Landegger Program Summer 2013 Newsletter

N ewsletter Summer 2013

From the Director, Professor Theodore Moran. . .

I am happy to tell you of the events that are happening in the IBD Program and to welcome you to this annual IBD newsletter. I would like to start by talking about the contributions of our hard-working faculty and super-hard-working staff.

IBD Faculty Our IBD core faculty, Professor John Kline, Professor Marc Busch, and Professor Lindsay Oldenski have summarized

their research in this newsletter. You can see both the energy and range of scholarship that characterize their ongoing academic work. I would also like to praise our adjunct faculty, Gerry West, (recently retired from MIGA of the World Bank), banking expert Jerry Solomon, Jean François Seznec (McDonough School of Business), Conor Healy (also of the World Bank), and Jeff Oliver (a Georgetown alum) who provide important courses in political risk, business and corporate accounting, energy, and globalization. We are also happy to welcome the newest adjunct, James Koehler (who I am proud to say is an IBD as well as a Georgetown alum,) and who will be teaching a new Energy Sector course for the fall semester 2013.

IBD Staff There was a major change in the IBD Department personnel the past year. Lola Brown, our much-valued — and I want to say “beloved” — ­ Program Administrator announced her retirement after serving many years at Georgetown. We said a reluctant good-bye and thanked her for her years of service to the department at a brunch in the Faculty Club in Leavey. This was well attended by many of the friends from the many departments of Georgetown with whom Lola interacted.

3700 O Street, NW • ICC 516A •Washington, DC 20057 Phone: 202-687-5854 • Email: ibd@georgetown.edu http://ibd.georgetown.edu/

We were lucky to recruit Tammy Ganey from the Science Technology and International Affairs Program (STIA) to fulfill the position of Program Administrator. Tammy brings excellent

Newsletter 2013

2

fiscal and management skills, as well as, a knack for keeping the busy wheels of the IBD program moving. We are very happy to have her as part of our team.

IBD CERTIFICATES AWARDED 2013

Kathy Klingenberg, our Program Assistant, played a vital role in the smooth transition to a new administrator. Kathy keeps us up to date with the latest technology, receives our guests and students and helps maintain the operations of the department. We value her services.

School of Foreign Service

There is hardly enough space in this newsletter to describe the multiple hats that Rosie O’Neil wears for IBD. As Program Counselor, she continues to counsel candidates and alumni with courses and careers. She has added a valuable component to IBD counseling by offering the Myers-Briggs assessments to current candidates and alumni. She has increased communication and networking with IBD alumni by coordinating a LinkedIn Group for IBD alumni. This past year she jumped into online learning by coordinating filming of my Globalization Class. Her excellent proposal for the MOOC (Massive Open Online Course) enabled the IBD program to create one of the first Georgetown MOOCs which I describe in the report of my activities in the newsletter. Rosie was honored this spring by an award in the SFS Recognition Program by SFS Dean Carol Lancaster. The SFS Recognition Program is designed to recognize an SFS staff member who has demonstrated outstanding performance and commitment to the values and mission of the School, above and beyond the responsibilities of his or her position. I believe this is an excellent description of Rosie’s impact on the program.

Graduate School in Arts and Sciences

The interest and enthusiasm for our program continues to grow. This is evident with the bumper crowd of graduating students who earned the certificate with undergraduate and graduate degrees. We can proudly report that for 2013, 86 candidates earned the IBD Honors Certificate with multiple degree backgrounds. Please see box at right for a breakdown of the certificates awarded by degree.

