Bangladesh is a dangerous place to work in a factory. More than 400 people died in the recent Rana Plaza factory collapse, and more than 100 in a factory fire last November. Local health and safety regulations are so weak that last spring, even before the Rana Plaza disaster, executives at Disney (DIS) decided they would no longer source toys and apparel from Bangladesh. The company felt the risk to its reputation wasn’t worth the low cost of production.
But pulling out of Bangladesh is the wrong call. The right response of the Western retailers who source from Bangladesh is not to walk away from the country but to work with officials and owners to make the situation better. And consumers who claim to care about people in developing countries should shop at retailers who make that choice.
The recent tragedies should have been prevented. The Rana Plaza building’s foundations were substandard, and the top floors had been added without a permit. Government officials had asked managers to close temporarily after structural problems were found the day before the collapse, but garment factory owners told their employees to keep on working. Many of those workers—earning somewhere around $40 a month—paid with their lives.
At the same time, jobs in the garment industry in Bangladesh are better than other options. Work by Abhijit Banerjee and Esther Duflo at MIT, among others, suggests that for people in the developing world, a steady paycheck is better than small-scale farming, or microenterprise, or scraping by in the informal sector—just as it is preferred by most in the rich world. In countries like Bangladesh, the vast majority still do work in small-scale farming and the informal sector. But demand for products made in Bangladesh by Wal-Mart (WMT), Gap (GPS), and other retailers helped create jobs for 3.6 million garment workers in the country.
Bangladesh has benefited from the fact that China is growing too rich—and its workers too well paid—to compete in the garment industry. In turn, China benefited from Japan pricing itself out of the global market for cheap, labor-intensive goods. The much lauded East Asian Miracle—which has lifted billions of people out of absolute poverty—owes a lot to cheap manufacturing. And that means if Western companies walk away from poor country suppliers, they’re kicking rungs out of the ladder.
The garment industry boom has had a huge impact on Bangladesh. Garments account for 75 percent of the country’s exports. It’s one reason why GDP growth in Bangladesh averaged 5.9 percent a year from 2000 to 2011, and the percentage of the population living on less than $1.25 a day fell from 59 percent to below 43 percent.
And while there’s a lot more to health than wealth, progress against poverty saves lives, too. In part because Bangladesh remains such a poor country, nearly one in 20 kids dies before his or her fifth birthday. That means more than 130,000 kids born this year in Bangladesh will be dead by 2018. A lot of those kids are dying from cheaply preventable conditions, such as diarrhea and respiratory infections. Forty-one percent of children in the country are underweight. Being poor is a health risk all by itself, and the global trade in clothing is one factor making the average person in Bangladesh a little bit richer.
Added to the fact that garment exports are helping to lift Bangladeshis out of poverty, foreign companies are actually helping to improve labor standards in the country. Political scientist Layna Mosley, at the University of North Carolina at Chapel Hill, has found that trading with countries such as the U.S. appears to be a powerful tool for countries like Bangladesh to improve their labor standards. Safety norms tend to be set by Western retailers and then passed down to manufacturers in developing countries.
At the same time, the recent tragedies in Bangladesh show that multinational companies can and should do more to make sure those standards are enforced. In response to the November fire, Wal-Mart gave $1.6 million to Bangladesh’s Institute of Sustainable Communities to set up a health-and-safety academy in the country. But the retailer should go further—by asking suppliers to sign on to commitments such as theBangladesh Fire and Building Safety Agreement, which mandates independent inspection and renovation of factories deemed unsafe. PVH, which owns Calvin Klein and Tommy Hilfiger, backs a plan in which Western retailers would finance safety improvements in Bangladeshi factories—so long as its competitors come on board as well. They should.
Improving worker safety doesn’t even need to be that expensive. The International Labor Organization and International Finance Corporation (the private-sector arm of the World Bank) has developed the Better Work program to help countries enforce labor laws while sustaining productivity growth. According to the Center for Global Development’s Kim Elliot, research in Cambodia and Vietnam suggests that the Better Work program and related efforts have improved not only working conditions but also industrial relations without reducing productivity .
The answer for companies like Disney, Wal-Mart, and PVH is to stay and do better, not run away. Caring consumers in the U.S. should be pushing for responsible sourcing but should continue buying products made in the developing world. It is one of the most powerful antipoverty techniques we know. That can improve lives—and save them—well beyond the factory floor.
Source : Bloomberg Business Week | May 5, 2013