Putting Dignity & Rights at the Heart of the Global Economy

2 Governance in the Global Economy

At the center of any social and economic system are the principles and rules that govern interactions among institutions and people. Who makes these rules? In what venue? Who benefits from them? What are the consequences of breaking them? The answers to these questions are at the heart of governance. Governance enfolds individuals in an overlapping series of rules and practices that extend from the household, workplace and social institutions to the national, regional and international levels. Individuals and communities navigate through these dense systems of formal and informal rules, juggle many different ideas of governance, and negotiate with a plethora of governing structures. Our challenge is to transform governance at all levels—international, national, private sector, local and individual—in order to reinforce dignity and equity in today’s global economy. As we emphasized earlier, we should not fall into the trap of thinking that there is only one way of organizing economies to eliminate poverty and balance economic growth with environmental sustainability. Economic institutions need to be adapted to the needs of a particular place and people. As Joseph Stiglitz suggests, “new and complex situations call for experiments; not one but many experiments.” While experimentation is essential, all economic systems that enhance human rights and dignity have certain core characteristics: participation, , and equity. Participation is the cornerstone of good governance. Rethinking governance structures and the transformation of the global economy must be guided by those whose lives will be changed, and this must involve greater leadership roles for women and people of color. As Nolleen Heyzer, Executive Director of the UN Development Fund for Women, stated at the 2004 Summit of the Americas, “In a world that is growing more complex, the development of a more inclusive society based on democratic governance enables all citizens to participate and shape policies and practices to bring about greater equality, peace and security. Women are the vital, but often missing, link in this process, and in spite of their potential to offer innovative solutions, especially in times of crisis, they are rarely those to whom nations turn first.” In recent years, the rhetoric of participation among institutional actors has increased much more than action. For example, as discussed earlier, the IMF and the World Bank, in response to outside pressure to increase civil society participation in constructing poverty reduction plans, initiated Poverty Reduction Strategy Papers. One of the core principles of these plans is to “promote national ownership of strategies through broad- based participation of civil society.” Yet, many civil society groups have found this process to be simply another attempt to build ownership around standard Bank and IMF policies with only token participation by civil society. The challenge remains to build genuine participatory governance structures at the local, national and international levels grounded in the Universal Declaration of Human Rights.

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International level There is a democratic deficit at the global level: the size and power of international economic institutions have overwhelmed the existing political mechanisms for representation, transparency and accountability. Affected populations around the world consequently feel even further removed from economic decision-makers, for their voices and the voices of their governments are overpowered by wealthier countries. At the international level, the global economy does not have the kind of safeguards and enforceable legal mechanisms that many national economies have implemented to ensure transparency and accountability. The United Nations is the most representative multilateral institution. However, there are two principal decision-making bodies: the General Assembly, which includes all members and in which each nation has an equal vote, and the smaller Security Council, in which the major powers wield disproportionate influence through exercise of their veto in the Security Council. Moreover, the has periodically withheld its dues from the United Nations or its more specialized agencies to apply pressure. The UN has held conferences and reached policy decisions on a wide range of subject areas in its economic and social brief, including gender, racism, sustainable development, population, housing, social development and human rights. These government-to- government meetings have incorporated substantial input from civil society. UN conferences have produced important declarations, conventions and programs for action. Examples include the Rio Declaration on Environment and Development, the Millennium Development Goals, the International Convention on the Elimination of All Forms of Racial Discrimination, the Convention on the Elimination of All Forms of Discrimination Against Women, Convention on the Rights of the Child, and the International Convention on the Protection of the Rights of All Migrant Workers and Members of Their Families. Although singularly representative, the United Nations does not manage the global economy or set its rules of operation. The IMF and World Bank are part of the UN system but as autonomous specialized agencies, not under UN management. The AFSC believes it is important for a reformed UN to take a more active role in governance of the international economy. For example, a more effective UN Economic and Social Council (ECOSOC) could have a role in providing transparent and effective oversight of the World Bank and the IMF. The UN could provide a mechanism and resources to ensure participation by civil society in the deliberations of the international financial institutions. The International Labor Organization (ILO) is the oldest of the organizations under the UN system, founded in 1919, predating the United Nations by a quarter century. Its membership is unique, in that each of the 177 member states names four persons to its delegation: two representing government, one representing business, and one representing labor. Each delegate votes individually. Since its inception, the ILO has adopted 182 Conventions, each by at least a two-thirds majority. Five principals, embodied in seven Conventions, have been lifted up as “core labor standards” discussed earlier. Member states are encouraged, but not required, to adopt each Convention and incorporate its provisions into domestic law. Four of the five core labor standards (excepting the Convention on child labor) have been adopted by a majority of ILO