Bachelor of Science in Foreign Service (BSFS) Master of Science in Foreign Service (MSFS) Joint degrees (BSFS/MSFS) (MSFS/MBA)

36 19 2

Total Certificates for SFS

57

Regional Studies 10 MA in German and European Studies (MAGES) MA in Russian, Eurasian and East European Studies (REES) MA in Latin American Studies (MALAS) MA in Arab Studies (MAAS) MA in Security Studies (SSP) MA in Communication, Culture & Technology (CCT) 6 Total certificates for Graduate School

16

Master in Business Administration (MBA)

13

Total IBD Certificates awarded in May, 2013

86

Ted Moran toasts Lola Brown

We were happy to celebrate the graduation of our candidates with our annual End of Year Celebration which was held this year in the Georgetown Alumni house. It was well attended by IBD candidates and alumni. We even had a visit by a former adjunct Professor Bob Kaiser and his wife (Mary Elizabeth). Bob Kaiser is a Georgetown alum who taught the Business Accounting and Finance class for IBD before he retired to California in 2000.

So we are pleased to launch this first issue of the newsletter to celebrate and reconnect with all of our exciting news for Faculty, Staff, Candidates and Alumni.

Ted Moran

Kathleen Klingenberg, Program Assistant

Tammy Ganey, Program Administrator

Karl F. Landegger Program in International Business Diplomacy

3

Faculty Updates IBD Director Ted Moran has been asked to create one of Georgetown University’s two initial Massive Open Online Courses (MOOCs), offered through the EdX Consortium under the auspices of Harvard and MIT. Drawn from both of his IBD course offerings (“Globalization: Challenges for Developed Countries” and “Business and Investment Dr. Theodore H. Moran holds the Marcus WallenNegotiations”), this MOOC is berg Chair in International entitled, “Globalization’s WinBusiness and Finance ners and Losers: Challenges Dr. Moran is founder of for Developed and Developing the Landegger Program Countries”. in International Business Diplomacy, and serves as Director

The course opens with three of the most pressing issues for emerging market countries – how to increase transparency and accountability in extractive industry investments in order to avoid the “resource curse”; how to take advantage of foreign direct investment (FDI) in low-skill sectors such as garments and footwear while preventing “sweatshop” abuses; and how to use FDI in manufacturing to upgrade and diversify the production and export base in the developing economy.

Ted Moran welcomes new candidates to the IBD program

The course continues with important concerns for developed countries: Is the globalization of trade, investment, and technology helping or hurting developed economies such as the United States? What is the impact of such globalization on wage stagnation and wage inequality in the United States? Who is responsible for the on-going US trade deficit? Does the rise of China and India undermine jobs and prosperity in the US, or boost jobs and prosperity in the US? Is China becoming an economic superpower? What policies should developed countries like the US adopt to help firms and workers adjust to globalization, and cushion negative impacts?

Unusual for Washington, this course allows students to propose policy remedies for the US to adjust to globalization, and then requires students to figure out how to pay for them, while reducing the US fiscal deficit and reforming entitlement programs like Social Security and Medicare.

Led by Rosie O’Neil, the entire IBD staff is taking part in the heavy work load involved in creating this MOOC. The MOOC goes live on October 1, 2013.

Professor Moran is also publishing two studies with Professor Lindsay Oldenski at the Peterson Institute for International Economics. In addition to one study discussed by Professor Oldenski in this newsletter, there is a second on inward FDI into the United States. What is

Newsletter 2013

4

the impact of this world’s largest flow of FDI on the US host economy? What measures can the US government take to enhance the potential benefits from inward FDI, and guard against possibly worrisome national security consequences? From a base of 6 percent of the US total output, US affiliates of foreign multinationals account for a disproportionately large share of US exports (19 percent of all exports), physical capital expenditures (10 percent of all capital expenditures), and R&D expenditures (14 percent of all R&D expenditures). Foreign investors in the US create “good jobs” -- they pay higher average wages in the aggregate and usually higher wages than paid at US companies in the same industry. Their R&D expenditures also exceed the research and development effort undertaken by US firms – American companies spend about 4.8 percent of value-added on R&D, whereas the majority-owned affiliates of foreign investors spend more than 7 percent of value-added on R&D. The presence of foreign investors makes US firms more productive. Careful new econometric analysis shows that about 12 percent of the total productivity growth in the US from 1987 to 2007 can be attributed to productivity spillovers from inward FDI. Prior work by Professor Moran, Three Threats: an Analytical Framework for the CFIUS Process (PIIE 2009), identified three potential national security threats that might

