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Low Prices, High Social Costs

The Secrets in Ikea’s Closet

by OLIVIER BAILLY, JEAN-MARC CAUDRON And DENIS LAMBERT

Ikea, the home furnishing multinational, with 410 million customers worldwide and 160mg catalogues in circulation (more than copies of the Bible), is doing fine. Its revenues continue upwards, from $4.3bn in 1994 to $19.4bn in 2005, more than 400% growth. It would be hard to do better. Ikea now plans to conquer Russia and China, which have so far resisted its spread. As Ikea’s in-house magazine Read Me explains, the aim is to improve the daily life of the largest possible number of people and, to achieve that, shops must constantly sell more things to more customers (1).

Ikea is in no doubt that the act of purchase is the secret of happiness.
What is remarkable about a multinational so strongly associated with global uniformity and consumerism is that Ikea manages to fend off the attacks of consumer organisations, third-world activists and environmental watchdogs. This is no mean achievement. It has succeeded in establishing close links with its customers thanks to unbeatable prices and special children’s areas in all shops, inventing an all-embracing concept in which buyers can find everything immediately–and preferably plenty of other items they didn’t really want.

There is no shortage of stories about the strength of bonds between the shop and its customers. In 2004 a Stockport town councillor in Lancashire, Britain, bragged that having an Ikea store was an honour for the town (2). At Mougins, in the south of France, local people started a petition which read: "If you are fed up with making a 200km round trip, lasting two hours, just to shop in your nearest Ikea, then seize this opportunity (maybe the last) to bring a new Ikea to the Alpes-Maritimes department" (3). This is remarkable: people organizing a petition, which collected more than 2,000 signatures, standing up for their rights and organizing because a furnishing store lacks an outlet within 100km. Of course success on this scale has its downside. When the firm opened a store in Saudi Arabia in 2004, it offered a $150 check to the first 50 shoppers through the door. There was almost a riot, with two deaths, 16 injured and 20 fainting fits.

What is behind the global love affair with Ikea? Apart from attractive prices, one of the keys to the firm’s success is its social and environmental image.
Keen to find a source of cheap, compliant labor it started outsourcing part of its production to a manufacturer in Poland in 1961. Since then Asia has supplied an ever-growing share of its products. China (hardly known for its defense of workers’ rights) has overtaken Poland to become Ikea’s top supplier, accounting for 18% of purchases. In all 33% of what is promoted as "made in Sweden quality" comes from Asia (4). According to The Observer, developing countries’ share in Ikea’s manufacturing activities rose from 32% to 48% between 1997 and 2001 (5).

Keep the price down

From the start Ikea offered extremely low prices. In A Furniture Dealer’s Testament, published in 1976, Ikea’s founder Ingvar Kamprad explained that he wanted every effort to be made to keep prices as low as possible, placing high demands on fellow workers. Without tight control over expenses the firm would not be able to fulfil its mission (6).

However, despite Ikea’s current claims, low prices always incur a high social cost. Between 1994 and 1997 three documentaries screened by German and Swedish television accused the firm of using child labor under degrading conditions in Pakistan, India, Vietnam and the Philippines (7).
In 1998, after the discovery of wretched working conditions in Romania, the International Federation of Building and Wood Workers threatened to boycott Ikea, leading to an agreement between the union and the retailer (see tomorrow’s CounterPunch instalment, "The sins of the founder found out"). The Iway, as Ikea’s code of conduct on the environment and working conditions is known, establishes as a basic requirement for any business relationship that there should be no forced or child labour. Item seven of the guidelines, on worker health and safety, describes working conditions for employees, who must be provided with appropriate protective equipment.

It also purports to protect the right of employees to form or join a union, stipulating that subcontractors should not prevent them from doing so. The Iway condemns any form of discrimination, by race, creed or sex. Subcontractors must not pay their workers less than the country’s minimum wage and working hours must not exceed the local limit. It seems odd to draw up a code of conduct just to indicate an intention to obey the law (rather like making a solemn undertaking to drive on the left when visiting Britain). It is more important that the Iway has a positive impact on the conditions of work at subcontractors.

Ikea has certainly ended child labour practices in subcontracting factories, although the Iway prefers to refer to local legislation, pointing out that "national laws or regulations may permit the employment or work of persons 13 to 15 years of age or 12 to 14 years of age on light work" (8).

What about the workers?

But things are not quite the same when it comes to the right of workers to organize and join unions. During a trip this May to a village close to Karur in Tamil Nadu province, a textile production centre in southeast India, we talked to some people working for an Ikea subcontractor. Shiva (9) was prepared to answer questions from western visitors but her white-haired mother was worried. What would happen if Shiva lost her job? Her wages were the family’s only resource, supporting the two women and Shiva’s 15-year-old son.

