The Cost of Saving Lives in Bangladesh

The hard decisions that need to be made to prevent another tragedy like garment factory collapse that killed over 1,000 people.
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Workers carry the bodies of unidentified garment workers, who died in the collapse of the Rana Plaza building in Savar, in Dhaka on May 1, 2013. (Andrew Biraj/Reuters)

The horrific death of more than 900 Bangladesh garment workers in the collapse of a building, following the death of 112 garment workers in a Bangladesh factory fire five months ago, has led, of course, to the inevitable calls for reform. The immediate question is how to ensure structural soundness of factories after the multi-storied Rana Plaza facility--making garments for as many as 30 international retailers--broke apart, burning, suffocating and crushing its workforce. But broader issues of worker health and safety for Bangladesh's 5,000 garment factories have also come to the fore.

But if real reform is to occur on the ground, hard, complex questions must be asked and answered. Most importantly, what is the cost of necessary changes to protect workers and who will pay? Many actors have a role: the Bangladesh government, the factory owners, the garment buyers (including many international brands), consumers across the globe looking for cheap prices and developed world governments which have allowed preferential treatment for Bangladesh imports (using "trade" in lieu of "aid") without serious review of worker standards.

What is the cost of necessary changes to protect workers and who will pay?

Unless these fundamental relationships and responsibilities are clarified (perhaps by a multi-stakeholder task force), meaningful change is unlikely to occur given the complex interrelationships that allowed the tragedy to occur in the first place. At the core of the problem are global garment retailers who want the incur the lowest cost--and offer the lowest price--to compete in developed markets but who do not want to be complicit in publicized worker tragedies in developing markets. Similarly, governments in developing countries want to attract garment manufacturers (who sell at lowest cost to international retailers), want to pay lip-service to worker protection, but do not want to send those manufacturers to another low cost country because of costly health and safety regulation.

The backdrop for the catastrophic event at Rana Plaza is growth of the garment industry in Bangladesh. For much global trade, labor costs are only one part of the business equation. But in some spheres, like apparel, textiles and toys, cheap labor still is vital. And, as one of the poorest nations in the world (Bangladesh, a nation of 160 million, ranks 192nd in terms of per capita income), the minimum wage for the about 3.5 million garment workers (80-90 percent women) is about $38 dollars per month (one of lowest in the world). As wages in China have risen, international buyers have shifted attention to Bangladesh where thousands of garment factories now produce between $18-20 billion in goods annually, which constitute about 80 percent of the nation's export volume and 10 percent of GDP.

The threshold question is whether the government of Bangladesh has established adequate laws and regulations relating to worker health, safety and well-being which provide appropriate nominal protection when compared to norms in other nations. These rules include building codes, fire prevention, health and safety conditions inside factories, other labor standards relating to wages and child labor, the right to organize, environmental protection against factory discharges and funds for workers injured, disabled or killed on the job. A daunting list! The obvious related question is whether Bangladesh has the means to enforce such laws: the political will, adequate numbers of trained inspectors, adequate numbers of enforcement officials, a regulatory and legal system capable of imposing sanctions when warranted and a remedy regime which imposes proper individual or company fines or penalties both to punish and deter individuals and companies as well as the capacity to order meaningful remedial action.

Bangladesh is poor and corrupt (rank: 144 if 176 on Transparency International Corruption Perceptions Index). It has had a strategy of encouraging the low cost garment industry by not having a serious regulatory regime protecting labor. And news reports state that its politicians have been involved in owning or supporting garment makers with improper payments to ensure laws do not exist or are not enforced. Although reformers and the government itself have called for a changes in government, there has been no serious analysis since the fire and building collapse of the "regulatory deficit" (although the government has promised to work with the International Labor Organization and workers to review plant safety by year end). How much would it cost to pass laws and develop meaningful enforcement capacity; how would poverty ridden Bangladesh pay for it; and, given corruption and weak rule of law, is meaningful action at scale in this sphere possible? Inadequate government is a huge obstacle to change, made even more difficult in a nation with highly contentious politics.

A second key question is whether the owners of the factories which make garments have the resources and the will to pay for the "compliance deficit." the cost required to bring factories and working conditions from their current state "up to code," assuming good laws and meaningful enforcement. Western consultants estimate that only about one percent of Bangladesh garment factories have good standards. Again, there is no detailed analysis of this question which has many dimensions. What would be cost, for example, of making the existing 4500 factories structurally sound (one labor organization has estimated $3 billion but without details). Importantly, what are the economics of the garment makers? Do they have any profit margins or net cash flow which could fund improvements. Can they raise prices to international buyers to get such funds without losing customers to competing countries? But, even if some manufacturers raise prices to fund reform, many others may try to keep their prices low to keep or increase business and to free-ride on the changed reputation of others, in the absence of effective government.

Presented by

Ben W. Heineman Jr.

Ben Heineman Jr. is is a senior fellow at the Belfer Center for Science and International Affairs, in Harvard's Kennedy School of Government, and at the Harvard Law School's Program on Corporate Governance. He is the author of High Performance With High Integrity.

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