In whom should we trust? Regulation and responsibility in global supply chains
What is the best strategy for combating labour abuses in global supply chains? Should we continue with ‘corporate social responsibility’, or should we favour an alternative of international legal liability and accountability?
Ending forced labor and modern slavery in global supply chains requires binding legislation, rather than corporate self-regulation and self-disclosure. Yes or No?
Genevieve LeBaron and Joel Quirk
Garment & Allied Workers' Union
UN Special Rapporteur on Contemporary Forms of Slavery
Queen's School of Business
International Labour Organisation
Formerly of the Coca-Cola Company
The Freedom Fund
International Organisation for Migration
National Commission for the Eradication of Slave Labour
We sometimes speak about the global economy as if it were a force of nature, or as a patient with uncertain health. It can be tamed or unleashed, wounded or healed. The specific language used can reveal a great deal about how people think about economic processes and government policies. As any economist can tell you, the main bone of contention is often the role of regulation. Why and when is regulation required, and what form should it ideally take? Over the last three decades, this enduring debate has taken on new features, since so much of what now gets consumed comes from factories and workers in other countries. Instead of making goods in-house, corporations now subcontract many aspects of their production processes to partners in developing countries with lower wages, less regulation, and fewer protections for workers.
There is no question that global supply chains are good for corporations, but do they work for workers? As you might expect, this question can be answered in many ways, with different responses covering the full spectrum of yes, no, maybe, and sometimes. In a world where jobs are scarce there will always be claims that nearly any job is better than no job at all. Yet this begs an obvious question regarding the types of jobs that have been created. Major corporations use their market power to drive down costs by securing favourable contracts with suppliers, since their suppliers frequently have limited scope to negotiate better returns, better conditions, or less demanding production cycles. This combination of low prices and high expectations means that companies further down the supply chain frequently experience sustained pressure to depress pay and conditions, to the point where forced labour can appear as an unavoidable business strategy.
The limits of existing regulations
It is at this point that the question of regulation takes centre stage. Thanks to a steady stream of investigative reports, it is now widely accepted that some factories and companies have been seriously abusing and exploiting their workers. According one study, “71% of companies believe there is a likelihood of modern slavery occurring at some stage in their supply chains”. However, there continues to be heated debate regarding who should be held responsible when forced labour is found to have taken place. Most researchers and analysts talk in terms of widespread patterns, rather than isolated cases, suggesting that we have a serious global problem.
Problems on this scale rarely come with easy or immediate solutions. A number of regulations already prohibit forced labour, slavery and abusive labour practices in most countries. However, these regulations suffer from a combination of legal loopholes and failures of enforcement. National laws rarely extend beyond national borders or citizens, creating ‘governance gaps’ between different legal systems. Corporations are only legally responsible for workers they employ directly, so any abuses that take place at the hands of companies to whom they have subcontracted fall outside their legal obligations.
At an international level, we now have many conventions and protocols, including agreements against slavery (1926, 1956), forced labour (1930, 1957, 2014), and human trafficking (1949, 2000). While these international conventions contain valuable provisions and aspirations, they don’t necessarily come with the same forms of obligation, oversight or enforcement as national legislation. States routinely fail to enforce labour law without consequences. The key question is therefore not whether or not there should be any regulation. It is instead whether or not a new approach to regulation is required to update and globalise worker protections for the 21st century.
In this debate, we have asked some of the world’s leading experts to reflect on the strengths and weaknesses of a number of potential solutions. As we outline in more detail below, we are particularly interested in their thoughts on two approaches. On the one hand, we have corporate social responsibility (CSR), which has been dominant for over twenty years. On the other, we have an emerging argument that binding legislation should be prioritised over CSR.
Solution one: corporate social responsibility and voluntary action
The main principles of CSR are self-disclosure and self-regulation. The basic idea is that responsible corporations – working hand in hand with responsible consumers – can play a transformative role in cleaning up (or keeping clean) their supply chains. Established regulations remain on the books, but are also supplemented via voluntary action. Thousands of different initiatives have recently been introduced to bolster labour and environmental standards in supply chains, covering products such as bananas, tea, cocoa, t-shirts, and computers. Some CSR initiatives are specific to individual corporations, such as Apple, Microsoft or Coca-Cola. Others take the form of industry coalitions, such as the International Cocoa Initiative and the Ethical Trading Initiative. These frequently include non-governmental organisations, such as Free the Slaves (cocoa) or Anti-Slavery International (ethical trading).