The Alta Gracia project continues to document the development of a commercially competitive apparel factory that pays a “living wage”, recognizes a representative labor union and maintains a safe and healthy workplace. Another article in this newsletter comments on Dr. John M. Kline is a Professor of Interthe latest trip to the Dominican national Business Republic and Haiti. Professor Diplomacy Kline recently received a “Complex Moral Problems” grant from Georgetown University to fund research through the end of the year. The progress and further planned work on this project is summarized at www.georgetown.edu/EngagedEthicsInitiative/. In a related development, the Georgetown Licensing Oversight Committee of which Professor Kline is a member voted to recommend the University change its licensing code to establish a “living wage” standard for collegiate apparel licensees.

The making of the MOOC

be posed by foreign acquisitions of US companies: 1) manipulation of access to goods or services; 2) leakage of sensitive technology; 3) insertion of potential for surveillance or sabotage. The study shows that the conditions under which these outcomes might be plausible are very stringent, and the vast majority of foreign acquisitions – including those on the part of Chinese investors – can be shown to pose no credible national security threat whatsoever. This study concludes with a roster of education reforms, immigration changes, infrastructure improvements, and corporate tax revisions that are needed to make the United States a more favorable setting for multinational investors to locate their best jobs, their most beneficial operations, and their most dynamic activities.

Professor Kline’s textbook Ethics for International Business (2nd ed.) has been translated into Chinese and is scheduled to be published by Renmin University of China Press in July. Professor Kline will visit China in

Faculty Chat: Breakfast with Professor Kline

Karl F. Landegger Program in International Business Diplomacy

5

October to consult on the book and conduct research for a potential guideline or article on the pedagogy of teaching international business ethics in Chinese universities. He is also exploring possibilities for offering a course in China during the Spring, 2014 semester.

versity’s Earth Institute. Although this research and “Guidance Paper” were designed to focus on foreign direct investments in Sub-Saharan Africa, potential future work may test its applicability to other regions of the world.

A draft article is being prepared for submission to an academic journal reporting on results from Professor Kline’s field research last summer in South Africa and Kenya. Those trips presented opportunities for a “field test” of his Guidance Paper on Evaluating Sustainable Foreign Direct Investment (http://ibd.georgetown.edu/ document/1242775279478/Sustainable-FDI-GuidancePaper-Kline-FINAL.pdf), prepared for and published by the Millennium Cities Initiative of Columbia Uni-

Professor Kline currently teaches courses on International Business Ethics and on National Interests and Global Business. He requests that IBD alums keep him in mind and forward articles or other material that offer good contemporary case studies for class discussion of (1) dilemmas of international business ethics, or (2) defining the nationality of international corporations, particularly for programs seeking to promote a country’s national interests.

Professor Marc Busch is engaged in three research projects. The first project concerns the decision by developing country governments to answer protectionist demands by either using “tariff overhang” (i.e., the gap between bound and applied rates) or trade remedies Dr. Marc Busch is the (i.e., antidumping and counterKarl F. Landegger Pro- vailing duties, and safeguards). fessor of International The argument, borne out by the Business Diplomacy data, is that developing country

governments use trade remedies in response to medium import surges, where the action can be supported by the relevant methodology, and use tariff overhang for small or very large import surges, where trade remedies would not withstand legal scrutiny, or surprise foreign trade partners as urgently needed, respectively.

Faculty Chat: Breakfast with Professor Busch

The second project concerns the impact of the Generalized System of Preferences (GSP) on developing country trade upon accession to the WTO. The literature has long included GSP as a control variable in models of whether the WTO increases trade, but with-

6

Newsletter 2013

out comment, even though the variable is typically the single most robust predictor of commerce. This paper replicates the two main strands of empirical research in this tradition, showing that GSP*WTO is negatively signed and highly robust, meaning that those developing countries on GSP that join the WTO realize less trade than others. A follow-on paper will take up the domestic politics of GSP in developing countries, looking to show how the terms of WTO accession impair their commerce.

