Supply Chains and Labour Rights

The fire in Bangladesh has spurred a broader political controversy over whether large US firms such as Walmart have a responsibility to improve safety conditions in their subcontractors. This feeds into a broader set of questions over the extent to which international labor rights are observed. Most of the research (including Beth Simmons’ important recent book) has focused on a narrower range of human rights. However, a chapter for the new World Bank Development Handbook, Margaret Levi and a group of her colleagues provides an overview of labor rights, arguing that they are apparently being violated more rather than less over time in most regions of the world. Nor are efforts to counteract the deficiencies of formal institutions through supply chain management notably effective.

[Richard] Locke’s (forthcoming) remarkable access to several major corporations has allowed him to conduct the most serious evaluation to date of the possibilities and limits of corporate schemes. Using Nike’s internal audit data, he shows that Nike’s private compliance initiatives “are not producing the significant and sustained improvements in workplace conditions that many had hoped for.” He reaches similar conclusions after examining audit data for Phillips Van Heusen and Hewlett-Packard. The supply chains of all three companies improve in specific areas, such as health and safety, deteriorate in labor standards, and cycle in and out of compliance over time. Locke concludes that researchers and policy makers have often inappropriately specified the power relationships between brands and suppliers and under-theorized the conflicted incentives inherent in CSR initiatives in the competitive global economy. In spite of non-compliance with brand codes of conduct, Locke finds it is rare for a company to fire the supplier or pull out of a factory, especially if there is strong demand for turnaround on a particular product. Moreover, suppliers who are in full compliance seem to receive little reward, such as increased orders for suppliers, for full compliance. Asking suppliers to compete on price and simultaneously raise labor standards gives them fundamentally conflicting signals.

2 Responses to Supply Chains and Labour Rights

  1. Liz December 20, 2012 at 1:13 pm #

    I know it’s challenging to oversee the operations of overseas subcontractors, but there are also lots of US workers laboring in unhealthy conditions for Walmart contractors. For instance, workers at Southern California warehouses handling Walmart products went on a 50-mile march this summer to draw attention to their dangerous working conditions, including laboring in high heat without fans, clean water, or regular breaks:

  2. Chaz December 21, 2012 at 4:20 am #

    In the U.S. if a company violates labor laws the state fines them. If they persist it shuts down the factory. When employers have to choose between complying and shutting down, they comply.

    When Nike audits their plants in India they do not face this threat. Bad PR is nothing compared to a forced shut down. If Americans want to impose labor standards abroad, they must be enforced by government. If the local government will not or cannot do that, then the standards must be enforced by the U.S. government. Require companies in problem-prone industries to have audits of their overseas suppliers performed by independent, U.S. government-certified auditors (or federal inspectors in an ideal world). If a plant fails the audit then the U.S. government should confiscate all goods imported from it or charge the importer a large fine. If problems persist revoke the importer’s business license and prohibit its executives from working in the industry for ten years–or send them to prison.

    This is what we do in the U.S. and it works.