This is an excerpt from DIRECT: The Rise of the Middleman Economy and the Power of Going to the Source. Copyright 2022 by Kathryn Judge. Reprinted here with permission from Harper Business, an imprint of HarperCollins Publishers. (The above link is an affiliate link.)
Since I have no aspiration of ever sitting in a corner office, it is easy for me to criticize the lack of executive accountability. But there are times that I too take shelter in the ignorance that long supply chains can foster. For example, I know that inexpensive clothes are often the by-product of cotton farmers and garment workers laboring away for too little pay in unsafe conditions, and often entail environmental harm. Yet, that only sometimes stops me from buying them.
In this regard, I am not alone. As we have learned, people today buy more clothes and shoes than they did even a decade ago, and far, far more than their grandparents. In addition to using fancy data analytics to encourage people to buy more, the middleman economy facilitates this extra consumption by shielding buyers from seeing the effects of these buying decisions.
One of the factors that behavioral economists have identified as critical to real-world decision making is salience. This helps to explain why people eat cake even when they want to lose weight, and why people who care about the environment may nonetheless drive large, gas-guzzling vehicles and take long showers during a water shortage. The immediate, tangible joy of the experience is more salient to them than the abstract, probabilistic impact of their actions on their health or the environment. For better and worse, most of us overvalue what we see and experience and discount what we don’t.
One challenge with behavioral biases is that knowing about them doesn’t free us from them. When I see a bar of chocolate at checkout, I am often still tempted to buy it despite what I know about cocoa labor practices. Similar issues arise when I shop for new T-shirts and jeans for my family. In the moment, I instinctively still prioritize price, convenience, style and comfort. When that happens, I often compromise on other values that I would like to think are more important to me, such as respecting the dignity of all human beings and our planet. The problems start with the cotton that goes into those T-shirts.
Picking cotton has always been laborious, which is one reason that the work is so often delegated to those who have the least amount of control over their circumstances. According to the U.S. Department of Labor, seven of the top 10 cotton-producing countries use forced or child labor in their cotton industries. The United States, Australia and Mexico are the only top producers that don’t; and, with the use of prison labor in parts of the United States, some wonder whether it too should be on the list.
The cotton then needs to be sorted, made into thread and then textiles, dyed, and transformed into T-shirts and other finished products. Questionable labor practices pervade each of these nodes. For example, numerous reports suggest that China has been relying on forced labor by 1.8 million Uyghurs and other Muslim minorities in its cotton production and thread/yarn, textiles, and garment industries. Companies identified by U.S. authorities as selling clothes tainted by Uyghur labor include H&M, Nike and Patagonia. These are brands many people trust, in part because at the time of the report, each company already had policies in place that purported to address labor issues along their supply chains. At the time the U.S. Department of Labor identified Nike as a seller of tainted goods, for example, Nike had a policy declaring: "We have a responsibility to conduct our business in an ethical way," and "[w]e expect the same from our suppliers." It also had a detailed "Code of Conduct" purportedly meant to prevent its suppliers from using forced labor or engaging in other wrongful behavior. Nonetheless, those policies failed to prevent money flowing from buyers of Nike goods to Nike to suppliers that used forced labor.
Middlemen and long supply chains help blind consumers to the environmental impact of their purchases.
Even when garment workers supposedly enjoy the autonomy denied to Uyghurs in China, they still often face hazardous working conditions. This was vividly illustrated in 2013, when the collapse of the Rana Plaza building in Bangladesh killed more than 1,100 people and injured 2,500, mostly garment workers. That Bangladeshi garment workers faced unsafe working conditions had already been well documented. More than 500 garment workers had perished in factory fires in Bangladesh in the six years before the collapse. Yet local laws did little to protect them. Nor did it require that the workers be compensated for the risks they were enduring. At the time, garment workers could be paid as little as $68 a month, a fraction of the $280 a month minimum wage that even China requires for most of its garment workers and an even smaller fraction of what those same people would need to be paid if lawfully employed to do the same work in the United States. These are the conditions that give me the option of buying such inexpensive T-shirts for my girls, but I don’t see any sign of this when I peruse online or in the store.
Middlemen and long supply chains also help blind consumers to the environmental impact of their purchases. According to a report from the United Nations, the fashion industry is responsible for 8 to 10 percent of global carbon emissions and 20 percent of global waste water. It takes 2,000 gallons of water — roughly the amount of water one person consumes over seven years — to make just one pair of jeans. The production of cotton is also responsible for 24 percent of insecticides and 11 percent of pesticides used worldwide. And because so much of the garment industry operates in parts of Asia that still rely on coal and natural gas, the industry is expected to account for a whopping 50 percent of greenhouse gas emissions by 2030, if it remains on its current trajectory. Just as with labor, none of this comes through when I go shopping, and middlemen probably rack up more sales as a result.
One potential response to these challenges is to require companies to provide consumers more information so that the impact of their choices is not as hidden from view. Precisely because so much policy making has been informed by economics in recent decades, and disclosure requirements appear to give both consumers and companies a lot of autonomy to make decisions that suit their individual preferences, these types of interventions have been popular and widely adopted. If they worked as intended, such rules could reduce the need for structural reforms to tackle the problems revealed here. In practice, however, the evidence suggests disclosure is rarely as helpful as advocates claim in addressing policy challenges, and the middleman economy is no exception.