Download 2 Governance in the Global Economy

Putting Dignity & Rights at the Heart of the Global Economy
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Governance in the Global Economy
At the center of any social and economic system are the principles and rules that
govern interactions among institutions and people. Who makes these rules? In what
venue? Who benefits from them? What are the consequences of breaking them? The
answers to these questions are at the heart of governance. Governance enfolds individuals
in an overlapping series of rules and practices that extend from the household, workplace
and social institutions to the national, regional and international levels. Individuals and
communities navigate through these dense systems of formal and informal rules, juggle
many different ideas of governance, and negotiate with a plethora of governing structures.
Our challenge is to transform governance at all levels—international, national, private
sector, local and individual—in order to reinforce dignity and equity in today’s global
economy.
As we emphasized earlier, we should not fall into the trap of thinking that there is
only one way of organizing economies to eliminate poverty and balance economic growth
with environmental sustainability. Economic institutions need to be adapted to the needs
of a particular place and people. As Joseph Stiglitz suggests, “new and complex situations
call for experiments; not one but many experiments.”
While experimentation is essential, all economic systems that enhance human rights
and dignity have certain core characteristics: participation, transparency, accountability
and equity. Participation is the cornerstone of good governance. Rethinking governance
structures and the transformation of the global economy must be guided by those whose
lives will be changed, and this must involve greater leadership roles for women and people
of color. As Nolleen Heyzer, Executive Director of the UN Development Fund for
Women, stated at the 2004 Summit of the Americas, “In a world that is growing more
complex, the development of a more inclusive society based on democratic governance
enables all citizens to participate and shape policies and practices to bring about greater
equality, peace and security. Women are the vital, but often missing, link in this process,
and in spite of their potential to offer innovative solutions, especially in times of crisis,
they are rarely those to whom nations turn first.”
In recent years, the rhetoric of participation among institutional actors has increased
much more than action. For example, as discussed earlier, the IMF and the World Bank,
in response to outside pressure to increase civil society participation in constructing
poverty reduction plans, initiated Poverty Reduction Strategy Papers. One of the core
principles of these plans is to “promote national ownership of strategies through broadbased participation of civil society.” Yet, many civil society groups have found this
process to be simply another attempt to build ownership around standard Bank and IMF
policies with only token participation by civil society. The challenge remains to build
genuine participatory governance structures at the local, national and international levels
grounded in the Universal Declaration of Human Rights.
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International level
There is a democratic deficit at the global level: the size and power of international
economic institutions have overwhelmed the existing political mechanisms for
representation, transparency and accountability. Affected populations around the world
consequently feel even further removed from economic decision-makers, for their voices
and the voices of their governments are overpowered by wealthier countries. At the
international level, the global economy does not have the kind of safeguards and
enforceable legal mechanisms that many national economies have implemented to ensure
transparency and accountability.
The United Nations is the most representative multilateral institution. However,
there are two principal decision-making bodies: the General Assembly, which includes all
members and in which each nation has an equal vote, and the smaller Security Council, in
which the major powers wield disproportionate influence through exercise of their veto
in the Security Council. Moreover, the United States has periodically withheld its dues
from the United Nations or its more specialized agencies to apply pressure.
The UN has held conferences and reached policy decisions on a wide range of subject
areas in its economic and social brief, including gender, racism, sustainable development,
population, housing, social development and human rights. These government-togovernment meetings have incorporated substantial input from civil society. UN
conferences have produced important declarations, conventions and programs for action.
Examples include the Rio Declaration on Environment and Development, the
Millennium Development Goals, the International Convention on the Elimination of All
Forms of Racial Discrimination, the Convention on the Elimination of All Forms of
Discrimination Against Women, Convention on the Rights of the Child, and the
International Convention on the Protection of the Rights of All Migrant Workers and
Members of Their Families.
Although singularly representative, the United Nations does not manage the global
economy or set its rules of operation. The IMF and World Bank are part of the UN
system but as autonomous specialized agencies, not under UN management. The AFSC
believes it is important for a reformed UN to take a more active role in governance of the
international economy. For example, a more effective UN Economic and Social Council
(ECOSOC) could have a role in providing transparent and effective oversight of the
World Bank and the IMF. The UN could provide a mechanism and resources to ensure
participation by civil society in the deliberations of the international financial institutions.
The International Labor Organization (ILO) is the oldest of the organizations
under the UN system, founded in 1919, predating the United Nations by a quarter
century. Its membership is unique, in that each of the 177 member states names four
persons to its delegation: two representing government, one representing business, and
one representing labor. Each delegate votes individually. Since its inception, the ILO has
adopted 182 Conventions, each by at least a two-thirds majority. Five principals,
embodied in seven Conventions, have been lifted up as “core labor standards” discussed
earlier. Member states are encouraged, but not required, to adopt each Convention and
incorporate its provisions into domestic law. Four of the five core labor standards
(excepting the Convention on child labor) have been adopted by a majority of ILO
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member states. The United States has ratified 14 of the 182 Conventions, including only 2
of the 7 core Conventions: Elimination of Forced and Compulsory Labor and Abolition
of Child Labor.
Member states submit an annual report on each Convention they have adopted. ILO
members and workers in member states that have adopted a particular Convention may
call violations to the attention of the ILO. But the ILO has no real enforcement powers to
back its recommendations beyond moral suasion. Solid enforcement mechanisms—going
well beyond the limited, last-resort avenues under Article 33 of the ILO Constitution,
which were invoked in the case of forced labor in Myanmar—are essential if the ILO is to
uphold labor rights and labor rights are to be taken seriously.
