Absolute advantage.

In some cases, goods are just cheaper to produce in another country than the advanced
countries. An example might be labor-intensive goods (those are goods produced using more human input than
machinery). A lot of clothes purchased in the US are produced in India and Bangladesh, for example, and that
makes sense: there are many people, wages are relatively low, and so it’s cheaper to produce goods that can be
made by people. On the other hand, the US is more adept at producing capital-intensive goods (need more
machinery than people). An example might be circuit boards, which require a lot of machinery to produce right.
It’s easier to substitute people for sewing machines than to substitute them for photoengraving equipment.

However, that ignores some possibilities. If we only took absolute advantage into account, we’d come to the
conclusion that a few very smart, very productive nations should do just about everything. Breaking this down
to individuals, imagine an economy where there are only two people: a writer and her teenage neighbor. The
writer can produce 80 pages of quality material in eight hours and clean her dishes in an hour. The teenager can
produce 8 pages in eight hours and they aren’t very good, and it takes him two hours to do the dishes. (Not a
very productive kid.) If the writer wants a novel, she should do it, and if the writer’s dishes need to be washed,
then under the theory of absolute advantage, she should do them, since her absolute cost to do so is lower.

Still, that leaves her with two fewer hours to write, kicking her down to only seven hours and 70 pages. The kid
has six pages written and one load of dishes. She’s had to give up 10 pages of production – that’s her
opportunity cost, or the best thing she gave up to go mow the lawn. It’d be fair to say that doing the dishes cost
her 10 pages of writing. The tally: 76 pages plus two set of dishes (70 + 1 from the writer, and 6 + 1 from the
kid).

Suppose instead that the writer negotiates with the kid – she’ll do all his writing, and he’ll do all her dishes. She
writes 80 pages. He does two loads of dishes. The total: 80 pages plus two loads of dishes, PLUS the kid has
five hours free to put together another five pages of material. We have 85 pages and two loads of dishes. That’s
an extra 9 pages. Everyone’s better off.

This is called comparative advantage. The kid isn’t faster than the writer at anything, but his opportunity cost
to do a load of dishes – two hours of time – could only produce two pages of writing. The writer’s opportunity
cost for a load of dishes is 10 pages. So, since his opportunity cost is lower, the teenager’s comparative
advantage is in doing dishes. On the other hand, the opportunity cost to the writer of writing 10 pages is one
load of dishes. The opportunity cost to the teenager of writing 10 pages is five loads of dishes. The writer’s
opportunity cost is lower, so her comparative advantage is in writing.

We can extend that same idea to two different countries. In some, there are lower opportunity costs to produce
goods. It’s correct in a quick and dirty way to say that the opportunity cost of producing labor-intensive goods
in the US is higher than in India, and vice versa for capital-intensive goods. Basically, the theory of comparative
advantage tells us that even if we have the capability to produce something good, we should allow another
country to produce it and then import it if we can produce something better.

This idea is used by advanced capitalist countries of the world (USA and Europe) to shift the production of
goods with low opportunity costs to developing countries.

The International Division of Labour (IDL)

The international division of labour means the breaking up of the production process in different
locations/countries around the world. The term means the shift of manufacturing industries from advanced
capitalist countries to developing countries for saving money and avoiding environmental pollution. It can
involve a firm setting up offshore branches or divisions in different countries, outsourcing tasks to businesses in
other countries, or outsourcing employment to individuals in other countries using technology (IT outsourcing).
Firms have a range of options available to them globally: choosing to produce in a rich country versus a poor
country, an urban area versus a non-urban area, outsourcing different functions to different locations, using
technology to outsource functions without relocation.

Firms can still outsource routine tasks to low wage countries whilst retaining more complex tasks in high wage
countries. However, it is not just routine or low skill tasks that can now be outsourced: marketing, software
development, web page design and computer programming, for example, can all be done remotely.

The globalization of labour occurs via international migration but also via the use of technology in outsourcing
services such as call centres in India and Ireland, computer programming done by an expert in Russia, or
marketing campaigns designed in an office in the Philippines.

Implications of the international division of labour

Advantages
 Access to a much larger labour force for firms
 More competitive labour market drives down
labour costs, eg. Wages and working
conditions such as sick leave – this leads to
falling average costs, increased profits, rising
income, employment and economic growth
 Increased employment opportunities for
employees in developing countries
 Increased wages for employees in developing
countries
 Potential for employees to organise globally to
share information and to improve wages and
working conditions
Disadvantages
 Loss of jobs for employees in the home
country
 ‘race to the bottom’ of wages due to
international competition for employees in
import-competing industries
 Exploitation of employees in developing
countries, leading to poor working conditions,
job insecurity, low wages, not just in unskilled
or semi-skilled occupations
 Employers areable to work outside the
industrial relations framework including
minimum wages and standards of employment,
which can undermine wages and working
conditions at home

New International Division of Labor:

Under the “old” international division of labor, until around 1970, underdeveloped areas were included into the
world economy principally as suppliers of minerals and agricultural commodities. However, as developing
economies are merged into the world economy, more production takes place in these economies.

This has led to a trend of "global industrial shift", in which production processes are relocated from developed
countries (the USA, Europe and Japan) to developing countries in Asia (for example China, Vietnam and India)
and Latin America. This is because companies search for the cheapest locations to manufacture and assemble
components, so low-cost labour-intensive parts of the manufacturing process are shifted to the developing world
where costs are very low. Companies do so by taking advantage of transportation and communications
technology, as well as fragmentation and locational flexibility of production. The resultant division of labour
across continents closely follows the North–South socio-economic and political divide wherein the North—with
one quarter of the world population—controls four fifths of the world income [3] while the South—with three
quarters of the world populations—has access to one fifth of the world income.[4]
The effects of the NIDL on the political, social, economic, and cultural aspects of participating countries have
stimulated a great deal of research. Social scientists have studied the impact of the NIDL on development, labor,
women, inequality, and social class in the less industrialized countries.

