Li Xu

Li Xu

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Corporate Social Responsibilities: Problems and Perspective Development

Li Xu

Introduction It sounds like a cliché to blame globalization of being the cause of any global problem. But it surely is the main reason responsible for the deterioration of labor conditions, particularly in the emerging economies since 1970s. One important aspect of globalization is the global free movement of capital. In quest of profit, Multi-national enterprises or multinationals (MNEs) more and more travel across territorial boundaries to outsource production to lower-wage countries, especially for the labor-intensive industries like textiles, clothing, and footwear.

This new phenomenon has three implications which lead to deterioration of labor conditions world wide. First, capital is free to move, but free movement of labor across boundaries is restricted by national labor policy and international agreements such as the General Agreement on Trade in Services (GATS). This combined together makes workers live under constant threat of factory relocation to places with cheaper and more compliant labor (Wetterberg, 2007). Secondly, multinational’s quest for economic gain and lack of intention as well as ability of host country to oversee the situation resulted in a circumstance which is ripe for labor abuse. The “race to bottom” of labor protection seems to be a common practice both in terms of business strategy of multinationals and government’s development strategy.

Thirdly, collective action taken by trade union as a traditional way to bargain for labor rights was undermined by globalization, because workers with different interests concern and cultural background make it harder to achieve. Considering the protectionist trade measure proposed by the US textiles trade union which is clearly fatal to Chinese workers; or the lack of union participation of immigrant workers in the EU. Moreover, the Global Value Chain (GVC) indicates a development trajectory, i.e. from Assembly to Original Equipment Manufacturing (OEM) then to Original Brand Manufacturing (OBM). For developing countries it is much easier to penetrate into first two stages due to their low entry barrier, therefore we can comfortably assume there will be much more supplying firms than branding firms. This discrepancy of market power leads global apparel industry (as well as other industries) to be a typical buyer-driven value chain (Gereffi and Memedovic, 2003), in which buyers such as brand-owners and retailers exert great influence on the supplying firms. In this respect, the Lean Retailing Model requires heavier time pressure for products delivery, which may force supplying firm to impose extra work on labor in order to meet rapid turnaround times (Abernathy, Volpe, and Weil, 2006).

Analyzing Policy Problem: Three Approaches to Address Labor Protection Policy problem is often an entangled one which involves different sectors, actors, as well as various layers from international down to local level. In addressing the problem of labor protection, there are clearly three policy approaches by differentiating main actors: governmental regulation, civil society movement, and business self-regulation.

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Li Xu

In the early stage of globalization, governmental regulation set up minimal labor standard in the era of Manchesterian capitalism. The EU integration process (which prescribes convergence of labor policy of EU member states) seems to be the last systematical regulatory attempt on labor protection so far. Nowadays, the focus of governmental action has been switched to trade policy, because severe situation mostly exists in the outsourced production sites in emerging economies like India, Southeast Asia, and China. On international arena, the EU prefers to address labor protection issues through multilateral mechanism, namely the World Trade Organization (WTO). The US, on the other hand, prefers to deal with labor standard setting on bilateral basis, i.e. by including labor provisions in Free Trade Agreement (FTA) with another country. The so-called “second generation FTA” which is modeled by the US-Colombia FTA shows this policy preference. The underlining rationale of these efforts, multilateral or bilateral, is the principle of “leveling the playing field” articulated in EU’s strategic paper, the “Global Europe” communication. This principle states that any comparative advantage should be stemmed from anything else rather than unfair competition such as low labor standard, labor abuse, or disregarding environmental damage.

The idea of leveling playing field sounds nice and justifiable. But the main problem is that to which extend we are going to wield policy instrument to offset these “unfair” competitive edges. The resulted job losses from industrial adjustment in US and EU T&C industry as well as in other developing countries creates tensions, which lead to trade measures against Chinese exports and make China’s T&C industry living under constant threat of anti-dumping or other trade measures. This fear seems to urge Chinese government to take strong action to avoid accusation of labor abuse in order to mitigate this tension, but two other factors make it without effect. First, as discussed in section 1, lowering labor standard was proved to be a useful tool to attract foreign investment. Therefore government lacks intention to step in.

