Stepping Up Labor Standards

This past fall, Nike was accused of using child labor in Cambodia. Not long before, Adidas was accused of using prison labor in China and sweatshop workers in El Salvador. Timberland, which trumpets its socially responsible business practices, was accused this year of employing sixteen-year-old girls in China, working them 98 hours per week, paying only 22 cents per hour, and all the while exposing them to toxic chemicals. New Balance has been criticized recently for anti-union practices and now produces the majority of its shoes in China, where independent unions are illegal.

Even “buying American” can mean paying for sweatshop labor. There are an estimated five thousand illegal, unregistered sweatshops in Los Angeles alone that label their products “Made in the USA.” Only a few years ago, a company producing clothing for Mervyn’s, Montgomery Ward, and BUM International, and selling their US-labeled products on the racks of Macy’s, Robinsons-May, and Filene’s department stores, was found to employ Thai immigrant women who were working in virtual slave-labor conditions. And this company had recently passed a Department of Labor (DOL) inspection.

These conditions are repellent, and they have provoked a diffuse but insistent protest movement for international workers’ rights. Resembling earlier social movements—for civil rights, women’s equality, and environmental protection—the movement for workers’ rights has already caught the attention of the public worldwide, and has provoked responses from multinational corporations, international organizations like the International Labor Organization (ILO) and the World Bank, and domestic regulatory authorities. And it has led to important but fragile cooperation between student groups, nongovernmental organizations (NGOs), and established trade unions.

Here, we propose a strategy for strengthening labor standards—norms that describe acceptable conditions of work and wages—that builds on, and connects, these disparate efforts. We call this approach “Ratcheting Labor Standards” (RLS). It charts a course beyond conventional top-down regulation based on uniform standards on one hand, and reliance on voluntary initiatives taken by corporations in response to social protest on the other. A public debate has already emerged about how workplaces in the global economy should operate. The central aim of RLS is to create a transparent environment for that debate.

RLS would do two things. First, it would use monitoring and public disclosure of working conditions to create official, social, and financial incentives for firms to monitor and improve their own factories and those of their suppliers. Second, it would create an easily accessible pool of information with which the best practices of leading firms could be publicly identified, compared, and diffused to others in comparable settings. We argue that the combination of firm-level incentives and an infrastructure for pooling results would help to set provisional minimum standards of corporate behavior, upon which competition—driven by social and regulatory pressures—would generate improvements that then “ratchet” standards upward.

Consider how RLS would work in the apparel industry. Firms operating in international markets, like Nike or the Gap, would be required to adopt a code of conduct and to participate in a social monitoring program. A firm would select a monitor from among NGOs or auditing companies that provide this service. The monitor would score the firms it regularly inspects according to their compliance with a code of conduct and their ability to correct violations. The monitor would report its findings to the firm and to the certifying agency to which the firm is a member.

The monitor would also report its findings to a “super monitor,” an umpire constituted by international organizations such as the World Bank and the ILO, together with NGOs and international confederations of trade unions. This umpire organization would monitor the monitors, conduct inspections to verify their integrity, assure the comparability of monitoring data and methods, and make results accessible to the public.

By creating an umpire that opens social auditors and firms to public scrutiny, this framework would extend and transform many current efforts to advance labor standards. Firms that depend on consumer loyalty would be eager to earn high grades. They would pressure less visible suppliers, and suppliers of suppliers, to follow suit. Activists, consumer groups, financial analysts, journalists, and many others would use RLS information to identify leaders and laggards in labor practices, press for improvements, establish norms of acceptable behavior, and pressure the monitors themselves to improve their auditing methods and to make their standards more demanding. Eventually NGOs, trade unions, or regulatory agencies might become monitors in this system. This would allow them to demonstrate the quality and reliability of the services they provide and to learn systematically from their peers.

Stepping back, the large purpose of RLS is to secure the most ambitious and feasible labor standards for workers given their economic development context. Standards emerge by comparing similarly situated facilities. The labor practices of a facility in Vietnam might be compared to one in Indonesia, but not initially to a European or North American facility. In this way, RLS encourages the incremental realization of demanding labor standards over time without imposing a uniform, and potentially protectionist, standard upon diverse contexts. By publicizing workplace conditions and practices, RLS enables society to sort out the abhorrent from the acceptable and shift its production methods from the former to the latter.

New Opportunities
Two recent developments in the organization of work account for many of the shortcomings of traditional strategies for dealing with the problem of labor standards, even as they create new regulatory opportunities: first, the increasing decentralization of production into tiered networks of supply chains that span the globe; second, the related recomposition of what is often called the informal sector.

It is no longer easy to determine where products as simple as baseball caps and sweatshirts or as complicated as computers and automobiles are made. That is because most name-brand manufacturers now market products that are co-designed and produced by networks of contractors and subcontractors. These networks obstruct accountability as much by their flux as by their intricacy. Manufacturers of products such as garments regularly switch countries, or even continents, as they switch suppliers. Far too many manufacturers hide behind these sprawling chains of ownership to deny responsibility for the factories that produce their goods.

But even as regulators lose oversight, corporations have markedly increased their ability to monitor suppliers. Relations between customers and suppliers were traditionally arms-length attachments made and broken solely on the basis of prices, which were often just a reflection of wage levels. Under contemporary globalization, these relationships are increasingly based on careful and continuous assessments of firms as potential partners who must provide not only cheap labor, but also product and process improvements that increase competitiveness for the whole production chain. The most sophisticated firms manage their supply chains by ranking suppliers according to their capacities as co-developers and their ability to meet quality, logistical, and diversity goals. Suppliers must show increasing capabilities to maintain and increase their status in these hierarchies.