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member states. The United States has ratified 14 of the 182 Conventions, including only 2 of the 7 core Conventions: Elimination of Forced and Compulsory Labor and Abolition of Child Labor. Member states submit an annual report on each Convention they have adopted. ILO members and workers in member states that have adopted a particular Convention may call violations to the attention of the ILO. But the ILO has no real enforcement powers to back its recommendations beyond moral suasion. Solid enforcement mechanisms—going well beyond the limited, last-resort avenues under Article 33 of the ILO Constitution, which were invoked in the case of forced labor in —are essential if the ILO is to uphold labor rights and labor rights are to be taken seriously. The World Trade Organization (WTO) attempts to make decisions by consensus, backed up by a one-country, one-vote provision. Effectively, however, major decisions have more often been made in small “green room” caucuses, usually dominated by the rich countries. “Negotiations” often take the form of arm-twisting. Dissatisfaction with this process has risen to the level that alternative proposals are under discussion for formally named, more representative working groups for detailed negotiations. Providing training for delegations from smaller countries would also help level the negotiating table, especially if they could cooperatively develop specialists on key concerns within their groupings. Many of the negotiations are technical in nature, and access to a wide range of technical expertise is crucial for effective participation. If trade agreements are to reflect the needs of poor countries, the negotiation process must be more open, transparent and representative. Furthermore, as the domain of trade agreements has widened to include services and investment, a greater share of domestic economic activity is involved in trade policy. Domestic social and environmental policies can be put at risk. Countries need to consider the social and environmental impacts before entering into new trade agreements. Trade rules in these areas should reinforce people’s human rights to water, healthcare, housing, and education, not undermine local and national programs and policies regarding these public services. For example, if a country puts water delivery systems on the trade- negotiating table without the involvement of affected domestic interest groups in the decision-making, allowing private foreign corporations to provide this service, they have effectively privatized water delivery without any public or community input. Participation in decisions such as these is paramount to good governance. Membership in the WTO is by nation states and a few customs territories, such as Hong Kong and Taiwan. Given the principles of transparency and participation, there is a need for a role for civil society in the operations of the WTO. Such participation would make governments more responsive to the needs and interests of their citizens in trade negotiations, and the system as a whole more responsive to global concerns. At the international level, mechanisms need to be developed to widen the negotiations so that the voices of workers, people of different ethnicities, women, people of color, indigenous peoples, and poor people can be heard. Civil society is often not well represented by national governments in negotiations, where entrenched economic and political elites often have excessive influence. At the national level, genuine citizen participation and transparency should not only be facilitated but actively encouraged. A

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more open negotiating system should include institutional arrangements through which the wider community can take part. One important step is to provide more mechanisms for including nongovernmental organizations in the negotiations. At the 2003 UN Conference on Financing for Development, for example, formal “listening sessions” permitted nongovernmental organizations to testify directly to decision-makers. The World Bank and the International Monetary Fund were conceived at the 1944 Bretton Woods conference and the institutions reflect the dominance of the Western powers. Decisions are made by weighted voting based on each member state’s capital contribution. The United States has between two and three times more power than the next most powerful country, Japan (the U.S. vote is worth 17.11 in the IMF and 16.41 at the World Bank compared to Japan’s 6.14 at the IMF and 7.87 in the World Bank). On issues that require a super majority of 85 percent, the United States has an effective right of veto in both institutions, as does the EU when voting as a group. The governance structure gives developing countries weak voices and little power. They are further frustrated by generally weak systems of internal accountability and external review in these two bodies. The World Bank and the IMF must be reformed to be more transparent and representative of poorer countries, if they are to meet the needs of poor people in poor nations. Such reform will require a change in political will in the rich countries. In addition, agreements are needed to assure that WTO rules, the policies of the World Bank and IMF, and other regional or bilateral trade rules do not undermine the international policy decisions agreed to by countries at the United Nations. National level Ensuring nations the freedom to create and enact policies that benefit their people is a major challenge in today’s globalized world with its dense web of international agreements and institutions. Local, national and regional governments need room to develop policies and innovations that meet development needs consistent with the Universal Declaration of Human Rights. No loan condition or trade agreement or foreign aid condition should prevent a government from doing so. International financial institutions should be prevented from dictating polices contrary to this landmark document. Moreover, such policy conditionality often prohibits a country’s democratic institutions from having any say in these major policy reforms. Furthermore, it is at the local, national and regional government level that civil society has the most ability to affect change. Assuring that national governments do have the policy space and flexibility to meet development needs doesn’t necessarily mean that they will do so. Corruption is widespread in many countries and political structures often fail to represent the majority and especially fail the poor in far too many countries, both developing and developed. For these reasons, participatory governance structures, at all levels, are an absolute must. Even when a good balance between national autonomy and international cooperation is struck, political structures will often fail their people and civil society will need to hold their leaders accountable. Therefore, the importance of providing space for civil society participation cannot be overstated.

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As we have discussed, one-size-fits-all conditionality does not work because economies around the world are vastly different and require very different approaches to make progress and remedy crises. There are myriad examples that demonstrate why policy flexibility for national governments is essential for promoting economic justice while managing an economic crisis. One example is the use of tools to prevent rapid capital outflows, such as mandating that a certain percentage of an investor’s capital not be withdrawn from that country for a set period of time. Although such capital controls are now widely accepted as a sound tool of economic policy that can mitigate instability and help prevent economic crises, the international financial institutions are generally hostile to them and some proposed trade agreements seek to limit their use. Governments at every level should be unequivocal in their commitment to providing resources to meet the basic developmental needs of every person. Basic healthcare, nutrition, and education are fundamental rights. They are also essential to equip each individual to be a wise consumer, a more productive part of any economic system and to more ably take part as a citizen actor in making and adapting their community’s and their nation’s rules. Nearly always, special effort will be required to secure these rights for disadvantaged groups and to engage members of these groups in developing the rules for implementation. National and local governments must provide safety nets for people who are unemployed and underemployed, disabled, elderly, ill, youth or victims of war or natural disasters. Every society must be concerned with a broad and variable category of public goods—access to clean air and potable water, preservation of the environment, development of renewable energy, support for cultural heritages. As noted earlier, respect for inherent dignity and equal rights means everyone has the opportunity to participate in decision-making processes. Women’s lack of representation in national government structures is a major impediment to equity. The Beijing Platform for Action calls for 30 percent women’s representation in national governments. This platform was developed in 1995 at the Fourth World Conference on Women, and since then the share of women policymakers has increased, albeit slowly. The Scandinavian countries, which have strong universal health, childcare, parental leave and other programs that make caregiving society’s work and not women’s work, lead the world in women’s participation in government. Sweden ranks number one with women making up more than 45 percent of the parliament and more than half the ministerial positions, as of 2004. Countries with women composing more than 30 percent of their parliaments include Belgium, Iceland, Austria, Germany, Argentina, Costa Rica and Cuba. The United States is among the countries that lag badly; women are just 14 percent of the Congress.95

