frontline 15.

Outsource This: Scotland and Globalisation

Globalisation is the word on everyone’s lips this month, as we hear of the debates at the recent European Social Forum and begin planning our involvement in the action to be taken in opposition to the G8 Summit to be held in Gleneagles next year. But what does Globalisation mean for Scotland? Has our place in the world changed as the Financial Services Sector has taken over from manufacturing? Are we better placed to protect jobs and our communities against the fallout of neo-liberal policies? When the bubble bursts – will we be alright Jack? Linda Somerville, a financial sector trade unionist and SSP researcher in the Scottish Parliament investigates.

The Scottish Finance Sector – the backbone of the Scottish Economy?

With the Financial Services Sector providing employment for 1 in 10 of the population the Scottish economy is hugely dependant on it. The servicing sector has also provided a huge jobs boost in Scotland with 56,000 people working in call centres across Scotland, 30% of them in finance. The Scottish Executive boasts about the Scottish Finance Sector as a jewel in the crown of the Scottish economy. Last September Jack McConnell, the First Minister, stated: “A successful financial services sector is absolutely critical to a successful Scottish economy”. Deputy First Minister and Minister for Enterprise, Jim Wallace followed Jack’s enthusiasm for the sector that produces nothing: “We have made absolutely clear that our top priority is growing the economy. Supporting the success of our financial services sector will be crucial to achieving this.” The Scottish Executive holds up Edinburgh in particular as an economic success story, suggesting the city’s shortage of skilled labour is testament to this. The reality is Edinburgh has huge areas of social depravation, extortionate housing costs and high rates of borrowing and personal debt.

The recent headlines also tell a different story – a takeover bid for the Abbey, the mergers of the Halifax and Bank of Scotland; the Royal Bank of Scotland and NatWest, potential de-mutualisation of Standard Life, Scottish Prudential axing hundreds of jobs in Edinburgh and Scottish Widows trial transfer of jobs (offshoring) to India, all suggest an unstable market with no long-term strategy.

The Financial Services Sector has changed dramatically, and for the worst, over the last period. A decade ago most workers in the industry assumed they had a job for life, relatively decent pay, a cheap mortgage, a healthy working environment and a good pension to look forward to. For many working class people this was something to aspire to and it was preferable to many of the alternative manufacturing or public sector jobs available. Working in a bank involved learning a trade, staff were set regular exams with on the job training, similar to an apprenticeship, before becoming qualified.

Three main factors have changed all this: deregulation, new technology and globalisation.

Steady growth through market liberalisation or a bullish free for all?

In 1986 the Conservative government reformed the London Stock Exchange and the UK’s domestic capital markets in what became known as the Big Bang. Previously only banks and building societies had operated in a tightly regulated market. This change opened the floodgates for the big names in the aggressive retail sector to fight for a share of the lucrative financial products market. Now no one thinks twice about securing a loan from Tesco or a credit card from Marks and Spencer. The fierce competition led to a huge shake up in the conservative banking and insurance sector. Job losses became common as companies moved to close their branch networks and centralise all possible non ‘customer facing’ processes. The retail influence in the sector led to a proliferation of new financial products that we were told we couldn’t live without. The Tories push for council house sales in the 1980’s also fuelled the new mortgage market in the UK. Merger mania hit the sector as ‘survival of the fittest’ meant companies moved to slash costs and increase profits

Technical advances - helpful to workers?

The advances in new technology during this time have led to a revolution in the way the sector operates. The ability to carry out financial transactions, to invest and move capital at the touch of a button has led to a truly global market where distance and location are transparent. Over US$ 1.5 trillion are transacted every day. Complex accounting and actuarial processes were automated, monotonous form filing and copying was no longer necessary as more and more data on customers and their accounts was held. The arrival of automated cash dispensers signalled another nail in the coffin for branch staff who were no longer required to service queues of customers waiting to withdraw their wages and savings. The use of debit and credit cards further eroded the banks main servicing role as customers learnt to live without cash. The business options for new technology were immense as companies realised the cost saving potential offered by investing in system development rather than staff training. Suddenly it was common for large departments in banks or insurance companies to be staffed by people who had no real technical knowledge of the industry they worked in.

As the push for profits intensified the attacks on workers in the industry increased. Most companies moved away from incremental pay systems to individual performance based pay. Workers were de-skilled and any ideas of training and career progression were quickly forgotten as staff fought to keep their jobs. As pay rises struggled to keep pace with inflation, redundancies became the talk in every staff room. Thousands of beleaguered workers opted for voluntary redundancy to escape the rigours of the changing workplace. Often older workers were pushed into ‘voluntary redundancy’ situations as they were threatened with the spectres of downgrading and disciplinary action if they could not keep up with the rapidly changing environment and the introduction of new technologies. Workers in the industry now are at the forefront of the battle over pensions as their employers cut back on pension provision and close the attractive final salary schemes previously on offer to staff.

