Prepared comments on University's membership in FLA and WRC

Comments to the Faculty Senate Ad Hoc Committee on Trademark Licensing

by Prof. Bruce Blonigen
February 1, 2001

First, I want to thank the committee for inviting me to speak today. Before I get into my comments, I want to briefly give you some background on my research and area of expertise. I received my Ph.D. in economics in 1995 and have been at the University of Oregon since then. My primary research focus has been the economics of multinational firms and global trade. In particular, my research has examined the factors that determine multinational firms' location decisions and the impact of these firms on local communities. While the majority of my work has focused on multinational firm operations in industrialized countries, I have followed the literature on multinational firms in less-developed countries closely and have advised a number of graduate students on this issue.

What I want to do today is to first outline what seems to me to be a popular perception of multinational firms and their role in globalization. Then I want to explain how the evidence from many studies does not support this view and, in fact, offers a much different view. Then, I want to talk about how these two views suggest very different things about how the University should approach the issues of trademark licensing in the world apparel industry.

A common view of multinational firms and globalization that I have seen in the press, and from what I have heard from students, is often taught in many classes at the University of Oregon, is of competitive, profit-seeking firms that have the ability to be footloose and, thus, locate production in countries that offer the lowest wages, the poorest environmental standards, and the lowest taxes. These firms have no regard for the welfare of its workers or the community and country in which they happen to locate. Once they enter a given country, they are able to push wages and working conditions even lower because they now have the upper hand in bargaining position. Inexplicably, countries compete for these firms in a race to the bottom, where the "winning" country gets the multinational because it has the lowest wages, working standards and environmental conditions.

I could add more detail, but this seems to capture the essence of the common view. As an economist, I certainly believe that firms try to maximize profits. But I think that the rest of the common view is inaccurate. In fact, the evidence is that we are witnessing a much more positive outcome from increasing investment by multinational firms around the world, including less-developed countries.

The first thing that everyone always focuses on with multinational firms is the wages of the workers. So, let's focus on that first. A new wave of research has had access to plant-level data on manufacturing production from less-developed countries. The researchers have obtained data on every single manufacturing plant in Chile, Mexico, Colombia, Taiwan, Venezuela, Turkey and more new countries are being added every year. Every single one of these studies comes to the same conclusion: Controlling for all other plant-level characteristics, foreign-owned plants pay higher, often substantially higher, wages than locally owned firms. Note first, this is examining the universe of all manufacturing plants in a country and is the overall effect, which is much more powerful than previous case studies that either document a few "good" or "bad" foreign-owned plants. Second, note that the relevant comparison is between the wages at foreign-owned plants versus local-owned plants, not how these wages at foreign-owned plants compare to U.S. wages or some other metric that is not directly comparable. In the end, the stark conclusion is that no matter which country you look at, multinational firms pay higher wages.

There are a number of reasons why multinational firms would do this. First, these multinational firms often have much better technology than local firms, which makes their workers more productive and valuable. Second, they can use higher wages to attract better workers. Third, as related to me by an former Intel executive, high wages can lead to lower costs if it means higher productivity from the workers because of better nutrition and health care. All of this is consistent with profit maximization on the part of firms.

Economics research has also uncovered other channels by which multinational firms benefit the countries in which they locate. First, there may be spillovers in technology from multinational firms to local firms - they learn about better technologies, which make them more productive. Multinational firms often provide extensive training of workers, who may then form their own enterprises or go work for local firms. Third, multinational firms often may use much more environmentally friendly production techniques because it is already used by the firm in industrialized countries and is cost-effective to continue in the less-developed country. Thus, the competition by countries for multinational firms may actually be a race to the top, because of the benefits that accrue to countries from the presence of multinational firms.

So this is the view of multinational firms that I wanted to relate to you today, which I think is based on some solid evidence: Multinational firms are more often than not an agent for positive change in their host countries, providing higher incomes, better technologies that can spillover to local firms, and a better trained workforce. This contrasts with the common view of multinationals as forces that need to be reined in and closely watched.

The apparel industry is a special in that many multinational firms contract with foreign plants, rather than own them. This may dampen some of the positive aspects, but presumably it will not completely eliminate them. For example, studies find that apparel firms that contract with multinational firms pay at least the average industry wage and almost always well above most countries' established minimum wages. At the very least, we know that demand by the multinational firms will increase demand for workers and raise general wage levels, which is an improvement from prior conditions.

So, what do these two very different views of multinational firms mean with respect to the University's policies on trademark licensing in the global apparel industry? I think the common view leads to taking a very adversarial relationship with the University's licensees and argues we need to ally with watchdog groups. The alternative view I have just presented is to encourage and enhance the positive impacts that licensees can have on these countries; in other words, a much more constructive relationship.

I make these distinctions because I think the two organizations the University has joined in response to these issues, the Worker's Rights Consortium and the Fair Labor Association, split across these two viewpoints. The WRC believes that it is counterproductive to even engage in a conversation with the multinational firms, whereas the FLA is intended to combine efforts of all interested parties to come up with constructive long-term solutions to encourage the positive aspects we often see from multinational firm presence in less-developed countries.

The FLA also enjoys an immense advantage in having the U.S. government as part of its association. The Department of Labor recently made available a 300-page document that details labor and wage conditions and norms for the apparel industry across 36 countries, to help the FLA's efforts. The State Department recently gave the FLA almost a $1 million dollars to support independent monitoring of apparel plants in less-developed countries, and so it was the FLA last week that announced it had begun monitoring of apparel plants with an independent auditing firm, not the WRC.

Finally, I don't understand why the WRC is only concerned with apparel that has University and College logos on it. Aren't we concerned about the global health of the entire apparel industry instead of some small part thereof? (These are my general impressions as one that has not been involved with the University's membership decisions in these organizations, so I am looking forward to hearing the Committee's and others' responses to these points)

In summary, we should keep in mind that the poverty of these countries is not due to the multinational firms. In fact, rather than blaming these firms for the country's poverty in a "guilt by association" reaction, we need to realize that the evidence is that these firms bring a positive change to these countries. Licensees are already paying market or above-market wages. If we think this still does not meet some criterion (often bandied about as a "living wage") then the licensors need to share the lost profits with the licensees and consumers need to bear higher prices for these products. The alternative is to raise the bar too high for these firms to bear by themselves and see them leave these countries - a scenario in which the workers in the less-developed countries likely lose the most.

In the end, the University should be using it resources and energy to find long-term solutions to effect positive change in the countries that support its licensees. I think the evidence strongly suggests that this is best accomplished through constructive engagement with the licensees, rather than treating them as adversaries.