Perils of a schizoid business model

September 2, 2008
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In spite of tens of millions of dollars spent on corporate social responsibility programs, the global economy has seen only marginal improvements in factory-level health and safety in the last 15 years. Sweatshop conditions, even in plants producing internationally-known “brand” names of consumer products are commonplace, while Christmas brings floods of reports about a toy industry plagued by long hours, low wages, toxic chemicals and dangerous working conditions.

The last several Olympics (including this year in Beijing), have been tainted by a raft of investigations documenting H&S violations in sports shoe and equipment plants. Even in the super-hip, “clean” electronics industry, workers producing phones, MP3 players and computers are subjected to hazardous chemicals and machinery.

Inconsistent reporting
The annual corporate social responsibility (CSR) reports of companies like Nike, Mattel and The Gap, and multi-stakeholder efforts like the Fair Labor Association, reveal ongoing problems in supply chains regarding wages, hours, and health and safety. While these CSR reports are considered “the best of the bunch,” the great majority of transnational corporations make no effort to improve working conditions, relying instead on nominal, public relations-driven schemes designed only to protect corporate reputations.

In the health and safety arena, improvements in housekeeping, lighting or fire safety have not been met with comprehensive programs involving actual assessment and control of chemical or physical agents, or effective training of thousands of workers about lockout/tagout procedures or chronic illness hazards. As a result, millions of workers in China’s contracted factories, in the “export processing zones” in Central America, Asia and Africa, and in the maquiladoras on the U.S.-Mexico border continue to work in dangerous, unhealthy workplaces.

Why the lack of significant progress?
Two fatal flaws in CSR and other programs designed to improve global working conditions are directly responsible: first, the dominant, but schizophrenic, business model; and secondly, the lack of any meaningful participation by workers.

A race to the bottom
The current international business model demanding the lowest possible production costs has sparked a “race to the bottom” in working conditions that CSR programs are simply incapable of halting. For instance, a brand’s CSR staff announces to a factory that in order to get a contract, the factory operator must obey all national laws on wages, hours and H&S, and must meet all the criteria of the brand’s code of conduct. They also may have to implement (at their own expense) one or more social initiatives (such as computer or language classes, improved recreational facilities, etc.).

Later, the same brand’s sourcing agents or buyers inform the factory operators that they must meet the same quality and delivery criteria as before, but the brand will pay the supplier X percent less for its products this year and less still next year. How the factory operator meets its own profit projections is of no concern to the buyers; only that the brand’s quality, delivery and price criteria are met.

If the factory operators don’t like the offer, then the brand will go down the street and find someone else — and there are plenty of factories down the street who will take the deal just as offered. Thus, to get the contract and make even a modest profit, the factory operators must ignore limits on working hours, undercount actual hours worked and paid, and find the cheapest sub-contractors and materials available (think lead-painted toys and antifreeze toothpaste).

Over time, factory operators have developed amazingly creative ways of “complying” with CSR dictates. These include hiring “fabrication engineers” who program computers to generate multiple sets of hours and wage records customized for the brand in question. Another ploy is establishing “shadow factories” which actually produce the order under terrible conditions while buyers and CSR staffs are shown the clean, well-lit factory around the corner.

The inherently contradictory nature of the current international business model has been recognized by businesses themselves — Nike’s latest strategy is to achieve internal “business integration” of the sourcing and CSR departments, while calling on local governments to effectively enforce wage, hour and OHS regulations. The Business for Social Responsibility organization has conducted numerous conferences internationally to push transnationals “beyond monitoring” in their CSR programs.

Workers denied meaningful role
The other fatal flaw in the current international paradigm is that workers are denied any meaningful role in addressing conditions they face every day. Some of the CSR programs call for “worker empowerment,” but workers trained and permitted to conduct workplace safety inspections, accident investigations and peer training have been prohibited in practice by the short-term production concerns of factory operators and their customers. In a decade-and-a-half there have been only a handful of examples that have actually resulted in workers being active members of factory health and safety committees, or plant “grievance committees,” let alone members of unions.

Level playing field

The achievement of genuine worker protections in the global economy calls for the reversal of the current system’s fatal flaws through the establishment of a worldwide, enforceable regulatory regime that sets a floor, rather than a ceiling, for worker protections and that establishes a level playing field for all producers. Such a regime must encourage informed, empowered and active workers to play an essential role in evaluating and controlling workplace hazards to their own health and safety.

Unless there are significant changes to the international business model and unless workers are given a meaningful voice, we will spin our wheels for another 15 years, only to end up in the same place we are today.

SIDEBAR: Further Reading
  • The China Price: The True Cost of Chinese Competitive Advantage, by Alexandra Harney, Penguin Press (2008).
  • Clearing the Hurdles: Steps to Improving Working Conditions in the Global Sportswear Industry (2008), PlayFair 2008, accessible at www.playfair2008.org; also No medal for the Olympics on labour rights (2007)
  • Electronics Multinationals and Labour Rights in Mexico, Second report on working conditions in the Mexican electronics industry (2007), CEREAL, accessible at www.goodelectronics.org
  • American imports, Chinese deaths: Losing life and limb, by Loretta Tofani, series in the Salt Lake Tribune (October 2007), accessible at www.sltrib.com
  • Maquila Solidarity Network (Toronto), Codes Memo 23: Who’s got the Universal Code? (April 2008), Codes Memo 22: The next generation of CSR reporting – Will better reporting result in better working conditions? (December 2007), accessible at www.maquilasolidarity.org
  • The High Cost of Calling, Critical Issues in the Mobile Phone Industry, Joseph Wilde and Esther de Hann, SOMO – Centre for Research on Multinational Corporations (Amsterdam), (2006), accessible at www.somo.nl
  • Report on Industrial Relations and Working Conditions in IMF-related TNCs in China, Asia Monitor Research Centre (Hong Kong), commissioned by the International Metalworkers’ Federation (2006), accessible at www.amrc.org.hk
  • The Long March, Survey and Case Studies of Work Injuries in the Pearl River Delta (2007), China Labor Watch (New York), accessible at www.chinalaborwatch.orgFurther Reading

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