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International Division of Labour

  In the 1970s, it became increasingly common for problems of unemployment and industrial closure in the UK and other Western countries to be blamed on the advent of a new international division of labour. As part of this, it was often asserted that manufacturing jobs were being exported to developing countries. The concept extends Adam Smith\'s classic theory of the division of labour to deal with the industrial and employment structure of whole groups of countries. It was used for the capitalist world and excluded the Soviet bloc, which was economically independent until recently. However, before it is possible to discuss the new concept, it is necessary to understand the old.

The old international division of labour (OIDL) existed between 1850 and 1950. The key point was that manufacturing industry was heavily concentrated in western Europe, the USA and later Japan. These countries were industrialized, both in the sense that they dominated the main industries of the period—textiles, iron and steel—and in the sense that they became developed in terms of incomes, education and consumption. The rest of the world was increasingly linked to the metropolitan countries, mainly as a source of agricultural products but also minerals, and as a market for manufactured products. Much of international trade was channelled by the colonial empires of the time, which added political dominance to economic dominance. However, the USA was reluctant to take the colonial route and relied mainly on economic power, especially in the independent countries of Latin America. As the heavy engineering industries were complemented by manufacture of consumer goods, the industrialized countries moved towards mass consumption and welfare systems, which gave their whole populations a high standard of living compared to the mass of the population in the colonies, though this advantage was shared by the Europeans in a few settler colonies.

The long established pattern of the OIDL changed from the mid-1960s, for reasons which are still being debated. The Bretton Woods system of fixed exchange rates crumbled and rates of profit fell, especially in the US, which also went into balance of payments deficit and financed it by exporting dollars and creating inflation. Manufacturing companies sought ways of restoring profitability, and many of them chose to do so by ‘going multinational’: that is, internationalizing production to lower costs and open new markets. This led to the salient feature of the new international division of labour (NIDL), the emergence of the newly industrializing countries (NICs), notably Brazil, South Korea, Taiwan, Hong Kong and Singapore. The obvious attraction was cheap labour, but investors also sought some experience of industry and an adequate infrastructure as well as political reliability. As a result, the new industrialization involved a small group of middle-income countries rather than a general spread of industrialization into the less-developed countries. Another new group of countries emerged as OPEC quadrupled oil prices in 1974. These countries included Mexico and Nigeria as well as the familiar oil exporters of the Middle East. Their economic growth was even faster than that of the NICs and some became more affluent than the developed countries, but the sale of oil did not bring about the industrialization of the whole society.

The degree of change involved should not be overstated: the previous groups of developed and less-developed countries continued to exist in spite of the emergence of the NICs and oil exporters. By 1980 the multinationals employed 44 million people and American multinationals employed as many people outside the US as the whole US labour force but only 4 million were in NICs, and total employment in the developed countries was 300 million. So the main change was internationalization of the economies of the developed countries rather than a move to the NICs. Nor was the growth that did occur in the NICs unequivocally beneficial: much of the new industry of the NICs was owned or financed from developed countries and only South Korea seems to have developed sufficient locally-owned industry to aspire to economic independence. By the 1980s, indiscreet bank lending in NICs and some oil exporters had created a huge debt problem which was magnified by interest rate rises until countries like Brazil and Mexico could not pay even the interest on their loans. Although many debts have been renegotiated, no debtor has reneged on the debt and many countries are now following austerity programmes imposed by the IMF. Whatever this may do for their credit rating, it does not help to achieve the incomes and infrastructure which would challenge for developed country status.

A development since the late 1980s is that the former Soviet bloc, which was previously regarded as developed, though at a lower level than the First World, has now been opened to the capitalist world economy and experienced dramatic loss of industry and jobs. It is too soon to assess what will happen, but it is far from certain that their developed status will be retained. It is ironic that these countries have chosen to join the capitalist world economy at a time when, in spite of two decades of rapid change, the problems of employment and profitability have not been solved. Indeed, at the time of writing (1993) one of the key elements of the internationalization of the world economy, the General Agreement on Tariffs and Trade (GATT), is on the verge of breakdown. If the future is one of increased protectionism by trading blocs, the international division of labour may be heading for another period of slow change. PS



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