Procrastinating at YouTube I type in sentimental search terms in hope of dredging up long lost gems.
And I am not disappointed. The magnificent John Cooper Clarke is there – about 50 separate videos,some original, others homages to the man.
For those who have not had the pleasure, here are a few nasal rhymes from a true original:
Health Fanatic
Beasley Street
I mustn’t go down to the sea again
In Happy Shoes II I argued that if the market is left to isolated consumers and companies, the prospects for ethical consumption are bleak. The primary barrier to
establishing fair trade is reliable information about production conditions, not the
ethical standards of those in the boardrooms. When individual consumers cannot
verify ethical production and when even well-meaning companies cannot prove
that they are walking the walk, the outcome is as
if we didn’t care about ethical production at all. In the absence of reliable
information ethical companies are punished; in the presence of reliable
information even scummy companies may find it worth their while to behave
ethically.
So how do we get reliable information? One thing is for certain: as individual consumers we are
not going to collect that information ourselves. It costs a lot more than the
$20 premium our archetypal consumer is prepared to pay to verify factory
conditions in Bangladesh.
Free-market enthusiasts says that self
reporting and brand reputation will do the trick, because brands tell consumers what
the company stands for (essentially the Potter & Heath argument I quoted in Happy Shoes I). But brands are cheap talk: smart consumers know that
for every company claiming to stand for decency that actually does the
right thing, there’s another one mouthing the words while screwing its
employees, and that we can’t tell the difference. What a company says about
its own behaviour is inherently untrustworthy – it has too many reasons to bend the truth. That’s obviously why voluntary "codes of practice" have been
taken with such a big shovel of salt (two examples: see Charles Fishman on
Wal-Mart here,
or the Nike Andrew
Young affair from a few years ago).
That’s not cynicism, that’s realism.
Nevertheless, many kinds of verification bodies have appeared
to put varying degrees of teeth into the codes, from the use of professional
auditors (Ernst & Young for example) to industry self-government bodies (the Fair
Labor Association in the USA) to independent specialist groups (Verite being
an example) to bodies with roots in activism (Workers’ Rights Consortium).
Some monitor, some provide complaint-handling mechanisms as an
alternative.
But there are
incentives at work for these monitoring bodies too. There are
incentives for those paid by the companies to develop a collusive
relationship over time; those acting on behalf of activist may have
incentives to exaggerate. More ambiguity and puzzlement.
And what’s more, the
variety of verifiers is matched by the variety of possible criteria for
"ethics". Ethical production is not, after all, an all-or-nothing
affair. Wages, rights, conditions, harassment, broken employment
contracts and so on are all issues that come into play.
In the face of all this complexity (which will differ from
product to product, market to market) is there anything
general that we can say? Obviously the specifics of each case are of overriding importance – and you should
look elsewhere for them – but perhaps we can get just a little something out of simplistic thinking.
Information about
production is a public good. Consumers are in a particularly bad place
when it comes to producing such public goods for a few reasons: we
cannot easily cooperate with other consumers because shopping is such
an individual act, we are a heterogeneous bunch with differing
preferences, and we live in many different places, each of which makes
it more difficult to coordinate our actions.
It is no surprise,
then, that the biggest successes of the anti-sweatshop movement came at
universities, and in particular from student activists putting pressure
on the production of university-branded goods. First, university
students are a relatively homogeneous crowd. Second, they are all
lumped together on campus, so there is a lot of peer pressure over who
wears what. Third, they can influence production not just as consumers
at the till of the university store, but as students who have a voice
in university governance. The fact that the Collegiate Licensing
Company was agent for 160 universities provides a focus for political
pressure across campuses, and one with enough clout to transmit that
pressure to the producers. So political action becomes the mechanism
for collectively expressing individual consumer preferences for ethical
production.
Seen in this light,
rag-tag groups of black-clad, drum-pounding anarchists are performing a
role not too different to that of consumer magazines. They are
highlighting the information needed to enable consumers to make better
choices, and to help markets function better. Not a role they would
identify with, perhaps,but a useful one nonetheless.
