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e-book Social Institutions and Economic Development A Tribute to Kurt Martin

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Jan Pronk The role of institutions in economic development has been debated at length. It is a major chapter in the history of economic thought. It was also a key - sue in comparisons of the effectiveness of Eastern and Western economic systems. Understanding the variety of social and cultural institutions has - ways been crucial in analysing development processes in Africa, Asia, the Middle East and Latin America. Less attention has been given to institutions in studies of the economic performance of Western countries. This regulatory challenge is compounded by an emerging disconnect between transnational control within supply chains and nationally bounded institutions of political governance.

This disconnect has been driven in large part by extension of the geographical scope over which production is organised beyond the boundaries of the nation-state. This kind of disjuncture between the boundaries of social and economic interconnection and of political institutions has been widely identified within broader debates about globalisation and cosmopolitan 11 David Harvey, The Condition of Post-Modernity: An Enquiry into the Origins of Cultural Change Blackwell, To the question: did you actually lose your wallet here, he replies no, but in the light of the street lamp I can at least look for it.

In other words global risks are producing failed states even in the West. On the one hand, some analysts have emphasised the diffusion of control over relevant patterns of risk within these globalised production systems, and the associated difficulties in attributing causation, blame and responsibility for resulting risk distributions.

Re-Embedding through Private Regulation? These two divergent narratives have played a particularly important role in informing the logic of emerging systems of private regulation, which have attempted to forge new ways of regulating the distinctive patterns of social risk generated by reorganised global production.

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We illustrate some of the key features of these new regulatory forms with reference to two case studies. Ethical Clothing Australia regulates the working conditions within garment supply chains in Australia, while the fair trade system operates globally to regulate the living conditions and terms of trade experienced by smallholder farmers within coffee supply chains. In one important sense, these two private regulatory schemes share a common regulatory logic, which contrasts in some respects to that of traditional state regulation.


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While state mechanisms imagine that a single entity is responsible for driving allocations of risk labour law for example focusing exclusively on regulation of the employer-employee relationship , these private schemes acknowledge that multiple parties can influence such distributions. Correspondingly, they recognise the multiple parties to whom responsibilities for influencing the conditions of workers and producers can be assigned. In this sense, both regulatory schemes represent a shift towards a more pluralised logic of risk regulation within global supply chains.

In another sense, however, the logic of the two schemes differs. The regulatory strategy adopted by Ethical Clothing Australia focuses on locating and holding accountable a broader range of actors beyond the state that wield control over working conditions—in effect mirroring dispersed forms of control with an increasingly pluralised regulatory structure.

These two approaches prioritise responsiveness to different elements of the regulatory challenge identified earlier, and as a result, experience different strengths and weaknesses as regulatory tools. Ethical Clothing Australia Ethical Clothing Australia is a regulatory innovation designed to improve the working standards of home-based industrial outworkers in the garment industry of Australia.

Supply chains in this sector have been particularly notable for their reliance on strategies of sub-contracting, described in more general terms above. By the mids, the number of homeworkers and sweatshop workers working in the TCF industry in Australia was anywhere between 23, 21 and ,, 22 depending on the source of the estimate. Figures are likely to be unreliable due to the informal, sporadic and seasonal nature of outworker employment, and the difficulty of documenting this work.

Unfortunately, we have no more recent figures, but these numbers are likely to have shrunk with the contraction of clothing production in Australia, although industry insiders believe the proportion of outworkers compared with factory workers has continued to grow.

Ethical Clothing Australia is concerned with the latter. Manufacturers engage middlemen or agents to contract work out to home- and sweatshop- based workers within Australia, setting a price per garment. They thus avoid the additional costs associated with adhering to labour and occupational health and safety laws, and pass on the risks associated with labour management to the middle person. Workers are drawn primarily from Vietnamese and Chinese immigrant and refugee communities.

Important dimensions of social risk are transferred to vulnerable workers within these production systems. A study of pay and conditions suggested that homeworkers, on average, received around AUD 0. The two main reasons for the differences in injury rates were the use of a piecework payment system and the long hours worked by outworkers.

In response to these distinctive regulatory challenges, Ethical Clothing Australia adopts an innovative regulatory response. Although the regulatory scheme is in these ways private in character, its central objective remains bolstering the functioning of the existing state-based regime of labour law. In this sense it aims to harness new sources of norms and incentives from the broader societal sphere as a means of bringing a broader range of regulatory tools to the hands of state based and private regulatory agents.

For this reason, understanding how Ethical Clothing Australia can contribute to processes of economic re-embedding requires analysis of both its distinctions from, and interactions with, traditional forms of state regulation, which have struggled in important ways to adapt to the challenges of regulating dispersed patterns of social control and risk within global production systems. In Australia, as in most jurisdictions around the world, labour laws are based on a narrowly conceived notion of the employment relationship.

