Effect of CSR on Child Labour

Effect of CSR on Child Labour Abstract Child labour is an issue that is detrimental to sustainable development of any society. The underlying cause of child labour has been identified as poverty. The cocoa sector where this practice has been reported to be widespread is the backbone of most economies in West Africa. Chocolate and other cocoa based products are in high demand and so consumers and manufacturers alike are implicated in fuelling this trade. Corporate Social Responsibility is an important tool which if implemented and monitored properly could eventually lead to the elimination of child labour. This dissertation explores how industry with the support of the governments is engaging in programmes and projects as part of their CSR strategy in tackling child labour. Chapter One â€Å"We are the world’s children. We are victims of exploitation and abuse. We are street children. We are the victims and orphans of HIV/AIDS. We are denied good quality education and health care. We are victims of political, economic, cultural, religious and environmental discrimination. We are children whose voices are not being heard: it is time we are taken into account. We want a world fit for children, because a world fit for us is a world fit for everyone.† (Statement from the Children’s Forum to the United Nations, May 2002). Introduction 1.1 Definitions A: The definition of child labour as derived from the United Nations Convention on the Rights of the child (CRC) stipulates that â€Å"children should be protected from economic exploitation and any work that is hazardous, interferes with schooling, or is harmful to their health and development†. The International Programme on the Elimination of Child Labour (IPEC) defines it as â€Å"as work that deprives children of their childhood, their potential and their dignity, and that is harmful to physical and mental development†. The International Labour Organisation (ILO) Convention 138, minimum age convention in 1973 which sets the minimum age for admission into employment and ILO Convention182 on the worst forms of child labour refers to child labour as: all work that is harmful and hazardous to a childs health, safety and development; taking into account the age of the child, the conditions under which the work takes place, and the time at which the work is done. The Uni ted Nations Children’s Fund (UNICEF) defines child labour as â€Å"work that exceeds a minimum number of hours, depending on the age of a child and on the type of work†. B: According to the International Cocoa Organisation (ICCO), Cocoa Certification is the process of certifying that the commodity has passed the performance/quality assurance tests/qualification requirements stipulated in the regulations/code: it complies with a set of regulations governing quality and minimum performance requirements: product certified may be endorsed with a quality mark or display a certification mark: it involves auditing, accredited certifying bodies, standards organisation, independent verification bodies and transactions costs. C: The Fairtrade Labelling Organisation defines fair-trade as a trading partnership based on dialogue, transparency and respect that seeks greater equity in International trade 1.2 Background Information The successful elimination of child labour in the world is almost certainly one of the most vital policy objectives of today. It is at the forefront of the objectives of the Millennium Development Goals (MDG) as adopted by all 198 United Nations Member States in September 2000 (Grimsrud, 2003). As part of broader efforts towards a sustainable solution to child labour, the ILO, UNICEF and the World Bank initiated the interagency Understanding Children’s Work (UCW) project in December 2000. This project, which is guided by the Oslo Agenda for Action unanimously adopted at the 1997 International Conference on Child labour, elaborated the priorities for the international community in the war against child labour. Through a variety of data collection, research, and assessment activities, the UCW project is broadly directed towards improving understanding of child labour, its causes and effects, how it can be measured and effective policies coupled with stronger international cooper ation for the elimination of the practice. The issue of the worst forms of child labour in the cocoa sector came into the public glare when a UK media network, Channel 4, in a documentary in September 2000 alleged the massive use of children as the labour force on Ivorian cocoa plantations. The backbone of plantation work is backbreaking labour, done using rudimentary tools under gruelling conditions. At the time it was alleged that 90% of cocoa farms in Cà ´te dIvoire, which is the worlds leading cocoa producer engaged child labour in their operations. The government of Cà ´te d’Ivoire strongly refuted these allegations at the time but eventually admitted there was a problem in the use of child labour but not to the magnitude as alleged in the documentary (Afro News, September 2000). In 2001, following the allegations of child labour in cocoa farms, U.S. Representative Eliot Engel and Senator Tom Harkin decided to adjoin a clause to the Trade and Development Act (TDA) proposing a federal system to certify