The third paper is about WTO precedent. Using computer algorithms to model the sequencing of words and structure of paragraphs across all WTO verdicts, the paper looks to establish that citations to salient past verdicts change the nature of legal argumentation, bearing out the importance of de facto stare decisis in WTO jurisprudence. The process of teaching an algorithm to “learn” about precedent has been especially eye-opening, and in the view of the computer scientists working on the project, entertaining.

Professor Oldenski conducts research on the operations of multinational companies (MNCs).

Her previous work has studied the factors that MNCs consider when deciding how to fragment their production across borders. This research has shown that one of the most important considerations is how routine or Dr. Lindsay Oldenski is an assistant professor in nonroutine a task is. In other the Landegger Program words, US-based firms are more in International Buisness likely to offshore their most rouDiplomacy tine, repetitive, and mundane tasks to other countries, as these types of production activities can easily be performed anywhere. But firms prefer to keep activities that are more strategic, creative, mission-critical, or that require greater judgment and decision-making on the part of management within their US headquarters, since the cost of offshoring these types of tasks is much higher.

Outward FDI, US Exports, US Jobs, and US R&D: Implications for US Policy, jointly written with Gary Hufbauer and Ted Moran. In this publication, the authors show that foreign expansion by US MNCs does not substitute for US activities. Instead, US and foreign operations are complements, meaning that outward foreign direct investment

by US firms has an overall positive effect on wages and employment in the US. As US MNCs grow and expand abroad, they become more productive and capture a larger global market share, which allows them to scale up operations in the US as well as abroad.

More recently, Professor Oldenski’s research has focused on the impact of these offshoring decisions on US workers. Some of these results are forthcoming in a Peterson Institute for International Economics (PIIE) publication,

However, underlying these net gains from globalization are important distributional consequences. In her current research, Professor Oldenski shows that increasing foreign expansion by MNCs leads to increasing specialization across countries. This specialization increases demand for high skilled workers performing nonroutine tasks in the US, but it decreases demand for middle skilled workers, who are more likely to perform the routine tasks that are being offshored. The lowest wage workers in unskilled service occupations such as fast food and janitorial services are largely unaffected. These findings on the link between globalization and the relative demand for different types of skills have important implications for education and worker training programs.

A Word From Rosie In this inaugural newsletter I want to begin by thanking all of our alumni for their generosity of time, talent, and financial support. One of the things that makes the Landegger Program special is the strong and daily connection with alumni. Every year we call on alumni to mentor current students and offer them career insights and support including offering mock interviews, letters of recommendation and networking opportunities. We

also call on alumni to help us as content experts offering workshops, panel presentations, and sometimes, full courses! We deeply value our connection to alumni and our students are grateful for access to such a strong network. Thank you all for your support over the years.

We appreciate your financial support and ask that you continue to consider supporting the IBD Program in your

Karl F. Landegger Program in International Business Diplomacy

7

giving. As you know, all your contributions go directly to supporting advanced course offerings, skills workshops, and support services for students and alumni. Directing your giving to the Landegger Program simply requires you to name the program in your pledge. Our colleagues in University Advancement will take care of the rest.

Career Development Center colleagues will often post articles or links of special interest to the group and alumni can use the group to post job opportunities or engage each other in conversation. We will also be using the LinkedIn Group to offer you access to new initiatives at Georgetown and, in particular, programs in the School of Foreign Service. Rosaelena O’Neil is the AsI hope you take full advantage sociate Director and Program Counselor for the Landegger of this opportunity.

In alignment with our core mission, we continue to prepare students to engage in careers in business and public policy with a particular focus in finance and consulting.

Landegger Program Alumni apply their skills in careers in all sectors, both international and domestic. Nearly 70% of private sector jobs cluster in Financial Services, Consulting, and Law. Careers in Government, Non Profits, Multilateral Institutions, and Non Governmental Organizations attract one quarter of our alumni.

Want to recruit one of our top graduates? Let us know and we will facilitate that connection.