One thing about information is that it may
cost a lot to find it out, but it can then be easily made available to
many people. The codes and practices adopted as a result of activist
pressure have been used in the wider marketplace as a way for other
consumers to identify ethically-produced goods, and giving companies
prepared to make such a commitment a chance to make money off it.
We get to free-ride off the efforts of activists but this is not, I guess, a form of free-riding they would object to.
There’s one other thing I think can be said from simple thinking about information, but I’ll save it for tomorrow (or so).
Thanks for the comments, both here and on Brad DeLong’s blog.
The message of the previous post was supposed to be that, if left to only isolated consumers and companies,
the prospects for ethical consumption are bleak. As
several people pointed out, in the real world things do look a little
brighter. But all the useful action in credence goods – whether it is the kosher certification market
or fair trade labelling organizations or trade restrictions – happens
because of groups other than the usual competitive
market actors.
Also, if there is nothing new under the sun there is definitely nothing new on this blog. I’m just trying to work out some things about consumer activism and labour standards "in my own words" after finishing reading Can Labor Standards Improve Under Globalization?
by Kimberly Ann Elliott and Richard B. Freeman which, despite being a
candidate for the most boring title in the history of publishing, is a
fine and practical survey of everything from the role of activist
groups to governmental and transnational institutions like the WTO and
the ILO. I highly recommend it.
For anyone interested, here is a selection of other writing on and around this subject that is available to those of us who don’t have everyday university access to journals (most are PDF links):
The
evolution of credence goods in customer markets: exchanging `pigs in
pokes‘, Esben Sloth Andersen and Kristian Philipsen Draft, revised January 10, 1998
Monitoring Labor Standards in a Macroeconomic Context Bill Gibson, April 2003
LABOUR AND ENVIRONMENTAL STANDARDS: the “Lemons Problem” in
International Trade Policy EUGENE BEAULIEU AND JAMES GAISFORD, May
2001
Is There Consumer Demand for Improved Labor Standards? Evidence from Field Experiments in Social Labeling, Michael J. Hiscox and Nicholas F. B. Smyth, 2006?
Timothy J Feddersen, Thomas W Gilligan (2001) Saints and Markets:
Activists and the Supply of Credence Goods Journal of Economics &
Management Strategy 10 (1), 149–171.
Fair Trade as an Approach to Managing Globalization Michael J. Hiscox, conference on Europe and the Management of Globalization, Princeton University, February 23, 2007.
Signaling Social Responsibility, Jason Scott Johnston, Robert G. Fuller, Jr., November 2005, Working Paper No. 14, A Working Paper of the: Corporate Social Responsibility Initiative
Corporate Social Irresponsibility by Aaron Chatterji and Siona Listokin, Democracy, Winter 2007 (via Economist’s View)
PREFERENCES FOR PROCESSES: THE PROCESS/PRODUCT DISTINCTION AND THE
REGULATION OF CONSUMER CHOICE, Harvard Law Review Douglas A. Kysar,
December 2004
Next post – back to some actual content.
At the end of the previous post it
looked as if, so long as enough consumers are prepared to
pay a premium for ethically-produced goods, Happy Shoes should be able
to make a profit, pay its workers better than Sweatshoes, and satisfy
customers all at the same time.
But — contrary to what Potter & Heath claim — it is difficult for companies to make money by selling
"shoes made by happy workers" because "ethical production" is a credence good. When you buy shoes, you can tell if your new shoes fit well, you
can tell what they are made of, and you can tell whether you like the style. But you can’t tell what the person making them got paid.
Like the benefits of fluoridated toothpaste and organically-grown vegetables,
it’s something you basically have to take on trust.
This lack of information provides an opening for unscrupulous
vendors. To understand this market we have to think not only about Sweatshoes
offering their $100 shoes and about Happy Shoes offering their $120 pair, but
also about a third company. "Ethical Feet" comes to town
with some fine-sounding words about their commitment to fairness and decency,
offering to sell you an ethically made pair of shoes for $115 — $5 less than
Happy Shoes. It sounds like a good deal — the benefit of ethical consumption, and an extra $5 left in your pocket.
But the difference is that Ethical Feet doesn’t
actually pass on any of the extra $15 you pay to the people making the
shoes. It just keeps your money. Ethical Feet would sell the shoes
cheaper than Happy Shoes, but make more profit — $25 profit per pair
rather than $20.
