Last month a collapse in a Bangladeshi factory complex, Rana Plaza, killed more than 700 people working for various textile garment firms there. It is the most deadly non-war related structural failure in modern times. The factories made goods for several Western brands, including British chain Primark, causing campaigners to call for tougher regulations on manufacturing conditions for goods sold in Britain.
Why did it happen?
Since the 1970s, Western textile producers have replaced expensive Western workers with cheaper foreign ones to boost profit margins. When this process began, China and South Korea were early destinations for Western firms looking for a cheap manufacturing base. Governments in these countries were keen to bring Western firms in in their bid to transform from being poor agrarian economies to becoming rich developed ones. Many created export processing zones' (EPZs) with lenient tax regimes and supporting infrastructure to encourage Western manufacturers.
As countries such as China and South Korea grew richer, their labour costs rose. That encouraged manufacturers to look elsewhere, with new, cheaper EPZs being set up in Indonesia, the Philippines and Bangladesh. A report from consultants McKinsey noted that, for clothing buyers looking for the next China', "Bangladesh is clearly the preferred next stop for the sourcing caravan".
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Is this unprecedented?
No. Since 2006, at least 216 Bangladeshi garment workers have died in factory fires. India had two fatal factory fires in March, while in September more than 260 people died in two separate factory fires in Pakistan. An obvious reason for this is that health and safety regulations are poorly enforced.
Human Rights Watch, a US-based advocacy group, notes that the Bangladeshi Inspection Department responsible for upholding the Labour Act "had just 18 inspectors and assistant inspectors to monitor an estimated 100,000 factories in Dhaka district, where the Rana building is located".
Are Western firms to blame?
Since the 1990s, human rights groups have been drawing attention to the poor working conditions in factories in emerging markets. Many firms making high-profile consumer goods, sensitive to publicopinion, have tried to improve standards, pooling resources to fund organisations that audit factory safety standards. However, critics complain these audits are not independent and firms are not obliged to act on their recommendations.
Two factories in the Rana Plaza complex had recently been audited by the Business Social Compliance Initiative (BSCI), which is funded by European garment buyers. The BSCI's managing director, Lorenz Berzau, told The Wall Street Journal that his inspectors were not asked to look for structural flaws in the Rana Plaza complex. It has since emerged that the building was built without proper construction permits.
What's in it for Bangladesh?
The garment industry is the most important in Bangladesh, accounting for 17% of GDP and around 75% of exports. Its rapid growth over the last ten years has helped to drive an average GDP growth of 5.9% per year between 2001 and 2011. During this time, poverty has fallen while literacy and life expectancy have improved.
Consultants at McKinsey predict that, as the sector develops, "growth will be driven not only by an increase of volumes in current product categories but by broadening the sourcing strategy to more complex, more fashionable, or more sophisticated items". With more and more countries moving up the manufacturing value chain, those still at the bottom, such as Bangladesh, should be less pressed to offer cut-price deals to international manufacturers.
Could Bangladesh benefit as China has?
Since 2000, China's share of total apparel exports has halved, says McKinsey. "Workers continue moving on to more attractive industries and better jobs" and China seeks to support more value-added industries. However, this development has come about partly because, in the 1980s, China's government used proceeds from oil exports to invest in infrastructure that could support other types of manufacturing. Bangladesh doesn't have that option.
China also had a large domestic market that tempted Western firms to engage in technology transfer with Chinese partners. Bangladesh doesn't have that either. A World Bank paper suggests that trade has the most beneficial effect in places where financial sectors are deep, education levels high, and governance strong. Bangladesh still has a long way to go on all three counts.
A problem that's here to stay
Factory workers often endure terrible conditions. Yet, given that the alternative for many would be subsistence farming, even human rights charities feel that, properly managed, textile factories can offer a better way of life than would otherwise be available in rural Bangladesh. The problem is that many factories aren't well-managed. McKinsey notes that only around 50 to 100 of around 5,000 garment factories have "very high standards".
While many Western firms say they want to improve working conditions, McKinsey believes they may deteriorate because buyers will increasingly come from India or China and "might have a different idea of what standards need to be followed". Meanwhile, many governments lack the resources and political will to take an active role. Sadly, the Rana Plaza disaster is unlikely to be the last.
James graduated from Keele University with a BA (Hons) in English literature and history, and has a NCTJ certificate in journalism.
After working as a freelance journalist in various Latin American countries, and a spell at ITV, James wrote for Television Business International and covered the European equity markets for the Forbes.com London bureau.
James has travelled extensively in emerging markets, reporting for international energy magazines such as Oil and Gas Investor, and institutional publications such as the Commonwealth Business Environment Report.
He is currently the managing editor of LatAm INVESTOR, the UK's only Latin American finance magazine.
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