The Economic and Social Impacts to India and Its Citizens from Inward Foreign Direct Investment


: Impact of FDI on labour exploitation



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9.5: Impact of FDI on labour exploitation


As previously explored (section 2.2.1.1), TNCs are often accused of exploiting the citizens of the host countries in which they operate (Richter, 2001; Farnsworth, 2010). It is argued that one of the main motivations for operating in developing countries is to exploit low wages as well as lower labour and environmental regulations (OECD-ILO, 2008). This section explores issues of labour exploitation in India by TNCs. Several respondents discussed exploitation as being prevalent but not always openly visible, thus, there was a recurrent theme of ‘the invisibility of exploitation’ as one respondent termed it. Outright open exploitation was not occurring as much in the visible top levels of the value chain but was very prevalent in home based work or in areas where there was not much media attention.

As explained in Chapter Two and Three (see sections 2.2.1 and 3.5) TNCs often chose to subcontract production to other smaller firms in the host country rather than produce the product through wholly owned subsidiaries as this strategy is more economically efficient for diversifying and adjusting global production and involves few sunk costs (Nathan and Kalpana, 2007; UNCTAD, 2013). Often the subcontracting firm in the host country, after receiving the order from the TNC, breaks the production process down even further and subcontracts different parts to units further down the supply chain (Nathan and Kalpana, 2007). Thus, there is a supply chain from the TNCs down to small and informal subcontracted units. These subcontracting chains are reported to have exploitative working conditions, in particular, in the lower realms of the chain (UNCTAD, 2013).

The lowest levels of subcontracting units are often based in the home where women and children take up parts of the production process. These lower levels of the supply chain are informal; there is no regulation for working conditions, hours, or wages; and working conditions are often poor and exploitative. Often, this is how TNCs become linked to child labour and exploitative working conditions; they will have numerous layers in their supply chain with poor working conditions in the lowest levels which, in India, often occurs in the homes of underprivileged families. BJ, a specialist on international labour standards and an expert on discrimination for an international organisation that promotes fair labour standards, explains:

The direct suppliers to the MNC are probably ok-ish but they keep adding to the supply chain and once you go down the supply chain it becomes very difficult to know where you get your stuff from and who is making what. It really requires a detailed study and time.

Elite policy stakeholders in this sample often discussed two industries that heavily utilise subcontract production methods: the garment and textiles industries and the agriculture sector. Within these sectors, child labour is often prevalent in the lower levels of the subcontract chain. It is important to note the child labour laws within this context. In India, the Child Labour Act of 1986 prohibits the employment of children under the age of 14 years in hazardous occupations which are identified and listed by the government (Weiner, 1991). Children under the age of 14 years are permitted by law to work in non-hazardous occupations (Weiner, 1991). For example, working in factories, which is listed as hazardous, is illegal for children under 14 years, however, working on BT cotton fields, listed as non-hazardous, is legal for children of any age.

DN, specialising in subcontracting chains in the global garment industry, discusses the need to amend domestic child labour laws:

So in household units, the labour laws do not apply like they do in a larger unit. So there, working conditions would be bad. It all depends on where you are on the value chain. There is a lot of child labour in cotton seed production but it is allowed, unfortunately, by the law. So we do need a change in the law. It is coming down, there is no doubt about it. The incidents of child labour are rapidly falling but it has not vanished. So there is still something to be done. In the units that are at the top of the chain...where they are monitored more, children are not allowed to work under 18 years of age...even though the law says that they can.

The end of DN’s quote highlights that in the upper tiers of the supply chain, where monitoring is prevalent, children are not allowed to work if they are under the age of 18 which is more acceptable to international labour standards. If Indian domestic law permits children to work over the age of 14, it is likely that this stipulation was made on behalf of the global TNCs who are being monitored by watch groups and NGOs.

