Social Dimensions of Global Economic Integration

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WORKING
PAPER
SERIES
-
257
SOCIAL
DIMENSIONS
OF
GLOBAL
ECONOMIC
INTEGRATION
by
Sanford
M.
Jacoby
Sanford
M.
Jacoby
Professor
Anderson
Graduate
School
of
Management
University
of
California,
Los
Angeles
405
Hilgard
Avenue
Los
Angeles,
California
90024
Telephone:
310/206-6550
FAX:
310-206-2002
Associate
Director
UCLA
Institute
of
Industrial
Relations
Telephone:
310/825-1658
FAX:
310-825-0023
DRAFT:
August
1993
INBTITUTK
OF
INDU8TRIAL
RELATIONS
UNIVERSITY
OF
CALIFORNIA
L08
ANGELES
UNIV
SHELF

SOCIAL
DIMENSIONS
OF
GLOBAL
ECONOMIC
INTEGRATION
Sanford
M.
Jacoby
UCLA
August
1993
To
appear
in
S.M.
Jacoby,
ed.,
National
Labor.
Global
Capital:
Societal
Responses
to
Economic
InteRration
in
Asia.
Europe.
and North
America
(Oxford
University
Press,
forthcoming,
1994).

Chapter
1
"SOCIAL
DIMENSIONS
OF
GLOBAL
ECONOMIC
INTEGRATION"
Sanford
M.
Jacoby
We
live
and
work
in
a
global
economy;
world
trade
is
growing
faster
than
world
incomes.
Trade
can
dissipate
international
tensions,
but
it
is
equally
capable
of
intensifying
them.
Nations
feel
compelled
to
change
their
economic
and
social
policies
to
conform
to
global
patterns.
This
pressure
is
felt
particularly
by
labor
market
institutions
--
wage
structures,
workplace
practices,
social
insur-
ance,
and
labor
relations
--all
of
which
have
have
been
undergoing
major
changes
in
the
developed
nations.
The
changes
have
been
acceler-
ated
by
regional
trading
pacts
such
as
the
European
Community
(EC)
and
the
North
American
Free
Trade
Agreement
(NAFTA).
Greater
trade
has
been
accompanied
by
greater
mobility
of
capital.
Every
day
billions
of
dollars,
yen,
and
other
currencies
shuttle
instantaneously
across
the
planet.
To
attract
and
retain
fickle
investors,
nations
must
rely
on
their
physical
infrastructure
and
their
human
talents.
In
the
United
States
and
the
United
Kingdom,
both
formerly
world
leaders,
there
is
a
painful
awareness
that
neither
tal-
ent
nor
infrastructure
is
globally
competitive.
Nations
that
organize
work
differently
--
Germany,
Italy,
Japan,
Sweden,
and
others
--have
tricks
to
teach
the
old
leaders
about
deploying
human
talents
more
effectively
to
promote
cooperation
and
competitiveness.
This
introductory
chapter
provides
a
framework
for
understanding
the
issues
and
evidence
discussed
in
later
chapters.
It
reviews
major
trends
currently
under
way
in
the
advanced
nations,
beginning
with
the
impact
of
economic
globalization
on
labor
and
trade
unions.
It
proceeds
to
analyze
how
nations
have
responded
to
globalization,
differentiating

-Chap.
1
2-
between
external
strategies
(to
affect
labor
markets
in
other
countries)
and
internal
strategies
(to
make
their
own
institutions
more
competitive).
Finally,
this
chapter
discusses
cross-cutting
international
trends
including
the
substitution
of
economic
regional-
ism
for
economic
globalism,
a
growing
recognition
that
societal
coop-
eration
is
a
key
factor
for
ensuring
national
competitiveness,
and
the
widespread
decentralization
of
labor
relations
and
employee
involve-
ment.
I.
ECONOMIC
CHANGES
World
economic
growth
and
productivity
rose
rapidly
during
the
1960s
but
began
to
slow
in
the
1970s.
The
deceleration
continued
for
much
of
the
1980s
and
early
1990s;
some
regions
(such
as
Europe)
were
affected
more
severely
than
others
(such
as
East
Asia).
Despite
the
slowing
in
growth,
markets
became
increasingly
internationalized
in
the
1980s.
Trade
in
goods
and
services
grew
rapidly.
Meanwhile
capi-
tal
markets
transcended
national
boundaries,
a
remarkable
but
not
fully
intended
result
of
computer
technology,
"petrodollar"
recycling,
and
the
shift
from
fixed
to
floating
exchange
rates.
Growth
of
world
trade
and
finance
has
hastened
the
spread
of
multinational
corporations
(MNCs)
that
operate
in,
and
depend
on,
the
economies
of
many
world
regions.
Conversely,
MNCs
have
contributed
directly
to
market
globalization
via
their
foreign
direct
investments.
Foreign
investment
exploded
in
recent
years;
between
1983
and
1989
it
grew
more
rapidly
than
world
trade
itself.
{1}
MNCs
are
primarily
investing
in
North
America, Europe,
and
East
Asia,
although
investments
in
Latin
America
and
other parts
of
Asia
are
steadily
increasing.
How
the
receiving
nation
should
regard
such
investment
is
a
matter
of
controversy.
That
MNCs
create
jobs
is
not