Infrastructure and Public Goods Governments provide an enormous infrastructure that supports the operation of the economy. This essential infrastructure includes transportation, communications, publicly funded research, public schools and universities, public utilities, the financial system, the legal system, public health and safety, and security. Government research and money

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fueled the Human Genome Project and many prior medical advances. The Internet, a backbone of the global economy, was created by the U.S. Government’s Advanced Research Project Agency with public tax dollars and grown through a continuing partnership of government, universities and industry. A report by Responsible Wealth, I Didn’t Do It Alone: Society’s Contribution to Individual Wealth and Success, spotlights successful entrepreneurs and the synergistic role of the U.S. government and public sector in wealth creation. Since 1958, an estimated 75 percent of all engineers and scientists engaged in scientific research have gone into federally subsidized ventures in both the public and private sectors.96 As the presidents of and the Institute of Technology (MIT) observed in the Boston Globe, federal research funding “is the lifeblood of our institutions. The return on this federal investment is enormous. More than 50 percent of US economic growth during the past 60 years has been due to technological innovation, much of it stemming from university research.”

“The opportunities to create wealth are all taking advantage of public goods—like roads, transportation, markets—and public investments. None of us can claim it was all personal initiative. A piece of it was built upon this infrastructure that all have this inherent moral obligation to keep intact... We are all standing on the shoulders of all who came before us, and creating a society for our children and those who come after us.” Jim Sherblom, a venture capitalist and former chief financial officer of the biotech firm, Genzyme.

“I personally think that society is responsible for a very significant percentage of what I’ve earned.” Warren Buffett, founder of Berkshire Hathaway. “My wealth is not only a product of my own hard work. It also resulted from a strong economy and lots of public investment, both in others and in me. I received a good public school education and used free libraries and museums paid for by others. I went to college under the GI Bill. I went to graduate school to study computers and language on a complete government scholarship... While teaching at Syracuse University for 25 years, my research was supported by numerous government grants... My university research provided the basis for Syracuse Language Systems.” Martin Rothenberg, founder of Syracuse Language Systems and Glottal Enterprises. Excerpted from I Didn’t Do It Alone, Responsible Wealth, Boston, 2004.

I Didn’t Do It Alone shows not only that society’s role in wealth creation is significant, but if that role withers from inadequate revenues and political will then opportunities for wealth and innovation will shrink. Entrepreneurism, the economy and society will be undermined. In evaluating an economic climate, important questions include: Is the physical and social infrastructure—roads, ports, communications, schools— adequate? Are core labor standards in place and enforced? Are minimum wage laws uniformly enforced? Are fiscal and monetary policies adequate to stabilize the economic environment and control inflation? Are property rights well defined (private, communal and other forms)? Can contracts be enforced? Are permits accessible to all, and regulations fairly enforced? Is credit accessible on reasonable terms, especially to small or micro businesses, minorities and women? Is the tax structure progressive, efficient and fairly administered? Are public

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officials and employees fairly paid? Have bribes, cronyism and corruption been eliminated? Many countries, especially poor nations, need infusions of capital and technology. The right policy mix can provide a supportive environment for both domestic business and international investors. In many cases, however, poor nations, often under duress, have accepted terms for outside investors that were different from, not supportive of, or were harmful to, the domestic economy. In other instances, outside investors made deals with local partners, to their benefit, but not to the benefit of the workers or the country. There are also many examples of beneficial foreign investment involving a variety of forms of collaboration, including direct foreign investment, joint ventures and contractual arrangements. Not every nation will choose to manage its business environment in the same way, but the absence of clear policy and rules, fairly administered, will hamper domestic enterprises. Developing the right mix of policies and adapting to ongoing changes is hard work, subject to all sorts of political pressures and vested interests. There must be room for experimentation, which requires time for learning and testing. The policy process requires transparency and participation by all parties affected, and is enhanced by the fullest possible development of human resource capacities, as noted above. (Also see Private Sector section below.)

United States The United States faces some development challenges with some similarity to poor countries. Like them, the United States needs flexibility and creative responses to local needs, not one-size-fits-all prescriptions. For the United States and other wealthy countries, the barriers to achieving a just economy lie not in limited capacity or resources, but largely in political will. As President Roosevelt said in 1937 when sending the Fair Labor Standards Bill to Congress—with its provisions for a federal minimum wage, overtime pay and child labor restrictions—“A self-supporting and self-respecting democracy can plead no justification for the existence of child labor, no economic reason for chiseling workers’ wages or stretching workers’ hours.” Americans must continue the long struggles to make governance in the United States more democratic and truly representative, and committed to fulfilling economic and human rights. Over the years, the AFSC has developed a number of specific recommendations regarding the role of government and policy in the United States. These include: • Develop and implement an Economic Bill of Rights grounded in the concept of the common good and an end to all forms of discrimination, building on the Universal Declaration of Human Rights and the Economic Bill of Rights President Roosevelt proposed for the United States in 1944. • The role of the public sector is crucial for providing basic services, maintaining infrastructure, and promoting equality. The U.S. should reverse the , deregulation and destruction of the safety net, which disproportionately hurts low- income people, women, children and people of color.

