Global Production in a Romanian Village: Middle-Income Economy,Industrial Dislocation and the Reserve Army of Labor

Introduction

Increasing the geographic mobility of workplaces has become the biggest challenge for the workforce in the manufacturing sector since the 1970s. Industrialized economies have witnessed disappearing factories. Continuing layoffs, a result of moving production to cheaper locations, have changed cities and regions traditionally regarded as industrial. Even the most prestigious manufacturers, often considered symbols of nations and their values, such as British Jaguar or Burberry, have ended up offshoring their production cycles. In the new locations, existing regimes of production influenced new work organization and efficiency (Brass, 2011). New host economies gained growth and competitiveness by taking up the production. Investments stimulated economic activity and created new jobs. However, the long presence of investment was not guaranteed in new locations. Offshoring processes may migrate further, leaving the previous locations and using the labor-cost advantage in developing economies. This article considers the situation of the labor force in middle-income economies in the global competition for offshore production.

This article focuses on a community in Eastern Europe, which by hosting an investment by a multi-national corporation became a participant in ‘the race to the bottom’ (Rudra, 2008; Collins and Mayer, 2010), based on moving industrial processes to less-expensive locations. In the case study, there is a focus on the local effects that the movement of production brought to Romania. Over the course of almost five years, the host community witnessed a cycle of events: from localization of a large scale-manufacturing plant to its dislocation in 2012. By referring to the complex social change that took place, this article focuses on the role of the plant in Romania and locates it within the wider context of global production. The articles also focuses on regional and national consequences of the investment, and shows how temporary the presence of multinational investors might be, outlining the difficulties in sustaining competitiveness in the global cost-based race that many middle-income economies face.

This paper considers the growing dependence on foreign capital as part of the expansion of the global ‘reserve army of labor’ (Marx, 2001). As shown, what Vladimir Lenin described as a situation of ‘when the factory goes to the muzhik’, referring to the capitalist practice of immobile peasants becoming factory workers (Lenin, 1967), seems to still be very relevant today. In contemporary capitalism, competition between different geographies for Foreign Direct Investment (FDI) has been widely discussed, and three fundamental arguments are at its core: (1) challenged state sovereignty and inability of the nation-state to control labor processes (Sassen, 1996; Krasner, 1999; Cohen, 2012); (2) the cost-competition race (Rudra, 2008; Brass, 2011); and (3) the evolving scope of labor movements (Clawson, 2003; Silver, 2003). All three of those arguments are based on the analysis of the geographic dispersion of a production chain and lack of effective global protection and control over the labor process. This case adds to this literature an example that shows how political and social institutions in newly industrialized states struggle to cope with social change caused by mobility of global investments.

Labor in states that gradually underwent economic transformation and internationalization has become a part of the global production systems of multinational corporations. This has been the case in Mexico, which since the 1960s has faced increased inflow of offshoring production, which was consolidated in the 1980s and intensified after the signing of the North American Free Trade Agreement (NAFTA); and in Eastern Europe, which since the systemic transformation plays a similar role in the European Union (EU) integration process. Using low-cost labor resources, the manufacturing sector in both regions has bloomed in the last two decades. However, recently regions highly dependent on FDI have increasingly experienced industrial dislocation. In a similar manner to what has already been happening in advanced economies, multinational corporations have increasingly moved their production to less costly locations, such as Southern Asia. The process was intensified by the 2007 economic crisis, but generally it is a sign of progressing the race to the bottom of lowering labor costs. The labor force that faces the industrial displacement in those economies is very different from the traditional Western working class. Notably because of its different historic trajectory, lack of industrial traditions, the relatively short period of factory work experience, high labor turnover in the workplace and limited social welfare, its experiences and understanding of global labor and the movement of capital are different. These issues are partially addressed in this study.