The World Trade Organization (WTO) attempts to make decisions by consensus,
backed up by a one-country, one-vote provision. Effectively, however, major decisions
have more often been made in small “green room” caucuses, usually dominated by the
rich countries. “Negotiations” often take the form of arm-twisting. Dissatisfaction with
this process has risen to the level that alternative proposals are under discussion for
formally named, more representative working groups for detailed negotiations. Providing
training for delegations from smaller countries would also help level the negotiating table,
especially if they could cooperatively develop specialists on key concerns within their
groupings. Many of the negotiations are technical in nature, and access to a wide range of
technical expertise is crucial for effective participation. If trade agreements are to reflect
the needs of poor countries, the negotiation process must be more open, transparent and
representative.
Furthermore, as the domain of trade agreements has widened to include services and
investment, a greater share of domestic economic activity is involved in trade policy.
Domestic social and environmental policies can be put at risk. Countries need to consider
the social and environmental impacts before entering into new trade agreements. Trade
rules in these areas should reinforce people’s human rights to water, healthcare, housing,
and education, not undermine local and national programs and policies regarding these
public services. For example, if a country puts water delivery systems on the tradenegotiating table without the involvement of affected domestic interest groups in the
decision-making, allowing private foreign corporations to provide this service, they have
effectively privatized water delivery without any public or community input.
Participation in decisions such as these is paramount to good governance.
Membership in the WTO is by nation states and a few customs territories, such as
Hong Kong and Taiwan. Given the principles of transparency and participation, there is a
need for a role for civil society in the operations of the WTO. Such participation would
make governments more responsive to the needs and interests of their citizens in trade
negotiations, and the system as a whole more responsive to global concerns.
At the international level, mechanisms need to be developed to widen the
negotiations so that the voices of workers, people of different ethnicities, women, people
of color, indigenous peoples, and poor people can be heard. Civil society is often not well
represented by national governments in negotiations, where entrenched economic and
political elites often have excessive influence. At the national level, genuine citizen
participation and transparency should not only be facilitated but actively encouraged. A
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more open negotiating system should include institutional arrangements through which
the wider community can take part. One important step is to provide more mechanisms
for including nongovernmental organizations in the negotiations. At the 2003 UN
Conference on Financing for Development, for example, formal “listening sessions”
permitted nongovernmental organizations to testify directly to decision-makers.
The World Bank and the International Monetary Fund were conceived at the 1944
Bretton Woods conference and the institutions reflect the dominance of the Western
powers. Decisions are made by weighted voting based on each member state’s capital
contribution. The United States has between two and three times more power than the
next most powerful country, Japan (the U.S. vote is worth 17.11 in the IMF and 16.41 at
the World Bank compared to Japan’s 6.14 at the IMF and 7.87 in the World Bank). On
issues that require a super majority of 85 percent, the United States has an effective right
of veto in both institutions, as does the EU when voting as a group. The governance
structure gives developing countries weak voices and little power. They are further
frustrated by generally weak systems of internal accountability and external review in
these two bodies.
The World Bank and the IMF must be reformed to be more transparent and
representative of poorer countries, if they are to meet the needs of poor people in poor
nations. Such reform will require a change in political will in the rich countries.
In addition, agreements are needed to assure that WTO rules, the policies of the
World Bank and IMF, and other regional or bilateral trade rules do not undermine the
international policy decisions agreed to by countries at the United Nations.
National level
Ensuring nations the freedom to create and enact policies that benefit their people is a
major challenge in today’s globalized world with its dense web of international
agreements and institutions. Local, national and regional governments need room to
develop policies and innovations that meet development needs consistent with the
Universal Declaration of Human Rights. No loan condition or trade agreement or foreign
aid condition should prevent a government from doing so. International financial
institutions should be prevented from dictating polices contrary to this landmark
document. Moreover, such policy conditionality often prohibits a country’s democratic
institutions from having any say in these major policy reforms. Furthermore, it is at the
local, national and regional government level that civil society has the most ability to
affect change.
Assuring that national governments do have the policy space and flexibility to meet
development needs doesn’t necessarily mean that they will do so. Corruption is
widespread in many countries and political structures often fail to represent the majority
and especially fail the poor in far too many countries, both developing and developed. For
these reasons, participatory governance structures, at all levels, are an absolute must. Even
when a good balance between national autonomy and international cooperation is struck,
political structures will often fail their people and civil society will need to hold their
leaders accountable. Therefore, the importance of providing space for civil society
participation cannot be overstated.
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As we have discussed, one-size-fits-all conditionality does not work because
economies around the world are vastly different and require very different approaches to
make progress and remedy crises. There are myriad examples that demonstrate why
policy flexibility for national governments is essential for promoting economic justice
while managing an economic crisis. One example is the use of tools to prevent rapid
capital outflows, such as mandating that a certain percentage of an investor’s capital not
be withdrawn from that country for a set period of time. Although such capital controls
are now widely accepted as a sound tool of economic policy that can mitigate instability
and help prevent economic crises, the international financial institutions are generally
hostile to them and some proposed trade agreements seek to limit their use.
Governments at every level should be unequivocal in their commitment to providing
resources to meet the basic developmental needs of every person. Basic healthcare,
nutrition, and education are fundamental rights. They are also essential to equip each
individual to be a wise consumer, a more productive part of any economic system and to
more ably take part as a citizen actor in making and adapting their community’s and their
nation’s rules. Nearly always, special effort will be required to secure these rights for
disadvantaged groups and to engage members of these groups in developing the rules for
implementation.
National and local governments must provide safety nets for people who are
unemployed and underemployed, disabled, elderly, ill, youth or victims of war or natural
disasters. Every society must be concerned with a broad and variable category of public
goods—access to clean air and potable water, preservation of the environment,
development of renewable energy, support for cultural heritages.
