Thursday, February 27, 2014

A Global Leadership Plan for the Haitian Textile Industry: The Challenge of Establishing Universal Ethical Business Practice


Abstract
An analysis of the current status of ethical business practice is provided.  The ethics emanating from the Fair Trade movement is given by way of summarizing the story of the experiences of Frans van der Hoff in Southern Mexico.  The leadership he provided led to the development of the Union of Indian Villages in the Isthmus Region (UCIRI) coffee growers cooperative (Audebrand & Pauchant, 2009).  As a result of the development of the UCIRI, the lives and status of the surrounding community improved.  The ethics of Corporate Social Responsibility (CSR) is exemplified by a discussion of the Global Corporate Ethic Manifesto which promotes an ethic based on acknowledging the humanity of all involved (Hemphill & Lillevik, 2011).  These ideas are then applied to the development of a plan for Global Leadership that would reverse trends in the Haitian textile industry where current conditions are inhumane and directly and indirectly supported by major retailers of the U.S.  This seemingly impossible task is broken down into a vision and 5 Steps that are consistent with the ethical principles that have emerged from the Fair Trade movement and the Global Corporate Ethic Manifesto.


The history of the Americas could be described as turbulent and even chaotic at times.  Skidmore, Smith & Green (2010) describe Latin America as the most socially and economically stratified region of the world. Most of the countries of the Americas have seen repeated sudden and often violent regime change.  Such turbulence and chaos has undoubtedly contributed to the uneven economic development between North and South America.  Romero (2004) has described the dominant leadership style in Latin America as el Patron, which can be characterized as autocratic and directive, rarely uses delegation or teamwork, and communication is top-down.  The el Patron leader is expected to be assertive and aggressive but avoids conflict and is relationship oriented.  Such a leadership style is consistent with descriptions of transactional leadership where relationships are well defined and the focus is more on task management and reciprocal agreement (Kunungo, 2001).  On the other hand Romero (2004) describes el Lider Moderno as supportive and participative, delegation and the use of teams is common, and the leader values cooperation and collaboration.  This description is consistent the transformational leadership style which is more oriented toward collective work and responsibility.  The transformational leader encourages creativity and is comfortable with ambiguity.  Creativity, ambiguity and even dissent are viewed as characteristics that could lead to innovation and a higher level problem solving.  In fashioning a global leadership plan for a country in the Americas, when the leader is confronted with uncertainty, turbulence and even chaos, the characteristics of the transformational style are likely to be more effective.  The el Patron or transactional style is likely to have more difficulty making the necessary adjustments to change in the global market place.

A second major issue in the global market place is ethics.  The leader of a global business must be directly involved in the development of both the ethics of governance and the governance of ethics.  Rossouw (2009a) defines the ethics of governance as the values and assumptions that serve as the foundation for guiding a corporation’s ethical behavior.  The governance of ethics relates to the methods employed to assure that such ethics are adhered to.  Rossouw, in discussing ethics, also describes internal and external corporate governance.  Internal corporate governance refers to aspects of defining ethical behavior that are within the control of the corporation such as its mission and values statement or internal ethical review boards.  External corporate governance refers to guidelines or regulations that govern corporate ethical behavior that come from outside sources such as national, international laws or treaties, and industry standards.  Rossouw (2009b) raises the question of whether there is a convergence or divergence in the development of a global ethics of governance.  He concludes that for the most part the evolution of the ethics of corporate governance represents a divergence as opposed to a convergence.  He leaves unresolved the question of whether a global standard for ethical corporate practice should be or could be established.  The issue of a global or universal ethical business practice is one of the focuses of this paper.  In discussing the issue of establishing a universal ethical business practice Fair Trade and Corporate Social Responsibility are discussed.  Globally there has been an increasing presence of the establishment of such approaches.

Another question that must be addressed in the process of developing a global leadership plan is how would the plan interface with the realities of neoliberalism.  Are such practices as Fair Trade in conflict with neoliberalism?  Additionally, such a plan must be developed within a realistic context of how much support is needed and/or available from regulatory authorities at both a national and global level.  Armed with a thorough analysis of the aforementioned factors a leadership plan is presented.

Ethics Defined

The word ethic is actually a neutral word.  By itself it does not point to a particular set of practices or definitions regarding good or bad; right or wrong.  According to the Merriam-Webster (2014) online dictionary, the word ethic is defined as meaning “rules of behavior based on ideas about what is morally good and bad.”  Ethics is defined as meaning “an area of study that deals with ideas about what is good and bad behavior: a branch of philosophy dealing with what is morally right or wrong.”  To refer to ethical behavior is simply to suggest that the behavior is guided by some established guidelines that define good or bad; right or wrong.  What is actually good or bad; right or wrong is actually a matter of perspective or choice. 

