Mike Flanagan compares and contrasts government policy in China and Bangladesh and suggests it has a major role to play in the difference between the health of the two countries' garment industries.

Two equally paradoxical garment trade stories during July do more to explain the state of the industry today than anything else.

  • While Western media worked itself into an orgy of speculation about clothing buyers quitting China because wages were going up, Chinese clothing exports were reported to have risen 27% year-on-year in June - bringing first-half growth to 15.3%. Chinese apparel prices to the US were actually LOWER in May (the latest period for which there's adequate data) than they'd been earlier in the year.
  • But in Bangladesh, we saw the garment industry seriously disrupted in July as factories were forced to close by widespread, violent riots. The riots were a reaction by some workers to the announcement that minimum monthly wages would increase by 80% from November, from BDT1,662 ($24) to BDT3,000 ($43.50). And they're possibly the first riots in history caused by the near doubling of wages.

Much of the difference between the health of the two countries' garment industries is the result of their governments' policy.

  • Minimum wages in the Bangladesh garment industry are awful. The minimum wage set in 2006 (on the basis of 2005 costs) was awful at the time - and in spite of runaway food inflation nothing's been done to adjust the wage since.
  • In China, by contrast, government policy has required regular wage adjustments.
  • In late April, amid the last outbreak of violence, the Bangladesh Labour and Manpower Minister Mosharraf Hossain said a new basic pay scale for the garment industry would be "implemented before the month of Ramadan" (which this year starts on August 11). A few days later, his prime minister reportedly went further, promising the minimum wage would be trebled to BDT5,000. She's repeatedly described the minimum wage as "inhumane".
  • Whatever China's rulers might think of the country's basic wages, they've kept their views to themselves - or shared them only with other decision-makers. No Chinese politician has ever publicly committed to something he couldn't guarantee.
  • Bangladesh factory owners made it clear that neither a trebling of wages, nor universal implementation in August, was possible without widespread factory closures. They manufacture to contracted prices: the overnight doubling or trebling of any major cost would mean they were making at a loss - and would wipe out the poorly-capitalised businesses, many forever teetering on the edge of bankruptcy, that make up most of the country's apparel industry. The Bangladesh government did absolutely nothing to make its irresponsible claim of an immediately trebled wage achievable.
  • In China, adjustments to minimum wages have consistently gone hand in hand with significant advance notice and careful manipulation of banks' preparedness to extend credit.

Two more cards to play
The outside world then threw two jokers into the pack.

Firstly, on 21 July, a group of British and North American political activists paid for an advertisement (in Bengali) in the Bangladesh press advising worker negotiators to settle for "Not one Taka less than 5,000."

The activists were led by the US United Steelworkers union and the UK's Unite union - neither of whom have any serious connection with the garment industry. Now rightly or wrongly, many Bangladesh factory owners have an almost a maniacal conviction that worker unrest is being stirred up by foreign agitators.

Many readers of this column, of course, might think workers earning $24 a month don't need foreign agitators' help to get annoyed at their wages. But did any of the interfering foreigners paying for this advertisement really think it would help matters?

How would the Unite union (which represents some British Airways staff) react to ads in the British press from American Airlines advising BA not to accept union demands? Would the American United Steelworkers Union sit back if there were ads in the US press by Indian steel mills telling US steel companies what to do? 

In practice, the ad just provided Bangladeshi businesses with more evidence the workers' campaign was a foreign plot to destroy Bangladesh's only successful manufacturing industry. And it would never have been allowed in China.

Secondly, if workers were angry in April, they were angrier still as July went on. When wage negotiations started, Bangladesh's inflation was beginning to fall - and non-food inflation still is falling. But food inflation - the one number that matters to minimum wage garment workers - is on the rise: rice prices in May rose by between 18% and 32%, according to the Trading Corporation of Bangladesh.

Even the country's central bank agrees that "gains from inflation go to the affluent while the pains go to the low income population". Basic food prices are going to get worse. It's not just rice: with the newly-virulent wheat rust disease hitting India's Punjab, and drought and fires wiping out a fifth of Russia's wheat crop, the global price of wheat flour for chapattis is about to soar as well. 

Unrealistic expectations
By the end of July the next steps were painfully predictable. Workers expected an immediate hefty pay rise because their government told them they were going to get it. Factories couldn't afford it, but when the announcement of an 80% wage rise was made workers were angrier than they'd have been a few months earlier. And factory owners had all the evidence they needed that the anger was all the result of foreign interference.

So what would China do under the circumstances?

  • First, it would make sure businesses could afford to pay decent wages. Most activist propaganda likes to pretend Bangladesh's 5,000 garment factories are owned by filthy rich capitalists who could easily afford to pay properly.

    They're not (how many Bangladeshi billionaires have you heard of?). They're run by terrified businessmen, many just one bad QC report from collapsing, and almost all financing their operation by what they've saved during a life that started as a minimum wage garment worker.

    They pay rotten money because they're forking out excessively high interest rates on what little they can borrow from banks, paying through the nose for uncertain power supplies, endlessly having to airfreight garments delayed by riotous strikes, and spending what little's left bribing customs officials to clear garments and raw materials before they die of old age.

    China's more business-friendly working environment isn't, as anti-business activists pretend, all about exploiting workers: it's about access to finance, reliable energy supplies and more or less honest, efficient and prompt customs officials.

  • Second, China would - brutally if necessary - prevent foreign busybodies from sticking their noses where they don't belong. I'm not advocating that: but there's a world of difference between the megaphone stunts of foreign steel and airline unions on the one hand and the quiet, diligent and properly informed behind-the-scenes lobbying of worker unions that understand the industry.

    The much-mourned Neil Kearney, of the International Textile, Garment and Leather Workers' Federation, would have been giving both sides of the negotiation helpful advice. But outsiders who lack his much-missed tact and good sense should simply shut up.

  • Third, the Chinese government wouldn't have got into this mess. By legally enforcing annual wage rises in line with the rise in the cost of living, and encouraging the beginning of unions in its factories, worker tensions wouldn't have been allowed to get to the state they're in today.
  • Fourth, China would be interfering in the economy. Finding ways of limiting the effect of soaring food costs, and strong-arming banks into ensuring businesses had affordable credit to survive during a cost blip.
  • And fifth: it wouldn't be blaming its customers. Bangladesh factory owners are now saying they can only pay the 80% wage increase if Western retailers pay more. But if Bangladeshi prices rise, why should any buyer put up with the difficulties of operating there? Responsible buyers do need to give Bangladesh some leeway - but they can't go on doing that forever, if other countries like China offer more reliable service.

Being the government in an unruly democracy like Bangladesh isn't easy. But the Bangladesh economy relies on selling clothes to a few dozen European and American retail chains more than any country, anywhere, has ever done.

There really are lessons to be learned from China in how government action helps drive this business, while still improving the economic condition of its workers.

The evidence right now is that growth in China's garment exports can happily co-exist with continuous improvement in its workers' living standards.

It's about time we stopped attacking its supposed poor ethics or alleged underhand subsidies and started learning how it's achieving something that looks increasingly unlikely in Bangladesh.