The contribution of this article is threefold. Firstly, a lot of empirical work regarding the process of industrial dislocation has been concentrated on Western urbanities and has come to conclusions based on an analysis of economies with an industrial past (Rousseau, 2012; Mollona, 2009; Blyton and Jenkins, 2012). This work refers to a case in Eastern Europe, which has not been previously studied in the context of industrial relocation, and which can be considered a semi-periphery of European industrial production. Secondly, this case argues in support of the theoretical position of uneven geographical development formulated by David Harvey. Once an industrial zone was built, it constituted ‘a space of global capitalism’ and brought intensified neoliberal activity to the region (Harvey, 2003, 2006). The eventual dislocation of the plant proves that the journey was part of the ongoing spatial restructuring of production. According to Harvey this process of ‘accumulation by dispossession’ propels informalization of labor and results in a global decline of workers’ rights and entitlements such as wages, social benefits or job security (Harvey, 1990). As this case illustrates, the workers’ lack of ability to achieve upward mobility pushed them to seek alternative sources of income during employment in the plant and to use the support of other household members. The industrial employment was thus closely tied to workers’ private lives and at-home care and support. Thirdly, by referring to the actions following the plant’s closure, shows how the workforce and host community considered the industrial zone a ‘spatial fix’ of the global capitalist production. By referring to the mechanisms of social support and solidarity following the dislocation, the article demonstrates how different the reactions of the workforce in new geographies are, compared to more advanced economies. Romanian workers’ deep belief that the industrial production in the zone will promptly continue with another investor strongly reflects what Marx termed the expansion of the global reserve army of labor (Marx, 2001).

‘Reserve Army of Labor’ from the Middle-Income Economy

The greater the social wealth, the functioning capital, the extent and energy of its growth, and, therefore, also the absolute mass of the proletariat and the productiveness of its labour, the greater is the industrial reserve army. The same causes which develop the expansive power of capital, develop also the labour power at its disposal. The relative mass of the industrial reserve army increases therefore with the potential energy of wealth. But the greater this reserve army in proportion to the active labour army, the greater is the mass of a consolidated surplus population, whose misery is in inverse ratio to its torment of labour. (Marx, 2001: 707)

One of the fundamental assumptions in understanding the process of offshoring production is the process of expanding the ‘reserve army of labor’ that ensures perpetual accumulation of capital (Marx, 2001). In recent decades, thanks to free trade agreements led and initiated by developed states, this process of mobilizing the previously excluded labor force has intensified, especially in geographically proximate middle-income economies. Because of what Michael Burawoy called the politics of production, the state’s intervention in domestic and external policy has shaped the nature of production and labor politics (Burawoy, 1985). In effect, through the process of economic integration, peripheral zones, with collapsed or no former industrial activity, were incorporated into the global labor force. As the literature shows, this process especially affected agricultural workers from the countryside and women (Salzinger, 2003; Kopinak, 1996).

In the literature a symbol of this transformation is the maquiladora. This production model is defined in Mexico by the Decree for Promotion and Operation of the Export Maquiladora Industry (El Decreto para el Fomento de la Industria Manufacturera, Maquiladora y de servicios de Exportación) as ‘an industrial or service process that implies transformation, elaboration or repair of merchandise of foreign origin, permanently or temporarily imported for its later export’ (translation by De la Garza Toledo, 2007: 399). In the literature on labor, maquiladora became the name for offshoring practices based on exploitative labor. The notion of maquiladora production goes beyond the geographic area of Mexico, and in the literature it is also applied to industrial zones in Latin America, Southern Asia or Eastern Europe. The maquiladora syndrome does not have any cross-national comparative value; however, in the literature it serves as a conceptual model of low-cost industrial production, based on the assembly of imported components (Pavlínek, 2004; Ellingstad, 1997). The issues stemming from the ‘maquiladora syndrome’ or ‘maquiladora industry’ are transplanted to different socioeconomic contexts, and they reflect the relationship between low-cost labor and external capital in the semi-periphery. The maquiladora production process symbolizes production for export, mostly because of low internal demand, deskilling of workers, extensive outsourcing with just-in-time parts delivery, and production in a geographically concentrated location, often supported by migration from zones with a slack labor market (Ellingstad, 1997). The concept of maquiladora also carries powerful social implications, such as a power imbalance between workers and capitalists, enforced for instance in responsibility-free hiring through subcontractors, low-paid work, little opportunity for unionization, job insecurity and part-time and temporary work (Bonacich and Appelbaum, 2000).

