Nike’s Oversea Exploitation And Ethic Discussion

Introduction

Industries and services were highly diversified and developed in last century with the development of global economy. After the Industrial Revolution, more and more companies were established while business has been expending globally; meanwhile, corresponding laws and regulations are promulgated and improved continually. More employees were needed by expending business; and the relationship between employees and employers was changed from personal relationship to contractual relationship. However, the conflicts between employers and employees could never be eliminated.

In the production process, what employers pursue is to maximize their profit through selling more production and cut the average cost, which is always highlighted by looking for cheap labor in developing countries. However, employees seek maximum payment, safe working environment, appropriate pressure, and good welfare system to protect their rights in the future. This difference of goals between two parties arouses the contradiction between the two parties; and the change to their relationship sharpened it. Because of this, exploitation appeared.

“Exploitation is that certain persons are being mistreated or unfairly used for the benefit of others” (Arneson 1992, p350), and exists in many fields. In this paper, I focus on the introduction to Nike’s exploitation which can be concluded as the act of treating people as sneaker making machine with providing the poor working condition and a little compensation.

Nike’s production can help build thriving economies in developing nations through providing thousands of job opportunities. They also have the significant amount of resources to control employees by providing jobs. The government also encourages and supports Nike’s flowing in. In result, regulations and legislations were established to protect the weak by government; however, they are never sufficient to do so.

In the second part of my paper, the fact of exploitation by the Nike Company which is the lead of the sports products industry will be presented to make ethic discussion based on The Declaration of Independence and The Constitution.

Nike and Sweatshop Labor

Nike, a company headquartered in Beaverton, Oregon, is a major force in the sports footwear and fashion industry, with annual sales exceeding $12 billion, more than half of which now come from outside the United States. The company was co-founded in 1964 by Phil Knight, a CPA at Price Waterhouse, and Bill Bowerman, who is a college track coach, each investing $500 to start. The company, initially called Blue Ribbon Sports, changed its name to Nike in 1971 and adopted the “Swoosh” logo recognizable around the world originally designed by a college student for $35. Nike became highly successful in designing and marketing mass-appealing shoes all the time.

Nike has no production facilities in the United States. Rather, the company manufactures athletic shoes and garments in Asian developing countries, such as China, Indonesia, Vietnam and Pakistan, using subcontractors, and sells the products in the U.S. and international markets. In each of those Asian countries where Nike has production facilities, the rates of unemployment and under-employment are quite high. The wage rate is very low in those countries by U.S. standards-the hourly wage rate in the manufacturing sector is less than $1 in each of those countries, compares with about $18 in the United States. In addition, workers in those countries often operate in poor and unhealthy environments and their rights are not particularly well protected.

Understandably, host countries are eager to attract foreign investments like Nike’s to develop their economies and raise the living standards of their citizens. In 1997, however, Nike came under worldwide criticism for its practice of hiring workers for such a low rate of pay “next to nothing” in the words of critics and condoning poor working conditions in host countries.

Initially, Nike denied the sweatshop charges and lashed out at critics. But later, the company began monitoring the labor practices at its overseas factories and grading the factories in order to improve labor standards. Nike also agreed to random factory inspections by disinterested parties.

Nike’s Exploitation—the Race to the Bottom

As a simple Google result, sweatshop refers to a shop or factory in which employees work for long hours at low wages and under unhealthy conditions. According to Bigelow’s (1997) description, “for pennies an hour, these children work in dank sheds, stitching soccer balls with the familiar Nike swoosh and logos of other transnational athletic equipment companies.”

Hapke (2004) concludes several factors that employers would consider before making the decision of signing contracts with oversea factories. They are minimum wage, child labor laws, environmental regulations, conditions for worker organizing and corporate tax rates. On employers’ aspect, they want to pay the least salaries and to provide the cheapest diet and the shabbiest plant to their employees, because they can reduce their expenses in this way. This is also what employers always do.

Nike has used “sweatshops” in South Korea and Taiwan since the early 1970s. As the rapid economy development in South Korea and Taiwan, employees are looking for higher paying jobs which could also provide a comfortable working conditions. At the same time, the labor union came to better establish and regulate, developing more and more powers and influence in protecting labors’ rights. Nike has to move its factories into Indonesia, China, Vietnam and Pakistan, because of the increasing labor cost. Nike takes the “advantage” of cheaper labor and prohibited labor unions in these developing countries. In conclusion, there are three reasons why Nike moved its factories to China, Indonesia, Vietnam and Pakistan. They are 1) labor laws in these countries are poorly enforced; 2) cheap labor is abundant and 3) local laws prohibit workers from forming independent trade unions (Hartman, 2003).