Shiva barely criticized her employers, and talked about tea breaks and equipment to protect eyes and hands. The environment she described seemed healthy enough. And at first sight the working conditions in Karur seemed fine. The premises were clean and well ventilated. There were tea breaks and good quality equipment. Copies of the Iway were posted on the walls of the factory.

This is corroborated by other sources. "Ikea offers the best conditions, there is no doubt about it," said Maniemegalai Vijayabaskar, an assistant lecturer at Madras Institute of Development Studies and joint author of a study commissioned by Oxfam-Magasins du Monde on Ikea’s suppliers (10). He added: "They put on a human face to avoid criticism and controversy. But they don’t make much effort to improve working conditions."

In 2003 the Dutch trade union federation asked the Centre for Research on Multinational Corporations (Somo) to investigate Ikea suppliers in three countries: India, Bulgaria and Vietnam. In each case investigators met workers from three or four companies and conducted interviews outside the workplace. They visited the factories and talked to the management.

Their conclusions concerned 10 suppliers representing about 2,000 employees, noting in the final report: "There are still numerous violations of Ikea’s code of conduct in all three countries in all factories researched."

The most common concerned freedom of association and collective bargaining for wages and overtime. In the worst case there was no trade union, employees worked a seven-day week and the minimum wage was not honored. No one was "aware" of Ikea’s code of conduct.

From what we saw in India, trade unions are still not represented at Ikea’s subcontractors. Officially they are tolerated but, according to Shiva, they are not really necessary. She said: "When there is a problem we hold a meeting and we talk about it. It’s often when they want to remind us about the cleanliness of the toilets. If I want something, I can tell the manager." Xana, a younger worker without any dependants, described things differently: "A union? No, they wouldn’t allow it. And if inspectors visit the factory, the bosses remind us of the lies we should tell them."

There is nothing unusual about this; attempts to set up a union are generally thwarted. Ikea must have expected this, just like any other multinational starting business in India. Wages are kept particularly low. Shiva claims she earns 2,300 rupees a month ($48.30) and it costs her 500 rupees ($10.50) to take the bus to work. Can she really survive on such wages? When her mother cooks, the recipe is always the same. "We eat simply, soup and rice with sauce. We eat meat once a week, on Sundays. But not this week because it’s the end of the month." We met 10 days before the end of May.

The Ikea code of conduct offers no guarantee that workers will get enough to eat or furnishings for their homes. There are no Malm beds in Shiva’s two-roomed house. Just a few calendars on the wall, some black and white photographs, a couple of mats, two small chests for clothes, a clock and household gods. Asked what she would do if she earned 1,000 rupees more a month, she outlined her idea of comfort: "We’d get a gas cooker with a bottle. Cooking over a fire is a nuisance because the smoke gets in your eyes. In the rainy season it’s hard finding dry wood, and collecting it is a lot of work."

Among Ikea suppliers there is nothing unusual about Shiva’s poverty. Manjula, who had just married, also works for an Ikea supplier. She said she earns 2,360 rupees ($49.60), but her payslip for October showed that figure corresponded to her gross earnings, from which national insurance payments were deducted. For 24 days’ work in October she took home 1,818 rupees ($38.10). Even working six days a week she comes close to the absolute poverty line, without contravening the Ikea code of conduct. To earn a little more she had to work overtime. "They work 12 hours a day, not including travel time," said Vijayabaskar. "At maximum output they may work as much as 15 hours a day."

Beyond the 8-hour day

Ikea tries to reduce overtime but pressure of tight deadlines and the need to earn more make it inevitable. The official eight-hour day is 9.30am to 1.30pm, 2.30 to 6.30pm. Kalaya, who lives in a poor neighbourhood of Karur, said: "If you work overtime from 7 to 8 or 9pm, they don’t pay you. If you work till 10.30pm they give you 50 rupees [$1] more. The extra work is generally done twice a week."

Assam, who works at the same factory, said there was no overtime. The day we spoke the machines ran late into the night and we saw groups of workers going into the factory until 8pm. With strict instructions from management and the fear of losing a job, people may gloss reality. Denoosha made no bones about needing extra cash. She spoke to us briefly when she left work, then said she must be off. She had another job, from 8pm to 1am, which earned her 80 rupees ($1.70) plus food.

Ikea views Shiva, Kalaya and Denoosha as labor costs that must be strictly limited. It is precisely because of low labour costs that the firm sources products in India. To make things worse its subcontractors contract work out to cope with fluctuating demand. At this point the Iway code of conduct becomes completely theoretical, with no control over anything but the deadline for delivery.

