Many countries struggle with creating more and better jobs, especially when they try to increase the number of women in the labor market. Integrating women from more traditional, rural communities is especially difficult. And, if we are talking about a country with the second lowest female labor participation in the world, it might seem like an impossible task. This is exactly the situation that Hashemite Kingdom of Jordan faced a few years ago, and today they provide an interesting example of how innovative policies can address this challenge.
Over the summer I read a few absolutely brilliant books – hence the spate of book reviews. This week I will cover two new studies on development’s biggest recent success stories – China, but first Bangladesh.
How did Bangladesh go from being a ‘basket case’ (though ‘not necessarily our basket case’ – Henry Kissinger, 1971) to a development success story, claimed by numerous would-be fathers (aid donors, NGOs, feminists, microfinanciers, low cost solution finders)? That’s the subject of an excellent new book by Naomi Hossain.
The success is undeniable. Per capita income is up to $2780 from $890 in 1991 (PPP terms). Today, that economic progess is built on 3 pillars: garments (80% of exports, 3m largely female jobs), migration (remittances = 7-10% GDP, about 9m workers overseas, mainly men) and microfinance (which has been used by about half of all households).
But perhaps even more interesting, social progress has outstripped economic growth. Infant mortality down from 258/1,000 in 1961 to 47 in 2011; women were having 7 kids in 1961 and are now having 2. In Hossain’s words (she writes well) ‘Bangladesh is the smiling, more often than not sweetly female, face of global capitalist development. Better yet – she often wears a headscarf as she goes about enjoying her new economic and political freedoms, signalling that moderate Islam can couple with global capitalism.’ (And yes, she does acknowledge that there is still a lot of hunger and deprivation).
The ‘how’ of Bangladesh’s transformation is reasonably well known. What interests Hossain is the ‘why’. It certainly isn’t down to good governance – ‘it has never been obvious why an elite known best for corruption and violent winner-takes-all politics should have committed its country to a progressive, inclusive development pathway.’
On April 24, 2013, a building called Rana Plaza in Dhaka came crashing down on thousands of workers, killing more than 1,100 and injuring more than 2,500 individuals. Unlike any other building collapse, this received widespread international attention - and continues to do so - because the building housed factories that sewed garments for many European and American clothing brands. As a result, a chunk of blame for the collapse and deaths was placed on retailers and brands that outsourced their work to Bangladesh, and particularly Rana Plaza.
Since the tragedy, these retailers and companies, both big and small, utilized several brand reputation management strategies. This, in turn, impacted the policies of the garment industry in Bangladesh. Primarily, two retailer blocs, The Accord and The Alliance, emerged which have created their own local and international dynamics.
The Accord is a legally binding agreement that has been signed by many European and North American companies and allows for factories to be vetted and shut down in case of non-compliance with safety standards. The Alliance, signed by North American groups such as Walmart and JC Penny, however, does not guarantee any such protections and allows companies to use their own rules with any legal requirements.
Interestingly, many companies who are either part of The Alliance or The Accord, choose not to publicise their participation in such agreements on their own websites. This allows them minimize any attention that could turn into criticism while still taking part in initiatives in case there ever is an inquiry from media, regulators, or other interested parties.
Many African countries are striving to move up the global value chain in the footsteps of countries like China and (more recently) Bangladesh. We asked Paul Lister – Director of Legal Services and Company Secretary, Associated British Foods (ABF) – how ABF and its subsidiaries determine where it will source goods. He says that in the end, efficiency is key.
Bangladesh is now the world’s second largest apparel exporter after China. Its garment industry accounts for 80% of its overall exports and around 4 million jobs. Atiur Rahman, Governor of the Central Bank of Bangladesh, tells us that the government sees employment (both formal and informal) as the link between growth and poverty reduction, with an emphasis on inclusive growth policy and financial inclusion.
Promoting competition is considered the best available option for increasing economic well-being. The recent global financial crisis prompted policymakers to reconsider basic assumptions, but the virtues of competition were not among them. However, gone are the days when practitioners slept sound thinking the economy, if left alone, is self-correcting.
The limitations of competition as a force for universal good are well-known. Consumers can be inadequately informed, making it possible for firms to take advantage of them. The intrinsic difficulty of matching skills to positions and the costs associated with moving jobs may make workers stay with abusive employers. More basically, in a world where people have imperfect information and workers can’t always leave their employer, firms may be able to respond by cutting corners and abusing consumers and workers.
Is the problem with competition itself or the legal and informal institutions that yield this type of competition? The answer depends in part on one’s ideological lens—namely the belief of competition existing outside a regulatory framework, necessitating governmental intervention in the marketplace versus the belief that regulatory forces help create, define, and nurture competition in the market, necessitating improvements to the legal framework if competition is failing.