It looks like Ethical Feet may drive Happy Shoes out of
business by making unverifiable false promises, but the story does not stop here. This is not a tale of corporate trickery and consumer
stupidity. As George Akerlof writes: this problem of trust is "as old
as markets themselves. It concerns how horse traders respond to the natural
question: "if he wants to sell that
horse, do I really want to buy
it?"
Smart consumers who are
prepared to pay more for ethically produced goods are still not
prepared to be suckers. We are not going to pay $115 or even $120 for a
pair of shoes just because a company says they
are made by happy workers — a claim we cannot verify. In a market of
smart consumers wanting to buy shoes made by happy people, the $115 Ethical Feet shoes and the $120
Happy Shoes – stay on the shelf. As consumers we can’t tell the difference between Ethical Feet and Happy Shoes, and we know that a company that carried out its promises is vulnerable to unscrupulous competition.
The company that stays in business is Sweatshoes. It pays cheaply and
sells cheaply, and as consumers we pay $100. We may not feel good about
this, but at least we are not being tricked. The end result is just the
same as if we didn’t care about the salaries at all. As consumers, it
seems we are not sovereign when it comes to ethical production.
The next post will probably deal with ways around this problem.
This is the first in a meandering, loosely-related series of posts about consumer activism. I haven’t worked things out to the end so I won’t say where I think it’s going, and the series may fizzle out but this is, after all, just a blog – and a slow-moving occasional one at that.
Here is a quotation from Andrew Potter and Joseph Heath’s book The Rebel Sell (based on a provocative 2002 This Magazine article you can find here ):
If
consumers are willing to pay more for shoes made by happy workers — or for eggs
laid by happy chickens — then there is money to be made in bringing these goods
to market. It’s a business model that has already been successfully exploited to
great effect by The Body Shop and Starbucks, among others. [p2]
True, or not?
Here is how it is supposed to work. Suppose
you want to buy a pair of shoes and you only have one choice — the
only shoes available are from Sweatshoes Inc. , which makes their shoes
in a sweatshop, pays their employees very little, sells shoes for $100,
and makes a profit of $10. You buy them because you need shoes.
Along comes Happy Shoes,
which makes shoes "ethically" and pays their employees better. Because
you are a decent person, you’re willing to pay an extra $20 for an
ethically-produced pair from Happy Shoes.
Happy Shoes could pay its employees $10 more than Sweatshoes pays theirs, sell you the
shoes for $120, and still collect a hefty $20 profit. The
Happy Shoes employees are happy because they get paid more, the Happy Shoes customers are happy because they have got their
ethical shoes at a price they’re prepared to pay, and
Happy Shoes shareholders are
happy because they have made $20 profit rather than $10. Everyone is better
off if you buy Happy Shoes, except for Sweatshoes – and good
riddance to them.
There have been some successes for ethical consumer products. Ben and Jerry’s ice cream and
The Body Shop were long-time standard bearers of companies that have traded on
their ethically-spotless image. Smaller businesses that sell organic foods
or village-produced trinkets do the same. Even Adbusters has got into the
buying and selling game with their Blackspot shoes. It’s an appealing
idea: replace the moustache-twirling, cigar-smoking sweatshop-runners
with enlightened and decent people, and you can change the world.
But after a decade or so of consumer activism the successes are still few and far between. As Bill McKibben writes in the November 2006 Mother Jones:
Ben and Jerry didn’t change the way Haagen and Dazs viewed the world. Somehow, Bounty has been willing to leave the thoughtful paper towel market to Seventh Generation. For several decades now, environmentalists have been citing the work of Ray Anderson and Interface, and it’s a great example — but why is there still only one Ray Anderson?
When it comes to actually putting down cash, are we not prepared to pay the additional money for
Happy Shoes? That’s the next post.
Which explanation for Google’s announcement of a $600 million data centre in Iowa is the right one? This?
Google is interested in placing data centers in
the middle of the country because it is a "busy crossroads of Internet
activity," it said in a statement.
or this?
