Nicholas Didow

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This interview with Nicholas Didow touches on numerous topics concerning international economic development and expansion, both within a Mexican-American reference frame, as well as through a general global lens. Didow and Brandt spend a significant amount of time discussing an example personal to Didow which concerns Nike and Nike’s contract with The University of North Carolina at Chapel Hill. Didow points to the fact that Nike originally outsourced labor but did not feel responsible for poor working conditions, saying that was up to the discretion of the third party manufactures from whom Nike was buying product. Didow continued explaining how after discussion with faculty and students at The University of North Carolina at Chapel Hill, Nike CEO Phil Knight decided to take responsibility for the conditions and labor standards enforced by the third party contract with goods providers in Southeast Asia. This lengthy example was compared to The North American Free Trade Agreement (NAFTA).



Eric Brandt: This is Eric Brandt interviewing professor Nicholas Didow on NAFTA and the economics and business situation behind free trade and US-Mexican relations. Professor Didow, if you could just give me a little of your background, what you’ve studied and maybe where your international experience comes from.
Nicholas Didow: Sure. I’ll confirm here and sign anything that it is fine for my name to be identified, and for whatever I say to be attributed to me whether it makes sense or not [laughter]. It can be used anyway you want. I am a native of North Carolina; you can find my educational background online. I am in the marketing area here at Kenan-Flagler. I also overlap with consulting and I’m published in the marketing area, some in market research issues in multi-national settings, which are interesting in and of themselves. I also work a lot in economic development particularly in rural North Carolina and I have on the ground experience, particularly in China. For each of the last 18 years I have been involved in doing a preliminary feasibility study for American based companies that are thinking of possibly entering the emerging Chinese market. So, much of my globalization, and my global economy kind of thinking, has been within the context of US and the Pacific-rim. But, I also have taught a fair amount about immigration policy and immigration policy as part of the global issues. I teach the senior elective here at the business school, Global Marketing: Issues in the Global Economy. Mexico, Latin America, NAFTA, and immigration are all part of what we talk about and think about.
EB: Great sounds like you are a good professor to interview.
ND: I have opinions and am happy to share my opinions with you.
EB: Of course, no, that is what the point of it is. Awesome, I guess we could just jump in then. You mentioned you have looked a lot as US development in developing nations and rural-US interactions. Why do you believe the US likes to go into these developing nations and create business there? What are the advantages there from the US company perspective?
ND: Ya I think motivations differ from whether a company is trying to source manufacturing versus enter emerging markets. I find those to be very, very different kinds of motivations that I have seen. The manufacturing sourcing is driven by an interest in lowering the manufacturing costs, whether those are hard assets, or whether they are more typically labor costs that seem to drive the movement of business around the world [phone ringing] in the race to the bottom. Case we pause for a moment?
EB: Ya, sure [Brief break in recording]
ND: So ya, I mean manufacturing, in my observations, is that manufacturing’s movement around the globe is in fact the race to the bottom. I think there is a lot of truth to that. It follows the race to the bottom, the race to the bottom seeking the lowest manufacturing costs of all types, whatever the mix of costs that go into manufacturing must be.
EB: So I guess if we talk about those costs, would we say that the primary benefit is labor costs that are being decreased? What other costs are we talking about?
ND: Ya but it’s not just labor, although those seem to be the majority of costs in some of the industries that have moved so rapidly and led like textiles and furniture and electronic assemblies as well. The labor proportion of those manufacturing costs is relatively high and that is often the case. The other driver is also regulation, environmental regulation in particular. Some of the regulatory issues overlap with labor costs because they have to do with labor standards and safety in the workplace, or not. But others have to do with environmental costs, with handling and disposal of toxic materials and recycling and more of that sector of regulation
EB: So, almost from an opinion standpoint, do you believe that it is ethical, so to speak, for these companies to go into these rural areas and take advantage of decreased regulation? Is this something that is inevitable that is going to happen, and we just have to accept it? Or—?
ND: Oh no not at all, and I think that on the one hand I can understand why this happens, why the race to the bottom happens. But there are occasionally opportunities for some of us… there are lots of opportunities to set a benchmark for how much of a bottom we will accept for various reasons. And we can do that by, some people would say, voting with our dollars in the marketplace as consumers when we make a choice. Or, there are other times when we can influence more directly which bottom we are willing to accept. Our campus has a history with Nike for example, and in determining an acceptable standard for contract manufacturing and emerging nations and labor standards that we have help Nike set in 1999 actually.
