Protests against globalization, particularly against investment abroad by American-based multinational companies (MNCs), have highlighted “sweatshop” conditions in garment plants in less developed countries (LDCs) that produce for the United States market. (1) In many ways, the garment industry is unique and, in fact, it attracts only a small proportion of investment dollars in developing countries, but as fervor for “corporate social responsibility” sweeps the world, all American MNCs are tarred with the sweatshop brush. Every U.S.-based company operating in the developing world is coming under scrutiny for how it treats its local workforce. The garment industry, on the frontlines of this new battlefield, offers an excellent case study from which other industries can learn.

The subcontracting of garment assembly to workshops in less developed countries is not a peculiarly American phenomenon. American firms outsource to the Mexican-Central American-Caribbean region and to the Far East. Many European companies, particularly British, go to the Far East; some, especially German, to former communist countries of Eastern Europe; and the French and Dutch, to North Africa. The Japanese use subcontractors in China, which is becoming an increasingly important production location for all the developed countries. Few of the facilities producing for the markets of advanced nations can rightly be termed sweatshops, and many are modern, well ventilated, and well managed. But there have been examples of facilities in which working conditions have been very bad.

We should note that public furor over sweatshops is not new. Since the industry arose, employers have been criticized for their treatment of workers. In the late 19th century, there was a great outcry in Britain, as well as the United States, against conditions in the industry, which led to the term “sweatshop” in the United States and “sweated industry” in Britain. In 1890, a committee of the House of Lords defined “sweating” in terms that have been leveled at some shops in less developed nations today:

… earnings barely sufficient to sustain existence, hours of labour such as to make the lives of the workers periods of almost ceaseless toil, hard and unlovely to the last degree; sanitary conditions injurious to the health of the persons employed and dangerous to the public.

The House of Lords’ definition accurately distinguishes two aspects of the problems in sweatshops. The first is very poor, even inhuman working conditions, and the second is low wages. In the companion piece to this article reviewing the history of the garment industry, we see that these problems are, to a great degree, inherent in an industry characterized by a very low capital to labor ratio, fierce competition, and employment of relatively unskilled workers. While much can be done to ameliorate working conditions, the industry is limited in its ability to solve the problem of low wages without disrupting the economies of host countries in ways that are even worse.

Working Conditions in Sweatshops

Today, apparel firms in advanced nations have the bulk of their garments assembled in low-wage countries, mainly in locally owned contractor shops. Revelations in the mid-1990s that work conditions in some overseas facilities were very bad fomented a campaign against sweatshops, which in turn became a major focus of antiglobalism agitation. Although the protests went beyond the issue at hand, the underlying problem cannot be dismissed, for the most ardent advocate of free trade hardly would sanction work sites that employ nine-year-olds, require 80-hour workweeks, or allow managers to beat workers for infractions of rules.

Such behavior is rare and usually confined to facilities owned locally or by companies from other LDCs. However, when the disclosure that some plants with extremely bad conditions were producing for the American market led to public protests, manufacturers moved to rectify the situation. In addition to worker welfare, companies, particularly those protecting well known brands, were concerned with not jeopardizing their acceptance by consumers. These companies had to come up with some way of reassuring consumers that they were not being presented with goods manufactured under sweatshop conditions. What has emerged in the United States is a voluntary compliance system based on corporate codes of conduct sponsored by different nongovernmental organizations (NGOs) that differ in their behavior.

Codes of Conduct

Reports of unacceptable conditions in shops producing for American firms prompted the Clinton administration to set up the Apparel Industry Partnerships (AIP) in 1996. AIP included apparel firms, NGOs, and two unions, the Union of Needletrades, Industrial, and Textile Employees (UNITE) and the Retail Wholesale and Department Store Union. (2) In 1998, the AIP agreed to set up the Fair Labor Association (FLA) to combine the efforts of these groups with those of colleges and universities to improve working conditions and promote adherence to international labor standards.

