Politically Incorrect?

Dec. 21, 2004

Veterans turn to independent monitors to curtail sweatshop abuses. Widespread criticism of the use of sweatshop labor benched Nike Inc. Media descriptions of poorly paid underage laborers toiling in sordid factories in Vietnam, Indonesia, and Singapore in late 1997 sparked protests and product boycotts at retail centers and on college campuses nationwide in 1998. The glare helped to cause the sneaker giant's stock price to tumble to $31 in September 1998 from $76 seven months earlier. Nike, a 30-year user of contract manufacturing, made a series of changes intended to improve conditions. Its stock price has returned to the low $50s and continues to climb. Its lesson -- that misdeeds of contractors end up harming a company's brand and corporate image -- applies to others. Months after the negative reports became public, Nike responded by raising the minimum age of overseas workers to 18, boosted wages, and improved factory conditions. It also joined the sweatshop-monitoring organization Fair Labor Assn. and allowed independent auditors to inspect its plants. One such auditor applauded the changes Nike has made, but points out that often the system of contract manufacturing creates incentives harmful to workers. In many cases the subcontractor has an incentive to squeeze labor. If, for example, the client agrees to pay its supplier $20 for every shoe made, good reasons exist to reduce labor costs. "Management loses its ability to control practices," observes Dara O'Rourke, an environmental researcher at the University of California at Berkeley, who inspected Nike factories in Vietnam. In addition to the organization that Nike joined, others have emerged to monitor abuses. The Council on Economic Priorities in New York teamed up with Avon Products Inc. and Toys-R-Us to create Social Accountability 8000, a set of human- and labor-rights standards that include a living wage for factory workers. Consulting firms such as Ernst & Young and PricewaterhouseCoopers have launched units to audit the practices of contractors. Multinational toymaker Mattel Inc., which outsources 30% of its manufacturing, funds an independent monitoring council to oversee its compliance with satisfactory working conditions, adequate wages, and employee access to management. Already an assessment of 300 suppliers resulted in the termination of 15 vendors and placement of 35 others on a "watch" list. S. Prakash Sethi, a professor at Baruch College's Zicklin School of Business, New York, who chairs Mattel's Independent Monitoring Council, sees the technology and management systems multinational corporations introduce in emerging nations as positive forces. However, he contends that some of the same companies that bring new ideas to developing markets also ignore both oppressive working conditions and industry's harmful effects on the environment. "Multinationals justify these approaches on grounds of nonintervention in the host country's internal affairs," he says. What's more, emerging nations vigorously compete for investment by multinationals, yielding companies solid bargaining power. This -- coupled with lack of international oversight and regulations -- allows companies to essentially operate as they wish. Although critics have focused recently on apparel and toy makers, they certainly are not the only ones buying from contractors employing laborers in poor working conditions. An internal audit in 1999 by contract-manufacturing giant Solectron Corp., a two-time Malcolm Baldrige National Quality Award winner, turned up a subcontractor paying immigrant workers by the piece in the U.S. The company says it stopped doing business with that supplier. Sethi insists that curtailing sweatshop conditions entails a simple first step: "Whether it's a high-tech or low-tech business, it has to allow independent monitors to visit."

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