Source: Carnegie
Virginia Haufler Discussion Paper #2
A number of events stimulated the surge in corporate initiatives on social and environmental issues in the last two decades: the chemical disaster at Bhopal, India in 1984; the massive Exxon Valdez oil spill in 1989; even the fall of apartheid in South Africa in 1994. Bhopal stimulated the chemical industry to develop a voluntary program as a way to prevent future disasters and redefine its relationship to the regulatory system. The oil spill led a number of investors to adopt the Ceres Principles for protecting natural resources. Activists successfully promoted the Sullivan Principles for businesses employing blacks in South Africa in their campaign against apartheid.
The condensed case studies described here attempt to discover patterns in voluntary initiatives across three issue areas: labor standards, information privacy, and environmental management.
The Conditions of Work in the International Economy
The Problem--Labor standards are in many ways an "old" issue, and this has shaped the evolution of voluntary business initiatives. Management wants to keep the costs of production low, and workers want higher wages and better working conditions. In the past, conflicts between the two often sparked riot and revolution, as in France in the 18th c. and Russia in the 20th. The establishment of unions and collective bargaining and, after WWII, the evolution of the social welfare state resolved the issue more peacefully, leading to a dramatic increase in living standards and working conditions for most workers in industrialized countries. Note, however, that these are all national solutions to what was perceived as a national problem. The past few decades of expanded trade and investment abroad have made labor conditions into an international problem and transformed the debate.
Labor is a global issue today due to three key changes. The organization of the firm is increasingly global and often dependent on long supply chains, with many parts of a final product outsourced to factories that are not directly owned?or overseen?by the firm itself. Those factories are located in countries with widely disparate regulatory systems, wage levels, and standards for working conditions. The recent opening up of formerly protected economies to intensifying economic competition puts more pressure on companies to lower costs to gain market share. At the same time, human rights organizations have created international networks and use international media and communications technology to monitor working conditions in even the remotest areas of the world.
Background--The main source of international agreements on working conditions is the International Labour Organization, founded in 1919. Seven ILO Conventions are considered fundamental rights: those covering forced labor, freedom of association, the right to collective bargaining, equal pay for men and women, freedom from workplace discrimination, and a minimum age for employment. The ILO considers freedom of association a prerequisite for workers to gain the other rights. Governments adopt the Conventions on a voluntary basis, and not all governments have adopted all Conventions or enforced them adequately. The ILO itself has no independent power.
The weakness of the ILO led many activists and policymakers in recent years to try to incorporate labor provisions into trade agreements, such as the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO). In 1997 the WTO finally addressed the link between trade and labor conditions, but then handed over responsibility to the ILO as the competent body to deal with labor issues. It is too early yet to tell whether the ILO is poised to become a more effective international player. In a new twist, the U.S. Congress now has forced the IMF to consider labor standards in its financial rescue packages, which gives it great potential leverage in this area.
National governments remain the main source of standards for workers, and those standards differ markedly. Governments committed to high standards at home have little ability or willingness to enforce them extraterritorially. Governments accused of having unacceptably low standards object to infringements of their sovereign rights. Many workers fear that international competition among high standard and low standard countries will drive international standards down to the lowest common denominator.
Pressures on for Action?Aside from the effort to incorporate labor standards into trade agreements, the pressures for action come from a number of quarters. Municipal governments in the U.S. and Europe forbid procurement from countries with poor records on human rights and labor. The U.S. government in 1996 launched a "No Sweat" campaign to convince foreign garment makers to comply with U.S. laws and expose those retailers buying from sweatshops. The human rights community has adopted labor standards as a cause--Amnesty International, the Interfaith Center on Corporate Responsibility, the Clean Clothes Campaign in Europe, and others each promote a code for corporations to adopt. A small but growing group of U.S. mutual funds now screen for socially responsible companies and include labor standards as one of their screens. Activist organizations call for boycotts and support shareholder proxy fights on labor issues. In recent years, critical attacks on Nike have made it the poster child for the sweatshop issue. As the CEO of Levi Strauss remarked in 1994, "In today?s world, a TV exposé on working conditions can undo years of effort to build brand loyalty."
Both unions and NGOs link international trade with sweatshop conditions in developing countries and the loss of jobs in industrialized countries, and mobilize attention across national borders. They also connect foreign policy and labor conditions, as in the debate in the U.S. over trade with China. Governments find themselves under pressure to put foreign labor standards on the policy agenda.
