If we believe in standards of decency, we should deplore atrocious working conditions and the absence of worker rights and security, whether in Bangladesh, China, or the United States, in a Nike plant or a shantytown repair shack. But what should count as standards? Andwhose standards should be the yardstick?

The ILO was established to set standards, and has produced a huge body of conventions and recommendations. Unlike many countries, the United States has hardly ratified any of them. Some might suggest this is not a very good example, especially given the rhetoric devoted to the subject in the United States. Recently, the ILO passed a Declaration of Fundamental Principles and Rights, which established seven core standards to which member countries must subscribe. Some of us inside the ILO worry whether this will set a floor or a ceiling. But such instruments raise numerous questions about commitment, implementation, attainment, progress, and the definition of “best practices.” Of course, analysts and activists give their own answers to such questions, and one can be confident that the authors of “Realizing Labor Standards” have theirs. Still, they must be given, because there is no easy consensus.

Let me declare an interest. Over the past twenty years, I have conducted surveys of labor practices covering thousands of firms in over twenty countries, including developing countries such as Malaysia, Chile, and the Philippines, and crashing ex-communist countries such as Russia and Ukraine. To convince someone like me, proposals such as Ratcheting Labor Standards must satisfy a realism test based on recollections of visits to factories, estates, and mines.

I recall visiting a US multinational in a Malaysian export-processing zone. It was exposing thousands of teenage women to conditions that the manager readily admitted were causing long-term ill health. They were legal. The firm operated where independent unions were banned. Apologists say that conditions and pay in such firms are better than in the surrounding kampongs. But what could stop such practices? Nearby, in a back street of Kuala Lumpur, I talked to a Chinese furniture maker. Men, women, and children scurried in and out of the sprawling building. On one definition, he had fifty people working for him; he told me, truthfully, that he had just two doing so.

The US firm had better pay and conditions, but was unnecessarily opportunistic. The Chinese businessman would have melted into the city had inspectors come after him. In both cases, what was lacking was the voice of the workers, which was needed to pressure managers to make feasible changes and to give them knowledge of what to do.

Another lesson from our surveys is that distinctions between “formal” and “informal” sectors make no sense. Informalization has spread everywhere, including within so-called formal enterprises.1 This means that formalistic monitoring can only relate to a small part of the economy. Contrary to what is suggested in “Realizing Labor Standards,” there is little evidence that stable relationships between “producers” and “suppliers” are the norm. With flexible practices, statutory regulations and monitoring procedures are harder to operate than with mass production or when production is less dispersed. A heavy-handed strategy to ratchet up standards would be ineffectual. We must avoid a mixed image in our minds—sickening labor practices in a well-regulated economy. Go to the favelas of Sao Paulo or the lanes in the slums of Ahamedebad, where labor relations are harder to monitor than implied by the authors.

Fung, O’Rourke, and Sabel might retort that they are concerned with firms linked to global production, and that a strategy to curb some practices would be better than nothing. They must answer two standard objections. First, the effect could be subject to the law of unintended consequences—that is, it could make matters worse, perhaps by driving practices underground. Second, the cost could be excessive relative to the effect; for example, funds could do more good if just given to vulnerable workers so that they could bargain better, or opt out. Proponents of Ratcheting Labor Standards (RLS) should answer these points.

RLS is vague on principles, although “sanctions” and “transparency” are called principles. Surely, the basic principles of RLS should be equity, equality, democracy, and accountability. The biggest difficulty is defining what are good practices, and then “best” practices. For example, there is no law in the United States to allow workers a toilet break when needed. This is rarely on any list of bad practices.

Labor standards are normative, and are a package or nothing. In developing a strategy, you need to identify a core of standards that are a floor of human decency; then practices that accord with a country’s capacities and a firm’s size and structure; and then standards that are reasonable aspirations. The principles have to be spelled out before any system of monitoring can be assessed, and in “Realizing Labor Standards” this is left vague.

RLS puts heavy emphasis on regulations, monitoring, and sanctions. There is a smell of the big stick, with firms “required to adopt a code of conduct and to participate in a social monitoring program.” There are “certifying agencies,” “regulatory agencies,” and “umpire organizations,” as well as “compliance monitoring agreements” and “third-party social auditing.” The language is at best paternalistic. We are told the RLS would use “public power,” and that “firms that fail to disclose their labor outcomes or monitoring methods should be presumed to have something to hide, and be punished.” This is out of step with the time, where incentives to good practice are more likely to elicit support.

