The Starbucks Solution: Can Voluntary Codes Raise Global Living Standards

Soon
after protesters leafleted Starbucks stores because its Guatemalan coffee bean
pickers earn less than that country's $2.50 daily minimum wage, Starbucks
announced it would henceforth require growers to pay wages meeting "basic
needs" of plantation workers. After NBC's Dateline filmed children
working for Wal-Mart's Bangladesh garment suppliers, Wal-Mart adopted a
contractor's "code of conduct." Following an expose that Levi Strauss
contractors in Saipan had virtually enslaved imported Chinese women and paid
them less than the legal minimum wage, the company vowed to do future business
only with contractors whose workers are "fairly compensated . . . and not
exploited in any way." A "toycott" of imported Chinese products
provoked Toys "R" Us to adopt a code forswearing child labor. Reebok
and Nike both now have codes for Third World workers, announced in response to
Dutch and American protests (a recent Nation article noted that Nike
paid Michael Jordan more for promotion in 1992 than it paid in total payroll for
30,000 Indonesian women). J.C. Penney, Kmart, Liz Claiborne, Nordstrom,
Phillips-Van Heusen, Ford Motor, General Electric, AT&T, and many others
also now have international sourcing codes, standards Third World companies must
meet to qualify for orders from these American multinationals.

Following protests of its 1994 decision to extend China's Most Favored
Nation trade benefits, the Clinton administration proposed that all companies
manufacturing or sourcing abroad adopt voluntary "model business practice"
codes with requirements like "avoidance of child labor," "respect
for the right to organize," and a "safe and healthy workplace."
(In response to corporate protests, a provision that American businesses pay a "fair
wage" abroad was dropped.)

Considering the very modest content of NAFTA's labor and environmental side
agreements, congressional votes to prohibit further negotiation of labor
standards in trade pacts, and worldwide resistance to Clinton's proposal to
inject labor standards into the World Trade Organization, voluntary codes may be
the only way to go. Indeed, voluntarism is apparently the administration's
second-best approach to a variety of frustrations. Stymied by declining
enforcement resources, Secretary of Labor Robert Reich has jawboned retailers to
police their own subcontractors for minimum-wage violations, and published a
list of "trendsetters" who do so. In May, Clinton convened a televised
seminar of corporate executives to heap praise on domestic firms that
voluntarily provide benefits like child care or paternity leave. "I believe
the power of example to change the behavior of Americans is enormous,"
Clinton said. "I want to . . . elevate the good practices that are going on
. . . and hope that we can reinforce that kind of conduct." Earlier in his
administration, the President was accused of focusing too exclusively on
legislative bargaining and failing to take advantage of his "bully pulpit."
No longer. Appeals for voluntary virtue are now the administration's answer to
congressional reaction and gridlock. Reich says: "If government is going to
do less, then the private sector will have to do more."

The issue of Third World labor standards takes on new urgency because of the
globalization of commerce. Americans no longer have the luxury of expressing
indignation about wages and working conditions overseas solely out of
humanitarian concern, although dramatic inequality of incomes worldwide should
be as much a part of public policy focus as domestic inequality. Foreign labor
is also increasingly in direct competition with U.S. workers, so that when wages
and working conditions overseas are excessively depressed, Americans find
themselves importing the low labor standards along with the products. Equally
important, Third World workers do not share in the fruits of their own labor.
They are unable to afford consumption of either their own products or our
exports, contributing to a looming crisis of international supply-side glut:
lots of products with not enough people to buy them. If American participation
in the new economy is to be based on promotion of exports, it is shortsighted
and self-defeating to ignore the extreme forms of labor exploitation that
inhibit the emergence of a worldwide consumer class.

Voluntary codes for multinationals' foreign operations are not an entirely
implausible alternative to regulation: Recent codes have occasionally improved
conditions of Third World workers. Levi Strauss, for example, reported it
stopped doing business with 35 of its 700 or so worldwide contractors who failed
to meet its new standards, and pulled out of China and Burma entirely. Some
other firms now, in obedience to codes, use less child labor and may be less
repressive towards union activists. In the absence of meaningful labor
regulation or collective bargaining in developing nations, voluntary labor
standards keep a spotlight on exploitation and may lead to demands for more
effective action. The problem is that these codes are voluntary. Without
adequate enforcement, codes can be mere public relations ploys, misleading
consumers that workers' rights are actually respected in production.



