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The Limitations of Private Compliance. The Promise of an alternative,
“collaborative,” approach. Beware of “technocratic” solutions; factory-
focused solutions. Bringing Distributional Issues & “Upstream”
Business Practices Back into the Conversation.
• Globalization has created all sorts of opportunities for growth and development. But also…
• Child labor, excessive work hours, hazardous working conditions, poor wages rampant in developing world factories
• In absence of functioning international organizations capable of promoting global justice and/or nation-states willing or able to enforce domestic labor codes, codes of conduct and other forms of private compliance programs have become dominant method MNCs and NGOs address problems with labor standards
Does Private Compliance Work? If so, how? Under what conditions?
If not, what other private and/or public interventions improve labor standards?
Under what conditions can a new, more “collaborative” approach be constructed and diffused?
• Study of Global Buyers and their Suppliers in Different Industries (Footwear, Apparel, Agriculture, Electronics)
• Analysis of Thousands of Company Audit Reports and Sourcing Data
• Field Research (Matched Paired Analysis) in Brazil, China, India, Bangladesh, Turkey, Dominican Republic, Honduras, Vietnam, Mexico, U.S.
• Over 700 interviews; over 100 factory visits
Number of Observations: 575 Average M-Audit Score: 65%
First M-Audit Scores across all factories (Nov. 2002 to Jan. 2005)
Similar patterns of variation within sectors (footwear, apparel, equipment) and within
countries.
01
23
De
nsity
.2 .4 .6 .8 1Maudit score
Density kdensity maudit
First Maudit scoreHistogram:
Factory Conditions Vary Across Sectors & Countries
Case 1: Nike
Are Things Getting Better? CR rating
Case 1: Nike
Change in CR Rating Freq. Percent
-3 (Down by 3 degrees) 20 2.62
-2 (Down by 2 degrees) 74 9.70
-1 (Down by 1 degree) 181 23.72
0 (No change) 323 42.33
1 (Up by 1 degree) 116 15.20
2 (Up by 2 degrees) 42 5.50
3 (Up by 3 degrees) 7 0.92
Total 763 100
B) Change in Compliance Rating Inspections
Note: A is 4, B is 3, C is 2, and D is 1, and the change in CR rating is the score in the most recent audit minus the score from the earliest audit, ranging from –3 to 3. For example, if a factory has a score C in the earliest audit and a score A in the most recent audit, then it has a change of +2.
Are Things Getting Better?
The Limitations of Private Monitoring (Auditing)
Case 2: HPCompliance summary for HP suppliers (as of most recent audit)
The Limitations of Private Monitoring (Auditing)
Case 2: HPCompliance summary for HP suppliers (as of most recent audit)
The Limitations of Private Monitoring (Auditing)
• How to Explain Mismatch Between Company Rhetoric / Reputation & Reality of It’s Supply Base?
• Not Lack of Will, Moral Fiber, Interests, Resources
• Problems are Inherent in Traditional Compliance Model
• Asymmetric Power Relations Between Global Buyers & Suppliers
• Importance of Audit-Based Data
• Incentives
Lots of debate over the Model. How to make it more transparent, accountable, rigorous
Traditional Compliance Model
• Ambiguous Power Relations
• Unclear (Perverse) Incentives
• Impossible to Generate Accurate Information
Theoretical & Empirical Weaknesses
As a Result, “Ritual” of Compliance
Factories Moving In & Out of Compliance
Not Tackling “Root” Causes of Labor Issues
Workplace Characteristics Plant A Plant B
Average Weekly Wage $ 86.00 USD $ 67.80 USD
Team Work Yes No
Job Description Multi-Tasks Single Task
Job Rotation Yes No
Worker Participation in Work-Related Decisions
Yes No
Nationality
Managers Mexican Chinese
Supervisors Mexican Chinese
Production Workers Mexican Mostly Mexican
Overtime Voluntary and Within Limit
Mandatory and Over Limit
Comparison of Production Systems
Plant A Plant B
Total # of Workers in one line or cell
6 10
T-Shirts per Day per line or cell
900 800
Daily Wage per Worker(Fixed Salary + Bonuses)
$ 17.20 USD $ 13.60 USD
T-Shirts per Worker 150 80
Cost per T-Shirt $ 0.11 USD $ 0.18 USD
An Alternate, More “Collaborative” Model: Nike Plants Revisited
Comparison between Old and New System of Production in Plant A
Old System(module)
New System(cell)
Total # of Workers 10 6
T-Shirts per Day per module or cell
1200 900
Productivity per Worker 120 150
Average Weekly Salary $ 67.80 USD $ 86.00 USD
An Alternate, More “Collaborative” Model: Nike Plants Revisited
Compliance Collaboration
Approach: Rules/Standards Focus“Meeting” Standards
Uncovering, Analyzing and Correcting “Root Causes” of Current Issues
Mechanisms: Policing, Detailed Audit Protocols (checklists), Inspections, Documentation
Joint Problem Solving, Information-Sharing, Repeated Interactions, Reciprocity
Dynamics: “Us vs. Them”Functional Division of LaborMixed Signals
Mentoring, Coaching, Diffusion of Best Practices, Integration of Standards with Operational Excellence, Sharing Risks & Benefits
Drivers of Change:
Repeated Audits, Pressures from Above, (Negative) Incentives
Learning, Capacity-Building, (Positive) Incentives, Mutual Respect, Mutual Gains
Mean Capacity
VariationIn
Percent
300
200
100
Retail Component/Module Build Final Assembly
Stylized Demand Volatility along Supply Chain
Demand Signal
Source: Locke Samel WP 2011
• Successful compliance/capability building not just technical issue but also a political/distributional process
• Requires collaboration among key actors within and across firms
• Collaboration built through repeated interactions and mutual understanding that all parties must share benefits and costs
• Institutions can help shape/reinforce patterns of collaboration