A 14-minute master class on all that's wrong with global supply chains.
BTS: Georgios, thanks for joining us. Can we start by asking you to explain why ILC 2016 was so important?
GA: It was dealing with an important issue – global supply chains – which involve a number of major governance gaps. The economy has globalised over recent decades but the institutions and means to govern the economy haven’t caught up. This year’s ILC and the wider push towards a global supply chain convention was therefore crucial because it was about building towards global governance. Without that, we have problems. Currently, the way supply chains are structured ensures a race to the bottom when it comes to labour standards and wages. The lower these are, the more value big companies can capture – which is why they like things the way they are.
BTS: So in your ideal scenario, we will have a global convention on supply chains?
GA: That would be a key first step towards proper global economic governance. It would oblige governments to oblige their multinational companies to apply rules throughout their supply chains. It would force them to conduct meaningful due diligence.
BTS: What about the issue of ‘accountability?’
GA: Accountability is critical, but that is missing at the moment. Major companies build the lack of accountability into their business plans. They organise production in places with weak or no rule of law, at least with regard to worker protection. This needs to change and we need to hold these companies accountable.
BTS: Do you think major companies intentionally build an economic system that fosters exploitation?
GA: Definitely. That is how the system works. You have big multinational enterprises designing their products, selling them, and then capturing all the value from the process. While actual production is outsourced and underpaid.
BTS: I know that the International Trade Union Confederation has recently released some research about value capture along the value chain…
GA: Yes, this was the Scandal Report. We showed that companies are making vast profits while workers work in poverty and exploitation. Amazingly, we also found that 94% of the work force in global supply chains is ‘hidden’, working in the informal economy.
BTS: This means that there really is a gigantic governance gap.
BTS: Moving on, can I ask you to talk to us a bit about ‘due diligence’?
GA: Well this is a complicated issue that has been made somewhat clearer by the Ruggie Principles on Business and Human Rights. These outline the responsibility that companies have to respect human rights and labour rights, and they outline the responsibility they have to put in place processes that identify, prevent, mitigate and in the end account for the different human rights abuses that may happen in their value chains.
In simple terms, when a company directly causes a rights abuse, they have to fix it and compensate for it. Likewise, when that abuse is linked to the company’s operations but not directly caused by it, they have a responsibility to use their influence to address that abuse. Or they have to stop working with, for example, the supplier that abuses.
In the end, these principles and this due diligence are important and even if they cannot replace national and international governance, they have the potential to be very powerful. Because if due diligence becomes mandatory, then the entire business model of global supply chains will have to change. Enterprises at the top will have to factor in costs that are now being externalised onto workers and the environment.
BTS: Presumably, this will also imply a certain degree of transparency on the part of the multinationals regarding their supply chains?
GA: Absolutely. Transparency is a necessary requirement without which we won’t get anywhere. In order to be able to map out supply chains, to know where the responsibility lies and from whom we should be expecting responsibility, we need full transparency.
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