REVEREND SULLIVAN REDUX

Today's voluntary codes are partly inspired by the 1977 Sullivan Principles
for investment in South Africa. Philadelphia civil rights leader Leon Sullivan
had organized a 1960s boycott of retailers who discriminated in employment, and
he subsequently established skills training centers for black youth in 125
American cities and 8 African nations. In 1971 when General Motors was pressured
to diversify, Rev. Sullivan was invited to become the automaker's first black
director. At his initial GM meeting, he challenged management by arguing in
favor of a church-sponsored resolution demanding divestment of GM's South
African operations.

In 1975, Sullivan met in South Africa with black leaders who asked him to
stop pressuring American firms to leave the country and urged him instead to
fight apartheid from within by making multinationals "agents of change."
Despite opposition from other black leaders who supported divestment, Sullivan
decided to give it a try. He developed six principles for American investment in
South Africa: integration of eating facilities and restrooms; nondiscrimination
in employment; equal pay for comparable work; training programs to move blacks
into supervisory jobs; more black supervisors; and corporate support for
improvements in blacks' housing, schools, and health facilities. Sullivan then
demanded that GM and other firms sign on to these principles. Wearying of
anti-apartheid demonstrations and boycotts, and fearful of possible legislation
or executive orders to force divestment, 12 multinationals signed on initially
and by 1985, 173 of the 300 American firms doing business in South Africa had
committed. Subsequently, Sullivan amended the principles to include pledges to
recognize black labor unions where they existed, to publicly oppose apartheid,
and to pay a fair minimum wage. In the absence of a government standard,
Sullivan defined this as the minimum needed to support a family of five, based
on market-basket surveys of black townships by Johannesburg economists.

The anti-apartheid movement mostly condemned Sullivan's principles.
Activists believed the principles lent legitimacy to apartheid by ameliorating
its conditions while avoiding real pressure on the regime, which they believed
could only come from divestment. And, they pointed out, the principles'
potential for amelioration was itself limited. In 1984, Sullivan signatories'
combined unskilled workforces were 99.6 percent nonwhite; managers were 5
percent nonwhite. "Equal pay" meant little if black and white South
Africans rarely did comparable work. Desegregated restrooms in de facto
segregated work areas were devoid even of symbolic effect. And while Sullivan
signatories contributed nearly $300 million to public works (like improving
African schools), this did relatively little to improve living conditions of 25
million black South Africans.



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By 1985, Sullivan concluded that maybe his critics were right. He announced
that if apartheid wasn't dismantled in two years, he'd denounce his principles
and demand divestment. It wasn't. He did. Though companies tried to maintain the
principles without Sullivan, his conclusion that this alternative to divestment
had failed hastened apartheid's downfall. Sanctions became inevitable.

In retrospect, the Sullivan Principles may have contributed more to the
anti-apartheid struggle than activists acknowledged at the time. For while the
codes did help multinationals deflect demonstrations, shareholder protests, and
boycotts, it is improbable that major American firms were ready to succumb to
anti-apartheid demands and divest in the late 1970s. It may be that political
conditions for sanctions could not exist until multinationals had been given a
chance to attempt gradual reform, and failed. Creation of protected zones (for
black trade unions, for example) in some American-owned factories may also have
chipped away at Afrikaner morale and will to resist. But whatever success we may
now attribute to Sullivan's principles, the outlook for today's codes is less
hopeful. Sullivan Principles were superior.

Sullivan had a single set of rules to which he demanded corporate assent.
While the principles were sometimes compromised during Sullivan's corporate
negotiations (he proposed, for example, that signatories commit to union shops,
but dropped this when it became apparent that nonunion corporations in the
United States would refuse to commit to unionization in South Africa), once
Sullivan proclaimed a principle, companies could not separately dilute it. When,
subsequent to the original proclamation, Sullivan several times toughened the
principles—"raising the bar," he called it—the higher
standards were uniform and signatory firms had to comply.