In the NIDL,less industrialized countries serve as the industrial product manufacturing sites for world markets.
The majority of these products are exported to advanced countries.' In the less industrialized countries,
maintaining the conditions necessary to stay competitive against other countries in the NIDL hampers the
protection of workers' health and environmental quality.

Many workers remain ill-informed about and uninterested in occupational hazards. In the developing countries,
the first generation of industrial workers were drawn from the agriculture sector. These workers had no
experience with industrial work and were ignorant about workplace hazards and environmental pollution.

The rapid economic development and unregulated industrialization had already caused serious environmental
pollution. According to a comprehensive report on environmental pollution in Taiwan in the 1980s, the lower
reaches of major rivers in Taiwan had been severely polluted and the air pollution in densely populated areas
was already visibly higher than in previous years. The greatest problem, however, has been the widely accepted
belief that environmental protection must be sacrificed to achieve economic development.

In Bangladesh, we are totally ignorant about this new reality. One example is the shipbreaking industry which
has been very profitable but very dangerous for both the workers and the environment. Here is the description
of that danger.
The Ship breaking industry of Bangladesh
The Ship breaking Industry in Bangladesh is the result of a worldwide increase in decommissioning of old ships
that have to be recycled as new ships are coming in. The Financial Express has ranked ship breaking as the
“second largest employment generating sector” in Bangladesh. The Department of Environment (DoE) reported
that the number of the yards has increased to 70 now which were only 36 in 2008. The reasons for this increase
are the following:
a. Most ships are built in the technologically advanced countries which also have strict environmental
regulations that make it very expensive to dismantle old ships in those countries. Because an old ship is not only
a steel structure it also has many hazardous toxins, asbestos-laden insulation and old oil and gas which are real
threat both for the environment and humans. The docks must ensure that these toxins do not leak into soil and
water. The workers must also be equipped with safety gears and appropriate protection during work. The wage
should also be high for these workers since this is a dangerous occupation. Thus, the whole process demands a
lot of expenses. So, the owners of ships send these ships to the poor south Asian countries. Because, they have
very poor enforcement of environmental regulations, worker’s safety standards and wage are very low. The
country also needs steel and prices are high for steel. So the business gets very profitable for the owner.

Working conditions in the ship breaking industry:

Workers’ rights activists report high death tolls, burns, physical injury and other severe accidents in the
shipbreaking yards, not to mention silent deaths from years of exposure to chemicals. “In Bangladesh, 30,000
workers—many of them children just 10 to 13 years old—break apart huge decommissioned tanker ships,” says
a report by Global Labour Rights. Similarly abysmal conditions exist in India and Pakistan. The workers are
“forced to work 12 hours a day, seven days a week, for wages of just 22 to 32 cents an hour, doing one of the
most dangerous jobs in the world.  Workers cut the ship into pieces by using blowtorches. The steel plates are
dropped on the muddy sand and carried away on the shoulders of a group of workers who must walk at the
same pace to carry the very heavy sheets of steel. While cutting these plates the workers face many dangers.
The blow torch may ignite the stored gases inside the ship and cause an explosion. It may also reduce oxygen
for the workers inside the ship. The heavy steel plates may fall on a worker. The fumes from toxic chemicals
may make them sick. They are injured and maimed every day, and on average a worker is killed every three
weeks.” Added to that, there is minimal safety gear or training, and the ships have an average of 15,000 pounds
of asbestos which may cause cancer. Workers do not have any safety goggles, gas masks or protective dresses
to keep them safe. Even after cleaning the asbestos they do not have enough water to clean their body and
dresses.

Socio-economic condition leads to precarious work:

Despite the risky conditions in the shipbreaking yards, migrant laborers with little other choice move to
Chittagong, Bangladesh, to scrape together enough income to merely exist. While working, they live in areas of
the city that are essentially off the maps, in an invisible world where their identity, dignity and work are
overlooked by the world around them, including by the government. Most stay in mushrooming slums which is
humanly inhabitable in normal condition. With no readily available hospital facilities these workers are
constantly exposed to hazardous condition – spurious, poisonous gas can play havoc any times.

Environmental Hazards and the threat to human health:

A research by University of Chittagong in 2006 shows that polychlorinated biphenyls, or PCBs, asbestos, lead,
chromium, mercury and oil are released when ships are dismantled, have polluted the water and soil of coastal
Chittagong (see ‘Toxic water’). Oil kills marine organisms, while chromium and lead in paint and batteries
cause skin diseases, problems in the gastrointestinal tract, liver, and damage the brain and kidney. Mercury in
lights, fire detectors and tank-level indicators can lead to mental retardation, disorder of the nervous system, and
delayed neurological and physical development. However, there is little study to show the impact of pollution
on the health of Sitakunda residents.

Failure of the Government to ensure workers’ safety and protection of the environment

Under pressure from international organizations, the Bangladeshi government announced earlier this year that it
was pursuing a policy to introduce an environmentally friendly shipbreaking industry in the country. The new
policy followed a temporary High Court ban on normal shipbreaking operations in Bangladesh. The measures
involved requiring ships entering Bangladesh’s waters to carry proof that they have been decontaminated of
toxic chemicals, which essentially brought the industry to a halt for a month. The closing of the shipbreaking
yards led to the shutdown of some re-rolling and steel mills, which claimed a loss of Tk 320 million (US$4.3m)
daily, according to a Financial Express article. With the powerful steel industry behind the shipbreaker owners,
the Bangladeshi government upturned its strict measures and, as a result, the shipbreaking industry continues
unregulated.