and label chocolate products as slave free. The cocoa industry successfully lobbied against this on the premise that the supply chain was too complex. A compromise was eventually reached. A protocol entitled Protocol for the growing and processing of cocoa beans and their derivative products in a manner that complies with ILO Convention 182 concerning the prohibition and immediate action for the elimination of the worst forms of child labor, signed in September, 2001. Industry agreed to establish a task force made up of government, non-governmental organisations to work towards its elimination in cocoa plantations. A critical part of this agreement was the commitment to design and implement â€Å"standards of public certification† in all of West Africa by July 1st 2005. All cocoa from this area would be certified as free from child labour. The governments would also be required by the protocol to establish monitoring systems and also issue certificates which describe the current state of child labour and forced labour in the cocoa sub-sector and efforts being employed to improve on the situation where necessary. Given the competing interests and values involved, child labour cannot be eradicated solely through domestic regulatory mechanisms and actions (Garcia and Jun, 2005). The inclusion of social responsibility and in particular avoidance of child labour in corporate strategies became inevitable for chocolate manufacturers to avoid the wrath of the public. A greater commitment to social responsibility on the part of corporations has been one solution put forth by some academics, government agencies, and development institutions to mitigate some of these negative impacts and help companies contribute more to socio-economic development in its broadest sense. Can the industry live up to its CSR commitments in relation to the cocoa industry? The concept of CSR is not new. Steiner Steiner (2006) trace its origins to the philanthropic work of John D. Rockfeller and Andrew Carnegie who gave away millions for social causes. The more contemporary understanding of CSR can be traced to Bowen (1954) who argued that managers have an ethical duty to take into consideration, broader social impacts of their decisions, and those corporations who act differently should not be seen as legitimate. In the elimination of child labour, the concerns include reducing and eliminating the use of persistent toxic pesticides and fungicides, preserving the value of cocoa agro forests, improving the social and economic status of the smallholder and labourers as well as maintaining a fair price for the commodity. These measures would ensure a sustainable production of the commodity and at same time increase household incomes and as a result reduce and eventually eli minate incidence of child labour. 1.3 The dissertation seeks to: Highlight the steps taken by countries involved to tackle child labour; Draw attention to country responses and responsiveness, to the initiatives employed by chocolate manufacturers. Elaborate on the industry response in the wake of child labour allegations within the cocoa industry. Identify CSR initiatives employed by chocolate manufacturers both individually and collectively to combat child labour. The issue of child labour has been alleged in all the five cocoa producing countries of West Africa namely Cà ´te d’Ivoire, Ghana, Nigeria, Togo and Cameroon. However, due to lack of available data, this study will be limited to two countries: Cà ´te d’Ivoire which is the leading world cocoa producer and Ghana whose economy also largely depends on cocoa production and export. The first chapter has provided the background information on child labour and the purpose of this study. The remainder of the dissertation is structured as follows: Chapter two provides information on literature on the causes of child labour, corporate social responsibility as an essential tool to combat child labour, the link between the chocolate industry and child labour and the steps taken to eliminate the practice in the cocoa chain. Chapter three discusses the methods use in carrying out the study. Chapter four provides information on Cà ´te d’Ivoire and Ghana, the two countries involved in the present study. It also outlines their contribution to the elimination of child labour. Chapter five is a case study analysis of three chocolate manufacturing companies to get an insight into their CSR strategies. The case study will show the commitment and the strategy employed to approach the issue of child labour. Chapter six draws upon the case study findings. The final chapter will draw conclusions to support the hypothesis formulated in this study. Recommendations will also be formulated based on the results from the case study analysis. Chapter Two 2.1 Literature Review Introduction In recent years, there has been a surge of empirical work on child labour as well as literature regarding the plight of children working as child labourers in cocoa plantations in West Africa. The issue has attracted considerable policy and public attention over the last decade either due to self recognition or outcry from the public. Public interest in child labour seems to have been motivated by increased theoretical work and publicity by the press. Documentaries