In recent years, the crisis of maquiladora production in Mexico has been widely addressed (De la Garza Toledo, 2007). Currently, in some regions of Mexico the factories are in decline, losing cost-competition to other geographical locations, especially South Asia. The global drift continues towards other models of production performed under less strict regulatory conditions and in a less regulated environment. The strongest global competition comes from China. Low labor costs, high productivity and concentration of workers coupled with state-introduced discipline and lack of labor organizations and solidarity significantly reduces production costs (Pun and Smith, 2007). A specific configuration of the workforce, located in controlled dormitories on the plant grounds, consisting mostly of internal migrants from the countryside, provides competitive labor costs and conditions (Ngai and Yuen-Tsang, 2011). The cause of the comparative advantage is lower labor costs achieved by total control, supervision, and other practices often not complying with the local labor regulations. Shop-floor control is extended beyond work time. It includes extreme discipline, control over the private lives of workers and their high turnover (A Chan, 2001; C Chan, 2010). Additionally, besides the cost, the huge size of the workforce makes flexibility, quick mobilization and responsiveness to production demands possible (Pun, 2005). A power regime based on direct control over the workforce creates a total institution focused on production for the international market.

Under such conditions, cost-based competition is extremely difficult for modernizing economies like Romania. The labor force in those economies falls into a ‘middle income trap’ (Paus, 2012). In these countries, due to their socioeconomic advances, pushing wages lower is impossible; the labor force is also protected by labor regulations. Losing the global competitive edge for investors locally means plant closures, which remain outside political control and the bargaining power of workers’ unions. Disappearing production plants are among the problems destabilizing social life in the host communities. This paper focuses on an industrial zone, which serves as an empirical example of those changes. By referring to the stages of a manufacturing plant’s presence, from its dislocation from Germany in 2007, through its location in Romania, and further displacement to China in 2012, this article elaborates on the localized effects of global movement of capital from the perspective of a middle-income economy.

Post-1989 Eastern Europe as a New Labor Reserve

After the collapse of communism, FDI mushroomed throughout Eastern Europe, as it was considered a valuable source of growth and knowledge exchange. During the 1990s, privatization coupled with green field investments helped the ruined post-socialist economies recover from transitional fever (Fabry and Zeghni, 2006; Weresa, 2004; Bandelj, 2004). However, the growth did not occur proportionally, leaving out in particular rural populations of former state farms (Jastrzebska-Szklarska, 2002; Borzutzky and Kranidis, 2005; Lerman et al., 2004). In towns and cities, FDI provided employment for the low-skilled urban labor force, which faced difficulties adapting to the new conditions of neoliberalism and market capitalism (UN, 2005). FDI brought new technologies and labor organization practices, transforming urbanities in a complex way and contributing to national economic growth (Pavlínek, 2004; Neuhaus, 2006). Benefitting from low-cost labor and state privileges, the investors saw Eastern Europe emerge as a business opportunity; the production process was inexpensive and close to the output markets, mainly Western Europe, despite the transportation costs (Ellingstad, 1997; Smith et al., 2008).

On the other hand, some peripheral regions, such as rural areas located on the grounds of former state-run farms and collectives, have not changed in the more than two decades following the systemic transition in the region. Their stagnation continues up to the present-day. The case presented in this article focuses on the experience of one such community located in the Romanian countryside. While in the early 1990s FDI inflow boomed in countries such as Hungary or Poland, Romania remained outside of the interest of the investors (UNCTAD, 2012). Even though Romania is a member of the European Union (EU), it has not been as successful as its other Eastern European counterparts since the systemic transition. Due to tardy reforms and insufficient discipline among the political class, Romania went through a very long and painful process of economic transition. It took almost 15 years of mediation by supranational bodies to establish a basic framework for the state (Noutcheva and Bechev; 2008; Hunya, 1998). This change is reflected in the inflow of FDI, which grew between 2003 and 2008 from $2 billion to over $14 billion (UNCTAD, 2012). Romania still struggles in most aspects of its political life with high corruption, pending legislative and health reforms that are very far from being implemented (King and Sum, 2011). The social structure is deeply polarized (Miriam, 2011) and the overall level of the wages is among the lowest in the whole EU. Urban areas are less vulnerable. The bigger cities in particular provide employment possibilities and high levels of education (Stanef, 2012). On the other hand, rural areas are in deep stagnation embedded in chaotic property restoration, the collapse of state-owned farms and the atomization of the agricultural industry (Heller, 1998; Kideckel, 1984; Sofer and Bordanc, 1998, Verdery, 2004).

