This article introduces “Human Rights Dividend”, a concept that refers to economic growth caused by the lack of human rights. In a country/region where human rights are not protected, the government/those in power could attract foreign investment through exploitative policies such as pro-longed working hours with regular pay rate, no pension/retirement benefits, and/or poor environment protection policies, etc. These exploitative policies transfer into lower cost and higher profit margin for foreign corporations. As a result, the economy experience a huge amount of capital inflow, high employment rate, rapid economic growth, and a high saving rate.
This concept originated from my conversation with a friend in around 2001. She just came back to the USA from a visit to electronic factories in China. Realizing that workers repeated the same actions alongside assembly lines for at least 8 hours each day, she felt so unbelievable because it could not happen in the USA or Europe. She expressed her righteous indignation with a very strong word “inhumane” and asked why nobody even complain about this way of working? This strong word always stuck in my mind.
At that time I thought she was just overreacting. I knew how valuable it was to work in the electronic factories back in the early 90s. Those electronic factories, mostly joint ventures, offered salaries several times higher than their counterparts in inland China. Where else could people find such golden opportunities? Every morning in front of each joint venture there were people from inland China waiting in long lines to be hired, with comforters on their backs and luggage in their hands. Repeating the same action along assembly lines was “inhumane”? Such thoughts never came to my mind.
Back in the early 90s I worked in a joint venture in China. I lived in the factory dormitory with five girls. To my surprise, I rarely saw all five of them in the dormitory, because at least one of them was working over-time in their workshops. One weekend a girl said she had worked in her workshop for two days and one night straight, slept for a while by her desk when she was too sleepy. She was satisfied because overtime working hours were compensated by her regular hourly wage and the compensation was paid on time. We were all satisfied and thought joint ventures were fairer than state-owned enterprises, where working overtime without compensation was regarded as a contribution to the country, and was greatly encouraged.
A few months ago I talked to an entrepreneur. He just moved his firms to another country in Asia from China. One thing he was really satisfied was that “workers there are very obedient”: as long as the relationship with local government officials went well, there was no problem to ask workers to work overtime with their regular pay rate. It was very important for the manufacturing sector, he added, because sometimes you had to meet deadlines. I asked why not set up production in the USA, as the US government was encouraging manufacturing sectors to move back? He said “no way” for the labor-intensive industry. He then explained that working overtime in the USA needs double pay, so the cost of production would soar, not to mention other policies on employee protection. For example, some of the raw materials used in his factory were harmful to the human body. His firm would have to provide all kinds of protection and expenses for these protections add up very quickly.
Listening to his explanation, I recalled the “inhumane” comments from my friend in 2001. I suddenly realized by “inhumane” what she meant to say was the poor protection of human rights. Human rights in Europe and the USA are well protected, it is therefore difficult for labor-intensive industries to survive in these countries. By relocating to countries with no/less human rights protection, the labour-intensive industries could reduce their production cost. Lack of human rights is one of the main reasons that China had huge capital inflow over the last several decades. Capital in-flow brought along employment opportunities, so a large amount of population from inland China got employed and the Chinese economy expanded rapidly. The economic growth in China was largely due to the human rights dividend.
In the short run, both capital outflow (home) and inflow (host) countries benefit from the lack of human rights in host countries. Host countries experience capital inflow and therefore rapid economic growth, as is the case with China over the last several decades. Home countries, by importing products from host countries with a lower cost of production, could enjoy a Goldilocks economy with mild economic growth with low inflation.
But in the long run, the human rights dividend, or the economic growth due to the lack of human rights, is not sustainable. The reason could be well explained by Maslow’s hierarchy of needs. Economic growth leads to higher income, better nutrition, bigger houses, air-conditioners, cars, etc. Each individual’s physiological, safety and social belonging needs are at least partially satisfied. He/she would then desire the higher-level needs of self-esteem, or the need to be respected, and therefore more human rights.
This is particularly true for the young generation in China who grow up not only in an abundance of material, but in an abundance of love because of the “One-child Policy”. One of my entrepreneur friends once stated: “It is so hard to manage the young generation in China nowadays. Work over-time with a regular pay rate? No way! No air conditioners in workshops? Unbelievable! No health insurance and retirement benefits? They will leave right away”. My entrepreneur friends thought the young generation was too demanding, but what the young generation demands are no more than their own human rights.
As the young generation demands more human rights, the cost of production will rise. Foreign corporations, who always looking for a lower cost of production, will move away and source from elsewhere. The human rights dividend will gradually decline.
Home countries ultimately suffer from the human rights dividend because of capital outflow. Capital outflow, or sugar-coated as “Globalization”, leads to outsourcing and the loss of jobs. Several years ago I met a housekeeper in a hotel in Los Angeles. She used to be an office clerk in a software company. The company later outsourced its main business to India so she lost her job. She landed a job in the hotel, working as a housekeeper and earning an hourly wage with no benefits. Her case was not a special one. Due to outsourcing, many employees exit the labor force, as we can see from the secular downward trend in the labor participation rate from around 2001 (Figure 1).
Data Source: https://fred.stlouisfed.org/series/CIVPART