lowering of external trade barriers. As
a rule, they do so after a careful assessment of the costs and benefits in
the belief that, on the whole, globalization is a positive phenomenon.
Economic integration enables a more efficient international division of

O. Memedovic et al. (eds.), Globalization of Labour Markets

© Springer Science+Business Media New York 1998
238

labour. More competition leads to a greater choice of goods and services

at competitive prices, thus contributing to a higher standard of living.
However, the shift towards globalization is not necessarily a smooth
process. It is often argued that by promoting external trade and capital
liberalization as a policy goal and by accepting globalization as a positive
phenomenon, governments must accept a degree of responsibility for
achieving an equitable outcome. Greater openness threatens activities
which are not competitive. Trade and capital liberalization demand
adjustments in the structure of production and employment. People and
resources shift or need to shift from slow to fast growing activities.
Roughly speaking, this occurs either within companies or through the
market. In the latter case, efficient capital markets ensure a smooth flow
of capital from declining to expanding activities. For workers, however,
the flow to expanding activities can be more problematic. Labour
markets are often not particularly transparent. It takes time for
information about new job opportunities to reach workers who are
redundant (or are about to become so). Many workers may need to be
retrained for new jobs and that also takes time. Furthermore, it may be
hard (or impossible) to retrain others.
The current unfavourable employment situation influences this
process in several ways. It may take much longer for people to find a new
job. Their new job may pay less well or have less favourable working
conditions. Or they may not find a new job at all.
Economists have tried to quantify the labour market and employment
effects of trade liberalization and of globalization in general. They have
found that, on the whole, the effects of these factors tend to be minor
compared with those of other factors such as changes in domestic
demand, technological change and changes in the supply of labour. But
the conclusions of these studies have not taken away the apprehension
that many people feel, as unemployment remains high, wages stagnate
and working conditions are under threat.
The liberalization of trade and capital flows has both a global and a
regional dimension. In the United States, recent concern about
globalization and its effects has to a large extent coincided with
discussions about the merits and demerits of the Free Trade Agreement
(FTA) with Canada and even more about those of the North American
Free Trade Agreement (NAFTA) with Mexico and Canada. Largely in
response to a loud public debate, a considerable body of research now
exists in North America on the likely effects, particularly the effects on
labour, of the FTA with Canada and NAFTA.' In Europe, however, there
has been much less research in this field. The for a long time quite upbeat
tone of reports issued by or on behalf of the European Union (EU) has so