In Rossouw’s (2009a) discussion of the ethics of corporate governance, the source of ethical guidelines depends on whose interests are being served.  In the case of many U. S. corporations the shareholders’ interests are paramount.  Thus, ethical standards are established from the perspective of the shareholder.  In Europe, the perspective is widened to include other stakeholders such as employees or customers.  In Africa and China the perspective for input into ethical guidelines often extends to the entire community.  Rossouw (2009a; 2009b) does not attempt to resolve the question of whether there is or can be a universal ethical practice for business.  The fact that this question is left unresolved within the global market is very problematic.  Corporations that have established ethical practice standards from the perspective of the shareholders can easily find ways to have high sounding ethical guidelines and values that are not applied universally within their supply chains.  A prime example is Walmart.  In its published Statement of Ethics (Walmart, 2008) it is indicated that third parties such as suppliers are included.  The section referring to third parties states “Walmart expects its suppliers, consultants, law firms, public relations firms, contractors, and other service providers to act ethically and in a manner consistent with this Statement of Ethics. If you hire a service provider, you should take reasonable steps to make sure the service provider is aware of our Statement of Ethics, has a reputation for integrity, and acts in a responsible manner consistent with our standards”(Walmart, 2008, p. 6).  However, a recent report by the Worker Rights Consortium (2013) provides detailed data that tells a different story. The Worker Rights Consortium is a 12-year-old independent labor rights group financed by 180 American colleges and universities, including Harvard, Stanford and the University of Michigan. In the report Walmart is identified as one among many U. S. retailers that receives clothing from Haitian clothing factories that fail to pay the Haitian minimum wage to its employees.  Additionally, a recent report published by the International Labour Organization (ILO) and International Finance Corporation (IFC) found that 23 out of 23 clothing factories that supply garments to Walmart and other retailers failed to pay its workers the legal minimum wage (Better Work, 2013).  The ILO and IFC are funded by the governments of the United States and Canada.  The intention, since they began their involvement in monitoring labor force standards around the world was to be a catalyst for the improvement of conditions for workers and the reduction of exploitation and unethical practices.   With ample evidence of worker mistreatment, Walmart and other U. S. retailers continue to do business with the offending suppliers in spite of the violation of their stated ethical guidelines.

The situation in Haiti is particularly egregious because the $6.90 per day minimum wage for piece work in clothing factories takes place in a country where the actual cost of living is the same (or in some cases higher) as the cost of living in the U. S.  Wal-Mart, Target, Kohl’s, or any of the other U. S. retailers that are supplied by the Haitian factories would consider an attempt to pay employees at a rate of $6.90 per day a gross ethical violation.  It would simply be unthinkable.  Somehow the ethical standards related to reasonable pay are completely compromised when the worker lives in Haiti. 

One of the first tasks in developing a global leadership plan in the Americas is to establish a minimum ethical standard that will not evaporate over time and distance.  However, this first task is also the first and biggest challenge.  If, for example, I am a clothing manufacturer in Haiti and paid my workers enough to actually lift them out of poverty, I would not stay in business very long if all of my competitors are experiencing labor costs that are a fraction of what I would be budgeting.  Nevertheless, if a plan is to be truly meaningful it must incorporate a strategy that raises the standards for everyone.  The establishment of a truly universal ethical minimum standard for business practices must not be viewed as an impossibility or as an expendable item in comprehensive plan, but as a necessity.  Ethical business practice must be informed by basic minimums in the rights and conditions of human beings.  For example, anyone who works 40 or more hours per week must earn a minimum wage above the poverty level. That is, such an individual should be able to attain the basic necessities of food, clothing and shelter from the fruits of their labor.

Fair Trade as a Model of Ethical Business Practice

Fair Trade in the contemporary retail market is a term that is applied to products that have been certified by the Fairtrade Labelling Organizations International (FLO) as meeting certain minimum standards in how the product was produced.  Typically, the certification indicates that the product was a result of fair treatment of producers and workers and that the processes used to produce the product were environmentally friendly (Arnould, Plastina & Ball, 2009).   While Fair Trade is often traced back to the years shortly after World War II, it reached its maturity in development in the free market with the establishment of a coffee cooperative in Southern Mexico (Audebrand & Pauchant, 2009). 

