This is an article that was published in the Huffington Post, written by Michael Hobbes. The article is a long read about 12 pages, if you don’t have time to read the whole thing, see my bullet notes under Editor’s Note.
The Myth Of the Ethical Shopper
For his book The Promise and Limits of Private Power, Brown University’s Richard Locke examined 10 years of Nike inspections. Nike was doing two kinds of audits, one mostly based on paperwork and the other incorporating the impressions of its staff after visiting factories. From 2001 to 2005, the paperwork audit showed that working conditions in almost all of Nike’s suppliers were steadily improving. When Locke checked the qualitative audit, though, he found that nearly 80 percent of them either hadn’t improved—or had gotten worse.
Partly in response to this dynamic, a lot of the big brands switched tactics, moving from wrist-slapping to worker-training. In 2009, Nike set up a model factory in Sri Lanka and sent managers there from all over the world. Since any change in operations can make suppliers less productive at first, the company signed long-term agreements with factories, pledging to stick with them as they learned how to meet deadlines using better methods and safer equipment rather than longer shifts.
But these second-gen practices couldn’t insulate factories from the countries where they operated. The Nike training worked wonders in Mexico, but had no effect in China or Sri Lanka. Between 8 and 10 percent of Mexican workers quit every year. In China, it was that high per month: They were training employees only to send them to other firms. Mexican factories had unions and NGOs telling workers how to take employers to court if they didn’t pay back wages. In China, where labor activism is basically illegal, workers didn’t even know which rights they had, let alone how to exercise them.
Now, I don’t want to give the impression that consumer boycotts were totally useless. Twenty-five years after the movement began, some large suppliers have formalized workforces, provide better health and safety practices and pay above the minimum wage. Ironically, it’s the major brands, the companies that are still the targets of those viral NGO campaigns, which are the most likely to use these factories. The biggest names, after all, have the greatest incentive (and the resources) to defend their reputations. Chikako Oka, a lecturer at Royal Holloway University, found that reputation-conscious companies had 35 percent fewer working violations in their Cambodian factories than did generic brands.
Which leads us to the first flaw with our existing model of anti-sweatshop advocacy. It’s not the largest or the second-largest company we should be worried about anymore. It’s the 44th, or the 207th. Those small-batch, hemp-woven Daisy Dukes you bought in Dumbo are far more likely to be made in a sweatshop than your $7 H&M gym shorts.
But that’s not the only problem. In the last 25 years, as the big brands were getting (somewhat) better at monitoring their supply chains, the entire global apparatus of manufacturing shifted underneath them.
We buy more clothes now, move through trends faster. In the olden days—the early ‘90s—brands produced two to four fashion cycles per year, big orders coordinated by season, planned months in advance. These days, there’s no such thing as cycles, only products. If a shirt is selling well, Wal-Mart orders its suppliers to make more. If headbands inexplicably come into fashion, H&M rushes to make millions of them before they go out again.
This flexibility means that factories have to compete on the number of clothing lines they can produce and how quickly they can switch from one to another. Chinese manufacturers that once made four products at a time now make 300. Locke profiles a Honduran supplier that used to have around two months to prepare orders for Western brands—buy fabric, cut T-shirt shapes out of it, sew them together, send them to stores. Now they get one week.
In the fast-fashion era, Western brands can’t afford the luxury of working with the same suppliers and ensuring that they meet the company’s standards. And so, rather than manage a giant, respirating network of factories themselves, most of them have outsourced this coordination to megasuppliers: huge conglomerates that can take a design sketch, split the production between thousands of factories, box up the goods and ship them to stores in less time than they’ll stay in style.
Manufacturing middlemen aren’t new, of course: Those “Nike factories” in Indonesia that Jennifer Love Hewitt marched against were actually run by Taiwanese and Korean firms. What is new, though, is how big the megasuppliers have become and how much of the sector they control.
