The following first appeared in the January 30, 2013, edition of The Daily Campus. Rahfin Faruk is Editor-in-Chief of The Daily Campus and a sophomore President's Scholar majoring in political science, economics and public policy. During summer 2012, he interned at Grameen Bank in Bangladesh and blogged about his experiences.
February 6, 2013
By Rahfin Faruk
After the Nov. 24 factory fire that took 112 lives, Bangladesh’s ready-made garments industry appeared to be at a crossroads.
Moral outrage over poor working conditions poured in from all over the world. Consumer pressure mounted against retailers like Walmart and Sears, multinational corporations that had used the unsafe factory. Domestically, Bangladeshi citizens bickered at the collusion between the government and business owners, which had led to a poor regulatory landscape.
Two months after the deadly fire, a Jan. 26 fire has claimed seven lives. Dangerous workplace conditions in Bangladesh remain the norm. Building fires have killed more than 600 garments workers since 2005, according to research by the advocacy group International Labor Rights Forum.
To industry analysts, the solution to unsafe factories is simple: investment and regulatory compliance. But the real solution is dependent on multinational corporations, the entities that control compensation and sourcing contracts for factories. Bangladesh has more than 4,500 factories, many of which are small enterprises. Ready-made garments factories compete against each other, driving the prices of contracts down. Because profits from the sourcing contracts are low — nothing comparable to the storefront profits of companies like Nike and Ralph Lauren — factory owners are forced to cut down on costs.
Labor, the costliest input next to raw materials in the production process, is the victim of the current compensation process. Most of Bangladesh’s more than 4 million garments workers, who are largely unorganized, work at the minimum wage of $37 a month.
Real wages are often less than $37, as cash-strapped owners withhold the first month’s pay and fine workers for small infractions like reporting a minute late to work. Much like the abusive American factory of the early Industrial Revolution, workers are deducted rent and food costs from an already low salary.
The Bangladeshi government, the key player in setting wage levels, also remains handcuffed because of the current compensation system.
Bangladesh, once predicted to be a basket case for the rest of time by Henry Kissinger, was aid-dependent well into the 1980s.
With the aid of remittances and the rise of the garments industry, Bangladesh has experienced economic growth. It has seen dramatic improvements in development, especially in financial access, health and women’s empowerment.
But, part of Bangladesh’s revenue stream, remittances, are often unreliable. During the 2008 global construction crisis, hundreds of thousands of Bangladeshi workers were stranded in the Middle East without work — and thereby unable to remit money back home.
During the same time, the Bangladeshi garments industry, which constitutes more than 80 percent of all Bangladeshi exports, continued to be in demand.
The industry, as a recent report by McKinsey & Co. concludes, could double in the next 10 years and eventually grow to replace China as the world’s leading garments producer. Bangladesh’s garments industry attracts corporations away from China because of its low wages.
Neither major party, the Awami League or the Bangladesh Nationalist Party, which have exchanged power for the last 2 decades, can tweak the current formula — low wages and poor working conditions — without risking social instability.
There is no guarantee that a higher minimum wage will keep sourcing contracts coming in. Retailers might leave Bangladesh just as they are currently leaving China.
Millions of unemployed protesting in the capital city of Dhaka, the center of garments activity, is a result that both parties want to avoid at all costs.
According to multiple labor organizations, it would cost less than 10¢ per garment to guarantee safer factories in Bangladesh. Corporations, the “controllers” of the compensation system, need to take the lead in finding an extra dime in their supply chains, or Bangladesh’s tragic news cycle will continue to repeat itself: the same poor working conditions, the same unnecessary loss of lives.
# # #