Now focused on increasing profit and product quality, these supply-chain practices can potentially be used to improve labor standards. In contemporary footwear production, for example, the largest supplier is a Taiwanese firm called Pou Chen. This conglomerate produces for, among others, Nike, Reebok, Adidas, Fila, Puma, and Timberland. Because of consumer awareness and advocacy pressures, the brands now work closely with Pou Chen to improve labor conditions in their factories. They send their own internal compliance staff to evaluate Pou Chen facilities and hire external auditors to measure whether Pou Chen is meeting their codes of conduct. Some brands then rank these suppliers—including Pou Chen’s competitors—by measures that reflect labor and environmental conditions. Though incorporating social considerations into contemporary supplier management strategies is still rare, a central goal of RLS is to make it more widespread.

The second important development is the persistence, and often the expansion, of the informal sector: women pieceworkers stitching baseball covers in their homes, street vendors selling piece goods on behalf of large distributors, skilled artisans working wood, stone, metal, or plastic with simple machines, brickmakers supplying small construction sites. Although exact numbers are hard to come by, evidence suggests that informal-sector workers in general, and women workers who are based at home in particular, account for a significant share of employment in export industries in developing countries.¹

Transformations of global supply chains have also recast these activities in ways that both obstruct familiar forms of accountability and open the way to new ones. Competition from world-class firms and from the import of secondhand products from richer economies can push weak domestic producers into the informal sector and increase competition there. This undoes the unwritten rules of the informal sector—the social conventions and practices framing wages, business relationships, and working conditions—diminishing whatever social accountability there was.

But improbable as it seems at first glance, this effect may be partially offset by changes connected to new supplier relations. The same logistical and quality standards that govern global production generally govern subcontracting from the formal sector to the informal sector today. Customers in the formal sector usually use their superior bargaining power to make informal-sector producers pay the costs of failing to meet quality and timeliness requirements.

But the most ambitious and capable among the informal producers see that they can get ahead by mastering the same disciplines of process control, monitoring, and innovation that yield such large returns for their partners in the formal sector. Already, operators in the informal sector are becoming familiar with relevant technical protocols, just as many of them gained expertise in secondhand machinery long ago.

The distance between the formal and informal sectors is thus not as great as it at first appears. Many informal producers are not only connected to global production chains through their goods, but also potentially through organizational practices that bridge the formal/informal divide. These connections may allow the most able informal firms to cross that gap in time. Those that do may be subject to regulatory mechanisms that are emerging in the formal sector.

New Ways to Regulate
Labor and environmental regulators have noted these structural changes and developed programs that take into account the organization of modern supply chains, the vulnerabilities for firms that result from them, and new forms of public pressure generated in part by the new regulatory regime.

One example that underscores the growing importance of supply-chain dependencies is the labor department’s decade-old “No Sweat” program, which has raised labor standards compliance in the garment sectors of New York, San Francisco, and Los Angeles.² Much of the work of cutting, sewing, and packaging clothing is done by immigrants in sweatshops employing one to two dozen workers. Thousands of fly-by-night operations have long scoffed at inspections, sanctions, and other familiar methods to ensure compliance.

But when retailers and manufacturers adopted “lean retailing” and “just-in-time” production techniques to lower costs, reduce cycle times, and shrink inventories, they also opened themselves to clever regulators in two ways. First, regulators could stop business along the entire supply chain by stopping it at any one point. The obscure “hot cargo” provision of the 1938 Fair Labor Standards Act gave them the power to do just this. This provision makes it unlawful for any person “to transport, offer for transportation, ship, deliver, or sell in commerce … any goods in the production of which any employee was employed in violation” of the Act.

Second, because “lean retailing” methods increase communication and control between firms, regulators could use this leverage to make large firms responsible for the behavior of their smaller suppliers. So, when regulators catch small firms in violation of labor law, they now often use their power of delay to compel retailers and large manufacturers to sign “Compliance Monitoring Agreements,” under which firms agree to monitor, usually through third-party social-auditing firms, the compliance of their small supplier shops. By 1999, nearly half of contractor shops in New York, San Francisco, and Los Angeles were covered by such agreements, and shops covered by such agreements tend to comply with wage and hours regulations more often than those that are not.

Three innovations in environmental regulation offer further lessons for labor regulators.

The Massachusetts Toxics Use Reduction Act (TURA) builds on capabilities for self-monitoring and continuous improvement that firms must regularly acquire in order to compete. The act requires hundreds of firms that produce or release certain amounts of listed toxics to develop “Toxics Use Reduction Plans.” In preparing these plans, engineers, managers, and workers typically work in teams to review possible ways to reduce the plant’s reliance on toxic inputs, its generation of toxic by-products, and the danger of toxic releases to the environment. Studies suggest that this mobilization of local knowledge and expertise generates far more effective pollution prevention and toxics reductions than regulators would have thought feasible. Indeed, many plans yield not only environmental improvements but also financial savings; and though firms are not required to implement their plans, many do so because of the compelling advantages that legally imposed self-examination reveals.³

