The political economic forces creating a business ‘demand’ for forced labour are no more random than those creating a supply of people vulnerable to it. Instances of forced labour are not – we repeat, not – the simple outcome of immorality among criminals or ‘bad apple’ employers.

Although often characterised as a hidden crime occurring randomly on the “underside of globalisation”,^{[1, 2]} in reality, forced labour is a stable and predictable feature of many global supply chains. Just as we can understand the factors that make people vulnerable to forced labour, so too can we trace the dynamics that underpin the business demand for their labour. This section of the report draws together research from across several sectors and regions to illustrate four key political economic drivers of the demand for forced labour in supply chains. We begin with the increasingly concentrated corporate power and ownership.

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Corporate scale and profits

One of globalisation’s most striking features has been the massive growth of multinational corporations (MNCs). As we explained in chapter 3, many of these companies do not own or operate their own factories, but rather have redrawn global production patterns to coordinate the making of the goods they sell across thousands of supplier factories located around the world. Walmart, for instance, coordinates across over 100,000 suppliers.

The model of fast, high-turnover production that Walmart, H&M and others have pioneered since the late 1990s has brought vast profits for the lead firms at the helm. In 2017, Apple brought in over US$45 billion in profits,^[3] Disney brought in US$9.39 billion, and Nestlé’s profits hit US$8.65 billion.^[4] Walmart brought in US$481.3 billion in net sales that same year, nearly 35 times the GDP of a small country like Jamaica.^[5]

These profits have been a driving force behind contemporary global inequality. The 2017 list of the world’s richest people is topped by Amazon founder Jeff Bezos (net worth US$90.6 billion), Microsoft founder Bill Gates (net worth US$90 billion), and Amancio Ortega (net worth US$83.2 billion), founder of Inditex fashion group, which owns Zara. According to Oxfam, just eight men now control the same amount of wealth as the poorest half of the planet.^{[6, 7]} The global workforces working directly and indirectly for these men and their companies largely come from this poor second half, and – as the ‘supply’ section of this report makes clear – it is an understatement to say that they have not benefited nearly as much as these men at the top.

Monopolisation and market power

In addition to making their founders and executives very wealthy, the size and scale of today’s MNCs gives them enormous market power, which is critical for understanding forced labour. Swiss food giant Nestlé buys 10% of the world’s cocoa crop, 10% of the world’s coffee beans and 2% of the world’s milk and sugar.^[8] Companies have also become conglomerates encompassing hundreds of brands: Unilever alone owns over 400, including such major household names as Dove, Lipton, PG Tips, Vaseline, Ben & Jerry’s and Becel. The breadth of competition in many markets has lessened as a result, and often just a handful of companies hold virtual monopolies over entire markets. For instance, roughly 80% of the global tea market is held by just three companies – the Dutch-British Unilever, the Indian Tata Group and Associated British Foods.^[9] Corporations’ vast market power allows them to dictate prices and margins in global value chains (GVCs). Unsurprisingly, they do so in ways that allow them to accrue huge profits while squeezing ever-lower margins down along their supply chains.

Examples abound. Four years ago, the major Canadian current affairs magazine Maclean’s investigated the cost breakdown of a C$14 polo shirt, reporting that it cost retailers only C$5.67 to produce, and of that, only C$0.12 went to workers.^[10] In cocoa, we know from research conducted by scholars at the Institute of Development Studies that cocoa farmers in Ghana receive “just 4 per cent of the final price of an average UK bar of milk chocolate”, with the lion’s share of the retail price going to chocolate manufacturers and retailers.^[11] Similarly, a study of value distribution in the production of Apple’s iPhone reveals that the majority of the money – 58.5% – goes straight to Apple’s profits, while Apple’s suppliers receive a far lower proportion; Taiwan’s profits are 0.5%, while South Korea’s are 4.7%. In all, only 5.3% of the value of an iPhone goes into the pockets of Apple’s global workforce.^[12]

Stephen Roach, an economist at Morgan Stanley, has called this model of MNC profitability “global labour arbitrage”, referring to the enormous profits that MNCs accrue through their systemic, near monopolistic control over the global labour market.^{[13, 14]} Their sourcing practices rely on, reinforce and seek to profit from countries’ ‘comparative advantages’ in terms of labour exploitation. In the garment industry – as in agriculture and other industries with fierce competition over prices – firms like H&M decide where to source and manufacture goods primarily based on the cost of labour, and as such they ‘comparison shop’ for places where labour remains cheap (and by extension under-protected). It is no coincidence that, according to H&M’s supplier list,^[15] the company primarily turns to countries with notoriously low-wage garment sectors, like Bangladesh, China, Vietnam and Thailand, to find this optimal combination.