EB: So you are saying it’s almost the responsibility of the consumer to vote with their dollar and refuse to accept products that are not ethical?
ND: You know I think that’s one point of control that we as consumers have, that assumes of course you know the circumstances and logistics of the manufacturer. But I think your question was I believe, “do I believe it is ethical for companies to do that?” And my answer is no, I do not. At the same time I understand why many of them do it. This tracks with the whole emergence of outsourcing, particularly of manufacturing for companies that used to manufacture within the US that now follow the race to the bottom all around the world.
EB: So you mention it’s not ethical, and I agree with you, how can that be changed? How for instance—is it extra regulation, increased law? How do we make companies responsible for what maybe their CEOs or top managers don’t actually care about or see first hand the damages?
ND: Well ya, and I’ll challenge your strongly held belief that CEOs and top managers don’t care or don’t see, I have a little different of a perspective on that. I think that, you know, it is much easier for privately held businesses to operate in an ethical manner than publicly held businesses. I think publicly traded businesses respond all to often to the greed of the investor and the demands for dividends and appreciation. I think that one of the beautiful things about privately held businesses, most private businesses reflect the values and ethics and priorities of the primary owners. I find them much more generally moderating. But even in, so lets talk a little about publicly traded investor owned companies, again I’ll use Nike as an example because I have… [He retrieves a photo from his desk]… do you know who that is?
EB: Um, I do not.
ND: That would be Phil Knight, the founder of Nike.
EB: Wow.
ND: Do you know who that is?
EB: I’m sorry I don’t.
ND: That would be me.
EB: [laughter]
ND: Ya, it’s a little dusty. But you know, I mean again, in 1999 Nike was the focal point of misconduct, of abusive labor practices and things like that. Our campus and a number of other campuses were understandably up in arms about that. At that time one of our most beloved chancellors, Michael Hooker, who died all too early in life while he was serving as chancellor here; he found himself in the position of campus where Nike was offering the first all campus sports contract for Nike sports equipment and so forth here on UNC’s campus. The question was, whether we should partner with a company such as Nike or any other company for that matter. So chancellor Hooker charged Pete Andrews, Jim Peacock, and me to go figure this out. So we organized what became known as the Nike Seminar, which was fully supported my Phil Knight at Nike. We had complete access to Phil and others and we had access to the critics of Nike, labor unions and very strong union organizations and internal labor standards groups. It was a really amazing and thoughtful workshop, and at the start of it literally Phil Knight, in his public voice, was saying, “these are not our employees, these are not our companies, we are outsourcing. We have an assigned contract but we are not responsible for all their stuff. That is just some other company that we contract with.” To the public face he was all, “why are you criticizing us? We are just outsourcing, go talk to them, they are not our employees, not our factories, not our lines. That is why we outsource, because we don’t want to be involved in that.”
EB: So do you think that is a standard practice that companies take this approach? They say they are outsourcing so it’s almost this third party problem?
ND: At the time it was, although privately Phil was very uncomfortable with that position. And so you know, over the semester, it was also a semester where he was advised upon what we were hearing and what we were thinking, and at the end of the semester Phil showed up for the last day of class. I loved that day of the class. Eric, where it’s your turn to say “if I were head of Nike here is what I would do.” And the biggest black limousine I have ever seen in my life pulled up, and out popped Phil Knight to sit in the back on that day to take notes and listen, and he did! And the message from virtually everyone was that there is a responsibility that comes with leadership and in particular if you are an industry leader, a major market share, a major company, you have a moral and ethical responsibility. You cannot just make decisions based on the economics, you simply cannot. And so he was here at the end of April that year to hear the recommendation from students. He left, and a couple of days later his secretary called and asked if I could come up to Washington to the National Press Club on a date in early May, and to bring any of the students with me. So, I took a group of 5 students who were able, and we went up since Phil said he thought we would be interested in what he was going to do and what he was going to say. He stood up that day and he said, “We are going to change things here at Nike. We are going to be a leader; we are going to take responsibility. We are no longer going to treat these as arms length, outsource, contractual relationships. We are going to take full responsibility for what is going on.” So it was a transformational moment in the history of the company, and because of their size and leadership in apparel, athletic apparel in particular, most US companies in general. You know they started down a path that many, many other companies have now followed with corporate social responsibility with audits, with having people on the ground trying to observe and keep higher working conditions in these off-site locations. And they announced that, I think it was, maybe 8 new requirements, higher standards for minimum age of employment, maximum hours a week, pay working conditions, things like that, that hence forth immediately any contact or dealing with Nike had to meet. In typical Nike fashion, they also had flown 5 of the major of the owners of the companies from the Pacific-rim that were their partners in outsourcing, to Washington to be there to answer any questions as well.