A related Massachusetts program called “Environmental Results” also encourages firms to develop their own compliance and improvement strategies, but aims at thousands of dry cleaners, printers, photo developers, and auto-body operations. What makes the program relevant here is that, for regulators, these small enterprises are equivalent to operations in the informal sector: government agencies are often unaware of their existence and lack the resources to inspect them. Instead of traditional inspection, regulators pursue outreach and capacity-building. Working through industry associations to locate and contact these small businesses, regulators provide each firm with workbooks detailing the steps necessary to reach environmental compliance. Firms are then required to certify to regulators that they have followed these steps. Evaluators estimate that this program has increased the number of firms known to regulators fivefold, and that it has accomplished substantial reductions in the emissions of hazardous and smog-producing air pollutants.⁴

Other related environmental strategies produce information that allows the public to make well targeted demands for corporate reform. Perhaps the oldest and best known is the US Toxics Release Inventory (TRI). Begun in 1988, the TRI requires some 23,000 facilities to report annually their releases of some 650 chemicals to a publicly accessible database. This information is used by ordinary citizens, activists, journalists, and managers, among others, to identify firms that pollute heavily. These “dirty” companies often become the subject of bad publicity, punishment in financial markets, and direct citizen action.⁵ Firms both respond and pre-empt these critics by reducing their use and release of TRI chemicals. Though causation is difficult to assign, some evidence shows that TRI has contributed to some of the 1.5 billion pound (that is, 45 percent) reduction in releases of listed chemicals between 1988 and 1998.⁶ Though the TRI is the largest of these “information-based” disclosure efforts, programs that rely on publicity, information, and citizen response have also been initiated in Western Europe, Indonesia, the Philippines, and other countries.⁷

The “No Sweat” regulatory program depends on the threat of severe penalties—a threat that is now more credible because of the high costs of supply-chain disruption. But TRI, TURA, and “Environmental Results” (via the participation of publicity-sensitive trade associations) depend on the concern of citizens for their environment. Is there similar public concern for the welfare of (often distant) workers?

Ethical Consumerism
The most direct evidence of public concern about harsh labor conditions comes from surveys of consumer preferences and willingness to pay premiums based on the social and ethical character of firms and their production processes. In 1999, Marymount University’s Center for Ethical Concerns conducted a telephone survey⁸ of US consumer attitudes about garment production. Three-quarters of the respondents reported that they would avoid shopping at a retailer whom they knew to sell garments made in sweatshops. Eighty-six percent report that they would pay an extra dollar on a twenty dollar garment if they could be sure that it was made under non-sweated conditions. Similarly, a survey conducted in 1998 found that “80 percent of respondents said that they would not buy products made under poor conditions or that they were willing to pay more if they knew the items were made under good conditions.”⁹

Environics International conducted a massive study of international opinion on these questions in 1999. The survey asked 25,000 individuals in 23 countries for their attitudes about corporate social responsibility. Though respondents from North America and Western Europe felt more strongly than those from developing nations, large minorities everywhere felt that major companies had responsibilities as ethical and social leaders. In North America, 51 percent of respondents reported punishing a company for being socially irresponsible in the past year, while 39 percent of Northern European respondents claimed to have done so.¹⁰

The emergence of ethical consumerism includes not only labor and product concerns, but also investment choices. Over the past decade, socially responsible investing has grown dramatically and far outpaced the expansion of investment generally. Between 1995 and 1999, the total assets in mutual funds utilizing “social screens” that exclude firms that produce tobacco, manufacture firearms, or degrade the environment grew almost tenfold, from $162 billion to $1.5 trillion. At the end of 1999, one out of every eight dollars under professional management in the United States was part of a portfolio claiming to be socially responsible.¹¹

Corporations and NGOs
Skeptics may doubt that survey responses translate into choices at the shopping mall, but high-profile multinational corporations take the polling data seriously. Prodded by the opinions it reveals, as well as by activist campaigns, boycotts, campus protests, and media exposés, companies like Nike, the Gap, and Levi’s act as though they assume consumers care about social conditions and consequences of production processes. Labor and environmental considerations have been added to the long list of dimensions on which they compete for a share of the market.¹²

Some of these firms have responded directly to public pressure by incorporating labor and other social priorities into the protocols by which they manage production in their supply chains. All of the main garment, shoe, and toy companies—Nike, Reebok, Adidas, Levi’s, Disney, Mattel, the Gap—now have programs in place that combine codes of conduct, in-house assessment, and assistance from third parties to monitor supplier compliance with these codes.

The public, however, is skeptical about the sincerity and effectiveness of these efforts, and given the continuing scandals, rightfully so. This skepticism has led to the proliferation of independent monitoring and third-party social certification programs in the United States and Europe. Consulting and financial auditing firms such as Ernst & Young, PricewaterhouseCoopers (PwC), SGS International Certification Services, Cal Safety Compliance Corporation, Bureau Veritas Quality International, and Det Norske Veritas have recognized this growing market and begun to offer themselves as social inspectors. PwC and Cal Safety conducted over six thousand and ten thousand social audits last year, respectively.

But skepticism and critiques of the audits performed by these firms—audits paid for, after all, by client companies¹³—has led to the establishment of third-party systems for evaluating and certifying monitors and for systematically comparing factory performance. A growing number of NGOs compete in this certification market. For example, the Fair Labor Association (FLA), convened by the Clinton administration in 1996, is the most advanced but quite controversial. The FLA will certify its first external auditors in early 2001 and hopes to begin the auditing which will lead to certifying sweat-free brands by the end of the year. SA8000, created in 1997 by the Council on Economic Priorities (CEP), is patterned on the ISO family of standards and requires corporations to hire certified auditors to evaluate the conduct of individual factories. The Clean Clothes Campaign, made up of a coalition of activists across Europe, plans to establish a foundation that will certify monitors, collect funds from member firms, and then pay monitoring organizations directly. The Worker Rights Consortium (WRC), developed by the United Students Against Sweatshops (USAS) in 1999, focuses on forcing out information, creating verification systems, and being proactive about inspections. The WRC differs from the other models in that it will explicitly not certify company compliance with a code of conduct or standard.