There have been many public incidents involving TNCs having child labour and exploitative working conditions in parts of their supply chain. This caused condemnation from many within civil society and NGOs which has forced TNCs to scrutinize their supply chains much more carefully than they did in the past. SK is a child labour specialist for an international organisation promoting fair labour standards. She explains that at one time TNCs did not feel the working conditions in lower levels of their supply chain were their responsibility. She indicates that TNCs are now publicly reporting that they take responsibility for all levels of their supply chain. However, what is happening on the ground can be different to what is being stated in the corporate codes of conduct as SK observes:

And the reason it is tied to globalisation and there is so much interest in it is because there was a time in the late 90’s when a lot of the multinationals said, “Ok well we are responsible for our formal factories but what happens down the chain is not our responsibility.” But that was back in 1997-98. But that has changed...many industries are taking responsibility for what is happening right down the line, right down to the community and to the homes. At least that’s what their message is and that is what their code says and they are working with their suppliers on that. But what is the reality on the ground still needs to change considerably. Children are getting lost in these subcontracting chains and not everybody is putting in rigorous programs. And there are companies, there are manufacturers, there are employers who have taken great action also [against child labour] but it needs to go to scale.

Child labour is prevalent in many industries in India but hybrid cottonseed production has the highest incident of child labour (Venkateswarlu, 2010). Children are predominantly used to cross pollinate a genetically modified hybrid cotton seed known as BT cotton (Venkateswarlu, 2001; 2010). TNCs are heavily involved in BT cotton seed production in India and nearly all of them have been found to have child labour on farms in their production chains at one time or another (Venkateswarlu, 2001; 2010). Child labour in cottonseed productions appears to have peaked in 2006-07 at which time the subject became heavily investigated and publicized (Venkateswarlu, 2010). This negative publicity, or informal sanction as Paternoster and Simpson (1993) define it (see section 3.3.5.3), has greatly helped to decrease the use of child labour, though it is still very prevalent. In 2006-07 one report concluded that there had been 70,400 children employed in cottonseed production in one state alone, Andhra Pradesh, the seed capital of India (Venkateswarlu, 2010). Since this time many international and national NGOs, IGOs such as the ILO, UNICEF, UNDP, as well as the Government of India have become very active in trying to eliminate this problem as well as create international awareness of the problem. Venkateswarlu (2010) conducted a large study concerning child labour in cottonseed production in 2009-2010. He concluded that because of the intense pressure on TNCs and the attention they garner, there have been significant changes in production from large commercial farms to small family based farms where child labour is less noticeable. This shift in production may be a neutralisation technique known as ‘moral rules-in-use’ (Paternoster and Simson, 1993, see section 3.3.5.3) where a particular conduct within a particular context becomes more acceptable. Children employed on large commercial farms may be perceived quite differently to smaller numbers of children working on numerous small family farms. Furthermore, Venkateswarlu (2001; 2010) observed that TNCs were relocating to areas where cheap labour is more readily available, such as tribal areas, and there is less public attention concerning child labour.

SZ is an internationally renowned activist for children’s rights and the founder of an NGO in India that is proactive in combatting child labour. She explains that her NGO has worked with projects concerning child labour and BT cotton seeds. Similar to Venkateswarlu’s observations, SZ explains that once an area begins to be monitored for the use of child labour, the TNC will shift their main production to areas that are not being closely monitored. She suggests that conceptualising child labour as a violation against children’s rights has not occurred for TNCs:

My experience with MNCs has only been on the cotton. I have worked directly with them with the BT cotton in Andhra Pradesh. I think they [MNCs] have been so resilient, the manufacturers… that they quickly go into investment into areas where there is a more congenial atmosphere [towards child labour]. So there is a shift. So say, for example, there is pressure in say Andhra Pradesh, in certain places ...for example, in the areas where we have worked… they will then shift production where there is not pressure. So it is not that they have internalized the problem of child labour…they have not fully internalized the morals that there is a violation of children’s rights and they must not do it anywhere. They go to a place where there is not so much pressure on them and they continue to employ children. They may as well go to Uzbekistan for all you know to produce cotton seeds if that is more congenial. So the principle of violation of child’s rights is not something that MNCs have internalized. Profits still remain more important than human rights.

