Supply Chains and the Private Governance of Labour Rights

Private international labour governance has emerged as an important instrument to govern transnational supply chains. It has made a difference. However, this contribution argues that one should not overestimate its potential, while leaving open the question of how to integrate private labour governance initiatives in more comprehensive approaches.

Introduction

The early 1990s saw the emergence of new forms of private governance, which aimed to implement international labour standards across the whole value chain. Leading examples include the Fair Labour Association, Worldwide Responsible Apparel Production Program, Ethical Trading Initiative (ETI) and the Social Accountability International. These pioneering initiatives brought together business enterprises, NGOs, unions, governments and international organizations to create new forms of international regulation (Gereffi, et al., 2001). The rise of private forms of international labour governance is now considered as a leading institutional governance innovation (Cashore et al., 2004) and these systems are regarded as instruments in ratcheting up labour standards on an international scale (Sabel et al., 2000). More recently, however, doubts have been expressed concerning the potential of these private governance systems to effectively improve labour rights in supply chains. Both academic and journalistic accounts point to weaknesses in their design to effectively enforce international labour standards. The debate gained prominence after some notable disasters in Bangladesh and Pakistan. Also a recently published book by Richard Locke (2013) provides an excellent, though sobering assessment of the potential of private governance systems. The top-down auditing form of enforcing standards, on which private systems rely, is considered not to be effective. Three arguments are presented here.

Selectivity of Audits

First, several authors have criticized the selectiveness in the improvement of labour rights. They argue that one can observe improvement on certain standards but not on others. Researchers assessed the degree to which private systems contribute to the improvement of identified labour rights. In general, private systems include standards with regard to several core International Labour Organization (ILO) conventions (ILO, 2003) including conventions on minimum wage (C131), freedom of association (C87) and minimum age (C138). Several authors note that private systems address some of the issues listed in some of these conventions but are not capable to address the complexity of the combination of the many conventions and issues embedded within them. In a detailed study on the impact of the ETI in various countries, Barrientos and Smith (2007) conclude that the impact of the systems is uneven. They make a distinction between process rights and outcome standards. Process rights are enabling rights such as the freedom of association and non-discrimination, which are embedded in the core ILO conventions and provide the opportunities to generate an improvement in outcome standards such as specific rights of employment (working hours) and health and safety policies. Barrientos and Smith (2007, p. 723) conclude that private systems contribute to improving outcome standards, but much less to improving process standards. The selectivity in addressing certain rights, especially regarding child labour, and not others, has also been noted by other researchers (Schrage, 2004). 

Quality of Information in Auditing

Second, the quality of information in auditing has been questioned. Auditing relies mostly on a checklist approach. Auditors visit different units with questionnaires and fill out this questionnaire. On the basis of the results of the questionnaire an assessment is made. An advantage of this approach is that it allows for quantification of conditions via different indicators and it makes different units comparable. However, this approach has been heavily criticized for not capturing the full picture and for being incomplete. First of all, it is argued that this approach does not sufficiently take into account the voice of local stakeholders (workers, communities, etc.) into account in a more qualitative assessment of the implementation of standards (Maquila Solidarity Network, 2005). Secondly, it is argued that standardisation leads to routinisation resulting in auditors doing a ‘quick’ job and missing crucial information (O’Rourke, 2000). In 2000, Dara O’Rourke did participatory observation with auditors and wrote a highly critical report of their practices arguing that they missed clear violations of standards and were too quickly assured on remediation of breaches of standards. Similar accounts can be found in the work of Esbenshade (2004) and Locke (2013, especially chapter 2). In addition, some observers (Locke, 2013) argue that due to an inherent conflict of interests (auditors are paid by the business enterprises) auditors have strong incentives to ‘underreport’ practices and give in on the stringency of their audit reports in order to please the ones who order the audits. These dynamics between auditors and inspected enterprises have recently been illustrated by Kim (2012) in an analysis of code enforcement and implementation in Vietnam’s Apparel and Footwear Factories. 

Auditing in Complex Supply Chains

Third, it is argued that auditing is unable to capture the complexity of present-day supply-chains. Three elements are highlighted. First, many multinational firms do not only have thousands of suppliers but even these suppliers outsource. The stitching of footballs provides an example. Although the football industry is a quite consolidated sector with relatively few players involved (Nadvi, 2011), the effective making of a football involves many actors. Hence, only the making of one simple product already requires the auditing, against a set of standards, of a few hundred entities. To do this in a systematic and sufficiently frequent way via auditing is a very demanding task. Several researchers question whether this can be done at all (Locke, 2013).

A second element relates to the dynamics within supply chains between buyer and first-tier supplier. Several authors argue that, due to the dynamics in supply chains, it is impossible to comply with all requirements and standards. The main issues concern the demands of major retailers to have very short supply times, which are flexible to shifts in demand and product requirements and which are at low cost. Locke (2013) provides several case studies and examples of business enterprises which are extremely demanding in the flexibility they request. This flexibility is a result of current day consumer markets which allow consumers to ‘assemble’ their own products according to their own preferences, leading to tailor-made production. This directly impacts upon working time, excess hours and labour cost. The flexibility also implies that workplace practices change very quickly, which is difficult to capture in an annual audit.

A third element concerns the assumption that auditing can be pursued down the supply chain. This is true for buyer-driven commodity chains which are dominated by brands or large retailers. Large retailers or strong brands can often determine labour rights downstream in the supply chain. If these upstream actors require stronger labour rights, this will play out downstream, generating employment effects further down the supply chain. However, there is also some evidence that intermediaries in the supply chain, especially large Chinese firms, are becoming more powerful and change the balance of power in supply chains (Levi et al., 2012) limiting the potential of Western retailers to pursue policy throughout the supply chain.
Finally, short-term ownership and mobility of factories in supply chains might also influence the effectiveness of using audits for monitoring labour rights. In several manufacturing industries, factories, or capital sustaining them, are highly mobile and are searching constantly for locations with the lowest input costs (Levi et al. 2012). As Levi et al. (2012, p. 22) note: “When challenged by workers forming unions or pressured by MNCs trying to induce compliance with private regulatory schemes, many factories will simply shut their doors without paying severance to workers and re-locate.”

Conclusion

The arguments outlined above do not suggest that private international labour standards governance systems are completely ineffective, but they point to several limitations. Overall, they indicate the limited potential of private governance systems to protect labour standards throughout the supply chain. This is not to argue that they do not make a difference. There is sufficient evidence that they do, at least with regard to certain labour standards. However, one should not over-estimate their impact and potential to govern labour standards throughout the supply chain. A key question will be how private governance systems can be integrated in more comprehensive approaches to address labour standards in a global economy.

Dr. Axel Marx is the Deputy Director of Leuven Centre for Global Governance Studies, University of Leuven. Professor. Dr. Jan Wouters, Jean Monnet Chair ad personam, is a Full Professor of International Law and International Organizations and Director of the Leuven Centre for Global Governance Studies at the Institute for International Law, University of Leuven

References

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This article was published in GREAT Insights Volume 2, Issue 8 (November 2013).