In a post a few weeks ago I have explained how eco-labels can have the potential to avoid major tragedies like the one in Bangladesh last month. It is however important to know that reality is often more complex and some companies in the West do little to improve working conditions in the Global South if not the contrary.
Unfortunately, so far global trade is mainly driven by questions of costs and how to lower them. For brands, retailers and importers in the West this means “buying as cheap as possible.” I have explained how one of the consequences was, that companies moved to countries and places where control is least strict in order to produce their goods and services without much control, leaving workers in those places with few rights and unsafe working conditions. Whereas eco-labels and standards can improve and probably even avoid such situations, they sometimes do the opposite.
A crucial point is how such labels/standards are implemented and for what reasons. A big number of studies have shown that, in many cases, pure economic motives (trade competitiveness) lead to implementation of standards/labels and that accordingly, the quality of the implementation process itself suffered. One study in Canada came to the conclusion that companies that were ISO 14001 certified weren’t able to name their environmental improvements and that awareness of the standard and key targets only existed shortly before and during audits. Throughout the rest of the time, employees didn’t care about the standard and their leaders couldn’t be bothered with employee trainings. In other cases there have been claims that fair-trade wasn’t really fair and that sometimes it didn’t improve the conditions of workers and farmers that produced under Fairtrade standards, because they couldn’t achieve or verify what they claim. Finally, scandals of bribing are known to happen even within the most respected certification bodies. How could all this happen?
It is easier understandable if we look at the producer end of the supply chain, which often lies in developing countries. Compared to audit costs, salaries are usually low (an audit can easily cost several thousand US$, whereas monthly salaries in developing countries are in the low hundreds), and coupled with an institutionalised corruption in many developing countries, it is understandable that bribing of auditors or those who evaluate audit reports and issue approvals happens. Having lived and worked in developing countries myself I can talk from own experiences. A “funny” one is that of a discussion I had with the director of one of the leading Certification Bodies worldwide. When asking him how he addressed corruption and how he reacted to accusations of bribing of his employees in some countries, he answered to me “We do what is best to avoid such issues: we pay fair and high salaries to our employees.” The company is known to pay very low salaries and to have low audit costs, which makes them highly demanded. Needless to say that it’s one of the certifier that has fame for being superficial and that certificates issued by this certifier are no guarantee for anything.
A crucial role in supply chains is that of the retailers and importers. They are one of the key drivers for intransparent and inconsistent supply chains. Firstly, many retailers/importers set wrong incentives for their purchasing departments: it is quite common that buyers get year-end bonuses based on purchasing performance – good performance meaning “buying cheap”. This often leads to contradictions between the goals of sustainability/CSR departments and those of purchasing departments with clear bias towards the purchasing, given that the buyer is the one that has the power over the final deal. From personal experience I know that additionally, many buyers prefer to have several providers for the same products (in order to create price competition between them). The trade-off is that given a fixed budget, the quality department has less time/resources to spend on quality assurance for the different supply chains, which automatically leads to more mistakes and short-comings.
In order to delegate their responsibility to others, many retailers/importers ask their providers for a number of certificates. However, they often do that unaware of the implications and costs associated. Or they simply don’t care. In other words, they want more but are not willing to pay for what they request. In light of the pressure on producers and the availability of cheap alternatives (a fake certificate or a superficial audit) it is self-explanatory that under such circumstances implementation of standards lack of quality and integrity. A proper implementation of standards (whether social or environmental) needs an appropriate support from those who ask for it: financial plus sometimes technical support as much as monitoring and verification. Otherwise the goals will not be achieved and the certification becomes a farce.
In the end it is all a question of money. Many of us want more for less. However, given that someone has to pay for the costs, it is usually the weakest in the supply chains that do so. If global trade shall fulfill what it promised, if it shall become a tool that improves the living and working conditions of people in the Global South and if we strive for equity among world citizens, then we need to understand that everything has its price. A T-shirt for 5$ or a kilo of prawns for 15$ should make us suspicious and we should restrain from buying them. Likewise we should question companies that sell such products and better shop somewhere else.
Buying ethical cannot happen without paying the right price for it. If we care for citizens in the Global South, we need to force brands and retailers to carry responsibility for their actions by valuing the goods and services they buy – in monetary terms and in their attitude.
 Neoclassical economics suggest better outcomes. However, these have not been met so far due to market failures.