CSR and Cheap Labor

via CAAI

12 November 2010

In the movie Outsourced, an American caller complains when he discovers that the call center from which he is ordering his American eagle knick-knack is based in India. Because so many Americans have been upset by outsourcing, the well prepared supervisor smugly tells the caller he can have the same item 100 percent made in America for a mere increase of $212 dollars more. The caller thus puts aside his self-righteous concerns as a laid off worker, and sheepishly places his order for the lower made in India price.

This is the justification for cheap labor as a business strategy - the consumers get a lower price. At the same time, work situations have arisen paying what would be considered poverty wages in developed nations but considered a godsend in poorer nations. The jobs losses from the massive transfer of jobs is collateral damage that we are told gets offset by the benefits to rising standards of living throughout the world and a better deal for consumers.

But is cheap labor really a responsible business policy? Michael Fairbanks and Stace Lindsay in their book Plowing the Sea examined cheap labor in Latin America as a competitive advantage. They posited that if wealth creation was the objective of economic growth, then why use cheap labor which by definition constitutes growth based on impoverishing people? They ask why equity and economic growth are incongruent.

The fact is that cheap labor as a competitive advantage is fleeting. Firstly, there is the reality of rising expectations as workers get more solid footing and want to improve their circumstances. As economies mature, workers seek ways to improve their skills and begin to demand more of the spoils earned off of their toil. Secondly, there will always be cheaper labor regimes, and as infrastructure and skills improve in poorer nations the jobs will keep moving. For example, the China wage is now becoming too expensive. Toy, clothing, and electronic manufacturing operations are beginning to move to Bangladesh, Vietnam and Cambodia. Where will the new and better jobs come from once countries lose their cheapness as an advantage?

If "the world is flat" as Thomas Friedman famously wrote, does that mean we are all destined to fall off the edge? Is it not reasonable to want to earn a living wage? Should it not be a goal of our economic models that we intentionally design work aimed at promoting human potential? Obviously the world is not flat we are simply treating it as if it is. Siphoning off of a cheap labor pool is not a sustainable long term strategy. Maybe it can be argued that in spite of its ephemeral nature, cheap labor and outsourcing rather than being exploitative, have helped raise living standards in many parts of the world. There is however, a growing concern with regard to enduring employment and advancement potential in both developed and developing nations.

Photo Credit: by Ben Burkland/Carolyn Cook