Monday, November 16, 2015

2015 United Nations Forum on Business and Human Rights--Day 1 Afternoon: From Labor Exploitation, to Supply Chain Regulation, to the Privatization of State Duty to Financial Institutions

The first day of the 2015 UN Forum on Business and Human Rights offered a dual track palette of offerings that were meant to engage the broad spectrum of participants in attendance.  The 2015 program deepened efforts to strengthen action on the U.N. Guiding Principles (UNGPs), and its conceptual framework grounded in the "protect, respect and remedy" framework. At the same time, an under current might suggest divergences between the official and majority position, reflected in the efforts of the Working Group, and those of others who might see a distinction between the ongoing project of deepening and broadening the UN "protect, Respect, and Remedy" Framework, and the the UN Guiding Principles themselves. That distinction, increasingly heard in some quarters, is quite telling and marks a potentially significant evolution that remains true to some version of the form of the efforts through 2011 but provides distance between that Framework and the Guiding Principles themselves. That distinction might be a cause of worry, especially in the context of the sub-textual issues of a comprehensive treaty on business and human rights.

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This post considers impressions on the evolution of the traditional opening of the formal portion of the Forum through its Opening High Level plenaries in light of the 6 themes of the 2015 Forum: (1) assessment metrics (tracking performance), (2) coherence: embedding the UNGP in existing and emerging trade/investment frameworks,  (3) coherence: embedding the UNGP in national action plans and the problem of the state owned enterprise,  (4) Corporate compliance (human rights due diligence and supply chain "issues"),  (5) systemic breakdowns (threats to human rights defenders), and (6) access to remedy.  Curiously absent, though perhaps not surprising given the cultures of international organizations--issues of interpretive coherence.  We appear to be in a period of letting a thousand flowers bloom.  That is good, perhaps, in such a young field conspicuous by even the pretense of consensus.  Yet its absence even as a thematic matter ought to trouble--whether one is committed to the UNGP or merely to the "Protect, Respect and Remedy" Framework (and its progeny some sort of comprehensive treaty on business and human rights).

What follows are comments and reactions to the first day afternoon sessions.  

1.  The Forum chose this year to spotlight labor exploitation during its lunch time sessions organized  by outside stakeholders. But not labor exploitation per se--that is an essential feature of modern labor markets, and states quite jealousy guard their power to manage their labor markets if only to ensure social peace and the protection of the legitimacy of the governing order.  So one might consider the session as devoted to the management of the outer boundaries of acceptable exploitation of workers within labor markets in which, by their own logic, substantially greater exploitation of labor in "free" markets for labor might be possible.  The sessions evidenced a growing maturity of governance frameworks in the context of labor.  The greater willingness of states to confront the issues of exploitation beyond the extremes of traditional slavery is laudable and to be encouraged.  The embedding of that impulse within the framework of the UNGP provides a framework within which national policies might be harmonized around a set of international standards that are themselves evolving to meet new realities. But there is substantial room for growth, especially where the state duty to protect and the corporate responsibility to respect meet.

First, the management of acceptable exploitation is heavily bound up with the protection of the political orders of states.  This means that labor rights are understood as linked to political stability and the  control of border.  That means, further, that labor exploitation management within robust labor markets can only be possible through the control of those markets by limiting labor supply by using borders as barriers to entry. Borders are also useful to identify and segregating pools of exploitable labor and then focusing remedial measures on those territories in contextually effective ways.  Yet the preservation of labor monopolies hardly touches on the issue of exploitation--it merely makes labor complicit in the structures of exploitation.  That, of itself, ought to be a subject of discussion--that bargain that in return for partial protection labor and the political elites (in Western, religious and Marxist Leninist states) will not challenge the basic premises on which these labor markets are themselves organized.

Second, the object of regulation appears aimed at a badges of slavery model.  Rather than seek to deal with the issue of exploitation as built into the organization of labor markets, states--from the United States and U.K. on down--have sought to draw attention away from those foundational issues to the margins. What states worry about are specific markers (important to be sure): stripping workers of passports, housing conditions in dormitories, right to quit, placement fees, control of movement, treatment of migrants in downstream supply chain host states, and the like. But the purchase and sale of worker contracts is not a subject of discussion.  Nor is discussion of the relationship between wage markets and labor. And while the aggregation of capital continues to be subsidized (and to good effect from a wealth production perspective) that of labor suffers from the opposite effect (to bad effect from long term societal wealth production). The problem had been again understood (or misunderstood) in political terms--capital does not vote (directly), but labor has two bodies--as a means of production and as a foundation for the democratic political order.  Yet Citizens United, in the United States, reminds us that capital might indeed actively participate, as such, in the political process.