The host community that was studied faced rapid change in 2007. Until the plant’s establishment in 2007, besides temporary and low-paid jobs in agriculture and construction, there were very few possibilities of wage labor in the area. Similar to other stagnated rural areas in the post-communist world, in order to pursue employment many community members had to leave the village every day (Bunea, 2012). In the rural community, commuting to the closest city to work takes about an hour from the bus stop in the village. Everybody tries to avoid the commute as it is considered costly and time-consuming. Another common work solution is migration to Western Europe (Vlase, 2012). Very few community members have attempted it and succeeded; others did not leave, fearing the risk of failure and initial costs. This article concentrates on an alternative that global investment provided: working in the global factory and producing for the world market. Further along, this article shows the consequences of the investor’s presence and mobility from the perspective of a middle-income economy: how the investment was experienced at the community level; what changes it brought to the region; and, finally, what reactions the relocation caused and how it was different from the German city that previously hosted the plant.

Global Investment: MobiTech’s Production in Romania

The assembly plant that was studied was the first to be set up in the mid-1990s in the industrial city of Bochum, Germany. The German plant was created as part of the production network of a European producer, called in this paper ‘MobiTech’, which at that time was on its way to dominating mobile phone sales on the global market. The plant in Bochum hired about three thousand shop-floor workers at a time, being an important element of the local labor market. In 2007 the activity in the plant stopped and the layoff process started. By 2008 the assembly process was completely moved to Romania, officially due to increasing costs of labor in Germany. In Romania, MobiTech opened a similar big-scale assembly center serving the European market. After almost five years of functioning, the plant was displaced from Romania in 2012. Again, the re-location was officially justified by the costs of labor. At that point the plant was moved to Dongguan in China, where MobiTech had previously established its assembly plant. At that time, despite the loss of market leadership, the investor was still one of the key global players in the international markets and offered a wide range of up-to-date products for all segments of the market. According to the official information from MobiTech’s web page, its production facilities are located in Hungary, China, Brazil, India, South Korea and Mexico. The most recent plant was established in Vietnam in 2012.

MobiTech’s journey across political economies and labor regimes provides an example of a challenge to middle-income economies. Based on 22 selected interviews from the 14-month-long ethnographic study conducted in 2011 and 2012 before, during and after the displacement, shows the process of the movement of capital from the perspective of the labor force. The field work has been complemented with secondary data in this article. After analyzing the outcomes that MobiTech’s production brought, it is demonstrated that capital mobility brings irreversible changes to host communities. Communities receiving new capital face the challenges of rapid industrialization and modernization. All of them undergo rapid social change based on (de)industrialization connected to the geographical movement of hundreds of workplaces. At the moment they lose the investment, their dependence on the recently established workplace creates social problems. The frequent lack of political instruments often constrains workers’ social protection. Instead, one of the most important sources of resilience is the traditional household with diversified waged and unwaged income.

Outcomes of the Investor’s Presence

Right away the plant improved the labor market in the region. Work for the prestigious investor gave hope for stable and continuous employment to the disadvantaged rural population in particular. Despite physically demanding work, relatively low wages, the inconvenience of commuting and the insecurity of temporary contracts, the workforce was of the opinion that the conditions in the workplace were good for them. MobiTech offered numerous benefits, including health insurance, food stamps and basic healthcare. The policy inside the plant was considered to be fair and reasonable. The non-discriminatory hiring process was especially appreciated by older and inexperienced workers. Most of the workforce appreciated transparent rules, felt safe at work, and enjoyed the working environment. Even though the work duties were long and repetitive, most of the workforce enjoyed the shop floor.

