Changing Labour Regulations and Labour Standards in China: interview with Khalid Nadvi

At a workshop on Law and Finance in Rising Powers, held at the Centre for Business Research, University of Cambridge, Khalid Nadvi, Reader in International Development University of Manchester, and the research programme co-ordinator for the ESRCs Rising Powers and Inter-dependent futures programme, presented his work on labour standards in China. This podcast interview gives an overview.

Nadvi said: “Our paper has been looking at how our changing labour regulations are impacting on labour standards in China. The paper that we presented is an introduction to a special issue of the International Labour Review which is on this theme coming out in December 2014.

What we are trying to look at is how does the rise in the labour regulation that we have seen in China in recent years impact on questions around labour standards working around labour conditions and labour rights.

I think things are changing and what we are beginning to see in those changes is that increasingly there is an improvement in real wages. There has been a lot of labour activism and in fact grass roots activism with wild cat strikes and so on, and one of the consequences of that is that there has been a rise in real wages in much of the region along the coastal belt and pearl-river delta and the province of Guangdong. But the nature of the labour regime in China and the working conditions in China is varied and so if you move further inland to inner provinces you might still see very poor conditions and very harsh working environments.

We need to do more analysis of ways in which national, regional and local levels of government engage with this agenda. Looking at labour regulations and the law that has been passed is not going to be enough we need to see how they get implemented and what our evidence is pointing to is that the nature of that implementation varies at the local level. There are reasons why those variations take place.

When you look at the BRICS,  Brazil is the most interesting it is a fascinating story of the ways in which regulation around law, around finance, around labour standards, have really moved ahead. Brazil is interesting and is almost an outlier. China falls somewhere in the middle and Russia is at the other extreme, where we don’t see very strong legal institutions beginning to take effect and so therefore we see all sorts of issues around corruption.”

Listen to the full interview with Khalid Nadvi

More podcasts from the workshop on Law and Finance in Rising Powers,
Centre for Business Research, University of Cambridge, December 9th 2014

Improving labour conditions in the computer industry

Image by Victor Habbick,
FreeDigitalPhotos.net

By Khalid Nadvi and Gale Raj-Reichert

Many leading global brands, like Apple and Hewlett-Packard, source components from and have their products manufactured by a variety of independent suppliers. These suppliers undertake production in many locations across the world in vast global value chains. Ensuring that these suppliers meet international standards on labour, health and safety and environmental impacts is an increasing challenge for the global brands in the computer industry. These pressures are often accentuated by campaigning non-governmental organisations (NGOs), trade unions seeking to ensure better working conditions, and by governments keen to enforce public regulations. There has been substantial progress by the leading brands to engage with their first tier suppliers on such concerns. However, little is known about how labor standards and codes of conduct are addressed by second tier suppliers found at the lower tiers of global value chains, where the governance of labour conditions can be extremely challenging. Are private or public measures more successful in reaching suppliers down the global value chain? This question is addressed in a recent paper by Dr Khalid Nadvi and Dr Gale Raj-Reichert from the Institute for Development Policy and Management at the University of Manchester, “Governing health and safety at lower tiers of the computer industry global value chain” in the journal Regulation & Governance (the article is offered as open access and is free to everyone).

The paper investigates whether, and how, occupational health and safety standards permeate down the computer industry global value chain. It does so by comparing first and second tier suppliers located in Penang, Malaysia and their engagement with a private voluntary industry code - the Electronics Industry Code of Conduct (EICC), and the publicly regulated European Union Directive on the Restriction of Hazardous Substances (EU RoHs).

The EICC, which was developed in 2004, specifies guidelines for firm conduct and policies on labour, occupational health and safety, the environment, ethics, and management systems. The EICC is a voluntary standard and firms that comply with it are required to ensure their suppliers also implement it. The EU RoHS, which came into effect on 1 July 2006, limits the use of hazardous contents, such as lead and brominated flame retardants, in electronics goods of all electronic products sold in the European Union. The penalty for not complying with EU RoHS includes fines and the denial of market access to the EU. Both the EICC and the EU-RoHS directive have direct and potentially positive impacts on the occupational health and safety conditions of workers in factories that produce electronics goods.

The study reported in the paper investigated a group of second tier suppliers in Penang, Malaysia and found that while none of them complied with the EICC code, the majority of them did meet the EU RoHS requirements. The second tier suppliers managed to comply with EU RoHS largely using their own resources with little or no assistance from other firms or the Malaysian government. Through case studies of different second tier suppliers the paper sets out to explain why these suppliers prioritized the EU RoHS over all other governance measures.