During the 1990s, Nike was seriously protested and criticized for their behaviors. On October 18, 1997, international protests against Nike were erupted in 13 countries and 70 cities. 5 days before that, 6,000 Nike workers went on strike in Indonesia and 1,300 followed in Vietnam. On November 8 the same year, Workers at the factory near Ho Chi Minh City were exposed to carcinogens that exceeded local legal standards by 177 times in parts of the plant and that 77 percent of the employees suffered from respiratory problems. Employees at the site, which is owned and operated by a Korean subcontractor, were forced to work 65 hours a week, far more than Vietnamese law allows, for $10 a week (New York Times, 1997).

Response from Nike

At the beginning, they did not give any explanation about producing in sweatshops. However, Tom McKean (2001), the Nike director who represented Nike Inc., showed the initial attitude in 2001 as “Hey, we don’t own the factories. We don’t control what goes on there.” Quite frankly, that was a sort of irresponsible way to approach this. Bigelow (1997) also remarked that Nike knew exactly what it was doing when it went to Pakistan. That is why they went there. They went to Pakistan because they knew child labor was an ‘ages-old practice’, where Nike started the race to the bottom with local government.

As the social pressure increasing, Nike began to take action to improve the situation. During the 1990s, Nike established a “code of conduct” for all their plants. It took Nike about 10 million dollars a year to follow the code, and to persist in regulation for fire safety, air quality, minimum wage, and overtime limits (Levenson, 2001). Moreover, by 2000, Nike was still criticized by college groups which were led by students. To save their being lost reputation, Nike sent 9 letters about their explanation of their behavior to various persons including colleges’ professors, student leaders, and athletes they sponsored. However, because of these claims made by Nike, it settled a case about free speech rights.

Recently, Nike has made more efforts to adhere the current code of conduct.  They developed a program which is constituted by 97 staffs to randomly inspect hundreds of their factories each year. Nike also gave the Fair Labor Association the privilege to randomly inspect any factory that produces Nike products (Bernstein, 2004).

Nike has inspected about 600 factories since 2002. Each inspected plant is given a score of 1 to 100 based on its benchmark to measure the condition of plants. The given score is then associated with a letter grade, A through D. Under this inspection system, most audited firms received B and some of them get A. Once a factory receives a grade of D or lower, Nike warns to stop producing in that factory until the conditions are significantly improved. Nike expanded their monitoring process to include environmental and health issues in 2004 (Bernstein, 2004).

Ethical discussion

According to the issue about Nike’s sweatshops, the problem about how to balance the cost of labor and the human based management is exploded to public. Apparently, with the high speed of global economic development and high saturation of the market, competitions among enterprises become more intense and common. According to the analysis of Scott Shane (2008), there were 75% of companies established in the year of 1992 survived in 1993. However, in 1997, as five years passed, more than 50% of them collapsed. Under the competitive business environment, the companies are competing for cheaper labor cost. What they are looking for are the cheapest labors in rich-labor countries, the countries that set up the lowest requests of working conditions and have the most inadequate labor laws and regulations. The race to the bottom begins. In these developing countries, the labors rights and interests could not be protected when the labor force is very rich. Nike’s ignorance of exploitation of labor also expose their nature of profit. As I discussed previously, Nike don’t think they need to undertake any responsibility on the labor exploitation since they have the contractual relationship with oversea factories. However, their ignorance of abuse of child labor, overloaded pressure on employees and little compensation which is not enough to support their living in their country.

Ethically, Nike’s business violates the words in The Declaration of The Independence. As the beginning of The Declaration of Independence goes, “that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and pursuit of Happiness.” I believe that “all men” in the text not only points Americans, but all human beings as well. Nike are made by slaves of poverty for slaves of fashion (Bigelow, 1997). All men are created equal; however, the products that are created by men are not equal. The Nike sneaker makers cannot afford one of their works in all their life.

Furthermore, their rights of liberty and pursuit of happiness are deprived in the game of capitalists’ competition. Their liberty is restricted by overload pressure and work hours. Meanwhile, it is no doubt that people won’t consider their happiness with hunger and tiredness. I don’t think that people are supposed to afford what they made. It is ridiculous that people who made Lamborghini have to be able to afford one. However, at least, they should be free to choose the time how long they want to work, the pressure they are willing to undertake and the way they want to live. Everyone has the right of liberty, which is limited by law. The business competition and maximizing profit should also have their ethical limits.

