Asian Investments:
Implications on Trade Union Organizing in Asia

by Noel Villalba

 

I. PREMISES

Let me premise this talk with some preliminary remarks on global economic trends.

Global restructuring

For decades of the Cold War, the US assumed unchallenged economic leadership over the world’s free market system. The conjuncture of the end of the Cold War, the end of Reaganomics as well as the ascendance of Germany and Japan left a vacuum of leadership that no single country wanted or could fill: demand for foreign investments and credit by new market economies in Eastern Europe was expanding; resources to bankroll Third World development was decreasing due in part to recession in the North; neither Japan nor Germany was willing to take greater responsibility in world economic management.

These conditions call for G-7 to redefine global roles and responsibilities. Whether part of the redefinition of roles or not, there has developed a concept of tn-polar economic leadership being shared by the United States of America, Germany and Japan. Along with this is the apparent development of three regional trading partnerships European Economic Community (EEC) led by Germany, the North American Free Trade Agreement (NAFTA) led by the USA and various Asian and Pacific trade initiatives (APEC, AFTA, etc) which see Japan as an important player, if not a leader.

Regionalization

Several impulses push the triad (US, Germany, Japan) towards the formation and consolidation of regional trade structures. First, the invasion of Japan and Asian investments and trade into the technology-intensive markets of the Americas and Western Europe, which pose a potential long-term threat to the control of the US and Germany in their respective regions. Second, the potential of the Asian growth region. Third, he failure of the General Agreements on Tariff and Trade (GATT) to resolve long standing trade issues mainly between Europe and the US.

Japan, the least inclined to formalize a trade block in its own region for obvious reasons (the US and Europe are its most profitable markets in the world), is however being forced by both NAFTA and EC preferential trade to seriously reconsider strategic relocation of its investments and trade to Asia and Pacific. While the US is still the dominant trade partner of Japan, the latter has significantly decreased investments into the US and has within the last two years significantly increased its presence in Asia particularly China, which is now Japan’s second largest trade partner.

Regionalization is taking the form primarily of attempts to achieve preferential trade measures (reduction of tariff and non-tariff barriers) between members of a regional community. But it also involves the rationalization of production and investments within a specific region, for the purpose of strengthening competitiveness vis a vis the other regions, and gaining stronger "regional" economies of scale in place of "national" economies.

There are significant problems being faced in all the initiatives for regionalization. But the unsustainability of over-expanded national economies and of the model of a single country bearing sole responsibility for global economic management as the US once embodied, makes the idea of regionalization a compelling one for the next decades.

Transnational corporations and new production paradigms

Transnational corporations, powerful agents of globalization in the past, have grown to play an even larger role today. TNCs are the main directors of foreign investments, technology transfers, international trade and new integrative production paradigms. Transnational banks are major players in the credit market and help to organize funds for the World Bank, IMF and the Asian Development Bank. The language of the World Bank - IMF and GAFF is suffused with terms which originate from and reflect the demands of Transnational corporations such as export-oriented development, structural adjustment programs, privatization, deregulation and trade liberalization.

Transnational corporations, being what they are foremost agents of the "free market" increasingly bring into question the viability of the traditional concept of "national economies" and consequently the viability and function of nation states. TNCs are more thoroughly integrating national economies, impinging not only on national laws on foreign investments but also on national currencies, labor rights, consumer consciousness, resource development, environment and social welfare, among others. In a way, the efforts of nation-states to regionalize is a tacit admission that national economic planning framework is by itself inadequate (especially for small countries in southeast Asia) and only regional integration of the capital market, the commodities market and the labor market provide them with a long-term collective competitive edge over and against the other regions.

II. FOREIGN DIRECT INVESTMENTS TO ASIA AND FROM ASIA

World inflows of foreign direct investments (FDI) dropped in 1991 to US$180b from US$234b in 1990 dueto world recession, and is forecast to drop further in 1992 (Transnationals, Mar 93, TCMD, UN Department of Economic and Social Development).

The single largest component of the fall was Japan’s fall of outflow to the USA amounting to US$18b.

Japan is the largest source of FDI in Asia accounting for 26% of total world inflows, roughly US$30b in 1991. About 66% of Japanese FDL were directed to Europe and the US. However, a dramatic increase of Japanese investment to Asia was recorded in the 1991-1993 period in what has been termed as the second Japanese investment wave to Asia. Japan has gained a dominant investor position in Asia over and above US and European investors.