The findings show that EU RoHS because of its mandatory legal stipulation made it a de facto market entry requirement for suppliers that were already plugged into global value chains linked to the European market. These findings raise important questions about the role of public regulation and public governance in improving labour conditions in global value chains. While there has been an emphasis over the past three decades on private standards and private measures for governing labour conditions in global industries, experience has shown these measures to have weak outcomes. When one travels further down to smaller suppliers in lower tiers of global value chains in developing countries, private labour standards can be altogether missing. This is often because small suppliers usually have weaker technical, managerial and financial resources. Moreover, many lower tier suppliers in the electronics industry are located in developing countries with weak government agencies and regulatory oversight over labour conditions. This was exactly the case of the second tier suppliers in Penang featured in the paper. For the majority of these suppliers, government agencies did not assist with the compliance of any type of private or public standards on labour conditions.

The paper highlights a critical and important finding which suggests that mandatory standards directly tied to market access may be better able than voluntary private standards to penetrate down the global value chain to reach second tier suppliers. This signals the efficacy and importance of market access regulation over private voluntary initiatives in the most difficult places of global value chains. While market access standards (especially pertaining to labor and the environment) have been difficult to implement at a global or multilateral level (given World Trade Organization restrictions) there are however many examples that prove it is possible at the regional, national/bilateral, and even local levels. For example, China, Japan, South Korea, Turkey and California have all implemented their own versions of a RoHS.

Moreover, market access standards can have harmonizing effects on an industry. Take the printed circuit board industry as an example. After the EU RoHS banned the use of lead, printed circuit board companies found it more expensive to operate two different types of manufacturing processes – one that uses lead for non-EU markets and one that is lead free, complying with EU RoHS, and destined for the EU market. Also, brands such as Apple and Dell now require all of their products globally to comply with EU RoHS.

The findings of the paper support arguments for complementary public-private governance arrangements. Our findings suggest the need for policy actors and researchers to further investigate how to better integrate private regulation with public regulation and public enforcement in order to improve working conditions at lower tiers of the global value chain. 

For more details, please refer to: Nadvi, K. and Raj-Reichert, G. (2015) 'Governing health and safety at lower tiers of the computer industry global value chain',  Regulation & Governance, doi: 10.1111/rego.12079 . The paper can be accessed free.

Two 'Rising Powers' articles among most downloaded articles in 2014

Two journal articles previously presented on this blog have now been included in an online article collection featuring the most downloaded articles published in Routledge Social Sciences journals in 2014. The collection features the top three most downloaded articles that were published and downloaded in 2014 in each Routledge Social Sciences journal. 

Guarín, A. and P. Knorringa (2014), New Middle-Class Consumers in Rising Powers: Responsible Consumption and Private Standards, Oxford Development Studies, Vol. 42, No. 2, pp. 151-171.

In this article, Alejandro Guarín and Peter Knorringa ask how new middle-class consumers in the Rising Powers will influence ethical consumption patterns and private standards on socially and environmentally responsible production. Read the full blog post here.

Nadvi, K. (2014), “Rising Powers” and Labour and Environmental Standards, Oxford Development Studies, Vol. 42, No. 2, pp.137-150.

In his introductory article to a special issue on "Rising Powers" and Labour and Environmental Standards, Khalid Nadvi outlines what makes the Rising Powers special and in what ways they affect global labour and environmental standards. Read the full blog post here.

Both articles will be freely available on the publisher's website until the 30th June 2015.

The full collection of most read articles can be accessed here: http://bit.ly/social-sciences-most-read 

Changing Labour Regulations and Labour Standards in China

By Chris King-Chi Chan and Khalid Nadvi 

Image by Stuart Miles,
FreeDigitalPhotos.net

Chris Chan and Khalid Nadvi introduce a special issue of International Labour Review, Vol. 153, No. 4, that highlights key dynamics and upcoming challenges around labour regulations and labour standards in China.

Cheap clothes, shoes, toys, electronics… - China’s exports of cheap manufactures have contributed substantially to its reemergence as a global economic power over the past three decades. This model of economic growth has largely been based on low wages, keeping production costs low and making exports competitive. However, more recently this picture is changing. Workers are going on strike for higher pay and better working conditions, international NGOs are putting pressure on multinationals to abandon sweatshop production, and the Chinese government is trying to safeguard a ‘harmonious society’ by protecting workers through stricter labour laws. 

How do these dynamics reflect broader debates on public and private regulation? The contributions in this special issue illustrate the limits of voluntary private regulation through Corporate Social Responsibility (CSR) activities, which have been described by researchers interested in labour standards in Global Value Chains and Global Production Networks. Further, in line with the literature on labour in China, the articles in this collection underline the importance of ‘hard’ public regulation by the state, but also show the complexity of effectively implementing such labour laws. 

