Corporate Social Responsibility and Global Labor Standards

Luc Fransen

• Publisher: Routledge
• Year: 2011
• ISBN:
  9781136493416
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Ética empresarial

How effective are multinational companies at improving working conditions in their supply chains? This book focuses on a crucial dynamic in private efforts at regulating labor standards in international production chains. It addresses questions regarding the quality of rules (Are existing efforts to privately regulate labor standards credible?) as well as business demand for private regulation (To what extent are different types of regulation adopted by companies?). This volume seeks to understand the underlying issue of whether private regulation can be both stringent and popular with firms.

The study analyzes the nature and origins of, the business demand for and the competition between all relevant private regulatory organizations focusing on clothing production. The argument of the book focuses on the interaction between activists and firms, in consensual (developing and governing private regulatory organizations) and in contentious forms (activists exerting pressure on firms). The book describes and explains an emerging divide in the effort to regulate working conditions in clothing production between a larger cluster of less stringent and a smaller cluster of more stringent private regulatory organizations and their supporters.

The analysis is based on original data, adopting both comparative case study and inferential statistical methods to explain developments in apparel, retail and sportswear sectors.

Part I

Understanding Private Labor Regulation

1 Private Labor Regulation

Why and What Is It Good For?

Stefan, Corporate Social Responsibility (CSR) manager at a German clothing firm, sits at his desk. He reviews the latest results from the monitoring of labor conditions in factories in Indonesia that supply clothes to his company. The results are encouraging in most instances: suppliers are improving on their compliance with the code of conduct on labor standards that his firm adopted, and changes are being implemented in the production chain. But Stefan has a problem with one factory that supplies sport shirts to Germany. The monitoring report devised by his colleague had shown good results there regarding wage levels and mechanisms for dialogue between workers and management. But now he has received a letter from European activists that provides a totally different account of the situation: workers are being underpaid and bullied into long hours of overtime by management, at the threat of dismissal. Stefan will have a discussion with the activists on their findings later today. He is very much hoping that there is a misunderstanding. He does not want the word to get out that his company is involved in labor abuse; that would be bad for the company. Inside the company he has lobbied extensively for the current labor monitoring system with the buying department and the CEO. It would not look good if the efforts of the CSR managers had yielded such negative results. Perhaps the activists will be able to give him some time to remedy the situation before they go public with the issue on their website.¹

Corporate Social Responsibility is a phenomenon of contemporary global capitalism that raises eyebrows and arouses suspicion. We expect companies to be interested in profit and share prices, so why then the focus on social issues? And what may we expect from the efforts of people like Stefan to implement private rules? Both are vital questions. Academic literature has a satisfactory answer to the first question, whereas the second question for now remains open. This book seeks to deliver more insight into the potential of a specific type of Corporate Social Responsibility, namely the private and voluntary rules that companies adopt to improve working conditions in transnational production chains.

Specifically, this study seeks to describe and explain the developments within the clothing industry to organize private rules for improvement of labor conditions in transnational production chains. It focuses in particular on answering the following three questions: first, how and why do private regulatory organizations focused on improving labor conditions develop more or less stringent policies to improve labor conditions in supplier factories?; second, how and why do businesses come to support specific approaches to private regulation of labor conditions?; and third, how, why, and to what effect do competition, cooperation, and convergence emerge between the existing regulatory organizations focused on labor standards in the clothing industry?

This study argues that answering all of these questions requires attention to evolving relationships between political actors that shape the policies of private regulatory organizations and their business membership. It shows how private regulation can be more or less stringent on a range of dimensions, including the degree to which interest groups are involved in implementation and review of rules. It explains the difference in approaches emerging from private regulatory organizations by showing how fluid, unpredictable group dynamics matter more in earlier phases of negotiation, whereas actor positions and agendas matter more in later stages. It shows how managers of firms choose to support specific forms of private regulation mainly as a response to societal pressure, which itself is affected by the position of these managers in national environments and towards other industrial actors. And it explains competition, cooperation, and convergence between private regulatory organizations by showing how past events, evolving rivalries, vested interests and organizational differences within the industry, and within activist realms encourage splits in the regulatory effort. These findings add up to the study’s general conclusion that the approach to private labor regulation for clothing production is diverging in more and less stringent forms of regulation—the former supported by firms and activists whose organizational concern is relatively closer to the point of production (brands, designers, labor advocates), and the latter by firms and activists more directed towards the point of consumption (retail firms, consumer action groups).

This introductory chapter will first review how such private labor regulation, as it will be called hereon, has emerged. It will then position the research as an endeavour to understand the contribution of private labor regulation to governing global labor standards.² And the chapter will conclude with a presentation of the structure of this book.