These issues relate to discussions of Paternoster and Simpson’s (1993) rational choice theory of corporate crime and the six conditions that make criminal activity more likely (see section 3.3.5.3). This quote highlights four of the six conditions. An upcoming quote will highlight the remaining two. First, seed companies move their production to areas where they perceive formal and informal penalties will be weak. Second, this elite policy stakeholder remarks that seed companies have not internalised that children should not be used and, thus, they will not experience a loss of self-respect by employing children. Third, TNCs have internalised situational rules-in-use that justify the act; profit is most important. Fourth, as stated above, most of the companies have employed children in the past.

Articles published regarding some of the projects that SZ’s NGO had conducted revealed that the organisation was able to work successfully with small farmers and big local farmers to discourage the employment of children but that they were not able to accomplish this with the farmers who were working with the TNCs. When I enquired as to why the NGO was unable to encourage the famers working with TNCs to desist in using child labour, she explained that those farmers working with TNCs were often caught up in a large network of debt that necessitates cutting labour costs to the point that children are employed. Independent farmers, on the other hand, have more say in what and how they will grow the produce. She clarifies:

I think it is the incentives and credit that they get....see with the small farmers, the decision to grow cotton is their individual decision. They have greater autonomy in what they will grow, how they will grow, and where they will sell. But if you are caught in a nexus with agents, sub-agents, contractors, you are already borrowing for your investments, you are borrowing for your pesticides, you are borrowing for your insecticides. Somewhere the big agents become your credit cards and then there is a pressure to repay. ...there is an economic compulsion to cut cost in your labour. So you employ children. But if you are a smaller farmer, making autonomous decisions, you are not linked to such an exploitative nexus. So it is easier to be persuaded not to employ children.

Here it could be argued that farmers that are working with TNCs experience more organisational strain (Yeager and Simpson, 2009, Benson and Simpson, 2009; see section 3.3.5.2). Also, perhaps farmers working with TNCs are caught up in an organisational culture that promotes goal attainment and cost control over legitimate actions in comparison to farmers who are not part of such corporate organisations.

In BT cotton seed production contractors and/or seed farmers are employed to find and arrange labour for the seed cultivation (Venkateswarlu, 2001; 2010). Often seed farmers reserve the labour in advance by paying parents in advance for his/her child’s labour (Venkateswarlu 2001; 2010). Because many families are in desperate need of money, there is pressure to take the advanced payment and then promise their child’s labour participation. The practice of paying parents in advance not only encourages child labour, it is also in violation of domestic legislation. Although it is legal for children to work in homes with the family or on cotton farms under the legislation of the Child Labour Act, there are other forms of legislation which should protect children from such labour as SZ explains in the upcoming passage. First there is Bonded Labour Act which states that people cannot work under the duress of debt. As TNCs are paying for the labour in advance and the parents of children are provided payment before the cultivating season starts, this is in violation of the Bonded Labour Act (Weiner, 1991; Venkateswarlu, 2001). This criminal deviance can be used to highlight Benson and Simpson’s (2015; 2009) distinctive properties of criminogenic opportunities (see section 3.3.5.2). First the seed companies have legitimate access to very poor rural areas where many families are desperate. Second, the seed companies are separated from their child victims as they hire local seed farmers to contract and bond the children to the labour. Third, the companies have a superficial appearance of legitimacy in that child labour does not violate the law; however, bonding them to the company is against the law.

SZ argues that the compliance with another act, Juvenile Justice Act, should also dissuade corporations from exploiting child labour. So while the TNCs may not be breaking the Child Labour Act, they are breaking the Bonded Labour Act and Juvenile Justice Act and, she further remarks, should be made to abide by these laws as well as the laws their ‘home’ country:

It is all PROFIT. In fact, I think they should abide by the laws of the country of their home country and the host country. Our country...because many of these children are working against advances taken by the parents and that is a violation of the Bonded Labour Act...it will not violate the Child Labour Act but it certainly violates the Bonded Labour Act. Because the payment is in advance and they are bonded to the labour. So I think the corporate social responsibility is a responsibility to go legal and go by law. There is a Juvenile Justice Act which is, of course, in favour of children being in schools and not be exploited. They [MNCs] have to respect it. They don’t respect the Juvenile Justice Act, they don’t respect the Bonded Labour Act, and so there is a problem.

