Alta Gracia: Branding Decent Work Conditions
Will College Loyalty Embrace“Living Wage” Sweatshirts?
JOHN M KLINEProfessorWalsh School of Foreign ServiceGeorgetown University
RESEARCH REPORT
Kalmanovitz Initiative for Labor and the Working PoorKarl F. Landegger Program in International Business Diplomacy
Alta Gracia: Branding Decent Work Conditions
Will College Loyalty Embrace “Living Wage” Sweatshirts?
John M. Kline
Professor Walsh School of Foreign Service
Georgetown University
RESEARCH REPORT
Kalmanovitz Initiative for Labor and the Working Poor
Karl F. Landegger Program in International Business Diplomacy
August 30, 2010
Copyright © 2010 John M. Kline. All rights reserved.
Material in this Report may be quoted with appropriate citation.
Permission is granted to use the Report, unmodified, through electronic
link or download, for any usual educational purpose.
In the fall, American students flood onto college campuses and into
their school bookstores, where they stock up on gear printed with college logos.
Too often, their sweatshirts come from factory sweatshops where apparel
workers labor for low wages in unsafe conditions. This fall, apparel workers at
Alta Gracia can afford to buy school uniforms for their own children. For
decades, apparel workers, consumers, and manufacturers have struggled to
solve the problem of sweatshops. The Alta Gracia project is an important
experiment in one sort of solution. Georgetown University‟s students have
played a leading role in the national student movement against sweatshops.
Georgetown‟s Kalmanovitz Initiative for Labor and the Working Poor,
inaugurated in November 2009, is dedicated to developing creative and practical
strategies to further fairness and dignity for workers. We were proud to support
Professor John M. Kline‟s study of the launch of Alta Gracia. This project
provides a model of the kinds of work the Kalmanovitz Initiative will support
as it pursues its mission, searching for innovative ways to improve the lives of
workers and promote more just and equitable labor relations.
Jennifer Luff
Research Director
Kalmanovitz Initiative for Labor and the Working Poor
Georgetown University
i
Table of Contents
Preface ........................................................................................................................... 1
Abstract.......................................................................................................................... 3
Introduction .................................................................................................................. 5
Background on the “Sweatshop” Issue .................................................................... 6
A Challenge and Opportunity for Knights Apparel ............................................... 9
Defining a Living Wage ............................................................................................ 13
Calculating a Living Wage for Alta Gracia ............................................................. 15
What Difference Does It Make? .............................................................................. 19
Labor Rights and Workplace Conditions ............................................................... 21
Reactions of Other Stakeholders ............................................................................. 24
Retailers and Consumers........................................................................................... 27
Assessing Traditional Arguments ............................................................................ 29
Initial Progress and Coming Challenges ................................................................. 36
Above and Beyond .................................................................................................... 38
Postscript ..................................................................................................................... 41
About the Author and Programs ............................................................................. 43
ii
1
Preface
This study originates from my experience on Georgetown University‟s
Licensing Committee, a task I owe to a student who challenged me to become
more involved in campus-level activities rather than just international research
and consulting. Unlike many committee responsibilities, and despite 7:45 a.m.
meetings, the work has proven enlightening and worthwhile. Charged with
monitoring the application of Georgetown‟s code of conduct for apparel
companies licensing the university label, our group of students, faculty and
administrators seeks to assure that no Georgetown-branded clothing is
produced by workers subjected to “sweatshop” conditions.
In early 2009, I learned about Knights Apparel‟s interest in forging a
new approach to overseas factories that would pay a living wage and follow
unusually high labor standards. Initial conversations about studying the
project‟s creation permitted me to follow early developments and laid the basis
for a research proposal the following year. Once launched, the research
enjoyed the cooperation of Knights Apparel executives and benefitted from
logistical assistance provided by the Workers Rights Consortium (WRC).
However, the research design, analysis and conclusions were conducted with
full independence and are the sole responsibility of the author.
Funding for the research was provided by Georgetown University‟s
Kalmanovitz Initiative for Labor and the Working Poor and by a Walsh School
of Foreign Service Faculty Summer Research Grant. Special thanks is due my
research assistant on this project, Carolina Delgado, and Sarah Adler-Milstein,
the field representative for the Workers Rights Consortium (WRC) in the
Dominican Republic, who so effectively helped coordinate research trips,
facilitated communication with workers and granted permission to use her
photographs in this report. The research also required the willing cooperation
of many individuals, both in the Dominican Republic and the United States,
who generously shared their time and experience during candid and sometimes
lengthy interviews.
Academic research strives to maintain the objective neutrality that
underlies its credibility. I have adhered to that standard in carrying out this
research. Nevertheless, with analysis now complete on the factory‟s start-up
2
phase, I acknowledge having developed a personal view regarding Alta Gracia‟s
future. Simply put, I hope this unusual project succeeds. While I understand
the doubts of skeptics and do not impugn their motives, I want Alta Gracia to
succeed for the benefit of its workers and the community; for the higher
standard of attainment it could establish for other companies; and for the
validation it offers to those who work to improve the human condition,
particularly for those who live in poverty.
3
Abstract
The new Alta Gracia apparel factory in the Dominican
Republic is founded on unusually high labor principles that include
payment of a “living wage”, freedom of association and full respect
for worker rights. These conditions challenge traditional
assumptions that competition forces such factories to pay low wages
and tolerate “sweatshop” working conditions. Knights Apparel, a
major producer of licensed sporting apparel, is financially backing
the new factory and purchasing its output. Alta Gracia’s higher
wages can be off-set by productivity gains, lower marketing costs and
somewhat reduced profits. Products are destined for the collegiate
market where student activism is strong and loyal consumers pay
premium prices for T-shirts and sweatshirts displaying their
university’s logo.
This research report describes the origin and start-up phase
of the Alta Gracia factory. Interviews assess the reactions of
stakeholders including Alta Gracia management and workers,
community businesses, other workers, and unemployed individuals.
The analysis also examines the role of competitors, retailers,
universities and consumers. If successful, Alta Gracia should spur
a reassessment of economic assumptions that accept “sweatshop”
conditions as the best available alternative for people in poverty.
The approach goes above and beyond the labor standards required
by most university licensing codes, marking a path toward a more
humane and sustainable way out of poverty for apparel workers. If
enough consumers care, corporations could be challenged to engage in
a “race to the top” to brand products based on good workplace
conditions rather than an association with famous celebrities.
4
5
Introduction
Villa Altagracia lies less than two hours northwest of Santo Domingo,
the Dominican Republic‟s capital city. This small town grew around a state-
owned sugarcane refinery and later paper mill, both of which eventually failed.
However, a free trade zone (FTZ) opened in Villa Altagracia in 1989 as part of
a national program to foster export-led growth.1 The FTZ fortified the town‟s
faltering agricultural economy by employing workers to turn U.S.-manufactured
fabric into clothing exports under the 1987 Caribbean Basin Initiative (CBI).
Based on cheap labor, many FTZ factories evidenced the workplace abuses and
poor wages of maquila operations in other countries, but at least there was
some employment.
By the mid-1990s, the North American Free Trade Agreement
(NAFTA) and Mexico‟s currency devaluation eroded the Dominican Republic‟s
preferential trade advantages. The 2005 expiration of the Multi-Fibre
Arrangement (MFA) caused further competitive restructuring, the effects of
which were not off-set by the Central American Free Trade Agreement
(CAFTA).2 The resulting closure of 138 textile factories in the Dominican
Republic‟s FTZs from 2004-2008 meant a loss of over 82,000 jobs, nearly two-
thirds of the sector‟s total employment.3 Villa Altagracia suffered this decline
even more severely. Employment at BJ&B, their FTZ‟s leading and last textile
factory, dropped precipitously from 3,500 workers in 2004 until the firm closed
its doors, dismissing the last 600 workers in February 2007.4
After years of extreme economic hardship for the community, the
nearly abandoned FTZ stirred with new activity in October, 2009 when an
unusual textile firm began renovating the old BJ&B building and started hiring
workers in February, 2010. Designated Alta Gracia after the town, the factory
aimed to produce quality apparel at a competitive price while ensuring good
working conditions for employees, including payment of a so-called “living
wage.” T-shirts and sweatshirts were designed for the U.S. collegiate market,
1 Jeremias Pozo, “Historia de Villa Altagracia”, 12 October 2006, online, available at
http://www.villaaltagracia.net/app/historia-de-villa-altagracia/imprimir.html (accessed 12 May 2010). 2 Marion Werner and Jennifer Bair, “After Sweatshops? Apparel Politics in the Circum-
Caribbean”, NACLA Report on the Americas 42:4, July/August 2009, pp. 6-10, 3 Pozo
4 “Dominican duty-free zone firm dismisses last 600 workers”, Dominican Today, 1 March 2007,
online, available at http://www.dominicantoday.com/dr/economy/2007/3/1/22893/print (accessed 12 May 2010).
