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Ethical Supply and Demand

Have you ever heard of ‘responsible production’ or ‘ethical supply’ while doing an introductory microeconomics course? Why do you think economists and even most managers do not honestly deal with this topic?
Have you seen the documentary film “The Take” by Avi Lewis and Naomi Klein, which is about Argentine auto parts workers pitted against local ruling elites and the powerful forces of global capitalism? Have you seen the documentaries about corporate accountability, human rights and environmental justice such as “The Corporation”, “Roger and Me”, “Crude Impact”, “Dark Money”, “Enron: The Smartest Guys in the Room”, “Shock Doctrine”, “Broken Cameras”, “Call Me Kuchu”, “The Coconut Revolution”, “The True Cost”, and “Crude”? In an era of fake news, doctored videos and government sanctioned war on reality, these sources are more important than ever to appreciate the concern of this posting.

Assume that after completing econ hons education sans such terms, you have studied for a masters degree with specialisation in supply chain management. Also assume that in the process you have got exposed to the labour abuse problem in the supply chains not through the course materials but via the news about student-participation in the global anti-sweatshop movement. Further assume that the recent labour disturbances at the Apple supplier in southern India has shaken you a lot out of your complacency to think inside out of such crisis through possible managerial solutions for bringing about responsible production or ethical supply.

Your unbiased research reveals that there is a corporate social responsibility (CSR) movement in relation to the global supply chains with players and campaigners such as the National Labour Committee (a US-based rights group), Fair Labour Association, Ethical Trading Initiative, FIFA Code of Conduct, ICTI CARE Programme, Business Social Compliance Initiative in Europe, Social Accountability International’s SA 8000 Certification Scheme, Worldwide Responsible Accredited Production and the like. These and the lead or principal firms orchestrating and controlling the global supply chains have highlighted the need for solutions by way of ‘self-regulation’ or ‘third party regulation’ or a mix of these two or collective private cum NGO regulation.

You notice that as far as the multinational lead firms are concerned, there is a positive shift in their publicly declared mindset, starting all the way from claims to no responsibility for conditions of their suppliers/subcontractors as they did not own them and did not directly control them, to policing or monitoring their supply chains with codes of conduct and audits in a reactive way, finally to the current fashionable trend of ‘constructively engaging suppliers’ through a proactive, integrated, partnership based approach.

You find that there is now a fairly good consensus that the policing approach, also known as the top-down certification approach, is ineffective. The multinational corporations’ control over the sustainability aspects of their supply chains is very limited as they do not know the entire production chain, beyond the first-line subcontractors/suppliers, so as to do site visiting and auditing. Policing is also an expensive love affair. Moreover, at the first-line of subcontracting/supplying itself, there is make-believe drama in terms of elaborate efforts by factory managers to coach their workers to give the ‘right’ answers to auditors, falsification of records, and even bribing of auditors. Unauthorised subcontracting or outsourcing by suppliers also remains a thorny problem. Unscrupulous suppliers use a compliant factory as a front to get orders and then use non-compliant factories or other subcontractors to produce the goods and services. Suppliers are also increasingly using labour contractors to outsource production rather than hiring the workers directly on their own payroll. These workers do not receive the same benefits as the workers directly employed by the factory concerned and are often overlooked by the auditors. And the factory finds it damn easy to fire these workers when work orders are down and out. From the viewpoint of suppliers, there is the so-called ‘audit fatigue’ due to initiatives of individual lead firms soon resulting in hundreds of codes and multiple audits of the same supplier by several brands (i.e. lead companies).

You come to know that the latest bottom-up approach of partnering with suppliers is expected to be more effective than the above policing approach in so far as commitment to trust and transparency will bring about transformative educational inputs into suppliers from the lead firms (e.g. through e-learning courses on CSR) and the CSR players and campaigners on the one hand and reporting by suppliers on the other throughout the entire life cycle of the product, right from the beginning of the supply chain. Just imagine!

But you have not yet found details, if any, about the empirical validity and superiority of this bottom-up approach. There seems to be too much of inebriated talk, and not enough sober action. You soon realize that this approach too cannot solve the problem of the policing approach in terms of mapping the entire depth of the supply chain. At the most, it may reduce ‘audit fatigue’ for upper suppliers and bring about workplace improvements in the first-line subcontract-suppliers, that too not beyond safety and health matters.