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• The U.S. government should support universal health insurance, a living wage, full employment, the right to organize, technical and trade adjustment assistance, unemployment insurance and lifelong learning important for individual and social progress. • U.S. policy should discourage excessive consumption of domestic and global resources. It should end environmental racism and support the transition to cleaner, safer renewable energy sources and a sustainable environment.

“A true revolution of values will soon look uneasily on the glaring contrast of poverty and wealth... America, the richest and most powerful nation in the world, can well lead the way in this revolution of values. There is nothing to prevent us from paying adequate wages to schoolteachers...There is nothing but a lack of social vision to prevent us from paying an adequate wage to every American citizen whether he be a hospital worker, laundry worker, maid or day laborer. There is nothing except shortsightedness to prevent us from guaranteeing an annual minimum—and livable—income for every American family. There is nothing, except a tragic death wish, to prevent us from reordering our priorities, so that the pursuit of peace will take precedence over the pursuit of war.” Martin Luther King Jr., Where Do We Go From Here: Chaos or Community? 1967.

Beginning with Theodore Roosevelt’s “Square Deal” and even more so through Franklin Roosevelt’s “New Deal” and Lyndon Johnson’s “Great Society,” the U.S. government played a strong role in stabilizing the economy, stimulating economic growth, regulating finance and industry, protecting the environment, and reducing poverty. The middle class grew in the post-World War II era as the government helped millions of veterans go to college and buy homes; expanded Social Security, Medicare and Medicaid; encouraged higher wages with an increased minimum wage; and began to mitigate some of the longstanding discrimination against women and people of color with anti-discrimination legislation and enforcement. The New Deal served in part as an inspiration for those who constructed the new global economy out of the wreckage of World War II. Eleanor Roosevelt played a crucial leadership role—public and private—in fostering the New Deal and the Universal Declaration of Human Rights. The promise of a global New Deal went unrealized for most of the developing world. The accelerating rollback of the New Deal in the United States has fueled the global downward spiral of wages, employment, environmental quality, health and safety standards, and government responsibility for the public good. Private Sector The private sector is a large realm of human activity, stretching from the smallest rural producer to the largest transnational corporation, from the self-employed to worker cooperatives, from business associations to unions, from large nonprofit universities and hospitals and large nongovernmental organizations (NGOs) to small community organizations. In the United States, employment in the nonprofit sector—now over 12.5 million Americans—has grown faster than in the for-profit sector. Between 1997 and 2001, the average annual growth rate in employment for nonprofits was 2.5 percent, compared with 1.8 percent in for-profit business and 1.6 percent for government.97

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Because of their influence in shaping national and global economics our focus here is on the business sector. Many countries need to create additional public sector jobs— schoolteachers and community healthcare workers, for example. But in most countries, most people earn their livelihoods in the private sector, including individual entrepreneurs, family businesses, small and large corporations, cooperatives, employee- owned businesses, nonprofits, and the informal sector. Government needs to provide an economic environment in which a diverse and socially responsible private sector can flourish. Private investors and entrepreneurs imbued with a spirit of — seeking a stable business environment, equitable development and the application of fair rules—are indispensable to a productive and sustainable global economy. While economies take many forms around the world, with a varied mix of public and private sector activity, human dignity and economic rights are nurtured within certain institutional settings—a strong publicly financed safety net, an environment in which workers are free to organize and other labor rights are enforced, and laws mandate health and safety requirements, a livable wage, and environmental regulations. Institutions must reflect and encourage the philosophy and obligations of social responsibility. Development has often been undermined by the movement of capital to countries (and states) with lower wages, lower health and environmental standards, and lack of worker rights. Labor unions, socially responsible business organizations, and advocacy groups, among others, want to “raise the floor” globally so that economic growth raises wages and improves working conditions worldwide.

“There is no point to a globalization that reduces the price of a child’s shoes, but costs the father his job.” Participant in the Philippines dialogue, World Commission on the Social Dimension of Globalization, A Fair Globalization: Creating Opportunities for All, 2004.

Small and medium-sized businesses and their workforces have been increasingly threatened over the last decades by the greater global presence and dominance of large enterprises. Big retailers, like Wal-Mart, use their massive buying power to force suppliers around the world to cut prices by lowering insufficient wages even further lest they lose the contracts. Corporations have become increasingly international, and much of what is counted as “international trade” is actually transfers within corporations. Many enterprises are pushing hard through intense lobbying to extend their reach into new countries and new markets including areas of the public sector such as water, healthcare, prisons and education. Many corporations, particularly U.S.-based ones, have focused on short-term profit and have provided excessive compensation to executives, a transfer of resources away from workers, shareholders and company reinvestment that has been abetted by tax rules. In the worst cases, managers who are supposed to be stewards of a company have instead looted its assets, at great cost to workers, investors, public pension funds and communities.

