On Wednesday evening (2 November), the former Archbishop of Canterbury and now Master of Magdalene College, Cambridge, Dr Rowan Williams, lectured on the subject “Can capitalism be ethical?” at Murray Edwards College. I had the benefit of asking Dr Williams a question after his lecture and then continuing the discussion of capitalism over dinner with Dr Williams and others. A video of and blog about the event is usually posted here.
My question at the lecture was (in short) whether Dr Williams considered that regulations that empower consumers to act as ethical agents can achieve change, drawing on issues of “civic consciousness” that Dr Williams had earlier spoken of. My question was framed specifically in relation to the disclosure obligations for companies under the Modern Slavery Act 2015 (UK) and similar obligations in the United States dealing with conflict minerals and slavery.
Dr Williams professed himself an optimist about the ability for change to be achieved through ethical consumerism and referred to fair trade products as an example where ethical consumerism has brought about change (indeed, it has brought about change without governmental regulation to support it). This view contrasts with the sentiment that underlies my earlier writings; if Dr Williams is an optimist, then I am perhaps a pessimist about the effectiveness and utility of ethical consumerism. Previously, I have written that:
“a market-based mechanism is a weak regulatory tool. This is particularly because it incorrectly presupposes the existence of perfect market conditions in which consumers are fully informed about the use of forced labour and slavery in supply chains. But it is also because purchasing behaviour is not wholly rational and because other product characteristics (such as price and quality) may outweigh individual consumers’ concerns about the use of forced labour or slavery in a supply chain.”[1]
I did concede, in that piece, that wholesalers and retailers could play an important role in making such regulation effective by limiting the power of consumers to purchase unethical goods by not stocking such goods. Yet, even then, disclosure is a weak regulatory tool in contrast to both “harder” forms of regulation and other market mechanisms such as the creation of tax incentives and tax penalties to incentivise and dis-incentivise certain conduct. Dr Williams’ optimism led me to question my previous thinking and to ask: if consumer behaviour is to be used as an effective regulatory tool, how do we render it effective?
Using the Modern Slavery Act 2015 (UK) (the Act) as an example, I venture a number of suggestions as to what this form of regulation requires in order to be effective. The regulatory objective of the Act is to reduce the incidences of slavery in company supply chains. The direct regulatory instrument is information and the indirect regulatory instrument is ethical consumerism (or, in neutral terms, consumer behaviour).
First, information based regulation requires the dissemination of that information in order to be effective. Presently, under the Act, a disclosing company must disclose their compliance statement on their website. Without cultural change, however, it seems unlikely that consumers will seek out a company’s website to review their compliance statement. To take one example, Campbell’s Soup Company has prepared a disclosure statement (here), but it seems unlikely that a consumer will review that statement before purchasing the company’s products from their local supermarket. On the other hand, this form of disclosure may be more appropriate for a professional services firm such as the Boston Consulting Group (BCG), which has also prepared a statement (here). The first takeaway point is that the method of disclosure must be adapted for each type of industry. Disclosure that is appropriate for a professional services firm is unlikely to be appropriate for a consumer goods company. In the context of consumer goods, an approach akin to that adopted by the European Union for eco-labels may be more appropriate. Driesen explains that:
“[t]he European Union (EU) has spearheaded the use of eco-labels to inform consumers about the environmental attributes of products, in hopes of motivating consumers to make environmentally friendly purchasing decisions”.[2]
Hence, in order for ethical consumerism to function effectively (if at all), information must be disclosed to the person or entities that are making the purchasing decision.
Second, the use of consumer behaviour as a regulatory instrument effectively outsources the monitoring and enforcement functions to the private sector, which requires greater investment in private sector actors than presently occurs. The responsibility for monitoring is principally assumed (voluntarily) by non-governmental organisations and investigative journalists. Thus, for example, the Business & Human Rights Resource Centre maintains a registry of companies’ statements here. But even then, the information may not be disclosed in such a way that influences consumers.
The difficulty with a private regulatory approach is that there may be no incentive for non-government actors or journalists to perform the monitoring function and, even if civil society actors do have such an incentive, they may not have the resources to monitor effectively. Consequently, if the Government wishes for consumers to be empowered to make ethical decisions, it must financially support (through grants, for example) non-government organisations that perform this monitoring function. In the absence of this, imperfect market conditions will remain.
Third (and finally), if disclosure is to be rendered an effective tool there must be a cultural change in the decision-making of consumers, retailers and wholesalers. To use the language of Dr Williams in his lecture, they must “redefine” their interest in a way that looks beyond price signals such as cost and profit. Ethical consumerism is a growing movement around the world – Fairtrade, mentioned above, is one example; the shifting purchasing behaviour in relation to the treatment of animals (such as chickens and eggs) is another. How cultural change of this sort is achieved or encouraged is a difficult question – one to which I don’t have an answer – particularly for people who may not have the financial means to easily change their purchasing behaviour. There are actions that we can each, individually, take (for example, encouraging our Colleges or institutions with which we’re associated to use ethical products), but this cannot form the basis of a comprehensive regulatory strategy.
Even with those changes, one might ask whether a company is more likely to change its behaviour and root out slavery in its supply chain as a result of enforcement action by a consumer or by the state? The answer, to me, appears to still be no. So, in spite of Dr Williams’ optimism, the difficulties of constructing an effective regulatory system based on ethical consumerism leave me no more convinced that it can bring about change in business practices, but I am slightly less cynical as a result of Dr Williams’ lecture. Rather, I fear that soft-touch regulation such as disclosure may hinder attempts by civil society to make the case for harder regulation.
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[1] RJ Turner, ‘Transnational Supply Chain Regulation: Extraterritorial Regulation as Corporate Law’s New Frontier’ (2016) 17(1) Melbourne Journal of International Law 188
[2] David Driesen, ‘Alternatives to Regulation? Market Mechanisms and the Environment’ in Robert Baldwin, Martin Cave and Martin Lodge (eds), The Oxford Handbook of Regulation (OUP 2012) 203, 208.
[3] David Driesen, ‘Alternatives to Regulation? Market Mechanisms and the Environment’ in Robert Baldwin, Martin Cave and Martin Lodge (eds), The Oxford Handbook of Regulation (OUP 2012) 203, 208.
Ryan J. Turner 