6
responding to social activism at many universities that protested products made
in overseas “sweatshops.” If successful, this venture may challenge
conventional wisdom that the apparel industry‟s competitive wage structure
requires using the cheapest labor in areas where unemployment and poverty
leave workers without alternatives.
Elba Nuris Olivio Pichardo is one of about 130 workers committed to producing quality apparel
at the new Alta Gracia factory which follows unusually high labor standards.
Background on the “Sweatshop” Issue
The contemporary controversy over global “sweatshops” dates from
the 1990s when labor and human rights activists called attention to the labor
abuses, poor workplace conditions and below-poverty wages that characterized
many foreign factories. Particularly in the apparel industry, companies with
well-known brand labels maintained design and marketing functions at home
but subcontracted the actual production of clothing to overseas factories where
labor was much cheaper. Structurally high unemployment, poorly enforced
laws and low bargaining power in developing countries fostered a competitive
7
climate where companies continually shifted suppliers, seeking lowest-cost
production in a “race to the bottom” atmosphere.
Protests against these practices drew minimal response until a 1996
incident when television personality Kathie Lee Gifford was embarrassed on a
national broadcast by the disclosure that a clothing line bearing her name was
manufactured by children in Honduran factories. Months later, the Clinton
Administration gathered representatives from apparel companies, unions and
civil society groups in meetings that after two years yielded a report proposing
workplace codes of conduct and monitoring guidelines.5 Still later, elements
from this group would form the Fair Labor Association (FLA) to carry forward
an industry code and monitoring function.
The “sweatshop” issue moved to college campuses in 1997 when
students at Duke University organized Students Against Sweatshops and
persuaded their administration to require apparel companies licensing the Duke
label to sign a code with good labor standards and permit monitoring visits to
factories making the clothing. Similar student campaigns soon swept other
college campuses, burgeoning into what has been called “the largest wave of
student activism to hit campuses since students rallied to free Nelson Mandela
by calling for a halt to university investments in South Africa.”6 The separate
campuses were soon linked digitally and then organizationally into United
Students Against Sweatshops (USAS).
Although accounting for a small percentage of apparel sales, the
collegiate market is a lucrative niche and reputational asset for apparel
companies, particularly among sports brands. This attraction gives universities
disproportionate but not unlimited leverage in setting standards for their
licensed products where alumni provide a uniquely loyal customer base. The
collegiate campaign largely drove the adoption of apparel company codes of
conduct with specific standards extending to contracted suppliers and covering
items such as non-discriminatory hiring, maximum work hours, days off, no
child labor, and improved workplace conditions.7
5 Richard Appelbaum and Peter Dreier, “The Campus Anti-Sweatshop Movement”, in Tom
Beauchamp and Norman Bowie, eds. Ethical Theory and Business, 6th ed. Englewood Cliffs, NJ:
Prentice-Hall, 2000, pp. 586-593. 6 Ibid, p. 587.
7 Pamela Varley, ed. The Sweatshop Quandary, Washington, DC: Investor Responsibility
Research Center, 1998. See especially pages 401-427.
8
Despite company protests regarding the disclosure of confidential
business information, apparel firms reluctantly agreed to publish the names and
locations of factories used to produce collegiate clothing. This step was
designed to permit monitoring of factories to audit whether code standards
were followed. Although companies employed their own monitors or hired
third parties, universities also insisted on access for unaffiliated external
monitors. For some universities, the FLA provided an adequate monitoring
function. Pressed by student groups, other universities found the FLA too
dominated by its corporate members and a different organization, the Workers
Rights Consortium (WRC), was formed.
Company sourcing and pricing strategies spread collegiate apparel
production across thousands of supplier factories around the globe, effectively
precluding any proactive monitoring process and maintaining constant pressure
on suppliers to reduce costs. In practice, university code monitoring meant
responding to cases where workers were organized, informed and brave enough
to articulate and communicate complaints about labor abuses to monitoring
organizations. Even dealing with limited numbers, remediation efforts at
individual factories began to resemble the “whack-a-mole” game at arcades,
with new cases popping up even before abuses at old ones could be beaten
down.
Frustrated by the inability to assure good labor practices at all facilities,
the WRC, USAS and some universities have backed a proposed Designated
Suppliers Program (DSP). The proposal seeks to consolidate licensed collegiate
apparel production in a small number of closely monitored factories with good
labor practices, including freedom of association and payment of a living wage,
with company pricing policies that make such practices feasible. Most apparel
firms object to this proposal, asserting cost, logistical and sourcing problems.
DSP advocates dispute those arguments, but the proposal has not yet gained
sufficient university endorsement to implement.
While progress has been achieved over the past decade, collegiate
pressures have failed to make significant headway on one key goal – payment of
a living wage for apparel workers. This element generates more controversy
than any other remaining issue and draws the broadest constellation of
opponents, ranging from apparel executives and some government officials to
many free market economists and even some business ethicists. Among several
traditional arguments, the main contention is that a factory paying a living wage
9
cannot remain viable under the apparel industry‟s competitive structure, so low-
wage jobs are the workers‟ best alternative. Knights Apparel is challenging this
conventional view by financing and sourcing from a new factory in the
Dominican Republic that pays a living wage and meets other high labor
standards – Alta Gracia.
A Challenge and Opportunity for Knights Apparel
Knights Apparel is a leading producer of licensed sporting apparel for
mass market retailers, mid-tier department stores and sporting goods retailers.
According to the Collegiate Licensing Company, the firm is also the top-selling
manufacturer of licensed collegiate sports apparel.8 However, the company
lacks the consumer brand recognition enjoyed by some competitor firms and
depends for sales largely on the appeal of its licensed labels. Alta Gracia is the
company‟s first attempt to develop its own apparel brand for the collegiate
market. The motivation for this step arises from a mixture of business
opportunity, social responsibility and personal commitment.
Knights Apparel started exploring the idea of establishing a brand
based on good labor conditions and payment of a living wage around 2007.
Like many apparel firms, the company adopted a code of conduct that extended
to supply chain subcontractors and corresponded to the labor standards
required in most university licensing codes. Also like most companies, Knights
Apparel encountered some cases where subcontractors violated code standards
and remedial action was required, sometimes involving the WRC. Knights
Apparel did not endorse the WRC-sponsored DSP proposal, but the company‟s
Chairman, Joe Bozich, did agree that competitive price pressures were driving
the labor abuses and alternative approaches should be considered. In
subsequent discussions with the WRC, he expressed interest in establishing an
apparel factory with full respect for labor rights and payment of a living wage.
At the time, some universities as well as an increasing number of U.S. cities and
counties (now over 1009) were adopting living wage standards.
8 Collegiate Licensing Committee report for the third quarter of the 2009-2010 fiscal year, online,
available at http://www.clc.com/clcweb/publishing.nsf/Content/Third+Quarter+Rankings+2009-2010 (accessed 23 July 2010). 9 Sam Hananel, “’Living Wage’ for Government Contractors”, Huffington Post, 26 February 2010,
online, available at http://www.huffingtonpost.com/2010/02/26/living-wage-for-government-contractors_n_477819.html (accessed 23 July 2010).
10
Minerva Flores de Jesus works at the new Alta Gracia factory where she is paid a living wage for
sewing hooded sweatshirts.
Continued dialogue between the WRC and Knights Apparel clarified
core issues that a project must address to obtain support among anti-sweatshop
critics of the apparel industry. The result proposed developing a new brand for
collegiate apparel defined by labor standards that offered workers a sustainable
way out of poverty. The centerpiece would be payment of a living wage,
complemented by high standards of workplace health and safety, genuine
recognition of the right to organize unions, and overall respect for worker rights
and dignity.
The branding concept is similar to the approach used by organizations
promoting “fair trade” products, often linked to agricultural or other goods
produced under established labor, environmental and/or community
development standards. Fairtrade Labelling Organizations International10, the
Ethical Trading Initiative11 and Social Accountability International12 are
10
See their web site at: http://www.fairtrade.net/about_us.html. 11
See their web site at: http://www.ethicaltrade.org/about-eti,
11
examples of diverse organizations that cover a range of products, while groups
such as the Clean Clothes Campaign13 and the Fair Wear Foundation14 focus
more narrowly on the garment sector. However, no consensus exists among
such groups on specific labor standards or monitoring requirements. The
Knights Apparel initiative would be a significant departure from these efforts
by incorporating both explicit high labor standards and a strict verification
process carried out by the WRC.
