Brands should take more control of supply chains to fix labour exploitation

Published in The Conversation on November 20, 2017

Worker exploitation is rampant in the global fashion industry, according to countless investigations, studies and reports. So why haven’t fashion brands cleaned up their acts?

Even if brands want to be part of the solution (as they are frequently asked to be) they are hindered by the current legal system. The problem is if brands are to eradicate labour exploitation, they must take more control of their supply chains. But if they take more control over their supply chains, they open themselves up to the risk of tremendous legal liability.

To effect real change in the global fashion industry, the countries where brands are headquartered need to reconsider their legal policies. The existing liability rules need to be amended to incentivise the brands’ direct involvement in labour issues in their chains.

A recent report from Oxfam found that garment workers earn as little as 2% of the price of clothing sold in Australia – a A$27 billion industry.

Earlier this month, shoppers at a Zara store in Istanbul allegedly found messages in the clothing that garment workers had hidden in protest of unfair wages. The messages read “I made this item you are going to buy, but I didn’t get paid for it”.

The Rana Plaza tragedy saw more than 1,000 people killed when a garment factory in Bangladesh collapsed. This occurred more than four years ago.

These are just a few examples from a long list of horrors. But still the problem has not been fixed.

Global value chains

Over the past few decades, the production process for garments (and other things) has evolved and become very complicated. These “global value chains” include all the activities that are necessary to a product’s life-cycle – designing, making, selling, and sometimes even recycling.

When it comes to the relationship between these vast networks of suppliers and the law, there is a connection between responsibility and liability. Generally, a brand is only legally responsible for the actions of suppliers if the brand directly controls that supplier. In a global value chain, most suppliers are typically outside of the brand’s direct control.

Like many activist organisations, Oxfam places the onus on Australian fashion brands to improve the labour practices of their subsidiaries and suppliers in developing countries.

For instance, Oxfam calls for brands to implement a “living wage” – a wage that is sufficient for workers to meet their basic needs. Their report estimates that enforcing a living wage will only increase the final product price by 1%. This, they suggest, could be absorbed by the chain in order to keep prices from rising.

The key is this: to ensure individual garment workers receive a living wage, brands would need to exert additional oversight and coordination of their suppliers and subsidiaries. In other words, brands would have to take stronger control not only of their suppliers but also of their suppliers’ suppliers, and their suppliers’ suppliers’ suppliers, and so on.

This is known as chain integration.

And in fact, in certain respects, brands themselves are also keen to integrate their supply chains but for different reasons. From the brands’ perspective, integration can help ensure production efficiency, product quality control and effective management of brand reputation.

In many ways then, activists and the brands want the same thing: greater chain integration.

What then is stopping the brands from doing so? The answer is the legal landscape that risks exposing the brands to colossal liability as a consequence of their efforts.

It is impossible to put an exact number on how much such liability might cost a fashion brand. But by analogy, an Australian court has ordered a domestic company to pay over a million dollars for workplace misconduct that occurred against a single employee.

So one can understand why brands might fear being liable for all the misconduct directed against every overseas worker in their supply chains.

What will it take to create change?

In this regard, brands are in something of a Catch-22. As the law currently stands (and because brands consequently limit integration), brands are rarely liable when a supplier or subsidiary in their chain commits a wrong.

The problem for brands is that they are likely to lose these legal defences if they proactively take control of their chains. This is true whether the control is for purposes of what they selfishly want (more efficient supply chains) or what activists want (better labour practices).

This dilemma played out following the 2013 Rana Plaza tragedy, when many European brands signed a safety accord that seeks to protect Bangladeshi workers from unsafe working conditions. Some American and Australian fashion brands refused to sign the accord precisely because of the fear of future liability.

Oxfam’s estimation of a 1% price increase certainly does not account for the enormously expensive risk of litigation that brands may expose themselves to if they promise a living wage to workers.

 

To get brands on board with improving their supply chains and stopping worker exploitation, we must first recognise the complex landscape that brands operate in. In the current environment, it is often safer for brands to limit their involvement in labour issues, hiding behind third-party “monitoring” and “audits”.

We must instead find ways to transform what are now risks of action into incentives for change. Although it is of course right to seek to hold companies responsible for labour abuses, brands must also not be punished with potential liability where they take control of their chains for the purpose of bettering the lives of workers.