-Chap.
1
3-
disputed;
the
issue
is
whether
they
create
good
jobs
and
whether
gov-
ernments
should
consider
a
company's
national
origins
when
giving
tax
and
trade
preferences.
Japanese
MNCs tend
to
maintain
ties
to
the
home
country.
Their
foreign
factories
rely
on
intermediate
goods
manufac-
tured
in
Japan,
thus
creating
a
link
between
foreign
investment
and
the
home
economy.
European
and
North
American
MNCs
tend
to
rely
less
heavily
on
home-country
suppliers.
For
example,
U.S.-based
Japanese
MNCs
import
to
the
United
States
nearly
three
times
more
components
(as
a
percentage
of
sales)
as
U.S-based
European
MNCs.
{2}
Once
the
hub
of
the
world
trading
system,
the
United
States
no
longer
is
the
dominant
figure.
Economic
power
has'
been
redistributed
toward
Europe
and
Japan.
Europe
now
holds
the
same
share
of
world
GDP
as
North
America
(roughly
25
%)
while
Japan
and
the
rest
of
East
Asia
account
for
almost
20
percent.
The
content
of
U.S.
trade
is
also
changing.
During
the
postwar
years,
the
core
of
the
U.S.
economy
was
composed
of
mass-production
manufacturing
firms
that
produced
a
high
volume
of
standardized
goods
at
low
cost.
Now
the
United
States
is
finding
that
it
cannot
compete
on
cost
against
industrializing
countries
such
as
Brazil,
Mexico,
Spain,
and
Taiwan.
Exports
from
the
United
States
increasingly
are
"niche
products"
that
command
a
high
price
because
of
their
quality,
technological
sophistication,
and
responsiveness
to
consumers"
tastes.
In
this
segment
of
the
market
the
United
States
encounters
intense
competition
from
the
Japanese,
who
have
perfected
the
art
of
high-quality
manufacturing,
and
from
the
Europeans,
who
have
had
long
experience
with
the
subtleties
of
niche
production.
{3}
Economic
globalization
never
could
have
occurred
without
a
number
of
international
institutions
for
facilitating
foreign
trade
and

investment.
The
oldest
of
these
is
the
Bretton
Woods system
of
fixed
exchange
rates,
which
was
in
effect
from
the
end
of
World
War
II
until
1973,
shortly
after
the
United
States
devalued
the
dollar
and
pushed
the
world
towards
the
present
regime
of
floating
rates.
Another
cata-
lytic
institution
is
the
General
Agreement
on
Tariffs
and
Trade
(GATT),
which
--through
a
series
of
multilateral
negotiations
that
have
been
under
way
since
the
1950s
--
has
been
responsible
for
the
reduction
of
tariffs
and
other
barriers
to
international
trade.
These
institutions,
both
created
after
World
War
II,
were
intended
to
support
a
multilateral
trading
system
in
which
trade
and
capital
flowed
freely
around
the
globe.
Little
appreciated
at
that
time
was
the
importance
of
a
powerful
nation
to
serve
as
institutional
guaran-
tor
and
of
a
strong
currency
to
meet
the
liquidity
needs
of
the
trad-
ing
partners.
The
United
States
and
the
U.S.
dollar
played
those
hege-
monic
roles;
Bretton
Woods
was
essentially
a
fixed-rate
dollar
stan-
dard.
Since
1973,
however,
the
centrality
of
the
United
States
and
of
the
dollar
standard
has
declined
gradually
but
steadily.
{4)
Because
the
United
States
increasingly
is
absorbed
in
its
own
problems,
it
devotes
less
energy
to
efforts
to
expand
the
multilateral
trading
system.
For
example,
the
current cycle
of
GATT
negotiations
(the
Uruguay
round)
has
dragged
on
since
the
early
1980s,
unable
to
reach
agreement
on
a
variety
of
tariff
issues.
As
for
the
dollar,
ever
since
the
United
States
abandoned
convertibility
in
1971,
other
nations
have
been
seeking
a
substitute
currency
system
to
provide
the
stability
and
predictablity
that
the
dollar
offered
under
Bretton
Woods.
This goal
was
part
of
the
logic
behind
the
European
Monetary
System
(EMS),
devised
by
French
President
Valery
Giscard
D'Estaing
and
West
German
Chancellor
Helmut
Schmidt
in
1978.
The
EMS
narrowed
the