Or alternatively, the identifiable employer is not the controlling entity in the supply chain. As a result, labour law is ill-equipped to regulate the complex relations of production that are now commonly seen around the world. Increasing numbers of workers toil outside the reach of labour regulation and the social protections and welfare benefits that are most often attached to this legal relationship. In important respects, labour law is now failing to conduct the risk redistribution that it has traditionally carried out.

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The legal consequence is that special intervention to address issues of fairness or inequality of bargaining power is not seen to be required, and labour law remains ill-equipped to regulate the distinctive kinds of economic relationships through which social risk is being intensified and distributed to vulnerable parties within contemporary global supply chains. The creation of Ethical Clothing Australia can be understood in large part as a response to these failures of state regulation in the face of reorganised patterns of risk and control within global production systems.

Australian manufacturers, brands and retailers become accredited under the Code after showing that all suppliers in their supply chain are complying with the Award.

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Eighty seven brands and manufacturers were accredited as of August First, the Code builds on the outworker provisions of the relevant labour laws as its base. Its aim is to enhance and complement the operation of labour laws.

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Common criticisms of voluntary Codes of Conduct are that they are inefficient regulatory forms because they are often company based, rather than industry wide, and draw away from public law, rather than bolstering it. Ethical Clothing Australia oversees the operation of the Code. The relevant union is responsible for receiving complaints from outworkers and monitoring compliance with the Code. In these ways, the economic power of retailers and manufacturers is called on in the regulatory process, increasing the efficacy of the overall regulatory system.

Third, as well as creating disincentives for non-compliance, the Code creates incentives for compliance. Manufacturers that complete the accreditation process are licensed to display the Ethical Clothing Australia label on their goods. Because market power is so concentrated in the Australian TCF industry amongst a small number of retailers and large fashion houses, the survival of smaller manufacturers depends on receiving ongoing contracts for supply to these big players. If the brands and fashion houses will not order from them so as to maintain their accreditation, this functions as a powerful sanction.

These aspects of the Code allow market power to be captured in the service of enhanced labour standards, reinforcing the signalling that the existing laws were sending to businesses to guide their behaviour. Moreover, the private Homeworkers Code of Practice has now been mirrored by mandatory codes in two states. These mandatory codes encourage companies to opt into the voluntary code by allowing companies to avoid the scope of the mandatory codes if they join Ethical Clothing Australia.

In these ways, Ethical Clothing Australia is able to recognise the responsibility of multiple parties wielding influence over distributions of social risk, and to hold this plurality of actors to account for such influence. Moreover, by mobilising the influence of private Regulation to Co-Regulation Yale University Press, for an application of this idea in the labour law literature. Nevertheless, there remain important limits to the effectiveness and legitimacy of this type of private regulatory initiative. This is an important feature of the mechanism as it strengthens the position of the union as a regulatory agent, and connects homeworkers to other workers represented by the union.

However, it is an extremely difficult and time consuming job to track and visit various suppliers to ensure compliance with the standards, despite the supply chain transparency that the mechanism provides. The Union is under-resourced and vastly overstretched in performing this regulatory role. Furthermore, there may be a conflict of interest for the union in conducting this role, as it has a large stake in broad industry acceptance of the mechanism.

One of the strengths of the initiative is that consumer power acts as a counterbalance to brand power. Yet as long as it is voluntary, the effectiveness of the ethical label depends on the goodwill of brands to seek accreditation, and consumers to shop ethically. Ethical Clothing Australia only applies to apparel manufactured in Australia, and Australian-made clothes account for around 10 per cent of clothes sold in Australia.

As long as only a small number of brands have been accredited, the label will continue to appear on a very small proportion of all clothes for sale in Australia—weakening the signalling associated with ethical purchasing. It may be that there is a tipping point for Ethical Clothing Australia: when a sufficient number of companies have become accredited it will offer a real choice for consumers, and this in turn will put more pressure on those brands that remain outside the scheme.

However, this tipping point has not yet been reached. It is often assumed in the regulatory literature that regulation that is more responsive to its context and voluntarily adopted will be more embedded in local or industry norms, and thus more legitimate. Yet, manufacturers, in particular, report feeling singled out by state and private regulation in an industry which is struggling to survive import penetration, compared with other industries that do not have similar private mechanisms.

Instead of seeing this initiative as a way to lift some of this pressure and redistribute risk, many manufacturers see it as another source of costs and reduced competitiveness. As a result, Ethical Clothing Australia remains highly contested and is often attacked in industry journals.

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As such, it provides a useful example of social re- embedding through private regulation of an industry in which supply chains are characterised by diffuse control, and pervasive failures of state-based regulation. Item location see all Item location. Ireland Only. European Union. Show only see all Show only.