Having analyzed some previous failed attempts at improved labor
standards in the apparel sector,15 Knights Apparel expected to encounter both
predicted and unpredicted challenges in launching this new effort. A
predictable challenge arises from the cyclical nature of the collegiate apparel
market. Sales commonly peak around important academic and sporting events,
such as the opening of school and graduation, or NCAA football games and the
basketball tournament. A factory with capacity to supply such peak needs will
at other times face corresponding troughs in demand for collegiate goods. To
avoid worker lay-offs at the Alta Gracia factory during low demand, Knights
Apparel had to anticipate shifting production from other subcontractor
factories that produced clothing for the mass market. The Alta Gracia factory
could produce such goods, but when sold in the mass market, the price of this
clothing would not off-set Alta Gracia‟s higher labor costs.
Unanticipated challenges arose when the international financial crisis
impeded the participation of local business partners. To keep the project alive,
Knights Apparel assumed increasing levels of financial responsibility for Alta
Gracia. Nearly one million dollars of up-front investment was required to
renovate buildings, purchase equipment and inventory, hire and train workers –
all expenditures occurring nearly a year before any off-setting revenue could be
realized. In the end, Knights Apparel bore the full financial risk for the project.
The factory is established as a separate local company so its commercial viability
can be more easily monitored and verified, but Knights Apparel exerts effective
control through both financing the operations and purchasing the output.
12
See their web site at: http://www.sa-intl.org/index.cfm?fuseaction=Page.viewPage&pageId=472. 13
See their web site at: http://www.cleanclothes.org/about-us. 14
See their web site at: http://fairwear.org/about. 15
For example, see descriptions of Just Garments at: http://www.usleap.org/just-garments-closes-forced-end-effort-sweat-free-producer; and Sweat X at: http://www.thenation.com/article/sweatx-closes-shop.
12
Although Alta Gracia represents a potential business opportunity for
Knights Apparel, it is doubtful the project would have survived its rising risk in
a worsening financial crisis absent a corporate sense of social responsibility and
the personal commitment of top management. Chairman and Chief Executive
Officer (CEO) Joe Bozich and more recently-appointed President and Chief
Operating Officer (COO) Donnie Hodge have demonstrated a strong personal
commitment to the Alta Gracia project.
Bozich sometimes relates a story of personal and family health
challenges overcome with the benefit of expert, and costly, medical
interventions.16 The experience drove home how his favored financial position
provided options unavailable to most people, leading to a stronger personal
commitment to seek business opportunities that could improve the quality of
life for others. Hodge recognized the unique social responsibility potential of
the project and enthusiastically lent his management experience at improving
product quality and building brands to the successful launching of the Alta
Gracia factory. Like many firms, the company might have interpreted corporate
social responsibility as writing a philanthropic check to the local community
once a year, but Bozich and Hodge decided to develop Alta Gracia as a more
sustainable way to address poverty issues.
Conditions in Villa Altagracia matched Knights Apparel‟s motivational
blend of business opportunity, social responsibility and personal commitment.
Without a major local employer, the community was mired in poverty and
lacked prospects for improvement, providing a good location to test the social
impact of a living wage payroll. Speedy government approval for a factory at
the established, but nearly empty, FTZ seemed probable, and no nearby
competitors appeared likely to raise objections. Former BJ&B employees living
in Villa Altagracia presented an available pool of experienced apparel workers.
The workers‟ reputation for supporting unions was not an obstacle because
respect for a choice of collective bargaining would be a core workplace standard
in the new factory. The final decision on location was made, and Alta Gracia
was born.
16
Steven Greenhouse, “Factory Defies Sweatshop Label, but Can It Thrive?” The New York Times, 16 July 2010, p. B1.
13
Most factories in Villa Altagracia‟s Foreign Trade Zone are closed and empty.
Defining a Living Wage
The living wage concept, central to the Alta Gracia project, generates
controversy in many sectors, with notably vigorous opposition in the apparel
industry. Critics generally contend that a living wage is too complicated or too
arbitrary to calculate.17 The Alta Gracia experience suggests this argument is
more academic than real. Any living wage definition inherently involves value
choices that will favor some interests over others, but unless critics want to
make the perfect the enemy of the good, the Alta Gracia example offers a
reasonable way to determine a living wage standard.
Calculating a living wage inherently involves subjective value choices
about the practical definition of “living” as well as decisions regarding whose
17
For a review of the arguments, see Theodore Moran, Beyond Sweatshops, Washington, DC: Brookings Institution, 2002, esp. pp. 52-58 and 155-57. For a comparison of minimum wage, prevailing wage and living wage, see Gustavo Setrini, “Wages in the Apparel Industry”, background memo prepared for a Jo-In/MIT meeting on “Exploring Common Approaches to Corporate Accountability and Workers’ Rights”, Massachusetts Institute of Technology, 10-11 July 2005.
14
lives should be covered by an employee‟s wage. Definitions of “living” can
range from the barest necessities to sustain life (minimal food and water – but
perhaps not clothing or housing) to broader concepts that include education,
transportation and savings, permitting a person to live with some degree of
comfort and dignity. Of course, the minimum level of each element covered is
also subject to dispute (the least nutrition content for food or lowest grade for
basic education). Once a list of minimum requirements is settled, those items
are then priced as a “basket” of goods reflecting the local or regional cost of
living, with the sum total representing the amount a person should earn as a
living wage.
The other calculation decision is how many individuals should be
covered by a worker‟s living wage. Again, answers can range from only the
worker to the worker‟s immediate or extended family. Most commonly, living
wage calculations provide for some coverage of dependents, with the number
based on average family size in a region and assumptions about whether there
would be one or two wage-earners in the family.
Varying opinions about these items can spark nearly endless and often
unproductive debate. Nevertheless, the continuing controversy is somewhat
surprising when the parallel concept of determining a poverty level is now quite
well established in terms of what items to place in a local living standard
“basket”, how to price them, and how the concept can be applied to families.
Simply accepting as a living wage the poverty level calculations already made by
organizations such as the World Bank could simplify the dispute about defining
and determining a living wage.
In essence, the objective is the same. Most societies profess that their
citizens should not have to live in poverty. Yet most governments also set legal
minimum wage requirements so low that a person working full time at such a
job often cannot even reach the poverty level definition established by that
same government. A full-time worker earning the U.S. minimum wage of
US$7.25 would have an annual income that falls below the U.S. poverty level
for a family of three (US$18,310 for 2009). Assessing minimum wage data for
157 countries, the U.S. State Department reports that such wages provide a
decent standard of living in only 20 countries, with another 8 partial or
borderline cases. The minimum wage level in the other 129 countries falls
15
below, in many cases far below, a decent standard of living.18 If not mandated
by law to pay at least poverty-level wages, should a company voluntarily agree
to pay a minimum living wage salary that might provide a path for a worker
eventually to escape a life in poverty? This goal shaped the living wage
definition and calculation adopted by Alta Gracia.
Calculating a Living Wage for Alta Gracia
The WRC calculated a living wage for the Alta Gracia factory.19 Using
World Bank demographic data, the calculation assumed an average family size
of four, with two wage-earners and two school-age children. Assuming one
wage-earner could essentially support him/herself, the primary wage-earner‟s
living wage should be enough to cover three-fourths of the family‟s basic
expenditures as defined in the following categories: food and water, housing
and energy, clothing, health care, transportation, education and childcare,
modest savings and discretionary spending.20
In determining the level of basic needs in each category, the WRC
consulted with local experts on health, nutrition, development, labor,
economics, and trade zones as well as reviewed relevant reports from the
national government, labor unions, universities and research centers, and the
United Nations. The resulting market basket of goods and services was then
priced near an FTZ and cross referenced for other locations in the Dominican
Republic. The outcome was a living wage calculation in October, 2008 that
required a gross monthly salary of RD$18,152.99 (Dominican Republic Pesos),
equivalent to US$497.34.21 This amount includes payment of mandatory
deductions of 5.91% for government health and retirement programs, so the
worker‟s net take-home pay is less.
18
Numbers are derived from 2009 U.S. State Department Country Reports on Human Rights Practices. 19
The WRC’s methodology is detailed in its document “Living Wage Analysis for the Dominican Republic”, online, available at: http://www.workersrights.org/linkeddocs/WRC%20Living%20Wage%20Analysis%20for%20the%20Dominican%20Republic.pdf (accessed 23 July 2010). 20
The savings and discretionary spending categories were set at 7.5% and 2.5%, respectively, of the living wage. The specific pricing of other items is detailed in the document cited in the prior footnote. 21
Under national law, workers must be paid a Christmas-time bonus equivalent to one month’s salary, so this additional income has been incorporated into the WRC’s living wage calculation.
16
All calculations assume a legal maximum workweek of 44 hours.
