This article is from Dollars & Sense: Real World Economics, available at http://www.dollarsandsense.org/archives/2013/0913miller.html


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This article is from the September/October 2013 issue of Dollars & Sense magazine.

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After Horror, Apologetics

Sweatshop apologists cover for intransigent U.S. retail giants.

BY JOHN MILLER | September/October 2013

Bangladesh just isn’t rich enough to support the sort of worker safety laws that we have ourselves. ...

[S]horter working hours ... , safer workplaces, unemployment protections and the rest ... are the products of wealth. ...

[A]ll of us who would like to see those conditions improve ... should be cheering on the export led growth of that Bangladeshi economy.

—Tim Worstall, “Sadly, Bangladesh Simply Cannot Afford Rich World Safety And Working Standards,” Forbes, April 28, 2013.

The April 24 collapse of the Rana Plaza building, just outside of Dhaka, Bangladesh’s capital city, killed over 1,100 garment workers toiling in the country’s growing export sector.

The horrors of the Rana Plaza disaster, the worst ever in the garment industry, sent shockwaves across the globe. In the United States, the largest single destination for clothes made in Bangladesh, newspaper editors called on retailers whose wares are made in the country’s export factories to sign the legally binding fire-and-safety accord already negotiated by mostly European major retailers. Even some of the business press chimed in. The editors of Bloomberg Businessweek admonished global brand-name retailers that safe factories are “not only right but also smart.” But just two U.S. retailers signed on, while most opted to sign a non-legally binding ersatz accord.

The business press, however, also turned their pages over to sweatshop defenders, contrarians who refuse to let the catastrophic loss of life in Bangladesh’s export factories shake their faith in neoliberal globalization. Tim Worstall, a fellow at London’s free-market Adam Smith Institute, told Forbes readers that “Bangladesh simply cannot afford rich world safety and working standards.” Economist Benjamin Powell, meanwhile, took the argument that sweatshops “improve the lives of their workers and boost growth” out for a spin on the Forbes op-ed pages.

The sweatshop defenders are twisting Bangladesh workers’ need for more and better jobs into a case for low wages and bad working conditions. Their misleading arguments, moreover, are no excuse for major U.S. retailers to refuse to sign onto the European-initiated safety agreement, a truly positive development in the fight against sweatshops.

More Jobs, Not More Sweatshops

Bangladesh is “dirt poor,” as Worstall puts it. The country is on the United Nations’ list of 46 Least Developed Countries. Its gross domestic product (GDP) per capita, the most common measure of economic development, is about one-fiftieth that of the United States.

The garment industry is the leading sector of the Bangladeshi economy, responsible for some 80% of total exports by value. Bangladesh’s garment exports tripled between 2005 and 2010, boosting the nation’s growth rate. By 2011, Bangladesh was the third-largest exporter of clothes in the world, after China and Italy.

On top of that, the garment industry has provided much-needed jobs. Bangladesh has about 5,000 garment factories that employ 3.6 million workers, the vast majority of them women. Wages for women in the garment industry were 13.7% higher than wages for women with similar years of education and experience in other industries in Bangladesh, according to a 2012 study. And the most common alternative employments for women, such as domestic service and agriculture labor, pay far less than factory jobs.

Still, none of that is a good reason to endorse sweatshops.

While Bangladesh’s garment industry boosted economic growth and added to employment, neither its horrific working conditions nor its dismally low wages improved without government intervention.