Second, as stated by a representative from MNE: “the law in China is an aspirational standard, as in most developing countries, not the minimal level as in most western countries” (cited by Kolk, Hong, and Dolen, 2008), some laws stipulate even higher level of labor protection comparing to western standard, 1 which is for sure hard for enforcement for local government, let alone having intention in doing so. The local bureaucrats get promotion according to, mostly, the GDP growth. This public measurement system further eliminates the possibility of governmental intervention in fear of relocation of factories.

The second approach is the social movement of civil society to address labor protection.

This category in fact implies a broad group of “others” and includes a diverse set of actors, ranging from traditional labor union to civil society which mostly composes middle class people, and to the inter-governmental organizations like International labor Organization (ILO). Everything started from 1992 when the Washington Post exposed that a supplying firm for Levi Strauss & Co. was using prisoners in China to produce Levi’s well-known blue jeans.

An even more well-known case is the media coverage in early 90s on extreme working condition in Nike’s footwear factory. After that, labor activists in coalition with trade unions, university students, and religious charities initiated anti-sweatshop campaign targeting at raising consumer’s awareness and eye-catching media attention, therefore pushing moral as well as economic pressures on multinationals to address labor protection issues. The foundation of their claim is the core charters formulated by ILO which covers basic labor rights such as no child labor, no forced work, non-discrimination, as well as rights to 2

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self-organizing for collective bargaining.

In response, the third approach, the business self-regulation on labor protection was introduced and widely proliferated after Levi published the first ever Global Sourcing Guidelines of apparel industry in 1992. These attempts, in the form of Corporate Code of Conduct, mainly incorporate the ILO core charters and add several other elements such as safety, healthy, wages, working hours, and no sex harassment. These codes not only deal with labor issues, but also human rights and environmental protection problems, which indicate the underlining “ideology” of these codes, the Corporate Social Responsibility (CSR) movement.

In the European context, a comparable notion of “triple P”, the People (social), Planet (environment), and Profit (economic) has also emerged (Kolk et al., 2008). In quest of a comprehensive and generalized standard, the Social Accountability 8000 (SA8000) was initiated in 1997 and widely implemented as the first third-party-certifying code of conduct.

In Chinese context, some specific features of Chinese politics and economy complicated the policy problem of labor protection. As a communist state, the Communist Party of China (CPC) seized power by mobilizing massive labor movement. Therefore it is reasonable for the party to worry that another labor movement may undermine or even endanger its power basis.

The labor unions are closely supervised and controlled by CPC local committees. Till now forming a labor union and getting registered are still prohibited. This issue is of political sensitivity therefore is under-researched in academic work, but it can be indirectly derived from a very recent speech by the vice-chairman of All-China Federation of Trade Unions (ACFTU), which is the sole legal labor union in China. 2 On the economic side, as discussed in Introduction, apparel value chain as buyer-driven in nature implies that multinationals can easily transfer the increased production cost for implementing code of conduct to supplying firms. In facing intense delivery time, supplying firms have to impose overtime work.

According to an industry survey by Gu (2008), 74.2% of respondents said buyers have “strong” or “very strong” barging power, and 72.1% replied that delivery time is “tight” or “very tight”. Case study by Yu (2007) derives a conclusion that in facing time pressure, supplying firm increases the intensity of work but paying the same per hour wage, therefore the real wage workers received in terms of productivity actually decreases. Moreover, complying with buyer’s code of conduct clearly shoulders financial burden on supplying firms, especially for SA8000 which involves intensive consultancy, monitoring, and checks.

For some Small and Medium-sized Enterprises (SMEs) these costs are substantial enough to take into consideration.

The Way Forward: A Comprehensive Performance Measurement System As analyzed above, the practices of CSR sometimes may ineffective or even counter-effective. Corporate code of conduct alone is unable to solve the problem of labor protection, let alone talking about other dimensions such as environment or human rights. The latter two can be clearly demonstrated from the cases of Brent Spar and Ken Saro-Wiwa of Royal Dutch Shell. When talking about CSR, a question should always be asked in the first place: should we take CSR things seriously?