-Chap.
1
5-
range
of
exchange
rate
fluctuations
among
member
currencies
in
Europe,
thus
setting
in
motion
the
the
chain
of
events
that
culminated
in
the
1992
creation
of
a
"single
European
market."
The
EMS
also
resulted
from
a
perception
that
the
nations
of
Europe--now
rebuilt
and
heavily
dependent
on
exports--individually
were
too
small
to
realize
the
econ-
omies
of
scale
necessary
to
compete
with
the
United
States
and
Japan.
All
of
these
events
--
the
end
of
Bretton
Woods,
the
decrease
in
returns
on
GATT,
the
rise
of
Japanese
capitalism,
and
the
reinvigora-
tion
of
the
European
community
--
have
combined
to
create
a
new
inter-
national
regionalism.
Instead
of
multilateral
trade
supported
by
the
United
States,
the
world
presently
is
moving
toward
trilateral
trad-
ing
blocs
in
Europe,
North
America,
and
East
Asia.
Although
world
trade
continues
to
expand,
the
First
World
is
spending
much
of
its
energy
on
creating
regional
institutions
and
trade
relationships
that
are
partial
substitutes
for
more
internationalized
trade.
Substitution
already
is
occurring
in
foreign
investment.
For
example,
the
propor-
tion
of
total
Japanese
foreign
investment
going
to
East
Asia
is
ris-
ing,
while
the
shares
going
to
Europe
and
North
America
are
declining.
Ultimately,
regionalization
will
slow
the
pace
of
interregional
trade
even
as
it
strengthens
the
blocs'
ability
to
compete
with
each
other.
Most
advanced
in
this
process
is
the
European
Community,
which
presently
consists
of
12
menfber
nations.
Like
other
international
bodies,
the
EC
originated
in
the
postwar
years,
specifically
1950,
which
is
when
Jean
Monnet
initiated
the
United
Europe
project.
This
step
led
to
the
1957
Treaty
of
Rome,
which
created
the
Community.
During
the
1960s
and
1970s,
the
EC
steadily
reduced
intra-EC
tariffs,
quotas,
and
other
duties.
Significant
barriers
remained,
however,
to
the
movement
of
capital,
labor,
and
services.
Starting
in
the
late

-Chap.
1
6-
1970s,
the
EC
accelerated
the
process
of
market
integration,
initially
with
the
creation
of
the
EMS.
Then,
in
1987,
the
EC
passed
the
Single
European
Act,
which
called
for
a
full
integration
of
the
internal
mar-
ket
by
1992.
To
debate
the
complicated
issues
related
to
integration
--
many
of
them
labor
and
social
questions
--
the
EC
created
a
Euro-
pean
Parliament,
based
in
Strasbourg.
Power,
however,
resides
with
the
Council
of
Ministers,
which
is
made
up
of
the
member
nations'
prime
ministers.
The
final
step
came
late
in
1991;
at
that
time
the
members
negotiated
the
Maastricht
Treaty
on
European
Unity,
which
proposes
a
single
currency
and
an
independent
central
bank
before
the
end
of
the
century.
The
Maastricht
Treaty
has
met
with
less
than
complete
enthusiasm.
Denmark
initially
rejected
the
treaty
and
fewer
than
half
of
the
French
voters
supported
it.
Much
of
the
difficulty
is
due
to
the
recession
gripping
the
Western
European
nations.
Recession
drove
Brit-
ain
and
Italy
from
the
EMS
in
1992,
though
this
allowed
them
to
reflate
their
economies
at
lower
exchange
rates.
That
sort
of
monetary
autonomy
would
not
be
permitted
under
Maastricht.
In
other
words,
if
the
member
nations
cannot
adhere
to
the
EMS,
it
is
unlikely
that
they
will
accept
the
monetary
discipline
proposed
by
Maastricht.
Even
so,
the
long-term
prognosis
for
Maastricht
is
positive.
{5}
Another
sign
that
Europe',is
not
yet
a
superstate
is
the
unwilling-
ness
of
the
EC's
members
to
cede
authority
to
pan-European
institu-
tions.
Under
the
principle
of
"subsidiarity,"
the
EC
is
not
permitted
to
legislate
in
areas
where
a
solution
can
be
achieved
by
individual
member
states.
Also,
the
518
directly
elected
members
of
the
European
Parliament
have
quite
limited
legislative
powers.
Action
originates
with
the
European
Commission
and
the
Council
of
Ministers,
both
of