EB: So, if I take this Nike story and I use it as almost a microcosm, correct me if I’m wrong, for all of industry you could say that initially the way that business has worked is that they would outsource, and then these third party contracts would allow these rural areas to do what they want with the labor. But now it’s the responsibility of these CEOs, such as with Nike, where they are now taking action to combat this turning a blind shoulder to outsourcing. So the way forward you could almost look at is as these CEOs are taking the net measures to ensure that their third party contacts are treating their labor responsibly?
ND: Absolutely, Absolutely.
EB: Ok, would you say maybe if I had to direct this back to a NAFTA mindset, could you say there is almost a similar situation happening within Mexico or Latin America? Or, I don’t know if you are sure about that?
ND: Wow, that’s a... I know you want to get back to that…but let me just say that sadly, sadly, sort of this path that we have talked about, that you summarized well, it now, because of the defective construction and the workers killed in Bangladesh recently, there now have been sort of similar standards for the construction of the manufacturing facility. There are now cooperative affiliations of major US companies that do outsource manufacturing around the world to establish reasonable standards and to police and monitor those and to correctively take collective action when collective action is needed. And again, there is a direct lineage between this campus and our licensing agreement with Nike to be organizing the conduct of two of those, the FLA and the WRC being the two most prevalent.
EB: So I’ll ask a tough question, when you say that there is all this action being had, it sounds great for the press. Do you think there are actually increased standards? That, in reality, all of this is happening?
ND: Yes, yes I really do. Is it enough? Is it appropriate? Some people will argue over that, but there are now, globally, there are standards, minimum standards in place that have raised the bottom to which much of manufacturing previously raced to. I think that’s a very good thing.
EB: And who hold those global minimum standards, is it an unwritten law?
ND: No, it’s two of the most remarkable self-policing associations you can imagine in your life. Even right now the two that are most prominent are the WRC, the Workers Rights Consortium, and the FLA, which is the Fair Labor Association. They are both headquartered in Washington, they were built around Nike and a couple of other pioneering companies, and they now have quite a large number of major US corporations that are part of it and again they establish and enforce what I think are for the most part very reasonable minimum standards around the world. And they police them, and inspect them, and again that whole effort broadens tragically as situations like the collapse of the building in Bangladesh, I believe it was, happen. I don’t know that there is as much, that they have been as active on the environmental side. I think the major leading issues were around the labor side and labor conditions understandably, but they have been remarkable institutions.
EB: So a negative that I guess people said were the labor conditions which seems are being addressed. From the other side, it could be argued that companies going into rural areas, Mexico, Southeast Asia, are a high positive for these areas as they are employing mass numbers. Would you agree with that statement?
ND: Ya, I understand that side of it is as well, and that is the other side of the argument. I mean the other side of the argument is that my choices as agrarian survival maybe, versus working in one of these factories—and my gosh— given the choice, I’m happy to work for minimum wages, for extensive hours under very onerous conditions. Even under those circumstances, that’s a better life for me and my family than I otherwise would have available to me. And I understand that. But for me personally, my ethics and my morality make me more comfortable with again with defining what those minimum standards ought to be. But there is that downside to it. And let’s contrast that to sort of the history of manufacturing within the US, which is as ugly a history as any of the global setting might be, both in New England with textiles and the textile industry and furniture, as well as here in the southeast and in North Carolina. You don’t have to look very far to see child labor, abusive conditions, practices among textile industries of hiring families. Well, Why do you hire families? Well, one because you have little kids who can crawl under the looms and fix ties and fix things, and you need somebody small who can get under there and do it. And secondly, if you hire a family each and everybody and each person in that family is going to be a better-behaved employee. They are going to be less likely to cause trouble, because if one of them causes trouble, you can fire the whole family. So you know, our own history is not something I think we would be proud of.
EB: But it’s improved.
ND: Yes it has.
EB: So could you say that for these other areas it starts out rough in the beginning but we are on a path to improvement?
ND: Absolutely, absolutely without fail. You want to talk about NAFTA? [laughter] I thought that was what—
EB: Well it’s interesting; it’s all related to manufacturing going into other areas. But ya, so we can refocus the conversation a little bit.
ND: We aren’t even on question one yet,
EB: It’s ok these are just my own suggestions.
ND: Is this all helpful?
