My day at IKEA, a symbol of hope or a sign of doom?

I am surrounded by a wall of sound. The low rumble of trolleys laden with meals, like whispered thunder. The chinking of cutlery on crockery. A cacophony of voices. Crying babies. Excited five-year-olds. Wearied parents. Lovestruck couples. Welcome to IKEA, where consumerism has become a form of recreation.

It seems that for many going to IKEA is an experience to be enjoyed, an outing to look forward to. The place is huge and has all the resonances of a theme park. The takeaway food stalls selling hotdogs and soft drink and soft serves. The cafeteria. The massive car parks. The long queues at checkouts located in vast open spaces. The palpable sense of anticipation.

It’s pure marketing genius. I despise shopping at the best of times, but I find myself caught up in the mood, thrilled by the discovery of bargain priced furniture and sensing that something that attracts this big a crowd must be worthwhile.

And it comes from a company that appears to be making serious efforts to ensure it has a sustainable and fair supply chain. IKEA has invested heavily in renewable sources of energy for its factories and outlets and ensures that the timber in its furniture can be traced back to the forest of origin and that those forests are sustainably harvested. In the last couple of years the company has begun rolling out living wage programs for its workers and suppliers. There is still some way to go but the direction seems to be positive.

I don’t know what to make of it. I find myself confronted with the feeling that we’ve become trapped inside consumerism and we simply don’t know how to find a way out. For all its laudable efforts to be ecologically and socially responsible IKEA feeds and is fed by consumerism, that malady of the human spirit where the experience of consumption is in itself a reward we seek, yielding the overconsumption that is driving our planetary ecosystems into dangerous places. And for all my desire to live in a way that is ecologically and socially responsible, I have to admit that I too enjoy the experience of consuming and acquiring. I’d like to believe that IKEA represents the hope that there is a way we can continue to consume at the levels we do and for it to be sustainable. But I suspect that is very wishful thinking.

No Tony, economic growth is not the answer to everything

In his speech to the World Economic Forum  last week, Australian Prime Minister Tony Abbot made this incredible statement:

As always, stronger economic growth is the key to addressing almost every global problem.

It summed up the direction of the speech, which was a plea for small government and freer markets. But if the two greatest global problems of our time are extreme poverty and environmental degradation economic growth is not the key.

POVERTY

Economic growth has no doubt been the greatest driver of poverty reduction in the last three decades, and it has been remarkable. But there are important caveats to put on that.

Caveat 1:It is questionable whether what has occurred in China, India and the Asian “tiger” economies will be repeated any time soon for the world’s poorest countries. In his book The Bottom Billion, economist Paul Collier notes that there has been a structural shift in the global economy in which large slabs of  manufacturing shifted from industrialised nations to places such as South Korea, Taiwan, and China. This drove massive economic growth and poverty reduction. Manufacturing in particular , provided a more equitable distribution of wealth than commodities, for where commodities can be controlled and run by an elite, manufacturing is labour intensive, requiring more people to share in the fruits of growth. Collier points out that many poor countries have not shared in the shift of manufacturing to the developing world, and are not likely to very soon. Manufacturing thrives in agglomerations, that is, when many manufacturing plants can be located near each other. So manufacturing will only shift to the poorest of countries when the wage gap between them and places like China is so large that it is worthwhile taking the risk to leave an agglomeration. And that, says Collier, is unlikely to happen for some time.

Caveat 2: Free markets are the stuff of fairytales.  In Bad Samaritans. The Myth of Free Trade and the Secret History of Capitalism economist Ha-Joon Chang shows that the world’s industrialised nations, such as the USA, England and Australia, were rabidly protectionist during their history. That is, the governments of those countries used taxes, tariffs, subsidies, quotas, and the intellectual property of others, to drive the direction of their economies. The newly industrialised economies like South Korea and Taiwan did the same thing, as are emerging nations like China and India. Free market economists argue that this were a drag on development, that growth would have been even faster had these countries not been protectionist, where economists like Chang argue the protectionism was a critical factor in economic success. Maybe we’ll never know, but it’s worth pointing out that no country has ever moved out of widespread poverty by the free trade route.