One of the benefits of being a Landegger Program alum/na is access to ongoing support from SFS and from your peers.

I encourage all alumni to join the new Landegger Program in International Business Diplomacy LinkedIn Group.

This group was set up last year to offer IBD alumni a forum for networking and business knowledge sharing. Our SFS

Program in International Buisness Diplomacy

IBD alumni can also directly access career-coaching services for job transitions, career switching, general professional development support, networking opportunities and support with employer recruiting. Please let me know how we can help.

I’m very excited to continue to serve you and to work with you in the coming year. Thank you again, for all you do for IBD. Hoya Saxa!

Rosie

Events During the Year How to Avoid the Oil Curse: The Case of Kazakhstan April 20, 2012, Executive Conference Room

Submitted by Tommy Pigott and Andrew Campion

Guest speakers: Kairat Kelimbetov Deputy Prime Minister of the Republic of Kazakhstan Grigori Marchenko Governor, National Bank of Kazakhstan Kazakhstan’s infrastructure has been rapidly modernizing, especially with strong foreign investments from China, Russia and the West. Of many surrounding countries in Central Asia, Kazakhstan was the only country to exhibit positive GDP growth throughout the world financial crises. The country is currently in the top 20 oil producers in the world and has plans to double barrel production in the next decade in order to be in the top 10 producers. ExxonMobil and Chev-

ron have major oil operations in Kazakhstan; Chinese companies own approximately 23 percent of Kazakh oil production; and Russian and other European companies are significantly involved. KazMunaiGas is the national Kazakh oil company. With significant involvement from foreign firms, Kazakh officials are striving to achieve a proper balance of foreign workers who can share their expertise with the local market, as well as train and create job opportunities for Kazakh nationals.

Panel Discussion with Huawei USA: Telecom and National Security Submitted by Alex De Luca On February 14, with an attentive audience of over fifty Georgetown students and faculty, the Landegger Program hosted a lunchtime presentation featuring Charles Ding, President of Huawei USA, and SFS Alumus Bill Plummer, Vice President of Government Relations for Huawei USA. Mr. Ding and Mr. Plummer described Huawei’s remarkable growth from a small sales agent in the late-1980s to

Newsletter 2013

8

the largest telecommunications equipment maker in the world today. Additionally, they not only addressed the sources of Huawei’s success as a premier global information technology company, but also issues of national security facing the field of telecommunications – timely concerns in light of the prominence of IT and cybersecurity concerns in the national debate. A lively and informative question-and-answer session followed, with students engaging Mr. Ding and Mr. Plummer on a host of issues. The hour-long panel was moderated by Dr. Ted Moran, Director of the Landegger Program.

Faculty Chats At the suggestion of Professor Busch, who thought that it would benefit the IBD candidates and professors alike to have a chance to meet in a smaller setting outside the classroom and office hours, the IBD program started a series of faculty chats. These chats were limited to up to 15 students and breakfast was provided. The relaxed atmosphere allowed students and the professor an easy exchange of ideas. Professor Busch hosted the first chat on October 12, 2012 in the McGhee Library where the topics ranged from trade policies to career possibilities and other matters suggested by the students. Professor Kline hosted his chat with students on January 31 in the Clare Booth Luce room. Topics discussed included Professor Kline’s research projects, including the Alta Gracia Initiative and sustainable FDI in Africa. The department plans to continue the series next academic year.

Alta Gracia Represented at the Student Activities Fair J&C Suiting This past year two IBD entrepreneurs, while finishing their degrees, launched a new business, J&C Suiting. Colby Kirk, (MSFS/IBD ’13) and John Hancock, (MSFS ’13) both had interned in the Office of Textiles and Apparel at the Office of the United States Trade Representative. They began to discuss the difficulty in finding good tailored suits at a reasonable price. From this discussion, the business took roots.

J&C Suiting buys its wool from Italy, measures their clients for exact tailoring and sends the material to Pakistan for the stitching.