You learn that a component of the collaborative or bottom-up approach is that if suppliers can be encouraged and assisted in adopting ‘lean manufacturing’ or ‘smart manufacturing’, some of the supply chain headaches can be cured. For instance, there is this voluptuous idea that lean manufacturing will reduce labour abuse and environmental footprint through improving productivity by the Human Resource Management (HRM) approach which will raise wages and improve labour relations, and through zero waste via energy efficiency, raw material use efficiency, blah blah blah.

However, your “Kafkaesque investigations of a dog” reveal that the idea of using lean manufacturing to eliminate labour abuse is just a serenade by a man at night under the window of his beloved; that it is a peppy futile verbosity. When you listen to the polite and stylish speaking on the part of Alice Tepper Marlin, the President of Social Accountability International, you sense that this is no easy task as lots of factories and their managements do not understand the relationship between treating workers well on the one hand, and achieving better productivity, quality and bottom line, on the other hand. Much more importantly, the source of the problem is very much with the lead companies themselves and their external circumstances. The lead firms are after all very much after ‘global labour arbitrage’ and as such they lower the price they pay to their suppliers every year as part of their cost-cutback imperative for competitiveness and so eventually they do not recognise and reward the improvements made by suppliers. Their need for flexibility to cope with seasonal variations in demand and last minute changes in work orders and designs, flooding factories with orders that exceed the supplier’s capacity and demanding shorter lead times, all create a veritable hell for the suppliers not to have stable production planning and execution through regular workforce with decent working hours and conditions. Suppliers cannot escape from treating workers any better than using and throwing them like the way prophylactics are used and thrown in the spot markets of the sex industry in Amsterdam or Bangkok.

So, how do you think that you can get an effective solution to the labour abuse problem in the supply chains?

In light of the above knowledge and wisdom, will you settle for the Marxist conclusion that employer strategy is nothing but the programmatic choice among alternatives none of which can prove satisfactory?

If you do not accept this Marxist end of the story, then what is the way out of this chaos?

You could very well argue that the emergence of ethical demand or ethically sensitive consumption from the consumer side can ensure ethical supply from the business side. In fact, this is a pretty good idea. The rise of ethical demand is dependent on the decline and fall of our lifestyles disrespecting the earth rights or the laws and rights of nature and human and animal rights.

There are some caveats, though, in this regard. First, all fair trade is not fair. There are abuses, hidden behind self-declarations or certified declarations to the contrary. This has become a butt of jokes as well.

Secondly, can ethical or minimalistic living sentiments and educational materials and activism beat the ethically insensitive and addictive consumerism deepened by the aggressive advertising of the corporates with bottomless pockets? There are innumerable sustainable lifestyle magazines and blogs such as Ethical Living, Pebble Magazine, 91magazine.co.uk, Sublime magazine, www.mygreenpod.com, becomimglola.blogspot.com, Ethos magazine, The Green Guide, and the like.

Finally, consumer boycotts can wrest concessions from unethical corporations if the consumer activists through their boycotts, which receive a great deal of media attention, can damage corporate reputations. However, boycott against a dirty company may fail if the substitutes are also tainted. If labour and environmental research reveals all the main lead firms as tainted except one or two about which we are in the dark, how can we assume that boycotts will shift the consumer preferences to the products of the companies whose labour and environmental practices we do not know? And what if the media owned and/or controlled by corporates highlights only sales revenue loss and fall in share price of the company concerned and neglects the bad labour and environmental issues in that company’s factories? In light of all this, I nudge you to critically explore the burgeoning literature on ethical trade aka good or fair trade as a contemporary trending.

By Annavajhula J.C. Bose, PhD Department of Economics, SRCCREFERENCESAnuradha Nagaraj. 2020. Violence at Apple Supplier in India Fuels Fears of Further Worker Unrest. Reuters. December 15.https://gurgaonworkersnews.files.wordpress.com/2012/09/full-thesis-in-pdf.pdf
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