On September 24 we open a new department: "Worldstock Socially
Responsible Goods." This is the most exciting idea of my life. I
relate here the (somewhat theoretical) tale behind it.
between poverty and liquidation
Recently we realized that Overstock
is in a unique position to help the disadvantaged. To see this, one must
first understand Overstock.coms main business: we are an Internet
liquidator. In practice, that means we operate within highly fractured
supply channels of numerous, scattered vendors, scooping up products in
lots too small to be moved efficiently through the mechanisms of mass
retail, bringing them to our Salt Lake City warehouse, and pumping
them out through the enormous pipe of our website to our customer base
of 7 million monthly visitors. This marriage of scattered small-lot supply
to mass demand is the essence of liquidation.
the spring of 2001 I visited India and Southeast Asia, where I lived as
a youth in the 1980s. Unlike my last visit to Cambodia, when civil
war raged, this time I could rent a motorcycle and travel widely. Passing
through villages, attending arranged meetings and stumbling into others,
I encountered small producer associations composed of disadvantaged people.
I met people who had lost legs and eyes to landmines yet who craft beautiful
cutting boards, and others working as silversmiths or weavers of exquisite
silks. I saw first-rate table settings and fine home décor products
designed and produced by an organization that takes women who are homeless
or otherwise living on the fringe, and trains them for more productive
afternoon I crashed my motorcycle on a dirt road in the north and lay
tolerably banged up in the tropical sun, watching locals work their fields.
A family took me to their village, and that night, sitting on the edge
of a cot in the dark of their stilt-house, I thought about what I was
seeing on my trip. I was reminded of a visit I made years ago to a Hanoi
nail factory staffed largely by blind people, and the producer associations
(often organized by Mennonite or Quaker NGOs) I read of long-ago
in my studies, composed of widows from Lebanon, Palestine, Peru, and elsewhere.
I thought of institutions I have read of such as the Grameen Bank of Bangladesh,
a micro-credit bank making tiny loans to village entrepreneurs (often
female) who use the loans to buy small capital goods (such as sewing machines)
to support themselves. I began to speculate upon the enormous problems
such producers face, not only from the obvious human perspective but from
the perspective of economics and business that I had lacked as a young
man. The common feature these people share appeared to me: these people
are not charity cases, they are people who want work, self-respect, the
ability to earn a living, to provide for their families and to contribute
to their communities. But beyond the challenges they face, such as those
presented by their physical situation and their lack of capital, a broader
difficulty confronts them all: their output comes into the world through
highly fractured supply channels of numerous, scattered producers,
in lots too small to be moved efficiently through the mechanisms of mass
it was too obvious even for me to miss. At a theoretical level the central
problems of liquidation and of artisan production are indistinguishable:
how does one efficiently marry scattered small-lot production of highly
varied products to mass demand? And by one of those weird coincidences
that seem to govern my life, I had spent the last 18 months building the
most perfect machine ever created to do just that: Overstock.com.
Principles by which
we pursue Socially Responsible Goods
is both in business and academia. I earned a doctorate in philosophy at
Stanford, but took forays into jurisprudence, development economics, and
philosophical issues related to poverty. In addition, starting in 1983
I spent fair chunks of my life in China, Thailand, Cambodia, Vietnam,
and the Arab Gulf and Levant. In the course of these studies and travels,
I grew skeptical about the effects of the aid and advice the developed
world has been offering the worlds poor for the last 50 years. This
skepticism was nurtured by my studies under the legendary development
economist Partha Dasgupta and, through him, the works of Nobel laureates
Ken Arrow and Amartya Sen. My colleague and our Executive Vice President,
Kevin Lane, also has an academic background (a doctorate in political
theory from Harvard), and spent 10 years in China and Taiwan. In sum,
we have seen destitution from every angle, and are familiar with the interplay
of poverty, politics, markets, and NGOs (Non-Governmental Organizations).
Together, we quickly saw that Overstock was uniquely positioned to change
upon my return we set to turning Overstock.com to this purpose and discovered
that fair-trade is a highly politicized issue. For example: How may an
American firm negotiate fairly with a supplier from a less developed country
in a context of asymmetric power, information, and capital? Does shoring
up traditional cultures reinforce patriarchal suppression of females?
Should trade be conducted with womens groups in Afghanistan, or
does that provide de facto support for the Taliban regime? Within the
fair trade movement there is disagreement on the answers to such questions.
a place to start, one obvious principle is that socially responsible goods
cannot be produced by children laboring in formal settings. The essence
of trade is that free and rational agents conduct it, and children are
not free and rational agents in an ethical sense. Children working in
factories cannot truly choose the condition of their employment, and therefore
their output is tainted (though children might legitimately help their
parents in informal, cottage industry settings, as long as the work is
limited to a few hours per day, and they also go to school). Other than
that, what can we say? I think of the goods with which I hope to build
this category, those whose purchase would support women, or disabled people,
or traditional artisans such as Native Americans, or other disadvantaged
people, and goods produced through micro-credit, and goods whose production
or consumption is accomplished in an environmentally sound manner. I saw
that the common denominator of these products is sustainability.
Three principles follow from this: we will support businesses that do
not use up workers or cultures or natural resources.
1. Economic sustainability
Goods may be socially responsible by offering sustainable livelihoods
to disadvantaged people. These include those who have suffered from war,
such as land-mine victims and widows, aboriginals and traditional peoples
bypassed by overly-concentrated modernization in the developing world,
and women who have fallen upon hard times from which no avenues of exit
exist. Through trade, we seek to provide stable employment from which
they can build a life in the long term, not just in the short term, and
that does not "use up" the worker over just a few years. By
purchasing the output of such people, our customers and we are bypassing
a top-heavy, handout approach to poverty, opting instead for an organic,
bottom-up approach that nurtures the roots without waiting for benefits
to trickle-down from the top.
