Hershey’s Sourcing Child Labor – What Should It Do To Avoid Trouble?
Note, this post will more of a paper style post. It is meant to understand and dissect the issue that Hershey is facing and is a way for me to come to terms with my own conclusion.
Hershey’s Child Labor Dilemma
Child labor often is seen as one of the most egregious crimes that a company can commit. Children should be able to live their childhood in happiness and ignorance, enjoying themselves without having to worry about the “real word.”
Today, unfortunately, 218 million children are condemned to work instead of pursuing their educations. This is often a very delicate situation for companies to handle: Do they risk frustrating shareholders by substantially increasing costs, or do they risk public backlash when word of their child workers gets out?
One company that is dealing with this issue today is Hershey.
Hershey is a privately held company with annual earnings of $513M that is going to face an image problem very soon if it does not stop its sourcing of cocoa from child labor intensive suppliers. Although Hershey is trying “its best,” the International Labor Rights forum is not pleased and this will prove to be a business issue if the public and media gains a hold of this knowledge.
The clear overlying issue in this case comes from a large market failure: specifically, a negative externality. Children should not be working because working hinders their development, prevents them from being educated and, in a more spiritual sense, destroys their childhood. Of course, the argument could also be made there is a market failure of asymmetric information as the children do not quite understand the implications of working young and not getting an education.
What can not be disputed, however, is that a market failure is at work because children should not be working.
But is this even a real, ethical issue?
The Ethics of Cheap Labor
According to Adam Smith, it’s not. Based on Adam Smith’s idea of everyone working in his/her own self-interest and the invisible hand, the market will fix this dilemma itself. If we were to adopt Smith’s belief, then people in countries exporting cocoa to Hershey will begin to grow wealthier as they export more cocoa. As this happens, they will begin to invest in infrastructure and development and come to a realization that children are more productive in schools. This would, theoretically, lead to the end of child workers in these countries.
In fact, this idea is exactly what happened to the United States in the early 1900s as a wealthier America was able to come to the conclusion that child labor was not constitutional. This idea would fall in line with Robert Nozick’s Libertarian view as well, as long as Hershey is not stealing wages and property from the workers. Therefore, as long as the Hershey transaction is benefitting the total society as a whole it should not be an issue. However, the answer is not so simple.
When looking at John Ruskin’s Unto The Last, one can see that there is a big piece missing from Adam Smith’s view of the market: People. According to Ruskin, justice does not come about from a few individuals making money, but from every individual benefiting from an economic transaction. Ruskin’s major issue with Adam Smith is that, in Smith’s markets, the rich will continue to get richer as the poor get poorer.
Although the net effect of the rich getting richer may look like a positive to society, it really is not as not everyone is rising in the economic scale. According to Ruskin, one has to understand that a human is at the end of every economic transaction and, thus, the best economic transactions are those that provide every individual a chance to “rise in the social scale.”
His words ring true when looking at the state of most economies today. Today’s economic transactions routinely see rich corporations extract wealth from their workers by paying them low wages. The CEOs are working in the best interest for their companies in doing so, but is that really just? Remember the top 1% of the world’s population holds almost 50% of the world’s wealth today, and this number is going to continue to increase.
This issue of the rich getting richer is something that Ruskin clearly foresaw as a problem in a laissez-faire economy.
One can go even beyond that. If we adopt Adam’s belief, is it really ok for the generations of humans to be exploited as the country gets richer and begins to realize that children shouldn’t be working? The answer lies in taking a look at the issue of human rights and understanding this specific dilemma.
The first step to digging deep and understanding if this is a human rights issue at all is to look at the different forms of ethical models themselves. In this case, one can analyze three of the more popular models of ethics to determine if children workers violate the rules of ethics.
The first model of ethics is the Utilitarian model in which an action is ethical if it provides the greatest good for the society as a whole. Although classical, Adam Smith, Utilitarianism would not mark the action as being unethical, the other two forms of Utilitarianism – rule based and act based – both do not. In rule based Utilitarianism the rule of children not working is being broken and in act based the consequence of children working is not ethical. Therefore, in the Utilitarian models the act of children work is seen as being overwhelmingly unethical.
The second model of ethics is the Deontological model that is based on consequences, rather than actions. This model of ethics follows that humans should never be treated as a means to an end, and only actions which one wishes to be universal should be pursued. In this model, child workers clearly fail the barometer to be ethical. I’m certain most CEOs would not want their children working in the conditions that their cocoa workers are working . Therefore, the action can be seen as being unethical.
The third model of ethics is the virtue-based model in which your moral compass guides you to making the “right” decision. This model, which has its roots in the teachings of Aristotle and Plato, claims that good people will do good things. In this model, an ethical action is one that you, the individual, believes is going to make you feel virtuous and happy. The ideas of what is virtuous is learned form society itself. In this model, again, child workers fail to pass the barometer of an ethical action because child workers are NOT seen as being virtuous.
Based on the aforementioned models, one can come to the conclusion that child workers are not ethical – from Hershey’s point of view. Before moving forward with a solution to the issue, however, we should also look at the perspective of the workers. Although the possibility of information asymmetry with respect to the child workers – i.e. them not knowing the power of their education – was already was mentioned, one can delve further into their situation to see if they, in fact, feel Hershey’s employment is unjust.