In Sri Lanka, four companies generate roughly 25 percent of the country’s garment income. Yue Yuen, the Foxconn of footwear, makes one-fifth of all the shoes in the world. The largest apparel megasupplier, Li & Fung, which produces everything from Wal-Mart basics to Disney plush toys to Spanx, has revenues of $19.2 billion; more than Ralph Lauren, Armani and Tommy Hilfiger combined.
The Chartered Institute of Logistics and Transport calls Li & Fung’s operations “ephemeral.” It has 15,000 supplier factories in 40 countries, but doesn’t own or operate any of them. It’s a coordinator, configuring cotton suppliers, textile mills, stitching and sewing houses into a straight line just long enough to deliver one order to one buyer, and then reconfiguring them for the next.
Li & Fung does inspect its suppliers and send reports back to its buyers. But there’s no guarantee that orders will be filled by the same factory twice, and audits are often carried out after the order has already been placed. And so clothing companies have no ability or incentive to fix what they find. It’s like finding out the results of a restaurant health inspection after you’ve already eaten your meal.
In 2013, The New York Times published a sort of greatest-hits of Li & Fung violations: 29 workers killed in a fire in Bangladesh in 2010; at least two workers killed in a “stampede,” also in Bangladesh, in 2011; 280 workers fainting at a facility in Cambodia due to malnourishment and air contamination; a dozen workers fired in Indonesia, allegedly for trying to start a union.
Jeroen Merk, a researcher at the International Institute of Social Studies of Erasmus University Rotterdam—and one of the few academics who’s investigating the megasuppliers—says their business model is deliberately organized to keep buyers separated from factories. If brands discover what factories charge, they might work with them directly and keep the margin for themselves. Some companies ordering clothes through megasuppliers, he says, don’t know which factories they were made in—or even which countries.
In many cases, the megasuppliers don’t know either. Last year, a compliance manager for a European brand told NYU’s Center for Business and Human Rights that small factories in Bangladesh, capable of producing just 10,000 pieces per month, were accepting orders 10 times that large and then filling them through agents, small workshops, and home-based workers. Gale Raj-Reichert, a researcher at the University of Manchester who studies electronics supply chains, met a manufacturer in Malaysia who had no idea which company he was producing for. He got his orders and delivered his goods exclusively through middlemen.
After the Tazreen fire, NGO campaigns focused on how Wal-Mart was responsible for 60 percent of the clothing being produced there. But Wal-Mart never actually placed an order with Tazreen. In fact, over a year before the fire, Wal-Mart inspected the factory and discovered that it was unsafe. By the time of the fire, it had banned its suppliers from using it.
So here’s how its products ended up at Tazreen anyway: Wal-Mart hired a megasupplier called Success Apparel to fill an order for shorts. Success hired another company, Simco, to carry out the work. Simco—without telling Success, much less Wal-Mart—sub-contracted 7 percent of the order to Tazreen’s parent company, the Tuba Group, which then assigned it to Tazreen. Two other sub- (or sub-sub-sub-) contractors also placed Wal-Mart orders at Tazreen, also without telling the company.
It was the same with many of the other brands whose labels were found in Tazreen: They either didn’t know their clothes were being produced there or had explicitly banned the factory as a supplier. Those companies now say that, because the orders violated their policies, they’re not obligated to compensate victims.
It’s tempting to think that we can do something about this. Boycott the companies that use megasuppliers, maybe. Last year, partly over concerns about sub-contracting, Wal-Mart “in-sourced” its production back from Li & Fung and started coordinating its own network of suppliers.
But the Wal-Marts of the world can’t magically un-link themselves from the pressures of global supply and demand. Instead, companies that in-source production just become their own megasuppliers. Subcontractors can still deceive auditors or farm out orders without telling Wal-Mart. For smaller companies, the ones NGOs aren’t watching, in-sourcing isn’t even an option.