Since most colleges and universities license firms to manufacture highly standardized clothing bearing their logos, agitation by students has had considerable influence on this issue. The FLA’s response was the Collegiate Code of Conduct, which ran into opposition from the unions because it called only for observance of national minimum wages rather than payment of a living wage. Critics also objected to provisions protecting the confidentiality of plant and supplier locations. As a result, the unions, the Interfaith Center for Corporate Responsibility, and the United Students Against Sweatshops set up a rival organization, the Worker Rights Consortium (WRC), which is financed with a percentage of university licensing revenues.

The Fair Labor Association enforces an industrywide Workplace Code of Conduct based on the core labor standards of the International Labour Organization. More than 175 colleges and universities are affiliated with the FLA, and they require their licensees to participate in its program. In 2000, under pressure from its University Advisory Committee, the FLA reversed its position on identifying the location of plants producing goods with a member university’s logo. Meanwhile the WRC had grown and become a competitor with which more than 100 colleges and universities are affiliated.

WRC’s raison d’etre arises from its claim that an industry group such as the FLA, no matter how well intentioned, will seek to cover up abuses rather than root them out. For their part, companies affiliated with the FLA see the WRC as anti-employer in its refusal to grant industry representation on its board. With its ties to UNITE, the WRC has been more militant and confrontational than the FLA. The WRC publicizes instances of worker abuse, and its network of college chapters conducts demonstrations against manufacturers and stores selling those goods. Indeed, companies fear that when a serious code violation is discovered, it is used to discredit the employer even when that employer is attempting to correct the situation. Given its union ties, some also see the WRC as following a protectionist agenda. (3)

Aside from differences with respect to wages, which we shall examine later, the codes of conduct of the two organizations read much the same. Both specify that there will be no use of forced or child labor, no harassment or abuse of employees, no discrimination on the basis of race, gender, and so forth, and that employers shall provide a safe and healthy work environment. Both codes support freedom of association and collective bargaining, though, as expected, the WRC tends to place greater emphasis on union organizing rights. There is little unionization in the garment industries in LDCs, and much of American union wrath is directed at what it considers interference with workers’ attempts to form and join unions. In general, the WRC appears to view the entire sweatshop issue as one of worker empowerment.

Monitoring

Establishing a code of conduct is only a first step, for mechanisms must be set up to achieve compliance with it. Monitoring is the key. Some companies do their own internal monitoring, known as first-party monitoring. A notable example is Levi Strauss, which in this way has avoided serious problems and earned an enviable reputation for conditions in its plants. (Many of Levi Strauss’s facilities are directly owned, so the company has greater control over conditions.)

Second-party monitoring involves auditing by an outside organization, which may be a for-profit company such as a major accounting firm or a human rights organization from either the producer or consumer country. Producer-country NGOs, which are familiar with the local setting and language and usually have the trust of the workers, are considered to be very effective as second-party monitors. Third-party monitors train and accredit second-party monitors. They may be NGOs or accrediting groups such as the FLA and WRC. The FLA relies largely on business-service firms for monitoring, while the WRC prefers local NGOs.

The FLA accredits monitors to conduct external monitoring of facilities used by its participating companies. This requires gathering local information about general and, if available, site-specific working conditions from reliable sources, and gathering information about the most effective and appropriate means of communicating with workers locally. Companies must convey clear standards to company factories, licensees, contractors and suppliers; insist on regular, written certification that standards are being met and that employees have been informed of them; and require production facilities to submit to periodic inspections and audits, both announced and unannounced, by accredited external monitors, for compliance with the workplace standards. Individual workers at a factory also may lodge confidential complaints with the association. Suppliers that fail to measure up to the delineated labor standards face having their contracts terminated. (That can be a dangerous remedy, however, since workers in those shops would be deprived of jobs as a result.)

Admittedly, policing conditions in locally owned workshops in a host of countries is not easy, but, with experience, monitoring efforts are becoming more effective. Many firms, moreover, are quite serious in their efforts to maintain decent labor standards in workshops producing for them, if not for reasons of morality then in order to avoid adverse publicity (e.g., “name and shame” campaigns). Some brand-name manufacturers, anxious to preserve and enhance their reputations, have taken additional steps to improve workers’ conditions, such as training for higher skills, establishing benefit programs, and providing day care.