This made it possible to have a consistent monitoring system, understandable
both to the companies themselves and to the anti-apartheid movement. Sullivan
hired the consulting firm Arthur D. Little (ADL) to conduct the evaluations,
with fees paid by a levy on each Sullivan signatory. ADL Vice President D. Reid
Weedon rated each firm annually on a scale of I ("making good progress"),
II ("making progress"), or III ("needs to become more active"),
passing those who got "I" or "II," and flunking the others.
Certainly, bargaining for favorable ratings was carried on by the most
influential corporations, and firms like GM, Ford, and IBM passed with flying
colors. Yet the ratings weren't all phony either. While Weedon's grades were
based mostly on company questionnaires, covering quantifiable data like the
number of black and white employees in each job category, he and his team also
traveled frequently to South Africa to conduct inspections and to advise
managements on compliance—how to desegregate facilities, implement a
minimum-wage policy, bargain with a labor union, and so on. There were many
failing grades (Carnation, Celanese, and W.R. Grace, for example), some South
African managing directors were fired by U.S. parent firms when subsidiaries
flunked, and some South African businesses raised wages to compete for labor
with American companies that paid Sullivan's minimum wage. In 1980, company
resentments about Weedon's demands (and about the burdens of responding to his
annual 55-page questionnaire) became so intense that Sullivan signatories
refused to pay fees. Weedon temporarily withdrew, but because public opposition
to apartheid was sufficiently strong, the multinationals felt obligated to
resume their payments, and Weedon resumed his role.



TRYING TO BE HELPFUL

Today's post-apartheid codes don't have the advantage that identification
with a single leader like Leon Sullivan could provide. Codes now vary, ranging
from Sears's modest pledge to "comply with all applicable local" laws
to Levi Strauss's commitment that its contractors' employees will be "fairly
compensated and not exploited in any way." These promises have no external
monitor, let alone enforcement. The administration has done little to follow up
on its 1995 "model business practices"—by May of this year, there
was still no official at the Department of Commerce (the cabinet agency charged
with implementation) who was familiar with the program. But codes have become
fashionable, and a plethora of nonprofit groups devote themselves to encouraging
companies to develop and promulgate offshore labor standards:

  • The Council on Economic Priorities (CEP), publisher of a "shopping
    guide" for consumers on environmentally responsible companies, now lobbies
    corporate officials to develop more effective codes (particularly on child
    labor), and publishes an online evaluation of existing codes for institutional
    investors, soon to be included in its regularly published "Shopping for a
    Better World." But CEP does no independent evaluation of whether company
    codes are enforced. At its annual "Corporate Conscience Awards" dinner
    in June, CEP honored Starbucks for "its responsiveness to protests on
    behalf of Guatemalan workers," although Starbucks itself has not announced
    how it will calculate a wage level that assures the "basic needs" of
    peasant laborers.

  • The Interfaith Center on Corporate Responsibility (ICCR), which played a
    leading role in the anti-apartheid fight (coordinating money managers' demands
    for divestment at shareholder meetings), now disseminates "benchmarks"
    for corporations wishing to evaluate their codes, and for church-related pension
    funds wishing to base investment on corporate sourcing conduct. ICCR's model
    resolution includes a commitment that "our company should be in a position
    to assure shareholders that its employees are paid a sustainable community wage
    which enables them to meet basic needs, set aside money for future purchases,
    and earn enough discretionary income to participate in support of the
    development of small business in a local community." Needless to say, no
    company has yet adopted such a resolution. The Securities and Exchange
    Commission (SEC) has advised managements that they are free to deny votes on
    such resolutions because wage levels and personnel practices are not a "policy"
    matter, but simply "ordinary business" considerations. (Labor rights
    advocates hope recent Clinton SEC appointees will reverse this decision, but
    there's no evidence yet that they will do so.) Nonetheless, many corporations,
    feeling public pressure and wary of lawsuits, have permitted resolutions on less
    specific workplace standards to come to a vote.