The Declaration of Independence goes, “that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed” (Declaration, 1776). In Nike’s sweatshop, the same thing happened. Employees are slaved by the deficient and precious work opportunity and the small income. However, from the view of employers, profit becomes the only reason to put shackles on people in developing countries. Therefore, it seems necessary for these employees to abolish the special form of governing—exploitation, under the guide of the Declaration.

In addition, Nike’s exploitation on labor also violates the ethics in U.S. Constitution. The establishment of the Constitution is “to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common Defence, promote the general Welfare, and secure the Blessings” (Constitution, 1787). I believe the intention of the Constitution is not to realize these American dreams by the means of exploiting overseas. “When I was first confronted with Nike’s sweatshop, it really didn’t disturb me. But as I have thought about it for several weeks, child labor is a form of slavery” (Bigelow, 1997). Using child labor in Nike’s sweatshop is another form of slavery. Justice could not be realized in the world of slavery. The Constitution stipulates that the Union is promoting the general Welfare and securing the Blessings. However, Nike’s sweatshop helps to promote the general Welfare, which provides us the comfortable sneakers with trampling other people’s welfare in developing countries. The Union in the Constitution is to provide common defence for their people. I think, except for defensing for aggressions, it should also provide a legislative and judicial protect from domestic violations. Oppositely, Nike’s ideal factory location is where there are the poorest and most inadequate labor laws and regulations.

Under this situation, laws, regulations, mechanism of inspection, and penalty system should be established and enforced efficiently. Although, in the U.S., the federal laws about employee rights protections seem completed, how to protect employees in other countries, who work in American companies, is another significant problem.

According to an income report of the U.S. (2013), the average annual wage per full-time employee in the United States is $56,554 in 2013. Based the income report of China (2013), the same year, the average annual wage per full-time employee work in urban regions in China are ¥51,483 which equal to $8,303. Under these data, the cost of labor in China is about 7% to 12% of it is in the U.S. This significant reduction of labor cost attracts big manufactures like Nike to move from the U.S. to China.

With a 9% annual growth rate in GDP over the last decade, China has the world’s fastest growing economy. Despite its rapid growth, more than 482 million people – 36% of the population – still live on less than $2 a day, many of them in rural areas. To escape extreme poverty, many Chinese migrants from the countryside have moved to industrial cities, such as Guangdong in the south of China, which offer the promise of better paying jobs. Today there are approximately 136 million migrant workers in China (“Sweatshops in China”, 2011). Nike sweatshop is the one of the giant companies who promised these people in poverty good working conditions and income and even a life of happiness.

In China, these cheap labors are called “peasant workers”, since most of them are from rural cities. The “peasant workers” have low educational level and do not know how to protect their rights in workplace. That is another reason for Nike expending to enter China.

As the previous statement, Nike reduced as much as 88%-93% labor costs to produce goods in China, while the fat profit are created from the “peasant workers’” struggles in their life. Higher prices of Nike’s products and significant lower labor cost contribute the significant higher profit Nike earns in China than it earns in any other places.

Nike’s high profit in its biggest market was created by workers who worked in sweatshops. The recommendations made by the U.S. Department of Labor seem so weak when they are compared to this great temptation, despite they affect Nike’s reputation. However, Nike contracted or subcontracted oversea sweatshops which were not owned by it. Under this situation, Nike got excuses and could avoid penalties. Standing on the edge of the ethics, Nike is still the biggest winners. Even though Nike knows what happened in its contracted oversea factories clearer than anyone else, with a controversial ethics issue, the fat profit earned from trampling ethics is still an irresistible temptation.

Conclusion:

To make a dichotomous approach to considering Nike’s sweatshop issue, the criticism of Nike based on an ethical discussion only is not fair. Considering that the host countries are in dire needs of creating jobs, developing economy, although Nike’s workers get paid very low wages by the Western standard, they probably are making substantially more than their local compatriots who are either under the payment or unemployed. While Nike’s detractors may have valid points, one should not ignore the fact that the company is making contributions to the economic welfare of those Asian countries by creating job opportunities.