As noted earlier, respect for inherent dignity and equal rights means everyone has the
opportunity to participate in decision-making processes. Women’s lack of representation
in national government structures is a major impediment to equity. The Beijing Platform
for Action calls for 30 percent women’s representation in national governments. This
platform was developed in 1995 at the Fourth World Conference on Women, and since
then the share of women policymakers has increased, albeit slowly.
The Scandinavian countries, which have strong universal health, childcare, parental
leave and other programs that make caregiving society’s work and not women’s work,
lead the world in women’s participation in government. Sweden ranks number one with
women making up more than 45 percent of the parliament and more than half the
ministerial positions, as of 2004. Countries with women composing more than 30 percent
of their parliaments include Belgium, Iceland, Austria, Germany, Argentina, Costa Rica
and Cuba. The United States is among the countries that lag badly; women are just 14
percent of the Congress.95
Infrastructure and Public Goods
Governments provide an enormous infrastructure that supports the operation of the
economy. This essential infrastructure includes transportation, communications, publicly
funded research, public schools and universities, public utilities, the financial system, the
legal system, public health and safety, and security. Government research and money
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fueled the Human Genome Project and many prior medical advances. The Internet, a
backbone of the global economy, was created by the U.S. Government’s Advanced
Research Project Agency with public tax dollars and grown through a continuing
partnership of government, universities and industry.
A report by Responsible Wealth, I Didn’t Do It Alone: Society’s Contribution to
Individual Wealth and Success, spotlights successful entrepreneurs and the synergistic role
of the U.S. government and public sector in wealth creation. Since 1958, an estimated 75
percent of all engineers and scientists engaged in scientific research have gone into
federally subsidized ventures in both the public and private sectors.96 As the presidents of
Harvard University and the Massachusetts Institute of Technology (MIT) observed in the
Boston Globe, federal research funding “is the lifeblood of our institutions. The return on
this federal investment is enormous. More than 50 percent of US economic growth during
the past 60 years has been due to technological innovation, much of it stemming from
university research.”
“The opportunities to create wealth are all taking advantage of public goods—like roads,
transportation, markets—and public investments. None of us can claim it was all personal initiative. A
piece of it was built upon this infrastructure that all have this inherent moral obligation to keep intact...
We are all standing on the shoulders of all who came before us, and creating a society for our children
and those who come after us.”
Jim Sherblom, a venture capitalist and former chief financial officer of the biotech firm, Genzyme.
“I personally think that society is responsible for a very significant percentage of what I’ve earned.”
Warren Buffett, founder of Berkshire Hathaway.
“My wealth is not only a product of my own hard work. It also resulted from a strong economy and lots
of public investment, both in others and in me. I received a good public school education and used free
libraries and museums paid for by others. I went to college under the GI Bill. I went to graduate school to
study computers and language on a complete government scholarship... While teaching at Syracuse
University for 25 years, my research was supported by numerous government grants... My university
research provided the basis for Syracuse Language Systems.”
Martin Rothenberg, founder of Syracuse Language Systems and Glottal Enterprises.
Excerpted from I Didn’t Do It Alone, Responsible Wealth, Boston, 2004.
I Didn’t Do It Alone shows not only that society’s role in wealth creation is
significant, but if that role withers from inadequate revenues and political will then
opportunities for wealth and innovation will shrink. Entrepreneurism, the economy and
society will be undermined.
In evaluating an economic climate, important questions include: Is the physical and
social infrastructure—roads, ports, communications, schools— adequate? Are core labor
standards in place and enforced? Are minimum wage laws uniformly enforced? Are fiscal
and monetary policies adequate to stabilize the economic environment and control
inflation? Are property rights well defined (private, communal and other forms)? Can
contracts be enforced? Are permits accessible to all, and regulations fairly enforced? Is
credit accessible on reasonable terms, especially to small or micro businesses, minorities
and women? Is the tax structure progressive, efficient and fairly administered? Are public
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officials and employees fairly paid? Have bribes, cronyism and corruption been
eliminated?
Many countries, especially poor nations, need infusions of capital and technology.
The right policy mix can provide a supportive environment for both domestic business
and international investors. In many cases, however, poor nations, often under duress,
have accepted terms for outside investors that were different from, not supportive of, or
were harmful to, the domestic economy. In other instances, outside investors made deals
with local partners, to their benefit, but not to the benefit of the workers or the country.
There are also many examples of beneficial foreign investment involving a variety of
forms of collaboration, including direct foreign investment, joint ventures and contractual
arrangements.
Not every nation will choose to manage its business environment in the same way,
but the absence of clear policy and rules, fairly administered, will hamper domestic
enterprises. Developing the right mix of policies and adapting to ongoing changes is hard
work, subject to all sorts of political pressures and vested interests. There must be room
for experimentation, which requires time for learning and testing. The policy process
requires transparency and participation by all parties affected, and is enhanced by the
fullest possible development of human resource capacities, as noted above. (Also see
Private Sector section below.)
United States
The United States faces some development challenges with some similarity to poor
countries. Like them, the United States needs flexibility and creative responses to local
needs, not one-size-fits-all prescriptions. For the United States and other wealthy
countries, the barriers to achieving a just economy lie not in limited capacity or resources,
but largely in political will. As President Roosevelt said in 1937 when sending the Fair
Labor Standards Bill to Congress—with its provisions for a federal minimum wage,
overtime pay and child labor restrictions—“A self-supporting and self-respecting
democracy can plead no justification for the existence of child labor, no economic reason
for chiseling workers’ wages or stretching workers’ hours.”
Americans must continue the long struggles to make governance in the United States
more democratic and truly representative, and committed to fulfilling economic and
human rights. Over the years, the AFSC has developed a number of specific
recommendations regarding the role of government and policy in the United States. These
include:
• Develop and implement an Economic Bill of Rights grounded in the concept of the
common good and an end to all forms of discrimination, building on the Universal
Declaration of Human Rights and the Economic Bill of Rights President Roosevelt
proposed for the United States in 1944.