The Question of Low Wages

Efforts to curb worker abuse are very worthwhile, of course, but extending the definition of sweatshops to include factories in which wages are low makes the subject controversial. Increasing low wages in third-world apparel shops has become a cause not only for human rights activists but also for US unions seeking to preserve jobs at home. Some of these people believe we should adopt protectionist measures to stem the decline of American apparel production, for example, by raising tariffs. Others advocate negotiating trade pacts that would require LDCs to raise their wages and, if they refuse to comply, applying economic sanctions to bring them into line.

But the fact is that clothing manufacture always has been a low-wage industry, even in advanced nations. In the United States in the mid-1950s apparel wages were relatively low despite the fact that the unionized portion of the labor force nationally and within the industry was at its peak, production had not yet migrated south, and the workforce still contained a core of craftsman tailors. In April 1956, average hourly earnings of apparel production workers were $1.42, equal to 72.4 percent of the $1.96 average for all manufacturing, and just under 80 percent of average wages for production workers in all of private industry. The situation was almost identical in Britain, where apparel unionism was much weaker but legal minimum rates applied: clothing workers’ average hourly earnings in April 1956 were equal to 69.9 percent of the all-manufacturing average.

The relative wages of American apparel workers slipped in the 1960s as production shifted to the South. Since then, although employment nose-dived with the rise of imports, average hourly earnings in the apparel industry remain at about 65 percent of those in all of manufacturing and 68 percent of all production workers. While obviously hurting some workers, the tremendous loss of jobs did not translate into untold hardship for Americans, for in the same period many millions of other jobs—which on average pay more—were created. Indeed, present-day garment shops in Los Angeles and New York find it difficult to recruit workers because there are better jobs available, so these shops tend to depend upon recent immigrants, many of whom are illegals. In the booming 1990s, even southern garment plants encountered labor shortages.

Large decreases in clothing industry employment in France, Germany, and the U.K., as well as in the United States, did not deter their populaces from buying imported garments, because they enjoyed lower prices. In the United States as 2003 began, the overall consumer price index had risen 81.7 percent compared with 1982-84, but apparel prices had increased only 18.1 percent. Having to spend much less of their incomes on clothing, consumers have the ability to buy other products and services and improve their living standards. Thus, apparel is an example of comparative advantage, whereby both sellers and buyers benefit from trade. Poor countries gain jobs and higher incomes while Americans get other, better jobs and lower prices.

The question of pay, moreover, must be put in perspective. Wages in poor countries are much lower than those in America, but they are not necessarily low when considered in the context of lower living standards in those countries. In fact, they tend to be considerably higher than what can be earned in agriculture, usually the only alternative. Contractors are deterred from paying too little by local standards lest that result in unsatisfactory productivity and quality problems that could undercut their competitiveness. In Bangladesh, a very poor country, apparel pay of 20 to 25 cents an hour sounds extremely low, but is about a quarter higher than the country’s average pay. There are 1.5 million garment workers in Bangladesh but still not enough jobs for those who want them, and Bengali women often migrate to other countries like Malaysia in search of work in the industry.

Many poor countries depend on clothing-industry jobs, and when those jobs are lost, their economies suffer. For example, during the time of turbulence surrounding the war in Afghanistan, unemployment in Pakistan rose when American chain stores sought supplies of cotton clothing in more stable countries. When the United States lowered African duties in 2000, Madagascar’s clothing industry blossomed, and its total economy leaped 6.7 percent, but subsequent domestic political turmoil led foreign firms to abandon the country for locations in Lesotho and Tanzania. As a result, Madagascar lost about 100,000 jobs and its economy plummeted. Even Bangladesh has lost 300,000 of its apparel jobs due to the world economic downturn and gains by other less developed countries.