There is also a moral hazard in the proposals. We are told, “A firm would select a monitor from among NGOs or auditing companies who provide this service.” How cozy. One reads of consultancy firms offering themselves as “social inspectors.” Do they have a track record of being advocates of labor standards? It is not their business; they are privileged corporations. The authors do not address how to make NGOs and auditors accountable. Who appoints these social auditors? Unless you are a paternalist, democracy should be uppermost—workers’ voice should be at the forefront. It should bring a wry smile to read that firms “would seek out the most credible monitoring organizations to verify their accomplishments.” I bet they would, and pay them well.

This leads back to basics. What is a good firm? Through our surveys at the ILO, data exist with which to develop company-level indexes of good labor standards in the spheres of skill development, social equity, work security, economic equity, and economic democracy. These are combined into a Human Development Enterprise Index (HDE), ranked on a scale of zero to 25. There are measures of principles (preferences of management, etc.), processes (existence of mechanisms to give effect to principles), and outcomes.

The composite index has been measured for thousands of firms in several countries, and the results show that firms with high scores on what amount to good standards do better economically than those with low scores. There are reasons why this does not lead to all firms adopting good HDE practices. However, if firms were examined to determine whether or not they are pursuing practices associated with high HDE scores, a strategy could be devised to give HDE awards for exemplary firms. This would entitle firms to label their products, advertise as good performers, and receive preference in government contracts.

One reason for an incentive-based, awards scheme rather than a sanctions-based campaign is that firms want to identify themselves as good employers, whereas they will try to disguise themselves—or go for gestures and fancy ads, as have the oil companies—if identified as bad. Consumers are unlikely to know about bad firms when they go to shops, whereas the good firms could have a label, which they would wish to display.

Here’s another trick. Representatives of developing countries claim that linking labor standards to trade amounts to protectionism by rich countries. Yet, if advocates really want global standards they must prevent the erosion of standards in affluent countries. There is no race to the bottom, but one to something like the middle. Attention should be given to the need to retain labor standards, and strong sanctions should be reserved for countries and firms cutting them. Which is worse, a firm or country not raising standards or one that lowers them? Under Pinochet, Chile cut standards, persecuted labor leaders, and then, once workers’ organizations were enfeebled, allowed modified freedom of association. The crime came with the cut in standards. The fear is that zealous monitors would concentrate on the final liberalization.

The same applies to the nonsense about labor “deregulation.” There has been no labor deregulation (a contradiction in terms), merely a shift from pro-collective to pro-individualistic regulations, and a rolling back of protections so as to reduce “labor costs.” When RLS proponents focus on developing countries, and matters such as child labor, they should also look at reforms in affluent countries that lower standards, and of companies that roll back practices that had benefited workers. Perhaps, we should be seeking ways of preventing theratcheting down of standards.

Other dilemmas raised by RLS include the sanguine expectation that the World Bank should play a leading role. Many Bank publications oppose minimum wages in developing countries, and are hostile to unions. Some NGOs depend on Bank contracts, and cease to be independent. The RLS authors reach out to the Bank. But it should remain a bank, and not become embroiled in matters for which it has neither mandate nor competence.2 It should not be a standards-setter or monitor.

Another worry is that many of us remember feeling lonely when US organizations were silent on these issues, and wonder whether current interest in improving standards is primarily a result of fears about jobs and production shifting to developing countries. Also, to what extent should companies be held accountable for the practices of suppliers, purchasers, and sub-contractors? If “monitors” do not like a given law, should a firm be expected to abide by it or to some “higher” standard?

While subscribing to the objectives of the authors of RLS, I have become convinced that incentives to improved practices, combined with public advocacy, have more prospect of success than complex monitoring and sanctions. Above all, though, strengthening the voice of working communities—not putting faith in social auditors—is the most effective way to make substantial progress.


1 For more information see Guy Standing, Global Labour Flexibility: Seeking Distributive Justice (London: Macmillan, 1999).

2 See my article, “Brave New Words? A Critique of a World Bank Rethink,” Development and Change (September 2000).