exposing the conditions to which the children are subjected aroused public awareness. The rise in interest could also be attributed to increased trade and globalization which have raised awareness about the pervasiveness of child labour and elevated concerns among rich country residents about their role in its perpetuation (Edmonds 2007).The unease about child labour as a human rights issue and its implication for the long term growth and development through its interaction with education is of great concern not just for individual countries but also for the international community. This practice is viewed as a threat to sustainable development in developing countries. Articles published between 2001 and 2002 in the wake of the child labour accusations highlighted the immorality of the practice. The horrors experienced by the children who are sometimes trafficked and even sold off by their families. The treatment meted out to them is inhumane even as they work under unacceptable conditions (Edwards et al, 2001). Some of the children engage in activity that is physically damaging or even morally objectionable (Cigno 2004). It can also be said that objectionable forms of child work have an opportunity cost in terms of forgone education. It can also bring immediate benefit to families who in this case will be the only means of survival. Child labour not only hampers the growth of human resources, it also reduces the individual’s education achievement as well as the effect and quality of the education system thereby continuing the poverty cycle (Rena, 2009). Udry 2003, further buttresses this fact by stating that the primary cost of child labour is the associated reduction in investment in the child’s human capital which occurs primarily because child labour interferes with schooling. With conflicting reports on the extent of the practice, a research â€Å"Child labour in the Cocoa Sector of West Africa† (IITA, August 2002) revealed that the figures of children working was not as high as was initially thought but that the children worked under unacceptable conditions exposed to long work hours, pesticides and other hazardous spraying agents. In addition, the Financial Times, (Circulation 477, 476 of August 7, 2002) and Business Respect (Issue Number 37 of August 20, 2002) agreed with the conclusions. These findings go to buttress the earlier conclusions of a meeting of the UK Foreign and Commonwealth Minister of State with representatives of Cà ´te d’Ivoire, Ghana and members of the cocoa and chocolate industry. (Anti-slavery news, May 4th 2001). The successful elimination of this form of labour is one of the most urgent policy objectives of this decade (Busse et al, 2003). It has gradually developed from a matter of regional and national concern to one that would trigger International debates and global persuasion as well as policy intervention (Basu and Tzannatos (2003). Busse et al (2003) carried out an empirical study on the notion that multinationals invest in countries where the incidence of child labour is relatively high and, secondly, the concern that countries may gain an unfair comparative advantage in trade by using child labour. The results indicate that multinationals are highly sensitive with respect to the location of their subsidiaries and prefer countries with lower levels of child labour for fear of aggression from the public and international community. Causes of Child Labour Poverty is the major cause of child labour. In a landmark paper on The Economics of Child Labor published in the American Economic Review (1998), Basu and Van argue that the primary cause of child labour is parental poverty. Grootaert (1998) and Udry (2003) argue that poverty and child labour are mutually reinforcing: given that children of poor parents end up working and not attend school and the cycle of poverty continues. Kruger (2004) concludes that children only work when the family is unable to meet their basic needs and poorer children stand the greater risk of being withdrawn from school during production periods. This is further accentuated by Kruger et al (2007) which states that increased parental wages and household level of income are associated with lower child labour and higher school attendance. Household poverty is a very powerful motive of child labour and working comes at the expense of schooling because the income is essential for survival (Strulik 2008). Edmonds and Schady (2008). Basu et al (2007) provide recent discussions on the extent to which child labour is influenced by the income among poor households to show that the strong causal relationship between poverty and child labour. Increased trade and globalization might have contributed to the awareness of child labour but it could also be a reason as to why child labour is in demand. In trying to link globalization and child labour, Dinopoulous and Zhao (2006) cite Maskus (1997) two-sector specific factors model, in which child labour is modelled as a specific factor employed in the exportable sector and adult labour is modelled as the mobile factor. They conclude that trade liberalization raises the output of the exportable sector and increases the demand for child labour as well as child wage. They also state that trade liberalization raises the price of