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.