Third, the issue of labor exploitation is viewed as a problem of host states rather than of developed states in production chains in which the civilized developed states must impose order and socialize the barbaric societal customs of host states. The issue is on trafficking--the importation of perverse labor practices among a criminal element into developed states, with humanitarian, migratory policy, and labor market management implications. The issue is on modern slavery--the practices of states without the moral fiber necessary to ensure through their own domestic legal orders that labor is exploited within the parameters deemed acceptable upstream of the supply chain.

Fourth, there is little focus on the substance of the issues raised.  One of the most interesting aspects of the presentations, and the usual approach of states, is to focus on measures and assume that the underlying issues are beyond discussion.  Yet it seems that the underlying premises of state policies--especially those policies that tend to reinforce the core contradictions of the state duty to protect human rights and their domestic legal orders)--are avoided in favor of the development of lists of indicia that may be suppressed from time to time.  Thus, labor might continue to be exploited--but forbidding individuals to terminate their employment, for example, will not.  And in this way, the definition of labor exploitation is reduced to the aggregate of those forms of labor practices that will be identified as beyond the tolerable.

Fifth, but more than that focus on the techniques of control of labor markets, at the margin, is the source of that internationalization of labor market discipline. What emerges from the discussion is the continued  strength of a trickle down internationalization, the main engines of which are developed states.  Perhaps there is no alternative--certainly is is the pattern that one sees in the formation of international standards in the financial sector, and is reflected in the behavior expectations of the G 20 edifice (see, e.g., here). It is to be regretted, however, that the voices of developing states, appear more muted in a conversation that is very much about them.

2. I have been worried about supply and production chains (see, e.g., HERE) and was curious to see what global consensus appeared to be at the Forum. To that end I attended a lively and interesting session on "Promoting human rights in agricultural supply chains: From Palm Oil Workers in South East Asia to Women in Kenya's Horticulture Industry."

First, the issue of supply chain management is framed in terms of vulnerability and exploitation.  In that respect it shared much with the earlier discussion of managing the outer boundaries of labor markets within the supply chain. Forced labor is common to both--as is the view that this is a problem that bubbles up from developed to developing states, and that developed states and their MNCs can somehow make up for the inabilities of host states to "get the issue right."  Within the context of supply chains, the focus is on the construction of boundaries between those clusters of characteristics that will be tolerated within labor markets and those that will not.

Second, supply chains tend to create a disjunction between internal and externally focused economic policy.  Andrew Odete (Hivos International) provided a nice qualitative description of the way in which the cut flower industry works for European consumers but has little connection with the socio-economic preferences of domestic markets (women in Kenya would prefer a kilo of meat to a bunch of flowers). This suggests that labor policy, and the construction of supply chains within them effectively creates a  bifurcated state legal order--one tied to the domestic legal order disconnected from global markets, and the other internationalized and  dependent on the colonization of domestic space by global ordering systems (see, e.g., here). Thus there are at least two Kenyan legal orders--one domestic and one internationalized.  And the internationalized order is itself fractured among the governance systems of supply chain systems levering Kenyan territory for their global operations.

Third, labor rights are tightly bound with national social policy. Internal trafficking within lower tiers of the supply chains, class issues and exploitation within this segment of supply chains, the exploitation of children tends to produce perverse results as the locus of enforcement increasingly pushes responsibility down the supply chain from the home state  capstone enterprise to the lowest tiers of the supply chain.  Perversity increases at the lowest levels of the supply chain as peonage, press gang systems, and the exploitation of gender inequalities produce functional slavery without its formal indicia. Law will be of little effect in the face of the structure of markets:  low wages will produce peonage, etc.  Moreover, the cram down and privatization of supply chain compliance due diligence then produces consequences that substantially burden middle and lower supply chain tier states with its social consequences--malnutrition, medical issues (HIV, etc.), and political instability. 