EB: Yes, yes it is it gives comparison of these to compare what is happening in other areas to what is happening in Mexico—
ND: Mexico… NAFTA… the bottom line is no body knows, it’s all opinion. Who knows? Was NAFTA successful or not?
EB: So that’s the next question—
ND: Who knows? It is probably the largest naturally occurring experiment in my lifetime. Sorting out the cause and effect of NAFTA from other cause and effect factors is probably impossible to do. So you get strongly held beliefs, I have strongly held beliefs and opinions. I have opinions. But sort of sorting out what were the outcomes of NAFTA, the pros and the cons, it’s an impossible thing to do.
EB: Could you expand upon your opinions, from almost an academic, professor standpoint since you have a different—for instance, I interviewed someone else coming from more of a labor relations side of it, and they were relatively pessimistic when it comes to NAFTA, so its interesting to see the contrast from a business professor’s point of view. What do you think NAFTA has done well, and what has it not done well? And the hard questions that follows that is, was it worth it to have initiated it, and should it be a factor moving forward?
ND: Ya, ya, I’m going to take them, not particularly in the order you presented them. I’ll try to present them in more of what my understanding is a historical perspective. I’ll start by noting that NAFTA, to me, was eliminating a major collection of trade barriers from the US into Canada and Mexico, and likewise from Canada and Mexico to the US. And my historical perspective is that for the 215 years or so before NAFTA, how did the American economy grow to be the strongest economy in the world, the most vibrant, innovative, highest wealth building economy in the world? And I would argue that that happened by us having the highest strongest walls around the US that anybody could possibly build. We had all kinds of barriers to entry by any outsiders, we had protectionist measures left and right and support for export from the US to other parts of the world, but extreme protectionist measures to keep anybody else form entering the US market
EB: And that was a good thing?
ND: If you believe and value economic growth and wealth creation, yes. It was a good thing for us, was it a good thing for everybody else, absolutely not. So you know, it’s just interesting to me that sort of the whole movement of globalization of which NAFTA was the first significant step almost at this same time with the establish of the World Trade Organization, (WTO) which is just like a global epitome of NAFTA in many respects, the objective being to eliminate all of the frictions of trade between one nation and other nations.
EB: So from a naïve perspective, why would you eliminate trade restrictions? Where is the benefit?
ND: Those who argue that there is a benefit from that, they see it as enabling manufacturing to find lower cost sources. So again I would argue that the primary benefit is, for US based companies, to again race to the bottom in manufacturing costs. The primary benefit for companies located in other countries is greater access to the US market. So you have this duality of manufacturing and market access, and that is what NAFTA did to significantly eliminate barriers between Mexico, US, and Canada.
EB: So I actually found that very interesting because you mentioned both sides. But Mexico actually originally proposed NAFTA, it wasn’t the United States, so if we transition ourselves back to 1994 when it was signed, do you agree that it was more beneficial for Mexico to bring in industry than it may have been for the United States to outsource its manufacturing.
ND: No I think, you know if you want to look at it just from the economics I think it was mutually beneficial to both. Looking wholly at it, because where did the, I guess here in North Carolina, Mexico was where the textile industry and furniture industry migrated to after it left North Carolina. It migrated first to Mississippi. Why? Because of significantly lower labor costs and lower environmental regulation in Mississippi. It briefly, really interesting if you track it over time, it briefly migrated to Mississippi and then quickly migrated to Mexico, and then quickly migrated to China and Southeast Asia. And so the idea of NAFTA creating jobs and employment in Mexico for example, that was short-lived. It was so because of the attraction that followed that quickly of Southeast Asia in general, and particularly China adopting a more welcoming policy to encourage the location of manufacturing and sourcing from China that also happened around 1995, which was when China really opened itself to manufacturing from others.
EB: I never made this connection until you said it but do you think Mexico proposing NAFTA was a way for it to compete against US businesses going to China? To instead come to Mexico? It’s closer.