Voluntary overtime is paid at a premium of 35% or 100%, depending on the
day and prior work schedule. Alta Gracia‟s high living wage standard makes
this overtime premium proportionately high as well. In addition, the WRC
reports that the factory voluntarily paid the 100% premium for Saturday
overtime even when not required to do so.22 Alta Gracia‟s living wage
commitment extends to year-round employment, preventing a common
practice to lay off or furlough workers when factory orders decline. Temporary
and part-time workers cannot exceed 10% of factory hours worked and must
receive the same living wage rate as full-time employees. All labor provisions
are subject to strict monitoring by the WRC which can examine payroll records
and work logs as well as interview workers and review their pay receipts.
The Dominican Republic has a complex minimum wage structure with
wide variations among industries. However, a U.S. State Department 2009
report on the country states bluntly: “The national minimum wage did not
provide a decent standard of living in any industry for a worker and family.”23
Companies establishing in FTZs can even operate under a reduced minimum
wage requirement as part of the incentive package to attract new investment.
The WRC‟s monthly living wage calculation of RD$18,152.99 far exceeds the
comparable required minimum monthly wage of RD$5,400 for workers in
FTZs. The differential is perhaps clearest when expressed in approximate
hourly or weekly wage comparisons in U.S. dollars. The Dominican Republic‟s
legal minimum wage in FTZs is US$0.83 an hour or US$34 weekly versus Alta
Gracia‟s living wage of US$2.83 an hour or US$115 weekly – a difference of
nearly 340%.24
Monthly Weekly
RD$ US$ RD$ US$
Minimum FTZ Wage 5,400 148 1,246 34
Living Wage 18,153 497 4,189 115
22
“Worker Rights Consortium Verification Report Re. Living Wage Compliance at Altagracia Project Factory (Dominican Republic): Findings, 16 July 2010, p. 5, online, available at: http://www.workersrights.org/linkeddocs/WRC%20Living%20Wage%20Verification%20Report%20re%20Altagracia%20Project%207-16-10.pdf (accessed 23 July 2010). 23
“2009 Human Rights Report: Dominican Republic”, Bureau of Democracy, Human Rights and Labor, U.S. Department of State, 11 March 2010, online, available at: http://www.state.gov/g/drl/rls/hrrpt/2009/wha/136110.htm (accessed 27 July 2010). 24
WRC Verification Report, p. 4.
17
Average or prevailing wages generally exceed minimum wage
requirements. The average weekly wage for workers in all FTZs was
RD$1,743.20 in 2009, somewhat above the required minimum wage of
RD$1,246.15. However, prevailing wages vary by industry and geographic area.
Within FTZs, apparel workers are generally the lowest paid, a problem made
worse as factory closures increase the supply of unemployed, experienced
workers. Villa Altagracia‟s FTZ also ranks among the lowest in the country,
with average wages reported as RD$1,379.80 in 2009, the year before Alta
Gracia opened.25 Thus the prevailing wage for workers in Villa Altagracia‟s
FTZ exceeded the required minimum wage by RD$135.65 but still fell
RD$2,809.35 below Alta Gracia‟s weekly living wage of RD$4,189.15.
The full cost of the Knights Apparel commitment to a living wage is
not readily apparent from only wage rate comparisons. Employers are obligated
to provide fringe and benefit payments amounting to roughly 38% of each
worker‟s wages. These required costs cover paid holidays, vacations and
severance accrual as well as contributions to government funds, mainly for
worker health and pension programs. An employer paying minimum FTZ
wages of RD$5,400 monthly would need an additional RD$2,052 per worker to
cover such required benefits. Because Alta Gracia‟s living wage is higher, its
required costs to cover benefit obligations is proportionately higher as well,
resulting in a payment of over RD$6,898 for each worker. Including both an
employee‟s wage and employer coverage of worker fringe and benefit
requirements, Knights Apparel faces a higher monthly labor cost per worker of
approximately RD$17,599.
25
“Salario promedio pagado por las empresas de Zonas Francas por ocupación y parque industrial, según año, 1992-2009”, Oficina Nacional de Estadística, 7 July 2010, online, available at: http://www.one.gob.do/index.php?module=articles&func=view&catid=82 (accessed 12 August 2010).
18
Maritza Vargas, Lucrecia Sanchez, Isabel Suero and Yenny Perez received their second living
wage paycheck from Alta Gracia on April 23, 2010.
Workers at Alta Gracia received their first living wage paycheck on
April 16, 2010 at the end of the factory‟s initial week of full operation. The
living wage rate will be reviewed annually in October and adjusted upward by
the Dominican Central Bank‟s inflation rate (none was reported last year),
although wages will not be adjusted downward if deflation occurs. Knights
Apparel has pledged to pay the factory a product price sufficient to meet the
living wage commitment and permit good faith bargaining over future wages
and benefits.
Debates may still occur over the WRC‟s definition of family or whether
its living wage calculation includes the right number or type of expenditure
items. Perhaps the resulting living wage should be higher or lower. However,
in this case principle is more important than precision. Setting Alta Gracia‟s
living wage nearly 340% higher than the factory‟s required minimum wage
should satisfy most proponents and lead most opponents to predict the
venture‟s commercial failure. Standing aside from this debate, the people most
affected are certain. In interviews, workers at Alta Gracia expressed not only
19
satisfaction, but amazement at receiving a better wage than they thought
possible. Several workers related stories of town residents refusing to believe
the wages could be so high until actually shown the worker‟s first paycheck.26
What Difference Does It Make?
During visits in their homes, Alta Gracia workers described the
difference a living wage would make by sharing their “dreams” about how to
use the higher income. Their ideas can fit into typical categories but, as one
worker noted: “Words mean different things to rich people and to poor
people.”
Food for the family means providing basic meals for the children with
enough nutritional quality to promote their growth and health rather
than missing meals or using cheaper foods that simply filled the
stomach and fit the family budget.
Home renovation means buying cinder blocks each paycheck to complete
solid construction of a one-room house where ill-fitting wooden
boards now provide the upper half of walls that support the tin roof.
Home improvement means an inner wall might replace a hanging sheet to
separate a sleeping area from the rest of the home, or perhaps a small
clothes washer might save the frequent hand-scrubbing of limited
wardrobes.
Education means not only paying for uniforms and books required for
the children‟s schooling, but also the parent‟s return to Saturday classes
to re-start an elementary education cut short as early as the third grade.
Transportation means a down-payment on a motor scooter, the best way
without public transit to get to work, return home to prepare the
children‟s lunch, and travel again to work and back, especially with
homes distant from the FTZ.
Paying off debts means repaying money borrowed from family and friends
or the credit extended by food vendors just to provide meals for the
children during long periods of unemployment.
26
A video of Alta Gracia worker comments on their first payday is available at the WRC web site: http://www.workersrights.org/verification/factory%20and%20workers.asp#video1.
20
Working at Alta Gracia allows Yenny Perez (not pictured) to provide for her five children,
including her children pictured here, ages 16, 7 and 2.
The living wages spent by Alta Gracia workers also benefit the local
community, creating multiplier effects that reverberate throughout the
economy. A minimum wage scale does not permit any advancement in the
quality of life whereas a living wage promotes gains in nutrition, education and a
different mix of consumer products than is possible with normal worker
compensation. Food, construction material, small appliances and other
purchases will feed local businesses that have been starved by the town‟s loss of
employment. Although it is too early to measure the impact, a survey is
underway to provide a quantitative assessment of how workers at Alta Gracia
spend their wages compared to expenditures by workers in another town‟s
FTZ.27 These results should be available toward the end of 2011.
27
The study is being directed by Maria Cecilia Acevedo, a doctoral student at Harvard’s Kennedy School of Government and Lia Fernald, an Associate Professor at the University of California-Berkeley School of Public Health, with assistance from professors at universities in the Dominican Republic.
21
Labor Rights and Workplace Conditions
While payment of a living wage clearly distinguishes Alta Gracia among
overseas apparel manufacturers, other policies and practices also constitute
important elements of the factory‟s overall work environment. Freedom of
association is a central element that, while guaranteed by law, is generally not
respected in practice. According to a 2009 U.S. State Department report, “The
law forbidding companies from firing union organizers or members was
enforced inconsistently, and penalties were insufficient to deter employers from
violating workers rights. Some NGOs reported that workers who tried to form
unions were routinely fired. There were reports of harassment and intimidation
by employers in an effort to prevent union activity, especially in the free trade
zones (FTZs).”28 Only eight companies in the 57 FTZs had active unions and
only four unions had established collective bargaining rights.29
By contrast, Knights Apparel opened communication with Federación
Dominicana de Trabajadores de Zonas Francas (Fedotrazonas) in the planning
stage for the Alta Gracia factory. The workers held a meeting on June 17, 2010
only two months after the factory began full operations and formally
established the Union of Workers of Altagracia Project (SITRALPRO in
Spanish) as an affiliate of Fedotrazonas. The union has gained well over
majority support among the workers and is preparing itself to negotiate a
collective bargaining agreement with the company, which has indicated
readiness to enter into such negotiations.