Private Sector Initiatives?Many prominent companies have adopted corporate codes of conduct which apply to their own and their suppliers? employees. The most well known are Levi Strauss, Reebok, and Nike?large apparel retailers. Levi Strauss has its own Global Sourcing and Operating Guidelines, and actually withdrew its business from China at one point because it was unable to guarantee that working conditions there met its standards. Nike also adopted a corporate code, but has been criticized severely for not living up to it and for using it simply as a marketing tool. Nike is even being sued in the California courts for false advertising. Corporate codes typically address the issues that are in the public eye, such as child labor and forced labor. Most corporate codes also set standards on health and safety and on discrimination. Few address collective bargaining and freedom of association.
High-profile adoption of individual codes of conduct can be a risky strategy. Collective action by a group of businesses makes it easier for a corporation to adopt high standards, knowing it will not be undercut by others. Reebok refused to sell soccer balls made by children, but it obtained support first from the World Federation of Sporting Goods Industries and the U.S. Sporting Goods Manufacturers Association. In the United States, the American Apparel Manufacturers Association (AAMA) recently set up guidelines for companies to police their factories and suppliers. AAMA standards include some fundamental rights, but exclude freedom of association and collective bargaining.
Businesses increasingly partner with other organizations?activist NGOs, unions, governments, international organizations. The Apparel Industry Partnership in the U.S., consisting of eighteen garment makers and labor and human rights groups, seeks to design an appropriate code for the industry. They face a divisive debate over the design of a monitoring system, minimum wage levels, and unionization. A handful of major corporate participants, including Nike, Liz Claiborne, Phillips Van Heusen and Reebok, agreed to establish a Fair Labor Association (FLA), a private entity split between corporate and human rights/ labor representatives. The FLA would accredit auditors to certify compliance with standards on a companywide basis. The UK government helped launch the Ethical Trading Initiative in January 1998, with equal representation by business, workers organizations, and NGOs. It aims to develop and encourage voluntary adoption of a set of standards and monitoring and auditing methods. A large number of corporations, non-profits, and unions have signed on to it. The Confederation of British Industry, Unicef, and the UK government recently launched a combined campaign against child labor. Carpet industry officials in India negotiated with child and labor activists and the Unicef out child labor in the carpet industry, leading to the Rugmark program of monitoring and certification. It also places former child workers in school programs.
Many firms adopting a code of conduct self-certify themselves by employing internal audits and social accounting systems. Industry associations, mixed business organizations, and a variety of partnerships with NGOs and unions are now pursuing various methods of certification and labelling. The Council on Economic Priorities, a non-profit association, recently launched the most ambitious certification effort, the SA8000 standard for social accountability. This is modelled on the ISO process of international standard setting, and was developed in conjunction with business representatives and existing accounting and certification firms. The incentives for other businesses to join in are the reputation effects of certification, the ability to label products as meeting the standards, and, to a small degree, inclusion in socially screened mutual funds. When large buyers commit to higher standards, they can put intense pressure on their suppliers to comply.
Conclusions?Do these efforts successfully address the problem? Do they create new problems? And which groups are most affected in each case? For workers in developing countries, voluntary initiatives by foreign corporations and their suppliers can lead to significant improvements in average working conditions. The U.S. Apparel Industry Partnership, the AAMA, and others have the potential to raise standards in many export manufacturing operations around the world. Private sector initiatives are an avenue for exporting labor standards from high-standard to low-standard countries without resorting to government mandate, and put a floor on global working conditions. From a union perspective, these initiatives are a breakthrough in corporate responsibility for worker welfare. Unions and NGOs view voluntary self-regulation as a way to set minimum standards, raise consciousness about the need for standards, and provide guidance for national laws. They would prefer government regulation, however.
Businesses that adopt voluntary standards can enhance their reputation and improve product sales, employee recruitment, and productivity?all of which provide a needed competitive edge in world markets. Participation in group efforts to set standards and monitor them may help them develop improved relations with government, unions, and the non-profit sector, reducing hostility and suspicion. This may also provide business with a finger on the pulse of social sentiment that helps them foresee and avoid potential problems. These initiatives may reduce the pressure for government to directly regulate an industry or to tie labor standards to trade agreements?although the pressure for international negotiation and enforcement of labor standards remains strong.