Caveat 3: economic growth alone is not sufficient to drive poverty reduction. There must be mechanisms for ensuring the poor share in the fruits of a growing economy. Wealth is all too easily captured by powerful elites that exploit and oppress the poor. Equity and justice are not merely the fruit of economic growth, but come from the  human values that must shape and drive it.

ENVIRONMENT

The world faces a series of threats to ecological health: climate change; the acidification of the oceans; biodiversity loss; the disruption of the nitrogen cycle. Far from economic growth being the solution, it has been the cause of these problems. Economic growth is driving a global consumer binge that is making unsustainable demands on the environment.Between 1970 and 2010 global consumption grew from a spend of $9.3 trillion to $31.8 trillion, with 80% of that growth in demand coming from affluent nations (World Bank online data sets). Simply letting the markets rip will only exacerbate the problems even further.

CLOSER TO HOME

And what of the problems confronting us closer to home: the treatment of asylum seekers; extreme poverty in remote indigenous communities; the rise of mental health problems; economic disadvantage; over 100,000 people homeless? Australia has experienced an unparalleled run of economic growth to become one of the world’s wealthiest nations, yet these challenges persist.

Economic growth will not resolve these problems for the simple fact that we are people, not merely consumers, and we live in communities, not simply economies. Human well-being derives from a broad range of things, of which economics is just one part. Sure, economic growth has allowed us to explore options previous generations might only have dreamed of. It has also allowed us to indulge our greed to a degree previously unimaginable. But it has never solved any problem. People and communities solve problems.

 

Is Fairtrade Fair or Am I a Naive Do-Gooder Who is Hurting the Poor?

What do you do when you discover that the Bangladeshi woman who sewed your new T-shirt gets paid so little that she lives in dire poverty, or that the football you kick around was made by an Indian child whose entire family stitch soccer balls for the princely sum of 70 cents a day, or that Nike was at one point paying Tiger Woods more to promote its products that the entire Indonesian workforce making the goods but living in poverty? If you’re like me you will be disgusted and want to do something about it.

One of those things I do is buy Fairtrade goods whenever I can.

Fairtrade is a system that seeks to establish a fair relationship between industrial world buyers and developing world producers. Farmers form cooperatives in which they avoid child and forced labour and seek ways to improve their farming practices. Buyers in the Fairtrade scheme agree that they will always pay a price that covers the cost of production (labour, inputs, insurance, etc. If the market price falls below this level, the Fairtrade buyer will not. If the market price rises above this, the Fairtrade buyer pays the market price), provide affordable finance and, on top of the purchase price, pay the cooperative an additional amount, usually 10%, to be spent on community development initiatives.

Sounds great, doesn’t it? But is it naive? Does it in fact undermine long term economic development? That’s what fans of free market theory claim.

Free market theory is relatively straightforward. It says allowing people to buy and sell without interference from governments or do-gooders like me results in the most efficient use of society’s resources. If my business only generates enough profit to pay workers $20.00 an hour but yours can afford to pay them $40.00 an hour, I will struggle to find staff and you will not. Eventually businesses like mine, which cannot compete, will shut down and businesses like yours will grow. It sucks for me but overall the economy gains by ensuring resources like labour flow to the most profitable areas. Workers gain because they get better paying jobs, the government gains by receiving more in tax, and we all gain as those taxes pay for better roads, hospitals and schools. Should some kind-hearted person artificially prop up businesses like mine, it may make them and me feel good, but it stunts the shift of resources to more profitable businesses. 