With a new facility, hiring workers precedes any union formation and
can be fertile ground for nepotism, political favoritism, bribery and other
discriminatory practices. Alta Gracia‟s hiring practices were developed with
advice and implementation oversight by the WRC, Fedotrazonas, community
representatives and Fundación Laboral Dominicana (FLD), a local labor rights
research and education NGO. These groups, as well as worker interviews,
evaluated the hiring process as fair and quite different from what many workers
experience elsewhere. A suggestion that employment be restricted to Villa
Altagracia residents was rejected to avoid arbitrary exclusions arising from
irregular local housing patterns. Interviews and testing procedures were used to
28
“2009 Human Rights Report: Dominican Republic”. 29
Ibid.
22
identify a pool of potential workers from which successive groups were hired
for training.
At the urging of the WRC and USAS, Alta Gracia did seek to hire
around one-half its workforce from among former BJ&B workers. This link
held both substantive and symbolic importance. The individuals obviously
possessed relevant skills and experience in apparel production. Many knew
each other from both prior employment and the shared hardships of recent
unemployment, relationships that might facilitate a team approach management
would try at the new factory. More broadly, BJ&B represented both a high and
a low point for the anti-sweatshop movement. The factory was as early case
where university codes were used to achieve labor reforms. After recognizing a
local union that workers had fought for years to organize, BJ&B was the first
FTZ factory in the Dominican Republic to sign a contract with wages and
benefits well above the legal minimum. Despite this victory, USAS alumni also
remember with bitter disappointment that declining orders from foreign apparel
firms led to BJ&B‟s closure and the union‟s dissolution. When Alta Gracia
opened production with even higher labor standards in the same BJ&B
building, employing many of the same workers, the project established an
emotional connection with many current and former members of organizations
campaigning for labor reforms.
The WRC and FLD also provided educational sessions for workers to
inform them of the factory‟s labor commitments, explain the objectives of the
Alta Gracia project, and provide practical training in matters such as personal
financial management to help prepare them to deal with their additional living
wage income. Fedotrazonas advised on the training and education process
while co-facilitating new worker orientation sessions on collective bargaining
issues. The Maquiladora Health and Safety Support Network (MHSSN),30 a
volunteer NGO comprised of some 400 occupational health and safety
professionals from the United States, was enlisted for advice in their areas of
expertise. Visiting the factory site on several occasions, MHSSN experts met
with workers and managers to evaluate conditions and offer advice on
workplace issues such as assuring proper ventilation, avoiding electrical hazards,
and purchasing ergonomic chairs to reduce stress on sewing machine operators.
30
See web site at: http://mhssn.igc.org/#who.
23
Julio Cesar Sánchez Silverio is a trainer at Alta Gracia, replacing traditional supervisors whose role
is carried out by team leaders of worker production groups.
More generally, Alta Gracia management sought from the outset to
establish an environment of open communication. Many workers express
satisfaction and some surprise that management listens to their comments and
usually responds to suggestions – a rare occurrence in most other factories.
With a few trainers replacing supervisors, the factory is also unusual in relying
on team leaders among the workers to coordinate production. Team-based
modular production encourages common achievement rather than placing
constant pressure on individuals for increased output.
Management set a productivity target of 15-18,000 units a week but
provides training and measures progress by a projected learning curve standard
that reflects each job‟s level of difficulty. About a half dozen workers departed
during Alta Gracia‟s first six months, a very low turnover record. The
departures were primarily due to continued problems with the quality of work, a
rationale other workers found justified in these cases. Overall, interviewed
workers felt treated with respect and expressed a strong commitment to their
job and the company‟s success.
24
With such positive labor relations, perhaps the company could have
discouraged the formation of an official union and/or the workers might have
felt it unnecessary to organize one. However, the steps to organize
SITRALPRO and prepare for collective bargaining negotiations have proceeded
smoothly, with strong worker support and no obstacles from management.
Workers appear to want a more formal communication channel with
management as well as recourse to a “buffer” in cases where a worker‟s
problems may arise directly with a manager. Management may also perceive
advantages in dealing with a truly representative union that can consolidate and
communicate a collective opinion for its workers on contentious issues that
may arise, as discussed later.
Reactions of Other Stakeholders
The small size and isolated location of the Alta Gracia factory limits
general knowledge about its nature and possible implications. Information
about the project circulates among individuals and institutions relevant to the
collegiate apparel sector, but relatively few groups in the Dominican Republic
are well-informed on Alta Gracia‟s origins, characteristics or objectives.
Groups aware of the project hold opinions ranging from enthusiastic
endorsement to cautious monitoring. No one voices outright opposition or
openly predicts its failure.
Paying some workers a living wage might be expected to create friction
or jealousy with other workers or the unemployed. Interviews found evidence
of an opposite reaction. With near unanimity, other workers viewed Alta
Gracia as an important advance and a possible model for the future – one that
would be like the difference “entre el cielo y la tierra” (between heaven and earth).
In terms of jealousy, one worker termed it no different than the situation that
already exists where a few unions have negotiated collective bargaining
agreements while most FTZ workers lack even an organized union. Some FTZ
workers also earn more than others, with tobacco firms generally paying more
than apparel factories. Overall, a sense of solidarity seems to exist whereby the
leading good fortune of the Alta Gracia workers is seen as a potential advance
for Dominican Republic labor in general.
In light of Villa Altagracia‟s stagnant economy, the opening of any
factory bringing new employment opportunities would be welcomed by the
community. However, the living wage paycheck brought home each week by
25
Alta Gracia workers contributes a substantial flow of income for local
commerce that stimulates economic activity beyond basic necessities.
Construction activity picks up as some workers repair their homes or seek to
add a new room. Stores selling small stoves, refrigerators or fans see sales
expand. Motorcycle taxis gain new clients, transporting workers to the factory
and back to homes scattered around the area‟s hills. A few workers make
down-payments toward the purchase of their own motorbike.
Fiordaliza Vargas is able to support her family by serving lunch to Alta Gracia workers in her
restaurant just outside the FTZ‟s gate.
The impact on community lives is illustrated by the new business
environment for a small restaurant that lies just outside the FTZ‟s gate. The
current owner, formerly an employee at the restaurant, was given the property
after a relative went bankrupt when the FTZ‟s major factories closed. By
purchasing small quantities of food on credit while often extending credit
herself to some of the seven customers she served on an average day, the owner
barely maintained her family with four children. Since Alta Gracia opened,
business has tripled to an average of 21 customers at lunch and a few at
breakfast who can pay after each meal. The added income permits the owner to
26
make cash purchases of more food at lower prices while adding some variety to
the week‟s menu. Occasionally, an Alta Gracia worker will even leave a “tip”, a
gesture simply impossible when everyone had to conserve every peso.
As the living wage money circulates in the community, it passes
through the hands of many people, creating the economist‟s multiplier effect.
Entrepreneurs open small food kiosks to compete for the FTZ‟s lunchtime
trade. Other, more distant restaurants hire motorcycle taxis to provide a
delivery service for workers who prefer to stay at the factory. Relatives who are
repaid loans can contemplate new purchases with money some may never have
expected to receive. The diffuse impact of the living wage may help explain the
general absence of jealousy expressed toward Alta Gracia workers. Even the
social networks among many former BJ&B workers, some hired by Alta Gracia
but many not, appear strong and supportive rather than torn apart by envy.
The future may reveal more social strains, but early indications are that the
community views the new factory favorably and hopes for its success.
The government of the Dominican Republic did not play a significant
role in attracting Knights Apparel to the country and has not commented
explicitly on the unusual nature of Alta Gracia‟s operations. The National
Council of Free Trade Zones approved the factory location in Villa Altagracia‟s
FTZ. The government could hardly object to an employer who wants to pay
workers several times the required minimum wage. However, there may be a
cautious balance between Alta Gracia‟s positive local results and concern
regarding whether this precedent might adversely affect how other foreign
companies will evaluate the Dominican Republic as a prospective investment
site.
Both local and particularly foreign brand companies are potentially the
most adversely affected stakeholders, but there has been little public comment
from them about Alta Gracia. A New York Times article quotes a Nike
spokesman as saying the company would “watch with interest”31 the Alta
Gracia project. Local apparel manufacturers appear most concerned about how
the precedent of a living wage factory might affect expectations among their
own workforce. Some views hold that Alta Gracia‟s living wage is based on
such unique consumer demand that the differences can be explained effectively
to workers at traditional factories. Local companies would probably object
31
Greenhouse.
27
more to a nearby factory that offered ten cents an hour above the prevailing
wage than to Alta Gracia‟s much larger wage gap that other local firms cannot
match under current price pressures from foreign brand-holders and large
retailers.
