Posts for Tag: Development Economics

The Cost of Cheap: Slavery in the Supply Chain

I wrote this essay for CFA Institute and first published it on the Enterprising Investor.

Read any further and chocolate might not taste so good.

Same with shrimp. And I guess I should also mention there’s a decent chance your new t-shirt or skirt won’t look as nice either.

Because especially if you’re buying the cheap stuff, the odds are excellent that a slave is somewhere in the economies of scale that brought it to you. And I mean the strong form of slave: A human who is bought and sold.

Depressingly, this holds for almost any kind of “cheap stuff” you might care to discuss.

And that brings me to the part of the story that’s uniquely applicable to investors: where we have risk, opportunity, and indeed a chance to de-slave the world.

That’s probably worth it, right?

But I’m writing about this here, so something should be obvious. The case against slavery is about more than just morality. It’s also about money and a material risk to a broad cross section of widely owned businesses that is underappreciated, potentially disastrous, and (in time) easily mitigated.

So that’s why I’m not trying to knock you off the fence on the question of whether people buying and selling other people is your fight.

The point is that, unless you’re careful, it might be your business.

Before I get to how pervasive it is, let’s take a second to keep in mind the investment environment of the day: Growth is not that easy to find. Risks are. Whatever stocks may be at the moment, they are not cheap in most of the developed world. And at this point, it’s kind of an article of faith that someday, somehow, interest rates will return.

When stocks are fully valued, reducing risk is a value-creating act.

Interest rates are low. Equity markets are open. Money is reasonably priced and available for most large companies. So now let’s talk about slavery.

It’s pervasive.

Almost 21 million people live in slavery today, according to the International Labor Organization (ILO).

That’s the lowest estimate I was able to find. If all 21 million were gathered in one place, they would compose one of the largest cities in the world.

The US Department of Labor (DOL) maintains a (likely incomplete) list of goods produced with forced labor or child labor broken down by country.

Fifty-five goods are made or acquired using forced labor in 37 different nations, the DOL reports. Coal, cotton, coltan, and cocoa are some of the raw materials harvested through that labor. So it’s conceivable slavery made it into your clothing or perhaps even the circuits that you are using to read this.

And that’s just the letter “C.”

The problem — the reason people capture, trade, and own slaves — is that their stolen potential has monetary value. A t-shirt that was produced by people working against their will looks the same as one that wasn’t. So does a diamond, a Christmas ornament, or a children’s toy.

This is a good time to think about what you’re wearing and wonder: Has a slave touched your socks? You won’t get an answer.

It’s a tough question.

I haven’t seen the complexity of such a question described better than in the essay “I, Pencil“: Leonard Read’s fictional account of the genealogy of a pencil. One line in particular is relevant. And, remember, a pencil is speaking: “Just as you cannot trace your family tree back very far, so is it impossible for me to name and explain all my antecedents.”

You get it. Things we perceive as simple are actually quite complicated. The pencil mentions its lead was mined in Ceylon (now Sri Lanka), and a paper sack was manufactured and discarded to carry it from place to place. Then it was shipped all around the world before mixing with clay from Mississippi and ammonium hydroxide.

It goes on. Imagine how much more complex a smartphone is. So there’s a good reason that if you ask a given company whether a slave touched your particular pair of socks, the ornaments on your Christmas tree, or even just your chocolate bar, you’ll most likely receive an incomplete answer.

That shouldn’t be, and it doesn’t need to stay that way forever.

Slavery exists today on the other side of a semiporous wall from most consumers. The cheap products that slaves manufacture are efficiently aggregated into global supply chains and transmitted around the world. The invisible mechanism that takes cotton from Uzbekistan to garment factories in Bangladesh and then overseas and eventually onto your back is called the market.

And the market should have, can have, and must have a baseline ethics that values the dignity of human beings independent of what they can be forced to produce.


It takes a long time to change the world, but only a moment to make up your mind. It’s not so hard to imagine that if you’ve read this far you are inclined to do something.

But what?

First, think. Do me a favor and leave a comment below. How do you think the investment community can best express a wish not to be complicit in slave labor? How can we speak so that the management teams you work with will listen?

Your guess is as good as mine. But I’d suggest a simple question will be quite effective: “Can you assert that your supply chain is free of forced labor?”

Ask it in conference calls, one on one, and in annual meetings. And whatever the answer is, if it boils down to “no,” follow up with “When will you be able to prove that assertion?”

The product of stolen labor should not be able to find a market. And if the largest companies do their due diligence to ensure they are not unwittingly enabling this reprehensible trade, it will become harder and harder to make money through slavery.

You can help bring that about with an email. Do you care to?

You Should.

Slavery has been outlawed everywhere on earth since 1981. And companies, in general, should know what’s going on in their supply chains for a variety of reasons. But thanks to a few legal developments, it’s clear that it’s past time to get on the right side of history.

The Modern Slavery Act requires any company that does business in the United Kingdom that has a total turnover of £36 million or more to report on the steps it has taken to ensure that human trafficking is not taking place in “any of its supply chains” as part of its annual reports.

A more prescriptive law has been in effect in California since 2012. The California Transparency in Supply Chains Act is applicable to companies that sell in the state and have worldwide turnover of more than $100 million. It mandates stricter compliance, and has an associated resource guide that might be shared with your portfolio companies.

I am not a lawyer, but I am an investor. And since it seems possible to avoid a swath of legal and moral issues through straightforward due diligence, I’d take a dim view of any management team that doesn’t think now is the time to act.

Thanks to Paul McCaffrey; Tom Collimore, CFA; Paul Smith, CFA; Hanne Dalmut; David Allison, CFA, CIPM; Nathaniel Erb; Brandon Root; and Jacob Watkins for reading drafts of this.