Global rules, private actors: future challenges for business and human rights

Chapter 7

Global rules, private

Future challenges for business and
human rights

Section 7.1

We live in a world of global supply chains

Richard M. Locke

1 Introduction

Globalization,1 with its volatile mix of economic opportunity and social disruption, is redefining the boundaries of the firm, changing the dynamics among consumers, global corporations and their suppliers, and shaping the working conditions of the millions of individuals employed in today’s global supply chains. The world of global supply chains links thousands of firms, large and small, across multiple cultural and political boundaries. The diffusion of global supply chains in an array of different industries – apparel, electronics, footwear, food, toys and so on – has provided developing countries with much-needed investment, employment, technology and access to international markets. As such, the integration of producers located in developing countries into global supply chains is having a catalytic and transformative effect on local economies, allowing poor countries to finally achieve their long-sought-after goal of development.2 At the same time, however, the social and environmental consequences of this particular pattern of economic development have provoked significant controversies over the role of global brands and their local suppliers, often seen as exploiting developing countries’ low wages and weak social and environmental regulation to produce low-cost goods at the expense of local workers’ welfare. In fact, child labour, hazardous working conditions, excessive working hours and poor wages plague many workplaces in the developing world, creating scandal and embarrassment for the global companies that source from these factories and farms.3

2 The supply chain of everyday products

To get a better sense of this phenomenon, this section examines how two everyday products are manufactured in today’s global supply chains. In her 2005 book, The Travels of a T-Shirt in the Global Economy,4 Pietra Rivoli traces a t-shirt’s supply chain journey from the cotton fields of Texas to the spinning, weaving and garment factories of China, back to consumer markets in the United States (US) and finally to the used clothing and rag markets in Africa. Each of these stages involves multiple firms and complex transactions. In many stages of this supply chain, workers toiled under difficult and precarious conditions. Borrowing from Rivoli’s approach, this section examines the supply chain dynamics of two common products, athletic running shoes and mobile electronic devices, and their consequences for workers.

2.1 Athletic footwear

Early athletic footwear was manufactured in vertically integrated facilities located primarily in Europe and North America. Some of the first athletic shoes to be marketed in the US (in the early 1900s) were manufactured in the US. For example, the US Rubber Company introduced ‘Keds’ in 1916, using rubber originally produced for bicycle tyres for the soles of what became a classic athletic shoe.5

The production of athletic footwear today, in contrast, requires a much longer supply chain, involving dozens of component parts and materials from around the world, which are manufactured, assembled, transported and distributed by companies and workers across many national borders. While many brands maintain their national identity, more and more production is taking place in developing countries with lower production costs. These trends show no signs of slowing down and China and Indonesia continue to export a significant portion of footwear to the global market. In fact, an astonishing 86 per cent of all footwear sold in the US in 2009 was made in southern China.6

In their book Stuff: The Secret Lives of Everyday Things,7 John Ryan and Alan Durning document the many components from which a typical pair of Nike ‘cross-trainers’ are made, and the many locations from which these components and their raw materials are sourced. In tracking the journey of a particular shoe, they found that it was ‘manufactured’ by a Korean-owned factory located in Tangerang, Indonesia – an industrial district outside of Jakarta. The shoe was made up of dozens of component parts, almost all of which were manufactured elsewhere and then shipped to Indonesia for final assembly. First, designers based at Nike’s headquarters in Oregon sent product specifications for the shoe to a design firm located in Taiwan. The design company in Taiwan, in turn, sent the more developed plans on to engineers in South Korea. The Korean company then outsourced the actual production of the shoe to Indonesia.8

The cross-trainer in question had three main sections: the upper, the midsole and the outsole. The upper for this particular shoe was made primarily from leather, which came from cows slaughtered and skinned in Texas and then shipped to South Korea for tanning. Tanning itself is a 30-stage process. The tanned leather was then shipped to the factory in Indonesia. The midsection of the shoe was made from synthetic parts, including ethylene vinyl acetate (EVA) foam made from Saudi Arabian petroleum, refined and transformed into EVA foam in Korea, and subsequently shipped to the factory in Indonesia. Another component that provides cushioning under the heel was manufactured in the US. The outer soles of the shoes were made of rubber, again a by-product of petroleum, refined in Korea, processed into large sheets of rubber by another company in Taiwan and eventually shipped to the assembly plant in Indonesia to be cut, shaped and finally attached to the shoes.