2. Cultural sustainability
often causes massive cultural dislocations. For example, efforts to stimulate
job-creation in cities can lead to ever-higher pools of urban unemployment
as stimulatory effects are washed out by waves of (male) artisans forsaking
traditional crafts for urban jobs. By purchasing the output of artisans
working in traditional settings, our aim is to work with and shore up
worthy traditional institutions while lessening the cultural dislocations
that often accompany development.
Goods may contribute to environmental sustainability. For example, there
are efforts to save the Brazilian rain forest by generating replenishable
products from it rather than burning it for pasture. Moreover, there are
goods which substitute for commercial goods but which are produced in
non-industrial, eco-friendly ways. By purchasing such alternative goods
our customers tread lightly upon the earth.
Corporations are often
accused of disingenuousness about the responsibility they claim to practice,
and therefore suspicion haunts any firm that makes claims such as mine.
Therefore, along with the preceding principles that govern what products
we acquire, we are committed to three more that govern our pricing, negotiations,
4. Maximum of 5%
retailers buy goods that contribute to economic, cultural, or environmental
sustainability, but mark them up 100%, 200%, even 300% or more, so that
only a slim fraction of the sales proceeds actually gets to producers.
We wish to price our socially responsible goods as low as possible so
that we may grow this department quickly and spread the model to as many
people as possible. The goods in this department are priced to cover
our costs while leaving no more than a 5% net profit for us. "Our
cost" refers to what we pay the producers plus with what it costs
us to warehouse, market, and ship the products.
will never lay high mark-ups on these products since my dream is to support
as many disadvantaged people as possible by selling as much of these products
as I can. A small profit is necessary if we are going to be able to buy
the ever-larger inventories that growth will require. So while the answer
to the question, "What percentage of the price actually goes to the
producers?" varies product by product, the bottom-line is always
the same: as much as is possible while still allowing Overstock to cover
no more than its costs + 5%. For pricing
certification please click
5. Fair negotiation
I do not pretend to be a nice guy. In fact, I am a rapacious capitalist:
as you read this I am out there sticking it to some other businessman
in distress, and Im going to do it again as soon as I get a chance.
That is how we sell TVs, jewelry, and computers at the prices we
do. This approach is inappropriate for SRG products. When disparities
in wealth, options, and information between two parties exceed a certain
level, negotiations between them are spurious. I do not intend to chisel
Peruvian widows and lowball Cambodian landmine survivors in order to "get
the goods," and I suspect socially aware consumers do not want me
to do that on their behalf.
the principle I have adopted for this department is simple: suppliers
can tell me (within reason) what they want me to pay for their products.
I will not negotiate against them, but I will explain our 5% Profit Pricing,
and remind them that if they charge me too much I will not be able to
sell their products or place reorders: lower prices to me will create
higher volume for them. In effect, the buying behavior of our customers
in this Worldstock SRG department will tell me if and how hard they want
me to push back on producers. I know no fairer system.
Principled disagreement exists
among fair trade proponents. Many of these products are purchased from
development organizations, NGOs, non-profits and micro-credit banks which
organize producer associations and, in some cases (e.g., landmine survivors),
train producer-artisans. There are those who think that socially responsible
goods should be acquired only through such agencies to assure credibility.
Others claim that limiting purchases to such agencies perpetuates a mind-set
of dependency that says, "an agency, not individual initiative, offers
the only way to get ahead."
example, imagine that in my own travels I find (as I have) a small workshop
in a village in the Bekka Valley of eastern Lebanon, where a few women
work together to create exquisite shawls and capes. Their products do
not carry the imprimatur of any UN organization or development agency,
but in my view their wares are appropriate for this category. Should I
forego the shawls because they lack an NGOs certification, or should
I trade in them to reward these womens initiative?
answer to this dilemma is simple: transparency. We buy socially responsible
products from reputable fair trade importers, NGOs, micro-credit facilities,
and similar humanitarian organizations, but also directly from artisans.
We are transparent about our sources for these products. Therefore, a
customer might trust m claim that buying a given shawl contributes to
the well-being of a village in eastern Lebanon. On the other hand, she
may only buy products that we acquire through formal channels like the
Quakers (on the fair assumption that the Quakers are not running a sweatshop
in Peru), or Rehab Craft Cambodia (a New Zealand-funded organization building
a self-sufficient and community business channel for Cambodians with disabilities).
By providing sourcing information in our product descriptions we eliminate
the dilemma concerning what constitutes social responsibility: we are
transparent and honest, then leave it to the customer to decide.
Overstock.com created its Worldstock
Socially Responsible Goods department because we recognized that the infrastructure
we had developed to compete in the liquidation market was suited to a
more important market. Around the planet there are talented people who
could feed their families, vaccinate their babies, and send their children
to school if we in the developed nations purchased the unique and beautiful
things they know how to make. Around the world today there are scores
of humanitarian groups working with artisans to create handmade products
that could be sold with pride in the developed world. And around this
country there are those who wish to buy such products when their quality
is good, when the purchase is convenient, and when doing so will make
life better for another family. Yet, artisans have trouble reaching their
natural market because of poverty, poor information and infrastructure,
and primarily, the inherent disadvantages that small-lot producers face
in an industrial age.
has created a new business that emphasizes sustainability, fairness, and
transparency. By developing this department and by pricing products in
it with only a small mark-up of cost + 5%, we can extend the benefits
of this system to as many disadvantaged people as possible. The sale of
these products provides a connection that makes it easy for our customers
to make a difference in the world, and empowers artisans to achieve the
dreams they have for themselves and for their families.