The salaries were considered the biggest disadvantage. Wages were too low to stimulate upward mobility and to achieve a living standard comparable to the Western working class, which many workers dreamed of when the investor’s arrival was announced. The level of wages was significantly lower than in Germany, amounting to about 20 percent of a German wage. An estimated 50 to 60 percent of the shop floor workforce was hired through intermediary contracts, getting paid less than those directly hired and working for defined periods, usually of three months. All workers agreed that the wage was not enough to fully pay for all of the living expenses of one person; it was not enough to cover rent, food, and utility costs. For most of the workers the possibility of regular income was still quite attractive. Realizing that any form of upward mobility from the salary alone was impossible, many workers spent most of the money with no plans for investment. The situation was especially difficult for the workers with temporary contracts, who were additionally unsure about the length of their employment. Some of them tried taking out loans, for instance to purchase real estate, but their applications were usually rejected.

For most workers their low salary was compensated by the traditional organization of their households, which made work in the plant possible. Families shared housing, household duties and diversified sources of income. The families of workers from rural families produced some of the consumed food. There were very few cases of younger workers who did not continue to live with their parents. The shift system encouraged engaging in parallel work activities. It required working nights and days interchangeably. The working schedule was divided into 12-hour shifts every second or third day, ensuring days off. Most of the respondents agreed that the 12-hour work day was an excellent solution, allowing them to bridge work in the plant with other social roles. Using Robert Merton’s terminology, ‘a status set’ of most workers went beyond salaried work and included a broad range of at-home responsibilities (Merton and Sztompka, 1996). Similar to other stagnated areas of Eastern Europe, a multi-generational family functions as a basic economic unit with diversified sources of income and engages all adults of the household (Kostov and Lingard, 2002, 2004). A woman in her 40s, Alina, who worked in the plant for three years, outlined the importance of the 12-hour working day in the context of the household chores:

For the first two years [of the plant’s functioning] it was eight-hour work shifts but it made a difference that they [the management] changed it. It was easier because most people had kids or grandchildren or had other things to do, and with 12 hours of work I was able to have more days free in the week. In the morning it was hard but at the end of the day, after 12 hours, I was glad that I am not coming back in the next day or two and that I can take care of my things at home. (Alina, shop floor worker, 43 years old)

The 12-hour shifts were vital. For many workers, semi-subsistence agriculture and duties such as work in the family-owned gardens or fields, breeding chickens or taking care of children were as important as a stable, salaried income in the plant. The outcomes of the investments strongly affected the host community. The enormous plant generated a high estate tax, which was entirely paid at the local level and enriched the local budget, on average by 25 percent per year. Thanks to this significant increase, local authorities undertook new investments, which provided major improvements. Some of the dirt roads were paved. The main public building of the village was rebuilt and currently functions as a pharmacy, community clinic, and post office. The library building was renovated and currently serves as a house of culture, a museum, and an internet café. For community members those projects were urgently needed and directly improved their lives. Many of them hoped that if the activity of the industrial zone continues, the rural community will urbanize which, in the future, might mean a sewage system and more convenient and frequent transportation to the nearest city. Some also hoped that the changes might lead to the transformation of the village into an urban suburb, attracting people from the city to buy property and live in the village.

End of MobiTech’s Production in Romania

The unexpected displacement was announced in the autumn of 2011 when the production floor was running at high capacity. Even though there had been gossip here and there that MobiTech might leave at some point, based on what happened in Germany, nobody really believed it. ‘People thought MobiTech might leave after our wages get higher, much higher’ (worker, 33 years old). The decision was communicated quickly, leaving very little time and space for deliberation. In the autumn of 2011, at a workers’ plenary meeting, the management shared the message, backed by a short justification connected to a strategy of austerity and cutting labor costs. The workers were given handouts outlining the liquidation process and amounts of compensations. In the initial few weeks the local reaction to the decision was hectic and ineffective. None of the local stakeholders had seriously considered the possibility of relocation: ‘the plant was there only for a few years, and given the cost of equipping the factory, it seems way too early’ (employee of local government). Workers, local authorities and central government struggled to cope with the new situation.