The Next Step
Regulatory innovations, corporate initiatives in reaction to ethical consumerism, and the spread of third-party audits and certification programs create building blocks for a coherent response to international labor abuses, but don’t yet constitute one. The regulatory innovations have not crystallized into a robust, comprehensive system in the environmental area. In their present form they scarcely constitute a direct model for labor regulation. Consumer activism and corporate responses to it are still too narrowly focused on brand-sensitive firms. And, even putting to one side the problem of limited scope, the proliferation of certification bodies and monitoring businesses means there is no common metric by which to credibly compare companies. Without such a level playing field, firms can’t demonstrate the sincerity or the effectiveness of their workplace efforts to workers or consumers. And even the best of these programs still lack much information about the best means to implement real improvements for workers after problems are identified.

Ratcheting Labor Standards addresses these obstacles systematically.

Principles
Four principles—transparency, competition, continuous improvement, and sanctions—can guide activists, consumers, public officials, and managers in building an encompassing framework to organize these efforts.

The principle of transparency suggests a world in which consumers, workers, activists, and the public at large have the information they need to accurately and confidently identify initiatives to improve labor standards, gauge the results of those efforts, and compare the successes of firms, localities, and even nations against one another.

There are many opponents and few champions of transparency in labor standards. No firm wants to be the first to open itself to public scrutiny. Those who have unilaterally exposed themselves to public examination often have been punished, and their experience makes them, and others, reluctant to continue. In May 1998, for example, Reebok joined with an Indonesian organization called Insan Hitawasana Sejahtera (IHS) to improve working conditions in two factories producing Reebok athletic wear in Indonesia. Following the plan of the project, called Peduli Hak (“Caring for Rights”), the group released a report detailing shortcomings in factory operations, such as minimum-wage violations, illegal overtime, hazardous chemicals and machinery, and poor ventilation and lighting. Factory managers took steps to address nearly all of the issues identified in the report. They invested over $500,000, and achieved substantial improvements in many areas.

To the dismay of Reebok executives and IHS, however, activists and journalists used the report as an exposé opportunity to publicize the violations at these facilities. Without the ability to compare the condition of these factories to those of its competitors, Reebok and IHS suffered severe public rebuke rather than the kudos they may have deserved.

And even in the absence of such perverse incentives, impulses to secrecy make companies reluctant to disclose even the most basic details of their operations. Private and nonprofit social-auditing firms often consider their methods and results to be sources of competitive advantage and proprietary knowledge. Transparency also ranks low on the agendas of many activists, who typically marshal their resources to secure more immediately tangible programs or codes of conduct from corporations.

Against these obstacles, some activists have recently begun to demand that multinational producers disclose the locations of their production facilities and those of their suppliers. Even such basic information can help establish whether companies are complying with their stated codes of conduct, and can lay the groundwork for documenting conditions in their facilities. Firms initially balked, and complained that such disclosure would jeopardize crucial trade secrets. But several large producers, responding to pressure from student groups, have agreed to disclose the locations of suppliers that produce goods that are branded with university names.¹⁴ Nike has raised the bar for transparency, perhaps easing the path for others to follow, by releasing internal social-auditing information. Its reports included the number and type of violations (wages, child labor, health, and safety) of its internal code found at some of its seven hundred factories, and the action plans of these factories to address the violations.¹⁵ The company calls this program “Transparency 101.”

These developments hint at a vision of full social transparency. One of its mechanisms might be databases that collect social performance metrics such as facility locations, wage levels, workforce-age profiles, health and safety conditions, environmental impacts of multinational producers, and their long supply chains. Beyond actual social performance, however, full transparency also demands that firms disclose their methods for monitoring social performance and procedures for improving workplace conditions and eliminating legal and code of conduct violations.

Full transparency would make possible the second principle of RLS:competitive comparison. High-profile companies currently compete informally to protect and build their reputations as socially responsible actors. When Nike responded to critics by disclosing the locations of 44 facilities producing goods for universities on its Web site, five of its competitors—Jansport, GEAR for Sports, Champion, EastPak, and Russell—quickly followed suit. But detailed information—for example, who works in those factories, their working conditions, their pay, and their hours—is not yet available.

More complete and transparent performance data of this sort would enable governments, pressure groups, publics, the media, and companies themselves to make precise and quick assessments of labor conditions of firms in comparison to their competitors. It would expand the scope of companies currently vying for consumer loyalty on social grounds because those who refused to socially compare themselves would be presumed to be very poor performers. Transparency would create an even playing field for this competition, and so firms like Reebok would be rewarded, instead of punished, for bold innovations like its Peduli Hak initiative.

The third principle of RLS is continuous improvement in both firm social performance and labor standards. This grows out of the principle of competitive comparison. Social and market pressures would push firms, perhaps working with public agencies, NGOs, or unions—to constantly develop new methods of improving occupational health and safety, labor-management practices, and the like.