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We often hear the argument that lower wages allow companies to provide goods at a cheaper price thus benefiting all of us as consumers. While some goods are cheaper (though some are cheaper in quality, not just price), poorly paid workers can’t afford them, much less costlier necessities such as housing and healthcare. Furthermore, this argument fails to factor in the personal and societal costs of uninsured workers’ health bills, or the well-documented costs of increased poverty as wages stay low. Wal-Mart’s use of direct and indirect taxpayer subsidies, illegal overtime, child labor violations, union busting and discriminatory practices to become the top Fortune 500 Corporation is a growing source of concern and legal action. In June 2004, for example, a federal court permitted a class action suit to go forward covering about 1.6 million women, making Wal-Mart the defendant in the largest workplace-discrimination lawsuit in U.S. history. A Congressional report, Everyday Low Wages: The Hidden Price We All Pay For Wal-Mart, documents a wide array of harmful practices and thousands of dollars in taxpayer healthcare, housing and other subsidies for underpaid workers.98 Wal-Mart’s U.S. workers—most without health benefits—average just $8 an hour, compared with $12 in retail trade generally. Entry workers, of course, make less than the average. A state survey in Georgia, where Wal-Mart is the largest employer, looked at enrollment in PeachCare, which provides health insurance to children in low-income families. It found that Wal-Mart had one child in PeachCare for every four employees. The ratio for the next ranked company, Publix, was one child in PeachCare for every 22 employees.99 The report, Shopping for Subsidies, documents more than $1 billion in state and local government subsidies to Wal-Mart, including tax breaks and credits, sales tax rebates, free or reduced-price land, infrastructure development, job training and worker recruitment funds, tax-exempt bond financing and outright grants.100 , as exemplified by the best practices of some Quaker and other firms, are a key ingredient if the private sector is to reinforce human dignity in the economic sphere and have a major role in ethical governance at the local, national, and international levels. Socially responsible businesses have demonstrated time and again that well-run institutions with a just and humane vision can make a fair profit. The box below demonstrates how Costco has taken the high road by paying higher wages and paying for more benefits, such as healthcare and retirement plans, than its competitor Wal-Mart’s Sam’s Club. This socially responsible strategy resulted in higher worker productivity and profits than their infamous competitor.

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Costco vs. Wal-Mart “Costco’s high-wage approach actually beats Wal-Mart at its own game on many measures...We found that by compensating employees generously to motivate and retain good workers, one-fifth of whom are unionized, Costco gets lower turnover and higher productivity...

“The larger question here is which model of competition will predominate in the U.S.... The cheap-labor model turns out to be costly in many ways. It can fuel poverty and related social ills and dump costs on other companies and taxpayers, who indirectly pick up the health-care tab for all the workers not insured by their parsimonious employers. What’s more, the low-wage approach cuts into consumer spending and, potentially, economic growth... “Given Costco’s performance, the question for Wall Street shouldn’t be why Costco isn’t more like Wal- Mart. Rather, why can’t Wal-Mart deliver high shareholder returns and high living standards for its workforce? Says Costco CEO James D. Sinegal: ‘Paying your employees well is not only the right thing to do but it makes for good business.’... “Wal-Mart defenders often focus on the undeniable benefits its low prices bring consumers, while ignoring the damage it does to U.S. wages. Costco shows that with enough smarts, companies can help consumers and workers alike.”

How Costco’s High-Wage Strategy Beats Wal-Mart IT PAYS A LOT MORE THAN WAL-MART

COSTCO WAL-MART’S SAM’S CLUB

Average hourly wage $15.97 $11.52 (excluding part timers)*

Annual health costs per worker $5,735 $3,500

Covered by health plan 82% 47%

Annual retirement costs per worker $1,330 $747

Covered by retirement plans 91%** 64%

* 25% of workforce is lower-paid part-timers. ** Those on the job for less than a year aren’t covered.

…BUT GETS MORE [FROM] ITS WORKERS

COSTCO WAL-MART’S SAM’S CLUB

Employee turnover 6% a year 21% a year

Labor and overhead costs 9.8% of sales 17% of sales*

Sales per square foot $795 $516

Profits per employee $13,647 $11,039

Yearly operating-income growth** 9.8% 10.1% * For all of Wal-Mart. ** Over the past five years in the United States. Excerpted from Stanley Holmes and Wendy Zellner, “The Costco Way,” Business Week, April 12, 2004.

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Worker Rights Good for Business and Workers Worker rights are good for workers. Worker rights are also good for business. As the Economic Policy Institute (EPI) explains, “The most basic of these worker rights have been codified by the International Labor Organization (ILO), which outlines five ‘core labor standards’ (CLS) that all labor markets should strive to meet: the freedom of association; the right to collective bargaining; the abolition of forced or compulsory labor; the abolition of child labor; and freedom from discrimination. The arguments behind calls to enforce the CLS are not only morally unassailable but make good economic sense as well.” EPI highlights a growing body of evidence underscoring “the economic benefits of these core labor standards”: “Better worker rights result in higher productivity growth, thus leading to faster economic growth. Improved worker rights also tend to result in a better distribution of income, both among workers and between workers and firms. In other words, better worker rights lead to larger overall output that gets more evenly distributed. As the benefits of faster growth are more evenly distributed, local demand is stronger and more stable, thus reducing the chance of a financial crisis.”101 “If the World Bank and the IMF truly want to address the problems of sluggish economic growth and market instability,” says EPI, “it is vital that the these powerful institutions finally add the adoption of labor standards and the implementation of worker rights to their policy prescriptions for emerging economies.”102

“It is but equity...that those who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed, and lodged.” Adam Smith, The Wealth of Nations.