The potential implications are more significant for major brand-holders
that source from overseas factories, usually subcontracting production to local
firms. If successful, the Alta Gracia brand could take collegiate market share
away from other brands and, in the future, perhaps enter the mass market to
capture more sales. In addition to competitive impacts, a successful Alta Gracia
project would demonstrate that apparel workers could be paid a living wage
under good work conditions while the company stays profitable. Such an
example would create renewed pressures on other firms to improve further
their workplace standards. A related concern of the brand-holders may be that
Alta Gracia‟s success could add impetus to the WRC‟s DSP proposal by
offering a close demonstration case of how company pricing policies could
support a living wage and other high labor standards at strictly monitored
factories without sacrificing commercial competitiveness.
Retailers and Consumers
The primary retailers for Alta Gracia products designed for the
collegiate market are campus bookstores. In preparing the project, Knights
Apparel met with over 200 different bookstores, from small independents to
leased outlets of large chains. These early contacts permitted tests of product
design, quality and pricing; estimates of potential demand size and timing; and
conversations regarding how to inform consumers about Alta Gracia‟s labor
standards. Point-of-sale branding and background information will be provided
through devices such as hang tags on the clothing and possible educational
displays. By year-end, over 400 campus bookstores in the Barnes & Noble and
the Follett retail chains will be carrying Alta Gracia apparel.32
Knights Apparel also anticipates marketing efforts through web site
advertising and encouraging the use of internet social networking. On-campus
student groups, especially those affiliated with USAS, will help inform other
students about the Alta Gracia brand and urge its procurement by campus
organizations. Duke University reportedly has already placed a quarter million
32
Ibid.
28
dollar order and will use ads, signs and postcards to promote the products to
students.33
An early shipment is readied for Duke University which placed the first large order for Alta
Gracia apparel.
This marketing strategy rests on a belief that two key components –
both product and process – can influence a consumer‟s purchase decision.
First, Alta Gracia apparel must be comparable in quality and price to the well-
established brands. Early reports from bookstore retailers suggest that Alta
Gracia products can meet both these conditions. Second, potential consumers
must be informed – and they must believe – facts regarding the high labor
standards followed during the manufacturing process. The early consultations
with NGOs, union personnel, and student organizations during Alta Gracia‟s
development provide a foundation for the project‟s credibility. Significantly,
the WRC will verify on a product hang tag that the apparel meets its stated
labor conditions – the first time the monitoring organization has agreed to
participate in this type of verification process.
33
Ibid.
29
The final condition for successful marketing is that the consumer must
care about the workers producing the apparel. In various studies, a significant
proportion of consumers, particularly among youth, say that knowing a product
is manufactured in a socially responsible manner is important to them and they
would even be willing to pay a somewhat higher price to purchase such goods.34
Alta Gracia is aiming at a collegiate audience with notable social activism and is
not seeking a higher price than other branded products for their apparel, both
factors that should increase the likelihood of success. The 2010-11 academic
year will test this approach as well as the company‟s ability to maintain
competitive production and financing. While ultimate success is far from
assured, the project does challenge several conventional arguments against
adopting a living wage standard and improved labor conditions in overseas
apparel factories.
Assessing Traditional Arguments
Debates on “sweatshops” generally include discussion about which
specific work conditions are unacceptable and how best to improve them.
Over the past two decades, contending views coalesced into contrasting
arguments about the relative harm of various labor practices and the likely
result of mandating improvements.35 Corporate representatives and most
economists generally face off against social activists, labor unions and some
economists, with the latter group calling for fundamental changes, including
payment of a living wage. This initial study of Alta Gracia does not address the
full range of issues in the “sweatshop” debate. However, the project has the
potential to reshape important elements of that debate, circumventing some
arguments against change while testing the validity of other assertions.
34
For example, see the 2009 Global Edelman Good Purpose Study, online, available at: http://www.edelman.com/news/ShowOne.asp?ID=222 (accessed 23 July 2010); Shareen Hertel, Lyle Scruggs and Christian Heidkamp, “Ethical Consumption: Who Cares, Who Shops, and Why?”, paper presented at the International Studies Association 48th Annual Convention, Chicago, IL, 28 February 2007; and The 2006 Cone Millennial Cause Study, online, available at http://www.solsustainability.org/documents/toolkit/2006%20Cone%20Millennial%20Cause%20Study.pdf, (accessed 23 July 2010). 35
Several good issue summaries can be found in Moran, pp. 52-58,155-57; Varley, pp. 45-56; and Lisa Featherstone and Doug Henwood, “Clothes Encounters: Activists and Economists Clash over Sweatshops”, Lingua Franca, March 2001, pp. 26-33.
30
One common argument portrays “sweatshops” as “a normal step in
economic development”36, pointing to the growth of export-oriented Asian
nations such as Taiwan, Korea and Singapore. Now low-wage apparel factories
have moved to poorer and cheaper developing countries where economist Paul
Krugman asserted workers “are, inevitably, paid very little and expected to
endure terrible working conditions. I say „inevitably‟ because their employers
are not in business for their (or their workers‟) health; they pay as little as
possible” and the workers‟ best alternative may be “living on a garbage heap”.37
Journalist and author Nicholas Kristof surprisingly drew on the same imagery in
his column “Where Sweatshops Are a Dream” to describe families he
encountered living on garbage dumps in Asia.38 The justification for such views
rests on a two-part belief that free trade offers future generations a reliable path
out of poverty and no alternatives exist that are less harmful for workers now.
The Dominican Republic‟s recent history suggests that free trade
theory is not a dependable avenue for achieving development through export-
led growth. It was trade and tax incentives in the U.S. CBI program that
purposefully created trade advantages for the Dominican Republic‟s FTZ
factories during the early 1990s. But political priorities changed and the
country‟s exports suffered with the adoption of NAFTA, and then again when
the MFA‟s trade distorting country quotas were removed. The reality is that
political decisions inevitably alter the theoretical application of free trade
principles and cannot be assumed away in economic projections or serve as
dependable guides for historical comparisons. In researching her book The
Travels of a T-shirt in the Global Economy, business economist Pietra Rivoli
discovered that factors affecting trade in T-shirts “are less about competitive
markets than they are about politics, history, and creative maneuvers to avoid
markets.”39 Even the Asian “tiger” success stories contain important historical
facts as well as domestic and international political circumstances that aided
their achievements40 but are unlikely to occur in the Dominican Republic.
36
David Henderson, “The Case for Sweatshops”, Hoover Daily Report, Hoover Institution, 7 February 2000. 37
Paul Krugman, “In Praise of Cheap Labor”, Slate, 20 March1997, 38
Nicholas Kristof, “Where Sweatshops Are a Dream”, The New York Times, 15 January 2009, p. 35. 39
Pietra Rivoli, The Travels of a T-shirt in the Global Economy, Hoboken, NJ: John Wiley & Sons, 2005, p. x. 40
Varley, p. 50.
31
The second belief of free market economists is that “sweatshop”
workers freely choose their employment because no better alternatives exist.
Krugman assumed employers will “pay as little as possible” and dismissed local
governments or foreign aid as potential avenues to improve conditions for
workers, leading to a rhetorical question: “what is the alternative?”41 Kristof
also accepted as a given that “companies are always trying to pare” the
production costs of higher wage and labor standards, even though improved
wages and workplace conditions would not greatly increase retail prices.42 He
acknowledged “fair-wage” clothing brands but wrote them off as addressing a
“modest niche.”43
The objection to such statements is that they may describe current
reality but also seem to imply that changes are not possible. The contention is
that companies will or must always squeeze labor costs to the barest minimum.
This assertion can lead to acceptance rather than outrage at “sweatshop”
abuses, especially when paired with the comforting belief that free trade based
on lowest-cost labor eventually will lead to improvements for all. Deterministic
assumptions about market behavior and historical development patterns tend to
repress the search for alternatives that could improve the lives of apparel
workers now.
The Alta Gracia project represents an alternative for workers where an
employer voluntarily pays a living wage and respects workers‟ rights. The
project is currently aimed at a market “niche” and does not purport to end
“sweatshops”, but it does offer its workers a new sustainable path out of
poverty. How successful Alta Gracia becomes or how extensively the approach
might be replicated are issues to be tested. But traditional assumptions should
at least be reexamined regarding whether employers will or must squeeze labor
costs to a level just above scavenging in a garbage heap.
Alta Gracia‟s self-adopted labor policies should satisfy the free choice
principles advocated by free market economists. The company is voluntarily
adopting wage and labor policies above the legal requirements rather than
responding to imposed government mandates. The introduction of this brand
is also markedly pro-competitive, providing consumers with a broader informed
choice to guide their selection of a product. Essentially, the Alta Gracia
41
Krugman. 42
Kristof. 43
Ibid.