Nike’s recent series of labor initiatives, each of which was superior to its predecessor, illustrates how social and competitive pressure can generate continuous improvement in labor performance. Responding to early protests and a number of exposés regarding its treatment of workers in countries like Indonesia, Nike adopted a code of conduct for itself and its manufacturers in 1992. In response to complaints that these codes were without force, the company hired Ernst and Young, among others, to conduct external audits of its suppliers’ compliance with the code. After critics revealed serious omissions and errors in these reports, Nike responded by incorporating social priorities into its regular supplier management practices, in programs called SHAPE (Safety, Health, Attitude, People, and Environment) and MESH (Management, Environment, Safety, Health), which were modeled on ISO 14000 and other labor management principles. Under continuing activist scrutiny and pressure, Nike eventually settled on hiring PwC to monitor labor and environmental conditions in all of its factories worldwide. These monitoring programs, while still coming under criticism, have resulted in reductions of orders and cancellation of contracts from facilities with serious social violations. Even more recently, the corporation has embarked on several partnerships with local nongovernmental organizations and launched its “Transparency 101” program.

Knowledgeable critics contend that these efforts are not enough. Still, the company’s steps do indicate serious responses. More importantly, some of these measures empower observers to assess the veracity of its claims and actual progress. Nike has perhaps been on the hot seat with regard to labor standards longer than any other multinational corporation, and its painstaking initiatives result in large measure from this pressure. RLS aims to spread this attention and compulsion to many more firms, and thus broadly engender the dynamic of continuous improvement in workplace conditions.

If this were done, the norms of acceptable social performance, or labor standards, could emerge from evolving practices. As firms improve, the standards should regularly become more demanding. This dynamic encourages producers to seek (and publicly explain how they are doing so) novel ways to improve their labor conditions and outcomes. It would be a race to the top in which firms sought to outdo one another in social performance, just as they now compete on more conventional dimensions. We constantly demand better quality and prices from the products that firms produce. Why should we settle for fixed, minimum standards in workplace conditions, rather than demanding that those improve as quickly as economic and technological conditions permit?

The final principle of RLS involves sanctions. Many of the developments that inform this approach—such as protest and consumer response, social accreditation and auditing schemes, and ethical consumerism—occur voluntarily through civic action and corporate response. More forceful regulatory institutions backed by punishments, however, are necessary to extend and deepen the promising dynamics behind these trends. The full system of transparency, competition, and continuous improvement requires both formal and informal sanctions. Since the RLS approach offers distinctive methods for setting standards and achieving compliance, its basis of sanctions also differs from conventional regulation, where firms are punished for failing to meet minimum performance criteria. Again, we must look for alternatives to traditional sanctions (which punish firms for failing to meet established standards) because these can encourage firms to evade the monitoring and comparison that is essential to improving labor conditions.

Instead, RLS would use public power to dislodge information that would in turn trigger more nuanced and ultimately powerful incentives to improve social performance. Sanctions should, therefore, be applied in a way that advances the prior principles of transparency and continuous improvement. On the former, firms that fail to disclose their labor outcomes or monitoring methods should be presumed to have something to hide, and be punished for violating the first norm. On the latter, truly recalcitrant firms, deserving of the harshest castigation that the regime can offer, are those whom comparison identifies as laggards in labor performance and who fail to adopt measures that have proven effective for their peers.

Practice
From the top, RLS would be governed by a council that perhaps emerges from one of the current nongovernmental social-certification organizations or from a collaboration between intergovernmental organizations. That governing umpire would regulate two kind of entities: firms and monitors.

Firms in an RLS regulated sector, say footwear or textiles, would each select a monitoring entity and abide by its particular protocols. In RLS, monitors are organizations that collect and verify social-performance information and help firms comply with their labor standards. Private social-auditing concerns, the internal labor compliance staff of multinationals, and public regulatory agencies such as state and national departments of labor, each currently perform these functions. Firms would be required to report wages, workforce profiles, environmental and labor management systems, and similar elements of social performance to their monitor. They would also submit to the latter’s inspection and verification protocols and social-management procedures. RLS would also require firms to periodically open themselves to independent audits from NGOs, governmental bodies, or even unions to prevent collusion and assure veracity of reported data.

These monitors would then rank the social performance of firms under their purview. Monitors would be required to report these rankings, the methods used to derive and verify them, and basic social performance data of firms to the governing body. This umpire would assure the comparability of the information on key dimensions and disseminate much of it publicly.

These arrangements would create a two-sided, mutually reinforcing competition between firms on one hand, and monitors on the other. Firms that are confident of their outstanding social performance would seek out the most credible monitoring organizations to verify their accomplishments. The best monitors would seek outstanding social performers in order to hone their evaluative skills, build their reputations, and expand their influence. In the first instance, this process would establish a “competition” of sorts in workplace conditions and labor performance among the regulated entities. Firms would vie to show consumers and regulators that they are better than their competitors.

In the medium term, the RLS framework would generate a vast amount of information that does not currently exist about how firms actually perform socially and about how to improve that performance. This knowledge could be used by an array of actors and generate complementary competitive pressures on firms. Hundreds of millions of socially sensitive consumers would utilize these data in their purchasing decisions. Journalists, activists, and investors would use the information to shame poorly performing companies. They would also use it to expose poor monitors and demand increased veracity. Responsible firms could assume that their behavior would be rewarded and irresponsible firms would fear embarrassment, pressure campaigns, official sanctions, and, worst of all, loss of market share. Firms themselves would therefore use this knowledge to benchmark their performance and to learn how they might improve it.

