Yves here. Das wrote this post to commemorate the anniversary of the collapse of Rana Plaza in Bangladesh, which killed over 1100 garment workers.
By Satyajit Das, a former banker and author of Extreme Money and Traders Guns & Money
Human rights and working conditions in emerging nations, where many products consumed in developed countries are made, have been debated for many years.
In April 2013, the Rana Plaza, an eight-storey complex of clothing factories near Dhaka, Bangladesh, collapsed killing more than 1,100. The collapse followed an earlier fire at Tazreen Fashions, another Dhaka factory, which killed more than 100 people. In 2010, 10 workers at a Foxconn electronics factory in China, a supplier to Apple, committed suicide.
Reported deaths are only a miniscule part of the human cost of low cost manufacturing in emerging markets. As George Orwell wrote about the Spanish civil war: “[certain terrible things had really happened and] they did not happen any the less because the Daily Telegraph has suddenly found out about them when it is five years too late”.
In 1911, 146 workers, mostly women as in Bangladesh, died in a fire at the Triangle Shirtwaist factory, becoming a catalyst for the growth of the International Ladies’ Garment Workers’ Union, which successfully fought for safer and better conditions for factory workers. In emerging markets, such changes are unlikely.
With its garments intended for foreign markets, the Rana Plaza incident quickly became ‘framed’ from a Western perspective.
Foreign customers were deeply shocked, expressing concern about the unsafe and poor working conditions. Firms who sourced products from the factory went into damage control, concerned about reduced sales and ‘brand damage’ from picketing and threats of consumer boycotts.
Some, like Primark, a low-cost British retailer, and Loblaw, a Canadian clothing firm, accepted some responsibility, agreeing to compensate victims and their families as well as work to improve practices. Others sought to distance themselves from the event, pleading difficulties of policing and ensuring compliance by suppliers who having agreed to meet certain standards outsourced production to non-compliant operations.
Labour rights advocates, local unions and the International Labour Organization (“ILO”) focused on the need for unions to effectively represent worker interests.
Economists argued that the tragic death of workers should not detract from an emerging nation on a positive trajectory.
Outsourcing of manufacturing to Bangladesh had benefitted the emerging country, providing work, improving wages and living standards. A plethora of statistics about economic growth, gross domestic product (“GDP”) per capita, nutrition, health life expectancy, education etc. highlighting development successes were cited. Product boycotts or mandatory improvements in working conditions would set back development resulting in far greater loss of life over time.
Proximate & Fundamental…
The proximate cause of the Rana Plaza collapse is relatively clear.
According to the police report, the original 2006 building approval was for a five-storey building, which was correctly designed and constructed. Subsequently, three more floors were added, with permission based on allegedly false documents. The extension overloaded the structure. Vibration from heavy generators used to provide standby electricity, essential in the sub-continent where there are power shortages and frequent outages, contributed to the collapse.
Warnings were disregarded. Large cracks, which appeared a day or so before the collapse, were inspected but not considered serious. An agreement to suspend production until an inspection by experts from the Bangladesh University of Engineering and Technology (“BUET”) could occur was ignored, to avoid production losses.
The fundamental causes are more complex.
In a globalised world, advances in technology and communication now allow each stage of production to be undertaken in the most efficient location. Businesses seek out competitively priced raw materials, labour and locations to lower costs, enhance profitability and ultimately offer reduced prices to consumers. In practice, production migrates to emerging markets, such as Bangladesh.
There is a race to the bottom in costs and working conditions, as emerging market manufacturers compete for the business of foreign purchasers. Everyone in the supply chain seeks to maximise market share and profitability, sometimes by cutting corners. In emerging markets, corruption and failures of government and business compound these pressures.
Lower costs come from lower wages. In Bangladesh, the minimum wage is US$38 a month with typical take-home pay around US$65, among the lowest rates in the world. Benefits, such as leave, retirement or health benefits, are lower, if they exist at all.
Lower costs also come from less stringent regulations governing workplace safety, industrial pollution and waste disposal. Developed countries have been content to outsource problems of environmental standards and workers’ rights to emerging countries.