All of these many parts were assembled in the Tangerang factory. Journalist Elizabeth Grossman recently picked up the shoe’s story, visiting a similar Korean-owned factory in Tangerang that employs 18,000 people and produces about 300,000 shoes per week. Each shoe is assembled in pieces. First, workers (over 80 per cent are female) assemble the uppers of the shoe, made from fabric, synthetics and leather. Pieces are stitched together using specialized machines. Other, smaller pieces, including Nike’s trademark ‘swoosh’, are sewn either by machine or by hand. The upper sections of the shoes are then placed on a conveyer belt, from which other workers apply glue and then attach the uppers to the soles of the shoe. Next, workers trim excess material from the shoe; this work is done by hand, using small electric tools. Finally, the shoes are polished and fitted with laces and insoles. All in all, factory management estimates that approximately 200 people are involved in making just one pair of shoes.9 The shoes are then stuffed with tissue paper (made from Indonesian trees) and packed into boxes that were originally manufactured by a paper mill in New Mexico.10 From there, the shoe begins its journey back to markets in the US, Europe and elsewhere.

2.2 Mobile electronic devices

Mobile electronic devices are today ubiquitous. These products, however, come with substantial costs to producers, workers and the environment, involving a complex flow of materials and products around the world. Raw materials for electronic components are extracted, often under harsh working conditions, from mines in Asia and Africa. These materials are refined and processed in Asia, and then sold to companies (Asian and Western) that manufacture component parts such as chips and circuit boards. These parts are then assembled, primarily in China, in large factories that employ hundreds of thousands of workers. The final products are then shipped back to consumer markets located for the most part in already developed economies. The shelf life of these mobile devices is relatively short, and the e-waste generated by consumers who dispose of their phones and other portable devices in exchange for newer models is, in turn, shipped back to Asia and Africa.

To better understand this complex supply chain and its consequences for workers, let’s examine one of the industry’s most high-profile producers: Apple.11 Some of the most value-added parts of an Apple product, for example, its innovative software, are still produced in the US. Almost everything else, however, comes from overseas. A recent New York Times study of Apple’s supply chain estimated that over 90 per cent of an iPhone’s components are produced outside the US, in places ranging from Germany and Taiwan (where semiconductors are produced), Korea and Japan (for memory boards, display panels and circuits), Europe (data chips) and elsewhere in Asia and Africa (where rare metals are extracted and refined).12 The hundreds of components that go into an iPhone or iPad are assembled in China. A huge industry has sprung up around the production of these electronic devices, providing Apple’s suppliers with the parts they need. A former Apple executive explained:

The entire [assembly] supply chain is now in China. You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away. You need that screw made a little differently? It will take three hours.13

The working conditions at Apple’s suppliers have come under intense scrutiny, following a wave of suicides by factory workers at Foxconn – one of the largest manufacturers of iPhones and iPads. The New York Times published a series of articles on the working conditions at these factories, citing sources as varied as labour advocacy groups, anonymous workers and Apple’s own, internal assessments of working conditions. In order to meet the high consumer demand for these Apple products, employees in these factories had to work long days with mandatory overtime and forgo their rest days. Conditions in these factories are harsh; workers are not rotated, but rather specialize in narrow tasks and therefore suffer from repetitive stress injuries.14 Workers are also exposed to hazardous chemicals and unsafe conditions in the workplace. For example, in 2010, 137 workers were injured after using a toxic chemical to clean iPhone screens. More recently, there were several explosions at iPad factories in Chengdu, southwestern China in which four people were killed and 77 injured.15

In response to these scandals, Apple carried out its own internal audits of its suppliers and also engaged with the Fair Labor Association (FLA) to further investigate the working conditions among its lead suppliers in southern China. Together they have inspected hundreds of facilities including both first- and second-tier suppliers. Apple’s internal audits found evidence of excessive work hours, failure to pay overtime, inadequate safety precautions and instances of child labour among some of its suppliers.16 Even after several years of intense auditing of their suppliers, Apple’s 2012 Supplier Responsibility Report found that although most of its suppliers were improving their compliance on key issues like underage labour, involuntary labour and anti-discrimination, many of these same suppliers continued to struggle with excessive working hours and low wages.17 The FLA Report concerning three of Fox-conn’s factories in China, all major producers of Apple products, found that ‘all three factories exceeded the FLA Code Standard and the requirements of Chinese law’ relating to working hours, especially during peak production periods. Although 48 per cent of the workers employed in these factories reported in the FLA survey that they felt the working hours at Foxconn were ‘reasonable’, 64.3 per cent of these same workers also claimed that their salary was ‘not sufficient to cover their basic needs’.18

