Solving the Problem of Declining Wages

Many companies have internal audit teams that are truly dedicated to making human and labor rights a reality in their global supply chains, often by working with local civil society groups. So why are there still so many factories that do not pay the hourly minimum wage and work 60, 70 or more hours per week? The first reason is that they operate in jurisdictions where there is no culture of compliance. None of their competitors is paying the hourly minimum wage or sticking to the legal limits on working hours, so why should they? The second reason is that they can. These factories are invariably located in labor markets where there is an oversupply of labor and workers will line-up for jobs on terms and conditions below the legal minima. The third reason is that they face tremendous competition. Prices and lead-times are being constantly squeezed and the factory responds by working harder rather than smarter.

Some critics blame the multinational buyers for this situation. This is too simple an explanation. Those export factories were often not paying the minimum wage before the multinational buyer arrived on the scene and tried to implement its code of conduct and audits. Nor is this a function solely of global competition. The factories across the street supplying the domestic market in the U.S. are not respecting the labor laws either. Global competition is not helping and many foreign buyers are part of the problem, but they are not the problem.

Critics of codes of conduct have gone so far as to declare them a failure because after ten years of intense auditing, the minimum wage is still not being paid in many factories. This is like saying that the medicine is a failure because we still have illness. People get sick all the time, but we do not blame doctors for the sickness. We might criticize doctors for not treating the illness effectively enough, and particularly for not removing the root causes, but we cannot blame them for the existence of the malady. The same applies to social auditing. It is intended to take the temperature of the factory so that we can diagnose the illness and treat it. Like disease, some of the problems that social audits uncover are functions of broader social factors. Take real wages, for instance. Research shows that real wages have been declining all over the world relative to GDP, profits, and the cost of living. No single company, or even group of companies, can be held responsible for that macroeconomic condition, and no group of companies can change it on its own. Read the rest of this entry »


Creating the Future of Codes of Conduct

It has become very fashionable to criticize Codes of Conduct and monitoring, and to hold them responsible for all sorts of unpleasant realities in workplace conditions – from sub-minimum wages to excessive overtime. At one level, such criticisms fail to recognize that wage and hour issues predate the wave of codes and monitoring that arose in the mid-1990s. In fact, codes were a reaction to such basic labor law violations. At a deeper level, however, the criticism fundamentally represents a misunderstanding of the nature of the Corporate Social Responsibility (CSR) movement and the limits and possibilities of code implementation. Let us remind ourselves of how we got here.

Government agencies in many, many jurisdictions around the world – from Manhattan to Mumbai – were failing to enforce their labor laws. Labor-management relations were breaking down and the coverage of collective agreements was shrinking. This breakdown in labor market regulation meant that enterprises could do pretty much as they pleased, and left with the choice, too many did the wrong thing and cut costs at the expense of workers. Civil society organizations responded to these regulatory failures and consequent abuses with the only weapon they had – information. Using the Internet, they mobilized public opinion nationally and internationally in order to pressure companies into doing the right thing. Multinational brand names were obviously the most sensitive to such public exposure, and so a new form of regulation emerged in which civil society organizations use information to oblige brands to enforce labor standards at their supplier facilities. Thus, private actors stepped in to replace public agencies. These ad hoc responses obviously needed to be more consistent and global, and consequently codes of conduct were adopted and implemented worldwide and enforced through audits. Read the rest of this entry »