Changing the rules of the game

It’s really easy to be disheartened when talking about improving labor and environmental standards in developing countries. At one hand we have a disapproving international free trade arrangement that – implicitly – depresses the growth of international standards that benefit anything else than a lower world market price. On the other, there is a pitiful deficiency of a strong international framework for the promotion of production norms that protects the workers and the environment from the hazards of unleashed free market capitalism. For all the good intensions of fair trade, it is not going to solve this dilemma. Clearly, following this logic – there should be no hope for stopping the proverbial “race to the bottom”. But, is it really a correct postulation that the tradeoff between global standards and export competitiveness will continually favor the latter? Not quite, according to Tewari and Pillai’s encouraging account of environmental policy in India’s leather industry. By a clever implemented course of action by the Indian state, in which it effectively banned the production of the chemicals that threatened to jeopardize leather trade with Germany, collective industry action and the supply chain corrected itself and began to use substitutes for harmful substances. In the end, the environment, Indian producers and German consumers all won in this plus-sum game that came about. What can we learn from this case study? Well, there is a point of using stick and carrots by Western countries to bring about change. The joint strategy of sanctions and thoughtful capacity-building by the German government was a clever way of changing the rules of the game for a durable solution in a race to the top that did not harm India’s export competitiveness.

It’s really easy to be disheartened when talking about improving labor and environmental standards in developing countries. At one hand we have a disapproving international free trade arrangement that – implicitly – depresses the growth of international standards that benefit anything else than a lower world market price. On the other, there is a pitiful deficiency of a strong international framework for the promotion of production norms that protects the workers and the environment from the hazards of unleashed free market capitalism. For all the good intensions of fair trade, it is not going to solve this dilemma. Clearly, following this logic – there should be no hope for stopping the proverbial “race to the bottom”. But, is it really a correct postulation that the tradeoff between global standards and export competitiveness will continually favor the latter? Not quite, according to Tewari and Pillai’s encouraging account of environmental policy in India’s leather industry. By a clever implemented course of action by the Indian state, in which it effectively banned the production of the chemicals that threatened to jeopardize leather trade with Germany, collective industry action and the supply chain corrected itself and began to use substitutes for harmful substances. In the end, the environment, Indian producers and German consumers all won in this plus-sum game that came about. What can we learn from this case study? Well, there is a point of using stick and carrots by Western countries to bring about change. The joint strategy of sanctions and thoughtful capacity-building by the German government was a clever way of changing the rules of the game for a durable solution in a race to the top that did not harm India’s export competitiveness.

From consumers to clusters can cooperation be the key?

A week removed from discussing the relevance consumers play in the policy approach to protecting rights and promoting sustainable development I would like to address a bi-product of the fair trade movement that seems to run parallel to the idea of industrial clusters and upgrading the global supply chain for sustainable economic growth. This idea being cooperation, or more specifically the vertical and horizontal integration and dissemination of information utilized by both fair trade producers and industrial clusters to combat trade liberalization and globalization.

The fair trade movement is about more than a cute label that causes consumers to get that warm fuzzy feeling in their stomachs, market access, fair wages, and sustainable living conditions for those who participate. It is also an access point to information, where producers can gain knowledge and skills to improve their lives and where technology transfers lead to more consistent harvests/productions and increased quality. Fair trade producers may even go as far as forming cooperatives or collectives to gain greater bargaining power in the market. This is where we begin to see the parallel between fair trade producers  and the small/medium sized firm industrial clusters (inter-related groups of industries that are geographically concentrated and inter-connected by the flow of goods and/or services)  examined by Schmitz and Nadvi. Well, that and the fact that many fair trade goods are marketed through global supply chains run by fair trade certifiers!

 So why does this matter? Well, at the center of both of these approaches is cooperation. Cooperation within industry being fair trade producer cooperatives  and cooperation between industry meaning small firms specializing in a product integral for the geographical industrial cluster. Yes, a rather revolutionary idea to spread the wealth of knowledge and disseminate information within a market in which competition is supposed to reign supreme. As large multinationals lock up their rights to intellectual properties for eternities, the opposite seems to create shared resistance for fair trade producers and industrial clusters allowing them resilience in a market they may not have had access or bargaining power in without cooperation.

 Furthermore, Tewari and Pillai push this idea of cooperating forward by discussing how industrial clusters, in response to environmental regulations abroad, increased not only cooperation vertically and horizontally within the supply chain but with the government and business organizations. This case backed up Schneider and Doner’s view that business organizations may not necessarily be “rent seeking monsters” but may play a crucial function in development. It also illustrated the need for the government to play a role in sustainable development  of industrial sectors but in a cooperative private-public partnership type of way rather than in a Judith Tendler Devil’s deal sort of way.  

 At the end of the day cooperation in the sense of vertical and horizontal integration and the sharing of information should be explored for the fact it allows the small/medium sized firms to prosper in the global market and in the case in India (Tewari and Pillai) remain competitive even while facing global environmental regulations. Or, maybe it is just another oversimplified, nonreplicable answer to the question of development fellow scholars can criticize!