Political agency in this situation was limited. The political class did not have any capacity or experience in negotiating with a dis-locating investor or representing workers’ interests. The decision makers operated on symbols and emotions. Media speculations about the future of the zone heated up the public discourse. On all levels the decision-makers strongly criticized the decision, showing sympathy towards the workers. Romanian President Traian Basescu made a strong speech, condemning MobiTech for leaving Romania. He also criticized other foreign manufacturers for a smaller than promised scale of production and employment. For instance, he mentioned an automotive producer that ‘instead of producing cars, as planned, produces small trailers’. The comments of politicians reflected the feelings of Romanians – disappointment from the impossibility of realizing ambitious plans of foreign investors mixed with anger at their rational, often cruel strategies. ‘MobiTech is a corporation that has absolutely no sentiments or respect. It is all about the money’ (worker, 23 years old). There was no effective way of stopping MobiTech from leaving or renegotiating the decision. No procedure existed for coping with similar exits. The regional agency which collaborated with the investor and managed the industrial zone was helpless. Its officials were rejecting contact with the public yet promised to find a new investor for the zone. Some of them confidentially emphasized that, since MobiTech, the priority in the future negotiations with foreign investors will be the minimum presence period. A contract with MobiTech did not contain such a clause. A few weeks after the decision, the agency issued a brochure with the plant’s rental offer.

The workforce was surprised and in disbelief. Given the high volume of output and persistent production increases, the layoff came as a complete surprise. ‘It would have been understandable if MobiTech decreased production gradually, but the volume was growing’ (worker, 43 years old). The shock paralyzed workers, who on the one hand trusted the investor’s good will, proven in their fair treatment and transparency, and on the other hoped for compensation and additional benefits. According to the investor’s layoff plan, the production went on for three months and all workers got paid double until its end. Employees with direct contracts were offered vocational training as well as compensation equal to three monthly wages plus one monthly wage for each year of work, which complied with Romanian employment law. In effect, a payment to a worker could maximally be equal to almost €2000; however, the situation was fortunate only for those directly hired. None of the workers employed through intermediaries received this form of compensation. The majority of the workers were eligible for state-funded standard unemployment support.

There was only one small and short incident of mobilization that involved about 30 workers who protested against the decision before entering the plant for their shift. Besides this there was no form of collective action – unlike in Germany, where the protests gathered thousands of supporters. Even though labor unions were present in the plant, they were unable to either mobilize the workers or mediate with the investor. Romania’s factory union traditions are strong, having significantly influenced discussions about privatization or labor laws (Bush, 2004; Trif, 2008). In Romania, unions proved to be especially effective in protecting factory interest, for instance when the workforce protested against asset-stripping of privatized state enterprises (Varga, 2013). Why, then, was there no form of protest in the MobiTech plant?

In Forces of Labor Beverly Silver compares the potential of workers to mobilize and win concessions in various economic sectors and international locations (Silver, 2003). One of Silver’s conclusions is that workers in newly industrialized countries are not only unlikely to win concessions given in advanced economies but also experience eroding and limited resistance. A few factors explain this situation in the MobiTech case. Firstly, MobiTech’s actions, up until the dislocation, did not show any signs of disinvestment or mismanagement; the workforce believed its actions and, similarly to the rest of Romania, partially admired its clockwork organization. The dislocation seemed to many Romanians like the only way that the investor could cope with fierce global competition. For this reason, a common opinion among workers was that the new investor would not be able to offer the good work conditions that MobiTech had. Workers often justified it with the costs. Secondly, an important element was the fact that the investor was leaving behind a modern industrial zone and a good reputation of the region. Few believed that the dislocation might mean the end of the manufacturing process in the zone and that there would be a need for re-training, as happens in Western states (Mollona, 2009; Blyton and Jenkins, 2012). Instead, thinking that a new investor might soon be relocating into the zone, MobiTech’s workforce concentrated on securing workplaces with a hypothetical new investor. ‘Arguing would not help here – there is no hope for MobiTech here; I do not want to be the loudest because then I would be the black sheep; nobody wants an employee with a big mouth’ (worker, 32 years old). Too many workers considered mobilizing, while awaiting a new investor/employer, as potentially damaging of their professional reputation.

Thirdly, limited resistance was strongly influenced by the workers’ status, addressed above. The absence of collective action proved that for many workers the job in the plant played an important but not central role. Multi-generational households provided resilience, already active during the period of employment. Once the layoffs happened, the workers returned to work in semi-subsistence agriculture and other home duties, looked for temporary jobs, and relied on the support of the household. Some workers who received unemployment support decided to wait until its end ‘to see if the new investor will be hiring old MobiTech staff’ (worker, 27 years old). Fourthly, especially those workers hired through intermediaries strongly accepted the flexible character of employment, unsure about the length and future of their contracts. Some of these workers openly admitted that they often felt ‘second-class’, underpaid and unwilling to engage in corporate and union activities. ‘I was not sure if I would get my contract prolonged in November, but given the plant’s closure, I just immediately started looking for something else’ (worker, 22 years old).

