Facing up to reality

FE Photo

Someone has to tell the truth.
The RMG sector faces difficulties that have been growing steadily and have reached crisis levels. These difficulties must be faced and remedied. Otherwise, the future is bleak. There are five serious problems the RMG sector must recognise and act upon.
1. Demand for Bangladesh-produced garments is weakening. Order books are short and some manufacturers report that buyer interest in Bangladesh is falling. Bangladesh is still the low-cost producer in the world market, but buyers are attaching increasing importance to on-time delivery, rapid response to changes in styles, and fear of terrorism. The impact of the Holey Artisan Bakery terror attack is still there.
2. The prices offered to Bangladesh garment manufacturers continue to decline. To meet these price offers, the industry must raise its productivity and increase automation. There is no other path.
3. The costs incurred in producing garments are rising and the return to investment in new production capacity is falling. Factories are closing. Some factory owners have just abandoned their business, shut the door and got on the plane to live somewhere else. Running a garment factory has become increasingly difficult with all kinds of interference from both the Bangladesh government and foreign groups. Several owners have reported increasing extortion from the police. The tax authorities are trying to increase collections from the RMG factories.
4. Foreign governments have promoted unreasonable and high-cost interference in Bangladesh, increasing the costs of production without any increase in productivity, diverting investable funds away from automation to zero-return safety investments, promoting increases in labour costs, while infringing on Bangladesh's sovereignty.
5. The industry has failed to regulate itself in the field of labour relations. Many Bangladesh factories follow carefully the labour laws of the country with respect to payment of wages, overtime regulation, following the minimum wage rules, treating workers with respect. Apart from the legal aspects this is smart business as contented workers lead to higher productivity. But many, probably most of the factories, do not follow the labour law. This is not going to be solved by labour unions, nor by government regulations, but only by the industry policing itself. The path forward is through use of the Worker's Participation Committee. Another path is the Better Work Programme.
The industry is in trouble and this has serious consequences for the economy. The growth of the Bangladesh economy is based on export growth and this is the only path to rapid [more than 5.0 per cent] increase of GDP (gross domestic product). With garments representing 80 per cent of exports, it is clear that economic expansion is closely linked to the garment sector. The prospect of slowing growth or even stagnation of the sector is the most important problem facing the economic managers.
The governance of the sector requires cooperation between the government and the industry leaders to overcome the five problems that are outlined above. The rest of this article concentrates on the issues arising from the interference in the sector affairs by foreign organisations and the management of the labour situation. The first three difficulties are taken up elsewhere.
The tragic collapse of Rana Plaza frightened the owners of the brands into taking actions to improve safety, hoping to protect their reputations while continuing to source from Bangladesh. The brands were all in favour but stepped back when it looked like they would have to pay. Instead, we have seen the building of a completely unnecessary bureaucracy around people and organisations who saw money and jobs for themselves, with financial and aid organisations happily joining in the feast. Not a single person involved in this has any idea about the costs and uncertainties that must be faced, how to operate a large garment factory, nor the demanding behaviour of the brands. The bureaucratic instincts emerged in an almost classic case of building programmes and concepts that have no demonstrated merit and are funded by liberal governments or charities.
The argument of the Accord and the Alliance is that all safety improvements that they demand are necessary. This has been done without any consideration of the financial impact on the factories. The safety requirements are excessive and unrealistic and do not reflect a proper balance of cost and benefit. What has happened here is, in an enthusiastic explosion of doing good, these foreign governments and organisations have trampled all over the sovereignty of Bangladesh pretending to be interested in the workers' welfare but, in fact, protecting their reputation or creating high-paying jobs for themselves to carry out activities that contribute nothing. Instead, their efforts are destructive for the RMG sector.
Now the Accord is trying to extend its lifetime [and the jobs of the staff] by involving itself in the issues of labour unions and its version of labour rights. The ILO is involved in this effort along with the Solidarity Centre, an organisation supported by the US Government. All of these groups are selling a product that has been discarded in the industrial world, the labour union. The labour union has had an honourable role in the development of industrial societies, but it is now a dinosaur that has little impact on how economies function. Unions had their day in the United States from 1900-1970. Since then unions have only prospered in the public sector. Unionisation in the private sector has declined steadily until it is 6.0 per cent. In France it is 5.0 per cent; in Germany 17 per cent, Japan 16 per cent and the UK 10 per cent. Constant efforts to organise unions have failed as the workers have voted against establishing a union and private sector union membership is declining everywhere.
When economies were full of oligopolistic industrial structures, labour unions were successful in forcing up wages, taking part of the above normal profits away from the owners. But with expansion of international trade, virtually all sectors have been made competitive -- particularly sectors like steel, chemicals, mining, automobiles, textiles and industrial machinery where strong unions were established in the western countries. These unions have weakened and are organisations of the past, not the future. The version of a modern economy as it was perceived in the 1930-1960s included labour unions. No more. In most industrial countries, unions have become of little importance in the governance of industry. Only in the public sector do we see continuing strong unions.
Forcing labour unions on the garment sector is an act of arrogance and ignorance. It is arrogant as the EU and the USA are trying to force something on Bangladesh that is failing in their own societies and originates not from a real understanding of what is going on in Bangladesh but from their domestic political considerations. Further proof will appear as we will see the USA shift position on the GSP (Generalised System of Preference) and reduce support for the Solidarity Centre. The EU's views are coming from bureaucrats who are supporting something because they have been supporting it.
There are real issues in the governance of the relationship between the factory owners and the workers. Labour unions are not the solution. The labour union will be bought off by the owners -- something we are already seeing happen. Honest labour union leaders can make little progress and will be undermined by management.
The impact of this exaggerated safety drive and the push for labour unions is to drive up costs. The factory already caught between rising costs and falling prices will be squeezed out of existence. The people pushing labour unions will be far away enjoying life. The workers will be out of jobs. Who will take the responsibility for this? Not the US and EU government bureaucrats.
The Bangladesh government should enforce its own labour laws the best it can. It should not extend further time to the Accord and Alliance, enough is enough. The Bangladesh authorities and BGMEA should take over the role of these two organisations. Foreign organisations, even if supported by foreign governments, should no longer be permitted to mess around in labour matters. Do the deeply moral Europeans wish to take jobs away from poor Bangladesh women and send them back to the farm? If this is allowed, the garment sector will fail and Bangladesh will fall back into poverty!
The EU is bluffing and the USA is shifting positions. The Government should stand firm.
Dr Forrest Cookson is an economist.
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