GAP COMES CLEAN

In a 40 page report released on its website today, Gap Inc. lays it out for all to see in its social responsibility performance.

The WSJ reports on the report. Note that even with the multinational parent company establishing codes of conduct, a normal work week in a Gap-producing factory is 60 hours. Ugh.

In the report's introduction, Gap CEO Paul Pressler described some of the challenges companies face in monitoring working conditions in overseas factories, particularly in those of sub-contractors:

"In many countries, governments simply don't have the resources or the will to enforce laws and regulations."

This points to a fundamental problem with the way enforcement mechanisms (when they even exist) are constructed to address protection of worker and human rights. Governments, particularly non- and/or marginally-democratic ones, have little incentive to enforce labor rights. Universal rights to free association and collective bargaining (i.e. the right to form unions), create new centers of democratic political power outside prevailing non-democratic power structures, which threatens to disrupt the ruling political balance.

Multinational companies provide direct investment which is the life blood of economic growth (and balance in the international accounts) for most developing countries, and what MNCs are looking for in developing countries is low-cost production centers for labor-intensive manufactured goods. So no one wants to rock the boat. It's a classic prisoner's dilemma problem: if all countries cooperate on enforcing labor standards, then everyone will be best off; but if a country cheats on labor standards, it will attract more investment and be better off relative to countries who enforce labor standards.

While developing country governments may very well be lacking in technical expertise and financial resources to monitor and enforce labor rights, there are also clear disincentives for governments to do so. This paradox begs the question, why place the onus of enforcement on governments where there are structural incentives for governments not to enforce labor standards? As it is the MNCs who largely are benefitting from access to low-cost labor in developing countries, MNCs should bear the onus of enforcement, including sanctions assessed for labor rights violations. If Nike or the Gap are violating labor rights in their overseas factories (or in factories where goods are produced for their label under contract), why sanction the government of China or Vietnam or Myanmar or whomever? Sanction Nike and the Gap!

Gap Inc.'s Social Responsibility Report indicates that adherence to labor standards does create value for MNCs. However, industry-wide compliance would require that all companies are as benevolently enlightened as the Gap--as evidenced by this report--appears to be. In other words, self-regulation--the image which the Gap is trying to promote--is not a viable option. What is needed is independent monitoring of overseas facilities, backed by the weight of sanctions from the United States.

I know, it's a pipe dream. But this is how we might reconcile the demands for trade and economic development that respects human rights, if the powers that be were so interested.