The story begins with a Dutch priest, Frans van der Hoff, who arrived in the slums of Mexico City in 1973.  Although he was a priest, he often publically expressed dissatisfaction with the Church’s support of dictator’s such as Pinochet, in Chile, or the fact that Catholic Bishops visited the slums in luxury cars (Audebrand & Pauchant, 2009).  To ensure his independence and to more closely link himself with disadvantaged workers, he became a worker- priest and worked a number of jobs, such as travelling shoe salesman, jam maker, axle producer at Ford and farmer.  In 1980 he moved to Ixtepec in the southern state of Oaxaca, where 80% of the population is native.  Death threats from the secret police in Mexico City prompted his move.  In Ixtepec he worked for two years as a day laborer on the coffee farms.  In 1982 he became more involved with the plight of the coffee growers, not by proposing a solution but by facilitating a collective assessment of the problem.  Coffee growers in Mexico, not unlike growers throughout Latin America, were at the mercy of the international coffee market prices and the intermediaries known as “coyotes.”  The coyotes bought the coffee from the growers at prices far below the market value and then sold it on the international market for the prevailing price.  The result was that when the price dropped the growers could not make enough money to pay their expenses.  Having no mechanism for credit to tide them over, many growers would have to temporarily leave their farms and head to the city to search for employment.  Even when prices were better the growers could only manage a meager existence.  For the farm workers it meant living in perpetual poverty whether prices were up or down (Audebrand & Pauchant, 2009).

The local community accepted von der Hoff’s proposal to complete an analysis of their situation.  Among the results of the analysis was the recognition that the community could benefit from being organized into a cooperative and the Union of Indian Villages in the Isthmus Region (UCIRI) was created in 1983.  The first priority for UCIRI was to purchase a truck so that they could bypass the coyotes and go directly to the international market.  The next priority was to work out arrangements with the local banks to obtain credit, so that they would be protected against the ups and downs of the coffee market prices.  Needless to say the coyotes did not take kindly to the growers asserting themselves in the coffee market.  For the next ten years there were many acts of sabotage and violence against the community resulting in the death of 37 villagers.  With the support of the UCIRI, the community persevered and used their additional profits to improve the infrastructure of the community.  Roads were constructed, clean water and electricity became more available and dwellings grew to sizes that were more appropriate for the number of people housed in them (Audebrand & Pauchant, 2009).

Van der Hoff utilized connections he had in the Netherlands to partner with a coffee retailer and establish what has become known as the first Fair Trade coffee brand, Max Havelaar.  In addition to the financial benefits for the producers, workers and community there were also environmental benefits.  The traditional values of the native people called for a respect for the land as well as the people.  The number one objective was replenishment and sustainability.  Typically, coffee growers, in order to maximize output would cut down all trees on a plantation and grow as many coffee plants as possible per hectare.  The result would be that after about seven years the soil would become barren and unable to produce almost anything for many years.  Following the traditions of the native people, many trees were left in place.  The number of coffee plants per hectare was far less than a “conventional” coffee farm, yet the net income for the growers was far more, not to mention that after seven years there were no worries about the soil becoming barren.

Thus the basic ethical principles and guidelines for what has become known as Fair Trade were established.  They are as follows:

Direct Trade - limit the number of intermediaries between the producer and the consumer.

Fair Prices and Wages - slightly higher than the market price, which covers not only the economic costs related to production of a good or service but also the social and environmental costs.

Long-term Orientation - commitment to sustainable and transparent relations between economic partners.

Technical and Financial Support - this support can take the  form of pre-financing that allows producers to live comfortably between crops, guarantees a minimum purchase price despite stock market fluctuations, and provides technical aid to improve work and management methods.

Democratic Management of Producing Organizations - most often based on the co-operative model. Work co-operatives offer several advantages, including member participation in decision making and reinvestment of surpluses in community projects.

Support Sustainable Development - preserve biodiversity and renewable natural resources by promoting poly-culture, avoiding pesticides and chemical fertilizers, and decreasing pollution and waste.

Promote Consumer Education on Responsible Consumption - all FT partners are encouraged to carry out educational activities to raise awareness among consumers, the general public, companies and political decision makers.

 
Support for Fair Trade Principles

The Fair Trade principles and their development, as described above, established the basis for a universal ethic for business.  The Fair Trade movement has sometimes been referred to as Alternative Trade.  The reality is that it represents not an alternative to neoliberalism but simply a shift in the power dynamic of the supply chain.  Gendron, Bisaillon & Rance (2009) argue that while there are debates within factions of the Fair Trade movement related to the benefits of commercialization, it has nevertheless been institutionalized on a global level.  As a result of the institutionalization of Fair Trade, the ethical compass of the corporate world has been shifted.  Since the establishment of the UCIRI, many other coffee producers who had previously been victimized by exploitation have organized into cooperatives.  The establishment of the International Labour Organization (ILO), the International Finance Corporation (IFC) and of course the Fairtrade Labelling Organizations International (FLO) indicates the institutionalization of Fair Trade and its principles.  The ILO and the IFC have the support of the United Nations and the World Bank.  Support of these well-established and well-respected international institutions does not mean that Fair Trade principles will be instantly adopted by everyone.  However, even during the recent recession participation in Fair Trade certification and the associated profits continued to grow (Hutchens, 2011).  In 2008 the total market grew by 22% to a value of $3.98 billion and by another 15% in 2009 to ta total value of $4.7 billion.

