The recent Bloomberg story about child labour in Burkina Faso is difficult to get through. You read about the struggle of 13-year-old Clarisse Kambire working a cotton farm, subsisting on one meal a day or less, and you despair.
After my colleague and Canadian Business blogger Chris MacDonald responded and wrote about the controversy surrounding Victoria’s Secret and its use of cotton from Burkina Faso, I feel compelled to take issue with some of the questions he raises.
MacDonald points out that there may be at least two unintended consequences that come with raising the amount paid to the cotton farmers employing child labourers. One possible consequence is that higher prices attract more farmers and the price for cotton goes down.
To which my response is “And?”
If that sounds flip, it’s not entirely intentional, but it’s appropriate. We know that somewhere between the starvation wages Clarisse is paid and the number that causes the market price to crash is better wage. In fact, it may even be high enough to permit the adults alone to work while Clarisse attends school. We should try harder to find that number.
The second possible consequence my colleague identifies is that if higher prices translate into consumers willingly paying more for their lingerie, they’ll spend less elsewhere and someone else will as a result earn less money. At best this is a puzzlingly weak rationale for doing nothing. But let’s take for a moment as a given that his construction is true. Doesn’t this mean Clarisse, or whomever does the farming, now has more money in her pocket? That’s money she’ll spend. The total amount of money doesn’t go down—it gets shifted around, in this case more equitably. (And in fact, if that money is in more hands it will have greater velocity since a greater total number of consumers now exist.)
In my view, implicit in both of my colleague’s scenarios are two assumptions: One, that Victoria’s Secret maintains maximum profit; and two, that its customers pay as low a price as possible for lingerie. In this way the assumption of the primacy of efficient markets takes on the air of natural law, when in fact it is illustrating choices. That is, Victoria’s Secret could choose to take less profit and consumers could choose to pay more for their goods.
The latter of these MacDonald does in fact address, as discussed above. It’s the issue of profit maximization that goes unchallenged. That is, raising the price paid to farmers and then passing that increase on to consumers protects only one actor in the value chain—Victoria’s Secret. But what about raising the prices to farmers, maintaining the prices to consumers and taking less profit? Not zero profit. Just less profit.
Sound radical? Sure. Sound like a company violating its fiduciary duty to investors? Could be. But guess what? Profit maximization and fiduciary duty are made up, arbitrary constructs. They’re not natural law. They’re choices.
Which means Victoria’s Secret can choose to do things differently. Think it isn’t being done? Think again.
Back in 2009 Canadian Business Online published an interview with Steve Newcomb, the multi-millionaire head of venture capitalist incubator Virgance. His business supports what are described as “B Corporations,” which is a designation for companies that seek to drive positive social change through their operations. Newcomb talked about ranking start-ups from 0-6 where 6 is your typical for-profit company, 1 is a company that provides a 1x return, 5 for an 8x return and so on—but not the 10x typical VCs look for. Not zero profit, but less profit. Read about it for yourself and you’ll see it’s doable. It’s certainly a lot closer to driving the change Victoria’s Secret claims it wants to see, instead of what it’s doing now which is maintaining the structure that actually keeps people poor—and kids slaving away in cotton fields.
Knights Apparel, the leading supplier of college-logo apparel to U.S. colleges, has similarly made a tangible statement about economic change. It operates a factory in the Dominican Republic where its workers are paid a living wage, not sweatshop wages. These workers can as a result actually lift themselves out of poverty. The catch? Knights absorbs a “lower-than-usual profit margin.” Not zero profit. Just lower-than-usual profit. Not only is this not the end of the world, but it’s the start of a better one.
Knights is privately held while Victoria’s Secret is the largest unit of publicly traded Limited Brands Inc. So it could be argued that Knights has far more latitude to act as it does. But then, no one forced Victoria’s Secret to go the corporate social responsibility route either. If it wants its actions to be more than just a cynical marketing slogan, then here is a golden opportunity to be genuine.
At one point MacDonald describes the situation around monitoring third-party supply chains as “complex.” I disagree. It’s complex only because we make it so. And the reason we do that is because we don’t really want to change. Not yet, anyway. We instead hope band-aid solutions—like feel-good, but toothless fair-trade rules—solve the problem while allowing us to carry on in the lifestyle to which we are accustomed.
In the spirit of Christmas, it’s time for a change.