1. WHY PRIVATE LABOR REGULATION? GLOBALIZATION, NEO-LIBERALISM, AND SOCIETAL PRESSURE

Private labor regulation is, first and foremost, a response to developments in the globalization of production. For many mass consumer goods, and in particular for clothing which will be the focus of this book, the organization of production has become geographically dispersed and functionally disintegrated. Transnational production chains have come into existence that connect formally independent companies, running from Northern America and Europe into Central and South America, Eastern Europe, and South and Southeast Asia.³ Labor-intensive manufacturing increasingly takes place in regions of the world characterized by relatively low wage levels and an abundant non-skilled labor supply. Studies point to an overall asymmetry in power relations, advantaging Northern buyer firms vis à vis Southern supplier firms in these chains. In practice, mass consumer good manufacturing suppliers positions may vary in their positions from a complete dependence on Northern firms to a situation of interdependence, most often in cases where suppliers are in control of important parts of the production process. Analysts also note a deflationary pressure running downward through the chains (Dicken, 2006; Gereffi & Memedovic, 2004; Kaplinsky & Morris, 2001).

A specific overall characteristic of the clothing industry in particular is its dependence on seasonal and fashion change, creating constant pressure for brands and retailers to adapt their offers (Abernathy, 1999). This stimulates reliance on the part of buying firms on a large and differentiated set of suppliers who regularly receive large orders with tight deadlines. Suppliers taking in orders are mostly run by a small group of managers heading factories in which a large group of low-skilled manufacturing workers, most often females and migrants, work for long hours at a time, often putting in overtime to meet deadlines. Studies emphasize that these specific industrial characteristics could stimulate excessive overtime, abuse, and suppression of labor representation. For instance, labor abuse has been identified at the bottom of the clothing chain in cases where part of the manufacturing process takes place in small informal workplaces in India, often involving sewing work by whole families, including children (Ascoly & Finney, 2005). In China, factories supplying global clothing brands have been known to apply harsh quasi-military management techniques in order to push workers towards higher production levels (Ngai, 2005).

Mass consumer good production, and clothing in particular, are thus a manifestation of a fragmented and, from the perspective of power, unequal form of global economic integration, which potentially puts workers in a vulnerable position. But this alone does not suffice as an explanation for the emergence of private labor regulation, for this situation could easily remain the domain of public regulatory efforts by governments, or, alternatively, not become subject to any form of political action at all, if it were not resisted by any of the parties involved. Neither is the case, and this reveals two further aspects of what Tim Bartley calls the contemporary ‘institutions of globalization’: a neo-liberal regulatory framework on the global level coupled with increased societal pressure for responsible social and environmental conditions of production in developed countries (2003, p. 441).

Regulating globally organized production has been subject to discussion since the rise of the multinational corporation in the 1960s. Kees van der Pijl (1993) describes how in the 1960s and 1970s the adoption of binding rules for multinationals slowly stalled, after initial enthusiasm. Western social democrats and the increasingly confident coalition of developing countries committed to growth through state-led capitalism contributed to a flurry of activity on rules for business in the United Nations (UN) and the Organization for Economic Cooperation and Development (OECD). This coalition dissolved, however, during and after the economic crises of the 1970s. Slowly, developing countries shifted their attention to a strategy of export orientation, while in Europe and the United States notions of deregulation and freedom for markets gained prominence. This is often understood as the starting point of what both popular and academic publications refer to as the neo-liberal perspective on global production: global (rather than domestic) markets are understood as the source of growth on the domestic level, and trade across borders is therefore the key to development (compare Harvey, 2005). From this it follows that barriers and impediments to world trade should be reduced.

Increasingly, national regimes in the Global South have followed this call and labor regulation has subsequently been affected. States with governments as different in political character as China, Indonesia, and Mexico nowadays all have (more or less elaborated) legal frameworks that ostensibly protect workers’ rights. But low standard working conditions persist in export industries (and elsewhere) because of a lack of implementation and enforcement of these legal frameworks, through purposeful neglect, lack of monitoring capacity, or otherwise. Generally, the neglect of working conditions is attributed to the focus of government policy on production for export. This focus does not leave much room for a sensibility for the worker’s plight, especially when countries seek to compete as providers of non-skilled mass manufacturing. In some countries, the shift towards export orientation has been paralleled by legal adjustments reducing worker rights (see for instance Kocer, 2007). Moreover, legal fictions have been created for production areas, zones within countries where companies can perform at different tax rates and with different local rules than the rest of the country. Public attention has at times focused on the deplorable working circumstances and limited worker rights in these so-called Export Processing Zones (for a popular account see Klein, 2000).

On the inter-governmental level, the neo-liberal regulatory framework is supported by UN policies that favor international voluntary action by businesses over binding rules for economic transactions (Hummel, 2005). Similarly, Tim Bartley describes how attempts to introduce labor requirements in World Trade Organization discussions, as well as developing new International Labour Organization instruments inspired by consumer labeling, have failed due to governmental and non-state actor opposition (2003, pp. 449–451; compare Van Roozendaal, 2002).