-Chap.
1
7-
which
are
dominated
by
the
larger
member
nations.
The
Commission
has
17
members
(two
each
from
France,
Germany,
Italy,
Spain,
and
the
United
Kingdom,
and
one
each
from
the
other
seven
smaller
nations);
its
decisions
are
made
by
a
majority
vote.
The
Council
of
Ministers,
composed
of
the
ministers
of
the
member
governments,
acts
on
propos-
als
emanating
from
the
Commission.
Inside
the
Council,
nations
are
represented
semi-proportionately:
larger
nations
receive
more
votes
than
smaller
ones,
although
the
former
must
seek
alliances
with
the
latter
in
order
to
receive
a
"qualified
majority."
Thus
the
EC
--
despite
the
rhetoric
--
remains
a
collection
of
sovereign
nations.
These
nations,
however,
are
increasingly
interdependent
and
have
made
large
strides
toward
economic
integration.
Agricultural,
trade,
environmental,
and
transportation
policies
are
being
"harmonized"
throughout
Western
Europe;
the
EMS
still
exists,
though
in
a
somewhat
weakened
form;
and
product
and
financial
markets
are
integrated more
closely
now
than
a
decade
ago.
North
America
is
another
region
experimenting
with
formal
integra-
tion.
In
1989
Canada
and
the
United
States
began
operating
a
Free
Trade
Agreement
(FTA),
which
eliminates
most
tariffs
on
goods
produced
in
either
country.
Some
new
bilateral
codes
were
established
for
spe-
cific
industries
such
as
agriculture
and
automotive
products,
but
nei-
ther
economic
nor
social
policies
are
being
harmonized
in
the
European
sense.
The
agreement
has
had
a
greater
impact
on
Canada
than
on
the
United
States:
about
80
percent
of
Canada's
exports
go
to
the
United
States,
while
the
United
States
sends
roughly
20
percent
of
its
exports
to
Canada.
Of
particular
concern
to
the
Canadians
are
provi-
sions
of
the
FTA
that
liberalize
restrictions
on
U.S.
investment
in
Canada;
the
Canadians
dread
losing
control
over
their
natural

-Chap.
1
8-
resources
to
foreign
investors.
They
also
fear
that
U.S.
branch
plants
will
close
and
return
to
the
United
States
because
companies
no
longer
enjoy
tariff
advantages
by
producing
in
Canada.
Indeed,
there
is
evi-
dence
that
these
closures
are
occurring.
{6}
The
next
step
in
the
process
is
the
North
American
Free
Trade
Agreement
(NAFTA),
which
would
duplicate
with
Mexico
the
conditions
that
the
United
States
and
Canada
have
negotiated with
each
other.
Like
the
FTA,
NAFTA
contains
no
provisions
for
monetary
or
social
integration.
Instead
it
is
intended
primarily
to
encourage
exports
and
to
make
it
easier
for
U.S.
and
Canadian
firms
to
invest
in
Mexico.
Unlike
the
FTA,
which
was
ratified
virtually
without
comment
in
the
United
States,
NAFTA
has
proved
very
controversial
and
became
an
issue
in
the
1992
presidential
campaign.
Mexico
is
at
an
intermediate
stage
of
economic
development,
with
lower
wages
and
labor
standards
than
in
the
United
States
or
Canada.
Hence
public
officials
and
organized
labor
fear
that
NAFTA
will
accelerate
the
loss
of
jobs
to
Mexico.
{7}
These
tensions
--
between
a
high-wage
north
and
a
lower-wage
south
--
are
not
unique
to
the
relationship
between
Mexico
and
the
United
States.
Canadians
perceive
the
United
States
as
having
inferior
stan-
dards
regarding
social
insurance
and
workplace
protection;
Denmark
and
Germany
have
the
same
view
of
southern
EC
members
such
as
Portugal
and
Spain.
Fear
that
these
differences
will
lead
to
"social
dumping"
(cap-
ital
flight
to
avoid
high
labor
standards)
has
been
central
to
the
negotiations
over
NAFTA
and
the
European
single
market.
To
reduce
the
possibility
of
sot;.Adt
the
EC
has
long
supported
infrastructu-
ral
investments
in
its
poorer
member
nations
--
for
roads,
communica-
tions,
and
the
like
--
much
as
Germany
is
presently
spending
millions
on
the
development
of
its
eastern
portion.
Also,
the
EC
has
adopted
a