The Universal Declaration of Human Rights states, “Everyone who works has the right to just and favorable remuneration ensuring…an existence worthy of human dignity.” A living wage is essential to dignified work. Such a wage can be calculated in each country or area of a country based on the cost of food and other necessities, and should also factor in sufficient discretionary income for leisure. A living wage can serve as a floor below which no business or government can go, thereby countering the global “race to the bottom” and strengthening the global economy. The term “race to the bottom” first applied to the United States before the New Deal. The federal minimum wage established in 1938 was meant to put a firm floor under workers and their families, stimulate the depressed economy by increasing consumer purchasing power, create new jobs to meet rising demand and stop a “race to the bottom” of employers moving to cheaper labor states. Research has shown that living wages are affordable to businesses, large and small, generating numerous benefits, such as lower turnover, decreased absenteeism, improved

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morale, and higher quality and productivity. Higher wages increase consumer purchasing power.103

“Why do I support a higher minimum wage? Because I have a conscience, to begin with. I believe that in America, people who are willing to work full time should be able to provide for themselves and their children... But raising the minimum wage makes sense from a business perspective, too. The most important asset I have as a business owner is my employees. Their skills, their energy and their commitment make all the difference in the world... Meanwhile, I have to compete against businesses that pay starvation wages. Worse yet, they are rewarded by the government for doing so. Because I pay a decent wage, my workers aren’t eligible for anti-poverty programs like food stamps or Medicaid. But low- wage workers are—Wal-Mart even hands out instructions for applying to these programs to new employees.” Bill Hilliker, small business owner, “Why a higher minimum wage is good for small business,” Buffalo News, June 7, 2004.

Socially Responsible Business Quaker tradition provides good examples of profitable businesses conducted according to high levels of integrity even in the absence of laws requiring such social responsibility. Many business people already adhere to ethical business codes and believe that good labor practices, satisfied employees and sustainable production methods make for good business. To make the transition to a just global economy, we want to encourage all businesses to operate with rules that are both clear and ethical. In its “Overview of Corporate Social Responsibility,” Business for Social Responsibility highlights the “growing body of data—quantitative and qualitative—that demonstrates the bottom-line benefits of socially responsible corporate performance.” For example: “Improved Financial Performance: ... In the last decade an increasing number of studies have been conducted to examine this link. One of the more recent analyses—a 2002 DePaul University study—showed that overall financial performance of the 2001 Business Ethics Best Citizen companies was significantly better than that of the remaining companies in the S&P 500 Index, based on the 2001 Business Week ranking of total financial performance. The ranking was based on eight statistical criteria, including total return, sales growth, and profit growth over the one-year and three-year periods, as well as net profit margins and return on equity. The Best Citizens scored ten percentile points higher than the mean ranking of the remainder of the S&P 500 companies. Reduced Operating Costs: Some CSR [Corporate Social Responsibility] initiatives can reduce operating costs dramatically. For example, many initiatives aimed at improving environmental performance—such as reducing emissions of gases that contribute to global climate change or reducing use of agrochemicals—also lower costs. Many recycling initiatives cut waste-disposal costs and generate income by selling recycled materials. In the human resources arena, flexible scheduling and other work-life programs that result in reduced absenteeism and increased retention of employees often save companies money through increased productivity and reduction of hiring and training costs.

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Enhanced Brand Image and Reputation: Customers often are drawn to brands and companies with good reputations in CSR-related areas. A company considered socially responsible can benefit both from its enhanced reputation with the public as well as its reputation within the business community, increasing a company’s ability to attract capital and trading partners... Increased Sales and Customer Loyalty: A number of studies have suggested a large and growing market for the products and services of companies perceived to be socially responsible. While businesses must first satisfy customers’ key buying criteria—such as price, quality, availability, safety and convenience—studies also show a growing desire to buy (or not buy) because of other values-based criteria, such as ‘sweatshop-free’ and ‘child-labor-free’ clothing, lower environmental impact, and absence of genetically modified materials or ingredients... Increased Productivity and Quality: Company efforts to improve working conditions, lessen environmental impacts or increase employee involvement in decision-making often lead to increased productivity and reduced error rate. For example, companies that improve working conditions and labor practices among their suppliers often experience a decrease in merchandise that is defective or can’t be sold. Increased Ability to Attract and Retain Employees: Companies perceived to have strong CSR commitments often find it easier to recruit and retain employees, resulting in a reduction in turnover and associated recruitment and training costs. Even in difficult labor markets, potential employees evaluate a company’s CSR performance to determine whether it is the right ‘fit.’... Access to Capital: The growth of socially responsible investing (SRI) means companies with strong CSR performance have increased access to capital that might not otherwise have been available. In its 2001 report on socially responsible investing in the United States, the Social Investment Forum reported that social investing rose to $2.34 trillion despite an extended market downturn for most of the two-year period since the publication of the 1999 study. The primary driver for this growth was portfolios screened for socially concerned investors, which climbed 36 percent from $1.49 trillion in 1999 to $2.03 trillion in 2001. This amount accounts for nearly 12 percent of the $19.9 trillion in investment assets under professional management in the U.S.”104 One method of applying ethical concerns to business practices is through voluntary codes of conduct. They can help inform concerned consumers, assist workers in finding decent employers, and support best practices over and above legal requirements. Core labor standards must be the centerpiece of any , and any level of credibility will depend on independent monitoring or auditing, including unannounced visits. Business leaders who develop codes of conduct that rely on independent monitoring and the participation of sectors such as labor and community organizations should be supported. Numerous codes of conduct exist, such as the SA8000 (see box); Global Reporting Initiative Guidelines for Triple-Bottom Line economic, social and ; Global Principles, developed by religious shareholders including the Interfaith

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Center on Corporate Responsibility (ICCR) of which AFSC is a member; Ethical Trading Initiative; Organization for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises; and others.105 International labor unions are negotiating International Framework Agreements with companies in an attempt to put some pressure on suppliers and gain explicit recognition of the ILO Core Labor Standards. A major limitation on all codes of conduct is the difficulty of monitoring the supply chain, even with businesses that might certify their own facilities, and especially in countries with limited support for workers’ rights.