In modern society, exploitation of employees becomes a global issue; and it exists in many countries. It is necessary for countries to enhance their communication with each other. In fact, as an efficient tool, inspection is difficult to enforce for one country to monitor their companies’ performance in other countries. For example, in order to inspect the Nike’s factories in China, the federal government would expense a great amount of money for inspectors’ trip and to protect them from the unknown dangers. Under this situation, companies can easily escape from their domestic supervision. So, countries need to enhance cooperation in nowadays to control the exploitation. For example, Chinese government needs to negotiate with U.S. government, in order to establish a unique standard to inspect exploitation. The standard includes how to inspect workplaces, how to determine whether exploitation exists, and the penalty level. After setting the standard, Chinese government can substitute U.S. government to inspect U.S. companies based on the standard negotiated between two governments; and then determines whether the exploitation exists, and reports the results periodically to the U.S. Department of Labor. Once the fact of exploitation is discovered, the U.S. company should be punished under the required penalty level.

Furthermore, developing labor unions is a good way to protect employees’ rights. Establishing labor unions means workers “organized efforts to improve their employment situations” (Jennings, 2006, p761). However, unfortunately, in some countries, local laws prohibit workers from forming independent trade unions, such as China, Indonesia, and Vietnam.

Finally, companies or employers themselves must enhance their morality, especially the firms get benefit from the low-cost labor area. As long as they earned high profits because of the decreasing in labor cost, they have the responsibilities to provide good compensations to the workers, but not only to extract labors from them. Companies with good reputation can make the long-run profit. However, just depending on companies to recognize their responsibility is not enough. Laws and regulations are required to direct enterprises caring their employees. In recent days, Nike made its effort to publicity the “code of conduct” to their oversea employees, despite such conducts was led by the social pressure. Moreover, Nike paid the price for their exploitations.

However, Nike promises to abide by local minimum wage laws but never promises to pay a living wage; the company also promises to obey “local environmental regulations” without acknowledging how inadequate these often are. A successful company not only earn money in the global market, but take ethical and social responsibilities as well. As a company, Nike did nothing wrong in maximizing its profit, being motivated to take advantage of cheap labor costs in developing countries. However, the means of maximizing profit must be limited by ethics. Nike is supposed to be in charge of caring and increasing other social interests at the maximum extent, including interests of consumers, employees, creditor, small and medium-sized competitors, local communities, environment, so long as the total social public interests, and so forth. Only if Nike undertakes its ethical responsibility as the lead of sports product industry, its business empire could be more stable and lasting longer and longer.

“The world is full of many masks, the hard part is seeing beneath them. Even I will continue to wear your shoes, but will you gain a conscience?” (Bigelow, 1997)

Reference

Arneson, R. “Exploitation”. Encyclopedia of Ethics, New York: Garland, 1992

Annual report of Nike. Nike.com, 2010

http://media.corporate-ir.net/media_files/IROL/10/100529/nike-ar-20100804/docs/NIKE_2010_10-K.pdf

Bernstein, A. “Nike’s New Game Plan for Sweatshops”. BusinessWeek, 2004. http://www.businessweek.com/magazine/content/04_38/b3900011_mz001.htm

Bigelow, Bill. “The Human Lives Behind the Labels: The Global Sweatshop, Nike, And the Race to the Bottom.” The Phi Delta Kappan 76 (1997), 112-119.

http://wwws.moreheadstate.edu:2097/stable/20405971?Search=yes&resultItemClick=true&searchText=nike&searchText=sweatshop&searchUri=%2Faction%2FdoBasicSearch%3FQuery%3Dnike%2Bsweatshop%26amp%3Bacc%3Don%26amp%3Bwc%3Don%26amp%3Bfc%3Doff%26amp%3Bgroup%3Dnone&seq=1#page_scan_tab_contents

Hapke, Laura. Sweatshop: the History of an American Idea. New Brunswick, N.J.: Rutgers University Press, 2004.

http://moreheadstateuniversity.worldcat.org/title/sweatshop-the-history-of-an-american-idea/oclc/57663846&referer=brief_results

Hartman, Laura. Arnold, Denis and Wokutch, Richard. Rising above Sweatshops: Innovative Approaches to Global Labor Challenges. Westport, Conn.: Praeger, 2003.

Income report of the U.S. Total coverage (UI and UCFE) by ownership: Establishments, employment, and wages, 2001-2010 annual averages. U.S. Census Bureau, 2010.

Income report of China. Annual human resources and social security business development statistical bulletin in 2010. Ministry of Human Resources of and Social Security of the People’s Republic of China, 2010.

Jennings, M. Business: Its Legal, Ethical & Global Environment. 7th Ed. United States: Thompson, 2006

Levenson, Eugenia. “Citizen Nike.” Fortune 158 (2008) 165-167,

Shaw, Randy. Reclaiming America: Nike, Clean Air, and the New National Activism. Berkeley: University of California Press, 1999.

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