Developing countries received a mere 3% of cumulative flows between 1970-1991, roughly US$46b (TNCs from Developing Countries, Mar 93, TCMD, UN ECOSOC). However, according to preliminary estimates, FDI to developing Asia amounted to US$ 26b in 1991, making Asia the second largest receiver of FDI after the EC, surpassing the USA. (Aurelio Parisotto, International Labor Organization: FDI and activities of MNE: Recent Trends in Asia, Feb 93) At the same time, developing countries in Asia have become a growing source of FDI flows. From US$56m in outflows from 1970-1975, Asian developing country outflows have grown to US$5b during the period 1986-1991. (TNCs from DCs, TCMD) TNCs from developing countries in Asia account for 80% of total FDI outflows from developing countries. (Parisotto, ILO).

Size

The total inflows of FDI to the Developing Asian Economies (composed of NICs and ASEAN) was US$23b in 1991.

At the same time, the Developing Asian Economies are estimated to have invested into other Asian countries in the amount of US$ 10b in 1990, expanding further in 1991. (Parisotto, ILO) The largest investors in Asia (apart from Japan) are Hong Kong and Taiwan which according to some estimates jointly accounted for some US$20b outflows in 1991 most of which was directed towards China. (It must be borne in mind, however, that about half of Hong Kong outflows are accounted for by non-indigenous TNCs). South Korea outflows were some US$3b in 1990. Singapore outflows were some US$3b in 1989 primarily directed towards China, Thailand, Indonesia, Malaysia.

The dramatic increase of FDI from Asia can be seen in the following table. This shows comparative figures of outward stock of FDI in 1980 and 1990 (when available):

Outward stock of FDI in selected developing countries from Asia: (in million US$)

 

1980

1990

China

40 (1981) 542 (1987)

Hong Kong

5,607

18,930

Indonesia

6

183

Korea South

142

3,373 (1991)

Malaysia

406

1,489 (1988)

Pakistan

40

244

Singapore

819 (9181)

1,554 (1989)

Taiwan

101

4,733 (1991)

Thailand

13

404

(Source: p 27, TNCs from Developing Countries, TCMD, United Nations)

The combination of ethnic Chinese capital from Asia (from Hong Kong, Taiwan, Macau, Singapore and China itself as well as from Thailand, Indonesia, Malaysia, Philippines) as well as ethnic Chinese capital from other parts of the world (Pacific, Europe and US) mainly directed to Asia and Japanese capital creates the potential of Asia becoming the fastest growth region well into the 21st century and of becoming an equal vis a vis the other regions. Certainly, Asia, which has always had substantial human resources now also has demonstrable capital, technology, commodity and natural and other resources.

Location and types

Intra-Asian investments are of various types. There are: a) Export-oriented investments; b) Market-seeking investments; c) Efficiency-seeking investments; d) Resource-seeking investments; e) Technology-seeking investments.

Most Asian developing countries and their TNCs are of course engaged in all types of investments. However, the primary types of investments and their location or destination reflect the levels of evolution of Asian developing economies as well as of the level of evolution of their TNCs.

Export-oriented investments are those investments engaged in by TNCs which are intended to make products more competitive in the 73 export market. As NICs and ASEAN countries develop, costs for labor, capital, capital goods and property, correspondingly rise. Thus, industries engaged in export of these goods relocate to cheaper cost countries. Mainly these involve the labor intensive industries of lower-end electronic and consumer products, garments, textiles, toys, sporting goods, footwear, chemicals, etc. These investments come in the form of wholly owned subsidiaries, joint ventures, acquiring shares in local companies, contracting arrangements and various non-equity investments and partnerships.

Korean investment outflows are mainly encouraged by Korea’s large Balance of Payments surpluses. The Korean government encourages Korean TNCs to invest to China and Southeast Asia and elsewhere to rein in money supply and to avoid upwards revaluation of the Korean won, which could damage the competitiveness of Korean based exports. Korean investments into southeast Asia increased 52% in 1990 from 1989 mostly in manufactures. A similar situation exists in Taiwan. Resource seeking investmen ts are those which seek to tap energy resources, minerals, agricultural products and fisheries from other countries. This come in the form of wholly owned companies, subsidiaries, acquiring shares in local companies, establishment of trading companies and joint ventures.