Because of their size and market power, the prices MNCs choose to pay their first-tier suppliers have knock-on effects throughout the entire supply chain. They affect not only the margins of all downstream firms, as the following section explores, but also the overall labour conditions of producing countries. For instance, the world’s second largest clothing retailer, H&M, sources from “some 1,900 [first-tier] factories in which about 820 suppliers … employ about 1.6 million people”.^[16] Beneath these factories lies a web of smaller suppliers, conducting embroidery, printing, washing, spinning, knitting, weaving and dyeing, along with cotton growing, trading, and ginning.

The price that H&M pays at the top shapes the working conditions of those below, since each subsequent tier of suppliers must struggle over the remaining slice(s) of the pie. As labour is usually a factory’s biggest cost – or at the very least its most negotiable cost – the most obvious option for remaining profitable is to further squeeze workers in turn. As such, even if H&M does not consider cotton growers or weavers to be its direct business partners, the firm nevertheless structures the world in which they work.

Companies like H&M are quick to disclaim responsibility for this squeezing effect and for the low share of value accruing to workers and firms deeper down in the supply chain. They even note on their website that “workers are employed by the supplier – and not by us. We neither set nor pay the factory workers’ wages and consequently, we cannot directly decide what they are paid”.^[17] Technically this is true. But by dictating value distribution along the supply chain MNCs give shape to the market structures within which all those beneath them must work. The squeeze brought about by vastly uneven value distributions has, by this point, often become so tight that it fuels demand for forced labour amongst businesses further down the chain.

Commercial pressures

The concentration of corporate power and ownership in lead firms not only allows them to dictate value distribution along the chain but also the absolute size of the pie to be shared. In other words, lead firms’ market power gives suppliers little choice but to accept that the end retail price will remain low. In combination with unequal value chain distribution this inescapably reduces profit margins further along the chain, especially in industries where labour costs are a major expense of doing business. These trends have resulted in huge downward pressure on working conditions.

Major brands have consistently sought to drive down commodity and shop prices in recent years, or to keep them there, and one way they have done this has been to demand ever lower prices from their suppliers. This is especially true of competitive industries where margins are often already very thin. Faced with little choice but to accept the new terms or be replaced, manufacturers have attempted to alleviate the pressure by lowering their labour costs – often the only cost that can be reduced without sacrificing quality. As one South African apple farm owner put it, “the only ham left in the sandwich is our labour costs. If they [the supermarkets] squeeze us, it’s the only place where we can squeeze”.^[18]

One of the starkest examples is the food and agriculture industry, in which an estimated 1.3 billion people work.^{[19, 20]} Over two decades of evidence make it clear that downward pressure on prices in this industry create corresponding pressures towards forced labour. Debt-bondage, underpayment of wages, and forced overtime have become endemic to the cane industry, where the price of sugar has been steadily falling,^[21] while lower coffee prices correlate with the increased use of forced labour.^{[22, 23]}

Research across a range of industries suggests that businesses in tiers below the top-tier firm have sought to lower labour costs in several ways. Allain et al. (2013)’s study of the business models of forced labour highlights three. First, they directly lower labour costs by not paying the promised wage, openly paying below the minimum wage, and providing substandard accommodation for workers. Second, they attempt to generate revenues from workers, such as by charging recruitment fees or by overcharging for accommodation and other services. Third, they re-outsource work further down the supply chain, or to agency workers through labour subcontracting.^{[24, 25, 26]} All of these scenarios can introduce higher risks of forced labour, as well as patterns of informalisation.^[27]

Sometimes, suppliers respond to commercial pressures by introducing business models configured directly around forced labour, using practices like debt bondage, forced overtime, illegal wage deductions, and physical, psychological, or other forms of coercion in an attempt to further lower labour costs. Research on a number of products – including sugar, garments, seafood, and electronics – has linked the business demand for forced labour to pressure on costs and prices.^{[28, 29, 30, 31, 32, 33]} Occasionally, this occurs within the factories that supply directly to MNCs. For instance, a bed supplier to UK department store John Lewis, Kozee Sleep, was recently convicted of exploiting a “slave workforce”.^[34] This is in some senses unsurprising since, according to one study of the UK garment industry, manufacturers often have “very low or even no profit margins”. In such a situation the business demand for extremely low-cost labour is painfully clear.^[35]

Cases like Kozee Sleep, however, are relatively rare. Much more frequently we find that the businesses resorting to forced labour exist far from the public gaze and from consumer-facing operations. They are often unregistered or informal organisations with no official link to the brand. To understand how and why this occurs, we need to take a closer look at outsourcing, and the research that documents higher prevalence of forced labour amongst outsourced portions of supply chains. It is to this we move next.