Research evaluating consumer response to the Fair Trade movement is likewise favorable.  Bondy & Talwar (2011) found that an increasing number of consumers are willing to make purchases that are heavily influenced by their ethical convictions and thus were more likely to be loyal to Fair Trade products even when times were tough.  Stratton & Werner (2013) found that simply by using labels promoting Fair Trade products resulted in an increase in sales of the product.  Such examples suggest that consumers are interested in purchasing products that are more consistent with their personal ethical standards.  The question is; are the global corporations that make billions in profits from their retail sales, ready to adopt similar ethical standards? 

Corporate Social Responsibility

At the opposite end of the supply chain are the global corporate manufacturers and retailers.  Parallel to the Fair Trade movement has been the development of Corporate Social Responsibility (CSR).  CSR can be described as “a firm’s voluntary actions to mitigate and remedy social and environmental consequences of its operation” (Fransen, 2013, p. 213).  It has become increasingly common for large global corporations to pay more attention to the ethical practice of one’s own company and of those the company engages in the process of conducting its business.  However, the pattern for many large global corporations is to implement CSR by supporting local charities, funding local building projects (hospitals or schools) or contributing considerable resources to environmental clean-up or repair.  It is far less likely that CSR would involve making adjustments in its supply chain that would have a direct financial impact on the individuals and families that are exploited as a result of unethical labor practices.  CSR policies tend to avoid the issue of decommodification of labor (Huo, Nelson & Stephens, 2008).  The UCIRI cooperative established in Southern Mexico is an example of decommodification of labor.  The coffee growers and their employees found a way to not treat their labor as a commodity that was separate from the value of the individual.  Decommodification allows for individuals to continue being valued whether there is a demand for their labor or not.  Once labor was decommodified the periodic migrations to the city stopped.  Workers and growers no longer had to rely on selling their labor as a commodity in order to make ends meet. 

In spite of the fact that CSR has not fully evolved to the point where a corporation like Walmart would refuse to be supplied by companies that engage in inhumane treatment of their employees, the pressure is building from both consumers and respected international organizations for global corporations to implement ethical practice standards that are sensitive to the needs of all humans involved in their supply chain (Hemphill & Lillevik, 2011).   Nevertheless, the increase in the presence of CSR and the recent development of a Global Corporate Ethic Manifesto that parallels the Fair Trade principles tends to suggest that some level of convergence in relation to ethical governance and principles is in process.

Towards a Universal Business Ethic

The Global Corporate Ethic Manifesto discussed by Hemphill & Lillevik (2011) lays out very clearly a business practice ethic that is based on a full acknowledgement of the humanity of every individual involved in the supply chain as well as members of the community in general.  The basic values of the Manifesto are as follows (extracted from Hemphill & Lillevik, 2011, p. 215-217):

I. The principle of humanity

The fundamental principle of a desirable global economic ethic is humanity: Being human must be the ethical yardstick for all economic action.

II. The basic values of non-violence and respect for life

Every people, every race, every religion must show tolerance and respect – indeed high appreciation – for every other. Minorities – be they racial, ethnic, or religious – require protection and support by the majority.

III. Basic values of justice and solidarity

To be an authentic human being means – in the spirit of the great religious and ethical traditions – not misusing economic and political power in a ruthless struggle for domination, but instead using power in the service of all human beings. Therefore, mutual respect, reasonable coordination of interests, and the will to conciliate and to show consideration must prevail.

IV. Basic values of honesty and tolerance

To be authentically human in the spirit of our great religious and ethical traditions means that we must not confuse freedom with arbitrariness or pluralism with indifference to truth. We must cultivate integrity and truthfulness in all our relationships instead of dishonesty, dissembling, and opportunism.

V. Basic values of mutual esteem and partnership

We need mutual respect, partnership, and understanding, instead of patriarchal domination and degradation, which are expressions of violence and engender counter-violence. Every individual has intrinsic dignity and inalienable rights, and each has an inescapable responsibility for what she or he does and does not do.

 
The above basic values are recommended to global corporations to serve as guiding principles for ethical practice around the world.  The degree to which a particular corporation embraces such values and strives to have them incorporated into the culture of  the organization is entirely dependent on the leadership of the organization and the vision the leaders have, for not only their corporation but for humanity as well.