The most common application of CSR principles involves the publication of policies, principles, reports and stories relating to the treatment of supply chain workers. In some cases, these publications are little more than general statements of principle that outline the values to which corporations aspire, but contain little or no information on how these values will be realised in practice. Others contain detailed material on codes of conduct, internal audits, and budgets. A good example of the later is Apple’s annual supplier responsibility reports. Despite these variations in practice, there is nonetheless a common strand linking together most CSR initiatives. As a general rule, they are voluntary, so there are no automatic or direct penalties for non-compliance or poor performance. Companies determine their own standards, policies and associations, and decide when and how much to report regarding their overall performance.
This general rule now comes with some important exceptions, where forms of CSR have been made a mandatory requirement via new legislation. The two most significant examples are the California Transparency in Supply Chains Act (2010) in the United States and the Modern Slavery Act (2015) in the United Kingdom. At the heart of both pieces of legislation is a legal obligation for corporations of a certain size to make an annual public statement regarding modern slavery and human trafficking in their supply chains. In keeping with established trends, the quality of these public statements has continued to be subject to tremendous variation. Corporations can even satisfy their legal obligations by reporting that they are taking no action at all. If they publicly proclaim their commitment to the cause and then don’t deliver, they face no penalties beyond the uncertain prospect of consumer activism or negative publicity. Reporting may well be mandatory, but public statements do not necessarily ensure that CSR efforts will be successful in eradicating forced labour. Supporters of CSR claim that voluntary action has often proved to be highly effective. Critics alternatively claim that CSR has repeatedly failed to adequately protect workers on the ground, resulting in growing calls for a new approach.
Solution two: expanded international accountability and legal liability
In recent years, a coalition of workers, civil society groups, investors, trade unions, and some industry and government representatives have argued that the current model of CSR-based solutions isn’t working. They have argued that a fresh approach is necessary, one in which global supply chains are regulated by global laws. The basic idea is for established regulations to remain on the books, but to supplement current models via expanded regulation at a national and international level to close down ‘governance gaps’. This means introducing a new regulatory framework with global reach that would legally curtail corporations’ ability to outsource liability for the working conditions associated with the production of the goods that they sell. In other words, holding corporations legally accountable for serious labour abuses across their entire supply chains. The most significant movement in this overall direction arises out of the most recent International Labour Conference in Geneva in June of this year. At this conference, workers, unions and some governments made the case that corporations need to be compelled to take direct responsibility for forced labour within their supply chains. While the precise nature of any future binding convention remains open to debate, the key argument is that moral responsibly must be translated into legal liability. Corporations cannot be trusted to regulate themselves, so there is a need for mandatory action, rather than voluntary self-regulation.
What is the most effective solution?
We already have a great deal of research into why and how labour abuses occur in global supply chains. The primary goal of this debate is to harness this existing expertise and experience in order to identify the best strategies for taking effective action. As with any debate over politics and policy, we are faced with the difficult task of adjudicating between competing positions, priorities and interests. Our goal here is not to look for a single magical solution that will immediately resolve the problem once and for all (especially given the well-documented and widespread problem of effective enforcement). That does not mean, however, that we should attempt to avoid difficult decisions by declaring that we should be trying all of the available options at the same time. In any policy debate, some solutions are going to be more effective than others, so our chief task is to identify which solutions can be expected to make the most significant improvements for workers vulnerable to forced labour within global supply chains.
We also need to recognise that some solutions will not be compatible or complimentary. Advocates of binding legislation often have no patience for self-regulation, since they regard it as a failure that complicates and undermines the search for more effective alternatives. Similarly, advocates of self-regulation are frequently opposed to more binding regulation, since they regard it as an unnecessary intrusion that not only creates further complications and costs, but can also make it harder for companies to set and enforce their own rules. As numerous researchers have documented, the popularity of CSR approaches can be partially traced to their political value as a defence against calls for further regulation. Through this debate, we hope to concentrate attention on what works, what doesn’t work, and what we should be aiming for next. There may not be a single magical solution to the challenge of forced labour in global supply chains, but some solutions will still be more effective and more deserving of action and energy than others.
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