Blockchain for good: The human rights supply chain

Today's supply chains, which comprise ⅔ of the world's global GDP, are often tainted with modern-day slavery and forced labor. The latest Global Slavery Index, underwritten in part by the International Labor Organization (ILO) estimates that there are more than 45 million forced laborers around the world. Due to the complex, multi-tiered nature of global trade, multinational companies have a hard time getting visibility into exploitation at the roots of the supply chain. Typically, the final product that is purchased by customers passes through many different producers, manufacturers, distributors, and retailers that all participate in its production, delivery, and sale.

Just about everything we buy or use comes from a supply chain. Most supply chains are flexibly assembled, decentralized networks, that lack standards for reporting, measuring and tracking data about working conditions among suppliers and buyers. Each tier of supplier and each government will have its own way ot accounting for its labor statistics, and without incentives to adopt better systems, this opacity is unlikely to change. Tracking each component of an end product back to a particular producer seems impossible.

To combat this issue, in 2015, the U.K. passed the Modern Slavery Act, which requires all companies with annual revenue of 36 million Euros or more to ensure there are no human rights violations in their supply chains. As part of the act, an anti-slavery commissioner was appointed, and British police and prosecutors have cracked down on the crime. In addition, last year, France passed a law that requires companies with more than 10,000 employees worldwide to develop plans for rooting out human rights abuses, while the Dutch parliament adopted a law to prevent child labor.

Despite these advances, however, this legislation lacks penalties or sanctions for companies that don't comply. Unfortunately, more regulation and enforcement likely will not provide the answer to these widespread problems. Anti-slavery laws are already established in most countries, but can be circumvented by bad actors within the supply chain. With supply chains as large as they are today, it would be extremely difficult to obtain the amount of compliance officers needed to patrol all the farms, mines, factories, and ocean vessels in the world.

Blockchain, the technology that underpins digital currencies such as bitcoin and Ethereum, can facilitate greater supply chain transparency and efficiency than ever before, for networks of willing participants. From conducting payment and audits to tracking inventory and assets, blockchain promises tremendous advantages to players within global commerce for cost efficiency and profitability. Essentially, blockchain is a distributed database that holds records of digital data or events in a way that makes them resistant to tampering. Initially intended for financial transactions, organizations of all kinds are starting to get creative with uses for blockchain ledgers.

Supply chain transactions are significantly more complex than most financial exchanges, involving more data, asynchronous formats, and potentially hundreds of companies in a single process that can generate as much as 60 pounds of paper in a single order. Supply chains can more accurately be referred to as networks that are intertwined with one another. The fact that there is no single system to manage all supply chain processes and transactions has caused rampant problems of data latency and accuracy.

The enhanced transparency and provenance that blockchain offers to supply chain and logistics management would allow companies the ability to identify suppliers and subcontractors that pose ethical risks to their supply chain and avoid their business. Every time a product changes hands, the transaction is documented on the blockchain, creating a permanent history of the product from production to manufacture to sale.

Companies would be able to use blockchain to identify the "bad actors" in their supply chains are, and either change who they are sourcing from or incentive those "bad actors" to do the right thing. In countries with struggling economies, many local workers are willing to take underpaid jobs, or allow children take these jobs and work long hours. Using blockchain, a large company could identify localized suppliers that are struggling and reward them for good behavior or help them get access to capital in order to be able to pay workers a living wage.

Moving supply chains to the blockchain in order to better protect against human rights violations would follow a trend of consumer demand that is increasingly interested in the origin and authenticity of products. In the near future, end customers will demand more clarity in the products they buy, and if they don't get it, they will buy elsewhere That is fundamentally how markets should work. A U.K. survey found that the vast majority of consumers would stop buying a product if its manufacture involved modern slavery and would be willing to pay up to a 10% premium to ensure products were produced without exploiting workers.

For consumers, blockchain might eventually offer the ability to scan a code on an item you want to buy and find out exactly where it has been before purchasing it. This example from our partners at SlaveFreeTrade and others will help answer customer doubts about sustainability, ethics, and the legal concerns of labor. For supply chain operators, products can be processed on the blockchain from their conception using not only RFID tags and QR codes, but material analysis that can indisputably prove the origin and states of goods as represented on the blockchain.

Blockchain technology is just beginning to transform the course of global commerce, and this transformation will happen even faster than we saw the Internet change everything. Consumers will have more available information on purchasing decisions, while global industries that struggle with illegal and unethical labor sourcing can start to demonstrate stewardship and due diligence in ensuring the transparency of their supply chains.