32
production model, similar to other “fair trade” goods, promotes a concept of
product quality that incorporates the production process as well as the final
product. In Beyond Sweatshops, Theodore Moran argues against imposition of a
living wage or other costly labor requirements, but he suggests apparel
companies that voluntarily adopt higher labor standards might employ a
marketing strategy that uses such actions to their competitive advantage.44
Consumer surveys suggest a demand exists for this type of socially-responsible
apparel and Alta Gracia will test that market. Rather than forcing new
requirements on firms, the Alta Gracia approach uses new market brand appeal
to incentivize the adoption of higher labor standards.
Another objection to a living wage contends that paying some workers
well above the prevailing industry wage reduces potential employment for other
individuals, forcing them into the informal sector. This theoretical argument
assumes that the alternative is employing more workers at lower salaries. In
Alta Gracia‟s case, however, the higher paid jobs exist precisely because they
meet a living wage standard that is central to creating the Alta Gracia brand.
The alternative scenario would simply be the status quo ante Alta Gracia‟s
creation. It is possible to argue that if Alta Gracia can gain market share, other
brands will logically lose sales and may end up canceling contracts and laying off
workers. Traditional low-paid jobs will be lost as living wage jobs are added.
Although painful for laid-off workers, such a job loss/job gain dynamic occurs
all the time when the market shares of companies fluctuate for whatever reason.
In this particular case, the reason would be tied to the creation of higher wage
jobs with better work conditions, yielding an overall gain for worker welfare. In
addition, the Alta Gracia brand may actually expand the market, appealing to
socially-conscious collegiate consumers who would otherwise not be drawn to
such purchases.
44
Moran, pp. 155-56.
33
The Alta Gracia factory is challenging assumptions that Ramon Eugenio Sierra de la Cruz and his
co-workers should not or cannot be paid a living wage.
Of course, the ultimate objection to adopting the labor standards
espoused in the Alta Gracia project is that it will not work because the higher
labor costs will make the product uncompetitive. In this view, requiring
factories to pay a living wage or enforce other good workplace standards will
lead to a loss of jobs as production shifts to a cheaper country location.
However, Alta Gracia is opening a new factory in the Dominican Republic with
full knowledge of the cost structure associated with its high labor standards, so
there is a clear employment gain rather than a threatened relocation of existing
jobs. And if Alta Gracia is successful, it would demonstrate that arguments
34
premised on a choice between low-paid “sweatshop” jobs or no jobs present a
false dichotomy with unnecessarily limited options.
The traditional argument is based on an unrealistically narrow view of
the business value chain where competition between apparel brands rests solely
on labor costs. Competitive labor costs certainly have played a major role in the
choice and frequent shifts that purchasers make among subcontracted overseas
factories. However, the focus on this business segment may be best explained
by the disproportionate price leverage oligopolistic major brands can exert over
the thousands of available subcontractors. The unequal bargaining power yields
an unequal exchange where workers lose out. But labor is not the only
competitive cost factor in the apparel sector. In reality, the full distribution of
product costs and profit levels should be considered.
The Alta Gracia challenge, based on offering collegiate apparel at a
price and quality competitive with other top brands, implies that the higher
labor costs must be off-set by other savings and/or lower profits. Some gains
are likely to come through better labor productivity, especially in the area of
quality control. Alta Gracia workers voice a strong commitment to producing
quality apparel, realizing the stake they have in the factory‟s success. However,
Knights Apparel may also realize important cost savings from the content and
manner of its brand promotion, i.e. the marketing segment of the business value
chain.
Higher expenditures on its workers constitute the substantive content
of the Alta Gracia brand. By contrast, some other sports apparel companies
build and maintain their brand identification through techniques such as multi-
million dollar endorsements from star athletes or other famous personalities,
reinforced by expensive media advertising.45 These are expenditures Alta
Gracia does not plan to make. In essence, consumers will be offered a value
choice regarding the meaning of a brand label. The conventional approach
promotes the implicit idea of establishing a fantasy connection between the
buyer and a favored celebrity. The Alta Gracia brand will reflect a real
commitment to worker rights that makes a meaningful difference in the lives of
workers struggling against poverty. Individual consumers can decide which
brand‟s value is more meaningful to their purchase. But Knights Apparel can
45
Robert Pollin, Justine Burns and James Heintz, “Global Apparel Production and Sweatshop Labor”, working paper series no. 19, Political Economy Research Institute, University of Massachusetts Amherst, 2001 (revised 2002).
35
remain cost competitive in its product, despite higher labor costs, if it realizes
some productivity gains, achieves cost savings on brand identification and
marketing, and/or accepts a relatively lower profit margin, as its CEO has
indicated.46
Two final issues commonly associated with “sweatshop” debates merit
brief mention although their relevance to the Alta Gracia project is marginal. A
prominent topic concerns broad charges that foreign investors establish
factories in developing countries to exploit local labor. By contrast, initial
studies found that foreign-owned factories generally pay somewhat above the
local prevailing wage and later reports extended this conclusion to
subcontracted local factories as well.47 The marginally higher pay by foreign
compared to local companies does not come near a living wage standard, so this
issue does not directly affect this report‟s analysis. However, the fact that
foreign investors and contractors do pay somewhat higher wages than local
companies reflects their greater capacity to do so, raising a question about
whether they could support an even higher wage structure, as Knights Apparel
has done.
The second issue relates to whether living wage jobs overseas could be
located instead in the United States. Online reader responses to The New York
Times article48 on Alta Gracia reflected some sympathy for foreign workers but
also deep concern over U.S. unemployment. However, a wage rate of US$2.83
an hour that represents a “dream” for Alta Gracia workers falls well below even
the U.S. minimum wage which itself does not provide adequate income for a
decent U.S. living standard. The AFL-CIO Solidarity Center‟s support for Alta
Gracia workers49 underscores that this case is not a “here or there” choice.
With Knights Apparel facing a challenge to meet living wage costs in the
Dominican Republic, sustaining much higher costs to relocate production of
this apparel to the United States is simply not an option.
46
Greenhouse. 47
See Moran; Drusilla Brown, Alan Deardorff and Robert Stern, “The Effects of Multinational Production and Wages and Working Conditions in Developing Countries”, working paper no. 9669, National Bureau of Economic Research, 2002; and Benjamin Powell and David Skarbek, “Sweatshops and Third World Living Standards”, working paper no. 53, The Independent Institute, 27 September 2004. 48
Greenhouse. 49
James Parks, “Alta Gracia Plant Shows Fair Practices Possible in Apparel”, Global Action, Organizing & Bargaining, 19 July 2010, online, available at: http://blog.aflcio.org/2010/07/19/alta-gracia-plant-shows-fair-practices-possible-in-apparel/ (accessed 3 August 2010).
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Initial Progress and Coming Challenges
Alta Gracia‟s start-up phase is ending as the factory transitions to a new
stage of full production for the 2010-2011 academic year. Workers and
management have overcome many obstacles and developed the foundation for
a good relationship. Fabric is being delivered, orders booked, cutting and
sewing stations are busy, and packers are shipping final products to colleges and
universities throughout the United States. Although the operation commenced
nearly a year after early hopeful projections, much has been accomplished
through joint efforts by the workers, Knights Apparel and the organizations
supporting this project, particularly the WRC, Fedotrazonas, FLD and MHSSN.
Nevertheless, important challenges remain and new issues may appear
on the horizon. Maintenance of top quality control will be essential, from
fabric purchase and sewing through coordinated and timely shipping.
Financing support must carry operational costs until a revenue stream develops
to off-set production expenditures. The peaks and troughs of collegiate
demand must be balanced by production shifts of non-collegiate apparel.
Consumer education about the Alta Gracia brand must be effectively promoted.
Potentially contentious labor issues may also arise, despite currently
harmonious relations. In fact, the more quickly Alta Gracia succeeds, the
sooner natural strains could develop. For example, all non-management
workers receive the same living wage, regardless of their skill level, job difficulty
or number of family dependents. Because the living wage so far exceeds the
normal industry wage, workers voice satisfaction with this compensation.
However, some interviews suggested a more differentiated wage scale might
develop in the future, if market results support a wage increase beyond cost-of-
living adjustments. Management might use such differentiation as an incentive
policy or workers might press their own rationale, although opinions will likely
differ regarding who should be paid extra and why.
Interviews also revealed differing views among workers regarding
whether they prefer all compensation in the form of wages versus a somewhat
lower wage in return for company-sponsored benefit programs, such as factory
transportation or on-site child care. Remembering past experiences, some
workers favored making their own decisions to reflect personal circumstances,
often expressing skepticism about management really delivering the value of
promised benefits. Other workers preferred the convenience and presumed
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lower cost of pooled services. Currently, payment of a living wage is so central
to Alta Gracia‟s brand definition that no wage reduction is possible, even as a
trade-off for direct services. However, assuming some future ability to increase
wage levels, the disposition of those funds may raise conflicting priorities.