  • Business for Social Responsibility (BSR) (with the incantation "running
    a company in a socially responsible manner isn't just the right thing to do, it
    makes good business sense") encourages member firms to adopt codes, and
    provides assistance in writing and promulgating them. BSR hopes to maintain an
    inventory of firms who adopt the administration's "model business
    practices," but no specific arrangements have yet been made.

  • The Investor Responsibility Research Center (IRRC) was founded in 1972 by
    the Ford, Carnegie, and Rockefeller Foundations to advise them on public policy
    issues where their shareholder votes could play a constructive role. IRRC is
    also a veteran of shareholder fights to force divestment in South Africa, and of
    a 12-year campaign of shareholder resolutions to force U.S. firms to adopt the
    MacBride Principles—commitments (also voluntary) to practice affirmative
    action policies for Catholic employees in Northern Ireland. The IRRC recently
    received a Ford Foundation grant to produce an inventory of contemporary
    corporate codes and evaluate whether they are an "effective mechanism for
    promoting worker rights and advancing workplace standards in developing
    countries." The grant, however, only includes funding for two research
    trips, one to El Salvador or Guatemala and another to Botswana, so the IRRC's
    evaluations will necessarily be imprecise.

Other groups have been playing roles as well. UNITE!, the garment workers
union, has a provision in its contract with men's suit manufacturers that
permits subcontracting only to plants that "provide a living wage defined
as a specified market-basket of consumer goods." But public pressure to
improve working conditions in developing nations is not now great enough to
support demands that firms sign a common code, nor is there someone like
Sullivan with the moral credibility to demand they sign on his terms. And while
apartheid was a clear and easily identifiable evil, there is today no consensus
among advocates about what a Third World sourcing code should contain. Agreement
on avoiding child labor is relatively easy. But who will decide what is a "sustainable
community wage"?



PIECEMEAL ENFORCEMENT AGREEMENTS

A few firms have their own inspectors who visit Third World factories, but
most simply instruct buyers to inquire about labor standards when negotiating
orders. And this usually entails nothing more than asking local management if it
employs children and keeps fire exits clear, then dutifully recording the
answers on compliance forms. Other buyers may walk through factories prepared in
advance for their visits by herding children to another floor or into a
restroom. A buyer in Bangladesh for Kmart and Wal-Mart, both of which have
strong codes of conduct, boasts that he routinely certifies all factories as
meeting company standards because "all the companies care about is the
bottom line." A buyer for Liz Claiborne recently canceled Sri Lankan
factory orders because poor lighting didn't meet the company's health and safety
code; the buyer then contracted with a Hong Kong intermediary who in turn orders
from the very Sri Lankan factory that the buyer himself just canceled. Now it's
the intermediary's responsibility to verify compliance, not the Claiborne
buyer's. A Wall Street Journal article last year ("Conduct Codes
Garner Goodwill for Retailers, But Violations Go On") noted that even
inspectors from Levi Strauss, one of the most progressive U.S. firms, "don't
delve too deeply to avoid offending factory owners."

In three unusual cases, firms have agreed to outside monitoring. They
illustrate the difficulties of a case-by-case approach:

Case One: Empresa Mandarin, an El Salvador garment plant constructed
six years ago with U.S. Agency for International Development funds, pays wages
of about 56 cents an hour and uses a private armed force to inhibit
unionization.

Mandarin workers, many of whom live without running water or electricity in
corrugated cardboard and tin shacks placed on vacant land along roadsides or
polluted river banks, first attempted to unionize in 1993. In response, Mandarin
fired all union leaders. In 1995 workers made another attempt. Notified by the
Salvadoran government that a legal union had been formed, management locked out
its 850 workers, some of whom were then attacked and beaten by security guards.

When the lockout ended, Mandarin workers were told to renounce unionization
or be fired. About 150 who refused were then discharged. The remaining workers
protested the illegal firings and the company again locked them out. A day
later, management agreed to respect the country's labor code but then fired
another 50 unionists.