ND: No, nobody knew, the whole China piece was as far as I know never part of the conversation, it wasn’t even thought about because until at that point of time in the early 1990s China was still a very closed economy and the role of Deng Xiaoping as the architect of the Chinese economy was undeveloped at that time. So it made a lot of sense for Mexico to propose it, because again they would have been the logical place because of labor costs and lower environmental standards, as well as proximity to the US market for logistics of moving goods. I mean, as a strong case of Mexico to propose NAFTA, and yet there were few people in the US that realized how transformational NAFTA would be. I remember the 1992 presidential debates, that were classic between George HW Bush, Ross Perot, and this young fellow named Bill Clinton. In the debates there was a lot of discussion about NAFTA. George HW Bush’s position was the economic argument, and his summary of should the US approve NAFTA? — His opinion was, “of course, it makes the prudent thing to do.” And at the other end of the discussions was Ross Perot, and he is the one who used the expression, “if we approve NAFTA, you will hear that great sucking sound” and he used that language in the presidential debates, and that sucking sound is all the US jobs going to Mexico. And then in the middle was Bill Clinton, and Bill Clinton’s position was that on the one hand we have to recognize the global economy, we have to participate in the global economy its good for us, it’s the right this to do for us, setting aside any of the economics, it’s the right thing to do for so many reasons. And yet we also have to realize that it is going to be transformational for us in the US. We have to be smarter, we have to be more innovative, we have to be more competitive. It’s going to change the global landscape and that includes us.” And Clinton was right.
EB: So a lot of people will argue that the consequences of NAFTA, negative, or benefits, positive, weren’t necessarily foreseen. Would you argue that Clinton going into this was fully aware of what NAFTA would become and how it would do?
ND: Come on Eric, get out of here. Stop, stop that. Do I think that he had a sounder appreciation for NAFTA and the likely consequences? Yes I do. And I think George HW Bush, again, he saw it simply as the economic rational thing to do, and obviously you do that. Ross Perot saw it in terms of the loss of jobs that America would experience, and why would we do something that would be detrimental to our jobs? I think Clinton had the broader and more comprehensive view that in the global context it was time for the US to lower some of the trade barriers and remove some of the more protectionist measures and participate in the globalist economy. That almost means access to more global markets for more US firms, but at the same time it’s going to fundamentally transform the US economy once we step into this global arena, NAFTA was the first step in doing that.
EB: So I have to ask you the difficult question, but do you think it was a good idea looking back on it?
ND: Uh… Yes. Yes I do. Ya I do. Yep I do. Even, even acknowledging the historical perspective that I offered a minute ago that you know that the US economy and wealth and success that we had had as a nation for the previous 215 years or so was built in a regulatory global structure that was anything but NAFTA-like. Even saying that, you know I have a question in my final exam in my global marketing class: Issues in the Global Economy that I use often and it goes something like this “what is the theoretical basis for global trade and the global economy? Is it economics, is it morality, is it religion, is it humanity, is it ethics, what is the argument that underpins why it is a good thing that we participate in the global economy?”
EB: What do find from students more often?
ND: All of the above. What I find is that everyone starts off thinking about economics, but that is just not enough, just so clearly not enough. The argument to me, and the argument to most people who I think that think about this is that it’s all of this. Its humanity, religion, ethics, morality, and economics as well. Life is complicated; it’s just not that simple.
EB: Could be said for a lot of things.
ND: Ya.
EB: Ok, well we are approaching the end of the interview but as kind of a final wrapping up, we mentioned a lot how times change and what is needed changes. I think you said at one point that NAFTA is kind of an experiment, a large experiment. So where we are now moving forward do you think that free trade systems such as NAFTA are a way into the future as well, or that that era has passed? For instance moving into the rest of South America and free trade agreements, is that something that is likely could happen? Or is this free trade NAFTA section of history something that happened to begin the process and is now kind of in the past?
ND: Hmmm ohhh Eric. Two things, one, last October the economist had a remarkable series of articles on where is, quote ‘free trade now?’ Their argument is that through the WTO and agreements like NAFTA, that we have had about a 10-year plateau of this progression of eliminating barriers, or frictions as my friends in economics call it, between one country and another, and that it is time for another major step forward in eliminating all of these. I’ll pair that with when I, in the late 90s when I would be up in Washington and taking student groups up there for whatever reason, I would hear so many members of congress from North Carolina and elsewhere supporting free trade. They would say “I believe in free trade I’m an advocate of free trade!” and then as North Carolina and the rest of the US began to suffer job loss and some of the other negative outcomes of NAFTA and the WTO emerged as well, the language changed. What I heard then was “Well I believe in fair trade,” the language was no longer free trade, it was fair trade. For me, I do believe that moving forward with more fair trade is a good thing for everybody. I believe that moving forward with free trade, I worry that moving forward with free trade will lead to circumstances that I don’t think are right or fair. But I do believe that moving forward with fair trade would be a very good step for us
EB: Fantastic, well thank you for your time, if you would like to add anything you are more than welcome to now. Or if not, I appreciate your time, it was very insightful. Thank you again.
ND: Tell Hannah hello for me.
EB: I will
ND: She’s great
EB: Oh you do know Hannah?
ND: Everybody knows Hannah, come on.