So on this theory, when do-gooders like me want to pay coffee farmers in Nicuragua more for their beans than the wider market is willing to pay, we upset the free market coffee cart. Instead of those farmers realizing their coffee is substandard and working hard to make it better so they can get a better price, they depend on my largesse to stay invested in a substandard product. Or when I insist on paying above market prices for cocoa, I unintentionally contribute to a situation where the cocoa growers stay in cocoa rather than investing in bananas where they could generate a better return. Fairtrade might sound fair, but it is naive and will only slow the economic development of poorer countries.

Mmmm…who is right? Maybe a free market is the most fair market?…Or maybe not. What all those free market fans forget to tell you is:

1. Their theory assumes perfect markets exist. They don’t

For example, the idea that free markets will push people into the most profitable jobs assumes a world where there is full employment. This means employers have to compete for workers which will push wages up until they reach their maximum affordable level. I will sell to the highest bidder, and those less efficient businesses that can’t afford me will fall by the wayside.

The problem is that these sort of employment markets don’t exist in poorer countries. In the world’s poor countries you have a huge labour force competing for a small number of jobs. Rather than driving wages up to a fair level, workers are forced to accept poverty level wages.

2. Their theory has never been tried in the real world. Fair trade has and it works.

Free markets have never existed anywhere in the world. “Hang on” I hear you say. “Isn’t ours a free market?”. Well, no, it’s not. We interfere in markets in all kinds of ways. Here’s just a few:

  • immigration laws that restrict the free flow of labour (Imagine what would happen to wages if we opened our borders. There’d be a massive influx of skilled people from poorer countries and wages would fall until a new equilibrium was reached. Can’t see that happening in a hurry);
  • minimum wage laws;
  • workplace health and safety laws.

The reality is that free markets don’t exist and never have. We interfere in markets all the time to protect ourselves and to protect the vulnerable.

3. They underestimate the place of power

Blind Freddy can tell you there’s something perverse about a system that sees garment workers in Bangladesh mired in poverty while the corporations that buy from them make massive profits. In the perfect world of free trade theory everybody is able to negotiate the price they want for their services and product and to walkaway if the price is not right. In the real world the woman working in the garment factory doesn’t have this power and gets exploited.

So it seems to me I may not be the naive one, that just maybe it is the free market ideologues who are naive. The Fairtrade system may not be perfect, and it may not be the model we eventually need for the global economy, but for now it’s the best option we’ve got if we want to ensure our trade is fair.

Dancing with the Devil. Nestle, Chocolate and Child Labour

The world’s largest food company, Nestle, does not have a good reputation with advocates for justice. For years the company has been accused of aggressively marketing infant formula to women in the developing world, leading them to preference formula over breast milk, at great risk to baby health. For example,  a 2013 report by Save the Children estimates that breastfeeding in the first hour after birth could save 830,000 infant lives each year. In view of this many people have joined a global boycott of Nestle products.

Until recently Nestle also  left justice advocates less than impressed with the ways it acquired cocoa for its chocolate products. Like the other major chocolate companies, Nestle sources a lot of its cocoa from West Africa. The cocoa is grown in Ghana and Ivory Coast on small family farms. In the Ivory Coast there are over 800,000 households farming and selling cocoa. Most are desperately poor, employ their children in often dangerous farm-work, and a small number hold slaves.

When this was exposed in 2001 a bill was passed by the US Congress proposing development of a “child labor free” label that would be applied to chocolate products. Before it was ratified by the US Senate, intense lobbying by the chocolate industry saw it withdrawn in favour of a voluntary code. As outlined by the Harkin-Engel Protocol, the voluntary code would see the Governments of Ghana and Ivory Coast, the chocolate industry and civil society groups working together on the issue, with July 2005 the deadline for a system to certify chocolate was free of worst forms of child labour. The deadline passed without any system in place and was extended to 2008, missed, and extended again to 2010, when it was again missed.