The individual articles in this issue shed light on different aspects of labour issues in China. First, Lüthje finds an increasing segmentation between high- and low skilled workers in the Chinese automobile industry, who face very different working conditions and wages. Further, Ngok and Zhuang highlight difficulties in implementing new labour laws in China, and make suggestions to increase the efficiency of the labour inspection regime. Hui and Chan document the role of multinationals in lobbying against stricter labour legislation in China through Hong Kong based business associations, which highlights links between global and local pressures around labour regulation. Finally, Wu and Sun critically analyse the practice of collective consultation, in which workers are represented through the All China Federation of Trade Unions. Their findings point to the need for further analysis of trend towards collective bargaining in China. 

Overall, the articles show strong dynamics of changing labour conditions in China, primarily based on increased worker activism and the state’s efforts to respond to these. More research is needed to grasp these changes, in particular as significant differences are emerging across economic sectors and across regions in China. Analysing these requires moving away from the perception of the Chinese state as a homogeneous actor and recognizing different dynamics at local level. Further, in a context of global production arrangements, combining research on labour relations in China with perspectives on labour standards in global production networks appears to be a fruitful approach that should be pursued further. 

For more details, please refer to: Chan, C. K. and K.Nadvi (2014), 'Changing labour regulations and labour standards in China: Retrospect and challenges', International Labour Review, Vol. 153, No. 4, 513-534.
DOI: 10.1111/j.1564-913X.2014.00214.x

The individual articles in this special issue can be accessed here: International Labour Review, Vol. 153, No. 4, Special Issue: LABOUR REGULATIONS AND LABOUR STANDARDS IN CHINA

Small firms and Corporate Social Responsibility: comparing the social contract in Brazil, China and India

By Peter Knorringa and Khalid Nadvi 

image by David Castillo Dominici/

FreeDigitalPhotos.net

In a recent article published in the Journal of Business Ethics, Peter Knorringa and Khalid Nadvi compare the local institutional context for socially and environmentally sustainable behaviour in small firm clusters in Brazil, China and India. The paper points to a number of open questions around small firms and CSR in the Rising Powers.

Multinational companies have been adopting elaborate Corporate Social Responsibility (CSR) programmes at global level, but often face difficulties in implementing social and environmental standards throughout the supply chain - especially with many small suppliers located in emerging economies. To better understand how and when small firms are likely to improve their social and environmental performance, we propose to pay closer attention to the underlying social contract in these countries, including the formal and informal institutional context for CSR.

Important elements of such a social contract include both the national policy framework of labour and environmental regulation, as well as informal norms on ethical behaviour and traditions of compliance with formal rules that may exist in local industrial clusters. Hence, small firms that are located in industrial clusters in emerging economies and are supplying to multinationals not only face demands for compliance with global CSR standards from their international buyers, but they are also strongly influenced by the local context they operate in.

Nevertheless, we currently know very little about how these local and global forces interact. Do national labour laws and private social standards from MNCs complement each other in pushing for better working conditions in small firms? Are there informal ethical norms in local communities that small entrepreneurs belong to, which facilitate compliance with global CSR standards? Or, on the other hand, will small firms be less likely to comply with global social standards if they operate in a context where national labour laws are weakly enforced?

Comparing the social contracts in Brazil, China and India reveals differences in the local context for CSR, and in the ways in which these interact with global CSR standards:

In India, informal labour is common in small firms, which means that workers are not covered by formal labour laws. In addition, complex layers of subcontracting make it more difficult for international buyers to influence compliance with global CSR standards in suppliers. As a result, small firms in India face little pressure to improve social and environmental performance from the outside, and any willingness of entrepreneurs to engage in more social and environmentally sustainable production for ethical reasons is made more difficult by cut-throat competition in very price-sensitive markets.

In Brazil, on the contrary, there is relatively less informal employment. Labour laws in the formal sector are generally enforced, for example through a system of labour inspectors monitoring and facilitating compliance. Further, there is growing cooperation between the public and private sector around sustainability issues at national level which sets the scene for mutually reinforcing engagement including on global sustainability standards.

China is an intermediate case, where national labour and environmental laws have become stricter over the past decades, but the details of regulations and the effectiveness of enforcement differ across regions. Hence, the local institutional framework may be better positioned to accommodate global CSR demands than in India, but seems less conducive to effective enforcement of social and environmental standards than in Brazil.

Future research on CSR in emerging economy industrial clusters should explore in more detail the interactions between CSR pressures from global buyers and the localised social contract in which small firms operate. This requires paying attention to how public policies and informal norms at national and local level facilitate or hinder compliance with global social and environmental standards. In addition, it will be important to observe how the emergence of increasingly affluent middle classes in emerging economies such as China, India or Brazil influences the demand for social and environmentally sustainable goods in domestic markets. Potentially, such domestic sustainability standards in emerging economies may also begin to shape the formulation of global standards, as these countries increasingly engage in global governance fora.

For more details, please refer to:
Knorrigna, P. and Nadvi, K. (2014) 'Rising Power Clusters and the Challenges of Local and Global Standards', Journal of Business Ethics, September 2014.