Governments in industrialized countries may view private sector voluntary initiatives as a means to deal with the political pressure to apply sanctions and other punitive measures against low-standard countries. For governments in emerging markets, however, these initiatives pose a real challenge. Foreign corporations, in league with activist organizations and unions, are interfering in local affairs. They produce inequity between workers in export industries and all others. Corporations are setting standards without negotiating them with developing country governments. The price of entry into world markets may be getting higher, which may reduce the comparative advantage of low-wage countries.
Voluntary standard setting by the business community is still ad hoc. Few initiatives cover all the fundamental rights enumerated by the ILO. Many do not include the right to freedom of association and collective bargaining. The specific issues addressed may reflect the concerns of business interests or the concerns of NGOs?and not necessarily those of workers, who may prefer a bad job to no job at all. Most codes have been in the textile, clothing, footwear and toy industries?all consumer industries. Major buyers in consuming countries are the big players, and not the small and medium sized enterprises in which most people work. The standards are applied in the countries which supply these buyers, such as Vietnam, China, Bangladesh, Pakistan and India, leaving many other countries untouched. Systems for monitoring and certification are in their infancy and face numerous challenges, yet without them it is hard to determine what progress is being made. One retailer estimated that it had a production agreement with 13,000 contractors, each of which had about five further subcontractors, adding to 65,000 contractors that would have to be monitored?and they were located in more than one country. The information requirements for effective monitoring would be enormous.
Voluntary initiatives actually may create new problems. When a business commits to higher standards, it can simply draw attention to itself, and any failure to live up to those standards will be trumpeted loudly by critics. As Nike discovered, the initial boost to its reputation when it adopted a corporate code has been offset by negative publicity; as a recent New York Times article argued, the Nike "swoosh" has swooned. Too many different codes now compete with each other, potentially undermining each other. Higher standards in export sectors may lead to the emergence of great inequity on a national basis and perhaps to increased domestic conflict. Both the WTO and OECD are exploring whether cooperative agreements among businesses on labor standards will distort trade flows, act as a non-tariff barrier, and perhaps even violate anti-trust law. These private sector efforts have the potential to raise standards internationally, but they also have the potential to reduce the ability of poorer countries to participate in international trade or to attract foreign investment. Few empirical analyses of the impact of voluntary initiatives on patterns of trade and investment exist, and much of the predicted effect is based on anecdotal evidence.
Environmental Management of the Production Process
The Problem-- In the United States and other industrialized countries, environmental issues are some of the most contentious ones these societies face. From water pollution, to ozone depletion, to global warming, we face an array of profound choices concerning the modern industrial economy and the consumption patterns it fosters. Industrial production uses up and degrades natural resources. This puts industry in the hotseat as both the source of and potential solution to environmental problems.
Environmental issues are almost by definition global in scope. The ozone layer covers the entire globe, and ozone depletion simply cannot be stopped without international action. Environmental activists are networked internationally and their campaigns cross national boundaries to address even local environmental problems. More significantly, the corporation itself crosses national boundaries, and local problems become linked through the organization of production. When environmental degradation occurs in many places at once, it adds up to a much bigger problem. Local emissions of carbon dioxide add up to the problem of global warming.
Background? In the early stages of environmentalism, activists targeted governments and demanded legislation and regulation to force industry to clean up its act. In recent years, this traditional "command and control" model of government regulation has come attack as governments sought to reduce the direct role of the state in the economy. At the same time, international economic competition has made the weaker regulatory systems in place in many emerging markets a point of contention. The same fears about a "race to the bottom" seen in the case of labor standards apply here too.
The international community has negotiated a number of significant agreements dealing with environmental issues in the past decade, including the ambitious Montreal Protocol on the ozone layer and the Kyoto Protocol on climate change. Environmental agreements covering a range of issues probably represent the greatest expansion in international law in decades, if not centuries. Regionally, the European Union is harmonizing regulations among its members. The United States insisted on incorporating an environmental side agreement into the NAFTA treaty. Despite all this activity, many people criticize the implementation and enforcement of these agreements.
Pressures for Action-- The United Nations Conference on Environment and Development probably marked a turning point in the visibility of the environment as a global issue, and certainly mobilized a tremendous number of NGOs. Environmental NGOs are quite effective at spotlighting violations, utilizing the media and mobilizing consumers and investors. When Royal Dutch/ Shell recently planned to dispose of an offshore oil platform in the deep sea, Greenpeace launched a very successful public campaign to stop them. In the United States, litigation has been a particularly powerful tool of environmental activists and local communities concerned about pollutants. Information technology makes it more difficult for corporations to hide from public scrutiny. The U.S. governments requires factories to report their emissions of particular chemicals, and those data are now available on the Internet. The OECD is developing a similar system for its member countries.