As these deadlines were missed consumer activists around the world demanded action. In particular, we asked the major chocolate companies to have their cocoa certified as child and forced labour free via one of the existing certification bodies such as Fairtrade, Rainforest Alliance, or UTZ Certified. The response was positive. In 2010 Cadbury announced its dairy milk chocolate was certified under the Fairtrade label, soon to be followed by Mars which announced its entire global cocoa supply would be Rainforest Alliance certified by 2020.

But what of Nestle? Nestle set up its own “Nestle Cocoa Plan”. This recognised that for cocoa farms to be free of worst forms of child labour and forced labour, a number of things needed to happen, including:

  1. Farmer incomes need to rise. When farmers are not earning enough to rise out of poverty, it is inevitable that they will employ their children and forced labour;
  2. Communities need to be educated about the benefits of education for their children;
  3. Schools need to be built and staffed.

Under the Nestle Cocoa Plan:

  1. Farmers are being provided with new cocoa trees and training in improved agriculture methods. In Ivory Coast most cocoa trees are old and their yield is declining. The trees distributed under the cocoa plan are seeing these replaced, with farm yields likely to increase fourfold;
  2. Farmers are forming cooperatives and selling direct to exporters. This skips two layers of middle-men and thus earns a higher return to farmers;
  3. Schools are being built in communities participating in the Cocoa plan and community awareness programs run;
  4. UTZ Certified is being contracted to certify that the cocoa produced by farmers in the cocoa plan is free of worst forms of child labour and forced labour.

Last week Nestle announced that all its Australian made confectionery is now UTZ certified.

These are great outcomes, and for the Australian context place Nestle at the front of the pack. But they are just the first step. The Nestle Cocoa Plan, at June 2012, covers just 20% of Nestle’s cocoa supply in the Ivory Coast. The remaining 80% is sourced through regular channels, with their high levels of abusive child labour.  The company has made no public commitments to when it will get this figure to 100%. It’s preferred approach is to make public announcements only when it has achieved a goal.

Moreover, Nestle continues to rely on pure market forces to improve farmer income. The argument is that by helping farmers increase the quantity and quality of cocoa they produce, they will get greater returns. This will be true if demand increases in line with productivity gains, which Nestle predicts will happen as the Chinese and Indian markets grow. If demand doesn’t increase sufficiently, cocoa farmers will see a declining price.

But will pure market forces ever be enough? Cocoa farmers are making a 25 year investment when they plant cocoa trees, and over that 25 years prices will fluctuate wildly. The chart below shows the price fluctuations of the last 30 years as a guide.

cocoaprices

At few, if any points, has the market price been sufficient to lift cocoa farmers out of poverty, and at many points has been so low they are plunged into extreme poverty. It seems to me that companies like Nestle need to pay above market prices. They should determine what farmers need to enjoy a living wage (ie enough to meet their living costs) and never pay below it. This would function as a floor rather than a fixed price.

I know this will be greeted by howls of protest from my free market friends, but I would point out that this is a market with many imperfections and that we interfere with our own market all the time – minimum wages, workplace health and safety laws, immigration restrictions, tax breaks, and more – and still manage to run a viable economy. Markets should work for people, not the other way around.

So back to the issue which opened this post. Though there is still a long way to go, Nestle is doing some very good things on cocoa, and in the Australian market are the standout for consumers of chocolate. But they are still reported to aggressively promote infant formula to poor families. So am I letting them off the hook by praising them for what they’re doing on cocoa? Do I join the boycott until they are doing justice across their entire range of products, or do I buy their chocolate and simultaneously urge them to do better on baby milk?

I am not convinced boycotts achieve much. I suspect it’s better to engage with Nestle as a concerned consumer of their products, to praise them when they do well and critique them when they do injustice. It does mean buying from a company that I am told engages in some practices I deplore. Does that make me complicit in those practices? It probably does, but I also know that were I to stop buying from every company with behaviours I consider deplorable I would have to stop buying altogether. Nestle is hardly alone. It seems to me that almost all consuming is ethically tainted, but by raising my voice from inside the system I can hopefully play my part in removing some of the stains.

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