Rana Plaza was a deathtrap. But it was only the latest tragedy to have struck Bangladeshi workers sewing garments for major U.S. and European retailers. Less than five months earlier, a devastating fire at Tazreen Fashions, a garment factory not far from Rana Plaza, killed 117 workers. In addition to the 1,129 workers killed at Rana Plaza, more than 600 garment workers have died in factory fires in Bangladesh since 2005, according to Fatal Fashion, a 2013 report published by SOMO Centre for Research on Multinational Corporations. From 2000 to 2010, wages in the garment industry remained flat, according to a survey conducted by War on Want, a British nonprofit. Even after the minimum wage in the garment industry nearly doubled in 2010, itself part of the fight against sweatshop conditions, wages remained among the lowest in the world. A seamstress in Bangladesh earns less than $50 a month, versus $100 in Vietnam and $235 in China, according to World Bank data. The bottom line, as Businessweek puts it, is that “Bangladesh’s $18 billion garment industry relies on super-low wages and women desperate for work.”

This does not mean that trying to improve these conditions is a futile undertaking. Safer working conditions and higher wages are unlikely to stand in the way of investment in Bangladesh’s garment industry and job creation.

Factory costs, including wages, make up only a small portion of the overall cost of most garments. Leading Bangladesh garment makers told Businessweek that their total factory costs for a $22 pair of jeans was just 90 cents. That’s just 4% of the price paid by consumers. On the other hand, a 2009 study of the sales in a major New York retail store found that the company could use “social labeling” to charge up to 20% more and still expect sales revenues to rise. In other words, doubling the wages paid to Bangladeshi garment workers and at the same time improving working conditions would not have to diminish retailer revenues.

Nor does improving worker safety have to be that expensive. The Worker Rights Consortium, an independent labor-rights monitoring group, estimates that it would cost an average of $600,000 to elevate each of Bangladesh’s 5,000 factories to Western safety standards, for a total of $3 billion. If the $3 billion were spread over five years, it would add an average of less than 10 cents to the price paid by retail companies for each of the 7 billion garments that Bangladesh sells each year to Western brands.

How to Stop Sweatshop Abuse

For sweatshop apologists like Worstall and Powell, yet more export-led growth is the key to improving working and safety conditions in Bangladesh. “Economic development, rather than legal mandates,” Powell argues, “drives safety improvements.” Along the same lines, Worstall claims that rapid economic growth and increasing wealth are what improved working conditions in the United States a century ago and that those same forces, if given a chance, will do the same in Bangladesh.

But their arguments distort the historical record and misrepresent the role of economic development in bringing about social improvement. Working conditions have not improved because of market-led forces alone, but due to economic growth combined with the very kind of social action that sweatshops defenders find objectionable.

U.S. economic history makes that much clear. It was the 1911 Triangle Shirtwaist fire, which cost 146 garment workers their lives, along with the hardships of the Great Depression, that inspired the unionization of garment workers and led to the imposition of government regulations to improve workplace safety. Those reforms, combined with the post-World War II economic boom, nearly eliminated U.S. sweatshops.

Since then, declining economic opportunity, severe cutbacks in inspectors, and declining union representation have paved the way for the return of sweatshops to the United States. This trend further confirms that economic development, by itself, will not eliminate inhuman working conditions.

In contrast, a combination of forces that could eliminate sweatshops is forming in Bangladesh today. Despite the government’s record of repressing labor protest and detaining labor leaders, the horror of the Rana Plaza collapse has sparked massive protests and calls for unionization in Bangladesh. In reaction, the government has amended its labor laws to remove some of the obstacles to workers forming unions, although formidible obstacles remain (including the requirement that at least 30% of the workers at an entire company—not at a single workplace as in the United States—be members of a union before the government will grant recognition).

Meanwhile, 80 mostly European retail chains that sell Bangladesh-made garments have signed the legally binding Accord on Fire and Building Safety in Bangladesh. For the first time, apparel manufacturers and retailers will be held accountable for the conditions in the factories that make their clothes. This “joint liability” aspect, a long-held goal of labor-rights advocates, is precisely what makes this international accord so important.