Within the business community itself, an emerging set of leaders is taking seriously the potential benefits of eco-efficiency, and is more accepting of environmental values as important to business planning. Environmentally sound products and production processes can provide an edge in highly competitive markets, as market leaders in resource intensive industries are discovering. "Green" businesses have made environmental stewardship a core purpose of their business. Many businesses today are more dependent on knowledge and communication, and less dependent on natural resources. Royal Dutch/ Shell, for instance, sees itself not only as a petroleum supplier, but as a business supplying transportation and information services. Business leaders are responding to the expectations of their customers and shareholders for enviornmentally sound practices. Business schools now incorporate environmental issues into the curriculum, and trade magazines address issues of best environmental practice as an aspect of the quality management practices. A reputation as an environmentally sound business also can contribute to hiring dedicated employees.
Private Sector Initiatives?A number of different private sector environmental initiatives have been launched in the past decade. Many of these are by individual corporations: Ben and Jerry?s made its reputation in part by its commitment to social and environmental responsibility (and also great ice cream); British Petroleum has committed itself to reducing carbon emissions in its facilities and working harder to prevent oil spills; Monsanto has undertaken a range of efforts to handle chemicals in a way that does not have toxic effects. While still a relatively small percentage of global production is covered by these leading corporations, the number adopting corporate environmental codes is increasing.
More interesting still are the number of joint initiatives. Prior to the UNCED, the International Chamber of Commerce developed a voluntary Business Charter for Sustainable Development laying out sixteen principles of environmental management for business. Probably the most well-known business organization on environmental affairs is the World Business Council for Sustainable Development (WBCSD), founded under a slightly different name prior to the Rio conference. It is composed of major multinational corporations committed to best environmental practices, sustainable enterprise, and especially self-regulation. Member companies sign on to its principles, but there is no enforcement; instead, the WBCSD works hard to educate and persuade companies of the benefits of eco-efficiency. The Global Environmental Management Initiative (GEMI) is a non-profit organization of companies promoting environmental, health and safety standards. Both WBCSD and GEMI seek to lead by example. Their standards represent aspirational guidelines for the companies involved, and not binding commitments.
More substantive efforts can be found within specific industry associations. The chemical industry after the disaster at Bhopal established "Responsible Care" standards for handling chemicals. Responsible Care, initially developed by the Canadian Chemical Producers Association, establishes a set of principles and standards for the chemical industry, and has been adopted by over forty national chemical associations. Members communicate to the local community about hazardous chemicals at their facilities, put in place systems to ensure health and safety of employees and the local community, including emergency response in case of disaster, and seek ongoing reductions in pollution. Responsible Care does has become a widely adopted set of practices, though without any specific enforcement or monitoring mechanisms. Some members have developed self-evaluation programs, but many admit a better system must eventually be adopted.
The most interesting voluntary initiative is a hybrid, not entirely a private sector iniative. The International Organization for Standardization, known as ISO, developed a set of guidelines for environmental management systems?ISO14000. The ISO is an international organization whose members are national standards setting bodies, which may be private or public sector agencies. The actual design of standards is in the hands of technical committees, typically dominated by industry representatives, with one national body acting as host to the negotiations. The standards are adopted voluntarily by corporations, but often become a de facto requirement for doing business. The ISO 14000 environmental standards are not outcome-oriented, since they do not set limits on pollutant output but instead focus on whether the company has an environmental policy and a management system that implements it throughout the firm. Signatories are reviewed on a plant-by-plant basis by outside auditors, and violators are not certified as ISO compliant. As environmental standards they look weak, though they may enhance managerial competence and initiate a process leading to better environmental outcomes.