Joshua Harris Prager showed that cruise workers, individuals not making a large wage from our perspective, are quite content with their jobs. These jobs offer them the ability to make much more than what they could make elsewhere; although they are seen as being unethical from our point of view, for workers they are a breath of relief as they allow them to support their families financially.
Is this the same situation for the child workers, however?
The Ethics of Child Labor
Child workers typically make less money than their adult counterparts, even if they are doing the same work. This means that child workers would have the ability to make the same amount of money in their country, but would it be in better working conditions?
Paul Krugman made the argument that bad jobs at bad wages are better than no jobs at all. According to Krugman, third world workers benefit immensely from the cheap labor jobs that are offered in their countries. These jobs often pay more than the alternatives – i.e. farming and scavenging – and this offsets the worse working conditions. He also claims, much like Adam Smith, that this presence of cheap labor is what allows these companies to grow their economies. Without this cheap labor, Krugman argues, these countries growth would halt and the workers would have to go back to their jobs as farmers and scavengers.
Of course, Ruskin would argue that this is still quite unethical as the workers are not being paid just wages, and the rich countries are just getting richer by exploiting these workers. The only way to solve this issue, however, is with outside aid and involvement; Unfortunately, Krugman has proven that countries who are provided aid come to rely on it. Thus, according to to Krugman, these jobs are the best chance the people in developing countries have at progressing. But again, this doesn’t solve the issue of child workers. Although adult workers may only have unjust jobs as opportunities, child workers are giving up education and development for these jobs.
Although it is true that developing economies, specifically in West Africa, do not have the best educational facilities, it is an ethical obligation of a society to educate its children. In fact, the top 16 nations, in terms of education, in the world declare that education is a constitutional right. To add to this, many workers in these third world economies may not have a choice. For instance, in Bangladesh sweatshops workers would be locked into their working stations and would not have the ability to leave.
This, of course, resulted in hundreds dying when a fire broke out inside a factory and the workers could not escape. After understanding the situation of the child worker, we now have to answer the most important question: are child workers ethical, from the child workers’ point of view?
Thomas Donaldson comes up with an answer to this perplexing issue. He claims that issues of a third would countries that exist because of lower economic conditions should be viewed through the lens of the third world country as if the economic conditions were not so poor. In other words, if the exporting country was as economically strong as the importing country would child laborers be allowed? The answer is no and so we can decisively state that employing child workers is not an ethical choice for Hershey.
The Economics of Unethical Business
Now that one understands the ethical perspective, we have to turn toward the business side and see the affects that moving away from child workers will have on Hershey. We know that Hershey has a fiduciary duty to it’s shareholders and any movement away from child workers will represent a short term increase in costs and a dip in stock price. Can Hershey management really justify making this decision?
According to Margaret M. Blair the answer is a resounding yes. In her piece, What must corporate directors do?, she argues that many companies today suffer from short term decision making. They often look toward short term stock price changes in making their decisions and this is to the detriment of the company. Instead, she argues, managers should make decisions that are best for the corporation at large and not what is best for the stock price over the next quarter. She gives a great excellent example of Walmart raising their minimum wage from $9 to $10.
Although this represented an 11% increase in costs and a sharp decline in the stock price, it boosted employee morale and was a decision that was best for the corporation over the long term. In a similar sense, if Hershey can justify moving away from child workers is best for the corporation over the long term, there will not be an issue of a breach of fiduciary duty.
The question, then, becomes whether moving away from child workers is a good business decision for Hershey and, if not, whether they should still consider moving away because it is an unethical form of employment.
We have already established that there would be a PR disaster if the media ran with the story that Hershey was employing child laborers. But how big of an issue would this really be? It turns out it has the potential to be huge! United Airlines recently had a PR disaster when they refused to fix a broken passengers guitar. The passenger made a YouTube video that went viral and garnered over 12.5M views. The negative attention cost the company more than $180M in terms of valuation. Albeit, Hershey is in a very different industry from United Airlines, if 12.5M views can do $180M worth damage, then mass media attention on Hershey using child workers has the potential to do just as much, if not more. It makes business sense, then, to fix the issue rather than wait for it to be a story taken by the media.
Hershey’s Course of Action
With everything that we have discussed, here is what I suggest for Hershey.
First, Hershey needs to make a public apology for their use of child workers. Although it may be tempting to move away from child workers without making any noise, an apology allows the company to show it has understood its mistake and is willing to learn from it.
Second, Hershey needs to stop sourcing cocoa from suppliers that use child workers immediately and commit to creating schools in West Africa where these children can go get educated. This serves two purposes: it stops children from working and allows Hershey to actually get a PR boost from this situation.
Child workers only exist because there is a demand for child workers, halting the demand will halt the supply. A long-term process of slowly moving away from child workers will allow the child employing companies to find new sources of business. An abrupt halting of contracts will put these child worker companies out of business and force the children to stop working. Instead of using child workers, Hershey can move over to adult workers who won’t be much more expensive. Although these adult workers don’t have the best working conditions, we have already discussed how these jobs are the best opportunities they have to progress in life.
Giving children an opportunity to get educated allows Hershey to turn a negative situation into a positive one. Not only is Hershey combating the market failure of children not understanding the value of education, but they are directly contributing to making the West African economy stronger as research has shown that countries with better educated workers tend to have stronger economies. Hershey would be able to generate positive media attention from this work and reap the PR benefits instead of having to deal with the negative consequences of failing to address this right away. Long term, this prevents Hershey from losing sales due to negative backlash and allows them to move forward with an ethical business decision – a win win.