A Global Leadership Plan Based on a Universal Business Ethic

Bennis (2009) identifies four essential competencies for all leaders.  The first one is vision.  A leader must have a vision that can be communicated to others in such a way that others adopt it as their own.  The second competency is a distinctive voice.  A distinctive voice is a combination of characteristics that include self-confidence, sense of purpose, and a sense of self.  A distinctive voice is what makes contact with the leader memorable.  It includes the leader’s ability to connect with others.  The third competency is integrity.  An effective leader must be trustworthy and demonstrate through actions that truth, honesty, fair-mindedness and other characteristics are of the utmost value.  The fourth and final competency is adaptive capability.  We live in a world that is changing at an increasing pace.  The ability to adapt quickly and effectively to change is absolutely essential.  Adaptive capability also includes a leader’s ability to hear and welcome criticism and dissent.  When things appear to be going well, we may have a tendency to overlook vulnerabilities or threats.  A leader with good adaptive capability creates an atmosphere and organizational culture that welcomes criticism and dissent and then discerns from it prudent adjustments.  On the other end, the competency of adaptive capability also results in the creation of an atmosphere and organizational culture that welcomes and encourages creativity and innovation in both thoughts and action.  Armed with the knowledge of these four competencies and the ethical principles derived from the Fair Trade movement and the Global Corporate Ethic Manifesto a leadership plan involving the textile industry in Haiti is proposed.

A Global Leadership Plan for the Haitian Textile Industry

If ever there was a need for bold ethical leadership within the textile industry, such a need exists in Haiti.  The plan being proposed will be centered within the Haitian textile industry.  In 2009, knit and woven apparel accounted for 92% of Haiti's exports and 9% of its GDP (Better Work, 2013).  The workers in the textile industry work for a minimum wage equivalent to no more than $6.90 per day.  That amount does not come close to covering the most basic living expenses.  Once the cost of getting to work and eating each day while at work is subtracted most workers are left with less than $2 per day.  As pointed out above, actual prices in Haiti converted to dollars make the cost of living in Haiti similar to the U.S.  In fact, many items are priced higher in Haiti.  For example, gasoline is $1.27 per liter or $5.08 per gallon.  Average rent for a 1 bedroom apartment outside of the city is $562.  Families must live in substandard housing or share living quarters with several families in order to have a roof over their heads.  Under no stretch of ethical business practice would such conditions be acceptable for employees working 40 or more hours per week.  Yet, in Haiti it is the current situation and continues relatively unquestioned in spite of the presence of international monitors from at least three foreign governments.

 

The Vision

Workers in the Haitian textile industry are treated with dignity and respect and are able to earn a livable wage.

The Plan Model

The plan for realizing the vision is modeled after the activities and experiences of Frans van der Hoff in Southern Mexico.  Thus, a serious attempt to provide leadership that would be accepted and respected would require that the leader establish credibility by being a part of the community and speak the languages (French and Creole). 

Step 1 – Create an Alternative Model

Unlike Southern Mexico, the interests of the workers and the factory owners are divergent.  The workers’ labor is treated as a commodity that the factories owners purchase at the lowest possible price.  One way of decommodifying the labor of the workers is to create an alternative supply chain that bypassed the conventional structures and placed ownership of a textile factory in the hands of the community.  The factory would be run by a democratically elected board made up of workers and other community members.  If necessary, the board could solicit the assistance of technical advisors and trainers in establishing all of the necessary factory management protocols.

Step 2 – Education, Marketing, Public Relations

The U.S. is by far the biggest importer of Haitian textile products.  Research has already shown that U. S. consumers are likely to pay a little more for “Fair Trade” or ethically produced products when products are labeled as such (Bondy & Talwar, 2011; Stratton & Werner, 2013).   The objective is not to put the conventional factories out of business but to increase demand for Fair Trade textiles so that conventional factories would begin to identify the financial opportunities of converting to Fair Trade textile manufacturing and duplicate the model of the alternative supply chain.  Such a shift would require careful and clever use of the multimedia platforms available via the internet and other sources.  The education, marketing and public relations efforts would have to be well organized, highly polished, and clearly focused. 

Step 3 – Demonstrate Clear Positive Results

The first group of people that must experience positive results are the workers and their families.  The families in Southern Mexico experienced an improvement in their standard of living and became completely committed to the new way of doing things, in spite of a decade of attacks and even 37 assassinations.  Their commitment stemmed from the fact that they were empowered with the ability to improve their lives themselves.  They experienced a real change in their reality.  The same result would occur when the families and community of the Haitian textile workers experience such empowerment and implement changes in their lives and standard of living.

Step 4 – Strengthen and Expand the Supply Chain

Perhaps the most important activity for any business is the establishment of strong reciprocal relationships.  A supply chain in any industry exists because of what is exchanged and continues because of satisfaction with the quality not only of the product, but also satisfaction with the quality of the relationship.  In this model the primary relationship is with the community.  The community is the source of the labor and commitment that allows the supply chain to exist. Next, the relationship with buyers and retailers is also paramount.  Maintaining strong relationships with representatives up and down the supply chain is critical. 