Desperately poor and seeking improved living standards for its population, emerging countries embrace this model, which has been the first step in the development of nations in Asia, Latin America, Eastern Europe and Africa.
Bangladesh is now one of the fastest-growing economies in the world, with parallel improvement in several measures of social wellbeing such as child mortality. It is growing at about 5-6% per annum, based substantially on its successful garment industry and the remittances from Bangladeshi migrant workers, employed under frequently poor working conditions in richer Asian and Middle Eastern countries.
The garment industry generates over US$24 billion in revenue, employing about 3.5 million people, mainly young women, and is a major source of foreign currency.
Bangladesh must compete with Vietnam, Cambodia, Laos and Myanmar for foreign clients. Continuous cost pressures and competition make this economic model difficult to sustain. Prices have decreased by 10-12% over the last 5 years. Return on investment in the garment trade has decreased from 50% to 20%, which is close to the cost of debt in Bangladesh, effectively around 15-20%. In turn, this drives further cost reduction measures.
The problems are compounded by Bangladeshi politics, dominated by two parties.
The first is the Awami League, associated with Sheikh Mujibur Rahman who led the campaign for independence from West Pakistan’s military and political establishment. After his assassination in 1975, military regimes forced the party out of power, with its leaders and activists being executed or jailed. Sheikh Hasina, Rahman’s daughter, has headed the party since 1981. She has been Prime Minister since 2009, having also held the position earlier between 1996 and 2001.
The second party is the Bangladesh Nationalist party, associated with General Ziaur Rahman a member of the armed services which killed Sheikh Mujibur Rahman, who seized power in a coup and was himself subsequently assassinated. The party has been led since 1981 by Khaleda Zia, the widow of General Ziaur, who led Bangladesh between 1991 and 1996 and again from 2001 to 2006.
The bitter personal history and rivalry between Sheikh Hasina and Khaleda Zia (known as the “battling begums”) creates an unstable and unpredictable political environment. Weak governments, under either party, habitually persecute opponents. Corruption, rent-seeking and poor administration is pervasive.
Non-government organizations (“NGOs”) complain that hundreds of millions of dollars from state banks and government contracts are unaccounted for. The World Bank withdrew support for a much needed US$2.9 billion bridge across the Padma (Ganges) River, citing corruption issues.
Bangladeshi building regulations are routinely not enforced. Many factories are located in buildings not intended for industrial use and set up without regulatory approval. According to a survey by BUET, up to 60% of all garment factories may be unsafe. Bangladeshi trade unions are also aggressively suppressed.
In this environment, the garment industry exerts significant influence. Some two dozen factory owners are members of parliament. Mohammad Sohel Rana, the owner of Rana Plaza, had links to the Awami League and was a local leader of its youth wing. Mr. Rana, who faces charges over the collapse, allegedly used his influence to obtain approvals from the authorities, even though the building did not comply with standards.
None of this is new in emerging markets. Its origins lie in the colonial past.
Using superior military power and technology, European powers, such as England, Spain, Portugal, Netherlands, Italy, France and Germany, established and maintained colonies in Asia, Africa, and the Americas. The basic driver was cheap resources, labour (often in the form of slavery) and new markets for the colonizing nation’s products.
Colonialism fuelled the growth and prosperity of the old world. Portuguese explorer Vasco da Gama was exultant at being able to buy pepper in the East Indies for 3 ducats a hundredweight from indigenous traders knowing they would fetch for 80 ducats in Venice.
Karl Marx approved: “the question is not whether the English had a right to conquer India, but whether we are to prefer India conquered by the Turk, by the Persian, by the Russian, to India conquered by the Briton”. Whilst recognising that the exploitation of Indian markets and labour by the East India Company for commercial gain, Marx argued that capitalism would transform the subcontinent. India would benefit from the fruits of industrial revolution, such as improved communications and a free press. It was a sentiment worthy of George Macdonald Fraser’s Flashman who regarded the Victorian empire as “the greatest thing that ever happened to an undeserving world”.