The result is affordable well-tailored suits. Colby and John were recently accepted into the highly selective StartUp Hoyas Summer Launch Program at Georgetown’s McDonough School of Business.

The Landegger program held an open house event in spring ‘13 for Colby and John to allow fellow IBD students and faculty to come, browse and be fitted for a new suit. Dr. Ted Moran was one of their first customers.

For more information please go to http://jandcsuiting.com/

Submitted by Alexandra Moran Sunday, September 2, 2012, the Landegger Program in International Business Diplomacy had a table at the Student Activities Fair. We were there to promote Alta Gracia, the only collegiate apparel company that pays its workers a living wage. The factory is located in the Dominican Republic and is owned by Knights Apparel.

The Georgetown bookstore carries many Alta Gracia products. IBD signed up more than 200 students who were interested in getting more information about Alta Gracia. All of their names were entered into a raffle and two of them won Georgetown t-shirts, made by Alta Gracia. Alex Moran, an IBD candidate, was one of the students who volunteered for the fair. She is currently a research assistant for Professor John Kline. They are working on a report that will encourage universities to raise their labor codes. Higher labor codes would require licensees to buy from suppliers like Alta Gracia that pay their workers a living wage.

Karl F. Landegger Program in International Business Diplomacy

Memories from the IBD Annual End of Year Reception - April 2013

9

10

Newsletter 2013

Presentations by IBD Alums Energy Workshop This fall, the International Business Diplomacy Program hosted a series of special workshops focused on the Energy Industry. One of International Business Diplomacy’s accomplished alumni, James Koehler, hosted the four part lunch series. Mr. Koehler is Vice President for Energy at the Marwood Group.

The discussions focused on the fundamentals of the energy space, divided between the two main sectors: transportation and power generation, and was especially geared toward helping students interested in a career in energy understand the field. The four-part series touched upon the major aspects of the energy debate, including biofuels, wind and solar energy, oil, natural gas, coal, utilities, transmission, taxation, investments, and climate change.

The first lecture was an overview of the field: where energy comes from; for whom, by whom, and how it is produced; how it is priced; and how it is consumed. The second, third, and fourth parts of the workshop took a deeper dive into specific energy-sectors, starting with Exploration and Production (E&P), followed by Utilities/Power Generation, Renewables, (and a fifth lecture which reviewed the important issues and answered all pending questions).

This workshop was so successful, IBD has invited Mr. Koehler to teach in the coming fall semester the course, The Energy Sector: Structure, Markets, and Regulation.

Innovation Economics: The Race for Global Advantage IBD alum and author Stephen Ezell came back to the Hilltop to discuss his new book which he co-authored with Robert Atkinson, President of the Information Technology and Innovation Foundation (ITIF). Stephen is a senior analyst at ITIF and lead’s ITIF’s work on science and technology, R&D, trade, and manufacturing policy. The new book is titled, Innovation Economics: The Race for Global Advantage.

The discussion was moderated by Prof. Carl Dahlman, Henry R. Luce Professor of International Relations and Information.

Careers in CSR, Sustainability and Net Impact On Wednesday, October 24, 2012 IBD/MSB ‘05 Alumna and former Net Impact President Stephani Kobayashi Stevenson had an open discussion with SFS students interested in careers in CSR, Sustainability, and Net Impact topics. Stephani is the Director of Network Mobilization and Communications at NIKE. Prior to this job she directed the Sustainable Marketplaces practice and the Social Innovation program at NIKE. She began her work at NIKE in the CSR Department in charge of Stakeholder Partnerships. Prior to her work at NIKE and after graduating from Georgetown, Stephani was in the Peace Corps.

Ms. Stephani Kobayashi Stevenson and Professor John Kline

Karl F. Landegger Program in International Business Diplomacy

11

Special Report University Policy Must Address Living Wage Gap Submitted by Alexandra Moran Late last year, about 400 apparel workers died in factory fires in Bangladesh and Pakistan. The complex nature of global supply chains is putting workers’ safety at risk every day. Many of the world’s top clothing brands rely on cheap labor to turn a profit.