It took almost six months to terminate the operations and completely shut the plant down. The plant’s closure directly affected over 4000 workers. Depending on the estimations, lack of presence of the second largest Romanian exporter decreased Romania’s annual growth by 0.25 to 1 percent. Most of the workforce struggled with finding new jobs; older workers were an especially vulnerable group. The government received financing from the European Globalization Adjustment Fund in order to finance a work placement agency. According to the workers, it failed to facilitate their conversion to different employers and sectors – ‘it was just a façade, they pretended to help’ (line manager, 31 years old). The long wait for the next investor took more than two years. The plant was eventually leased by an Italian manufacturer of consumer electronics. A German manufacturer has built a factory in proximity to the zone. The scale of production in both plants still has not reached that of MobiTech.

Conclusions: Middle-Income Economies as a Stage in the Race to the Bottom

Production practices of multinational enterprises are the subject of a strong critique. It is a fact that multinationals shift their production to countries with reduced labor market standards in order to decrease operating costs. In response, host economies have an incentive to sustain or increase the inflow of FDI by keeping labor standards low (Olney, 2013), as well as by offering tax holidays and participating in location costs. The global competition for FDI is fierce. Industrialized economies have been experiencing factory closures connected to cost-based competition for decades. Because of their industrial experience, they are equipped with social protection mechanisms and prepared to re-train the workforce. Their counterparts, industrializing states, participate in the race by offering alternative labor regimes and liberalizing their labor markets. Their experience and ability to cope with re-locations proves to be limited.

This article’s goal is to give an account of one of the communities that found itself between a rock and a hard place. The case of MobiTech’s investment reflects a situation of similar communities in middle-income economies, showing the paradoxes of their in-between situation. The investment’s establishment followed a typical course of FDI location in the industrializing economy. The Romanian state has supported it fully by providing necessary infrastructure under the investor’s guidelines and financing the construction of the industrial zone. In return, the state hoped for labor market improvements and economic growth. However, the investor’s departure largely reflected experiences of the developed economies. Largely unexpected, justified by costs, it again proved an inability of the nation-state to cope with globalization. However, unlike in the industrialized world, the state was unable to win concessions and compensations from the investor, partially because of ineffective labor protection standards and political inability of decision-makers. The Romanian reaction to the MobiTech’s plant location initially displayed enthusiasm and hope for change. With the later re-location it was replaced with helplessness and discontent. The lack of agency when faced with layoffs displays the vulnerability of middle-income economies well.

This vicious circle of global competition for labor creates difficulties also for the local labor force in the middle-income states. Foreign investments usually resonate locally extremely well – responding to limited perspectives for industrial employment in the locality. Desperate for work nearby, in order to stay close to their households and family, workers are very often willing to compromise by fully accepting low wages and decreased work standards. Even though the latter was not the case with MobiTech, the workforce was given no other option but complementing industrial employment with alternative sources of income. In the situation when the investor left, the workers shared a common opinion that a potential decrease in work conditions would be acceptable and hypothetically might stop another investor from leaving.

The present case also expresses the multiple impacts that investments bring to host economies. Whether foreign direct investments provide a desirable outcome depends on one’s view of employment protection rules, labor employment standards and economic development. MobiTech’s arrival was locally considered largely positive. The investment generated a belief about involvement of the region in global production. The commonly appreciated outcomes include the improved situation of the host community, economic growth of the national economy and changing reputation of the region. Even though MobiTech left, most local workers and members of the host community believed that, having already been incorporated into the global reserve army of labor, the industrial zone will continue production with investors and grow in size. As shown, this belief has also inspired a lack of industrial action during the closure. MobiTech’s plant has replaced former post-communist stagnation with local dependence on foreign investments. Facing a slack labor market and skeptical of migration, the region awaits the continued production in the zone and hopes for the fulfillment of the visions that MobiTech activated.