Opposing Opinions

The question of wage levels is viewed differently by the two U.S. organizations dealing with the sweatshop issue. Recognizing that poor countries have low wages overall, the FLA’s code of conduct states, “Employers shall pay employees, as a floor, at least the minimum wage required by local law or the prevailing industry wage, whichever is higher, and shall provide legally mandated benefits.” The WRC’s code, on the other hand, demands more than the minimum wage: “Licensees shall pay employees, as a floor, wages and benefits which comply with all applicable laws and regulations, and which provide for essential needs and establish a dignified living wage for workers and their families.” (Emphasis added). The WRC code defines a living wage as one that provides for the basic needs (housing, energy, nutrition, clothing, health care, education, potable water, child care, transportation, and savings) of an average family unit of employees in the garment manufacturing sector of the country divided by the average number of adult wage earners in the family unit. (Even at the height of their power, the U.S. garment unions could not achieve such wages for their members.) The living-wage concept sounds beneficial, but implementing it could spell disaster for poor countries by driving out investment and arresting industrial development.

Jay R. Mandle, author of Globalization and the Poor, who is otherwise sympathetic to the goals of the WRC, is more cautious about wages. He favors helping unions get a foothold in the industry by stricter enforcement of international codes on workers’ rights to form unions, but he warns against pushing wage levels too high. He would have apparel wages “settle at a higher level than they are at present, though still within a range dictated by the local labor market.” This was the policy pursued by the unions in the United States in their heyday: raise wages in outlying regions, but only so high as not to induce employers to move their shops elsewhere (see accompanying article).

Others concerned with worker welfare argue for a worldwide minimum wage, but that could lead to labor market distortion and loss of jobs. In all nations, there is a correlation between wages and skills that induces people to undergo the training and education required for the more skilled occupations. Driving up the pay of less skilled workers could lead to labor market distortion, as people would leave more productive jobs, vital to a nation’s well-being and development, for those in higher-paying garment shops. In the process, many of the less skilled workers who currently depend on apparel jobs to feed their families would be displaced. (Even with existing wages, there have been reports from Southeast Asia of physicians abandoning their practices for more remunerative apparel jobs.)

Forcing higher wages, moreover, would undermine poorer nations’ comparative advantage—their supply of low-wage labor—and undercut their ability to raise living standards. The poorer the country, the greater the damage a global minimum wage would do, since it would encourage the transfer of work to more advanced developing nations that can offer higher productivity and better external economies (e.g., transportation, supplier networks). Thus poverty and international inequality would increase rather than decline.

Recent history demonstrates that LDCs need not remain perpetual low-wage centers. As the early exporters of labor-intensive products gained experience, their technical know-how and educational levels rose, and they developed more sophisticated industrial structures encompassing higher-skilled and capital-intensive industries. (Indeed, South Korea has gone from dependency on the United States to becoming the world’s eleventh largest economy.) Their wages also rose, and they were replaced as major clothing producers by other nations starting out on the industrialization road.

The Social Responsibility of Business

The best solution to the low-wage problem in poor countries, then, is not the erection of barriers to investment, but rather greater investment in the basics—plants and equipment, infrastructure, education and training—needed to transform static, poor agricultural societies into growing ones with rising incomes. We should not view newly developing countries as competitors to the more advanced countries, for, as the incomes of LDCs rise, they can afford to buy the higher-tech goods and services produced by the developed world. The entire history of industrial development proves this to be the case, as all the nations involved in the industrial process have grown richer.

Overall, American firms have demonstrated concern for worker welfare in developing countries and have attempted to correct inadequate working conditions where they existed in the shops of subcontractors. Critics, however, charge that they should do still more. This raises the major question of what the social responsibility of business is. One view, advanced by laissez-faire champion Milton Friedman, is that the social responsibility of any business is to maximize its profits, for this guarantees the most efficient use of society’s resources to produce goods and services that consumers want. Firms that lose money are producing unwanted items, and therefore are wasting resources that could be better utilized. By weeding out these companies, the market system ensures the greatest social welfare.

