A Decent Factory

A Decent Factory and the Holling Cycle
Last week in class we saw a documentary called A Decent Factory. Some clips of this documentary can be found by clicking on 

http://www.youtube.com/watch?v=uRYu4nwRjos&feature=related 

or

http://www.youtube.com/watch?v=JPenUV55f90

In this documentary Hannah Kaskinen, an ethical auditor of Nokia visits their Chinese supplier of mobile phone chargers for a sustainability audit. She is accompanied by Louise Jamieson, a British consultant. They are shown round the factory and the living quarters of the employees and are given an insight into their lives. They are confronted with the fact that working conditions are very, very different from those of the Nokia employees, to say the least. Watch the clips and see for yourself.  

We were asked to place this audit in the Holling cycle (cf. C.S. Holling (2001) Understanding the Complexity of Economic, Ecological, and Social Systems, Ecosystems 4; 390-405). 

Before positioning the trip in this cycle we must define what cycle we are looking at; the relationship of Nokia and their Chinese supplier or the Nokia sustainability awareness cycle or maybe the diffusion of sustainability criteria cycle, to mention only a few of the possibilities. Once we have defined the subject of our cycle, we need to assess it in terms of active/passive use of capital, of weak or strong connectiveness and of weak or strong resilience.

Let us start with the relation between Nokia and their supplier. The documentary does not suggest that this is a new business relationship, so I assume that the business relation is well established, although this may be the first visit of a Nokia person. When the business relationship is being established this is the time to discuss and define what the business partners may expect from each other. Normally, this is also the stage when most resources (capital) are invested in the relationship. In this period the focus may have been on prices and technical specifications rather than sustainability. Once the specifications (of any kind) have been made it is much more difficult to change things. Now that the relation is there the companies are to some extent tied to each other. 
In short; capital is becoming passive, connectiveness is becoming strong and resilience is becoming weak. The relationship is in the conservation stage of the Holling cycle. 
This is also shown in the meeting with the managers before Hannah leaves for China. She is given a chance to perform an audit, but it is not clear what for; do Nokia really wish to change things or do they simply wish to show the world that everything is okay?  Hannah is going to perform an audit, but against which norms? This vagueness is the ultimate passive use of capital.

But why not look at it from a different angle, from the sustainability awareness aspect of the Chinese supplier? Imagine for a moment that you are the manager of the Chinese factory. You have done a great job so far, you have established a business and found a big European customer for your products. Your compliance with legislation may not be 100%, but it is good enough for the government officials that visit your factory. Of course you are using cheap labour, that is what makes China an economic super power, and that is what your European customer requires; reliable supply and a low cost price.
Now you are visited by two ladies from a different world who look at your factory from a different perspective. No quality control and yield figures, no profit and loss sheets but personal protection equipment, minimum wages and housing conditions. What are they, aliens? 
This takes some getting used to, especially if these subjects have not been discussed between the business partners before, but it also creates opportunities. It is not very clear what Nokia want, but at least the consultant gives a few hints. 
If there is no follow up from Nokia this will simply be a visit without consequences, but if Nokia bring up the subject later this visit can be the beginning of an improvement of working conditions. If Nokia are serious, their supplier can calculate the cost of paying minimum wages or working shorter hours and review prices. Let us suppose that is the case. In that case both Nokia and their supplier have to make investments, to activate their captal to make this work. This will take time but it can benefit both parties. Nokia will achieve (more) sustainable sourcing and their supplier will be ahead of his competitors. His customer will be less likely to find another supplier who is both cheap and sustainable, so this will increase the connectedness and decrease the adaptibility. In that case they are now in the beginning of the growth stage of the Holling cycle.     

Is this an effective way of diffusing sustainability criteria?
My first reaction when seeing the audit feedback in China was disappointment. They find a situation which is unacceptable from our point of view. If you treat your employees in this way in the Netherlands you are sent to jail. (See http://nos.nl/artikel/274273-aspergeteelster-voor-de-rechter.html )

Then I thought again. I am an internal auditor myself and I recognized her method of beginning with the positive comments. Louise did not give a complete list of what should be improved, but indicated the priorities and she did so in a friendly and polite manner. Perhaps she knows better than we do how to behave in China. Besides, this was not a negotiating but an auditing process, that is to say observing and reporting. In her report to Nokia she will have been more explicit. It is not up to the auditors to change things. It is up to the decision makers to decide on the follow up.

But is it effective? Let us compare alternative reactions. 
1. Nokia decide to go for it and demand dramatic changes. If these changes cannot be met they walk out (this is not the most likely scenario). Would that improve the lives of the factory women? I do not think so. They would either lose their jobs or continue the same life producing for another customer. 
2. Nokia decide to go for it and demand rigorous changes and their demands are met with (an even more unlikely scenario). I am afraid that the factory management might have a problem with local authorities. They would be endangering China's position as workshop of the world and causing unrest amongst workers. The continuity of the factory may be at risk. It is to be doubted if this were to improve their lives. 
3. Nokia decide to forget about it and leave things as they are. This would not improve matters and what is more, it would harm future attempts to change things; the worst possible solution.
4. Nokia decide to change things, but step by step. Based upon this first report their management define sustainability priorities and targets which are to be discussed with their suppliers at an executive level and to be evaluated on a regular basis. They are the customer, they are not without power, but first they must make it clear that this is a real business issue and divide the gap into achievable steps.  It is true, if they take this course life will not change overnight for the factory girls, but it will improve in the end. 
It may not seem very effective, but in the circumstances this is the most effective approach. 

How could another coordination system help?
In the case of a Decent Factory the working conditions are to be improved by self coordination. This depends highly on the individual companies' approach, which in turn also depends on the consumers' priorities. As long as the consumers do not mind companies do not care.
Now what else could work? Self-governance could work as most mobile phones are made by a small number of companies. If the five biggest companies would join forces and agree on minimum labour conditions for suppliers, they could really improve things, as Friwo and other similar companies would have no choice but to move. But would the companies do this? Only if the consumers demand it.
As the producers of mobile phones are in different countries and even continents of the world I do not think that any government would directly or indirectly force the companies in their country to demand sustainable products from their suppliers. The only governments that could demand improvement are those that are in a position to enforce better working conditions, that is the national governments of the low wage countries. These are not very likely to do this as it would weaken their companies' competitiveness.

If things are to be changed it is up to us, consumers, to initiate the changes. But do we really want change? Do we follow our hearts or do we follow our wallets?

PS Yesterday I finished this blog. Then someone on tv said she might buy a fairphone, so I googled fairphone and guess what? 

source; http://www.nrc.nl/tech/2012/09/19/fairphone-bellen-met-een-schoon-geweten/ 
Today, that is 30 September 2012, googling fairphone does not result in any hits in English, but that will no doubt change soon. In short, a small business was founded earlier this month, which aims at producing a fair trade variety of the mobile phone, better for workers and the environment. First products expected to be available in 1 1/2 years. They realize that you cannot change everything at once and plan to use their profits to make future versions more sustainable.