Between 2010 and 2013, developing country economies grew almost twice as fast as wages — it's time to make trade deals work for people
One in three young people in the world is either unemployed or working yet living in poverty. TTIP-style trade deals — treaties designed to boost trade by reducing barriers to business — such as the Trans-Pacific Partnership and Free Trade Agreements with the EU could make the situation worse by pushing even more people into low paying jobs and undermining workers’ rights.
ActionAid’s new report, ‘What a way to make a living’, looks into the impacts of these kinds of trade deals on developing countries. We found that while the deals are helping to deliver growth it is often in low-profit sectors, at the expense of workers’ rights and wages — without profit there can’t be higher wages. This is a short-sighted approach to economic policy making.
Growth is important, but not enough attention is paid to the type of growth. Growth statistics can make or break political careers. Yet growth is not leading to more jobs or higher wages.
In fact, we have calculated that between 2010 and 2013, developing country economies grew almost twice as fast as the wages workers earn.
Economists have long predicted that a growing middle-class — defined as someone earning $10-$100 per day — in developing countries will catalyse job creation by driving domestic demand for regional production of goods and services. However, despite impressive growth figures, this has not been happening.
The number of highly-paid employees in developing countries is still far too small to boost domestic demand and create well-paid jobs. ActionAid calculations show that just 12 per cent of people in low and middle income countries earn enough to be considered middle class while 84 per cent live on less than $10 a day. Only the wealthiest four four percent earn more than $100 every day.
In sub-Saharan Africa progress is even slower. The middle-class makes up only six per cent of the population.
Retailers have long hoped that the emerging middle-class in sub-Saharan Africa would offer a new market for their goods. But the persistence of low wages has caused retailers to revise their expectations. A few years ago, Shoprite, South Africa’s largest retailer, had planned to open 600 to 800 stores in Nigeria. It currently has 12. In Kenya, Cadbury and Coca-Cola have closed factories.
The labour market is hollowing out in the middle. The vast majority are stuck in low-paid jobs in services and agriculture, while elites benefit from well-paid jobs and personal fortunes. ActionAid’s analysis shows that restrictive trade deals are making it ever more difficult for governments to support new industries that generate well-paid jobs for the middle-class.
In Vietnam the Trans-Pacific Partnership (TPP) and Free Trade Agreements with the EU will undermine the better paying and higher skilled manufacturing sector, forcing workers into the low skill, low pay garment and footwear sectors.
Like TTIP, these deals will allow investors to sue the Vietnamese government for changing the law in a way that has an impact on investors’ expected profits.The TPP and the EU-Vietnam Free Trade Agreement will be signed off by parliaments in the next year.
These deals are likely to lead to a major shift in Vietnam’s economy, away from producing machines and motorbikes and towards mass production of cheap clothes and shoes.
The consequences could be worst for women. In Vietnam, young women in the garment sector are often forced into jobs with non-liveable wages and substandard working conditions. Evidence from Bangladesh shows that global brands put pressure on suppliers to deliver clothes cheap and fast, pushing wages down and leading to terrible working conditions like those responsible for the Rana Plaza disaster in 2013.
The TPP will cover as much as 40 per cent of the world economy, including the US, Vietnam, Japan, Canada, Australia and Mexico. It could affect the lives of millions of people.
Economists tend to focus on GDP growth, assuming that this will lead to job creation. Yet all too often this doesn’t happen. Even the World Economic Forum recognise that jobless growth is one of the most concerning current global trends.
Trade and new businesses opportunities are an important part of the path out of poverty but restrictive trade deals and unfair global rules are pushing people in poorer countries into low paid jobs and undermining workers rights. Governments are being prevented from supporting companies in new, profitable sectors like electronics and engineering. That’s bad for economic growth and bad for the fight against poverty.
ActionAid is calling for a greater emphasis on tackling inequality and delivering growth fairly.
Rich countries and trade blocs like the EU should review trade deals to ensure poor countries can use economic policy to drive equitable growth and create decent well-paid jobs. The international community should also ensure global rules give as much protection to workers as they do to investors.
It’s time to make trade deals work for people.
Ruth Kelly is Policy Manager at ActionAid