• The role of the public sector is crucial for providing basic services, maintaining
infrastructure, and promoting equality. The U.S. should reverse the privatization,
deregulation and destruction of the safety net, which disproportionately hurts lowincome people, women, children and people of color.
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• The U.S. government should support universal health insurance, a living wage, full
employment, the right to organize, technical and trade adjustment assistance,
unemployment insurance and lifelong learning important for individual and social
progress.
• U.S. policy should discourage excessive consumption of domestic and global
resources. It should end environmental racism and support the transition to
cleaner, safer renewable energy sources and a sustainable environment.
“A true revolution of values will soon look uneasily on the glaring contrast of poverty and wealth...
America, the richest and most powerful nation in the world, can well lead the way in this revolution of
values. There is nothing to prevent us from paying adequate wages to schoolteachers...There is nothing
but a lack of social vision to prevent us from paying an adequate wage to every American citizen whether
he be a hospital worker, laundry worker, maid or day laborer. There is nothing except shortsightedness to
prevent us from guaranteeing an annual minimum—and livable—income for every American family. There
is nothing, except a tragic death wish, to prevent us from reordering our priorities, so that the pursuit of
peace will take precedence over the pursuit of war.”
Martin Luther King Jr., Where Do We Go From Here: Chaos or Community? 1967.
Beginning with Theodore Roosevelt’s “Square Deal” and even more so through
Franklin Roosevelt’s “New Deal” and Lyndon Johnson’s “Great Society,” the U.S.
government played a strong role in stabilizing the economy, stimulating economic
growth, regulating finance and industry, protecting the environment, and reducing
poverty. The middle class grew in the post-World War II era as the government helped
millions of veterans go to college and buy homes; expanded Social Security, Medicare and
Medicaid; encouraged higher wages with an increased minimum wage; and began to
mitigate some of the longstanding discrimination against women and people of color with
anti-discrimination legislation and enforcement.
The New Deal served in part as an inspiration for those who constructed the new
global economy out of the wreckage of World War II. Eleanor Roosevelt played a crucial
leadership role—public and private—in fostering the New Deal and the Universal
Declaration of Human Rights. The promise of a global New Deal went unrealized for
most of the developing world. The accelerating rollback of the New Deal in the United
States has fueled the global downward spiral of wages, employment, environmental
quality, health and safety standards, and government responsibility for the public good.
Private Sector
The private sector is a large realm of human activity, stretching from the smallest
rural producer to the largest transnational corporation, from the self-employed to worker
cooperatives, from business associations to unions, from large nonprofit universities and
hospitals and large nongovernmental organizations (NGOs) to small community
organizations. In the United States, employment in the nonprofit sector—now over 12.5
million Americans—has grown faster than in the for-profit sector. Between 1997 and 2001,
the average annual growth rate in employment for nonprofits was 2.5 percent, compared
with 1.8 percent in for-profit business and 1.6 percent for government.97
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Because of their influence in shaping national and global economics our focus here is
on the business sector. Many countries need to create additional public sector jobs—
schoolteachers and community healthcare workers, for example. But in most countries,
most people earn their livelihoods in the private sector, including individual
entrepreneurs, family businesses, small and large corporations, cooperatives, employeeowned businesses, nonprofits, and the informal sector. Government needs to provide an
economic environment in which a diverse and socially responsible private sector can
flourish.
Private investors and entrepreneurs imbued with a spirit of social responsibility—
seeking a stable business environment, equitable development and the application of fair
rules—are indispensable to a productive and sustainable global economy. While economies
take many forms around the world, with a varied mix of public and private sector
activity, human dignity and economic rights are nurtured within certain institutional
settings—a strong publicly financed safety net, an environment in which workers are free
to organize and other labor rights are enforced, and laws mandate health and safety
requirements, a livable wage, and environmental regulations. Institutions must reflect and
encourage the philosophy and obligations of social responsibility.
Development has often been undermined by the movement of capital to countries
(and states) with lower wages, lower health and environmental standards, and lack of
worker rights. Labor unions, socially responsible business organizations, and advocacy
groups, among others, want to “raise the floor” globally so that economic growth raises
wages and improves working conditions worldwide.
“There is no point to a globalization that reduces the price of a child’s shoes, but costs the father
his job.”
Participant in the Philippines dialogue, World Commission on the Social Dimension of Globalization,
A Fair Globalization: Creating Opportunities for All, 2004.
Small and medium-sized businesses and their workforces have been increasingly
threatened over the last decades by the greater global presence and dominance of large
enterprises. Big retailers, like Wal-Mart, use their massive buying power to force suppliers
around the world to cut prices by lowering insufficient wages even further lest they lose
the contracts. Corporations have become increasingly international, and much of what is
counted as “international trade” is actually transfers within corporations. Many
enterprises are pushing hard through intense lobbying to extend their reach into new
countries and new markets including areas of the public sector such as water, healthcare,
prisons and education.
Many corporations, particularly U.S.-based ones, have focused on short-term profit
and have provided excessive compensation to executives, a transfer of resources away
from workers, shareholders and company reinvestment that has been abetted by tax rules.
In the worst cases, managers who are supposed to be stewards of a company have instead
looted its assets, at great cost to workers, investors, public pension funds and
communities.
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We often hear the argument that lower wages allow companies to provide goods at a
cheaper price thus benefiting all of us as consumers. While some goods are cheaper
(though some are cheaper in quality, not just price), poorly paid workers can’t afford
them, much less costlier necessities such as housing and healthcare. Furthermore, this
argument fails to factor in the personal and societal costs of uninsured workers’ health
bills, or the well-documented costs of increased poverty as wages stay low.