Fourth,  Philip Hunter (Verité) emphasized civil society's embrace of rule oriented systems as the basis for ordering socio-economic space and compelling compliance. That is necessary because labor issues tend to be marginalized in supply chain organization and governance. But such rule systems need not be bounded by domestic legal orders.  They are meant to serve as a foundation for engagement throughout the supply chain between labor and capital.  Yet Judy Gearhart (International Labor Rights Forum) looks to disciplining supply chains through domestic legal orders. Yet she cautions that context matters-- generational history mat significantly affect the nature of exploitation considered as a longitudinal issue within stable farming communities. The potential limit of that framework--privatization in the form of transparency at the foundations of supply chains: transparency in wages, worker organization access to farms, devolution of responsibility to control recruiters on farmers, etc.--avoids the core issue that collaboration rather than formal ordering may be a more effective vehicle.  Worse privatization relieves upstream stakeholders from responsibility and squeezes downstream enterprises into an impossible situation--the logic of their market position requires them to exploit workers because in the absence of exploitation their operations are not economically viable.  But avoiding this market pressure requires market regulation that is the opposite of the current fracture--it requires the coherent regulation of the supply chain itself as a single and integrated object.

Fifth, transparency tends to be a powerful market force in managing supply chain behaviors, perhaps more so than formal rule or governance enterprises. If, indeed, the management of market constraints (and rules) is far more effective than the development of formally satisfying but ineffective rule and governance systems that are hardly implemented. (see, e.g., here). But transparency systems are particularly hard to effectuate without the intervention of either the state or of the upstream enterprise.  And perhaps there is something to the development of robust systems of information keyed to the markets in which such information is valuable (e.g., here for an example).

Sixth, Benjamin Ware (Nestlé) emphasized the even larger disjunction between elite conversation and action in supply chain management, and the business and human rights project generally--and the front lines of that effort--the workers and downstream enterprises where much of the effort (and on whose behalf) the elite appears to labor. That arrogance of elite actors--academics perhaps worse than others (the psychology of which may be more interesting for its own revelations about this factor in the production of norms)--effectively produces approaches to issues that satisfy their needs (prestige and influence markets) but has hardly any effect on the ground. Ware and Hunter also noted that the age of downstream CSR monitoring and of CSR compliance audits is dead , and that the embedding of new forms of social control is the wave of the future--to surmount the problems of labor market behavior, social norms will need to be addressed--and rule systems are likely among the least effective means of attaining these changes. Yet this itself might change the focus of the UNGP in ways that it cannot effect.

Seventh, the conversation among these supply chain stakeholders makes clear that poking and prodding this or that part of supply chain management  is largely ineffective in a coherent scheme to regulate supply chains. The focus on farmers, on downstream employers, on upstream employers, on states, on commodity traders, on family structures, on civil society, etc. fractures and disjoints efforts at supply chain governance.  The consequence is a rule system, or better rule systems, that may be strategically exploited by any stakeholder or object of this supply chain. Governance in this framework is impossible--but it provides an endless source of failures that might animate and feed the demand for civil society to tilt at the windmills of governance failures.  That is both cynical and dispassionately likely--a system that is sustainable and sustainable because it is built on a foundation of recurring and manageable failures.  If failure is the equilibrium state for supply chain governance then the problem of perversity in regulation ought to be on the table and elites ought to be called to task for complicity in ensuring that while they remain important in seeking solutions they are sustained by a reality in which success is unattainable. 

Eighth, the focus on worker empowerment, while necessary, is hardly sufficient to solve the regulatory problem posed by the supply chain understood as an integrated object.  Worker empowerment has little power in the face of the realities of the logic of markets.  While the aggregation of labor power will play a role in shaping that market, the fractured regulatory environment will permit both strategic behaviors to avoid power or up end power relationships,  it will not change that logic.  On the other hand, at this point perhaps it is only strategic behavior--empowering labor--can reduce the incidence of labor exploitation beyond specified limits--peonage, etc.  But beyond that, beyond the marginal, placing regulatory obligations on labor will not resolve the fundamental issue of regulatory coherence or the construction and management of comprehensive macro-economic and societal policy reflected social values.

Ninth, the fundamental problem of labor (whether in liberal or Marxist Leninist, or religious market systems) is not a proxy for nor a substitute for the problem of the problem of the human rights detrimental effects of business (or of markets).  In some sense the problem of labor is a sub set of the problem of markets, but it will not be "solved" through business and human rights regimes.  And indeed, in some sense, a basic contradiction of the business and human rights project is its steadfast refusal to consider the problem of labor (though its advocates like to talk a lot around the peripheries of the issues--witness the afternoon's focus on "labor") built into the structures of the domestic legal orders of all states. That being the case, the constraints of the UNGP and business and human rights project on labor largely rests on the determination of consensus around a framework for the boundaries of tolerable labor exploitation in the transnational sphere.  And worse, of course, acceptance of the further constraint that the business and human rights project will leave to the tender mercies of states the fate  of labor that is not otherwise participating in international supply chains.