But these failures do not mean that the call for improved working conditions in export industries has been silenced. It is, however, redirected away from governmental and inter-governmental bodies of decision-making. From the second half of the 1980s onward, Northern multinational corporations immersed in transnational production chains more often come under pressure once they are revealed to have sourced from supplier factories where instances of labor abuse take place. Pressure is exercised by labor and gender activist networks, national trade unions, developmental NGOs, and consumer and/or shareholder movements in Northern America and Western Europe. Most of these groups have ties with worker organizations in producer countries and act on their behalf. These activist networks vary in significant ways in the depth and width of their ties with workers on the ground, as well as with regard to overall advocacy goals, organizational agendas, and the support base that these groups are accountable to. Individually or collectively, activist organizations campaign for better working conditions in the Global South, using multinational corporations (and their brands) as levers. Amplified by reports in the global media and assisted by critical investigative journalism, they increase sensitivity among the consumer audience in Europe and Northern America for global justice issues, a political force first tapped into by the Fair Trade consumer movement in the 1980s. Public campaigns are followed up by face-to-face interactions with firm representatives—such as with Stefan above—sometimes contentious, often more cooperative. With the support of Northern governments, the option of voluntary action by firms on the labor issue then begins to take shape and evolves through further interactions between businesses and activists.⁴

Private labor regulation thus came into existence because of the long term coincidence of a global dispersion and fragmentation of production, a neo-liberal public regulatory framework, and increased societal pressure on companies. In the language of social theory, these three phenomena form the structural contexts of action that facilitate private regulatory action for working conditions. Chapter 2 will elaborate on how these contexts give shape to the politics of private labor regulation.

Private labor regulation is a particular category in the wider realm of voluntary corporate activities to manage social and environmental consequences of doing business. Arguably globalization, neo-liberalism, and societal pressure have similarly stimulated other aspects of Corporate Social Responsibility, such as sustainability reporting, socially responsible investment, and philanthropy. Within the universe of CSR activity, private regulation takes a special place because it organizes corporate commitment to ethical standards in the form of rules, in sector-wide approaches, with mechanisms for external review of compliance. It thereby is in terms of scope, purpose and organizational form probably the most ambitious and comprehensive institutional variety of CSR activities currently on offer.

2. WHAT TO EXPECT FROM CSR AND PRIVATE REGULATION: PESSIMISM, OPTIMISM, PRAGMATISM

The debate on the private regulation of labor conditions in export producing countries focusing on production of mass consumer goods for export is connected to two sets of concerns about the impact of globalization, both articulated on the left side of the political spectrum in Northern countries. The first set of concerns is about the social consequences of the global reorganization of production. Europeans and Northern Americans worry about job loss and economic downturn through the outsourcing of production to emerging economies. As consumers, many also worry about the fact that the shifting of production across borders may lead to their products being made in undesirable working conditions in sweatshop factories. The second concern refers to an observation by left-wing critics that the current wave of globalization encourages the breakdown of regulation protecting the rights of workers worldwide, simultaneous to the development of regulation protecting the interests of capital. This leads to concerns about global business dictating political agendas.

Many people are pessimistic about voluntary business action through so-called Corporate Social Responsibility as a tool to alleviate working conditions. Businesses deliberately choose cheap labor in the lower parts of their production chain, both left-wing and right-wing critics argue. They therefore should not be expected to work towards the improvement of workers’ lives. That would be like a fox guarding a henhouse. CSR is most likely to remain a corporate communication exercise without real substance, and might easily pass over, as do many business hypes. If it does not, it is highly questionable whether it will spread throughout and across industries. More likely it will be confined to a small minority of ‘evangelical entrepreneurs’ (a term from Hertz, 2001, p. 156; for CSR pessimism see Ec, 2005; Klein, 1999; Lubbers, 2002).

David Vogel (2005) in his seminal work furthermore questions the existence of a so-called Market for Virtue of ethically minded consumers that can enhance and mainstream Corporate Social Responsibility policies. Left-wing critics fear that corporations will use CSR only to further their own business, instead of contributing positively to social and environmental issues (see Sum, 2005). Another category of concern is the ‘statelessness’ of private regulatory set-ups that rely on Corporate Social Responsibility. Amongst others Gay Seidman (2007) warns against a view of private regulation as a tool of alleviating working conditions that can work on its own and neglect the primacy of the state as the organizer and protector of rights.

By contrast, right-wing critics fear that addressing CSR issues will deflect managerial attention from what should be the core objective of corporations: the interest of shareholders (Friedman, 1970; Jensen, 2001). Next to this pessimist school there is also a pragmatic interpretation of CSR. The pursuit of private regulation by, for instance, unionists and NGO representatives should not be read as an ideological preference on their part, but as a form of strategic calculation. According to them, public regulation as it is now insufficiently protects workers in export factories, and any foreseeable public regulatory change or development in the near future is not likely to change that situation. Pragmatists hold that if companies respond to societal critique, this can provide fast leverage points for labor advocates in alleviating labor crises. As an activist notes jokingly, ‘Every time we publish a research report about working conditions, the next day several airplanes embark bringing the CSR managers of firms to the factory sites in question to address the problems mentioned’.⁵ CSR then is a strategy to turn those exact qualities of Western big business that frighten left-wing critics ...