Negotiated with worker-safety groups and labor unions, the five-year accord sets up a governing board with equal numbers of labor and retail representatives, and a chair chosen by the International Labor Organization (ILO). An independent inspector will conduct audits of factory hazards and make the results public. Corrective actions recommended by the inspector will be mandatory and retailers will be forbidden from doing business with noncompliant facilities. Each retailer will contribute to the cost of implementing the accord based on how much they produce in Bangladesh, up to a maximum of $2.5 million over five years to pay for administering the safety plan and pick up the tab for factory repairs and renovations. The accord subjects disputes between retailers and union representatives to arbitration, with decisions enforceable by a court of law in the retailer’s home country.

The signatories include Swedish retailer Hennes and Mauritz, which has more of its clothes made in Bangladesh than any other company; Benetton Group S.p.A., the Italian retailer whose order forms were famously found in the rubble of the collapsed Rana Plaza factory; and Canada’s Loblow Companies, whose Joe Fresh clothing was also found at Rana Plaza. Together, their clothes are made in over 1,000 of Bangladesh’s 5,000 factories.

However, only two U.S. companies, Abercrombie & Fitch and PVH (parent of Tommy Hilfiger and Calvin Klein), have signed the accord. Walmart, The Gap, J.C. Penney, Sears, and the rest of the major U.S. retailers doing business in Bangladesh have refused. The industry trade group, the National Retail Federation, objected to the accord’s “one-size-fits-all approach” and its “legally questionable binding arbitration provision” that could bring disputes to court in the highly litigious United States. Several of those retailers cobbled together an alternative agreement signed so far by 17 mostly U.S. retailers.

But their “company-developed and company-controlled” plan, as a coalition of labor-rights groups described it, falls well short of the European-initiated plan. It is not legally binding and lacks labor organization representatives. Moreover, while retailers contribute to the implementation of their safety plan, they will face no binding commitment to pay for improving conditions. An AFL-CIO spokesperson put it most succinctly, “This is a matter of life or death. Quite simply, non-binding is just not good enough.”

is professor of economics at Wheaton College and a member of the Dollars & Sense collective.

Benjamin Powell, “Sweatshops in Bangladesh Improve the Lives of Their Workers, and Boost Growth,” Forbes, May 2, 2013; JSOMO Centre for Research on Multinational Corporations and Clean Clothes Campaign, Fatal Fashion, March 2013; International Labor Rights Forum, “Accord on Fire and Building and Safety in Bangladesh,” May 13, 2012; Michael Hiscox and Nicholas Smyth,“Is There Consumer Demand for Improved Labor Standards: Evidence from Field Experiments in Social Labeling,” Department of Government, Harvard University, 2012; Rachel Heath and Mushfig Mubarak, “Does Demand or Supply Constrain Investments in Education? Evidence from Garment Sector Jobs in Bangladesh,” Aug. 15, 2012; Rubana Huq, “The Economics of a $6.75 Shirt,” Wall Street Journal, May 16, 2003; “Halfhearted Labor Reform in Bangladesh,” New York Times, July 17, 2013; International Labour Organization, “A Handbook on the Bangladesh Labour Act, 2006”; Renee Dudley, “Bangladesh Fire Safety to Cost Retailers $3 Billion, Group Says,” Bloomberg Businessweek, Dec. 10, 2012; Mehul Srivastava and Arun Deynath, “Bangladesh’s Paradox for Poor Women Workers,” Bloomberg Businessweek, May 9, 2013; Mehul Srivastava and Sarah Shannon, “Ninety Cents Buys Safety on $22 Jeans in Bangladesh,” Bloomberg Businessweek, June 6, 2013; “Bloomberg View: How to Fix Bangladesh’s Factories,” Bloomberg Businessweek, May 2, 2013; Steven Greenhouse and Stephanie Clifford, “U.S. Retailers Offer Plan For Safety at Factories,” New York Times, July 10, 2013; Alliance for Bangladesh Worker Safety, “Alliance of Leading Retailers in North America Join Forces in Comprehensive, Five-Year Commitment to Improve Factory Safety Conditions For Workers in Bangladesh,” press release, July 10, 2013.

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