Has Levi Strauss Sold Out in China?

Don’t burn your favorite pair of 501 jeans just yet. The news this month that Levi Strauss & Co. plans to go back into the China market, which it ostensibly abandoned on moral grounds, raised predictable hackles among human rights advocates. Protesters were quick to picket the company’s San Francisco headquarters and criticize the apparel maker for flip-flopping on its China policy. But it’s a waste of time to feel betrayed by the vicissitudes of Levi Strauss’ stand on human rights. The company says it does not have such a stand and never did.

This may come as a surprise to many admirers of the private, family-controlled Levi Strauss, with its reputation for leadership in the growing “social responsibility” movement in the business community. In a nod to its hip and sophisticated brand image, jeans-wearing activists hailed the company as an enlightened agent for change when it started disentangling itself from China in 1993. Trouble is, the withdrawal was interpreted as a broad condemnation of the deplorable state of human rights in the People’s Republic. Unwisely, Levi’s has let that vague impression linger until now.

In fact, Levi Strauss never stopped making clothes in China; its Hong Kong subsidiary continues to manufacture clothes on a contract basis at plants in neighboring Guangdong Province. Duplicitous? Well, not if you consider the logic of the whole thing, which from the start was all about doing business ethically, not crusading for political change.

Both judgments--the decision in 1993 to make a phased withdrawal from mainland China and the recent decision to reestablish a foothold in the world’s most potentially lucrative market--were based on the same code of conduct. A panel of senior company executives called the China Policy Group began copiously examining labor conditions at Chinese contractors in 1992 and found serious lapses.

In recoiling from the rampant problems of labor abuse by contractors and suppliers--coerced employee abortions, child labor and pervasive graft--Levi Strauss avoided the public relations nightmare that has bedeviled shoemaker Nike, whose wretched Asian factory floors were caught in an embarrassing international spotlight. Levi Strauss acted alone in taking its “principled reasoning approach” to conditions in China’s sweatshops. No other American company gave a hint of support for Levi’s withdrawal.

China remains an oppressive society, yet it is making clear progress on living conditions and labor standards. Levi Strauss could be wrong in concluding that the situation now merits a reverse course. But at least the company has a formal process for mulling the ethical dimensions of its business strategies. That can’t be said about the multilateral corporations that have plunged, headlong and unconditionally, into the China market, often turning a blind eye to the unseemly scenery.

Like it or not, operating a business with a conscience cannot be divorced from considerations of the bottom line. Levi Strauss must remain competitive and profitable, or it will not be able to exercise leadership in the cause of corporate social responsibility. How long can it afford not to be in China?

In 1992, the company withdrew imperiously from Myanmar (formerly Burma), a human rights pariah state, saying: “It is not possible to do business without directly supporting the military government and its pervasive human rights violations.” Myanmar, it should be noted, offers but a tiny market of negligible importance to the global economy. Levi Strauss is somewhat susceptible here to charges that it operates on a double standard, injecting a cost-benefit analysis into a moral equation. But if the company will not own up to once having had a human rights agenda, then it should at least redeem itself by setting the ethical tone for multinationals doing trade with China.

Specifically, Levi Strauss should promote transparency and accountability in the apparel industry by using indepenedent auditors to monitor labor standards at its contractors’ plants and make the results of these findings public. Covering up an auditor’s report on a hazard-ridden factory in Vietnam was Nike’s greatest shame.

The jury is still out on whether trans-national corporations can truly improve human rights standards simply by participating in the economies of authoritarian regimes. Levi’s has an opportunity to put meaning into the empty rhetoric of “constructive engagement,” a concept that has shielded international businesses from taking responsibility for their stakeholders--workers, customers and neighbors--where they invest and profit.

Levi Strauss and its strict code of conduct can offer decisive leadership for companies that want to do the right thing, in China as well as in their own backyards.