Peter Whitfield writing in Travel: A Literary History identified the link between earthly power (wealth) and spiritual glory (Christianity) that provided the justification for colonial conquest:
It amounted to a theory of cultural destiny – that the European maritime nations were destined to bring Christianity and civilization to a pagan and savage world, and their reward was to be the wealth and riches which the indigenous populations themselves were incapable of appreciating and valuing.
Underlying colonialism was what Edward Said in 1978 termed: Orientalism. This was a reference to the patronizing attitude of Westerners towards Asian, Middle Eastern and African societies. They were seen as static and under developed, which a superior West could shape in accordance with its own image. This de-humanising and Europe centric view was recognized by George Orwell writing in 1939 about Marrakech:
When you walk through a town like this – two hundred thousand inhabitants, of whom at least twenty thousand own literally nothing except the rags they stand up in – when you see how the people live, and still more, how easily they die, it is always difficult to believe that you are walking among human beings. All colonial empires are in reality founded upon the fact. The people have brown faces – besides they have so many of them. Are they really the same flesh as yourself? Do they even have names? Or are they merely a kind of undifferentiated brown stuff, about as individual as bees as coral insects? They arise out of the earth, they sweat and starve for a few years, and then they sink back into the nameless mounds of the graveyard and nobody notices that they are gone. And the graves themselves soon fade back into the soil.
Not Free at Midnight
Driven in part by the 1941 Atlantic Charter, many colonies gained independence after World War 2. In his landmark speech on 14 August 1947, Prime Minister Jawaharlal Nehru identified the transcendent hopes of an independent India as well as all former colonies:
Long years ago we made a tryst with destiny, and now the time comes when we shall redeem our pledge, not wholly or in full measure, but very substantially. At the stroke of the midnight hour, when the world sleeps, India will awake to life and freedom. A moment comes, which comes but rarely in history, when we step out from the old to the new, when an age ends, and when the soul of a nation, long suppressed, finds utterance.
The reality proved different.
A combination of casual indifference and malicious design created nation states whose borders ignored important historical, ethnic, tribal, religious and economic differences. It set the stage for frequently violent sectarian conflict in a number of states in Asia, Africa and the Middle East which continues to this day. This impeded development, as political and economic resources were diverted to resolving differences.
Many lacked essential infrastructure, political and social institutions as well as skilled workers to administer the new states, often reflecting a lack of ‘nation building’ by the colonisers.
New found statehood changed but did not eliminate reliance on metropolitan countries, who did not, of course, offer recompense for sometimes centuries of looting or exploitation. Most remained dependent on the colonial power for capital, technology, skills and markets for their products. Developed nations carefully controlled innovation and intellectual property to capture a substantial share of any commerce.
The newly de-colonised world went through several semantic mutations – LDCs (less developed countries); NICs (Newly industrialised Countries); EM (emerging markets); and FM (frontier markets). As the world economy globalised, these nations progressively were forced to join the capitalist caravan train and travel a familiar road.
Initially, foreign investment drove growth as developed countries relocated production facilities utilising low cost local labour or set up facilities to exploit local resources. To foster development, international aid agencies and NGOs advised deregulation and sale of government owned businesses, local assets and business opportunities. Foreigners and favoured locals, sometimes in partnership, purchased assets, frequently at bargain prices and advantageous terms.
Living standards improved, especially for the fortunate and connected. Inequality increased as for the bulk of people there were only minimal improvements through the trickle down of wealth. A small middle class developed. Property and share prices generally rose quickly as capital flowed in attracted by tales of success. To varying degrees, cronyism and corruption increased.
Finally, local constraints, rising costs and demands for a greater share of development from the disadvantaged altered the dynamics. Costs rose to levels that made the economies uncompetitive. The capitalist caravan became restless, seeking newer cheaper locations. Whilst talking up the nation’s prospects especially to foreigners, smart locals shifted money to Switzerland, Luxembourg, Hong Kong or Singapore.
