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Beyond Compliance: Promoting Labor Standards in a Global Economy

Explore the limitations of private compliance programs and the promise of a collaborative approach in addressing labor standards in a global economy. This study examines global buyers and their suppliers in various industries and offers insights from analysis of company audit reports and field research.

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Beyond Compliance: Promoting Labor Standards in a Global Economy

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  1. Beyond Compliance:Promoting Labor Standards in a Global Economy

  2. Road Map • The Limitations of Private Compliance. • The Promise of an alternative, “collaborative,” approach. • Beware of “technocratic” solutions; factory-focused solutions. • Bringing Distributional Issues & “Upstream” Business Practices Back into the Conversation.

  3. Motivation • Globalization has created all sorts of opportunities for growth and development. But also… • Child labor, excessive work hours, hazardous working conditions, poor wages rampant in developing world factories • In absence of functioning international organizations capable of promoting global justice and/or nation-states willing or able to enforce domestic labor codes, codes of conduct and other forms of private compliance programs have become dominant method MNCs and NGOs address problems with labor standards

  4. Key Questions • Does Private Compliance Work? If so, how? Under what conditions? • If not, what other private and/or public interventions improve labor standards? • Under what conditions can a new, more “collaborative” approach be constructed and diffused?

  5. Methodology • Study of Global Buyers and their Suppliers in Different Industries (Footwear, Apparel, Agriculture, Electronics) • Analysis of Thousands of Company Audit Reports and Sourcing Data • Field Research (Matched Paired Analysis) in Brazil, China, India, Bangladesh, Turkey, Dominican Republic, Honduras, Vietnam, Mexico, U.S. • Over 700 interviews; over 100 factory visits

  6. The Limitations of Private Monitoring (Auditing) Case 1: Nike Factory Conditions Vary Across Sectors & Countries First M-Audit Scores across all factories (Nov. 2002 to Jan. 2005) Number of Observations: 575 Average M-Audit Score: 65% Similar patterns of variation within sectors (footwear, apparel, equipment) and within countries.

  7. The Limitations of Private Monitoring (Auditing) Case 1: Nike Are Things Getting Better? CR rating

  8. The Limitations of Private Monitoring (Auditing) Case 1: Nike Are Things Getting Better? B) Change in Compliance Rating Inspections Note: A is 4, B is 3, C is 2, and D is 1, and the change in CR rating is the score in the most recent audit minus the score from the earliest audit, ranging from –3 to 3. For example, if a factory has a score C in the earliest audit and a score A in the most recent audit, then it has a change of +2.

  9. The Limitations of Private Monitoring (Auditing) Case 2: HP Compliance summary for HP suppliers (as of most recent audit)

  10. The Limitations of Private Monitoring (Auditing) Case 2: HP Compliance summary for HP suppliers (as of most recent audit)

  11. Explaining “Mixed” Results: • How to Explain Mismatch Between Company Rhetoric / Reputation & Reality of It’s Supply Base? • Not Lack of Will, Moral Fiber, Interests, Resources • Problems are Inherent in Traditional Compliance Model

  12. Explaining “Mixed” Results: • Asymmetric Power Relations Between Global Buyers & Suppliers • Importance of Audit-Based Data • Incentives Lots of debate over the Model. How to make it more transparent, accountable, rigorous Traditional Compliance Model

  13. Problems with Traditional Compliance Model: • Ambiguous Power Relations • Unclear (Perverse) Incentives • Impossible to Generate Accurate Information Theoretical & Empirical Weaknesses • As a Result, “Ritual” of Compliance • Factories Moving In & Out of Compliance • Not Tackling “Root” Causes of Labor Issues

  14. An Alternate, More “Collaborative” Model: Nike Plants Revisited Workplace Characteristics

  15. An Alternate, More “Collaborative” Model: Nike Plants Revisited Comparison of Production Systems

  16. An Alternate, More “Collaborative” Model: Nike Plants Revisited Comparison between Old and New System of Production in Plant A

  17. Two Models of Change

  18. Not Just Suppliers: Revisiting Upstream Business Practices Stylized Demand Volatility along Supply Chain 300 200 Mean Capacity 100 Variation In Percent Retail Component/Module Build Final Assembly Demand Signal Source: Locke Samel WP 2011

  19. Take Aways • Successful compliance/capability building not just technical issue but also a political/distributional process • Requires collaboration among key actors within and across firms • Collaboration built through repeated interactions and mutual understanding that all parties must share benefits and costs • Institutions can help shape/reinforce patterns of collaboration

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