-Chap.
1
9-
Social
Charter
calling
for
harmonization
of
labor
standards
throughout
the
community
--
something
we
will
discuss
below.
To
date,
North
America
has
not
gone
far
in
the
direction
takenby
Europe.
NAFTA
contains
only
fairly
weak
provisions
for
raising
labor
and
environmental
standards
in
Mexico,
and
it
offers
little
direct
economic
aid
or
debt
relief
that
would
speed
Mexico's economic
devel-
opment.
On
the
other
hand,
NAFTA
ultimately
may
be
less
significant
than
the
EC.
After
all,
American
firms
are
free
to
invest
in
Mexico
even
without
NAFTA,
and
have
been
doing
so.
Even
so,
the
bulk
of
for-
eign
direct
investment
by
the
United
States
is
flowing
to
Asia
and
Europe,
not
to
Mexico
and
Latin
America.
{8}
In
East
Asia,
little
formal
institution
building
has
occurred
to
support
economic
integration,
even
though
(or
perhaps
because)
the
region's
economic
development
has
been
so
astoundingly
rapid.
Along
with
Japan,
the
Little
Tigers
--
Hong
Kong,
Korea,
Taiwan,
and
Singa-
pore
--
were
extremely
successful
in
the
1980s.
Meanwhile
China
--
potentially
the
world's
largest
consumer
market
--
is
experiencing
swift
growth.
Trade
among
the
East
Asian
countries
is
not
especially
large;
they
are
export-oriented
economies
that
ship
most
of
their
products
to
higher-income
markets
in
the
United
States
and
Europe.
Japan,
however,
is
playing
a
key
role
in
the
region.
As
noted,
its
East
Asian
investments
are
large
and
are
growing
rapidly.
To
the
Japanese,
East
Asia
represents
a
base
in
which
to
manufac-
ture
exports
that
no
longer
can
be
made
profitably
in
Japan.
Yet
the
Japanese
continue
to
make
high-value-added
components
at
home
and
then
ship
these
to
their
Asian
branch
plants
for
final
assembly.
This
is
one
reason
why
Japan's
exports
to
East
Asia
now
count
for
nearly
one-third
of
its
total
exports,
double
the
level
of
five
years
ago.
A,

-Chap.
1
10-
this
point,
however,
Japan
remains
a
supplier
of
capital
but
not
of
consumer
markets.
It
imports
relatively
little
from
East
Asia,
while
its
Asian
branch
plants
export
primarily
to
Europe
and
North
America.
It
remains
to
be
seen
whether
Japan
will
become
a
net
importer
and
will
create
the
institutions
necessary
for
a
multilateral
regional
trading
bloc,
a
pattern
known
as
the
"flying
goose
formation."
{9}
The
Impact
on
Labor
In
the
advanced
nations,
globalization
has
had
mostly
a
negative
effect
on
organized
labor's
bargaining
power
and
political
influence.
Competition
from
lower-cost
producers
is
exerting
downward
pressure
on
wages
and
employment
in
many
unionized
industries,
from
steel
to
tex-
tiles
to
apparel.
To
secure
a
competitive
advantage
farther
up
the
value
chain,
employers
are
shifting
toward
the
production
of
more
technology-intensive
goods
and
services.
This
step,
however,
has
harmful
consequences
for
unions,
at
least
in
the
short
term.
It
reduces
the
demand
for
manual
workers
--
who
form
a
large
portion
of
most
labor
movements
--
while
boosting
employment
of
nonmanual
employees,
a
group
in
which
rates
of
unionization
tend
to
be
lower.
Historically,
employers
were
willing
to
agree
to
collective
bar-
gaining
when
unions
could
promise
to
"take
wages
out
of
competition."
The
promise
made
sense
when
markets
were
fixed
within
national
bound-
aries
and
employers
themselves
were
immobile.
Today,
however,
markets
are
international
and
unions
find
themselves
unable
to
standardize
wages
across
borders.
This
situation
diminishes
their
usefulness
to
employers.
Also,
modern
employers
now
find
it
far
easier
to
relocate.
Even
aircraft
can
be
repaired
or
paperwork
processed
almost
anywhere
in
the
world.
The
mere
threat
of
relocation
saps
labor's
bargaining
power
even
further.
Government
employees
are
virtually
the
only
group

