Devangshu Datta: Labour arbitrage can be beneficial

VIEWPOINT

Slavery is the most extreme, yet most logical, form of labour arbitrage. Sooner than pay subsistence wages, a slave-using society reduces cost of labour to bare subsistence. Slavery was the cornerstone of cultures as diverse as Rome, China, Greece and Egypt as well as Nazi Germany and the USSR.

Slave-owning societies have no problem with free labour flows. Prisoners were taken in battle. The victors took them back to their homeland to perform scut work. The cotton and tobacco plantations of the US, the cane fields of Cuba and the Caribbean and the rubber plantations of Brazil were all staffed by slave labour, transported across continents.

From slavery to indentured labour is one step up the ladder. The plantations of Fiji and Mauritius as well as the US railroads were built via indenture. Again vast workforces were moved. Then the Nazis re-introduced classic slavery with labour relocation on armament assembly lines.

Slavery and indenture are inefficient in fostering growth. There are only so many jobs that can be performed satisfactorily by unwilling persons, who entirely lack the concept of job satisfaction. Also, in societies with large slave populations, economic surplus is too concentrated to lead to widespread consumption.

But indenture and slavery do foster open-mindedness about the broader concept of hiring people and relocating them to save money. And that leads to the more sophisticated concept of skilled labour arbitrages. Here the employer is not only trying to cut costs; he is trying to find somebody who can perform a specialised task efficiently.

Oddly enough in the current global context, skilled labour arbitrage was first employed in the most sensitive area""the military-industry complex. Chengiz Khan conquered China through stealth and bribery. The Great Khan promptly took over the rocket-batteries and siege engineers of his erstwhile foes.

In more modern times, the British navy during the Napoleonic Wars drew nearly 10 per cent of manpower from non-citizens; skilled sailors who had either volunteered or been press-ganged into service from everywhere. At the climactic Battle of Trafalgar (1805) the crew of Nelson's flagship Victory included 22 Americans, one Brazilian, two Canadians, two Danes, seven Dutch, four Frenchmen, three Germans, nine Italians, eight Maltese, four Norwegians, two Portuguese, four Swedes, one Swiss, two Indians and four West Indians.

Famously, it was all-volunteer. Nelson had a habit of winning and crews got a share of the prize-money for every captured ship. Notice that Britain was at war with France and it had fought very recent wars with the US and the Dutch! Yet Britain did not hesitate to employ enemies on its best ships and send them into battle where they could have committed acts of sabotage.

The Cold War arms race was, again, staffed by erstwhile enemies. The Americans and the Soviets simply divided up the German scientists who fell into their hands and "encouraged" them to continue research. For a while, it was a question of which set of Germans made bigger and better research breakthroughs. The ICBM and fusion bomb programmes are perhaps the ultimate example of skilled labour arbitrage.

It's unthinkable now. Defence services everywhere would go into shock at the thought of employing quantities of non-citizens. Even in defence research, most nations cringe at the thought of employing non-citizens. The security shibboleth is raised whenever the issue of labour arbitrage comes up in "sensitive" industries. India will not allow foreign telecom CEOs or Chinese port contractors. Europeans are uncomfortable about Pakistani nuclear engineers.

Labour arbitrage, particularly skilled labour arbitrage, also implies free immigration and that is what actually raises the hackles. Earlier, simple racism prevailed. In the era of globalisation 1.0, labour could be easily relocated because it was marginalised. It was excluded from social reckoning since it had the wrong accent and/or the wrong skin-colour.

Open, official racism is no longer fashionable. But without that underpinning, societies everywhere are loath to allow labour arbitrage. In order to work, globalisation 2.0 must find another social lever to replace racism.