unskilled-intensive goods as well as guarantees a market for goods produced using child labour and reduces the returns to education. This can clearly lead to an increase in the incidence of child labour. In analyzing the effects of trade openness in a dynamic model of child labour and debt bondage, Basu and Chau (2004) discovered that trade openness increases the short run supply of child labour but this does not affect the long run incidence of child labour. In a 2005 study carried out by Neumayer and DeSoysa in which they used both Foreign Direct Investment and trade openness to explain child labour, they concluded that countries with higher levels of trade and FDI had lower incidences of child labour. Davies and Voy (2007) finds that there is no robust effect of either FDI or International trade on child labour. Using 1995 data for 145 countries, they find that FDI is negatively correlated with child labour but when controlling per capita income, the effect disappears. Even cost benefit analysis by Nielsen (1998), Canagarajah et al (1998), show that annual Gross Domestic Products (GDP) decreases by 1-2% due to the use of child labour. Why then is child labour still being utilized if it is marginally less costly than adult labour? Levison et al 1996 suggest that it might be because children are less aware of their rights and more willing to take orders without complaining. Mehra-Kerpelman (1996), further explains that in households where parents are poor this is regarded as cheap labour that makes it possible to maintain the household budget. Corporate Social Responsibility CSR may be defined, consistent with McWilliams and Siegel (2001), as actions on the part of a firm that appear to advance the promotion of some social good beyond the immediate interests of the firm/shareholders and beyond legal requirements. While some scholars argue that CSR type programs and policies were originally adopted in the mid twentieth century to avoid criticisms of social and environmental misconduct (Gutierrez and Jones, 2005); Micklethwait and Woodridge (2005) argue that many more companies are viewing CSR as a way to reduce the negative social and environmental impacts their businesses have and to maximize the positive impact of their investment, particularly in developing countries (Blowfield, 2005). There is a growing body of evidence which asserts that corporations can be profitable not only by protecting the interest of their shareholders but by also engaging in actions that will be beneficial to their stakeholders (Pohle and Hittner, 2008). Davis et al (2006) state that while CSR came into existence largely out of commitments by companies to their employees and to communities where they were located, all that has changed in that, corporations can now be held accountable for practices within their supply chain. Amaeshi et al (2006) further states that CSR often makes multinationals uncomfortable as they are often challenged by the global reach of their supply chains and the possible irresponsible practices that could occur along these chains. The mere possibility of the existence of irresponsible practices puts firms under pressure to protect their brands even if it means assuming responsibilities for the practices of independent groups along their supply chain. Some studies have shown that socially responsible firms will financially outperform rival firms by attracting socially responsible consumers (Bagnoli and Watts, 2003), and will eliminate any concerns from activists and pressure groups (Baron, 2001). Well-known companies have already proven that they can differentiate their brands and reputations as well as their products and services if they take responsibility for the welfare of the societies and environment in which they operate. These companies are practicing CSR in a manner that generates significant returns to their business. CSR, though a major instrument to tackle child labour could have a limited effect on eliminating child labour if codes are not specific, strictly implemented and monitored, and combined with alternative arrangements (Kolk and Tulder, 2004). In offering an institutional theory of CSR, Campbell (2007) argues that the relationship between basic economic conditions and corporate behaviour is linked by several institutional conditions: public and private regulation, the presence of NGO’s and other organisations that monitor corporate behaviour, institutionalized norms regarding appropriate behaviour, associative behaviour among corporations themselves, and organized dialogues among corporations and their stakeholders. It is therefore not surprising that chocolate producers are encountering extensive pressure from consumers, community groups, government, non-governmental groups and other pressure groups to engage in CSR as a means to eradicating child labour (Morrison et al, 2006). From an economic perspective, companies would be expected to engage in such activities if the perceived benefits could exceed the associated costs which in this case could be a total boycott of their products. Some theories in CSR show that companies engage in â€Å"profit-maximizing† CSR based on anticipated benefits which might include reputation management (Baron, 2001), (McWilliams and Siegel, 2001). Davis et al 2006 