I would argue till now it is hard to consider CSR as a serious trend, but CSR lays out the ground for further development, which in my opinion is a comprehensive performance measurement system on what entities have done. Think of what happened when information 3

Rethinking of Corporate Social Responsibility (CSR) and Social Entrepreneurship

Li Xu

was informed to and shared with the public by the Toxics Release Inventory. Right after that, people in pursuant to various causes started to use this information for various purposes, though the initial goal for providing this toxics information is unclear for the regulators. But, the result is quite dramatic and energizing: the general public became more concerned about environmental problems and actively participated in the environmental policy-making. On an analog basis, CSR could provide similar “catalyst” effects, in a way that CSR reports or Code of Conduct lay out ground for discussion, percussion, and participation on a certain issue. For example, we can compare different CSR reports, check the authenticity, or evaluate the contribution of CSR practices to the value-added of the company. CSR report is clearly the first step which allows us to do a lot of things.

But for sure it is not enough. Today we are in a world where legitimacy derives more from performance and less from institutional settings, namely the legitimacy comes from authority or regulation. Or we can also label this trend as we are moving from input-legitimated system to outcome-legitimated system. The key difference between outcome and output can be found in Allison (1969). In essence, according to Organizational Process Paradigm, governmental action is an output of functioning organizations by proceeding standard operating procedure.

On the outcome side, governmental action can also be perceived as an outcome of compromise, conflict, and confusion of officials with diverse interests and unequal influence.

In one sentence, today the legitimacy of taking action was equally shared among citizens, therefore everyone who has moral concerns over an issue can take action and the only thing matters is how successful he or she has changed public value. In this respect, the further development of CSR practices should be adding more indicators which are comparable across enterprises. In this way, information will be transferred to the public, which enables people in concern to create communities, and then a similar process can be foreseen: people start to use this information, discuss about it, produce various innovative ideas, exert influence on companies to hold them accountable, and ultimately change the world.

Endnotes 1. For example, the Labor Law of the People’s Republic of China stipulates that the overtime work per month should not exceed 36 hours, which are fewer than most international standards.

2. For analysis of his speech visit China Labor Bulletin: http://www.clb.org.hk/en/node/100404 (retrieved on March 5, 2009)

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References Abernathy, F. H., Volpe, A., and Weil, D. (2006). The Future of the Apparel and Textile Industries: Prospects and Choices for Public and Private Actors. Environment and Planning A, 38(12), 2207 – 2232.

Allison, Graham T. (1969). Conceptual Models and the Cuban Missile Crisis. The American Political Science Review 63(3): 689-718.

Gereffi, G.. and Memedovic, O. (2003). The Global Apparel Value Chain: What Prospects for Upgrading by Developing Countries. United Nations Industrial Development Organization (UNIDO), Vienna.

Gu, Qingliang. (2008). Decent Work and Industrial Upgrading in the Global Production Network: The Case of China Garment Industry. PowerPoint presentation to the Society for the Advancement of Socio-Economics (SASE) conference of 2008 in Costa Rica.

Kolk, A., Hong, P., and Dolen, W. V. (2008). Corporate Social Responsibility in China: An Analysis of Domestic and Foreign Retailers' Sustainability Dimensions. Business Strategy and the Environment, Forthcoming.

Wetterberg, A. (2007). Codes, Culture, and Coercion: The Institutionalization of Labor Self-Regulation in the Global Apparel Industry. Paper submitted to Strategy & the Business Environment and Institutions for Industry Self-Regulation Conference 2008.

Yu, Xiaomin. (2007). Multinationalsâ&#x20AC;&#x2122; Code of Conduct and Labor Standard of Foreign-owned Enterprises in China. <Kuaguo Gongsi Xingwei Shouze Yu Zhongguo Waizi Qiye Laogong Biaozhun>. Sociological Research, No. 5/2007.

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Rethinking of Corporate Social Responsibility (CSR) and Social Entrepreneurship

Li Xu

Global Initiatives Symposium in Taiwan 2009