"Last month, Gov. Culver signed a bill upgrading Iowa’s tax system
related to sales tax, use tax, and property tax for computer related
businesses," the governor’s office said. "The state legislature’s work
exempts the electricity and capital investment necessary for this kind
of a facility from sales tax, as is common in the manufacturing sector."
The first report is from trade magazine InfoWorld. Google is saving all those electrons from having to go all the way across the country – it’s probably some kind of nice green initiative. The second comes from the Register, which is the Private Eye of trade magazines.
Sorry InfoWorld, I’ll be getting my tech news from the Register.
Yesterday I read that Paul Krugman has a lot more time for opponents of free trade than he used to:
It’s no longer safe to assert, as we could a dozen
years ago, that the effects of trade on income distribution in wealthy
countries are fairly minor. There’s now a good case that they are quite
big, and getting bigger.This doesn’t mean that I’m endorsing
protectionism. It does mean that free-traders need better answers to
the anxieties of those who are likely to end up on the losing side from
globalisation.
This from the man who wrote some of the most persuasive pro-free-trade essays of the 1990s. He describes the change as a change in the world (specifically, China being bigger than Korea) rather than a change in his position, but it made me wonder what’s going on…
Now today I see some responses from other professional economists:
Brad DeLong finds himself skeptical of Krugman’s argument.
Dani Rodrik is moderately pro-Krugman.
Tyler Cowen thinks DeLong is on the right track.
Will Wilkinson of the Cato Institute disagrees with Krugman.
Now all these folks are experts, while I wouldn’t know a Heckscher-Ohlin model if it jumped up and hit me in the nose, but I can’t help notice that they pretty much all adopt the side you’d expect them to. Krugman has been switching away from the kind of pro-free-trade view he used to endorse steadily. Cowen and Wilkinson are pro-free-trade, libertarian enthusiasts. Rodrik is a long-time sceptic (or skeptic, depending on where you come from). DeLong could have gone either way, because he leans leftwards politically but is very committed to standard economics as a way of looking at the world – the economist has won out this time.
Can we believe that these experts have taken a dispassionate look at the situation and have coincidentally come to conclusions that line up with their politics? It’s just not plausible.Are they just using their economic expertise as a cover for their prejudices? I’ve read enough of most of them (Wilkinson aside) that I don’t think so. So how come their politics and expertise line up so nicely?
Opinions – even expert opinions – are like magnetism, in that they exhibit hysteresis. Here’s a graph:
The X axis is the applied field, and the Y axis is magnetization. Take an unmagnetized needle and apply a magnetic field to it, and sooner or later the needle becomes magnetized (goes up the right-hand curve to the high point on the top right). But take away that field and the needle does not revert to its nonmagnetic state. It stays trapped, with all its dipoles lined up, along the top line. You have to apply a significant field in the other direction to get it to demagnetize (go down to the bottom line at the lower left). The magnetization over-shoots. It switches between two relatively stable states, and the state its in depends on its history.
A lot of things behave like this, and opinions are one of them. We all have pre-formed opinions – imagine the bottom of the graph is "free trade is good". If we accumulate evidence that leads us to change our mind we move to the top "free trade is not so good" line. Now suppose we hear some more evidence that pushes us the other way – do we switch back right away? No, we hang on to our existing beliefs until the weight of evidence becomes unavoidable. Switching basic views is a big thing, and we can’t be forever changing back and forth.
In the middle of the graph, a free trader and a non-free-trader can both look at new evidence without changing their mind. Neither is being dishonest (well, they might be, but they don’t need to be) but both look at the evidence and says "is this enough to make me change my mind?" and conclude "No."
Krugman’s writing for the New York Times over the last several years have shown, in addition to a consistent and admirable articulation of the million ways the Bush administration has screwed people around, an increasing scepticism that the free market will solve our problems. He’s made the switch from one level to another, and his view is coloured by where he sits now ( public intellectual) just as it used to be coloured by his position in the professional economist culture.
I’ve thought of this graph a lot in the last few years. It applies to trust, our opinion of others (who do you give a break to, and who don’t you) our political views, and so on. I think it explains why experts disagree – and why those of us watching experts debate from the sidelines won’t often change our minds either.