Next chapter: Demand 2 of 4: Outsourcing

1. International Labour Organization (2005) ‘A global alliance against forced labour’, Geneva: ILO, 30. ↩︎
2. International Labour Organization (2001) ‘Stopping forced labour’, Global Report under the Follow-up to the ILO Declaration on Fundamental Principles and Rights at Work, Report I(B), International Labour Conference, 89th Session, Geneva, 2001, 47. ↩︎
3. Fortune (2017) ‘Apple’, Global 500. ↩︎
4. Fortune (2017) ‘Most profitable’, Global 500. ↩︎
5. The World Bank, GDP ($US). ↩︎
6. Oxfam (2017) ‘An Economy for the 99%’. ↩︎
7. Credit Suisse (2016) ‘Global Wealth Databook 2016’. ↩︎
8. T. Gooley (2016) ‘Nestlé puts 36,000 supply chain minds to work’, CSCMP's Supply Chain Quarterly. ↩︎
9. Oxfam Germany et al. (2017) ‘Konzernatlas 2017’, 28. ↩︎
10. R. Westwood (2013) ‘What does that $14 shirt really cost?’, Maclean’s. ↩︎
11. O. Ryan (2011) Chocolate Nations: Living and Dying for Cocoa in West Africa, London: Zed Books, 6, citing: Stephanie Barrientos et al. (2007) Mapping Sustainable Production in Ghanaian Cocoa: Report to Cadbury, Institute of Development Studies, University of Sussex and Department of Agricultural Economics and Agribusiness, University of Ghana, 10. ↩︎
12. K. L. Kraemer et al. (2011) ‘Capturing Value in Global Networks: Apple’s iPad and iPhone’ University of California, Irvine, University of California, Berkeley and Syracuse University. ↩︎
13. J. Rubino (2005) ‘Global Labor Arbitrage’ CFA Magazine, Jan-Feb 2005. ↩︎
14. In economics theory, ‘arbitrage’ refers to taking advantage of the price differential between two markets. See: https://en.wikipedia.org/wiki/Arbitrage. ↩︎
15. H&M Group ‘Our supplier factory list’, Sustainability Reporting. ↩︎
16. Ibid. ↩︎
17. H&M Group ‘Wages’, Sustainability Reporting. ↩︎
18. Quoted in: K. Raworth & T. Kidder (2009) ‘“Mimicking ‘lean’ in global value chains: It’s the workers who get leaned on”’, in Blair, J. (ed.) Frontiers of Commodity Chain Research, Stanford: Stanford University Press, 165-189. ↩︎
19. International Labour Organization (2014) ‘Key indicators of the labour market’, Geneva: ILO. ↩︎
20. International Labour Organization (2013) ‘Decent and Productive Work in Agriculture’, Geneva: ILO. ↩︎
21. J. Basu (2015) ‘Global sugar prices hit five month low’, FoodNavigator.  ↩︎
22. Verité (2012) ‘Research On Indicators Of Forced Labor In The Supply Chain Of Coffee In Guatemala’. ↩︎
23. S. Scott et al. (2012) ‘Experiences Of Forced Labour In The Uk Food Industry’ Joseph Rowntree Foundation. ↩︎
24. J. Allain et al. (2013) ‘Forced labour’s business models and supply chains’, Joseph Rowntree Foundation. ↩︎
25. J. Fudge & K. Strauss (eds) (2013) Temporary work, agencies and unfree labour: insecurity in the new world of work, New York: Routledge. ↩︎
26. S. Barrientos (2013) “‘Labour Chains’: Analysing the Role of Labour Contractors in Global Production Networks”, The Journal of Development Studies, 49(8), 1058-1071. ↩︎
27. See works by Alessandra Mezzadri, especially: A. Mezzadri (2016) The Sweatshop Regime: Labouring Bodies, Exploitation and Garments Made in India, Cambridge University Press. ↩︎
28. J. Alsever, (2014) ‘Prison labor’s new frontier: Artisanal foods’, Fortune. ↩︎
29. S. Scott et al. (2012) ‘Experiences Of Forced Labour In The UK Food Industry’ Joseph Rowntree Foundation. ↩︎
30. B. Richardson (2015) Sugar, Cambridge: Polity Press. ↩︎
31. S. McGrath (2013) ‘Many Chains to Break: The Multi-dimensional Concept of Slave Labour in Brazil’, Antipode, 45, 1005-1028. ↩︎
32. P. Belser & B. Andrees (eds) (2009) Forced Labor: Coercion and Exploitation in the Private Economy, London: Lynne Rienner Publishers. ↩︎
33. See Verité’s ‘Forced labour Commodity Atlas’. ↩︎
34. A. Crane & G. LeBaron (2017) ‘Overseas anti-slavery initiatives flourish, but domestic governance gaps persist’, Beyond Trafficking and Slavery. ↩︎
35. See: UK Parliament ‘The interaction between human rights and business’. ↩︎