Perhaps most importantly, this knowledge would inform a wide-ranging, inclusive, and often heated public debate on global labor conditions. Participants in this debate would argue for particular standards and improvements—with respect to child labor or workplace health—for example, by referring to the successful, and therefore feasible, efforts in various contexts. Pushed by this public debate, officials at local, national, or international levels could use information generated by RLS to formulate minimum substantive labor standards based on actual performance and procedural standards for improvement. They might also use the data, as some regulators now use TRI environmental information, to better enforce existing regulations.

It is crucial that the voices of workers in developing countries be present in this debate. Though international labor standards are pursued in their name, they are too seldom heard in discussions about standards and enforcement. RLS offers a way to connect the knowledge and preferences of workers to the power of well-intentioned consumers and activists in wealthy nations. RLS aims to enhance the conditions of workplaces without the protectionist effects that can come from uniform standards. RLS derives its labor standards from the best practices of workplaces under similar economic circumstances. These standards are demanding because they are based on what the leaders have done, yet demonstrably feasible because they have been implemented under competitive and comparable conditions. The goal of these demanding and feasible labor standards is to make workplaces in developing countries as good as they can be without imposing requirements that drive investment and employment away. Striking that delicate balance will require the knowledge, and ultimately the judgment, of the workers in these facilities.

That balance, moreover, will change over time as firms and workers enhance their social performance possibilities. RLS standards would therefore be periodically revised—ratcheted upward—to reflect these changes. Unlike conventional regulation, these corrigible yet enforceable standards would be the product—not the starting point—of a process that was centrally focused on producing widely accessible and accurate knowledge of actual practices and deploying that knowledge to improve practices over time.

Getting There
RLS principles are now expressed in a limited set of cases, such as Nike and other high-profile firms. How might they become a wider regulatory framework? We can envision at least two roads to begin building RLS.

On the first, one of the existing nongovernmental, multi-stakeholder workplace monitoring initiatives—such as the Clean Clothes Campaign, FLA, Workers Rights Consortium, or SA8000—could embrace RLS as an expansion strategy. These programs currently compete with one another. One entity, however could differentiate itself from the others through a focus on transparency and disclosure that breaks with now dominant policies of confidentiality and proprietary knowledge. This innovation, while scaring off some corporations fearful of revealing current practices, would make this organization the most credible, encompassing, and capable social-certification entity. This credibility would allow it to impose significant disclosure requirements on its associated firms and monitors, to rank each of them on their social performance, and to set the terms of open comparison for other firms and monitors. The WRC may be closest to moving in this direction, as its university members are least likely to oppose broad public transparency and comparison.

Alternatively, transnational organizations such as the ILO, the United Nations, or the World Bank could begin to build RLS. All three claim to be moved by sincere concern for the impact of globalization on labor, the environment, women, and native peoples. In addition, the Bank, given its dedication to free trade and free markets, may see RLS as a lesser evil compared to the imposition of trade clauses. Since world public opinion demands some response to scandalous labor conditions, the Bank may prefer a system based on transparency, in which firms play an important role in determining operational details, to regulation imposed by distant central authorities.

One or several of these international bodies might begin by establishing an umbrella stakeholder group, composed perhaps of corporate, national, NGO, labor, and monitoring firms, to begin a formal process of building RLS. This body would set minimum performance and procedural standards for firms. It would also require them to report on their own monitoring protocols and results, and then publicly disclose this information. This organization could be a precursor or sponsor to the super monitor, or umpire-governance body. A key first step in this process would be to call together the existing monitors and certification bodies for an initial “transparency event” in order to discuss the ground rules, objectives, demonstration cases, and first steps to establishing RLS regulation.

By now, even sympathetic readers may suspect that we advance by wishful thinking and assume key actors share our perspectives and goals, when even casual inspection of the newspapers suggests they do not. More bluntly, many will suspect, and others firmly believe, that the World Bank, like the International Monetary Fund (IMF), prefers a deregulated world, one in which labor is disciplined by the market and firms by each other. And if the ILO is a promising partner, why are NGOs so prominent in new movements that the ILO, given its mandate and history, should be leading?

There are other reasons one might be doubtful. What about national trade unions and regulatory authorities, the traditional backbone of labor protection in the developed economies? Are they meant to stand idly by as the rest of the world ratchets itself into a new regulatory regime? If not, what part might they play in shaping new strategies and institutions? In short, haven’t we been far too hasty in jumping from economic and social trends to institutional answers, assuming in the optimistic rush that major actors will automatically shift to new roles in RLS?

In response to these doubts, we argue that the World Bank could become an important collaborator in the new system. Many will question whether institutions like the Bank could, or would, become an ally for forceful labor standards, but we argue that it is already being transformed in ways that could belie its reputation as an enemy of regulation. Space permitting, a case for the ILO’s cooperation could also be made. We also argue that national regulators and trade unions, whose opposition could block RLS, might come to see this initiative as an opportunity to advance their own internal reforms.

The Bank
The transformation of the Bank grows directly out of its current, discrete, crisis. The Bank’s role in its traditional business of financing major infrastructure projects such as dams and roads in developing countries is being eclipsed. For one thing, as demand for such project finance has grown, private lenders have entered this market, providing funds at affordable rates without the red tape that encumbers Bank transactions. For another, the Bank’s recurrent public pummeling for the adverse environmental and social consequences of its largest investment projects have reduced the areas in which the Bank is able to operate.