Mandarin was producing at that time for The GAP, Eddie Bauer, J.C. Penney,
Dayton Hudson (DHC), and other retailers. At DHC's shareholder meeting, an
investment fund for several religious organizations demanded that the company
require that its off-shore vendors respect employee rights to organize and to
receive a "living wage." In response, DHC adopted a vague corporate
policy to do business only with suppliers whose workers "have agreed to
their compensation" and "who are not exploited." The GAP also
adopted a code requiring vendors to "utilize fair employment practices"
and prohibiting doing business with those who use "physical coercion as a
form of discipline." J.C. Penney's rules demand "strict compliance
with all applicable laws and regulations of the countries of manufacture."

Despite these codes, conditions at Mandarin didn't change, although
inspectors from The GAP, Eddie Bauer, and Liz Claiborne inspected the Mandarin
plant three times in 1995 and claimed they could find no violations. So the
National Labor Committee, a project of UNITE!, took two fired Mandarin workers
on a public speaking tour across the United States. The U.S. retailers
subsequently announced they would no longer do business with Mandarin, but the
Labor Committee, focusing on The GAP, intensified its campaign. It demanded that
The GAP continue to outsource to Mandarin and other Salvadoran suppliers and
that it use its relationship with its suppliers to pressure them into honoring
The GAP's conduct code (including rehiring Mandarin unionists) and agreeing to
independent monitoring to verify compliance. Last December, succumbing to
demonstrators' demands during the Christmas shopping season, The GAP agreed,
though it restricted the role of independent monitoring to El Salvador and
neighboring Latin American countries. The Labor Committee, associated church
groups, and GAP management chose the "Human Rights Ombudsman Office"
in El Salvador as the monitor. To date, however, Mandarin claims it has not
received enough new orders from The GAP to justify rehiring the workers.

Case Two: After several years of a public campaign by U.S. activists
protesting child labor, Senator Tom Harkin and Representative George Brown
proposed legislation in 1994 to prohibit imports manufactured by children.
Meanwhile, the AFL-CIO assisted the organization of an independent union of
garment workers in Dhaka, Bangladesh. The prospect of Harkin's bill, together
with the union's threat to publicize child labor to American consumers, so
frightened the Bangladesh Garment Manufacturers and Exporters Association that
it negotiated a Memorandum of Understanding with UNICEF and the International
Labor Organization (ILO) to end employment of children under age 14. Signed a
year ago, the agreement requires each manufacturer to subsidize schools for
previously employed child workers, to pay stipends for those who leave factories
to attend such schools, and to permit the ILO to "devise a labour
inspection system in co-operation with the Government of Bangladesh." To
date, however, no stipends have been paid. While the ILO has made some factory
inspections (and found children working), no mechanism has been established to
correct or report the violations. And child labor is but a minor aspect of
corporate code violations entailed in Bangladesh subcontracting. Many adult
laborers work 17-hour shifts six and seven days a week, earn considerably less
than Bangladesh's legal minimum wage (about $25 a month), and are denied
compensation for overtime. ILO monitors are not chartered to inquire about wages
or working hours, only about children's ages. Since the signing of the
Memorandum on July 4, 1995, Bangladesh has often been paralyzed by political
strikes. Continued crisis may destroy the nation's garment industry, preventing
any real test of the efficacy of the novel agreement, even for its limited
purpose of regulating child labor.

Case Three: German human rights groups have protested the import of
carpets made by children in Indian, Pakistani, and Nepalese factories. Many of
these children are bonded laborers, sold by parents or kidnapped by labor
contractors. Joining with human rights groups in India, the German activists
formed the Rugmark Foundation, which issues a label to certify, based on a
foundation inspection, that carpets were produced without child labor.
Inspections are now ongoing, although the huge number of child workers make
large-scale evasion probable. A far greater problem for the Rugmark Foundation
is how to advertise the label to German, Swiss, and American consumers; unless
buyers discriminate in favor of carpets with labels, Rugmark will lose whatever
credibility with manufacturers it now possesses.