Wal-Mart’s use of direct and indirect taxpayer subsidies, illegal overtime, child labor
violations, union busting and discriminatory practices to become the top Fortune 500
Corporation is a growing source of concern and legal action. In June 2004, for example, a
federal court permitted a class action suit to go forward covering about 1.6 million
women, making Wal-Mart the defendant in the largest workplace-discrimination lawsuit
in U.S. history. A Congressional report, Everyday Low Wages: The Hidden Price We All
Pay For Wal-Mart, documents a wide array of harmful practices and thousands of dollars
in taxpayer healthcare, housing and other subsidies for underpaid workers.98 Wal-Mart’s
U.S. workers—most without health benefits—average just $8 an hour, compared with $12
in retail trade generally. Entry workers, of course, make less than the average.
A state survey in Georgia, where Wal-Mart is the largest employer, looked at
enrollment in PeachCare, which provides health insurance to children in low-income
families. It found that Wal-Mart had one child in PeachCare for every four employees.
The ratio for the next ranked company, Publix, was one child in PeachCare for every 22
employees.99 The report, Shopping for Subsidies, documents more than $1 billion in state
and local government subsidies to Wal-Mart, including tax breaks and credits, sales tax
rebates, free or reduced-price land, infrastructure development, job training and worker
recruitment funds, tax-exempt bond financing and outright grants.100
Business ethics, as exemplified by the best practices of some Quaker and other firms,
are a key ingredient if the private sector is to reinforce human dignity in the economic
sphere and have a major role in ethical governance at the local, national, and international
levels. Socially responsible businesses have demonstrated time and again that well-run
institutions with a just and humane vision can make a fair profit. The box below
demonstrates how Costco has taken the high road by paying higher wages and paying for
more benefits, such as healthcare and retirement plans, than its competitor Wal-Mart’s
Sam’s Club. This socially responsible strategy resulted in higher worker productivity and
profits than their infamous competitor.
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Costco vs. Wal-Mart
“Costco’s high-wage approach actually beats Wal-Mart at its own game on many measures...We found
that by compensating employees generously to motivate and retain good workers, one-fifth of whom are
unionized, Costco gets lower turnover and higher productivity...
“The larger question here is which model of competition will predominate in the U.S.... The cheap-labor
model turns out to be costly in many ways. It can fuel poverty and related social ills and dump costs on other
companies and taxpayers, who indirectly pick up the health-care tab for all the workers not insured by their
parsimonious employers. What’s more, the low-wage approach cuts into consumer spending and,
potentially, economic growth...
“Given Costco’s performance, the question for Wall Street shouldn’t be why Costco isn’t more like WalMart. Rather, why can’t Wal-Mart deliver high shareholder returns and high living standards for its
workforce? Says Costco CEO James D. Sinegal: ‘Paying your employees well is not only the right thing to
do but it makes for good business.’...
“Wal-Mart defenders often focus on the undeniable benefits its low prices bring consumers, while
ignoring the damage it does to U.S. wages. Costco shows that with enough smarts, companies can help
consumers and workers alike.”
How Costco’s High-Wage Strategy Beats Wal-Mart
IT PAYS A LOT MORE THAN WAL-MART
COSTCO
WAL-MART’S SAM’S CLUB
Average hourly wage
$15.97
$11.52 (excluding part timers)*
Annual health costs per worker
$5,735
$3,500
Covered by health plan
82%
47%
Annual retirement costs per worker
$1,330
$747
Covered by retirement plans
91%**
64%
* 25% of workforce is lower-paid part-timers.
** Those on the job for less than a year aren’t covered.
…BUT GETS MORE [FROM] ITS WORKERS
COSTCO
WAL-MART’S SAM’S CLUB
Employee turnover
6% a year
21% a year
Labor and overhead costs
9.8% of sales
17% of sales*
Sales per square foot
$795
$516
Profits per employee
$13,647
$11,039
Yearly operating-income growth**
9.8%
10.1%
* For all of Wal-Mart.
** Over the past five years in the United States.
Excerpted from Stanley Holmes and Wendy Zellner, “The Costco Way,” Business Week, April 12, 2004.
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Worker Rights Good for Business and Workers
Worker rights are good for workers. Worker rights are also good for business. As the
Economic Policy Institute (EPI) explains, “The most basic of these worker rights have
been codified by the International Labor Organization (ILO), which outlines five ‘core
labor standards’ (CLS) that all labor markets should strive to meet: the freedom of
association; the right to collective bargaining; the abolition of forced or compulsory labor;
the abolition of child labor; and freedom from discrimination. The arguments behind calls
to enforce the CLS are not only morally unassailable but make good economic sense as
well.” EPI highlights a growing body of evidence underscoring “the economic benefits of
these core labor standards”:
“Better worker rights result in higher productivity growth, thus leading to faster
economic growth.
Improved worker rights also tend to result in a better distribution of income,
both among workers and between workers and firms. In other words, better worker
rights lead to larger overall output that gets more evenly distributed.
As the benefits of faster growth are more evenly distributed, local demand is
stronger and more stable, thus reducing the chance of a financial crisis.”101
“If the World Bank and the IMF truly want to address the problems of sluggish
economic growth and market instability,” says EPI, “it is vital that the these powerful
institutions finally add the adoption of labor standards and the implementation of
worker rights to their policy prescriptions for emerging economies.”102
“It is but equity...that those who feed, clothe, and lodge the whole body of the people, should have
such a share of the produce of their own labour as to be themselves tolerably well fed, clothed, and
lodged.”
Adam Smith, The Wealth of Nations.
The Universal Declaration of Human Rights states, “Everyone who works has the
right to just and favorable remuneration ensuring…an existence worthy of human
dignity.” A living wage is essential to dignified work. Such a wage can be calculated in
each country or area of a country based on the cost of food and other necessities, and
should also factor in sufficient discretionary income for leisure. A living wage can serve as
a floor below which no business or government can go, thereby countering the global
“race to the bottom” and strengthening the global economy.