Sample Code of Conduct: SA8000 SA8000 incorporates many of the elements we have discussed in this paper. SA8000 was developed with the participation of a broad range of stakeholders: workers and their unions, socially responsible investors, consumers, community representatives, governments, and nongovernmental organizations, as well as business owners and managers. A similarly broad Advisory Board oversees the program, sets and reviews the standards, and licenses independent auditors. SA8000 is based on core ILO conventions and the Universal Declaration of Human Rights and the Convention on the Rights of the Child. By early 2004, Social Accountability International had certified 353 facilities in 39 industries, located in 39 countries. The elements of its code are: No workers under age 15 (lowered to age 14 for developing countries under ILO Convention 138); No forced labor; Safe and healthy work environment; Freedom to Associate and Right to Collective Bargaining; No discrimination or sexual harassment; No corporal punishment, coercion or verbal abuse; Comply with local law; maximum of 48 hours, six days per week, overtime; Legal minimum wage, sufficient to meet basic needs of worker and family; Integrate the standards into management systems.

The key to a continued positive role for codes of conduct is recognizing their limits as voluntary tools and seeing them as complements to and not substitutes for strong legislation and well-enforced regulations. As Peter Uting, deputy director and corporate social and environmental responsibility (CSR) research coordinator of the UN Research Institute for Social Development (UNRISD), puts it: “Historically, progress associated with corporate social and environmental responsibility has been driven, to a large extent, by state regulation, collective bargaining and civil society activism... Increasing reliance on voluntary initiatives may be undermining these drivers of corporate responsibility.”106 UNRISD research on public-private partnerships and the movement has “highlighted the double standards involved when TNCs engage in CSR initiatives but simultaneously lobby for macro-economic policies and conditionalities, linked to trade and investment liberalization, that can have negative developmental impacts.”107 Supporters of ethical business increasingly make a distinction between corporate responsibility and corporate accountability. The former emphasizes the voluntary compliance of particular corporations to particular codes of conduct. The latter emphasize holding all companies accountable to laws, regulations and rules.

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As Uting explained at the 2003 UNRISD Conference on Corporate Social Responsibility and Development, “The corporate accountability movement is also saying that if CSR is to really work for development, then it is not enough for companies to improve selected aspects of working conditions, EMS [environmental management systems] and community relations. Corporate responsibility cannot be separated from structural and macro-policy issues, such as perverse patterns of economic liberalization and de-regulation [including labor market flexibilization], corporate power, lobbying for certain macro-economic policies, and fiscal and pricing practices.”108 Certainly, Quakers have a long tradition of taking voluntary action while working for better practices and laws. Many Quakers refused to own or trade in slaves while working hard for abolition of slavery. Many Quakers tried to eliminate discrimination from their own attitudes and behaviors while working for strong and enforceable civil rights. AFSC works to improve corporate practices through Codes of Conduct and also advocates for strong national and international policies and laws to assure corporate responsibility and accountability. A significant step toward applying the Universal Declaration of Human Rights to corporate accountability has been taken with the UN Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights, developed with extensive consultation and unanimously approved by the UN Sub- Commission on the Promotion and Protection of Human Rights in August 2003. In Amnesty International’s words, “The time has come for a stronger international framework for corporate accountability.” The UN Norms bring “together in one place all the major international human rights, labor rights, and environmental laws and standards pertaining to global business” and “highlight best practice and various modes of monitoring and enforcement.”109 The statement of support for the UN Norms by more than 200 organizations and 200 individuals observes: “The value of the Norms lies in providing coherence to a disparate set of human rights obligations of non-state economic actors presently found in various international law instruments, voluntary standards, and company codes. For instance, they incorporate the minimum labor standards embodied in the documents such as the Universal Declaration of Human Rights, the Convention on the Rights of the Child, and the ILO Declaration of Fundamental Principles of Rights at Work. The Norms do not create new legal obligations, but simply codify and distill existing obligations under international law as they apply to companies.”110

“Good companies have nothing to fear from the UN Norms, but should welcome their comprehensive articulation of the values of society in the 21st century as a guide to corporate conduct and as a foundation for the development of universal yardsticks against which corporate conduct can be measured.” Sir Geoffrey Chandler, former director, Shell International, and founder-chair, Amnesty International UK Business Group.

The UN Norms place all businesses on a level playing field and work toward eliminating the abuse of human rights, including economic rights, as a point of business leverage. The Business Leaders Initiative on Human Rights (BLIHR)—including ABB

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power company, Barclays financial services group, Body Shop International, Hewlett Packard, MTV Networks Europe, Novartis and Novo Nordisk pharmaceuticals, National Grid Tansco, Statoil energy company—was established to find “practical ways of applying the aspirations of the Universal Declaration of Human Rights within a business context and to inspire other businesses to do likewise.” The BLIHR sees the UN Norms as “an important contribution” and is “committed to testing the value of this new tool as a driver for change.”111

