People before profits? The myth that job creation delivers sustainable supply chains

Ben Rutledge, Senior Advisor – UNGP’s on Business & Human Rights, Ethical Trading Initiative

"Ando International garment factory (Better Work Vietnam)" by ILO in Asia and the Pacific licensed under CC BY 2.0.

Why G20 priorities need to go beyond job creation and get serious about developing sustainable global supply chains and generating inclusive economic growth that puts people, not profits, first.

This week (7-8 July), Hamburg hosts the G20 Summit of world leaders. Yet again, it is highlighting growth and poverty as key priorities. But, they have been top of the agenda at various inter-governmental meetings for decades. So, what’s different now?

The G20 communique on the Summit’s priorities states that it will, for the first time, “intensively” address sustainable global supply chains and adherence to fundamental labour, social and environmental standards. Does this represent a shift in thinking or focus? And if so, what has triggered it?

A record high of 55% of people in poverty are in working households. Job creation alone, it seems, is no longer the answer to poverty alleviation and economic development. 

In-work poverty

Reducing poverty used to be about job creation. Successive UK governments, for instance, have maintained that work is the best route out of poverty. Yet, things have changed.

In-work poverty is now a major issue in the UK, the US and many other countries. One in every eight workers in the UK – 3.8 million people – are poor. A record high of 55% of people in poverty are in working households. Job creation alone, it seems, is no longer the answer to poverty alleviation and economic development. Equitable growth and sustainableglobal supply chains require decent jobs, where people can work in safe conditions, have job security and are paid fair wages.

The argument goes something like this: more people in decent jobs, leads to stronger and more inclusive economic growth. Improved growth means more resources to create decent jobs. It is a simple equation, but one that the ILO says has been largely neglected in international policy-making both before and after the 2008 financial crisis.

This shift in thinking is evident in the language deployed by G20 Labour and Employment Ministers, whose recent Declaration called for employment and social policy packages for inclusive growth so that the global economy works for everyone. The aim is still to create more jobs, but crucially, with a clear focus on better working conditions.

Competing wage levels in global supply chains

But context is everything. When thinking about job creation and wage levels in global supply chains, it is vital to remember that it was cheap labour, combined with low tariff barriers, improved technology transfers and cheaper air and sea transport, that helped developing countries to break into world markets in the first place.

Competition is fierce amongst countries that rely heavily on cheap labour and exports of labour intensive goods. 

Low wages allowed poor countries to compete with existing industries based elsewhere. Cheap labour is what attracts labour-intensive manufacturing jobs. And free-market economists tell us that whilst sweatshops aren’t great, they’re usually still better than the alternatives.

Competition is fierce amongst countries that rely heavily on cheap labour and exports of labour intensive goods. This competition is why low wages have persisted in countries like Bangladesh. Governments are fearful of reducing their competitive advantage to the point that supply chain jobs leave and economic growth slows.  

However, minimum wages levels are often set arbitrarily, without the appropriate evidence base or consultative process, and at a level that’s simply too low to support an adequate standard of living. Such accusations are common, and have been levelled at the Cambodian Government in the past. The next round of wage negotiations is due to begin there later this month and there will be plenty of scrutiny of both the outcome and process.

The result is that those who add a significant portion of the value along ‘value chains’, like cotton pickers and workers who manufacture garments, often do not enjoy safe conditions or fair wages.

Responsibility, transparency and sustainability

Whilst a sudden, sharp increase in national wages can distort and undermine economic growth, a more equitable distribution of wealth is not the antithesis to sustainable and successful supply chains. National governments should still be able to attract business with an evidence-based, transparent and inclusive wage negotiation process. Such processes allow market forces, macro and micro level economic indicators and broader geo-political contexts to help shape negotiations and outcomes. They help manage economic growth, provide stability and deliver equitable development that benefits everyone.

If governments want to work with global supply chain actors to ensure the responsible management of supply chains, they should start by facilitating transparent negotiation of fair wages. The G20 should adopt a coherent approach with consistent messaging. Much more is needed however.

The UNGPs are crucial. For business, it means adhering to fundamental labour standards and the creation of more sustainable global supply chains. That requires effective and efficient human rights due diligence.

In line with the UN Guiding Principles on Business and Human Rights (UNGPs), the Ethical Trading Initiative supports the adoption of a ‘smart mix’ of mandatory and voluntary, international and national measures. Collaboration is key as this must include regulation, but also business incentives, training, monitoring of working conditions and genuine engagement of all relevant stakeholders. The UNGPs are crucial. For business, it means adhering to fundamental labour standards and the creation of more sustainable global supply chains. That requires effective and efficient human rights due diligence.

There are also operational incentives to conducting efficient due diligence. These include better visibility of supply chains, more secure supply of goods and services, more productive workers and enhanced credibility with customers, investors and suppliers. And there is also a strong ethical case of course. Human rights due diligence leads to better outcomes for workers and the protection of basic rights.

It remains to be seen whether the G20 is serious about this agenda. It may be several years before we can judge whether the discussions held in Hamburg bear fruit. Clearly though, with G20 nations accounting for 80% of world trade, their leaders have a responsibility to promote job creation – and decent work and fair wages. It’s why being serious about developing sustainable global supply chains and generating inclusive economic growth means putting people, not profits, first. 

This blog is part of an ongoing series encouraging dialogue on, and raising the visibility of the G20 Summit as a business and human rights opportunity.