Without a clear mission in financial stabilization or infrastructure development, the Bank is left with “softer” tasks, which are captured in its new self-characterization as “the knowledge Bank”: fighting official corruption, fomenting the rule of law, improving environmental protection, encouraging entrepreneurship, and redesigning social protection systems. All of these, however, require the same starting points as RLS: increased transparency, heightened accountability, and decentralized learning through the local adaptation of best practices. Unsurprisingly, therefore, many ground-level Bank officials who participate in these project areas already have experience using best practices to fix local goals and building problem-solving coalitions to achieve them. This new breed of Bank staffers often bring NGOs and official institutions together to define goals and assess progress. Indeed, they often use shifting alliances of this kind against entrenched interests, such as corrupt government agencies. For this group within the Bank, RLS could help to authorize and formalize their own methods and strategies.

But RLS also appeals to higher-ups at the Bank for reasons of convenience. Powerful governments with representatives on the Bank’s board of directors, such as the United States, have in recent years pressured the Bank to deny loans to countries that violate the ILO’s core standards. Bank officials demur at the prospect of becoming an enforcement agency for the ILO, and some embrace RLS as a possible counterproposal. In emphasizing competition as a means of stopping bad practices and diffusing better ones, RLS sounds a familiar chord in the Bank: the new “knowledge Bank” professes to be even more “market driven” than its predecessor.

The appeal is not just tactical and terminological. At least some officials in the Bank see the kind of integrative knowledge-pooling used to build the “soft infrastructure” of working schools, reliable health care, and clean government as a kind of re-regulation. In this light, RLS is compatible with, and perhaps in some sense a model for, an emergent regulatory regime. Exploration of RLS can play a small part in the re-orientation of Bank strategy. It can, moreover, play a related operational role: pressed by human rights advocates and local NGOs, the Bank has already adopted policies requiring it to consider the impacts of its activities on the environment, on indigenous peoples, and on the condition of women.

It does not follow from all this that the Bank is a partisan for RLS. But neither is it an adversary with inimical interests. There is no more and no less than a real possibility that the Bank could link internal reorientation to institutional participation in the creation of a new kind of labor standard along the lines of RLS.

Unions and Regulators
Consider, finally, the potential effects of RLS on trade unions and regulatory authorities. These organizations are struggling against a marginalization that calls into question their traditional roles and effectiveness. Some labor leaders and regulators may fear RLS as yet another wave in the tides of deregulation and economic transformation. They may identify it as part of the family of privatized, self-regulation initiatives that chip away at public regulation. Such initiatives seem to strive for standards without regulators, in which corporations monitor and improve themselves on their own terms. Critics charge with good reason that such programs offer scant social protection.

But, as we have tried to make clear, RLS aims not to deregulate, but rather to re-deploy public power in ways that extend its regulatory reach and wisdom. Those who misread the proposal as a concession to unfettered markets will also miss many novel ways in which RLS can strengthen the hands and extend the horizons of those who have long championed workplace improvements.

Officials in national and local regulatory agencies, for example, could use information in RLS to bolster their own enforcement activities by identifying local violators, just as some environmental agencies now use TRI. A more ambitious step would be legislation requiring domestic firms to participate in RLS. This would shift much of the burden of inspection and compliance monitoring from national regulators to the international regime, allowing the former to concentrate on the worst performers. States could use the performance standards and benchmarks that emerge from RLS to adjust their own official labor standards or to create a differentiated set of “performance tracks.” At the end of this harmonization trajectory, states could transform their own regulatory systems from fixed-rule to ratcheting by requiring domestic firms to score high on RLS measures or face sanctions. Along the way, regulatory agencies could join RLS as certified monitors. This would compel them to compete with and learn from similarly certified regulators in other countries, private sector innovators, and capable NGOs.

A similar logic applies to unions. At the least, unions participating in RLS could gain otherwise unobtainable information about intricate supply chains. Unions could use RLS-generated information to learn about best and worst practices in an industry, and they could use this data to inform and strengthen their position during collective bargaining. RLS rankings of particular corporations would also allow them to identify the worst performers and target them through corporate campaigns, boycotts, or shareholder actions.

As a further step, unions might themselves become certified monitors. Many labor leaders claim that the best monitors of any workplace are the workers themselves, and RLS allows them to make this claim credible. As RLS is an open system that encourages participation from all fronts, trade unions would certainly be a welcome source of monitoring expertise. The best union monitors could use RLS rankings to show that they were superior to private-sector, non-worker competitors. By showing credible third parties that they monitor better than others—because, for example, they have better access to information from workers on real factory conditions and have the expertise to propose remedies to the problems they uncover—they would be renewing the public’s trust in their claim that they are the most capable advocates of worker interests. By ranking monitors and acting as certified monitors themselves, unions that participate in RLS would dramatically expand their knowledge of workplace problems and how to fix them. In time, they would renew and improve the services they provide and thereby reclaim the loyalty of current members and attract new ones as well.

Since workers must form coherent organizations to conduct social audits and workplace monitoring, freedom of association is an essential implication of RLS. Unions could therefore also use RLS to press governments and corporations to respect the freedoms that workers require to collectively understand and improve their workplaces. Just as its market-like characteristics of competition and transparency should generate support from corporations and the World Bank, RLS’s democratic stress on inclusiveness, participation, and association should resonate with trade unions and NGOs.