Just one final digital technical advance was necessary to prepare the way for the next development in the sector – Computer Telephone Integration systems (CTI). CTI created endless possibilities for the use of the Call Centre. Big business soon realised the massive savings involved in encouraging customers to phone rather than visit their bank - estimated at 1/10th of the cost of a transaction over the counter. Call centres were cheap and easy to set up, especially if they were in areas of high unemployment, mainly former manufacturing or mining areas. In some cases the Scottish Executive will fund companies to do this through Regional Selective Assistance grants, for example the e-sure insurance company set up by Peter Wood, the founder of Direct Line and backed by the Halifax and Bank of Scotland group received grants of £1,000,000 to create 400 jobs in Glasgow. In 2002/03 alone the Regional Selective Assistance programme recovered over £12 million worth of grants to foreign firms where they had not met the employment or investment criteria of the grant.

Cheap labour and sophisticated computer applications, including the use of automated voice recognition systems and automated dialling systems, enshrined the call centre as a central plank of any financial business development plan. The growth in use of home personal computers and the Internet has also offered the finance sector another low cost method of working. This business ‘channel’ is the icing on the cake as the customer does the work at home with minimal cost for the company, approximately 1/30th of the cost of the transaction over the counter.

Globalisation – a positive force for Scotland?

Globalisation can be described in many ways, blandly it can be ‘the economic process, involving the increasing interaction, or integration of national economic systems through the growth of international trade, investment and capital flows’. A more critical description may be that of the ascendancy of unaccountable trans-national corporations as a world dominating force at the expense of nation states and the majority of their populations. While this current stage of globalisation is unique the concept is not new. The first big expansion in world trade and investment took place in the late 19th century. Even the current General Agreement on Trade in Services, GATS, which the anti-globalisation movement has focused on, has its origins over 50 years previously in 1947 when the General Agreement on Trade Tariffs, GATT, was signed in Havana.

Similarly, this is not the first time Scotland has suffered from capitalism’s search for cheaper labour costs. Throughout the 1970s and early 1980s manufacturing jobs were lost in Scotland as employers moved their production sites abroad in search of greater profit. Huge areas of the country that were reliant on manufacturing were devastated. A generation ago Scotland was changed from a point of production to a parts assembly only economy with the resulting loss of a skilled workforce and massive unemployment. Companies in the finance sector are also looking to maximise their profits by exploiting cheap labour costs in developing countries. Savings of up to 30% - 40% on labour costs are expected. Already major employers in the UK financial sector have outsourced work abroad or are planning to: Aviva – 2,350 jobs to India, HSBC – 7500 jobs to China, India and Malaysia, Lloyds TSB – 1,500 jobs to India, Barclays – 500 jobs and so the list continues. Not all the jobs that are considered for offshoring are call centre jobs. The work involved in back office processing in the finance industry is just as lucrative and is a major target of the offshoring specialist companies that have recently sprung up around the industry. Some of the jobs lost will be from Scotland. While some Scottish companies have rejected offshoring at this time, the words of the Chief Executive of Lloyds TSB, Susan Rice, should ring alarm bells with everyone in the industry, “Offshoring could be the best thing that ever happened to the finance sector in Scotland” 1.

Challenges and opportunities

Firstly we must recognise that big business is only motivated by profit – any moral arguments related to Corporate Social Responsibility (CSR) will only be acted upon if they affect the financial bottom line. CSR statements by big business describe their relationship with all their ‘stakeholders’ - including the local community, their employees, suppliers and customers. According to the Department of Trade and Industry a companies CSR should ensure:

• It recognises that its activities have a wider impact on the society in which it operates
• In response, it takes account of the economic, social, environmental and human rights impact of its activities across the world.

This may look good on a business’s glossy publicity but CSR is currently enacted on a voluntary basis. The result being that CSR provides companies with an easy route into our communities. Cheap advertising at local leisure centres, libraries and council events for a minimal sponsorship is a good investment. A legal framework providing a mandatory base of minimum standards for CSR is preferable to the government promoting ‘best practise’ examples. However if the issues around CSR related to employment in local areas and the wider impact on local communities are turned into active campaigns which attract negative publicity and raise customer concerns then CSR can play a part in the challenge.

The traditional industrial relations response to proposed job losses involves negotiation with trade unions and campaigns to protect jobs. Both unions involved in the finance sector in the UK, Unifi and Amicus, have taken these options. Often the agreement of a company not to impose compulsory redundancies is enough to ensure union support for a voluntary redundancy process. Where compulsory redundancy is proposed then even the threat of industrial action can force the employers hand, as shown in Lloyds TSB when they were forced to back down over the closure of their Newcastle call centre with the loss of 1000 jobs.

