Early Efforts

Early efforts to force suppliers to take responsibility for their actions centered on the simple requirement for suppliers to sign a contract saying that they adhered to all national and local laws concerning employment and environmental policies. After all, most nations including China, India, Indonesia, El Salvador, or Mexico have at least nominal labor and environmental laws on the books, even if they are not well enforced. There are minimum wage laws in China, for example (about 30 cents an hour ), and China officially restricts overtime to 36 hours per month. They also prohibit arbitrary fines , physical punishment , and pay reductions. There seemed to be ample numbers of laws; all companies needed to do was to make certain that their suppliers adhered to them.

This, of course, is the practical crux of the issue. As we have already seen in many examples, simply getting a supplier in a foreign country to sign a piece of paper saying that it does not break the law has obvious shortcomings. After all, most factories in China, India, Thailand, or Indonesia knew very well that inspections were unlikely and penalties would be nonexistent. It soon became apparent that whatever suppliers agreed to, without heavy pressure from the buying company enforced by independent inspection, such pledges usually had little practical effect on the way the factories actually conducted operations.

There were many obvious reasons for this. Governments often lack the resources and desire to enforce laws. The requirement for inspections is time consuming and costly and requires resources that most developingcountry governments do not have. Bribery and corruption mean that it is not uncommon for local inspectors to ignore issues by failing to inspect factories or limiting their visits to preannounced tours or paper-based surveys. Above all, both suppliers and government officials too often feel that adhering to these laws will make them uncompetitive and erode their profits. Developing-world governments want to encourage foreign investment and continue to expand exports. What incentive would they have to apply laws that might, by their reckoning, increase wages and company costs and make their industries less competitive?