The term “race to the bottom” first applied to the United States before the New Deal.
The federal minimum wage established in 1938 was meant to put a firm floor under
workers and their families, stimulate the depressed economy by increasing consumer
purchasing power, create new jobs to meet rising demand and stop a “race to the bottom”
of employers moving to cheaper labor states.
Research has shown that living wages are affordable to businesses, large and small,
generating numerous benefits, such as lower turnover, decreased absenteeism, improved
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morale, and higher quality and productivity. Higher wages increase consumer purchasing
power.103
“Why do I support a higher minimum wage? Because I have a conscience, to begin with. I believe that
in America, people who are willing to work full time should be able to provide for themselves and their
children... But raising the minimum wage makes sense from a business perspective, too. The most
important asset I have as a business owner is my employees. Their skills, their energy and their
commitment make all the difference in the world... Meanwhile, I have to compete against businesses that
pay starvation wages. Worse yet, they are rewarded by the government for doing so. Because I pay a
decent wage, my workers aren’t eligible for anti-poverty programs like food stamps or Medicaid. But lowwage workers are—Wal-Mart even hands out instructions for applying to these programs to new
employees.”
Bill Hilliker, small business owner, “Why a higher minimum wage is good for small business,”
Buffalo News, June 7, 2004.
Socially Responsible Business
Quaker tradition provides good examples of profitable businesses conducted
according to high levels of integrity even in the absence of laws requiring such social
responsibility. Many business people already adhere to ethical business codes and believe
that good labor practices, satisfied employees and sustainable production methods make
for good business. To make the transition to a just global economy, we want to encourage
all businesses to operate with rules that are both clear and ethical.
In its “Overview of Corporate Social Responsibility,” Business for Social
Responsibility highlights the “growing body of data—quantitative and qualitative—that
demonstrates the bottom-line benefits of socially responsible corporate performance.” For
example:
“Improved Financial Performance: ... In the last decade an increasing number
of studies have been conducted to examine this link. One of the more recent
analyses—a 2002 DePaul University study—showed that overall financial performance
of the 2001 Business Ethics Best Citizen companies was significantly better than that of
the remaining companies in the S&P 500 Index, based on the 2001 Business Week
ranking of total financial performance. The ranking was based on eight statistical
criteria, including total return, sales growth, and profit growth over the one-year and
three-year periods, as well as net profit margins and return on equity. The Best
Citizens scored ten percentile points higher than the mean ranking of the remainder
of the S&P 500 companies.
Reduced Operating Costs: Some CSR [Corporate Social Responsibility]
initiatives can reduce operating costs dramatically. For example, many initiatives
aimed at improving environmental performance—such as reducing emissions of gases
that contribute to global climate change or reducing use of agrochemicals—also lower
costs. Many recycling initiatives cut waste-disposal costs and generate income by
selling recycled materials. In the human resources arena, flexible scheduling and other
work-life programs that result in reduced absenteeism and increased retention of
employees often save companies money through increased productivity and reduction
of hiring and training costs.
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Enhanced Brand Image and Reputation: Customers often are drawn to brands
and companies with good reputations in CSR-related areas. A company considered
socially responsible can benefit both from its enhanced reputation with the public as
well as its reputation within the business community, increasing a company’s ability
to attract capital and trading partners...
Increased Sales and Customer Loyalty: A number of studies have suggested a
large and growing market for the products and services of companies perceived to be
socially responsible. While businesses must first satisfy customers’ key buying
criteria—such as price, quality, availability, safety and convenience—studies also show
a growing desire to buy (or not buy) because of other values-based criteria, such as
‘sweatshop-free’ and ‘child-labor-free’ clothing, lower environmental impact, and
absence of genetically modified materials or ingredients...
Increased Productivity and Quality: Company efforts to improve working
conditions, lessen environmental impacts or increase employee involvement in
decision-making often lead to increased productivity and reduced error rate. For
example, companies that improve working conditions and labor practices among
their suppliers often experience a decrease in merchandise that is defective or can’t be
sold.
Increased Ability to Attract and Retain Employees: Companies perceived to
have strong CSR commitments often find it easier to recruit and retain employees,
resulting in a reduction in turnover and associated recruitment and training costs.
Even in difficult labor markets, potential employees evaluate a company’s CSR
performance to determine whether it is the right ‘fit.’...
Access to Capital: The growth of socially responsible investing (SRI) means
companies with strong CSR performance have increased access to capital that might
not otherwise have been available. In its 2001 report on socially responsible investing
in the United States, the Social Investment Forum reported that social investing rose
to $2.34 trillion despite an extended market downturn for most of the two-year
period since the publication of the 1999 study. The primary driver for this growth
was portfolios screened for socially concerned investors, which climbed 36 percent
from $1.49 trillion in 1999 to $2.03 trillion in 2001. This amount accounts for nearly
12 percent of the $19.9 trillion in investment assets under professional management in
the U.S.”104
One method of applying ethical concerns to business practices is through voluntary
codes of conduct. They can help inform concerned consumers, assist workers in finding
decent employers, and support best practices over and above legal requirements. Core
labor standards must be the centerpiece of any code of conduct, and any level of
credibility will depend on independent monitoring or auditing, including unannounced
visits. Business leaders who develop codes of conduct that rely on independent
monitoring and the participation of sectors such as labor and community organizations
should be supported.