argue that â€Å"CSR (understood as actions a company takes that are not legally mandated but are intended to have a positive impact on stakeholders, broadly construed) is challenged by the changing shape of the contemporary multinational corporation†. Should large firms be involved in poverty alleviation instead of simply contributing to output and employment? (Hopkins 2003). The UK’s Department for International Development suggests that businesses have an important role to play in the economic growth of a country which is essential to reduce world poverty. This they can achieve through their own policies and practices. â€Å"By following socially responsible practices, the growth generated by the private sector will be more inclusive, equitable and poverty reducing† (www.csr.gov.uk). CSR by its very nature is development carried out by the private sector, and it perfectly compliments the development efforts of governments and other multilateral development institutions. There is evidence to show that a firm cannot maximize value if it ignores the interest of its stakeholder (Jensen, 2001). This is further buttressed by the World Business Council for Sustainable Development publication Making Good Business Sense†, Lord Holmes and Richard Watts, define Corporate Social Responsibility as â€Å"the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large. The recent concerns of how profit should be considered in a broader context of productivity and social responsibility and how corporations can better serve both their employees and surrounding society. The European Coalition for Corporate Justice (ECCJ) at the Round Table Conference on Child Labour and Corporate Social Responsibility in May 2008 remarked that â€Å"recent progress on corporate accountability has been dominated by the development of voluntary initiatives†. These voluntary initiatives have not succeeded in preventing continued abuses of corporate power, because they do not provide strong enough incentives for compliance to offset the financial gains for non-compliance. They also fail to empower citizens and stakeholders to hold the companies accountable for their actions. The OECD Guidelines for Multinational Enterprises (OECD, 2000) calls for multinationals to â€Å"contribute to the effective abolition of child labour and â€Å"contribute to the elimination of all forms of forced or compulsory labour†. Ignoring these guidelines could lead to damage in reputation (Orlitzky et al., 2003). â€Å"A good reputation enhances the value of everything an organisation does and says. A bad reputation devalues products and services and acts as a magnet that attracts further scorn† (Dowling, 2001). There are a number of challenges faced by states in the implementation of the OECD guidelines, but these are surmountable by strengthening the existing implementation system of the National Contact Points. However, there are positive growing trends movement arguing for more effective regulation of corporations relating to human rights at national and international levels (Cernic 2008). Chocolate Industry Response To Tackle Child Labour A: The link between chocolate and cocoa implicates the consumers in the encouragement of child labour (Raghavan et al 2001 article in the Knight Ridder Newspaper). This is further emphasized by the Ted Case Studies Number 664, 2002 which implicates the entire international economic community, the Ivorian government, farmers, the chocolate manufacturers and consumers who unknowingly buy chocolate in encouraging this practice (Samlanchith Chanthavong, 2002). The cocoa and chocolate industries, in conjunction with the ILO, other non-governmental organisations, the United States (US) government agencies and the affected African governments signed a voluntary and non-legislative protocol. The Harkin-Engel Protocol 2001, signed by the World Cocoa Foundation and Cocoa Manufacturers Association was aimed at developing a â€Å"credible, mutually acceptable system of industry-wide global standards, along with independent monitoring and reporting, to identify and eliminate† the worst forms of child labour as defined by ILO Convention 182 and certification that cocoa used or related products is void of child labour. ILO Press Release (ILO/01/32) of October 1, 2001 lauded this initiative and pledged to work in partnership with the cocoa industry to eliminate this form of labour. In 2001, with the establishment of the International Cocoa Initiative (ICI) whose main objective was to work towards responsible labour standards for cocoa growing, it was clear that the entire cocoa sector was ready to get involved and this proved their committed to the fight against child labour. A general statement by the European Cocoa Association (ECA) on 19th April 2001, affirmed it was fully committed to sustainable development in cocoa producing countries and does not tolerate practices such as slavery and child labour [and that it] remains fully committed to maintain pressure on the relevant authorities, and to pursue all avenues in order to eliminate such practices where they are proven to occur. In a further communiquà © on August 2, 2001 the ECA was concerned about the allegations and the extent of the problem and decided to first update the information they had on the scale of