Many critics argue that the trade union response is weak and fails to defend jobs in the UK. But to defend jobs in Scotland at all costs is protectionism and does not provide a progressive response to an international issue. Right wing commentators are happy to exploit the idea of ‘UK jobs’ spiking their argument with racism.

Only by decreasing the profit margin will big business reconsider its policy on cheap labour overseas. One of the attractions is also the cost of redundancy in the UK. A suggested campaign for a significant increase in redundancy payments and changes to the timescale for consultation and redundancy could again change the balance sheet. With statutory redundancy payments at a maximum of £270 per week, a worker with 15 years service age 40 would receive £4050 – pennies to any large company considering moving abroad. Many of the enhanced redundancy schemes offered by companies are now also under threat. The concept of redundancy itself proposes challenges for the left. The mantra that these jobs are not ours to sell and workers should not take redundancy must be re-visited as we ask if a worker in Scotland has the right to ‘own’ a job at the expense of an Indian or Malaysian worker? Our response to this question must be formed in an international context. Groups of workers competing for jobs will only accelerate the much publicised ‘race to the bottom’. The stock answer is to campaign to ensure that governments adhere to core labour standards, specifically the International Labour Organisation (ILO) conventions on freedom of association and protection of the right to organise. However, it is too simplistic to view this as a logical and correct industrial and international response. If core labour standards are left to the discretion of individual governments, they may not be enacted because of the fear of losing competitiveness in the global market.

Well organised trade unions in industrialised countries may possess enough industrial strength to affect change in developing countries where jobs are being created. Unifi, the trade union recognised by the global bank, HSBC, have submitted a ‘Globalisation Charter’ calling for the company to adopt ethical employment practices in all global sites. In Lloyds TSB the union has reached an agreement on ‘recognition of workers rights under the ILO Convention and a commitment to ethical standards in the bank’s approach to offshoring’.

But in a movement that chants ‘Fair Trade – Labour Rights’ can developing countries compete on these terms? The Indian government has still to ratify the ILO conventions on the right to collective bargaining, the freedom of association and the abolition of forced and child labour.

Essential to any approach is the actual practise of international solidarity. Communication between trade unions involved with the same employers in different countries must improve. This will encourage close co-operation and potentially some ‘unity’ between the different groups of workers. It will also assist in raising confidence and reduce the distrust, prevalent in the Indian trade unions, towards the idea that the Social Clause can be beneficial to them. The Social Clause would introduce a system where member states of the World Trade Organisation can apply sanctions against a country that does not comply with core labour standards. The debate on ILO standards must be shifted from trade sanctions to labour rights and UK trade unions can play a part in this process.

We must also recognise the diversity of the anti-globalisation movement and embrace the opportunity it offers to promote alternatives to the current capitalist system. To insist the participants have structures and organisations reflective of those from the traditional labour movement is as insulting as UK trade unions assuming they can export their own industrial relations model to developing countries. Organisational hegemony will not encourage this new movement to grow. A focus on common issues is the positive way to promote debate and build across nation state borders.

In Scotland we are faced with the same problems as other industrialised nations. The French trend of delocalisation is to Mauritius and Morocco; Spanish jobs have been moved to Latin America; Germany and Austria recognise the opportunities provided by eastern European countries desperate for economic growth. Even India itself is losing out on work that is going to Sri Lanka or China. The future extent of offshoring is unknown and estimates vary greatly. The popularly cited Forrester Research estimate of 3.4 million US jobs to be sent abroad by 2015 appears frightening but actually only relates to 0.5% of jobs in the industries affected. Accenture management consultants have predicted that 20% of all insurance jobs in the UK, not just in call centres, will be outsourced to India by 2010 destroying more that 70,000 jobs. Even if the numbers are exaggerated and the actual number is minimal the concerns they create have a significant effect. In the same way that a small number of unemployed workers serves as a reminder to those in work – so does the threat of offshoring.

Globalisation has critics throughout the labour and trade union movements in the world. Their responses have been varied trying to campaign against an almost abstract force. But importantly a new, dynamic response has also evolved from the thousands of groups united by only one strand – their opposition to this global system. They may see this as an environmental, economic, social, political or cultural threat and all have their own responses to it. Only by engaging with this movement and putting into practise the slogan of international solidarity can Scotland, or any other nation, challenge the neo-liberal globalisation facing us today.

Economist, Sep 19th 2004
RSA Annual Report 2003 -2004
Call Centres and Back Office Offshoring, Taylor and Bain
Trade Unions and Global Governace, Gerda Van Roozendaal


1 Sunday Herald 25th April 2004