Last month marked the one-year anniversary of the collapse of the Rana Plaza building in Bangladesh, killing more than 1100 garment workers. This month, 301 Turkish miners died after an explosion caused an underground mine fire in Soma, Turkey. The Deputy Director-General of the International Labour Organization (ILO) called the Rana Plaza accident “a catalyst of sustainable change.” Indeed, the responses by international organizations, governments, multinational enterprises (MNEs) and trade unions in the aftermath of Rana Plaza have been both innovative and unprecedented. Although the Soma disaster led to great social unrest, there is no major push for improved safety regulations in the mining sector from any of the abovementioned actors. To the contrary, Turkish Prime Minister Erdogan issued a stunning response, stating that: "Explosions like this in these mines happen all the time. It's not like these don't happen elsewhere in the world." But the differences between Rana Plaza and Soma go beyond the mere (un)willingness of the respective governments. The most innovative responses to Rana Plaza came from European (and some American) MNEs, who signed an enforceable contract with global and Bangladeshi trade unions to implement a system of private factory inspections. Corporate social responsibility (CSR), which the ILO defines as “a voluntary, enterprise-driven initiative and refers to activities that are considered to exceed compliance with the law” is even premised on the lack of governmental action. So what are the factors that determine whether CSR works?
In 1970, economist Alfred Hirschman wrote that when confronted with a deteriorating quality of goods, one has the option to choose between ‘exit’ and ‘voice’. Corporations that oppose a tax increase, for example, can decide to lobby politicians to withdraw the plan or relocate to another country with a more benevolent fiscal regime. The same two options exist when consumers are informed that their favourite brand sources from sweatshops in Bangladesh. They can vote with their feet and buy clothes from a different brand, or they can voice their concerns and urge the company to improve the conditions of sweatshop workers. Exit and voice are the foundation of CSR as a business case. The first two factors for effective consumer-based CSR are full information and free competition. Consumers can only apply their moral preferences when they are informed about the social and environmental impact of the products they buy. This is impossible in monopolised markets. In countries where the supply of energy is controlled by public utilities, the possibilities for consumers to address the social or environmental impact of coal-fuelled power plants are limited.
Thirdly, affluent consumers attach more value to CSR than poor ones. Consumers seek to maximize utility rather than minimize costs. This explains why people buy Louis Vuitton bags but also why there is a business case for CSR. This is not only true because rich consumers are able to pay more for ethical fashion or organic vegetables, but - in the case of international supply chains - also because the ‘consumption country’ usually has more developed regulations and higher wages than the ‘production country’. This legal discord causes moral discomfort, which makes Western consumers willing to pay more. The last important factor that influences the efficacy of CSR are the characteristics of a product. These can be subdivided into unicity and visibility. Regarding the former, the differences between an iPhone and a HTC One are bigger that the differences between organic and non-organic milk. The only factor that a (well-informed) dairy lover has to consider is whether he wants to pay a bit more so that the cows can enjoy some fresh air and grass. The choice between 'good' and 'bad' is provided by a label, which represents strict standards, inspections etc. The lower substitutability between an iPhone and an HTC One does not make CSR in the electronics sector impossible, but consumers would be more inclined to voice their concerns to the company rather than boycott the product. Visibility means that consumers attach most value to the social and environmental problems in the parts of the supply chains that are closest to them. There is a large consumer market for organic milk, but few people ask whether milk used in the production of cake or cookies is organic. Business to business markets are outside the consumer’s visual range. Similarly, we seem to care more about the excessive working hours in the assembly of iPhones in China than about the conditions of miners that quarry the coltan and copper used in the phones’ hardware.
The purpose of this brief blog post is not to determine exactly what distinguishes clothes from coal. But arguments to replace CSR with forms of hard law (like a business and human rights treaty or extraterritorial regulation of MNEs by their home states ) are often rebutted by saying that the latter is “too rigid” or “too abstract” to cover all human rights and environmental challenges that companies are confronted with. This position obfuscates the fact that in many sectors CSR simply does not work. Insisting on flexible and non-legal approaches to improve the situation of workers may therefore have discriminatory effects. CSR helps garment works, but not miners. This fact should worry the protagonists of CSR, and calls for a better understanding of the determinants that make CSR (in)effective.