Is it possible to contract for profit with poor people without being
labeled an exploiter? Can you rent to the poor without being a slumlord?
Can you lend to the poor without charging usurious interest? Can you
hire the poor without running a sweatshop?
Of course, if the terms are fair, contracting with the poor can be
a good thing. But how are we to know whether a particular relationship
is fair? In the absence of good information about the terms of trade,
we tend to think that profiting from contracts with poor people is presumptively
bad. We infer abuse from the background characteristics of poverty and
But an irrefutable inference can be pernicious. If an employer who
hires poor people is going to be vilified as running a sweatshop regardless
of what she does, then what incentive does she have to do the right
So we may be caught in an unhappy equilibrium. In the absence of better
information, consumers rationally worry that products manufactured for
profit in desperately poor countries are unclean. But manufacturers
have no credible mechanism to give them better information: anything
the manufacturers say is bound to be treated as suspect.
The "Ratcheting Labor Standards" (RLS) idea espoused by Fung, O'Rourke,
and Sabel shows promise in mitigating this problem. By providing consumers
with a metric of labor conditions assessed by independent auditors,
RLS might be able to foster competition in the fair treatment of labor.
Knowing that improved working conditions would be reported to consumers
by credible monitors, manufacturers would have an incentive to make
improvements. So RLS could provoke a race toward the top instead of
toward the bottom.
I worry, however, about the authors' emphasis on "continuous improvement"
and "ratcheting." If manufacturers correctly sense that nothing they
do will ultimately prove sufficient, they will be less willing to cooperate
with the institution of RLS. The notion of what would constitute fair
working conditions is not adequately defined, but seems to be ever-expanding.
For example, to avoid a charge of exploitation, Microsoft could not
simply say that it was paying more than the going rate in the country,
and that there was excess demand for its jobs—because under RLS
the core comparisons seem to be across countries. Meanwhile, under the
"continuous improvement" principle, even a manufacturer who shows that
it paid more that manufacturers in similar countries might not be in
the clear for long. The authors intend to keep ratcheting up the standards.
Their proposal eschews any safe harbor.
I also worry that as currently articulated the RLS standards are too
mushy to provide consumers with much credible information. In rating
a facility, the faithful monitor is supposed to compare the treatment
of workers in different developing countries and to heed the "voice
of the workers." The monitor's Delphic pronouncements of "good" or "bad"
would have little falsifiable content. This puts too much pressure on
the legitimacy of the monitor and the monitor's monitor. But these monitors
might themselves be captured by political as well as industrial interests.
If confidence in the monitoring system declines, however, then we are
back to square one: consumers do not know what to believe, and manufacturers
consequently lose the incentive to make improvements.
My friendly amendment is that RLS should strive to monetize labor practices.
Specifically, firms that disproportionately manufacture in developing
countries should be encouraged to disclose point-of-purchase information
about the average hourly labor costs of manufacturing particular goods.
A consumer poised to buy a Timberland shoe might be willing to buy a
more expensive brand upon learning that the employees had only been
paid 22 cents per hour.
Money is the quintessential metric of value. While it is difficult
to monetize the quality of housing that a landlord provides, the most
important part of an employer's treatment of labor is already monetized—i.e.
the employee's wage. Of course, it would be necessary to monetize other
aspects of an employer's labor practices. Employers who provide health
care should be able to monetize these labor costs as well as the nominal
wage. And an adjustment for long hours might be implemented by discounting
(by a third) the wages of those who work more than forty hours a week.
Some labor practices, however, are resistant to the monetization approach.
Occupational safety risks would be more difficult to assess, although
for large enough or long-enough-lived enterprises, such as Pou Chen,
it might be possible to monetize the historical accident rate.
But it is probably better to leave the metric slightly underinclusive
but more transparent for the harried consumer. Disclosing the average
hourly labor costs of products still gives consumers a highly probative
summary statistic of how well labor is treated. The essential point
is that consumers think the information is reliable, and that they know
how to interpret it. Providing consumers with labor cost information
also allows them to make an informed judgment about whether they are
willing to pay more for a fairer wage. Instead of the a priori
imperative that standards continuously improve, a neutral disclosure
regime would cast the consumer as the ethical sovereign determining
what level of compensation is fair. Indeed, one could even imagine a
disclosure regime that lead toward a ratcheting down—if consumers
felt that some workers were being paid an unfairly high wage (say, relative
to the wage of the consumer herself).
Ben and Jerry's tried an imperfect version of wage disclosure for a
number of years—pledging for a time that its highest paid employees
would earn no more than seven times the salary of its lowest-paid full-time
employee. While the salary pledge was insufficiently inclusive (excluding
the value of executives' stock and options), the central idea of providing
consumers with a falsifiable numeric claim has merit.
Each year, law students pour over the form resumes that law firms fill
out to recruit students. The forms require the firms to describe their
attitude toward pro bono activities and the firms invariably (and thus
uninformatively) report that they such work is "strongly encouraged."
Now, one approach consistent with RLS would be to have independent monitors
undertake multifaceted analysis of a firm's pro bono practice. But to
my mind, it would be better to ask firms to report the average number
of pro bono hours provided by attorneys in the firm. This is a more
minimalist system that is more likely to encourage the kind of ethical
competition that is really the core contribution of the RLS idea. •
Ian Ayres is the William K. Townsend Professor at Yale Law School.
He is the author of Pervasive Prejudice?: Unconventional Tests of
Race and Gender Discrimination.
Read all eight
responses to "Realizing Labor Standards," by Archon Fung, Dara
O'Rourke, and Charles Sabel.