-Chap.
1
11-
free
of
this
threat.
Thus
it
is
hardly
surprising
that
throughout
the
advanced
countries,
unionization
rates
in
the
public
sector
are
hold-
ing
up
better
than
in
other
industries.
{10}
Another
historical
justification
for
unionism
was
based
on
labor's
putative
link
to
mass
economic
prosperity.
According
to
underconsump-
tionist
theories,
particularly
Keynesianism,
unions
--
by
raising
mass
purchasing
power
--
were
supposed
to
maintain
aggregate
demand
and
to
prevent
major
depressions
from
occurring.
This
macroeconomic
rationale
for
collective
bargaining
was
embodied
in
the
1935
National
Labor
Relations
Act,
the
legislation
that
ushered
in
the
era
of
mass
union-
ism
in
the
United
States.
Similar
justifications
for
unionism
were
offered
in
Europe
and
in
Japan.
{11}
The
identification
of
unions
with
societal
prosperity
promoted
public
attitudes
favorable
toward
unions
during
the
long
postwar
upswing.
Labor
and
its
political
allies
reinforced
this
perception
by
placing
a
high
priority
on
anti-
unemployment
policies
--
everything
from
public-sector
employment
to
deficit
spending
and
currency
devaluations.
Today,
however,
as
nations
orient
themselves
increasingly
toward
trade,
the
Keynesian
rationale
for
unionism
is
wanting.
In
an
open
economy
there
is
no
guarantee
that
organized
workers
will
spend
their
earnings
on
domestically
produced
items;
union
wage
premiums
may
well
go
toward
the
purchase
of
imports.
(In
the
United
States,
so-called
"buy
American"
and
"union
label"
campaigns
have
been
notably
unsuc-
cessful.)
Also,
the
availability
of
cheaper
imports
causes
the
public
to
believe
--
in
countries
as
different
as
Germany
and
the
United
States
--
that
unionized
workers
have
priced
themselves
out
of
world
markets.
Whereas
traditional
wage
bargaining
and
generous
social
wel-
fare
benefits
once
were
regarded
as
public
goods,
they
are
viewed
now

-Chap.
1
12-
as
a
drag
on
national
efficiency,
and
not
only
by
conservative
eco-
nomists.
The
alternative
supposedly
is
to
make
welfare
benefits
more
"realistic"
and
to
tie
compensation
more
closely
to
enterprise
condi-
tions;
these
trends
are
ongoing
throughout
the
OECD
nations.
{12}
Even
countries
that
traditionally
have
depended
on
exports
--
such
as
Austria
and
Denmark
--
are
facing
new
constraints
on
their
ability
to
maintain
low
unemployment
rates.
The
coordination
required
by
the
European
Monetary
System
makes
it
difficult,
if
not
impossible,
for
member
nations
to
pursue
countercylical
deficits
and
devaluations
unless
they
are
prepared
to
suffer
the
consequences
of
leaving
the
EMS.
And
under
the
Maastricht
Treaty,
the
constraints
will
be
even
tighter.
Maastricht's
Economic
and
Monetary
Union
(EMU)
requires
that
total
public
debt
and
budget
deficits
(as
percentages
of
GDP)
be
reduced
respectively
to
60
percent
and
3
percent
by
the
end
of
the
1990s.
The
labor
movement
--
once
the
champion
of
full
employment
--
therefore
is
left
without
a
viable
macroeconomic
program
in
the
EC
countries.
This
is
an
important
reason
why
trade
unionists
in
Norway,
Sweden,
and
some
other
EC
applicants
are
wary
of
EC
membership.
{13}
Even
if
EMU
never
is
implemented,
international
currency
specula-
tion
already
is
inhibiting
nations
from
pursuing
laborist
economic
strategies.
A
huge
amount
of
speculative
capital
is
washing
around
the
world,
another
legacy
of'the
Bretton
Woods
breakup.
Speculative
capital
is
easily
swayed
by
short-term
considerations
of
its
best
interests;
anything
that
threatens
to
cheapen
a
currency,
such
as
laborist
economic
policies,
may
trigger
an
anticipatory
run.
Among
other
things,
this
situation
jeopardizes
the
strategy
of
using
deficit
financing
to
take
up
slack
in
the
labor
market.
Thus
the
one
bright
spot
for
organized
labor
--
high
membership
rates
in
government
--is

-Chap.
1
13-
dimmed
by
declining
public-sector
employment.
{14}
Yet
the
international
situation
is
not
entirely
hopeless
for
unions.
True,
globalization
has
impaired
labor's
bargaining
power
and
weakened
its
Keynesian
strategies,
but
the
impact
on
union
membership
has
been
much
more
varied.
During
the
1970s
and
1980s,
some
countries
--
notably
Denmark, Finland,
Sweden,
and
Belgium
--
showed
substantial
gains
in
union
density
(the
proportion
of
the
labor
force
belonging
to
unions).
In
other
nations,
however,
union
density
declined
sharply:
Japan
and
the
United
States
in
both
decades;
Italy,
the
Netherlands,
and
the
United
Kingdom
in
the
1980s.
In
most
of
the
other
OECD
nations,
density
rose
in
the
1970s
and
remained
stable
in
the
1980s
(see
Table
1.1).
TABLE
1.1.
HERE
The
recent
variation
in
density
trends
is
nothing
new.
Disparities
in
union
growth
rates
have
existed
since
the
beginning
of
the
century.
{15}
The
immediate
postwar
decades
were
the
only
exception;
in
those
periods,
unionization
was
stable
or
increasing
everywhere
in
the
advanced
world.
Nor
are
disparities
in
union
density
levels
a
new
phe-
nomenon.
In
1950,
for
example,
density
differed
sharply
among
nations,
ranging
from
28
percent
in
the
United
States
to
68
percent
in
Sweden.
Significantly,
those
nations
with
the
highest
density
levels
in
the
1950s
tended
to
have
the
largest
density
gains
in
the
1980s;
countries
with
the
lowest
levels
tended
to
have
the
largest losses
(see
Table
1.1).
Thus
labor
movements
differ
in
their
ability
to
weather
economic
globalization;
this
ability
is
related
to
factors
that
predate
the
present
period.
Recent
studies
have
identified
some
of
the
features
of
countries
whose
density
levels
remained
robust
in
the
1980s.
A
common
factor
is

