Taming the market

Can self-regulated ethical trade control globalisation?

Global trade brings benefits for some, but also exposes workers and producers in developing counties to the hunger of market forces. Hungry for profit, the globalising market can create badly paid, insecure jobs in unsafe conditions that pollute local communities. Self-regulation through ethical trade (ET) is a relatively new way in which businesses agree to limit and tame their own hunger to help improve social and environmental wellbeing. But what is needed to make ET work?

Self-regulation is regulation that a group of same-sector business imposes upon itself. Private businesses usually decide to self-regulate in response to a mixture of positive incentives and negative threats. Incentives might include the promise of lower taxation, good labour relations, and access to high value markets, whilst threats could be of government intervention, labour militancy and consumer boycotts. Whether real or perceived, these threats are often the dominant factor within decisions to self-regulate: they are the ‘iron fist’ within the ‘soft glove’ of self-regulation.

ET is one form of self-regulation in which the ‘iron fist’ threat of consumer boycott and the promise of higher value markets play a key role. ET focuses on the conditions and impacts of production in developing countries. One mechanism is the creation of agreed codes of conduct to which businesses volunteer to adhere. These codes of conduct cover issues like the elimination of forced and child labour, health and safety, rights to collective bargaining through unions and pollution control.

What businesses are often looking for when they voluntarily agree to ethical codes of conduct is an improvement in their reputation amongst retailers and consumers. To businesses, an ‘ethical’ reputation can open the door to high value markets; in the UK for example, the market for ‘ethical’ consumpter goods is estimated at several billion UK pounds and grows by double figures each year.

Information is vital

But for ET to work, for consumers, workers and communities to extract social benefits from globalisation, and for businesses to gain access to higher value markets, information is vital: consumers need to be able to believe the claims made in ET advertisements and businesses need to know that competitors really are obeying the cost-raising codes they have all signed.

Yet, as Parker and Kirkpatrick explain here, regulatory systems are characterised by poor flows of information. Can ET get beyond this problem to make self-regulationed ET work for development?

The starting point is getting the right information. Codes of conduct focus on easy information and simplistic observations. Early codes on the use of child labour demonstrated the limits of this approach. Bans on child labour further impoverished poor households and drove children into crime and prostitution. Matters only improved once more realistic ethical standards were developed from careful surveys on the nature and impact of child labour in poor households and communities.

Handling the information right

As well as handling the right information, ethical trade must also handle information right. Data-gathering should not be left to just one interested party - such as the affected multinational or community. The result can be poor quality data that people cannot trust. Better practice in code monitoring involves collaboration on data-collection and analysis between all key players: multinationals, developing country suppliers, unions and communities.

Finally, data must be presented the right way. There is a limit to the amount of detail on labour and environmental standards that can go on a coffee jar label, which makes it hard for consumers to monitor and compare ethical performance. But information communication technologies and ET organisations are helping, providing consumers and the wider media with ready access to a rich range of data on global production conditions and impacts. In sum, ET is a valuable new tool to help steer globalisation, but it must be handled properly, and must be seen as just one weapon in the armoury, not as the only solution.

Richard Heeks
IDPM
University of Manchester
M13 9GH
UK

Richard.heeks@man.ac.uk

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