SZ remarked that because children are cheap labour and the corporations are competing against each other, each uses the lowest possible price to pay the farmers and in order for the farmer to make any profit, they have to employ children. If, on the other hand, the TNCs were to all agree on a baseline price which could enable profits for the corporation as well as the famer whilst hiring adult labour that this could greatly help to circumvent the need to use children:

And it could have worked in a more positive manner if only the MNCs were convinced that the children must not work at all and they could have sent that message and they could have all gotten together...the ones competing with each other...Monsanto, Syngenta, Unilever could have all gotten together and fixed a price together and then continued with their business. Because now they say, ‘if I withdraw a child ...then I lose all my profits. So why don’t you all get together and say, ‘Ok, we are all going to only employ adults and make it still as competitive as our own business. But that they have not done. They have come together to cheat but they have not gotten together to save children.

Returning to Paternoster and Simpson’s (1993) theory of corporate crime as rational choice (see section 3.3.5.3); it can be argued here that seed companies have weighed the costs of employing adults with the benefits of not complying with national legislation. Here SZ appears to suggest that: one, seed companies have deemed that complying with the law as too costly and, two, that the regulations are unreasonable. These are the remaining two of Paternoster and Simpson’s (1993) the six characteristics that make criminal activity more likely. When this happens, according to rational choice, the offense gains utility. Also, as SZ highlights, there are other options available to seed TNCs to curtail the use of child labour yet profit is prioritised above all else. This illustrates the theory of strain and anomie (Messner and Rosenfeld, 2012; Passas, 2004; Vaughan, 1998; Lilly et al, 2015; see section 3.3.5.2).

Many respondents linked the prevalence of child labour to circumstances within the domestic environment such as widespread poverty, lack of decent work for adults, shortage of decent schools, and faulty national legislation. TNCs were blamed for exploiting these circumstances and profiting from the cheap labour of children. However, many felt that the majority of change has to come from the government, national legislation, and full implementation of the laws. The following quote from DN, specialist in subcontracting chains and the garment industry provides a summary of the supply and demand nature of child labour and the limitation of corporate responsibility in the supply side of the child labour problem:

There is a demand side and a supply side. The firms come in on the demand side: do they use child labour or not? But the supply side is not in their hands...are the children coming into the market for work? So the poverty conditions, the low wages, poor education or dropping out of school...they are linked very much and that might lead to the supply of child labour. Now what a firm can do, there is a limit in the sense that, ok, you can clean up your supply chain by saying, “Ok we will not allow any products or any part of our supply chain, we will not allow any child labour to be used.” But then the usual question is: where will those children go? Do they go to something worse or do they get into something better? That is where the manner of responsibility comes in. You have to have ways of rehabilitating them, sending them to school, maybe providing their parents with a higher income, etc. The government policy is such that it allows it to happen. In India we have the law which is not of the international standard in a way and allows it.

This was a common response from this sample: institutions must be in place and functioning properly for children. If not, when a TNC clears children from their supply chain, it is likely they may go into more dangerous forms of labour.

When asked what the best way forward is to eliminate child labour, SZ responded that the problem had to be addressed by national legislation. She felt that if the elimination of child labour were to come from the pressure from outside forces such as IGOs or trade restrictions that measures would be taken to hide existing child labour even more than is happening presently:

Uh, I feel there has to be a lot more domestic pressure on National Laws and amending them…and that will come by...it is something that has to evolve from an organic process from the country from within itself. It cannot be an externality to be imposed through sanctions and trade and things like that. Certainly not, because that again would just hide child labour and the government will be in a denial mode. The best solution has to be internal through national laws...through an organic process where they are able to take a stand and tell corporate, both national and global, that you cannot exploit children.

In summary exploitative working conditions and child labour are often found in the lower levels of the supply chains for TNCs. In many cases, TNCs are committing corporate crime by bonding children to labour. While it was felt that child labour is rooted in larger institutional forces respondents felt that TNCs should not profit from these circumstances. The following section will explore the impact of corporate investment on land issues.



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