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The Limitations of Private Compliance. The Promise of an alternative, “collaborative,” approach. Beware of “technocratic” solutions; factory- focused

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Page 1: The Limitations of Private Compliance.  The Promise of an alternative, “collaborative,” approach.  Beware of “technocratic” solutions; factory- focused
Page 2: The Limitations of Private Compliance.  The Promise of an alternative, “collaborative,” approach.  Beware of “technocratic” solutions; factory- focused

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.

Page 3: The Limitations of Private Compliance.  The Promise of an alternative, “collaborative,” approach.  Beware of “technocratic” solutions; factory- focused

• 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

Page 4: The Limitations of Private Compliance.  The Promise of an alternative, “collaborative,” approach.  Beware of “technocratic” solutions; factory- focused

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?

Page 5: The Limitations of Private Compliance.  The Promise of an alternative, “collaborative,” approach.  Beware of “technocratic” solutions; factory- focused

• 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

Page 6: The Limitations of Private Compliance.  The Promise of an alternative, “collaborative,” approach.  Beware of “technocratic” solutions; factory- focused

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

Page 7: The Limitations of Private Compliance.  The Promise of an alternative, “collaborative,” approach.  Beware of “technocratic” solutions; factory- focused

Are Things Getting Better? CR rating

Case 1: Nike

Page 8: The Limitations of Private Compliance.  The Promise of an alternative, “collaborative,” approach.  Beware of “technocratic” solutions; factory- focused

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)

Page 9: The Limitations of Private Compliance.  The Promise of an alternative, “collaborative,” approach.  Beware of “technocratic” solutions; factory- focused

Case 2: HPCompliance summary for HP suppliers (as of most recent audit)

The Limitations of Private Monitoring (Auditing)

Page 10: The Limitations of Private Compliance.  The Promise of an alternative, “collaborative,” approach.  Beware of “technocratic” solutions; factory- focused

Case 2: HPCompliance summary for HP suppliers (as of most recent audit)

The Limitations of Private Monitoring (Auditing)

Page 11: The Limitations of Private Compliance.  The Promise of an alternative, “collaborative,” approach.  Beware of “technocratic” solutions; factory- focused

• 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

Page 12: The Limitations of Private Compliance.  The Promise of an alternative, “collaborative,” approach.  Beware of “technocratic” solutions; factory- focused

• 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

Page 13: The Limitations of Private Compliance.  The Promise of an alternative, “collaborative,” approach.  Beware of “technocratic” solutions; factory- focused

• 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

Page 14: The Limitations of Private Compliance.  The Promise of an alternative, “collaborative,” approach.  Beware of “technocratic” solutions; factory- focused

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

Page 15: The Limitations of Private Compliance.  The Promise of an alternative, “collaborative,” approach.  Beware of “technocratic” solutions; factory- focused

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

Page 16: The Limitations of Private Compliance.  The Promise of an alternative, “collaborative,” approach.  Beware of “technocratic” solutions; factory- focused

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

Page 17: The Limitations of Private Compliance.  The Promise of an alternative, “collaborative,” approach.  Beware of “technocratic” solutions; factory- focused

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

Page 18: The Limitations of Private Compliance.  The Promise of an alternative, “collaborative,” approach.  Beware of “technocratic” solutions; factory- focused

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

Page 19: The Limitations of Private Compliance.  The Promise of an alternative, “collaborative,” approach.  Beware of “technocratic” solutions; factory- focused

• 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