Who captures the gains of global trade?

Global trade is a hot topic in the UK right now. Queuing to buy a coffee, or out Christmas present shopping, there is a buzz about the news that some multi-national corporations do not pay corporation tax in the UK. People are asking whether there is an ethical amount that corporations should pay in tax. They question whether it’s fair that some companies are able to exploit rules. I am heartened; people are stopping to think about global trade and ethics.

Their conversations chime with the focus of the Capturing the Gains global summit, which I was privileged to attend in early December.  Hosted in the South African capital of Cape Town, this two-day event brought together representatives of global companies, international organisations and donors, such as the World Bank, the UN Conference on Trade and Development, the UK’s Department for International Development, academics, trade unions and NGOs.

We were there to discuss the latest research produced by Capturing the Gains, an international research network housed at the Brooks World Poverty Institute at the University of Manchester. This research looks at global trade, from the perspective of global value chains. A key focus is to understand who ‘captures the gains’ from these value chains.

Historians might tell us that global value chains, in the form of trade in spices, precious materials, and commodities, have existed for centuries with ‘winners’ and ‘losers’. However, what we see today is a much more complex set of supply chains. Components and part-assembled items may cross borders a number of times, becoming subject to delays and differing standards and scrutiny, whilst attracting different tariffs. At the same time, major global companies are key actors in driving trade and investment according to their needs and demands. This list includes global brands, retailers and traders, whose revenue sometimes dwarfs the economies of many countries.

Some key considerations emerged for me during the Cape Town summit. The first relates to the inbuilt assumptions that are made about global trade; assumptions that I believe need to be continually challenged. We most often hear about trade through the familiar narrative of macro economics. If this were a drama, then the lead characters are multi-national corporations, major nations and international institutions. These actors are engaged in a complex and intricate plot that involves trading agreements, negotiations, compromises, losses and wins. The bit part players and extras are the suppliers and workers at the other end of the supply chain.

While the macro lens is important, it runs a real risk that the impact of trade for workers at the base of global supply chains is lost. Aggregate statistics that purport to demonstrate the shared value of improving trade, reducing inefficiencies and stimulating growth too often hide the inequities that are perpetuated. This is in part due to the traditional imbalance between rich established and small emerging nation states, and their differing abilities to research and promote an agenda which they see as in their best self interest. It also reflects the difference between companies with a global reach, and local suppliers.

There is another factor within the prevailing economic model that creates inbuilt inequalities – the behaviour of dominant firms. Within a particular economy, such firms will always seek to act in the best interests of their shareholders and business performance. Without confident and capable counterparts that represent government, local competitors, suppliers, small scale producers and workers, dominant firms are almost always going to set the agenda in their favour, whether intentionally or not.

Like any drama, the extras don’t get to debate the plot. In our case, workers’ voices are largely absent in discussions that affect how trade gains are shared.  While there is no doubt in my mind that workers in emerging markets and the global south can benefit from increased trade and investment in industries, this is not automatically the case. The well documented global trend is that a greater share of wealth is attracted to the profits of companies, rather than those who provide their labour. This trend suggests that in the current system, workers are not capturing the gains of trade as well as those they work for. The Capturing the Gains research clearly shows that the lack of meaningful worker involvement in global value chains is a key factor in why poor people in many countries do not enjoy the benefits of global trade.

ETI’s own work revolves around the rights of workers. The key word here is rights. Internationally established labour rights should be respected as a given, and not viewed as a gift.  Central to this is that workers are able to participate in decisions that affect them, negotiating with management and acting as a defender of international standards. A very practical expression of this is that where workers are able to fully participate, child labour is eliminated and work place hazards are reduced.

The Capturing the Gains work has started an informal dialogue about workers in global supply chains, and how global trade can better benefit them. This is the conversation I want to be continuing over my morning coffee.