Step 5 – Export the Model - “If you want to keep it, you have to give it away”

Sharing the model with others in Central and South America (and other parts of the world) would also be critical to sustainability.  Honest and ethical business practices that actually result in substantial improvement in the lives of those involved can be catching in the global market that touts Corporate Social Responsibility and Fair Trade.  Sharing with the world the stories of the lives that are transformed through ethical standards that put the lives of humans first is like a pool of fresh water for the thirsty; an increasing number of individuals and companies will want to take a drink.

Conclusion

Bennis (2009) placed an emphasis on “mastering the content” (p. 1, p.185).  The point is that the successful leader understands the prevailing culture even when much of the culture is latent.  Currently, as has been discussed above, there are forces emanating from both ends of the global business supply chain that are pointing toward a more human oriented basis for ethical practice.  The Fair Trade movement grew out of the circumstances of those who were exploited and documents such as The Global Economic Ethic Manifesto originated with those involved in global corporations who seek to have a positive impact on the lives of the humans that the global corporations are involved with.  In spite of the fact that Rossouw (2009b) might argue that a convergence of ethical practice is not taking place, it appears that such a convergence is indeed taking place, only not in the way Rossouw would have anticipated.  Ultimately, there is a reality that we are all aware of but not always cognizant of; we are one people living on one planet.  

References

Arnould, E., Plastina, A., & Ball, D. (2009). Does Fair Trade Deliver on Its Core Value Proposition? Effects on Income, Educational Attainment, and Health in Three Countries. Journal Of Public Policy & Marketing, 28(2), 186-201. doi:10.1509/jppm.28.2.186

Audebrand, L. K., & Pauchant, T. C. (2009). Can the fair trade movement enrich traditional business ethics? an historical study of its founders in Mexico. Journal of Business Ethics, 87(3), 343-353. doi:http://dx.doi.org/10.1007/s10551-008-9924-8

Bennis, W. (2009). On becoming a leader. Twentieth Anniversary Edition. New York, NY: Basic Books.

Better Work (2013). Better work Haiti: Garment industry, 7th biannual synthesis report under hope II legislation. International Labour Organization (ILO) and International Finance Corporation (IFC). Retrieved from http://betterwork.org/global/wp-content/uploads/HOPE-II-FINAL_merged1.pdf

Bondy, T., & Talwar, V. (2011). Through Thick and Thin: How Fair Trade Consumers Have Reacted to the Global Economic Recession. Journal Of Business Ethics, 101(3), 365-383. doi:10.1007/s10551-010-0726-4

Fransen, L. (2013). The embeddedness of responsible business practice: Exploring the interaction between national-institutional environments and corporate social responsibility. Journal Of Business Ethics, 115(2), 213-227. doi:10.1007/s10551-012-1395-2

Gendron, C., Bisaillon, V., & Rance, A. (2009). The Institutionalization of Fair Trade: More than Just a Degraded Form of Social Action. Journal Of Business Ethics, 86,63-79. doi:10.1007/s10551-008-9758-4

Hemphill, T., & Lillevik, W. (2011). The Global Economic Ethic Manifesto: Implementing a Moral Values Foundation in the Multinational Enterprise. Journal Of Business Ethics, 101(2), 213-230. doi:10.1007/s10551-010-0718-4

Huo, J., Nelson, M. & Stephens, J. D. (2008). Decommodification and activation in social democratic policy: resolving the paradox.  Journal of European Social Policy, 18(1), 05–20. doi: 10.1177/0958928707084449

Hutchens, A. (2011). We're 15 years behind Africa, Asia and Latin America!: Fair Trade meets the Pacific. Asia Pacific Viewpoint, 52(3), 299-315. doi:10.1111/j.1467-8373.2011.01460.x

Kanungo, R.N. (2001). Ethical values of transactional and transformational leaders. Canadian Journal of Administrative Sciences, 18(4), 257-265.

Merriam-Webster (2014) Online dictionary. An Encyclopedia Britannica Company.  Retrieved from http://www.merriam-webster.com/dictionary/ethic.

Romero, E.J. (2004). Latin American leadership: El patron & el lider moderno. Cross Cultural Management, 11(3), 25-37.

Rossouw, G. J. (2009a). The ethics of corporate governance: Crucial distinctions for global comparisons. International Journal of Law and Management, 51(1), 5-9. doi:http://dx.doi.org/10.1108/17542430910936628

Rossouw, G. J. (2009b). The ethics of corporate governance: Global convergence or divergence? International Journal of Law and Management, 51(1), 43-51. doi:http://dx.doi.org/10.1108/17542430910936673

Skidmore, T.E., Smith, P.H. & Green, J. N. (2010). Modern Latin America (7th ed.). New York, New York. Oxford University Press.