Conclusion ? Do these private sector initiatives successfully address environmental problems? Do they cause any new problems themselves? And for whom? Corporate codes, even without any accompanying mechanisms for monitoring or enforcing compliance, do represent a positive shift on the part of may corporations. Many industries have chosen to go beyond mere compliance with existing regulations, and improved the eco-efficiency of their industrial processes significantly. Industry associations can spread best practices among members and enforce standards by imposing fines, denying membership, and making it difficult for violators to do business. Many developing county governments hope the Responsible Care program will transfer industry best practices to their local chemical production facilities, and this is happening in Asian and South American countries which have strong national chemical associations in place. Increasing numbers of firms are signing up for the ISO14000 standards, which embeds environmental commitments within the firm. Leaders of some of the largest multinational enterprises are taking a public stance in favor of environmental responsibility, despite resistance from others within their industry. Although it is proceeding unevenly, we can see the emergence of a broad community of businesses interested in adopting sustainable practices. The result is a less toxic environment for workers and the community.
For the environmental community, this cannot be sufficient. Some activists are simply opposed to the industrial society we have created. More moderate environmentalists are divided between those who are working with the business community to advance voluntary efforts, and those more concerned with the weaknesses. The former have taken on the difficult task of convincing management that environmental practices contribute to profitability, instead of seeing it as a cost center. Many of these private voluntary initiatives have been launched in partnership with NGOs, who look upon businesses as those with the power and resources to effect real change. Even the most hard-nosed environmental groups, such as Greenpeace, are willing to work with business leaders on specific issues.
The business community benefits from adopting high environmental standards in a number of ways that contribute directly to the bottom line. Of course, compliance with legal requirements is a prerequisite for doing business, but going beyond compliance provides many advantages. The costs of production can be reduced through more sustainable practices. Applying the same practices on a global basis, even in developing countries, can be less costly than establishing different facilities in different countries. The process of developing new techniques and technologies to address environmental concerns may lead to new market opportunities. There is less likelihood the firm will be sued over environmental liabilities. Customers and potential business partners often perceive a company with high environmental standards as a high-quality, trustworthy operation. Standards of all types set by industry associations are viewed as best practice, and facilitate business relationships. Governments may be willing to develop flexible regulatory arrangements in tandem with these private initiatives, which is often less costly than traditional regulation.
The system of private voluntary initiatives in the environmental arena suffers from a number of weaknesses, however. The most obvious is that it still covers relatively few companies and industries, although it has been gaining more adherents over time. Monitoring systems are weak, information on environmental practices is difficult to collect, and the details of how to set up environmental accounting and auditing systems are confused. Unfortunately, some firms that commit themselves to high environmental standards find that this simply raises the expectations of observers and increases the attention paid to any mis-steps.
The activity itself is concentrated in the industrialized countries, which already have stringent environmental regulations in place. Foreign investors often do have higher standards than local industry, and are not always effective in transferring best practices. Many developing country governments with only limited capacity to design and implement environmental regulations look upon ISO14000 and Responsible Care standards as an avenue for forcing local industry to raise its standards so that it can compete in international markets. It also would respond to local demands for environmental clean-up. Unfortunately, developing country governments rarely have the funds to send representatives to the ISO negotiations, or even to obtain information on the standards themselves. The certification process for ISO can be expensive, and sufficient numbers of inspectors simply do not exist as yet. Finally, there is so much competition among corporate environmental codes today that a group of major multinationals is now negotiating with the UNEP to establish some common standards.
High-technology and Information Privacy
The Problem?The most profound transformation of our social and economic lives in the past decade is the "information revolution." The problem is that, as some computer libertarians declare, "information wants to be free." All written works, music, and video/ film can be placed on the Internet and used by millions of people at negligible cost. Information that we do not want readily available, such as pornography, now dominates much of what we can find there. Individuals are supplying merchants with reams of personal data every time they fill out a form, visit a website, use a credit card, or rent a video. Almost all countries recognize privacy as a fundamental human right, but new technologies are eroding privacy rights.
Although the U.S. government created the Internet for the defense and scientific communities to exchange information quickly and easily, it has become a global commercial medium. Use of the Internet expanded dramatically when the technology became much easier to use with new graphics software and standards that we call the World Wide Web. Any image placed on the Web can be viewed by millions of people anywhere in the world who have access to a networked computer. And traffic on the Internet doubles approximately every 100 days. Decentralized corporations can use the network to process data in locations around the world, with records perhaps collected in Britain, data entry in the Philippines, and final use in the United States. The decentralized, open, global character of one of the main transmission sources for personal data--the Internet--makes it difficult to design and implement effective regulations through top-down, government by government approaches. The information economy is by definition global.