While the governments of these countries must do more to enforce higher safety standards, real change will come only if buyers of clothing put pressure on the major brands to make a change. Thus far, retailers have been unwilling to pay the minimally higher prices for clothes that would be needed to make factories safer.

Twice this academic year, I had the opportunity to travel with Professor John Kline to the Dominican Republic and Haiti, where I helped him conduct anti-sweatshop research on collegiate apparel factories. We visited three factories to better understand how they organize and manage production while remaining competitive in the industry. In our work, we found that it is very possible for collegiate apparel companies to pay workers a living wage, which is defined as the minimum income necessary for a worker to meet basic needs. Unfortunately, most name-brand companies still claim paying workers more would make them uncompetitive and not enough universities have shown their commitment to fair wages to create a change. Universities should take action by adopting the Designated Suppliers Program (DSP), a procurement standard that would mandate university licensees to only use suppliers that pay workers a living wage and meet other basic labor standards.

Last October, Dr. Kline and I visited Alta Gracia, a garment factory owned by Knights Apparel, the largest collegiate apparel wholesaler. Alta Gracia, located just outside Santo Domingo, the capital of

the Dominican Republic, is notable for being the only factory in the industry that pays its workers a living wage. In this case, a living wage has been calculated to be well over three times the minimum wage. You might have seen Alta Gracia apparel in the Georgetown bookstore; you can find it in over 450 university bookstores nationwide. I saw firsthand how a living wage is making a difference in the lives of Alta Gracia workers; they can afford to feed themselves and their families, buy a moto to get to work

12

and even build additions to their modest homes. In Spanish, “living wage” translates to “salario digno,” or “a salary with dignity”. In addition to a living wage, Alta Gracia workers have a union to represent them and are treated fairly when they come to work.

We returned in March to examine how the desirable work conditions found at Alta Gracia can be achieved elsewhere. On this trip, we visited facilities operated by two other companies. First, we drove out to Codevi, an industrial free zone park built on the Dominican-Haitian border. An apparel manufacturer that is the Dominican Republic’s largest private employer, Grupo M, has outsourced its cut-and-sew operations to this park.

Haiti’s low wages and its favorable U.S. trade agreement have given Grupo M a significant competitive advantage. The following day, we visited another factory in La Vega in the Dominican Republic.

Both factories pay their workers a little above the respective minimum wages, but nothing close to a living wage, meaning that their workers cannot afford to take care of themselves and their families on what they’re currently earning.

Looking at illustrations on pricing, Dr. Kline and I believe that it would be possible for all of the factories we visited to pay workers a living wage. After all, the added wage cost at Alta Gracia amounts to only 32 cents a t-shirt! The main problem lies with how the added cost is passed on – and increased – at later points in the supply chain. The wholesaler and retailer incur little or no additional expense in sell-

Newsletter 2013

ing the same shirt at a higher price. Yet, by applying a percentage margin to the shirt’s cost, a significant portion of the final markup is a function of compounding the worker’s wage increase. The resulting additional profit going to the large wholesale and retail firms greatly exceeds the additional pay the workers would receive. A living wage is therefore very achievable if the wage cost is simply passed on without undeserved higher profits being added at each later stage.

Companies that invest in higher salaries for employees can find success in a competitive market.

Paying a living wage can in fact pay off in the form of increased sales and productivity. Workers at Alta Gracia take pride in their work; consequently, they work harder and produce better quality work.

Additionally, socially aware consumers are more likely to buy ethically produced clothing. Admittedly, there are trade-offs to investing in employees. Companies that spend more on their workers will have to either absorb the cost or pass it onto the consumer.

Investors may have to be willing to accept possible short-term profit losses. With name-brand wholesalers and retailers sitting on comfortable profits made by squeezing costs at factories that in turn squeeze worker’s wages, it is unlikely that many companies will choose to pay a living wage on their own. For this reason, Dr. Kline and I encourage universities across the country to support the DSP so that more factories like Alta Gracia will be created.