Table
1.1
Union
Density
Trends,
1950
-
1987
W/
____
1950Q
1270Q
1281
High
Densit
lll
Belgium
37
66
_
Denmark
53
66 95
Finland
33
56
85
Sweden
68
79
96
Moderate
Densit
Australia
56
52
56
Austria
62
64
61
Canada
33
32
36
Germany
36 37
43
Ireland
39
44
51
Italy
44
39
45
Netherlands
36
39
35
Norway
46
59
61
United
Kingdom
44
51
50
Low
Densit
France
31
22
15
Japan
46
35
28
United
States
28
31
17

W
Union
membership
of
nonagricultural
members
as
a
proportion
of
nonagricultural
employees.
SOURCE:
Bruce
Western,
"Unionization
Trends
in
Postwar
Capitalism:
A
Comparative
Study
of
Working
Class
Organization,"
Ph.D.
diss.,
UCLA,
1993;
David
Blanchflower
and
Richard
Freeman,
'Going
Different
Ways:
Unionism
in
the
U.S.and
Other
Advanced
OECD
Countries,"
Industrial
Relations,
31
(Winter
1992):
56-79.

-Chap.
1
14-
a
corporatist
industrial
relations
system,
in
which
bargaining
is
highly
centralized
(unions
negotiate
at
the
national
level,
either
for
one
industry
or
for
all
industries);
government
consults
labor
unions
regarding
national
economic
policies;
and
one
or
a
few
national
orga-
nizations
speak
for
all
of
organized
labor.
Prime
examples
include
Austria,
Germany
and
the
Scandinavian
countries,
though
significant
variations
exist
even
in
this
group.
{16}
On
the
other
hand,
countries
with
the
largest
density
losses
since
1970
typically
have
decentral-
ized
bargaining
systems
(unions
negotiate
at
the
company
or
plant
level,
with
little
coordination
across
firms);
their
political
systems
do
not
include
organized
labor
as
a
stakeholder;
and
national
labor
federations
are
weak.
Examples
include
Japan,
the
United
States,
and
possibly
Great
Britain.
It
is
not
fully
understood
how
corporatism
bolsters
density
lev-
els.
Blanchflower
and
Freeman
argue
that
centralized
bargaining
reduces
wage
dispersion,
which
in
turn
reduces
employer
resistance
to
collective
bargaining.
That
is,
corporatism
is
more
effective
at
tak-
ing
wages
out
of
competition
than
is
a
decentralized
industrial
rela-
tions
system.
Conversely,
decentralized
systems
permit
a
widening
of
the
union/nonunion
wage
gap,
especially
during
inflationary
periods
such
as
the
1970s.
This
situation
strengthens
the
determination
of
employers
to
shed
existing
ifnions
and/or
fight
the
creation
of
new
ones.
Union
wage
premiums
increased
in
the
United
States
during
the
1970s
to
an
extent
unmatched
elsewhere
in
the
world,
whereas
wage
dis-
persion
was
stable
or
declined
in
the
corporatist
nations.
Yet
an
explanation
of
union
density
trends
based
on
wage
dispersion
tells
only
part
of
the
story.
First,
the
union
wage
premium
in
the
United
States
is
far
less
today
than
in
the
1970s,
yet
density
rates

