Bangladesh and the Future of Corporate Social Responsibility

In the wake of the collapse of the garment factory in Bangladesh, I have been thinking a lot about the issue of corporate social responsibility. The factory was making clothes for western companies including Primark of the UK and Loblaws of Canada, and in many ways the clothing companies have been among the most focused in recent years at trying to police their supply chains to ensure safer working conditions and decent wages. Yet at least 430 people were killed working to meet deadlines set by western companies in a facility that should have been torn down years ago.

A compelling new article by MIT political scientist Richard Locke in the Boston Review, drawn from his new book The Promise and Limits of Private Power: Promoting Labor Standards in a Global Economy, does a lot to explain why. “Despite many good faith efforts over the past fifteen years, private regulation has had limited impact,” he writes. “Child labor, hazardous working conditions, excessive hours, and poor wages continue to plague many workplaces in the developing world, creating scandal and embarrassment for the global companies that source from these factories and farms.”

Locke’s conclusions are based on a decade of research that began with an intense focus on one company, Nike, which has been a leader in trying to ensure fair labor standards among its suppliers around the world. Yet even Nike, he concludes, has been unable to maintain consistent high standards in its contract facilities.

The focus on corporate social responsibility as a response to weak labor standards in developing countries was always a poor second best. In the early 1990s, he points out, there had been a big effort by trade unions and other NGOs to include social and labor clauses in trade agreements, with the goal of increasing pressure on developing country governments to protect labor rights and uphold sound environment regulations. The North American Free Trade Agreement (NAFTA), whose negotiations I covered as a reporter, pioneered this approach by including labor and environmental “side accords.” But the effort was largely ineffectual, in part because developing country governments fought the inclusion of social clauses in trade agreements as a form of disguised protectionism. While labor and environmental chapters are still included in U.S. trade agreements, their real world impact has been minimal.

In the absence of strong international agreements, Locke writes, “private, voluntary regulation became the dominant approach.” But even among serious, committed companies like Nike, the results have been underwhelming. The core problem is competing priorities. The global brands “want high-quality products delivered as quickly and cheaply as possible. They also fear that harsh working conditions could, if discovered, create scandal and hence risk to their reputation. Yet because they are competing with one another, they are unwilling to pay extra for improved working conditions, which could lead to price increases that threaten market share.”

Modern business models, in which product life cycles are short and companies are constantly remaking their product lines to please finicky consumers, put further pressure on developing world factories to drive their workforce ever harder.

Locke concludes that little progress is possible without a more active role by governments. Governments in the developing world, with western support, need to use a mix of carrots and sticks to encourage, and if necessary compel, companies to improve wages and working conditions. Some like Cambodia, Brazil, Argentina, and India are doing so in places, but they remain the exceptions.

The United States has a strong interest in encouraging progress. Apart from better protecting workers in developing countries, rising standards around the world can discourage global companies from flocking to countries like Bangladesh in search of ever lower labor costs. The trickle of manufacturing back to the United States is coming in part because rising wages in China are reducing that country’s once enormous cost advantages. It is in the U.S. interest to encourage the same trends in other countries.

The United States and other developed country governments could do a lot more, particularly in pressuring their companies to put people before profits. Sander Levin, the top Democrat on the House Ways and Means Committee who has been a leader on this issue for more than two decades, called on President Obama this week to “bring together key European and American retailers that have sourced from Bangladesh to adopt a common response leading to a universal standard guaranteeing basic workplace safety and fundamental worker rights.”

What is clear in the wake of Bangladesh is that the companies will not do this on their own. It will require active, and effective, intervention by governments.