Background--Throughout the rapid development of this revolutionary technology, technical and social standards for Internet usage were in the hands of the technicians and users themselves, which in the early years were one and the same people. The Internet today, however, is used by a variety of people with varying skills and different demands. Commercial users of the Internet in particular are reshaping the medium and posing new problems that appear to be ripe for regulatory attention. The United States has a relatively weak regulatory system with regard to privacy, and most of it is directed at the government as the potential abuser, for example, laws on handling personal information are applied to the Internal Revenue Service and the Social Security Administration.
Internationally, the OECD established voluntary guidelines on the Protection of Personal Data and Transborder Data Flows. But the countries of the European Union have a history of much more stringent data protection. They are further behind in Internet usage and especially in e-commerce, but have been proactive in addressing the problem of information privacy. In order to issue credit cards in Germany, Citigroup agreed to have German inspectors examine a data processing center in South Dakota regularly to ensure that its privacy standards are being met. The approach taken by European governments has been a traditional regulatory one. Most countries in Europe have strict laws on the handling of information on individuals. The attitude there is that corporations must be reined in, and that one of the main tasks of governments is to regulate the market. In the U.S., the opposite perception dominates?that government must be reined in. Since 1995, the Group of Seven industrialized countries have been working to address privacy issues.
The recently adopted E.U. Data Directive is unique in having an extraterritorial component. Under the EU Directive, no information on EU citizens can be transferred abroad unless the receiving country has privacy protections that meet EU standards. Companies must show customers the data profiles they have on them and make any revisions they request. Web site owners cannot track web viewing patterns without permission, and no information gained in one transaction can be used to market a different product to the customer without permission is not allowed. All violators can be sued by individuals. The U.S., with its reluctance to adopt new regulations in this area, is on a collision course with the E.U. The Directive was supposed to take force on October 25, which probably would have cut off data transmissions between the U.S. and E.U., but its implementation has been delayed while the U.S. government attempts to negotiate some compromise. The outcome of these negotiations will establish the global ground rules for data privacy in the electronic age.
Pressures for Action ?Horror stories of identity theft, fraud, and misuse of medical informaton have stimulated consumer activism. In the U.S., the Electronic Privacy Information Center (EPIC) lobbies for government regulation, and the Center for Democracy and Technology promotes better governance by the private sector. Privacy International, a UK group, is prepared to investigate privacy practices at U.S. companies and sue them if necessary. Clearly, the E.U. Data Directive hangs over the debate today, and is perceived by many Internet commercial users as a major threat to their ability to conduct business internationally. They view government policymakers as lacking sufficient technical understanding to design an appropriate regulatory system for the Internet. A legal solution to the problem may be complex, inflexible, and difficult to implement. There are dangers from both over-regulation and under-regulation, however. If consumers and business partners do not trust the system to protect their personal data, then e-commerce cannot flourish. Since e-commerce has the potential to be a multi-billion dollar market, it is imperative for some entity?public or private?to establish a system of standards and safeguards.
Private Sector Initiatives-- The private sector basically ruled the net for years, and views itself as highly competent to address complex, emerging issues. Many of the new information industries came late to the policy game, and only recently established lobbying organizations and a presence in Washington and Europe. The information industries are concentrated in the U.S., and it is these industries that have launched a number of efforts to promote continued self-regulation. They created new organizations to coordinate their actions and to establish standards: the Internet Privacy Working Group, the Information Technology Industry Council, and others. The newly formed Online Privacy Alliance is attempting to meld the various activities and is establishing international links.
The Clinton administration committed itself to a hands-off policy with regard to most information technology issues, and has been met by a variety of private sector efforts to live up to the expectations for it. In a Framework for Global Electronic Commerce, the Administration laid out the elements of effective self-regulation. These include: substantive rules, the means to ensure consumers know those rules and whether companies comply with them, and the ability of consumers to have some recourse in the case of violations.
The private sector hopes to demonstrate it is capable of effective self-regulation through traditional codes of conduct and standards of best practice, and through developing new technologies that may eliminate the problem itself. Codes of conduct restrict what companies can do with the data they gather from customers, and require them to notify customers about how personal information will be used. More traditional industries not associated with the high-tech world but increasingly dependent on international transmission of information have been at the forefront in developing standards for information privacy. The American Bankers Association developed a new privacy code for member banks. The Direct Marketing Association has long had a code of good marketing practices and a dispute resolution process, and it is making its privacy standards mandatory for members. For both, the reputation of the businesses involved is at stake.