Nor is this situation unique to Foxconn or other Apple suppliers. Over the last few years, the FLA conducted surveys among workers employed in Chinese factories supplying various global brands and found that an estimated 50 per cent of workers employed in the garment industry and 80 per cent of workers employed in the electronics industry work more than the legal limits of 60 hours per week. Of the 1,766 surveyed workers, 45 per cent claim that they need to work above 60 hours per week since their regular salaries are insufficient to cover their basic needs.19

The anecdotes presented above illustrate some of the salient features of most global supply chains – fragmented and globally dispersed production, multiple tiers and actors within each supply chain, suppliers producing for multiple brands, short lead times and tight margins, and the key role lead buyers play in orchestrating this entire process and even investing in their suppliers. As the above anecdotes also revealed, these underlying features create very real challenges for the millions of workers employed in supply chain factories, who every day struggle with poor working conditions, long working hours, low pay and a variety of other (minor and not so minor) injustices. According to the International Labour Organization (ILO), the rapid growth of cross-border trade and capital flows since 1990 has not led to improved employment conditions in developing countries. On the contrary, the ILO Global Employment Report found that over 486 million workers throughout the world do not earn enough to raise themselves or their families above the US$1 per day poverty rate and that another 1.3 billion people do not earn above US$2 per day.20 More than half of all workers in most developing countries and over 70 per cent in some parts of South Asia and Sub-Saharan Africa find themselves in ‘vulnerable employment’, which is roughly defined as informal employment; employment that is poorly paid and that does not provide workers with fundamental labour rights, a ‘voice’ at work and job security.21

Of course, not all workers in developing countries are employed in factories or farms linked to global supply chains.22 Because data on employment and labour conditions are collected either by country or by sector, we do not know precisely how many of these workers are actually employed at firms supplying global buyers. However, through various reports, published by the ILO, individual non-governmental organizations (NGOs) and even by global corporations, we are able to piece together an image of what working conditions and standards are like for the millions of workers employed in global supply chains. According to the ILO, throughout the world, 168 million children work. Of these, 85 million are engaged in ‘hazardous work’ in sectors such as agriculture, manufacturing and mining, which are deeply integrated into global supply chains.23 Around 21 million people worldwide are victims of forced labour. Although most companies operating in global supply chains do not themselves employ forced labour, many have become implicated in such practices through their second- or third-tier suppliers and contractors.24 These findings are echoed in the internal assessments of several global brands working in a variety of different industries. Female workers are especially hard hit since they occupy 60–90 per cent of the jobs in manufacturing and agricultural supply chains.25 What, if anything, can be done to improve working conditions and promote worker rights in these global supply chains?

3 Private voluntary regulation as a
‘second-best’ solution

Throughout most of the 20th century, labour standards were regulated largely on a national basis, through a mixture of laws, union–management negotiations and company policies. Internationally, the conventions and technical services of the ILO provided an additional source of moral authority and advice but lacked significant enforcement power. The emergence of global supply chains, however, has rendered these national and international strategies inadequate since authority is dispersed not only across national regimes but also among global buyers and their myriad suppliers. It is in this context that private initiatives have emerged to fill this regulatory void.

A number of scholars have already documented the rise of private voluntary initiatives aimed at regulating global labour standards and thus the details of this process need not be repeated here.26 Essentially, a series of separate but interrelated (and self-reinforcing) developments unfolded over the final decades of the 20th century that led to the increasing inability of both nation states and international organizations to regulate labour standards in the global economy. These developments include the shift of a substantial fraction of global manufacturing from the advanced industrial states (for example, the US, Europe and Japan) to several large developing countries (for example, China, India and Mexico). According to Meyer and Gereffi, by 2000, 50 per cent of the world’s manufacturing production was located in developing countries.27 This trend only increased over the last decade. Linked to this shift in the locus of global manufacturing were dramatic changes in the organization of production. In the past, most manufacturing was carried out by domestic companies and their suppliers located within the same country or by vertically integrated transnational corporations (TNCs) headquartered in the advanced industrial economies (and thus subject to their regulations) that owned (fully or partially) their subsidiaries located in foreign markets. Today, global production is organized primarily around global supply chains in which lead firms (brands, global buyers, large retail chains), while still based in the developed economies, are working with and coordinating the production of thousands of independent suppliers located for the most part in developing countries.