3.  In the production process, capital stands beyond labor and regulation. Financial sector responsibilities for business and human rights has become an important focus of the 4th Forum.  The discussion raised a number of interesting issues.

First, embedding the UNGP within the financial sector provides a useful way of privatizing (or perhaps better put "embedding") and standardizing the state state duty to protect within the framework of the second pillar principles of business and and human rights.  This produces advances and challenges to the UNGP project.  The advances are obvious--the power of the financial sector as the most critical sector for monitoring and assessing risk and performance of enterprises within markets is unparalleled. Financial institutions are best placed for disciplining their clients (while protecting themselves from risk) by embedding the UNGP in their lending cultures. But there is a temptation to see in financial institutions a substitute for the state--and a means for the state to avoid its own duty to protect human rights.  Yet that complicity of states in their own avoidance on those responsibilities they only too gleefully agree ought to be effectively undertaken by lenders, carries a great price.  That price includes a growing irrelevance of states as financial regulators, a further erosion of state influence in domestic macro-economic policy (a trend already quite advanced in IFI debtor states), and the diminution of any substantive component to the first pillar itself.  Indeed, at its limit, the focus on financial institution responsibilities represents a trend toward the substitution of corporate responsibility mechanisms, and the internationalization of a standardized legal framework (the international bill of human rights) of the second pillar, for that of the state and any normative component in the first pillar.

Second, the position of financial institutions within financial production chains provides too great a temptation to use them to plug all holes in the UNGP implementation process.  For example, delegating a downstream  remedial responsibility on financial institutions (for example by imposing responsibility on them to remedy the human rights wrongs of their lending clients) has the effect of transforming lending institutions from a private market actor to a substitute for the state. And it may well substantially increase the costs of capital in ways that may threaten advances in other areas (for example labor exploitation).

Third, for all but the most developed states, the effective exercise of a robust UNGP due diligence  governance system by financial institutions represents an effective transfer of authority from states to transnational lenders.  Not only traditional IFIs will increase their power over macro-economic policy in states, but the decision of lenders in global financial translations will likely affect state policies in ways that will shift power to financial institutions, in the aggregate, to manage the economic policy (and laws) of states targeted for modification of their domestic legal order either as written or as implemented.  This process of sovereignty shifting from public to private actors can already be seen in some sectors--the apparel sector in Bangladesh for example (see here).  But its adoption by lending institutions will mark a radical shift in power from states to global capital--now the holders of control over state macro economic and social policies touching thereon.

Fourth, financial institutions are coming to their responsibilities warily.  While it might be easiest for them to embed risk  related metrics int their procedures for pricing loans, the rest of the UNGP edifice may be harder to digest.  This is perhaps striking in efforts to impose on banks the quasi-public functions of providing (at their expense) quasi judicial mechanisms for resolution of disputes may may be at least one or two levels removed from their direct relationship with their primary lenders.  This is enriched with a perverse irony when it is development banks and publicly owned banks that resist the imposition of UNGP regimes.  The perversity also underlines the point made earlier--that the move to shift responsibility for UNGP work to financial institutions represents an effort of states to avoid their own primary duty to protect human rights through privatization and narrowing of their duty within the constraints of the second pillar responsibility to respect.

Fifth, left unstated is the extent to which the UNGP ought to be extended not just to lenders that are state owned or controlled enterprises, but whether, as well, it ought to extend to central banks, development banks and public funds that are devoted to private market investment. Indeed it is not clear the extent to which state banks and central banks ought to bear a greater duty under the UNGP than private banks. While theory suggests that indeed, SOEs and state instrumentalities may have multiple obligations under the UNGPs (a state duty and a corporate responsibility), it is not clear that actually implicates financial institution operation.  With respect to remedial obligations, especially this crossing of the streams might produce a number of issues that have yet to be satisfactorily developed.


What clearly emerges from the afternoon's discussion of only a small sampling of a rich program is that the discourse about business and human rights, even one around the organizing structures of the UNGP has been maturing in some remarkable respects. The interpretive (unofficial mostly) of the UNGP grows richer, though it is nor clear who other the the elites with a tremendous investment in their coherence is paying attention. The UNGP leadership matures and grows surer as interpretive gaps are filled and the UNGPs are increasingly centered in the business and human rights discourse--at least with respect ot the second pillar.  At the same time the conversation has now expanded well beyond the UNGPs as a self referencing system, and focuses, sometimes inadvertently, on those issues of policy and premise on which the UNGP is founded.  But where is the Treaty?  Perhaps that comes tomorrow.

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