the practice. B: Despite general acceptance that child labour is harmful and in spite of international outcry and Accords aimed at its eradication, progress on lowering the incidence has been very slow. Child labour eradication is at the top of the agenda of the millennium development goals which hopes to achieve this by 2015. Rena 2009, states that the research on child labour represents a new area of knowledge for policymakers especially regarding education and poverty reduction programmes. It further states that increased opportunities and increased welfare reduces child labour. Industry enforcement can only be effective depending on the mode of enforcement. As many labour relationships are in informal settings within family enterprises, enforcement is often very difficult (Basu and Tzannatos (2003). Krueger and Donohue (2002) conclude that an economically active child is less likely to receive education. If income gained by the economically active child is significant for the household, then the policy makers deciding whether or not to adopt child labour legislation would face important trade-offs between distorting private decisions and correcting potential inefficiencies arising from externalities. Doepke and Zilibotti (2005) discuss the introduction of laws from an historic perspective. They suggest that child labour laws can be triggered by skill-biased technological change that induces parents to choose smaller families as occurred in the U.K. in the nineteenth century. Regulations were introduced only after the factory system which was preceded by a period of rising wage inequality, and coincided with rapidly declining fertility rates. On their part, Ceroni et al (2003) present their study as a two-stage game. Firms decide on innovation and households decide on education. In equilibrium the presence of child labour depends on parameters related to technology, parents’ altruism and the diffusion of firm property. When child labour exists, it is as a result of either firms reluctance to innovate or households unwillingness to educate or both. Therefore, the elimination of child labour would largely depend crucially on its underlying cause. They conclude that, in some cases, while compulsory schooling laws or an outright ban on child labour are both welfare-reducing, a subsidy to innovation is the right tool to eliminate child labour and increase welfare. Garcia and Jun (2005) consider that International trade sanctions are a logical avenue to confront child labour, by eliminating the commercial opportunities available for such goods. However, they state that it is not clear if domestic child labour sanctions would survive legal challenges under the World Trade Organisation (WTO) law as currently interpreted. For international trade law to serve as a viable strategy for the elimination of the practice there must first be a clear theoretical and doctrinal case for the WTO-consistency of domestic child labour-based sanctions. Basu and Van (1998), caution against the rush to exercise a legislative ban against child labour. They argue that this should only be put in place when there is clear reason to do so especially if, it would lead to a rise in adult wages which will adequately compensate the household of the poor children. If this is done otherwise, then it will only lead them to more extreme poverty. Conclusion Despite the global initiative, the incidence of child labour shows no sign of decline as it brings immediate benefit to some families buttressing the fact that the root cause is abject poverty (Cigno, 2004). International organisations as well as national development agencies are embracing and encouraging CSR in the hope that the private sector can play a lead role achieving developmental goals which include eradicating poverty, and developing the social infrastructure in the rural communities such as providing education and health improvements. However, in a recent report published by the International Labour Organisation in 2006, it confirms that the challenge in the fight against child labour in the world continues to be daunting but there is evidence that a breakthrough was in the making. The report highlights that there is already evidence of encouraging reduction in child labour, especially its worst forms. The number of child labourers globally fell by 11 percent between 2002 and 2006. They are confident that with the combination of political will, resources and the right policy choices, this evil practice could definitely be put to an end. Exasperating and discouraging for developing countries is the fact that exports remain severely hampered by massive domestic support and export subsidy programs in developed countries through high tariffs and the difficulties in the implementation of the tariff-quota system (Chaudhuri and Kumar, (2005). More damaging for the cocoa export market is the adoption of Directive 2000/36/EC by the European Union which allows chocolate manufacturers to replace cocoa butter with cheaper vegetable fats. This in itself threatens the domestic food security of cocoa producing countries and undermines their export potentials (High beam Research, 2003). This position is further highlighted by a report to the European Union by LMC international on the impact of Directive 2000