Saturday, November 25, 2006

Secrets, Lies, and Sweatshops

There is a darker side to globalization. It's the one that usually get people up in arms, demonstrating at Gx Summits, trashing shop windows and generally acting like terrorists. Manufacturing is now well ensconced in the developing nations, with China owning the bulk of it -- and it being responsible for the Sino ascent to a global powerhouse. That manufacturing however, comes at a price -- one that we like to pay, while we don't like seeing how the transaction unfolds. The labour abuse by Chinese manufacturers have long plagued western companies, as their customers enjoy the low prices and berate their operations for taking advantage of lax labour laws. Social conscience it seems, doesn't always extend down to individual wallets.

Meanwhile, to appease customers, western companies have foisted western labour standards on Chinese manufacturers. No child labour. No undercutting of local minimum wage standards. Overtime work for overtime pay. No excessive work hours. Problem is, Chinese manufacturers are being squeezed from all sides. On one hand, the low manufacturing costs must be maintained, which means to raise standards, profits get culled. Labourers, especially from rural China, demand extra hours, overtime pay or not, so they can make as much as possible. If the extra hours aren't given, they leave to other manufacturers who are more flexible. Then there are the western companies that descend on their operations with regular audits.

This squeeze drives Chinese manufacturers to adopt elaborate schemes to cheat. Cook the books -- or better yet, have multiple books. Outsource part of their operations to other manufacturers who aren't under scrutiny. Coach employees on how to answer auditors questions. Hide child labours when the auditors arrive. The tricks of the trade has created a mini-boom in audit consultancy in China, where for a fee, consultants help manufacturers pass audits -- usually by any means necessary.

Western consumer hypocrisy of course isn't about to change, so the game will continue. The Chinese government doesn't intervene. Western companies are aware of the cheating, but as long as their manufacturers pass their "audits," they've got nothing else to do. What we in the west fail to understand is that we can't have it both ways. Developing nations are just that, developing. Theirs is to toil endlessly for little compensation, so we can enjoy our standard of living. This isn't necessarily wrong. They have something we don't. They have cheap labour. It won't last. It's already rapidly changing. We will be in for a shock when the "Made in China" sticker no longer means cheap.

Read more in BusinessWeek -- and see related content from the Fair Labor Association, a independent organization that monitors developing world factories in use by western companies, and provides transparency into their operations.


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