Ironically, management may find that by respecting their workers‟
rights to organize and bargain collectively, the strains associated with managing
conflicting worker opinions and priorities can be passed on to the union. One
role of a truly representative union is to identify, organize, and communicate to
management the collective views of its members. Subsequent negotiations will
naturally involve each side advocating its interests, but management is spared
the challenge of trying to understand and prioritize disparate worker interests, a
task certain to antagonize the workers displeased with the final results. By
serving as an effective communication channel, the union can act as a “buffer”
to relieve the build-up of management-worker strains that can develop in both
directions.
Maritza Vargas explains the role of unions at a new worker orientation session held in the Alta
Gracia factory where organizing activity was not obstructed.
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A continuing role for independent NGOs is also crucial to Alta
Gracia‟s credibility. The WRC‟s agreement to a verification process assures that
this group will remain highly engaged in monitoring factory operations to assure
compliance with labor standards. Since its founding, WRC has built a
reputation as an effective monitor for university code compliance, a standing it
will transfer to the verification process. It will be important to resolve any
issues that may arise over the interpretation or application of labor standards
before the company‟s verification status is jeopardized. In a similar vein, the
FLD‟s continued involvement will be important as a neutral mediator and
educational resource for the workers. As a local organization, the FLD
possesses a different credibility and can place worker education in the
community‟s social context, including the impact of complicating factors such
as illiteracy, alcoholism or extended family dependency.
A longer-term challenge will be how Alta Gracia responds to a
consolidation trend within the global apparel industry. When the MFA‟s
country quota system ended, major brand-holders and large retailers moved
toward contracting with fewer but larger, more integrated apparel producers to
reduce costs and increase control over the supply chain. The need to assure
geographic flexibility and the desire to maintain pricing leverage will likely limit
this trend, but size is becoming a more important requirement, leaving smaller
factories with only cutting and sewing operations increasingly as risk. At some
point, Alta Gracia may face vertical and horizontal expansion decisions, at least
in terms of integrating printing and screening operations as well as growing into
other lines of apparel.
Above and Beyond
Although its impetus emerged from collegiate anti-sweatshop
campaigns, the uniqueness of Alta Gracia lies in establishing a standard above
and beyond university code requirements. When followed, these codes prohibit
most labor abuses commonly associated with “sweatshop” conditions.
Disputes arise in cases where code standards are violated and some universities
are dissatisfied with the reliability of current monitoring capabilities, but Alta
Gracia cuts a new path. Rather than just endorsing the minimum standards
universities require to prevent “sweatshop” abuses, Alta Gracia sets higher wage
and workplace benchmarks that pay a living wage and fully respect worker
rights. Disagreements may exist on whether most collegiate apparel is
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sufficiently “sweat-free”, but the Alta Gracia brand seeks more – a sustainable
way to help workers escape poverty rather than just avoid exploitation.
Alta Gracia also goes beyond the International Labor Organization‟s
(ILO) “decent work” criteria by applying concrete definitions to general labor
principles. The ILO endorses calls for employment and income opportunities
at “decent” or “adequate” compensation levels,50 while Alta Gracia employs a
specific living wage calculation. By defining living wage to include family
responsibilities and educational opportunities, Alta Gracia offers workers hope
for both current and generational improvement. In addition, Alta Gracia
respects ILO standards on their workers‟ right to organize, even seeking union
input in devising company standards and procedures. The factory‟s workplace
reflects a general concern for treating workers with dignity.
As Kristof and others could rightly point out, Alta Gracia is currently
just a small factory trying to serve a niche market. However, in contrast to
some earlier experiments, this brand is backed by Knights Apparel, a major
player in both the university and the mass apparel market. In addition, markets
are not static; they can be defined or redefined by a new product, if consumers
respond. Indeed, consumers will ultimately determine whether this brand
succeeds or fails. Critics may predict commercial failure for this production
model, but Knights Apparel is bearing the financial risk and the venture‟s
benefits for workers are significant enough that Alta Gracia deserves an honest
market test, something even skeptical economists should support.
If Alta Gracia succeeds, the presumed traditional limitations on worker
alternatives should be re-examined. Corporations have choices on where and
how to cut costs or accept reduced profits. Consumers have choices on what
brands will influence their purchase decisions and why. People, not scientific
imperatives or economic mandates, choose the values that determine a
corporation‟s identity and shape its competitive strategy. Driving down labor
conditions and setting pay below poverty level may still attract workers who
lack alternatives, but those jobs are not the only alternative employment most
large international companies can support. Perhaps Alta Gracia‟s success could
50
See various ILO documents such as “Decent Work and Vocational Training: Definition of Decent Work” at: http://www.cinterfor.org.uy/public/english/region/ampro/cinterfor/publ/sala/dec_work/ii.htm; “Decent Work for All” at http://www.ilo.org/global/About_the_ILO/Mainpillars/WhatisDecentWork/lang--en/index.htm; and “Decent Work” at: http://pstalker.com/ilo/d-decent.html.
40
even encourage a competitive “race to the top” in labor standards that would
most benefit people now mired in poverty at the bottom.
Carlixta Sánchez Ascencio is one of many workers benefitting from Alta Gracia‟s labor standards
that go above and beyond existing university licensing codes.
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Postscript
When asked if they thought the Alta Gracia factory would be
successful, most workers answered simply that they were going to do the best
job and produce the best quality apparel possible. Most of them recognized
that the factory‟s ultimate success, and their jobs, depends mainly on whether
their apparel will be bought by consumers. Only a few workers professed
confident optimism, saying that they knew there were consumers in the United
States who cared about the working conditions under which their clothes were
made. I nodded in agreement, knowing there are such consumers. Only I
don‟t know how many . . . . or if they will be enough.
The Alta Gracia factory is now fully operational, shipping collegiate
apparel to stock campus bookstores for the opening of a new academic year.
Parents dropping off their sons and daughters, especially freshmen anxious to
identify with their new school, will contemplate T-shirt and sweatshirt
purchases to mark their collegiate affiliation. This Fall, these potential
consumers will find new racks of apparel with curious hang tags and perhaps a
nearby display that tells the story of Alta Gracia workers. What will be their
reaction and response? Alta Gracia‟s future depends on their decisions.
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About the Author
Dr. John M. Kline is a Professor of International Business Diplomacy in the Walsh School of Foreign Service, Georgetown University. His teaching focuses on international business-government relations, international investment strategies and negotiations, and international business ethics. The second edition of Dr. Kline's textbook, Ethics for International Business: Decision-Making in a Global Political Economy, was released by Routledge in London and New York in May, 2010. He is the author of three other books as well as numerous scholarly articles and chapters in co-authored and edited books.
Prior to joining the Georgetown faculty, Dr. Kline was Director of International Economic Policy at the National Association of Manufacturers. He received his doctorate in political science from The George Washington University and holds a masters degree in international relations from The Johns Hopkins University School of Advanced International Studies. Dr. Kline serves as a consultant to various international organizations and private multinational corporations. Recent projects include a comparative analysis for UNCTAD on foreign investment policy promoting small and medium-sized enterprises (SMEs) in Malaysia and Singapore, and electricity infrastructure in Chile and New Zealand.
The Kalmanovitz Initiative
Georgetown University's Kalmanovitz Initiative for Labor and the Working Poor develops creative strategies and innovative public policy to improve workers' lives in a changing economy. Through the Kalmanovitz Initiative, Georgetown faculty and students collaborate with labor and business leaders, policymakers, working people and their advocates to craft practical solutions to real-world challenges for workers and employers.
The Initiative draws on Georgetown's distinctive identity – its commitment to intellectual excellence, grounding in the Catholic and Jesuit traditions, history of inter-religious cooperation, global reach, and prominence as an arena of policy debate in the nation's capital – to advance prosperity, broadly-shared economic justice, and respect for the dignity of labor.
Landegger Program in International Business Diplomacy
The Karl F. Landegger Program in International Business Diplomacy is an honors certificate program in the Walsh School of Foreign Service that offers
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students an interdisciplinary course of study to complement their academic interests and degree. Students link studies in international relations and political economy with, for example, basic training in finance, accounting, business strategy, corporate social responsibility and business-government relations. Classes combine an intensive case method approach to global corporate operations with an analysis of key economic and political issues in international trade, finance, and investment.
The Landegger Program‟s primary mission is to prepare students for work at the international intersection of public and private sector activities. Knowledgeable on the demands and requirements of both sectors, these young professionals will help bridge differences in perception and communication that often separate these vital segments of society. The Landegger Program provides the academic foundation for students to pursue individual opportunities while promoting broader societal goals around the world.