As described by Meyer and Gereffi, these changes in the locus and organization of global production had profound implications for labour regulation.28 In a world where manufacturing occurred primarily within domestic firms and/or vertically integrated TNCs headquartered in the advanced industrial states, national governments could still regulate labour conditions in most factories. However, with the rise of global supply chains and the dispersion of production across multiple developing countries, these new sites of production escaped the regulatory reach of developed country governments. Moreover, in many cases, the national governments of the developing countries hosting these new factories either lacked the institutional capacities to fully regulate labour, health and safety, and environmental standards within these supply chain worksites or they intentionally chose not to enforce their own domestic laws and regulations for fear of driving up costs and thus driving away these sources of economic development, employment and taxation. As a result, the factories producing for global supply chains fell into a regulatory void in which labour laws and workplace standards were not being enforced by either host (developing) country governments or by the national authorities governing the large consumer markets absorbing much of this global production.

In an effort to remedy this situation and promote global labour standards among the thousands of geographically dispersed factories supplying global brands, various efforts were launched to include ‘social’ clauses within global trade agreements as well as to use access to the large consumer markets of the developed countries as leverage to compel developing country governments to enforce their own labour laws and thus drive improvements in working conditions within the supply chain factories located within their national boundaries.29 Yet these efforts largely failed, primarily because they were blocked by developing country governments that argued that linking social and environmental standards to trade (or market access) was nothing short of protectionism. Several developing countries threatened to fight these efforts at the World Trade Organization, which had already signalled its unwillingness to support the inclusion of social clauses in global trade agreements. As a result of both this resistance by the developing countries and the growing popularity of neoliberal ideas among several influential developed country governments (especially the US), the appetite for this alternative strategy waned.30 Although ‘social clauses’ were included in a few bilateral trade agreements,31 efforts to create an effective and truly global system of labour regulation through trade arrangements for the most part failed.

An alternative path involved efforts by the ILO and the United Nations to promote core labour standards through the establishment of ‘decent work’ conventions and the Global Compact. But these initiatives also lacked enforcement powers and thus offered little more than moral guidance for already committed governments and corporations.

In the absence of a strong system of global justice,32 and given the limited ability (perhaps willingness) of many national governments to enforce their own labour laws, an array of different actors – both private and public – including transnational NGOs,33 global corporations and industry associations,34 multi-stakeholder initiatives (MSIs) and even a few developed country governments,35 began to promote (sometimes by themselves, other times in collaboration with other actors) a variety of private initiatives aimed at establishing and enforcing labour standards in global supply chains. Private voluntary regulation has many different forms. At times, it revolves around corporate codes of conduct in which lead buyers and brands articulate their own internal standards governing, for instance, working conditions, wages, working hours and health and safety conditions, and require their suppliers to sign on to these standards. Other times, it entails monitoring programmes in which private auditors periodically inspect and assess factories in order to ensure that suppliers are in compliance with the corporate codes of conduct. And on still other occasions, private regulation involves certification mechanisms that label products ‘sweat-free’ and/or ‘fair trade’, thus signalling to consumers that certain products are allegedly made under fair and/or sustainable conditions. Notwithstanding, and perhaps because of this variation, private voluntary regulation has emerged as the dominant approach global corporations and labour rights NGOs alike embrace to promote labour standards in global supply chains.

Given the diversity and often competing goals of these various initiatives,36 this model of private voluntary regulation has provoked heated debates over the particularities of the actual programmes: how compliance programmes and certification schemes are designed and implemented; how factory auditors are trained and selected; how information generated from factory audits is shared – or their relation to other forms of regulation, especially state regulation; does private regulation crowd out or complement government regulation?37 Because the debates are highly polarized, however, the basic question about the effectiveness of private regulation in improving labour standards has not been adequately evaluated.

I argue that regardless of the particular mission or leadership or organizational design or even resources underlying any of these private initiatives, they all inevitably produced limited or mixed results because they all confront a fundamental challenge of reconciling diverse and conflicting interests among the key actors engaged in global supply chains. While most (although not all) of these actors may be genuinely interested in improving labour standards across the thousands of factories supplying global brands, conflicts of interest typically drive them in different directions about how best to achieve these goals. This is not to say that diverse interests can never be reconciled or that genuine progress towards promoting better working conditions within global supply chains is impossible. As some of my previous research38

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