These three lonely examples of code enforcement illustrate how difficult the
current piecemeal approach will be. Each depends on public attention and
consumer pressure focused on a single country or distinct part of the broader
labor standards constellation. But there is a limit to consumers' ability to
juggle multiple boycotts, while code violations by distinct companies or in
distinct countries are too numerous to count. Separate public campaigns around
several simultaneous violations will inevitably conflict and confuse. Rev.
Sullivan had a difficult enough time maintaining pressure on investors in a
single country to abide by a single code. Today, where each firm's code is
unique, where monitoring rights are won only to remedy discrete and highly
publicized violations, it is difficult to imagine how threats of future consumer
or shareholder power can be maintained. Without greater coherence, corporate
codes are unlikely to significantly influence Third World labor standards.

And what if, even in these circumstances, some battles are won? Imagine, for
example, that the ILO-inspired Bangladesh agreement makes garments sourced in
that nation truly child-free. The AFL-CIO, National Consumers League, and others
who originally promoted a boycott of Bangladesh garments will have to decide
whether they should now promote the purchase of these products—no longer
made by children but by adult workers paid sub-minimum wages and denied the
right to organize. Unless labor rights advocates promote purchase of products
made in compliance with the child labor agreement, threats to compel concessions
in future disputes will be hollow. Even where labor standards are honored by
Third World contractors, wages in developing nations will for many decades
continue to undercut those of American workers. American unions and their allies
who are now in the forefront of the movement for international labor standards
have not yet confronted the implications of possible victories. Implicit in any
boycott is a commitment to purchase once demands are met. Are activists prepared
to promote purchases of goods that many unionists will continue to regard as "unfairly"
manufactured?



WHO MONITORS?

Those now encouraging voluntary corporate standards acknowledge the
inevitability of code corruption without independent monitors. But without
militant public pressure for effective Third World labor standards, American
corporations have adamantly refused to consider external enforcement, while
groups like CEP, ICCR, BSR, and IRRC, committed to nonadversarial corporate
encouragement, can do little but gently wonder aloud how codes will be enforced.
Reid Weedon, now retired from Arthur D. Little, was recently approached by
several public pension funds exploring his willingness to establish a
Sullivan-like monitoring system for firms in which the funds invest. Weedon is
intrigued by the prospect, but there is no evidence that pension funds yet have
the determination or the votes to force this mechanism on managements.

Meanwhile, Heather White, a onetime outsourcing agent for apparel companies,
has founded a consulting firm to verify compliance with corporate codes. Her
business plan for VERITE (Verification in Trade and Export) includes hiring
human rights activists in Third World countries to inspect plants and report on
code violations. The contract she now pitches to multinational corporations
includes a provision that permits VERITE to publicize uncorrected violations six
months after they were brought to corporate attention. White has the right idea,
and she's highly regarded by groups like Business for Social Responsibility, but
none of BSR's member firms have expressed serious interest in hiring her for
this purpose.

But opportunities may develop. Last month, after embarrassing publicity
about her private label garments manufactured in domestic sweatshops, as well as
by children in Honduran plants, Kathie Lee Gifford announced she would hire an "independent"
monitor for factories producing her apparel line for Wal-Mart. Wal-Mart itself
then announced for the first time that it now "is considering" hire of
"independent" monitors. Gifford held a press conference with New York
Governor George Pataki as the latter pledged to introduce legislation banning
the sale of garments manufactured by underpaid workers. New York, however, is in
no position to dispatch inspectors to thousands of Third World sweatshops now
feeding New Yorkers' hunger for fashion. If public pressure is maintained, and
legislation is actually adopted, some monitoring operation will have to be
created.

As production globalizes, ineffective labor regulation makes nongovernmental
standards the only truly viable alternative. Multinationals rush to publicize
their codes to deflect bad publicity, while church and labor activists, along
with foundation and pension fund investors, nearly trip over each other to be
helpful. If the "era of big government is over," these private
initiatives to develop a worldwide civil society must proceed. But without fear
of public and consumer pressure, corporations will have little incentive to make
codes real. The success of these efforts to improve labor standards depends on
mobilized outrage when they fail. Today, the exercise is too friendly, and lacks
the uniformity, the rigor, and the external monitoring needed for success. But
it's not a bad start.

illustration by Dan Yaccarino



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