Local and Individual level Governance also encompasses the actions of individuals, networks and associations, and local level governments. Quakers have long maintained that each person is responsible for the consequences of his or her life choices. But significant impact on business practices or public policies is nearly always tied to effective action through civil society organizations. Well organized consumers and investors can shape the selection and quality of goods and services offered in markets, and the conditions under which they are produced. They can reinforce good practice by businesses both in the market and in public opinion. They can resist bad practices by withholding their purchases and investments— usually coupled with publicity. Once informed of the true costs of products—for example, exploitative labor practices or environmental damage—many consumers and investors are drawn to firms that are concerned with more than profit margin. In today’s global economy, consumers and investors can play a key role in encouraging business to adhere to the highest possible standards. In the United States, there are a growing number of shareholder resolution campaigns for more reasonable wages, more democratic corporate governance, and ending gender and race discrimination in hiring and wages. In parallel fashion, individuals can multiply their influence in the policy arena by cooperative action. In some instances existing political organizations can be swayed by active members who give top priority to policies that enhance human dignity, through processes open to participation by those who are usually left out. In other instances, alternative organizations will have to be created. Greater dignity and fuller development of each person’s potential are often both a part of and a consequence of such efforts. Many of the most intense struggles occur in workplaces where work conditions are substandard, workers rights are not recognized, and worker organizing is prohibited or dominated by “official” or “company” unions. Outside civil society organizations can support these very difficult organizing efforts. In addition, they may be able to act as mediators in some instances, or bring public attention to the circumstances through documentation, publicity, or shareholder resolutions. Success will be measured by adoption and enforcement of labor rights by national governments.

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Trade Matters In 2004, AFSC launched a new campaign called Trade Matters. The campaign works at both the grassroots and national policy level with staff in six offices across the United States. Trade Matters will initially focus on three trade policy themes including: labor and migration, trade policy hindering the right of government (at all levels) to fulfill its purpose and function as a state, and alternatives. Fair trade means that producers receive a fair price for their product, helping them build a better future for themselves and their communities. Fair trade practices foster equitable and sustainable development, for example, through the formation of cooperatives that provide equal opportunities for women and promote environmentally friendly techniques. By supporting fair trade, we affirm human dignity by promoting fair prices, worker rights, the empowerment of women and care for the environment. CertifiedTM or fair trade products that come directly from grassroots groups affiliated with the AFSC. One example is the AFSC Trade Matters Fair Trade Peace Pack that includes a cloth drawstring backpack—created by a women’s cooperative made up of former Levi Strauss sweatshop workers called Fuerza Unida located in San Antonio, Texas—that is filled with fairly traded goods. In the long run, fair trade purchases will help fuel the demand for more fair trade products, promoting one sustainable solution for poverty reduction.

In pursuit of environmental sustainability, many people place their savings with ethical savings funds that invest in environmentally friendly companies or green energy projects. Corporate governance codes in Europe are gradually ensuring that companies disclose their environmental profile. Although it is primarily the responsibility of government to regulate business effects on the environment, we can all play an important part through our individual choices about our lives: our homes, our sources of energy, what and how we consume, by leading through example in our own lives.

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Dudley Street Neighborhood Initiative’s Sustainable Development Vision The resident-led Dudley Street Neighborhood Initiative (DSNI) was formed in 1984 to revitalize a neighborhood that was long Boston’s most impoverished. The neighborhood was devastated by discrimination, public and private disinvestment, arson for profit and illegal dumping on hundreds of burnt- out vacant lots. Speculators saw an area ripe for the picking. Residents wanted community redevelopment, not the kind of “urban renewal” in which they were disposable. DSNI became a Think Big pathfinder, seeing possibilities where others saw pipe dreams. and went on to achieve a level of community control over development that no neighborhood-based organization in the United States had ever won before. Declaration of Community Rights, 1993

We—the youth, adults, seniors of African, Latin American, Caribbean, Native American, Asian and European ancestry—are the Dudley community. Nine years ago, we were Boston’s dumping ground and forgotten neighborhood. Today, we are on the rise! We are reclaiming our dignity, rebuilding housing and reknitting the fabric of our communities. Tomorrow, we realize our vision of a vibrant, culturally diverse neighborhood, where everyone is valued for their talents and contributions to the larger community. We, the residents of the Dudley area, dedicate and declare ourselves to the following: 1. We have the right to shape the development of all plans, programs and policies likely to affect the quality of our lives as neighborhood residents. 2. We have the right to quality, affordable healthcare that is both accessible to all neighborhood residents and culturally sensitive. 3. We have the right to control the development of neighborhood land in ways which insure adequate open space for parks, gardens, tot lots and a range of recreational uses. 4. We have the right to live in a hazard-free environment that promotes the health and safety of our families. 5. We have the right to celebrate the vibrant cultural diversity of the neighborhood through all artistic forms of expression. 6. We have the right to education and training that will encourage our children, youth, adults and elders to meet their maximum potentials. 7. We have the right to a share in the jobs and prosperity created by economic development initiatives in metro-Boston generally, and in our neighborhood specifically. 8. We have the right to quality and affordable housing in the neighborhood as both tenants and homeowners. 9. We have the right to quality and affordable childcare responsive to the distinct needs of the child and family as well as available in a home or center-based setting. 10. We have the right to safe and accessible public transportation serving the neighborhood. 11. We have the right to enjoy quality goods and services, made available through an active, neighborhood-based commercial district. 12. We have the right to enjoy full spiritual and religious life in appropriate places of worship. 13. We have the right to safety and security in our homes and in our neighborhoods. Source: Peter Medoff and Holly Sklar, Streets of Hope: The Fall and Rise of an Urban Neighborhood, 1994.

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