The leading countries engaged mainly in the above two types of investments in developing countries are listed below:

Percentage of investment directed to developing countries:

Hong Kong

82% (1990)

India

92%

Pakistan

95% (1988)

Singapore

75%

Taiwan

51% (1989)

Thailand

53% (1991)

(Source: TNCs from Developing Countries, TCMD, UN, 1993)

On the other hand, there are countries which are mainly directing investments to developed countries. The type of investments they are mainly (but not exclusively) engaged in are:

market-seeking investments, technology-seeking investments and efficiency-seeking investments. Market-seeking investments are those investments that are designed to enable companies to acquire access to markets. These include investments into trading companies, assembly plants, banking and financial services. This come in the form of mergers, acquisition ofshares in local companies (trading and manufacturing), establishment of subsidiaries and the like. Industries involved include motor vehicles, electrical and industrial machinery, chemicals, electronics, consumer goods, etc. 73 Efficiency seeking investments are similar in that they are intended to rationalize global production, to achieve economies of scale through vertical and horizontal integration of production and to enable TNCs to gain access to large markets. This include investments into primary goods production, manufacturing, trading, banking and other services.

Technology seeking investments are those which seek to tap technological resources in other countries (mainly developed countries) as well as to tap academic, research and development resources and human expertise and skills mainly in new fields electronics and biotechnology. This come in the form of investments into research and development units of local corporations, into research agencies in institutions and academe.

A significant number of Asian developing countries, apart from Japan, are engaged in the latter three types of investments as the table below suggests.

Percentage of investment directed to developed countries:

China

71% (1990)

Indonesia

51% (1987)

Korea South

56%

Taiwan

49%

Thailand

36% (1991)

(Source: TNCs from Developing Countries, TCMD, UN)

The above percentages suggest that while substantial amounts of Asian TNC investments go to developed countries, there are substantial investments that go to developing countries as well.

The biggest Asian developing country investors direct their investments primarily to developing Asia and in particular to China as the table below shows:

Main developing country destination of selected Asian countries: (1990)

Hong Kong China (Secondary: Indonesia, Thailand, other NICs. HK has dominant investor position in Sri Lanka and Bangladesh as well) Main industrites: toys, garments, consumer electricals, electronics)
Taiwan China (secondary: Malaysia, Thailand, Indonesia and Hong Kong. Taiwan has dominant investor position in Fujian, China and Vietnam) (Main industries: garments, consumer electricals, electronics, chemicals)
Singapore China (secondary: Thailand, Indonesia, Malaysia and other NICs) (Main in dustries: consumer electronics, tourism, trade, financial services)
China Hong Kong (Mainly: Trading, banking, financial services)
Korea ASEAN (Mainly: electronics, garments, footwear)

(Source: Parisotto, ILO, 1993)

Sectoral distribution

TNC activities in electrical equipment is the single largest recipient of foreign investment in Hong Kong, Korea, Taiwan, Malaysia, Thailand and ranks second in Singapore and India. Other main recipient industries include: chemicals, food processing, beverage, textiles, leather and clothing.

III. IMPLICATIONS ON WORKERS

Employment in host countries

Although figures are scant, it is estimated that TNCs in Asia directly employ some 5 million workers overseas. (Parisotto, ILO This does not include indirect employment in local supply companies as well as in a variety of services which emerge from TNC operations for example banking, financial services, hotels, restaurants, etc. This figure also does not include national workers ofTNCs. For example, while it counts the number of Malaysian workers employed by Mitsubishi in Malaysia, it does not count Japanese Mitsubishi workers in Japan.

Employment by TNCs are significant not only in particular manufacturing industries (primary as well as electronic, garment manufacturing) which constitute a significant percentage of the labor population but because they are often the leading actors of the economy especially in export-oriented economies which the DAEs are. Hong Kong which has a total population of 5 million employs some 3 million workers across the border in China.

Employment in Japanese TNCs in Asia is significant for another reason. About 50% of all overseas Japanese TNC employees are in Asia.In most cases, employment in TNCs and affiliates constitute a small part of total employment in most Asian countries except possibly in Singapore. 73 In the manufacturing sector, the share of employment attributable to TNCs continues to grow. Malaysia, Indonesia, Sri Lanka provide relevant examples. This is true in employment in Export Processing Zones in these and in other countries. In the services sector: in banking and finance, in construction, in tourism, hotels, travel and in communications, TNCs are playing a bigger role.Where foreign investments come in as a response to government privatization moves, it ‘often means unemployment for local workers. In China, privatization of state companies has resulted in the laying off of 1.3 million workers from Jan-June 1993. According to State Statistical Bureau figures, during the above period, the number of workers in collective enterprises fell by 654,000 to 35 million while those working for foreign and private firms rose by 286,000 to 3.1 million at end of June 1993 (Hong Kong Standard, 16 Aug 93) In a China Daily report published in the mainland, those laid off by state run enterprises numbered 10 million for the period 1990 to middle of 1993, it was claimed. (HS 2 Sept 93).