Numerous codes of conduct exist, such as the SA8000 (see box); Global Reporting
Initiative Guidelines for Triple-Bottom Line economic, social and environmental
accounting; Global Principles, developed by religious shareholders including the Interfaith
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Center on Corporate Responsibility (ICCR) of which AFSC is a member; Ethical Trading
Initiative; Organization for Economic Cooperation and Development (OECD)
Guidelines for Multinational Enterprises; and others.105 International labor unions are
negotiating International Framework Agreements with companies in an attempt to put
some pressure on suppliers and gain explicit recognition of the ILO Core Labor
Standards. A major limitation on all codes of conduct is the difficulty of monitoring the
supply chain, even with businesses that might certify their own facilities, and especially in
countries with limited support for workers’ rights.
Sample Code of Conduct: SA8000
SA8000 incorporates many of the elements we have discussed in this paper. SA8000 was developed
with the participation of a broad range of stakeholders: workers and their unions, socially responsible
investors, consumers, community representatives, governments, and nongovernmental organizations, as
well as business owners and managers. A similarly broad Advisory Board oversees the program, sets and
reviews the standards, and licenses independent auditors. SA8000 is based on core ILO conventions and
the Universal Declaration of Human Rights and the Convention on the Rights of the Child. By early 2004,
Social Accountability International had certified 353 facilities in 39 industries, located in 39 countries. The
elements of its code are:
No workers under age 15 (lowered to age 14 for developing countries under ILO Convention 138);
No forced labor;
Safe and healthy work environment;
Freedom to Associate and Right to Collective Bargaining;
No discrimination or sexual harassment;
No corporal punishment, coercion or verbal abuse;
Comply with local law; maximum of 48 hours, six days per week, overtime;
Legal minimum wage, sufficient to meet basic needs of worker and family;
Integrate the standards into management systems.
The key to a continued positive role for codes of conduct is recognizing their limits as
voluntary tools and seeing them as complements to and not substitutes for strong
legislation and well-enforced regulations. As Peter Uting, deputy director and corporate
social and environmental responsibility (CSR) research coordinator of the UN Research
Institute for Social Development (UNRISD), puts it: “Historically, progress associated
with corporate social and environmental responsibility has been driven, to a large extent,
by state regulation, collective bargaining and civil society activism... Increasing reliance on
voluntary initiatives may be undermining these drivers of corporate responsibility.”106
UNRISD research on public-private partnerships and the corporate accountability
movement has “highlighted the double standards involved when TNCs engage in CSR
initiatives but simultaneously lobby for macro-economic policies and conditionalities,
linked to trade and investment liberalization, that can have negative developmental
impacts.”107
Supporters of ethical business increasingly make a distinction between corporate
responsibility and corporate accountability. The former emphasizes the voluntary
compliance of particular corporations to particular codes of conduct. The latter emphasize
holding all companies accountable to laws, regulations and rules.
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As Uting explained at the 2003 UNRISD Conference on Corporate Social
Responsibility and Development, “The corporate accountability movement is also saying
that if CSR is to really work for development, then it is not enough for companies to
improve selected aspects of working conditions, EMS [environmental management
systems] and community relations. Corporate responsibility cannot be separated from
structural and macro-policy issues, such as perverse patterns of economic liberalization
and de-regulation [including labor market flexibilization], corporate power, lobbying for
certain macro-economic policies, and fiscal and pricing practices.”108
Certainly, Quakers have a long tradition of taking voluntary action while working
for better practices and laws. Many Quakers refused to own or trade in slaves while
working hard for abolition of slavery. Many Quakers tried to eliminate discrimination
from their own attitudes and behaviors while working for strong and enforceable civil
rights. AFSC works to improve corporate practices through Codes of Conduct and also
advocates for strong national and international policies and laws to assure corporate
responsibility and accountability.
A significant step toward applying the Universal Declaration of Human Rights to
corporate accountability has been taken with the UN Norms on the Responsibilities of
Transnational Corporations and Other Business Enterprises with Regard to Human
Rights, developed with extensive consultation and unanimously approved by the UN SubCommission on the Promotion and Protection of Human Rights in August 2003. In
Amnesty International’s words, “The time has come for a stronger international
framework for corporate accountability.” The UN Norms bring “together in one place all
the major international human rights, labor rights, and environmental laws and standards
pertaining to global business” and “highlight best practice and various modes of
monitoring and enforcement.”109
The statement of support for the UN Norms by more than 200 organizations and 200
individuals observes: “The value of the Norms lies in providing coherence to a disparate
set of human rights obligations of non-state economic actors presently found in various
international law instruments, voluntary standards, and company codes. For instance,
they incorporate the minimum labor standards embodied in the documents such as the
Universal Declaration of Human Rights, the Convention on the Rights of the Child, and
the ILO Declaration of Fundamental Principles of Rights at Work. The Norms do not
create new legal obligations, but simply codify and distill existing obligations under
international law as they apply to companies.”110
“Good companies have nothing to fear from the UN Norms, but should welcome their comprehensive
articulation of the values of society in the 21st century as a guide to corporate conduct and as a
foundation for the development of universal yardsticks against which corporate conduct can be
measured.”
Sir Geoffrey Chandler, former director, Shell International, and founder-chair,
Amnesty International UK Business Group.
The UN Norms place all businesses on a level playing field and work toward
eliminating the abuse of human rights, including economic rights, as a point of business
leverage. The Business Leaders Initiative on Human Rights (BLIHR)—including ABB
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power company, Barclays financial services group, Body Shop International, Hewlett
Packard, MTV Networks Europe, Novartis and Novo Nordisk pharmaceuticals, National
Grid Tansco, Statoil energy company—was established to find “practical ways of applying
the aspirations of the Universal Declaration of Human Rights within a business context
and to inspire other businesses to do likewise.” The BLIHR sees the UN Norms as “an
important contribution” and is “committed to testing the value of this new tool as a driver
for change.”111
Local and Individual level
Governance also encompasses the actions of individuals, networks and associations,
and local level governments. Quakers have long maintained that each person is
responsible for the consequences of his or her life choices. But significant impact on
business practices or public policies is nearly always tied to effective action through civil
society organizations.
