When “Doing Good” Has Unintended Consequences

After the collapse of Rana Plaza in 2013, it seemed likely that workers’ wages, benefits, and safety would improve.

However, it was not quite that simple.

Responsible Sourcing

MNEs (multinational enterprises) responded to catastrophic events that killed workers employed by their suppliers with new policies that were called responsible sourcing (RS). Describing its RS, Panasonic said that workers must have one out of every seven workdays off. They should be paid a living wage and have the freedom to join unions. Including emergency preparedness and work-related injuries, Panasonic’s CSR Global Supplier Guidelines also detail safety standards,

So, most of us will approve of what responsible sourcing requires from multinational enterprises. Yes?

The answer should be, “It depends.”

According to a recent study that focused on the impact of RS in Costa Rica among companies that ranged from agricultural multinationals like Dole to microchip maker Intel and medical device producer Boston Scientific, the total impact of RS was “ambiguous.” The plus side is that some low wage workers incomes went up. However, as they became more expensive, there were fewer low wage jobs, firm sales went down, and domestic prices went up. Somewhat sadly, consumers did not increase their demand for RS produced items.

Below, I’ve listed the results of RS in Costa Rica between 2008 and 2019:

• reduced firm sales down by 7%
• employment down by 6%
• low wage employees earn more
• fewer low wage jobs
• domestic price index up

They reflected the impact of the following RS policies:

• wage floors
• guaranteed benefits
• 3rd party auditing
• max hours
• safety standards

Our Bottom Line: Unintended Consequences

Responsible sourcing is the perfect example of what fractal mathematician Benoit Mandelbrot said about the British coastline. Looked at from afar, it is a smooth line encircling a land mass. Then though, the closer you look, the longer it becomes. And ultimately, its increasingly smaller indents make it infinitely long.

With RS, we all can say it sounds so good because workers, especially low wage workers, receive better treatment. However, the reality takes us to a more complicated impact. Paid more, some low wage workers lose their jobs while others are better off. If the items they grow or make are sold domestically, then prices can rise. Those higher prices push down sales. Still, it is possible that working conditions improved.

With RS, we are dealing with exposed and unexposed MNE suppliers, workers earning different levels of wages, low-and middle-income countries. Because the list of variables that create the response to RS is varied and long, involving suppliers, workers, regulators, and customers, the impact can have unintended consequences.

My sources and more: During a walk with a pleasant breeze, yesterday I listened to the Trade Talks podcast that inspired today’s post. From there, I  read this paper and also returned to a past post on Rana Plaza. It all takes us to pondering further how to “do good” and recognizing the importance of knowing our facts.