Governments talked bravely about “moving up the value chain”. Ambitious initiatives were launched – the world’s tallest building, the world’s longest building, a new port in a country which has no sea access, bridges over rivers between two cities that did not yet exist, entire new cities! Eventually, the country became mired in seemingly intractable economic, financial and political problems. In extreme cases, it collapsed or became totally dysfunctional.
Bangladesh’s history follows this familiar trajectory. The majority of Bangladeshis already are familiar with what Oscar Wilde identified in The Soul of Man Under Socialism; that capitalism lays upon men “the sordid necessity of living for others”.
Emerging nations, so the argument goes, can develop and rise out of their impoverishment through trade and foreign investment. But most of the trade involves supplying cheap resources, low cost labour and relies on poor environmental and workplace safeguards. For countries like Bangladesh producing cheap clothing for international markets to escape poverty always entailed a risky, uncertain and tragic future.
Much Ado About Death…
In the aftermath of Rana Plaza, despite a flurry of activity, little has changed.
A number of retailers, such Primark and C&A, a Dutch-German company, are involved in an argument with Walmart, Sears, Children’s Place and other American companies whose products were manufactured at Tazreen or Rana Plaza about long-term compensation for workers and their families.
Changes to working conditions and safety have been mooted. Under pressure, the Bangladesh Garment Makers and Exporters Association have agreed to measures to ensure the structural integrity of factories. Western firms are discussing improved working conditions, including funding for the work. But US firms have rejected the European plan, especially proposed dispute resolution and accountability mechanisms.
Following a petition about labour and safety standards from the AFL-CIO, the largest US union federation, the US suspended trade privileges for Bangladesh. The action was symbolic as the suspension from the so-called generalised system of preferences, a status that allows recipient countries to export some goods tariff-free, does not cover garments. The suspension only covers around US$35 million of US imports from Bangladesh which totals around US$5 billion.
The European Union, which purchases 60% of Bangladesh’s garment exports, threatened to restrict duty free access to the European market unless conditions for factory workers improved. But no action was taken because of the retailers’ accord and agreements between the ILO and the Bangladesh government.
Despite that fact that they are unlikely to be implemented or enforced, the garment industry has complained that the measures will be devastating, increasing costs and making Bangladesh uncompetitive globally. In reality, the Rana Plaza collapse or the attempts to improve working conditions has not affected Bangladeshi producers or the garment trade.
Total garment exports are increasing by as much as 15-16% per annum. Bangladesh is now the world’s second-largest garment exporter by value after China, with shipments increasing by more than 500% in the past decade. The industry is likely to continue to expand further, reflecting increasing labour costs in China and Bangladesh’s combination of scale (it has 5,500 factories, about double its closest competitor), low wages and a large workforce with the right requisite skills.
For A Few Cents More…
Over the last 20 years, there have been significant efforts to improve safety in dangerous factories and workplaces in emerging countries, such as Bangladesh. Sadly, there has been limited progress and little can be expected.
The failure can be traced to financial considerations. To improve working conditions, costs will have to increase with the ultimate buyer paying higher prices or everyone in the supply chain -the manufacturers, importers, clothing companies and retailers involved- accepting lower profits.
The costs of improving safety in Bangladesh’s clothing factories to adequate levels is estimated at around $3 billion over a number of years, which would translate into only a few cents per garment. Consumers, business managers and shareholders seem unwilling to accept this outcome.
The Rana Plaza collapse caused public outrage, suggesting real resolve to implement appropriate standards. But the short attention span of the media and Western buyers has meant that the ethical purchasing campaigns, except amongst the most dedicated, have lost momentum. Surveys suggest that only around 10-15% of buyers are likely to enquire where garments were made. In reality, an even lower percentage would change their buying decision even if they were aware of the conditions under which the item was manufactured.
George Orwell was prescient when he wrote that “… we all live by robbing Asiatic coolies, and those of us who are ‘enlightened’ all maintain that those coolies ought to set free; but our standard of living and hence our ‘enlightenment’ demands that robbery shall continue.”