One of the main joint initiatives is TRUSTe, a nonprofit organization established by the Electronic Frontier Foundation and Commercenet in 1996. Members can place a certification symbol or "watermark" on their websites as a third-party assurance of compliance with a set of privacy standards. TRUSTe includes an auditing system and responds to consumer complaints. Even the accounting industry is waking up to the possible role it could play in this area. The American Institute of Certified Public Accountants (AICPA) developed the WebTrust program, a set of privacy practices for commercial websites and a labelling program. It has even set up a training program for CPAs. It does not, however, include a system of recourse and accountability. Verisign is working with TRUSTe and AICPA to develop a digital I.D. that will allow consumers to know whether a merchant really is certified, or is using a seal without certification. Esther Dyson, a supporter of TRUSTe, argues that individual choice must be the key to any privacy program, and labelling programs would provide this. Some consumers would choose to have information on their buying habits tracked by merchants who can offer them individually tailored products and services. Others would prefer complete privacy.
Many technology firms are feverishly working to develop the software that would allow consumers to choose how they want their information to be handled. NCR, a major data warehouse grouop, recently unveiled software that would assist the financial institutions, retailers, and others who store consumer information to meet or exceed requirements for privacy in the U.S. and E.U. The Platform for Privacy Preferences (P3P) is a joint effort of the World Wide Web consortium, through its Internet Privacy Working Group. P3P allows individuals and even entire nations to choose the collection, use and disclosure standards appropriate for them. Some foresee a time when Netscape and Microsoft will put privacy disclosure detection features into their Internet browsers. These technology-based systems rely upon Internet managers and merchants for implementation, and upon individuals to make informed choices.
Conclusion ?Can private sector self-regulation resolve the information privacy problem? Does it create new problems itself? And for whom? This whole issue and the private sector initiatives launched to deal with it are both so new that it is hard to tell where it may lead. Consumers may indeed benefit from being able to choose individually how their information is used, although there is the danger that they will not understand the choices they are making or may be overwhelmed by too much choice. Unlike other non-governmental standard setting initiatives, the ones proposed by industry explicitly incorporate a voice for the public. They may all choose en masse to hold their information close, and therefore stop cold many of the new commercial practices that rely on collecting personal data. Many people simply prefer that the government intervene to regulate information privacy. Certainly the E.U. Data Directive makes this question moot in Europe.
To date, surveys of websites show that few provide viewers with information about their privacy policy, and this has been held up as a sign that self-regulation may not work. The technological solutions proposed by different groups, such as TRUSTe or PICs, have yet to be implemented fully. TRUSTe, although invested with high hopes by many, had a poor start, with relatively little support from industry. Recently, major websites have begun using the TRUSTe system, and the Internet Content Coalition, an alliance of content providers, recently endorsed it. The WebTrust program has only certified a handful of websites so far.
From both the business and consumer perspectives, electronic commerce could provide enormous benefits. Consumers could obtain information about products and services, and compare quality and price, literally on a global basis. Merchants envision tremendous new markets emerging for them. But e-commerce will only expand if everyone is secure in knowing that electronic contracts, signatures, and payment are not compromised. Consumers will not be willing to have their personal information transmitted electronically or collected in databases if they have no control over it.
Technologies that allow entire countries to establish their own standards, either by implementing software on local servers or by labelling schemes that point consumers to merchants adhering to national standards, may preserve some of the ability of countries to determine their own levels of privacy protection. On the other hand, they may become weapons in the hands of repressive regimes. We may see an evolving relationship between the public and private sectors, with governments mandating disclosure of privacy standards by the private sector without establishing particular standards, and the private sector supplying the means for individuals to determine those standards.
|
QUESTIONS FOR DISCUSSION 1. Is anything important left out of these descriptions? 2. What industries dominate each case? Are there barriers to adoption of these initiatives in other industries? 3. Is it easier to talk about economic benefits of beyond-compliance initiatives in some cases compared to others? 4. Are there similarities in the position of developing countries regarding private voluntary initiatives in each case? How do differences among Europe, Asia and the United States affect these cases? 4. Do NGOs play the same role in every case? Who represents the public in each case? 5. What role does technology and information play in the ability to implement and monitor private sector initiatives? 6. Do these initiatives pose any common challenge to traditional regulatory mechanisms, both national and international? |