-Chap.
1
15-
are
continuing
to
fall.
Second,
the
focus
on
wage
dispersion
begs
a
more
fundamental
question:
what
causes
unions
to
have
centralized
or
decentralized
bargaining
systems
in
the
first
place?
Union
density
is
one
possible
answer.
After
all,
high
rates
of
union
membership
make
centralized
bargaining
feasible.
Also,
the
historical
evidence
sug-
gests
that
countries
with
relatively
high
density
were
those
which
adopted
centralized
bargaining.
Thus
the
process
may
be a
feedback
loop
in
which
high
density
stimulates
centralized
bargaining,
which
in
turn
maintains
high
density.
What
accounts
for
longterm
national
variations
in
union
density?
Size
is
one
factor.
Wallerstein
notes
that
countries
with
historically
high
density
levels
have
small
populations
(e.g.,
Austria,
Belgium,
and
the
Scandinavian
countries);
small
size
reduces
the
cost
of
union
organizing.
Sisson,
Stephen,
and
Swenson,
however,
link
size
to
employers'
organizing
costs.
That
is,
density
is
high
in
small
coun-
tries
because
industry
is
concentrated;
thus
employers
find
it
easier
to
band
together
to
take
wages
out
of
competition.
Another
explana-
tion
turns
on
politics.
Ulman
and
Jacoby
observe
that
employers
in
Germany
and
Scandinavia
recognized
unions
in
order
to
nudge
socialist
labor
movements
away
from
radical
goals
such
as
nationalization.
Else-
where,
however,
labor's
politics
were
less
threatening.
In
the
United
States,
unions
were
conservative
and
craft-oriented;
French
and
Ital-
ian
unions
were
syndicalist
or
confessional,
posing
to
employers
little
threat
of
expropriation.
Finally,
Rothstein
and
Western
empha-
size
a
third
factor:
the
existence
of
union-controlled
national
unem-
ployment
insurance
schemes
(the
Ghent
system).
In
Ghent
nations,
work-
ers
become
union
members
to
ensure
coverage
if
and
when
they
become
unemployed.
The
absence
of
a
Ghent
system
explains
why
density
is

-Chap.
1
16-
much
lower
in
Norway
than
in
Sweden;
its
presence
accounts
for
high
density
levels
in
Belgium.
{17}
Putting
these
explanations
together,
we
can
draw
the
following
conclusion:
Over
the
past
90
years
or
more,
union
membership
rates
have
been
highest
where
labor
is
socialist
and
bargaining
is
central-
ized.
Often,
but
not
always,
these
are
small
countries with
concen-
trated
economies,
in
which
labor
has
control
of
social
resources
such
as
the
unemployment
system.
Conversely,
density
has
been
lowest
in
large
countries,
especially
those
with
factionalized
or
conservative
labor
movements
and
decentralized
bargaining.
Since
the
early
1970s,
high-density
labor
movements
have
been
bet-
ter
able
than
low-density
movements
to
maintain
or
even
raise
member-
ship
despite
the
shocks
associated
with
economic
globalization.
Cen-
tralized
bargaining
surely
is
one
reason
for
this.
It
makes
unionism
more
palatable
to
employers,
both
by
reducing
wage
dispersion
and
(as
we
shall
see)
by
making
labor
markets
less
prone
to
wage
inflation.
The
other
reasons
pertain
to
the
factors
that
created
high
density
in
the
first
instance,
such
as
socialist
traditions
that
support
collec-
tive
action
and
union-controlled
welfare
institutions
that
keep
work-
ers
in
unions.
Where
density
was
relatively
low
in
the
early
1970s,
however,
and
where
neither
centralized
bargaining
nor
strong
collec-
tive
traditions
were
present-,
unions
have
been
unable
to
maintain
mem-
bership
in
the
face
of
globalization.
This
certainly
is
true
of
the
United
States,
where
the
present
travails
of
organized
labor
recall
previous
periods
of
economic
restructuring
such
as
the
1870s
and
the
1920s.

-Chap.
1
17-
Attitudes
of
Labor
Throughout
the
advanced
industrial
world,
unions
are
debating
how
to
adjust
to
the
changes
wrought
by
globalization.
The
concerns
are
universal.
In
the
United
States,
where union
membership
has
fallen
sharply
over
the
past
15
years,
the
same
issues
are
being
discussed
as
in
Denmark
and
Sweden,
where
membership
today
is
larger
than
ever
before.
Even
if
the
debates
do
not
lead
to
international
labor
soli-
darity,
they
provide
a
common
ground
that
brings
national
labor
move-
ments
closer
together.
Where
labor
comes
down
in
the
debate
over
globalization
depends
largely,
though
not
exclusively,
on
economic
considerations.
The
unions
most
threatened
by
economic
integration
are
those
on
the
edge.
Within
countries,
these
are
the
unions
representing low-wage
workers;
across
countries,
they
are
the
labor
movements
that
rank near
the
bot-
tom
of
the
high-wage
group.
Low-wage
industries
in
advanced
countries
--
for
example
in
textiles,
shoes,
and
apparel
--
have
neither
skills
nor
technology
sophisticated
enough
to
keep
unit labor
costs
below
those
found
in
less
developed
nations.
(It
is
debatable
whether
this
is
the
case
because
(say)
clothing
workers
in
Germany
are
"overpaid"
or
because
those
in
Greece
are
"underpaid.")
These
often
are
labor-
intensive
industries
in
which
small
changes
in
labor