Regulation, Markets and Poverty

Regulation, Markets and Poverty

The CRC Series on Competition, Regulation and Development

Edited by Paul Cook and Sarah Mosedale

Regulation, Markets and Poverty incorporates the main policy implications arising from theoretical and empirical research into competition, regulation and regulatory governance in developing countries. This analysis often challenges conventional wisdom and draws on the work of leading experts from a range of disciplines.

Chapter 9: Regulating through Ethical Trade

Edited by Paul Cook and Sarah Mosedale

Subjects: development studies, development economics, economics and finance, competition policy, development economics, politics and public policy, public policy, regulation and governance


INTRODUCTION This chapter deals with ethical trade initiatives that are a new and rapidly growing method of regulation, which can offer real benefits to hard-pressed regulatory agencies in developing countries. Such initiatives vary in their aims and methods but usually involve a wide range of stakeholders in trying to ensure that suppliers in developing countries treat their employees decently. Although the state is not the lead player in ethical trade its support can make a real difference. In fact, without government support ethical trade would not happen. The origins of ethical trade lie in globalization. Globalization has meant that many Northern-based multinational companies (MNCs) now produce goods in developing countries where they can pay much lower wages than they would have to in their home countries. The benefits for the MNC are obvious. But what do the production workers themselves get out of it? Because their biggest advantage is the relative cheapness of their labour it is not difficult to see that they are at risk of exploitation. Where there are few alternative ways of making a living it is possible for employers to impose low pay levels and dangerous working conditions (Lee, 1997). And since there is often a long chain of contractors and subcontractors stretching from the MNC’s headquarters to the small factory or homeworker in the developing country, it can be relatively easy for the MNC to avoid responsibility for what is happening at the other end of the chain (Greig, 2002)...

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