Even for official suppliers, auditing of compliance with the code of conduct is extremely uneven. Ikea’s 46 purchasing offices, in 32 countries, carry out most (93%) of the audits. The firm’s Compliance and Monitoring Group has a staff of five (three in 2004) and is tasked with implementing the code of conduct. It trains the purchasing offices and carries out audits: 53 in 2005 (11). External auditors, such as KPMG, PricewaterhouseCoopers and Intertek Testing Services, only did seven audits in 2004. Ikea admitted that the number was low but explained that "[2004] was a year with a low number of third-party audits. [2005] will in contrast be a year with a high number of audits" (12). In 2005 external consultants did 26 out of a total of 1,012 audits.

The third-party audits are integrated into Ikea’s internal auditing system. Auditors cannot publish their findings, which are reported directly and exclusively to the firm’s management. Each audit, carried out at two-yearly intervals (every six months or year in Asia), takes one or two days. It considers 90 criteria defined in the Iway code of conduct. In an eight-hour day that means checking one criterion every 10 minutes. How can anybody check that no pressure is being exerted on trade union representation in just 10 minutes? What about overtime, payment of wages on time, breaks, child or forced labour? The solution is simple: auditors ask the boss, check company records, or interview workers at the factory.

The people checking compliance are well-meaning but under the circumstances it is impossible to carry out a proper audit. They can only skim the surface, with little chance of employees providing a full account of their working conditions, particularly as the auditors are checking production quality at the same time. Ikea auditors visited Toneesh, a quality controller, twice last year. He said: "They ask a few questions, above all on product quality, to check production. They are Indians, based in Delhi or Chennai, but also Europeans, who only talk to the top-level management.

Because of the language barrier the workers cannot talk to them directly."
Kalaya confirmed this: "Yesterday a man from Ikea came to the factory. He showed us a video on preparing a quality product. And he asked questions, but only about the product." This approach seems unlikely to prevent Kalaya from working unpaid overtime.

In practice Ikea merely sands off some of the rough edges of exploitation. Employees have access to filtered water, gloves and separate toilets. They sometimes have tea breaks. But tea is no help in making ends meet. As soon as social issues such as wages, union representation and overtime raise their head, the tune changes. Ikea is the main beneficiary of the semblance of social responsibility embodied in its code of conduct. As Vijayabaskar pointed out: "Ikea unloads the cost of its social policy on its suppliers." At the same time it boosts its image with commitments that cost it nothing, steering well clear of child labour, which really upsets western consumers.

Ikea’s supposedly socially responsible attitude makes no difference to the hard lives of some of its workers. For Ikea to claim to be an ethical enterprise it should be able to offer them a decent living. This does not mean luxuries–televisions or mobile phones–just enough money to buy food more often, keep their children at school without needing to do two jobs, and have a proper day off every week. Or even the chance for Shiva to treat herself to a tiny luxury from Ikea’s shelves.

Translated by Harry Forster

Olivier Bailly is a journalist, Jean-Marc Caudron a researcher and Denis Lambert the secretary-general of Oxfam-Magasins du Monde (Belgium); they are joint authors of ‘Ikea, un modèle à démonter’ (Editions Luc Pire, Brussels, 2006)

Alexander Cockburn and Jeffrey St Clair write: This article appears in the December edition of the excellent monthly Le Monde Diplomatique, whose English language edition can be found at mondediplo.com This full text appears by agreement with Le Monde Diplomatique. CounterPunch will feature one or two articles from LMD every month.

 

In Tomorrow’s CounterPunch: Who Owns Ikea?

(1) In the first French-language issue of Read Me, the Ikea international in-house magazine, March 2006.

(2) "Un Ikea sinon rien!", Courrier International, Paris n° 722, 2-8 September 2004.

(3) http://www.ipetitions.com/petition/

(4) "Social & Environmental Responsibility Report 2005", Ikea.

(5) "Trying to assemble a perfect reputation", The Observer, London, 25 November 2001.

(6) "The testament of a furniture dealer", a brochure published by Ingvar Kamprad in 1976. See also Bertil Torekull, Leading by design: the IKEA story, HarperBusiness, New York, 1999.

(7) The German documentary, Mattan, is mentioned by Manuel Balza Duran and Davor Radojicic in "Corporate social responsibility and NGOs", Avdelning, Linköping, 30 January 2004. The Swedish programmes are quoted by Susan Christopherson and Nathan Lillie in Neither Global Nor Standard, Oxford University, November 2003, and in "The Teflon shield", Newsweek International, 12 March 2001. See also "Ikea accused of exploiting child workers", BBC, 23 December 1997.

(8) Iway standard, item 15.

(9) As several people we interviewed were afraid they might lose their job if identified, we have changed all the names of the workers quoted.

(10) LA Samy and M Vijayabaskar, "Codes of conduct and supplier response in the Ikea value chain", AREDS and MIDS, 2006. http://www.madeindignity.be

(11) "Social & Environmental Responsibility Report 2005", Ikea.

(12) "Social & Environmental Responsibility Report 2004", Ikea.