Beyond Compliance: Promoting Labor Standards in a Global Economy

1
Beyond CompliancePromoting 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
Case 1 Nike
The Limitations of Private Monitoring (Auditing)
Are Things Getting Better?
B) Change in Compliance Rating Inspections
Change in CR Rating Freq. Percent
-3 (Down by 3 degrees) 20 2.62
-2 (Down by 2 degrees) 74 9.70
-1 (Down by 1 degree) 181 23.72
0 (No change) 323 42.33
1 (Up by 1 degree) 116 15.20
2 (Up by 2 degrees) 42 5.50
3 (Up by 3 degrees) 7 0.92
Total 763 100
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 Its Supply Base?
• Not Lack of Will, Moral Fiber, Interests,
  Resources
• Problems are Inherent in Traditional Compliance
  Model

12
Explaining Mixed Results
Traditional Compliance Model

• 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

13
Problems with Traditional Compliance Model
Theoretical Empirical Weaknesses

• Ambiguous Power Relations
• Unclear (Perverse) Incentives
• Impossible to Generate Accurate Information

• 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
Plant A Plant B
Average Weekly Wage 86.00 USD 67.80 USD
Team Work Yes No
Job Description Multi-Tasks Single Task
Job Rotation Yes No
Worker Participation in Work-Related Decisions Yes No
Nationality
Managers Mexican Chinese
Supervisors Mexican Chinese
Production Workers Mexican Mostly Mexican
Overtime Voluntary and Within Limit Mandatory and Over Limit
15
An Alternate, More Collaborative Model Nike
Plants Revisited
Comparison of Production Systems
Plant A Plant B
Total of Workers in one line or cell 6 10
T-Shirts per Day per line or cell 900 800
Daily Wage per Worker (Fixed Salary Bonuses) 17.20 USD 13.60 USD
T-Shirts per Worker 150 80
Cost per T-Shirt 0.11 USD 0.18 USD
16
An Alternate, More Collaborative Model Nike
Plants Revisited
Comparison between Old and New System of
Production in Plant A
Old System (module) New System (cell)
Total of Workers 10 6
T-Shirts per Day per module or cell 1200 900
Productivity per Worker 120 150
Average Weekly Salary 67.80 USD 86.00 USD
17
Two Models of Change
Compliance Collaboration
Approach Rules/Standards Focus Meeting Standards Uncovering, Analyzing and Correcting Root Causes of Current Issues
Mechanisms Policing, Detailed Audit Protocols (checklists), Inspections, Documentation Joint Problem Solving, Information-Sharing, Repeated Interactions, Reciprocity
Dynamics Us vs. Them Functional Division of Labor Mixed Signals Mentoring, Coaching, Diffusion of Best Practices, Integration of Standards with Operational Excellence, Sharing Risks Benefits
Drivers of Change Repeated Audits, Pressures from Above, (Negative) Incentives Learning, Capacity-Building, (Positive) Incentives, Mutual Respect, Mutual Gains
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