Do Labor Practices
Matter?
by Jim Surowiecki
(Surowiecki)
A recent study of developing countries pointed to something called "the Nike
effect." The authors of the study suggested that if you wanted to know which
countries were on the verge of explosive development, you'd be well-advised
to check out the countries that NIKE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NKE)") else Response.Write("(NYSE: NKE)") end if %> was getting ready
to move its plants out of. Japan, Korea, Malaysia, Indonesia, and now Vietnam:
Nike's trek through East Asia has, in fact, proven to be an excellent predictor
of economic growth.
It's also, of course, proven to be an excellent predictor of authoritarian
politics. In fact, essentially all of the countries in which Nike has made
its shoes have been characterized by a low-wage workforce, stable and generally
authoritarian governments, and little or no union activism. By paying its
workers cents -- lately it's become dollars -- a day, Nike has been able
to maintain huge margins while spending massive sums on the advertising that
brings people into the stores.
Although last year was the first year in which real public attention was
focused on Nike's labor practices abroad, it's important to recognize that
manufacturing shoes in low-wage countries was, from the start, a crucial
part of Phil Knight's plan for his company. In other words, we're not talking
here about American jobs that have been shipped abroad. On the contrary,
Nike has never made shoes in the United States. Its first factories, built
in the 1960s, were in Japan, when that country was still a part of the Third
World. And the thirty years since have seen Nike migrate from nation to nation,
arriving as countries install the necessary mechanisms for orderly business
operations and leaving as living standards become too high to make manufacturing
profitable.
Thus the remarkable comment by Nike spokesman Jim Small after a strike by
Indonesian workers won them a raise at a Nike subcontractor: "[T]here's concern
whether or not Indonesia could be reaching a point where it's pricing itself
out of the market."
Up to this point, Nike's strategy has certainly been a winner. And in a world
of global capitalism, there's a real argument to be made that apparel
manufacturing and other low-value-added production should be situated in
countries without technological advantages or high living standards. In that
sense, the Nike effect is not just a coincidence. Companies like Nike *do*
provide countries like Vietnam with the industrial foundations for economic
development. Just as the first great factories in the U.S. were apparel
manufacturers -- now long since abandoned -- so too were Malaysia's and
Indonesia's. To call it a win-win situation would undoubtedly overstate the
case, but the whole point of the economic theory of competitive advantage
is that different countries will end up producing different goods.
And yet, Nike has not done an especially good job of scrutinizing the
subcontractors with which it's working. Nor has it been open about its labor
practices in the way public companies should be expected to be. Cameramen
have been barred from factory floors. Supervisors at a plant in Vietnam
apparently beat workers being paid 20 cents an hour and refused to allow
them to leave their work posts. Indonesian labor organizers have been tossed
in jail. And, most troubling, nearly all the soccer balls made in Pakistan
have been revealed to have been made by young children getting paid just
cents a day. Next to these pictures, place the recent photo of Phil Knight
on the cover of Fortune, smiling broadly at his company's overwhelming success.
It's a disturbing juxtaposition.
It's also a juxtaposition that, in the long run, may work to erode Nike's
dominance of the shoe market in the U.S. This is the first time that Nike
has had to face real questions about its labor practices abroad, the first
time that it has felt a public-relations impact. At this point, that impact
does not seem at all devastating. While Americans are generally horrified
by the spectacle of child labor, and while they express concern over the
working conditions in foreign factories, it takes a concerted effort -- or
overwhelming publicity -- to make them translate those concerns into consumer
activism. That new "Penny" shoe, after all, is hard to resist, no matter
who made it.
Still, the basic truth about Nike is that its only real strength is its good
name. Nike rules because of all the good things people associate with the
company: sharp ads, Michael Jordan, Tiger Woods, little Penny, and Michael
Jordan again. If "beaten workers" and "child labor" get added to that list,
then Nike's greatest asset will become devalued. The great virtue of a name
brand is that it can't be copied. The great vice of a name brand is that
it can be besmirched.
In that sense, the burden is on the company both to do a better job of
implementing company-wide global standards of conduct and to improve its
openness to the media. The more you hide, after all, the more people think
you have something to hide. Every hand that goes up in a camera's lens, every
gate that slams shut, hurts Nike in the public eye. And when you're a consumer
company, that's the only eye that matters.
On to Lesson # 5 -- Luxury and
Responsibility |