Stratton, J. P., & Werner, M. J. (2013). Consumer behavior analysis of fair trade coffee: evidence from field research. Psychological Record, 63(2), 363-374. doi:10.11133/j.tpr.2013.63.2.010

Thread, LLC (2013).  Thread impact report 2013. Retrieved from http://www.threadinternational.com/about-us/2013-impact-report/

Friday, February 21, 2014

Analysis of the Impact of Political Sanctions on Business Operations: The U. S. Embargo of Haiti in the 1990’s


Abstract
Of all the countries in the world that could not withstand the negative impact of an economic embargo Haiti was probably the most vulnerable.  The purpose of political and economic sanctions is to persuade a government to change its behavior in order to create an opportunity for improvements.  During the Embargo of Haiti of 1991-1994 thousands were massacred by the brutal military rulers and economic conditions became worse than ever for the Haitian people.  It ended only as US troops were headed to Haiti to implement an invasion and occupation.  The Haitian Embargo highlights the differences in interests among governments, businesses, and the people of the affected country.  Perhaps solutions lie in finding the point at which divergent interests converge.  After the 2010 earthquake one company (Thread, LLC) has provided bold leadership in reconciling the competing interests of governments, businesses and the people.



An analysis of the impact of political sanctions on business operations is incomplete if it is done in a vacuum or from the perspective of only one political or business standpoint.  Thus, in this short paper an attempt is made to provide a brief, but meaningful, overview of the political and business issues related to the embargo of Haiti that occurred from 1991 to 1994.   The story of the embargo is analyzed from two very distinct perspectives: the perspective of an American textile manufacturer (fictitious) and the perspective of Haitian textile workers.  In order to set the stage, a brief history of Haiti is given, highlighting some key facts related to its development (or lack thereof).   The brief history is followed by a description of the contemporary business climate, economic realities for the people of Haiti, and the political intentions and behavior of the American government in relation to Haiti.  Finally, in the wake of the 2010 earthquake and its devastating impact on an already fragile economy, the issue of Corporate Social Responsibility (CRS) is discussed as a necessary element for any American corporation operating in or doing business with Haiti. 

Brief History

The establishment of Haitian independence is historically very unique.  In 1804 Haiti was the first Latin American colony to achieve independence from its European colonizer and only the second colony to become independent in the western hemisphere (Skidmore, Smith & Green, 2010).   The United States of America was, of course, the first to achieve independence.  Haiti was the first republic in the new world that was ruled by persons of African descent and it represented the first time in history that a new country was established after a slave revolt (Werleigh, 1993).  Perhaps precisely because of these facts, it was not well received by the international community.  At the time of its independence, all of Europe, the US, and the Vatican refused to recognize Haiti’s status as a republic.  In 1824, France claimed that the government of Haiti owed it 150 million French francs for loss of property.  France’s claim was supported by the US and others in the international community with an economic embargo and in 1825 Haiti began making payments (Farmer, Fawzi & Nevil, 2003).  Loans were made from French banks and payments continued until 1947.  The total paid (with interest) in today’s US dollars is $21 billion. Essentially, former slaves were forced by the international community to pay restitution to their former slave owners. 

Poverty, political instability and interference by the US in its internal affairs persisted throughout Haiti’s history.  From 1900 – 1915 the US practiced what became known as “gunboat diplomacy” and engaged in military invasions of Haiti’s shores dozens of times (Farmer et al., 2003).  In 1915, the US engaged in a full blown invasion and militarily occupied Haiti until 1935.  In spite of claims by the US that it wanted Haiti to become a functional democracy it was a main source of foreign aid during the reign of Haiti’s most brutal dictators (e.g. Francois “Papa Doc” Duvalier, 1957-1971).  

Socially and economically Haiti became extremely stratified with a small wealthy elite class (mostly mulatto) and large underclass existing in extreme poverty.  In 1990, it appeared that things would begin to change.  Under the leadership of a priest (Jean-Bertrand Aristide) from a parish in the poorest area of Port-au-Prince, a political party was formed with the idea of bringing true democracy to Haiti and making changes that would reduce poverty and improve the health and education systems (Sprague, 2008).   Jean-Bertrand Aristide is described as the first democratically elected president in Haiti’s history (Farmer et al., 2003).  Unfortunately, within seven months, he was removed from office by a military coup that was supported by the elite class of Haiti. They feared Aristide would bring socialism to Haiti and threaten their status and wealth (Werleigh, 1993). 

The 1991 Embargo

The Economic Embargo of Haiti was triggered by a military that occurred within seven months of the election of Jean-Bertrand Aristide as President of Haiti.  Many in the international community expressed outrage that a democratically elected leader who had received 67% of the vote with a 90% turnout was ousted by military leaders who had previously left the country (Werleigh, 1993).  The US along with the Organization of American States (OAS) immediately proposed sanctions against the military government.  Unfortunately, the threat and implementation of economic sanctions did not prevent the military government from searching out and killing thousands of Haitian civilians identified as Aristide supporters (Farmer et al., 2003).  The Embargo has been criticized and most severely impacting those who it was intended to help while allowing exceptions that benefited American businesses and the Haitian elite (Werleigh, 1993).  The end of the embargo came in 1994 as a large contingent of American troops was on their way to once again invade the shores of Haiti.  The military leaders made a quick exit and Aristide was reinstated as President.

