Could the rise of digital supply networks mark the end of labor exploitation?

Via SAP SE Newsroom

Jul 21, 2016

The digital revolution is significantly changing the way we work and live, but that’s usually where the consensus ends. Because we are living in unprecedented times, it is tough to predict how digitization will impact society on a global scale.

On one hand, the digital economy promises new job creation; more flexible and meaningful work; opportunities for learning and collaboration; and social, economic, and intellectual emancipation of developing countries and low-wage workers. But on the other, there’s risk: the destruction of medium-skill jobs, a shrinking middle-class population, high growth in low-income jobs, job relocation, and increased polarization between the winners and losers of this new era.

And as many dedicated organizations and individuals throughout the world continue to fight against labor exploitation and misuse, many wonder whether digitization could help end the majority of offenses. Could moretransparent supply and value chains help? Or will the exportation of labor reach new levels?

To answer this question, we studied the Networked Readiness Index and the Global Competitiveness Index, both published by the World Economic Forum (WEF). Not surprisingly, the chart shows a close relationship between the degree of competitiveness of an individual country and its level of digitization. The higher the digitization, the higher the competitive edge. According to the data, leading the pack are traditional industrialized countries such as the United States, the United Kingdom, the Nordics, and Germany. In the middle of the chart, developing countries – including China, Brazil, India, China, Turkey, Vietnam, and others – show average outcomes.

More interesting is the relationship between digitization and labor rights. The ITUC Global Rights Index highlights countries with no guarantees of labor rights as red, those that frequently violate them as yellow, and others that show no or infrequent violations as green. As shown in the chart below, nearly all countries that respect labor rights reflect a high degree of digitization. In fact, four out of the five leaders (annotated in green font in the chart) have attained this balance.


Although the majority of countries that routinely violate labor rights are found to have average to low digitization, there are still some exceptions where even developed and highly networked countries violate rights. And when we compare the ITUC Global Rights Index with the WEF’s Networked Readiness Index and the A.T. Kearney Global Services Location Index, an even clearer picture emerges: The world is decidedly split.

We have developed countries that usually respect labor rights and a group of developing countries that show a tendency to disrespect labor rights no matter their level of digitization. This is especially the case for offshoring countries – while we would expect a high degree of networking, they display a low position on the ITUC index.

These findings are in line with one of the bigger risks of digitization: Placing many jobs in jeopardy by moving them around the world and using the strength of digitization to disrupt the nature of labor markets. According to a research paper by the ETUI on the digitization of the economy and its impact on labor markets, this reality has been growing stronger organically over the last few decades. For example, the idea of managing a cloud of workers seems to undermine labor regulations, as we find millions of digital workers in Asia and America working together on increasingly precarious jobs.

On the flip side, social networking technology can be used to help digital workers organize themselves across all national boundaries. Unfortunately, especially in many developing and offshore countries, we see either no support or outright obstruction of labor rights. And as the current political climate favors nationalism, we probably will not see global regulations come to pass in the near future.

Will digitization reduce labor exploitation? No one has the answer – at least, not right now. Jobs in developed countries are even getting more insecure despite a high degree of networking, making exploitation likely. On the other, there are no strong incentives to encourage developing countries to support labor rights – rather, it’s the cost advantages of such practices that promote these violations.

Digitization can help, but it is still our responsibility to act purpose-driven and sustainable. How we cope with changes in economies and individual behavior and adapt social systems will determine whether the digital economy will be an era of labor exploitation or labor emancipation.

For more on the impact of digitizing the supply chain, read Live Business: Creating Digital Supply Networks.

Kai Goerlich is the Idea Director of Thought Leadership at SAP.

This story originally appeared on The Digitalist Magazine as part of the 10 Weeks of Live Business series.

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