Comment: Bangladesh at a crossroads
By David Birnbaum | 25 September 2012
The Bangladesh garment export industry has been built on the pillars of cheap labour and reliability. But the two are increasingly proving to be incompatible - and it is now time to bring all the stakeholders together - factory suppliers, customers, government and workers - to create a viable comprehensive and integrated solution.
Bangladesh is now home to the world's second-largest garment export industry. Its success is based on two great advantages:
- Cheap labour: With a current minimum monthly wage of $36.50 per month (14¢ per hour), Bangladesh offers the lowest wages of any major garment exporting country.
- Reliability: The government gives priority to the garment industry. Garment making and exporting is not only Bangladesh's largest industry, it is virtually Bangladesh's only industry, accounting for over 80% of export trade and the only large-scale alternative employment to subsistence farming. Government recognises that without a viable garment export industry, the Bangladesh economy would simply disintegrate. As a result, despite the many social, political and economic disturbances common to all least-developed-countries (LDC), the Bangladesh government ensures that garment production and delivery remains unaffected by outside turmoil.
Regrettably low wages and reliability have proven to be incompatible. In March 2012, the industry faced a series of crippling strikes, with workers demanding better conditions and a 50% increase in minimum wages. Production fell, exports fell and market share fell. The situation spiralled out of control when, on 11 April, the tortured body of a labour leader was discovered.
In July executives from 12 major garment importing companies, in a return to the 19th century concept of enlightened self interest, approached the Bangladesh government to suggest they accept workers' demands and increase minimum wages by at least 50%.
To give the customers full credit for their altruism, retailers and brand importers have become increasingly more socially responsible, leading the fight against pollution, global warming and for increased sustainability. In this regard, supporting workers' rights in Bangladesh is one more step in the right direction.
At the same time, the customers were very smart to begin their fight for workers' rights in Bangladesh, which has become the poster picture for the worst of the garment exporting countries' excesses.
More practically, going to the government rather than to their suppliers makes sense, since customers would like be seen to support wage increases, without becoming directly involved in the negotiations.
In a sense this is not their fight. This is a factory problem. To the customer even a 100% wage increase would increase total cost by 0.15%, a negligible amount. To the factory however, the same wage increase will reduce net profits by 14%.
The difficulty is that the current solutions - a 50% or even a 100% wage increase - will do nothing to solve the fundamental challenges facing the Bangladesh garment industry.
On the one side, many knowledgeable individuals and groups see the efforts by government and importers to solve the current problems as just one more example of the dishonest collusion between suppliers and their customers to exploit the workers on whom both must rely.
To the cynical, going to government is a win-win situation for both customers and their suppliers. Since the Bangladesh government does nothing to enforce their labour laws, the customers can look good, while the factories can continue without making any changes whatsoever.
Regrettably this cynical view subsequently gained added plausibility. At the very moment when customers, suppliers and government were working to solve the current problem, one major transnational Hong Kong factory group took matters into its own hands and sent its own executives to its Bangladesh branch to negotiate an end to the strike.
Their solution was not to compromise but rather to tough-it-out. They offered striking workers a take-it-or-leave-it wage reduction. Accept lower wages or we close the factory. This threat has not helped the situation.
All but forgotten is the other side where many of the most successful Bangladesh factories, particularly those producing higher quality goods, have traditionally paid wages well above minimums. They take the attitude that paying a wage premium provides a more committed stable workforce which allows for better training and increased productivity.
At the same time, other factories have moved quickly and sensibly to increase wages in line with workers' demands.
Too little too late
The Bangladesh government and its industry must recognise that its two great advantages - Cheap labour and Reliability - are not of equal value. Customers work in many countries where labour rates are relatively high, but invariably flee countries which prove to be unreliable.
In our industry there is no such thing as too-big-to-fail. Our history is littered with the remains of large-scale national garment export industries who believed they were irreplaceable up to the very moment when the customers walked out.
If the Bangladesh garment exporting industry is seen to be unreliable because of late delivery due to strikes, customers will leave. If Bangladesh factory owners are seen to be the modern day slavers, their industry will be seen to be unreliable and customers will leave.
It is time to bring all the stakeholders together - factory suppliers, customers, government and workers - to create a viable comprehensive and integrated solution.
This will not be an easy job. The good news is that the customers still hope for a solution and are willing to play a positive role to achieve it. However, hope and willingness have limitations. The customers can walk away.
Those on the other side - the factories, government and workers - are stuck. If they recognise that their common interest lies in a successful reliable garment industry they can solve the serious problems they face.
If they cannot work together now, in the future there will be no work at all.
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Comment: Bangladesh at a crossroads