Government versus Business versus Popular Interest

As in any situation involving international relations, economics, politics and business, things can get very complicated.  The choices that are made in the process of any crisis depend on who is making the choice and from what perspective.  Regardless of how benevolent a foreign interest might sound the reality is that each government must make choices that are in its own interest.  However, when a government has been dismantled a vacuum is created that allows foreign interest to make choices that may or may not be in the actual interest of the dismantled government. 

Similarly, businesses operating or attempting to operate in a country that is experiencing a crisis, such as the economic embargo of Haiti, will make decisions that are in its best interests as defined by its own perspective.  Additionally, a foreign business in Haiti would have to decide what, if any, responsibility it has related to the wellbeing of its Haitian employees.  If an American textile manufacturer with a plant in Haiti has been successful, it would be motivated to develop a plan to return upon the resolution of the crisis and even lobby for exclusions.  That is exactly what happened during the economic embargo of Haiti.  Many American businesses found ways to gain exemptions and continue their operations at least at a level sufficient to maintain a presence in Haiti (Werleigh, 1993; Todd, 1994).

Finally, the interest of the typical Haitian civilian must also be considered.  President Aristide made the interest of the people his number one priority and it put him at odds with the Haitian elite, American business and eventually the American government.  The people of Haiti desire what people everywhere desire; an opportunity for a decent and comfortable life.  Unfortunately, what is offered to an overwhelming majority of Haitians is extremely low wages under inhumane working conditions.  Under Aristide the minimum wage was raised to $2.40 per day.  However, as a result of the embargo the cost of living in Haiti soared to levels comparable to or far exceeding prices in the US (Gibbons & Garfield, 1999).  For example, a gallon of gas rose to as high as $10 per gallon while in the US it remained below $1.50 per gallon.  The disparity between wages and prices has not been reconciled.  It is one of the conflicts in interests between American and Haitian textile manufacturers and textile workers.  It is in the interest of the textile manufacturers to maintain low labor costs.  The textile workers, on the other hand, consistently demand a livable wage and better working conditions. 

Corporate Social Responsibility (CSR) in an Economically Ravaged Region

Is there the possibility of a light at the end of the tunnel?  Can the conflict between the interests of governments, businesses, and the people be reconciled?  CSR has become a part of the vernacular among global corporations.  Most global corporations entered the new millennium with a new sense of social responsibility in relation to the environment and the conditions of people in the countries where they operate.  Sometimes CSR means providing support to local NGO’s or building new schools.  In Haiti one American company has taken CSR a step further. 

Thread, LLC was established after the 2012 Haitian earthquake it is a Pittsburgh based company involved in recycling plastics.  While volunteering in Haiti it owner and founder, Ian Rosenberger, observed the massive amounts of plastic bottles that seem to be everywhere. He believed that it would be possible to turn the massive amounts of plastic trash into something useful and employ Haitians in the process.  He established partnerships with local recycling companies and built a processing plant in Haiti that shreds the throwaway plastic and prepares it for shipment to the US.  In the US, Thread, LLC partners with others to turn the plastic into fabric and other usable materials.  The result is supplemental and fulltime income for over 2,000 Haitians.  As new partnerships and products are made from the shredded plastic, the profits for Thread and jobs for Haitians increases (Thread, LLC, 2013).  Thread offers a model of CSR that directly addresses the interest of both the business and the people it employs.

A Final Word

The issues of political stability, economic development, promotion of business interest, and social responsibility are certainly highly complex.  There are no simple solutions.  However, with bold leadership and a sense of social responsibility the points at which the interests of very divergent groups converge can be discovered.



References

Farmer, P., Fawzi, M.C., & Nevil, P. (2003). Unjust embargo of aid for Haiti. The Lancet, 361(9355), 420-3.

Gibbons, E., & Garfield, R. (1999). The impact of economic sanctions on health and human rights in Haiti, 1991-1994. American Journal of Public Health, 89(10), 1499-504.

Skidmore, T.E., Smith, P.H. & Green, J. N. (2010). Modern Latin America (7th ed.). New York, New York. Oxford University Press.

Thread, LLC (2013).  Thread impact report 2013. Retrieved from http://www.threadinternational.com/about-us/2013-impact-report/

Todd, D. (1994). Haitian companies' exports to U.S. soar by 50 per cent despite embargo. The Ottawa Citizen.

Werleigh, C. A. (1993). Sanctions: Haiti and the halfhearted. Bulletin of the Atomic Scientists, 49(9), 20.