Although Friedman’s hypothesis has been attacked by many, it cannot be dismissed. Profit maximization is a necessary condition for an economy in which consumers exercise sovereignty and choice, but it is not sufficient to fulfill business’s social responsibility. Human well-being requires more than the consumption of goods and services. A successful society also depends on intangible goods like freedom and equality.

Granted, although these ideals were the basis on which the United States was founded, we have not always lived up to them. We tolerated slavery because it was profitable, and only a bloody civil war ended this atrocity. As the nation industrialized, the laissez-faire concept guided business behavior. Not until World War I did some industrialists, led by John D. Rockefeller, Jr., attempt to create a workplace concerned with worker welfare as well as profits. They recognized that such a workplace would benefit both management and workers and lead to both improved profits and wages.

In the 1960s, as protest movements arose, the nation had to cope with a panoply of social disorders such as racial segregation, ethnic and sex discrimination, and environmental degradation. While its historical record on these issues had not been all that good, the business community began to accept that it has responsibilities to society that go beyond the production of goods and services at a profit. Profits, moreover, can be sustained only in a society that is socially, politically, and economically healthy and in which there is opportunity for all to participate in its benefits.

With respect to the global economy, most U.S. companies recognize their social responsibilities and behave as good citizens of the countries in which they operate. Their investments are not fly-by-night but in for the long run, and are welcomed by the LDCs. The typical U.S.-owned plant is modern, has good working conditions, pays well, and trains workers to advance their skills. Indeed, MNCs have worked with governments to improve human resources through support of education and to construct social safety nets for those adversely affected by economic change.

The apparel industry’s workshops (usually locally owned and producing for the U.S. market on contract) are welcomed in poorer nations for the jobs and rising income levels they provide. In keeping with the concept of social responsibility, the apparel industry has moved to ensure that those factories provide decent working conditions for their employees. Its efforts have paid off in terms of fewer accidents, shorter workweeks, and fewer worker grievances. Yet the industry—indeed, all multinational companies—remains vulnerable to attack by Americans who misunderstand the forces at work. Protests calling for decent working conditions have been helpful, but wages out of line with local standards would do more harm than good for workers in less developed countries.

Sources

Richard P. Applebaum and Edna Bonacich, “The Key Is Enhancing the Power of Workers,” Chronicle of Higher Education, April 7, 2000
Erin Burnett and James Mahon, Jr., “Complying with International Labor Standards,” Challenge, March/April 2001
Fair Labor Association: Welcome, http://www.fairlabor.org/2/6/03
Bruce E. Kaufman, Richard A. Beaumont, and Roy B. Helfgott, eds, Industrial Relations to Human Resources and Beyond, M. E. Share, 2003
Jay R. Mandle, Globalization and the Poor, Cambridge University Press, 2003
Ministry of Labour Gazette, September 1956
Monthly Labor Review, July 1956
Theodore H. Moran, Beyond Sweatshops: Foreign Direct Investment and Globalization in Developing Countries, Brookings Institution Press, 2002
The New York Times, June 23, 2002
Ian M. Taplin and Jonathan Winterton, Rethinking Global Production, Ashgate, 1997
Worker Rights Consortium, http://www.workersrights.org/2/6/03

Footnotes

1. Footwear firms also have been involved, and while the shoe industry differs from clothing in some respects, it is similar in its production methods and reliance on low-skilled female labor.

2. With their memberships depleted by the loss of jobs, the Ladies’ Garment Workers and Amalgamated Clothing and Textile Workers merged to form UNITE in 1995. The Amalgamated itself had been formed from a 1976 merger between the Amalgamated Cloth Workers and the Textile Workers, and subsequently had absorbed other small unions, the Shoe Workers in 1979 and the Hatters, Cap and Millinery Workers in 1982. Another clothing industry union, the United Garment Workers, merged with the United Food and Commercial Workers in 1994.

3. For example, textile industry and AFL-CIO opposition blocked the opening of U. S. markets to Africa for many years, but was finally overcome in 2000 when the African Growth and Opportunity Act was passed, removing the 17 percent import tax on clothing from Africa