Hughes et al.
(2008) identify global power networks as the interconnected functions of firms
and non-firms through which goods and services are produced and distributed.
Nadvi (2008) notes that globalisation has increased the distribution of global
production which has increased the network through which products are supplied.
This is not immediately apparent in the final
product which usually shows the place in which it has been assembled
rather than the full chain of actors involved.
This essay will consider the ways in which global production networks create
governance gaps in developing countries, and then consider a case study of the
Fairtrade organisation to demonstrate how plugging governance gaps can be
challenging.

 

Governance gaps are produced by the fact that
there is no effective international government that covers all stages of the
production network (Gibson-Graham, 2009). Working conditions are not regulated
throughout the world in the same way, and where there are working laws and
conditions they may be implemented and enforced with variation (Dicken, 2015).
Therefore, even if Western companies attempt to ensure that labour conditions
are effective, any ways in which this is enforced is often out of the company’s
hands (Sparke, 2009). This effect is caused by the fact that in developed
countries, the end of the welfare state resulted in the shift in responsibility
for such aspects from the public sector to the private sector (Gibson-Graham,
2009). Corporations are supportive of governments that provide less intrusion
into business practices and this removal of regulation results in governance
gaps.

 

In global production networks, there can be
an incentive to governance gaps for producers. The method of doing business
also requires as high a profit margin as possible (Sparke, 2009). This creates
a race to the bottom, in that firms will attempt to find suppliers with the
lowest costs, and this often means firms with the lowest level of care for
their workforce (Gibson-Graham, 2009). In many cases
firms do not create a strong relationship with different parts of the supply
chain and so gain an understanding of how the suppliers function, meaning that
they switch supplier frequently (Coe et
al., 2013). The consumer is often unaware of the governance gap, or it does
not inform their decision of what product to buy (MacKinnon & Cumbers,
2015). However, the governance gap is not created by these production chains in
terms of the dominant firm exerting influence, but by the nature of these
networks themselves (Dicken, 2015). Governance is created by the fact by the
interaction of different actors, and in some of these
interaction, there are challenges to how far they can be fully achieved
(MacKinnon & Cumbers, 2015).

 

Although production is global, labour
organisations have proved unable to form global networks in response. Cumbers et
al., (2008) argue that trade unions continue to play an important role in
the regulation of the global economy as they have a significant influence on
employment within states. Unions ‘respond to the spatial reorganisation of
production’. The ICEM (International Chemical and Energy Federation) represents
worldwide labour interests and is active in 125 countries. However, this is a coalition
of different interests (Gallin, 2001). Therefore, although it appears to be a
movement with a large representation, in practice it is unable to provide a
coherent model between diverse interests.
For example, it only decides on policy every four years, where this is not fast
enough for trade unions to react to national policy (Hughes et al., 2008). Individual trade unions
function most effectively when they represent the same kind of labour in
similar enough contexts, which tends to mean that on a national basis they are
much more effective. Therefore, there is a need for the governance gap to be
filled by local, regional or national organisations that can ensure adherence
to common standards. Even then there is a lack of enforcement that perpetuates
the problem.

 

The governance gap may be filled, in part, by
voluntary codes and regulations. This has found some currency as a result of
the interest in consumers for buying products that have been ethically sourced (Griffiths, 2012). Corporate social
responsibility has been given a much greater impulse as a result. Jenkins and
Unies (2001) suggest that the popularity of such codes lies in an attempt to
improve brand image. This is only available to larger brands, who are able to wield more influence with suppliers than
smaller firms, and this does not cover all parts of the production process,
which means it does not fully cover the governance gap.

 

Case
Study: Fairtrade

 

An example of an attempt to complete the
governance gap may be seen in the use of the Fairtrade organisation. This is a
label put on products that reflect adherence to a number of standards: for
example, a minimum price is paid to coffee farmers in order to ensure that the
costs of production are covered (Dolan, 2010). It includes a tariff to be invested
in social projects, democratic decision making, allow workers to unionise,
prohibits child labour and for there to adherence to health and safety
standards (Griffiths, 2012). Different standards apply depending upon the
product and the type of production methods: for coffee, the standards
pertaining to small farmers are used. The extent to which producers adhere to
this standard is then monitored (Dolan, 2010). Control of the standards is
therefore administered by the organisation Fairtrade Labelling Organization
International.

 

Despite the attempt made by the Fair-Trade
organisation to ensure that working conditions for such products are fair and
effective, a number of criticisms have been levied at this approach (Griffiths,
2012). From some perspectives it
undermines the factors that would affect the free market, and so reduces the
potential for more productive methods to be adopted by deflating the profit
incentive that any innovation would bring (Dolan, 2010). The model on which
Fairtrade is based has also been criticised because it is based upon an
outdated notion of small farms being the principle
producers of coffee, and does not take into account the conditions that apply
to casual labourers, or provide a model
that is effective for larger coffee plantations. Most members that benefit from
the Fairtrade label are members of a cooperation (Griffith, 2012).

 

Griffiths (2012) suggests that there are ethical
objections to Fairtrade. Those that use the Fairtrade brand are able to apply
the label to some products but not others, meaning that consumers have a
choice. However, this also means that having the label on some products gives
the brand that uses the Fairtrade label a greater hue of corporate
responsibility, even if the product is a niche range (Sick, 2008). Cooperative
marketing is inefficient, which means that although the producers gain a higher
price for their product than might be the
case in other contexts, this may be offset by the higher costs of production
(Griffiths, 2012). There is also evidence that suggests that farmers are unable
to obtain a higher price for their product: in some cases, there is a higher
price paid, but this is subsumed by the higher costs, and in other cases farmers
have to sell to the same wholesaler as part of a national cartel as
non-Fairtrade farmers, meaning that it was not possible for the farmers to gain
a higher price (Bassett, 2009). It has also been argued that Fairtrade
concentrates its model upon the richer farmers, and the framework excludes
older or unskilled farmers, or those working in geographically remote regions. The
way in which the label is represented to consumers and how it functions in
practice are therefore quite far apart,
and this undermines the extent to which the practice can overcome the
governance gap.

 

This case-study
demonstrates that even where there are attempts made by non-governmental
organisations to overcome the governance gaps, there are a number of challenges
that this approach presents. Griffiths (2012) suggests that this is caused in
part by the Fairtrade model being used as a marketing tool and involving false
statements. However, it is also demonstrable that there are a number of
governance gaps within the Fairtrade model itself, which means poorer, marginal
farmers and causal labourers do not find their position improved effectively
(Dolan, 2010). The incentives that the model provides are not necessarily borne
out by the benefits to farmers (Bassett, 2009). There is no way of enforcing
this model except by removing the financial incentives, and this does not
contribute to sector-wide innovation because it still only affects a relatively
small proportion of farmers.

 

In conclusion, this essay has demonstrated
that a number of governance gaps exist in global supply chains where products
are made as part of a network that has no overarching standards. Different
countries can have different standards, and even where standards exist they may
be differentially enforced. The lower the standards, the lower price at which
it is possible to obtain the product and this creates a race to the bottom.
Attempts made to alleviate this problem by providing a higher price in exchange
for adherence to a global standard of production runs into a number of
problems: Fairtrade shows that even where different conditions are taken into
account, there is still a tendency to apply a ‘one size fits all’ mentality
that focuses upon a particular model of production. The result of this initiative
is that the extra funds tend to benefit farmers who are already wealthy. This
undermines the extent to which such initiatives can plug the governance gap in
the absence of support from local institutions and an appreciation of more
diverse circumstances of production. 

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