Well organized consumers and investors can shape the selection and quality of goods
and services offered in markets, and the conditions under which they are produced. They
can reinforce good practice by businesses both in the market and in public opinion. They
can resist bad practices by withholding their purchases and investments— usually coupled
with publicity.
Once informed of the true costs of products—for example, exploitative labor practices
or environmental damage—many consumers and investors are drawn to firms that are
concerned with more than profit margin. In today’s global economy, consumers and
investors can play a key role in encouraging business to adhere to the highest possible
standards. In the United States, there are a growing number of shareholder resolution
campaigns for more reasonable wages, more democratic corporate governance, and ending
gender and race discrimination in hiring and wages.
In parallel fashion, individuals can multiply their influence in the policy arena by
cooperative action. In some instances existing political organizations can be swayed by
active members who give top priority to policies that enhance human dignity, through
processes open to participation by those who are usually left out. In other instances,
alternative organizations will have to be created. Greater dignity and fuller development
of each person’s potential are often both a part of and a consequence of such efforts.
Many of the most intense struggles occur in workplaces where work conditions are
substandard, workers rights are not recognized, and worker organizing is prohibited or
dominated by “official” or “company” unions. Outside civil society organizations can
support these very difficult organizing efforts. In addition, they may be able to act as
mediators in some instances, or bring public attention to the circumstances through
documentation, publicity, or shareholder resolutions. Success will be measured by
adoption and enforcement of labor rights by national governments.
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Trade Matters
In 2004, AFSC launched a new campaign called Trade Matters. The campaign works at both the
grassroots and national policy level with staff in six offices across the United States. Trade Matters will
initially focus on three trade policy themes including: labor and migration, trade policy hindering the right
of government (at all levels) to fulfill its purpose and function as a state, and fair trade alternatives.
Fair trade means that producers receive a fair price for their product, helping them build a better future
for themselves and their communities. Fair trade practices foster equitable and sustainable development,
for example, through the formation of cooperatives that provide equal opportunities for women and
promote environmentally friendly techniques. By supporting fair trade, we affirm human dignity by
promoting fair prices, worker rights, the empowerment of women and care for the environment.
CertifiedTM or fair trade products that come directly from grassroots groups affiliated with the AFSC.
One example is the AFSC Trade Matters Fair Trade Peace Pack that includes a cloth drawstring
backpack—created by a women’s cooperative made up of former Levi Strauss sweatshop workers called
Fuerza Unida located in San Antonio, Texas—that is filled with fairly traded goods. In the long run, fair
trade purchases will help fuel the demand for more fair trade products, promoting one sustainable
solution for poverty reduction.
In pursuit of environmental sustainability, many people place their savings with
ethical savings funds that invest in environmentally friendly companies or green energy
projects. Corporate governance codes in Europe are gradually ensuring that companies
disclose their environmental profile. Although it is primarily the responsibility of
government to regulate business effects on the environment, we can all play an important
part through our individual choices about our lives: our homes, our sources of energy,
what and how we consume, by leading through example in our own lives.
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Dudley Street Neighborhood Initiative’s Sustainable Development Vision
The resident-led Dudley Street Neighborhood Initiative (DSNI) was formed in 1984 to revitalize a
neighborhood that was long Boston’s most impoverished. The neighborhood was devastated by
discrimination, public and private disinvestment, arson for profit and illegal dumping on hundreds of burntout vacant lots. Speculators saw an area ripe for the picking. Residents wanted community
redevelopment, not the kind of “urban renewal” in which they were disposable. DSNI became a Think Big
pathfinder, seeing possibilities where others saw pipe dreams. and went on to achieve a level of
community control over development that no neighborhood-based organization in the United States had
ever won before.
Declaration of Community Rights, 1993
We—the youth, adults, seniors of African, Latin American, Caribbean, Native American, Asian and
European ancestry—are the Dudley community. Nine years ago, we were Boston’s dumping ground and
forgotten neighborhood. Today, we are on the rise! We are reclaiming our dignity, rebuilding housing and
reknitting the fabric of our communities. Tomorrow, we realize our vision of a vibrant, culturally diverse
neighborhood, where everyone is valued for their talents and contributions to the larger community. We,
the residents of the Dudley area, dedicate and declare ourselves to the following:
1. We have the right to shape the development of all plans, programs and policies likely to affect the
quality of our lives as neighborhood residents.
2. We have the right to quality, affordable healthcare that is both accessible to all neighborhood residents
and culturally sensitive.
3. We have the right to control the development of neighborhood land in ways which insure adequate
open space for parks, gardens, tot lots and a range of recreational uses.
4. We have the right to live in a hazard-free environment that promotes the health and safety of our
families.
5. We have the right to celebrate the vibrant cultural diversity of the neighborhood through all artistic
forms of expression.
6. We have the right to education and training that will encourage our children, youth, adults and elders to
meet their maximum potentials.
7. We have the right to a share in the jobs and prosperity created by economic development initiatives in
metro-Boston generally, and in our neighborhood specifically.
8. We have the right to quality and affordable housing in the neighborhood as both tenants and
homeowners.
9. We have the right to quality and affordable childcare responsive to the distinct needs of the child and
family as well as available in a home or center-based setting.
10. We have the right to safe and accessible public transportation serving the neighborhood.
11. We have the right to enjoy quality goods and services, made available through an active,
neighborhood-based commercial district.
12. We have the right to enjoy full spiritual and religious life in appropriate places of worship.
13. We have the right to safety and security in our homes and in our neighborhoods.
Source: Peter Medoff and Holly Sklar, Streets of Hope:
The Fall and Rise of an Urban Neighborhood, 1994.
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