Some policies that supposedly restrict competition are justified for promoting competition. Intellectual property rights, for example, can restrict competition along lets say the use of a trade name. But the argument is that intellectual property and antitrust policies complement, rather than conflict, one another in promoting innovation and competition.
Life will surely be more stressful if we needed to compete for everything. Cooperation is often more relaxing. Society and competitors at times benefit when rivals cooperate in joint ventures to address collective needs. Competition can make people less cooperative, promote free-riding, and reduce contributions to public goods, thus leaving society worse off.
The point is not all forms of competition are beneficial. Just as athletic contests distinguish between fair and foul play, the law distinguishes between fair and unfair methods of competition. Bangladesh’s garment industry is a contemporary case in point. The collapse of Rana Plaza in Bangladesh brought to the fore the pathetic state of working conditions in many factories serving the global supply chains. The structure of the supply chain itself—the relationship among regulators, buyers, suppliers, and workers—is fundamentally related to these problems.
The practice of subcontracting is routine in Bangladesh’s garment industry. The prevalence of competitive indirect sourcing strategies has resulted in a supply chain driven by the pursuit of nominal cost minimization. It has increased risks for business and workers by undermining prices, wages, working conditions, and investment in productivity and quality. The apparel units engaged in sub-contracting are mostly non-compliant particularly in paying wages and maintaining safety standards.
Question is why do compliant factory owners take recourse to such sub-contractors? Major global buyers see Bangladesh as a market where they can obtain the most competitive prices for a high volume of lower end products. Consequently, they set low price targets. The manufacturers compete for large orders by undercutting each other, further driving down the prices. They make delivery commitments far in excess of their capacity to produce without breaching compliance. When prices are dramatically driven down, the natural tendency of a garment manufacturer is to manage their unit at a least cost with regard to overheads and wages. The pressure to drive these down arise inevitably.
Lessons on Governance from Bangladesh’s Garment Industry
One year ago today, in the outskirts of Bangladesh’s capital city, an eight-story garment factory collapsed of its own weight, killing 1,130 young workers and injuring thousands more. The ghastly photos of bodies trapped in the Rana Plaza wreckage provoked outrage in the wealthy world, targeted largely at global retailers who purchased garments there. North American and European consumers called for measures to ensure safe conditions and humane treatment for Bangladeshi garment workers, mostly young women from poor families in remote rural areas. Many called for a boycott of the big-box retailers and of the Bangladeshi products they sell.
I had just moved from Bangladesh to Europe at the time, and my advice to friends who asked was: “Go ahead and buy those skinny jeans or that tank top if you want. It’s the right thing to do for Bangladesh and its young workers.”
The fallout from the April 24 collapse of the Rana Plaza building in Dhaka, Bangladesh has had severe domestic and international reactions. The international buyers and governments have responded vehemently to these events. Careful reappraisal of labor issues has been universally identified as a key area of reform. The objective is to ensure workers’ safety and workers’ rights. Poor labor standards can adversely affect Bangladesh’s overall reputation in the exporting sector. The government has been pressured to take a series of measures to improve workers’ safety. Representatives of the Bangladesh government, the European Union and the International Labor Organization met in Geneva on July 8, 2013 to promote improved labor standards and responsible business conduct in Bangladesh’s garment industry. Following up on the commitments made in Geneva, Bangladesh’s legislature recently amended the Bangladesh Labor Law to provide improved protection, in law and practice, for the fundamental rights to freedom of association and the rights to collective bargaining, among others.
Are these good economics and good politics now and in the future?
The garment industry in Bangladesh has been subject to several tests of resilience in recent years—global recession, energy shortage, input price increases, and labor unrest. Of late, the labor unrest has escalated apparently triggered by disagreement over re-fixation of minimum wage. The workers, for quite some time now, have been pressing for adjustment in minimum wage that was last increased in 2006, after 12 years, from Tk. 930* (about $60 in PPP) per month to Tk. 1,662 (about $108 in PPP) per month. The government in April 2010 committed that a new pay-scale for the RMG workers will be announced before Ramadan, and formed a Wage Board for making the wage recommendations. For reasons not yet fully understood, the labor unrest was reignited recently without waiting to hear what the Wage Board’s recommendations are. However, it is abundantly clear that dissatisfaction with the nominal level of the minimum wage is at the center of the discord between garment owners and workers.
- South Asia
- Macroeconomics and Economic Growth
- Private Sector Development
- Social Development
- Labor and Social Protection
- Urban Development
- garment industry
- Minimum Wage
- Purchasing Power
- Household Size
- Bangladesh Garment Manufacturers and Exporters Association
- Wage theory
When I was asked to look back at Cambodia's economy in 2009 and ahead to 2010, I began to wish I had some magic tools such as this ox (although in that case, the ox was not that magical, since the 2009 harvest turned out to be quite good).