A Global Problem
Even as contemporary globalization makes us complicit in terrible abuses of workers, it opens up new possibilities for public action to mitigate these wrongs. These possibilities come from the increasing capabilities of corporations—under the pressure of public revulsion at their social practices—to improve workplace conditions through the same sophisticated management strategies that make them champions of the current globalization in first place.

We have argued that the best way to exploit these possibilities is through a new kind of labor regulation—Ratcheting Labor Standards—that relies on information, competition, and the participation of not only regulators and firms, but also workers, consumers, journalists, investors, NGOs, and the public at large. RLS promises labor standards that are feasible because they are based on actual best practices, and non-protectionist because they take into account differences in contexts of economic development. These labor standards, moreover, join the limited enforcement power of government to the potentially great disciplinary forces of social pressure and market competition. They aim, finally, not at establishing a minimum fixed set of core workplace rights, but rather at creating a process that makes workplaces as good as they can be, and better over time, as companies become more capable and nations more developed.

Our proposal for RLS, like the regulatory project it is meant to advance, raises at least as many questions as it answers. Is the approach only appropriate for multinational companies who sell to consumers in rich countries? Or can it also apply to commodity producers or those who sell primarily to domestic markets in developing countries? We believe that labor under the latter conditions will benefit from the general RLS approach to regulation, but the institutions and programs will obviously differ. Does RLS improbably require the majority of consumers to be sensitive to labor issues? Or, can relatively few attentive consumers and activists combine with media exposure, investor concerns, and public grading to leverage changes in the behavior and priorities of corporations? We believe that reputation is so critical today, and improving labor standards so feasible, that a public ranking system like RLS would amplify even relatively few voices into substantial workplace improvements. Already, the tiny fraction of customers of Nike, Reebok, and Mattel who have expressed concerns on labor issues have induced substantial shifts in corporate policy. But will RLS indeed make this increase in the scope of reform self-reinforcing?

The best way to answer these and other crucial questions, we think, is to engage in discussion with a view toward actually constructing the system. Given how many building blocks of RLS are already in place, and also how many possibilities for critical review would be afforded by even a flawed version of the system, the best way to test and improve RLS is to create the transparency and comparability of monitoring on which the full-fledged regime depends. Sometimes looking while leaping can be prudent.

Earnest engagement in such discussion will not be easy for many, as elements of RLS are strange and potentially threatening. Many corporate actors want an even playing field on which to establish their credibility as ethical actors, yet fear public scrutiny and transparency. For many NGOs and unions, “competition” smacks of privatization and market violence, and collaboration with firms to raise labor standards smells of co-optation. Yet some activists, impatient for progress, have pioneered impressive cooperative workplace monitoring and improvement projects with willing multinationals. Many official regulators are loathe to endorse a regulatory approach that depends upon so many forms of public participation and creates intimate connections to the private sector. Still, these same regulators recognize the limits of their conventional strategies in the current economic environment and are searching for more effective methods.

Our hope in this essay is to offer a labor standards strategy that allows us all to re-examine and test our programmatic commitments without sacrificing the possibilities of concerted action. How else can we hope to find effective solutions to the new misery of the global economy?

Notes

¹Martha Chen, Jennefer Sebstad, and Lesley O’Connell, “Counting the Invisible Workforce: The Case of Homebased Workers,” World Development 27 (1999): 603-610.

² David Weil, “Leveraging Time: Regulating U.S. Labor Standards in the Age of Lean Retailing” (Manuscript, 2000).

³ Massachusetts Toxics Use Reduction Program, Evaluating Progress: A Report on the Findings of the Massachusetts Toxics Use Reduction Program and Evaluation (Lowell, Mass.: Toxics Use Reduction Institute, March 1997).

⁴ This account is taken from National Academy of Public Administration, Environment.Gov: Transforming Environmental Regulation for the 21st Century (Washington, D.C.: National Academy of Public Administration, 2000).

⁵ See James T. Hamilton, “Pollution as News: Media and Stock Market Reactions to the Toxics Released Inventory Data,” Journal of Environmental Economics and Management 28 (Jan 1995): 98-113; “Exercising Property Rights to Pollute: Do Cancer Risks and Politics Affect Plant Emission Reductions?,” Journal of Risk and Uncertainty18 (1999): 105-124.

⁶ US Environmental Protection Agency, Toxics Release Inventory 1998 Data Release (Washington, D.C.: USEPA, 2000).

⁷ World Bank, The Greening of Industry (Washington, D.C.: World Bank, 1999).

⁸ They conducted similar surveys in 1995 and 1996, with similar results. Approximately one thousand people responded, and the data were weighted to reflect demographic characteristics of US adults ages eighteen and over. Authors report a margin of error at the 95 percent confidence level of plus or minus 3 percent. See http://www.marymount.edu/news/garmentstudy/.sup>9 Richard B. Freeman, “What Role for Labor Standards in the Global Economy,” (12 November 1998).

¹⁰ See: http://www.environics.net/eil/millennium/.

¹¹ Social Investment Forum, 1999 Report on Responsible Investment Trends in the United States, 4 November 1999.

¹² See, for example, Visions of Ethical Sourcing, ed. Raj Thamotheram (London: Financial Times Press, 1999).

¹³ See, for instance, Dara O’Rourke, “Monitoring the Monitors: A Critique of PricewaterhouseCoopers Labor Monitoring,” available at http://web.mit.edu/dorourke/www/.

¹⁴ See: http://www.workersrights.org/factory_locations.html.

¹⁵ See: http://www.nikebiz.com/labor/index.shtml.