Wages and worker rights

In their attempt to invite more foreign investments, many Asian and Pacific governments are abandoning previous legislation that tended to favor workers and union rights. All over Asia India, Australia, New Zealand, Sri Lanka and even China, labor legislation is being revised in favor of investors. If the collapse of labor protection measures is true even in large and relatively advanced countries, the condition of workers where union rights have been nearly nonexistent in the past are further debased such as in Indonesia, Malaysia and Thailand.

Workers safety

The influx of foreign investments has led to an atmosphere of recklessness in many countries. In May 1993, some 200 women workers in Bangkok died as the toy factory they were working in caught fire. Hundreds others were injured. The Kader toy factory was a joint venture between Thai partners and investors from Hong Kong and Taiwan.

In 1992, industrial work accidents killed 15,000 workers in China up 3% from 1991. (SCMP, 24 Oct93)

Economy of home countries

Foreign investments also have an effect in the home (sending) countries. The flight of capital and relocation of production to cheap labor countries have given way to at least three negative trends in the home country: loss ofjobs among local workers; 73 lower real wages as a result of the easing of demand for labor and inflation; and loss of revenue as a result of loss of exports. In terms of impact on balance of payments situation, the example of India is instructive though not representative. Studies show that the outflow of capital and slow inflow has resulted in negative balance of payment effects. In general, privatization in India is having a disastrous effect on workers. In other countries, it is a constant source of worry that trade problems outside could affect the inflow of export receipts to home countries. Industrial restructuring as a result of foreign investments is another area of concern. The more diverse the industry the more able the country can shift from one sector to another. Most NIC and ASEAN TNCs do not yet have a stable industrial base to benefit from the opportunities opened up by the need to export capital.

Redivision of Asian labor

Over the last decade, the face of Asia Pacific has changed. Economic stratification among countries has developed though not to the same level that exists between Europe-Americas and the South. In terms of GNP, Japan is alone on top; there are the NICs, Australia, New Zealand and China on the second rung; ASEAN (except the Philippines) on the third rung; and the rest of Asia and Pacific at the bottom. There is also significant stratification within countries. In this regard developments in China and India, the two largest countries in Asia with a combined population that represents 67% of Asia’s total population, bears watching because the introduction of a foreign-based economy is bound to create large middle classes in a few urban areas at the expense of the vast majority of the population. The social contradictions in these two countries are bound to intensify and create revolutionary conditions in those countries with broader implications to the rest of Asia.

The impact of this stratification is that there is a growing division of labor between Asian countries. This means that many poor countries could become labor adjuncts of Japan and the NICs where the latter’s unhealthy and dangerous segments of production are exported to the poorer countries. There could also be a process of neo-colonization of Asia by Asians. The process of recognizing this division is very slow in coming even among trade unions. It would be a serious setback to trade unionism in Asia and Pacific if stratification will lead to less militancy and less solidarity consciousness on the part of trade unions in Japan and the NICs, ifthe trade union experience of the West is any indication.

IV. INTEGRATING STRUGGLES

The integration of Asian labor by Asian TNCs brought about by the impetus of world competition creates both negative and positive portents for trade unionism and the workers movement in this region. This raises a dual challenge to trade unions and workers movements in capital exporting Asia and capital importing Asia how can trade unionism become stronger in the capital exporting countries as a result of their export ofcapital? How can trade unionism become stronger in the capital importing countries as a result of their importation of capital?

The key issue in Asian trade unionism will be how trade union struggles can be integrated between capital exporting and importing countries. Enterprises are integrated by capital, by markets and by workers. These are the points at which workers from different countries are commonly linked. In this regard, the most natural and logical step that trade unions need to take is to encourage enterprise solidarity among workers across borders. We need to devise enterprise solidarity. Some concrete projects should be initiated whereby real relationships can grow among workers across borders. We need to broaden workers education to include a more international perspective. We need to design cross border worker strategies that study the structure of production, markets, wages, working conditions and trade union rights. Eventually this should lead to cross border actions by the workers themselves.


(Paper prepared by Noel C. Villalba for the Conference for Workers in Australia, Asia and Pacfic organized by the Australia Asia Workers Links. The conference on the theme Workers Change the World was held Sept. 29- Oct. 3, 1993 in Melbourne, Australia.)