And besides, going after the megasuppliers just moves the tired name-and-shame routine one layer down. Auditors tell me Li & Fung, just like the companies it sells to, has good factories and bad ones. As it grows, it is finding reasons to defend its public reputation—it is still the only company that has directly paid compensation to the victims of Tazreen. The worst conditions probably aren’t in Li & Fung factories, but in the ones a few billion in revenue down the rankings. In Cambodia, a group of South Korean intermediaries, all of them with names you’ve never heard, are backing a lawsuit against their own workers, demanding that they pay back $200 million in revenue the companies lost during a strike.
Consumers’ power, to the extent we had any, depended on brands forcing their supply chains to do better. Now they—and we—are losing that power. And that’s still not the worst of it. The really atrocious violations, the ones most likely to proliferate, are in places where we have no influence at all.
Asian companies investing in Burma aren’t run by worse or greedier people than ours are. They’re just operating under a different risk calculus. American firms putting more than $500,000 into the country are required to publicly report their land acquisitions, payments to local officials, and security arrangements. If they get busted doing something heinous, they’ll end up on front pages. Developing-country multinationals don’t have these pressures.
The standard response here is that, as Chinese consumers get richer, they, too, will start demanding pesticide-free apples, cruelty-free jeans, dolphin-free tuna. And indeed, China has passed tons of legislation the past few years to improve working conditions and even requires reporting by its companies abroad. But pointing to these small (and un-enforced) steps ignores other countries that have climbed up the income ladder and haven’t brought social concerns with them.
There have been no major consumer movements in Hong Kong against Li & Fung. South Korea has the same per capita GDP as New Zealand, but has shown no interest in regulating its companies abroad. Khalid Nadvi, a professor at the University of Manchester, says there have been no cases of Chinese consumers agitating over foreign working conditions. “The emerging middle class in China is first and second generation,” he says. “Many of them worked in the kinds of factories we’re advocating to improve.”
As more and more of the world’s economy takes place without us, we need to change the way we think about going after sweatshops. There’s only one idea I’ve heard that has the potential to address the flawed audits, the opaque megasuppliers and the changes in global consumption all at once.
This process wasn’t easy in Brazil, and it won’t be anywhere else. Brazil’s inspectorate spent more than 30 years justifying its existence. Its farms and factories are not nice places to work in by any absolute definition of the term, and will not be for a long time. The corruption and inefficiency of developing country governments can’t be solved simply with more employees.
But going around these governments won’t solve any problems either. One theory on why last year’s Ebola outbreak was so bad is that local hospitals, after years of being bypassed by international NGOs, didn’t have the training or equipment they needed to treat their own communities. For decades, we’ve been doing the same thing with factories. In the ’90s, while we were telling Western companies to audit their suppliers, the World Bank was telling them that government inspectors didn’t need to anymore.
Listening to consumer advocacy campaigns, you’d think our only influence on the developing world was at the cash register. But our real leverage is with our policies, not our purchases. In the ’90s, the U.S. told Cambodia that to sell its clothes here, it had to open up every single garment factory to International Labor Organization inspections. Trade agreements require developing countries to establish huge intellectual-property inspection bodies to raid markets for bootleg Blu-rays. We just need to offer poor workers the same kinds of protection we give pharmaceutical patents.
As for Western companies, we shouldn’t let them off the hook. But let’s be clear: All of those emerging-market multinationals that South Korea and China are sending abroad have operations in the United States, too. Foxconn has a factory in Indiana. It is not a sweatshop. That isn’t because Foxconn carries out such great audits or offers entrepreneurship classes. It’s because it is located in a country with functioning institutions.
We are not going to shop ourselves into a better world. Advocating for boring stuff like complaint mechanisms and formalized labor contracts is nowhere near as satisfying as buying a pair of Fair Trade sandals or whatever. But that’s how the hard work of development actually gets done: Not by imploring people to buy better, but by giving them no other option. After all, that naked protest of Old Navy in the ’90s? Behind the 50 demonstrators, a line of 300 customers stretched
around the block.