A colleague once asked me: “If we force the issue of doubling the minimum wage and it is firmly imposed, there is a danger that costs will increase too rapidly and business will be lost. The strategy is to shame the foreign buyers to reduce their profits (by paying a higher price for the products to support higher wages). Will it work?”
My short answer to this question was that it wouldn't. I say this from my experience as a businessman who had been involved in a similar trade for many years. In the case of the garment industry, the buyers had been advocating higher wages for garment workers for a very long time, not to see that it will come and finally land on their lap. Many say it was a PR exercise on their part, I don’t think it was, simply because too much effort went in from their side.
In 2010, the top ten buyers wrote a joint letter to our PM almost pleading that the minimum wages be increased. H&M, which led the advocacy had this to say on their website: “In Bangladesh, the government does not review minimum wage levels regularly and systems for employees to negotiate directly with their employers are generally not sufficient. We see statutory minimum wages, sector standards and preferably collective agreements as being the only realistic systems for achieving sustainable development of wages across an industrial sector. We also believe that these systems must define wage levels that are enough to live on. Our Code of Conductrequires our suppliers to pay wages based on whichever of these systems provides the highest wages”.
Why were they doing this, if it is only low wages that they seek? I think they are much more aware of the ground realities than we are. While we are waiting for "credible" research to tell us how much the cost inputs are that finally translate into price for the buyer, they ask the factory owners and some do tell them. I myself know from some of my garment owner friends (in some of their more disarming moments) that for every 100 of the final price to the buyer (not the price to the consumer) 31 comprises of wages + profits, of which roughly 9 is wages and 22 profits. When it comes to workers wages, our garment buyers would naturally think the buck should stop at the factory owner’s doorstep.
At this point it might be helpful to look at the history of minimum wages in Bangladesh:
In 1994, after min-wage board was constituted in Bangladesh, pay for garment workers was fixed at Tk950/month ($15), no change until 2006 (more than a full decade later) when it was reset at Tk1662.50/month ($24) and then latest reset in 2010 at Tk3371/month ($43) after months of demonstrations/protests by the workers. Workers demanded Tk5000/month ($72); the then BGMEA president threatened closure of factories if that demand was accepted by the government.
Wages in china come out to $300, in India $106, in Vietnam $92, in Pakistan $116, in Sri Lanka $92. Entrepreneurs refuse to deal with $72 in Bangladesh.
H&M claims: “Until 2010, the minimum wage level for the garment industry in Bangladesh had last been reviewed in 2006. During this time living costs had increased, resulting in a reduction in the minimum wages in real terms. We request that the government creates a mechanism for automatic annual wage reviews to ensure that minimum wages keep pace with living costs”.
Inflation/rise in cost of living and food since 1994 has been in double digits. It is very easy to do math on how much of Tk3,371 is spent on food and accommodation (a major expense) at today's rate of inflation and cost of living index in urban centres. Out of the Tk112/day of wages if Tk. 60/day is spent on food, which is below the minimum food intake for an individual to be able to work (at 2010 prices, ref: Depertment of Nutritional Sciences of Bangladesh), there goes more than half the salary, room rent will take out the next big chunk, the rest will barely sustain her. If she has a family to support, that’s just too bad. No wonder the World Bank calls it poverty level wages and the Pope derides us for utilising "slave labour."
I think it is also important to make that distinction between "wages" and "the wage bill," the latter is what matters to the factory owner. The ratio of the wage bill in proportion to total value of output can remain the same with the same number of workers and higher wages if productivity goes up, thus keeping the unit price same. Because most of the factories produce at the lowest end of the efficiency ladder, simple shop floor management enhancement, improved skilling, better equipment and yes, better working conditions can deliver much required efficiency in these factories. It will be difficult for us to get the buyers to pay for such inefficiencies when they know that this will not incentivisefactory owners to do it themselves. Smart factory owners know this and are quite wary of advocating that the buyers "subsidise" the factory workers wages, which in turn would mean "subsidising" factory owner’s profits, much that they would want them to. If you take the strategy of naming and shaming the buyers, they will simply go away, rather than pay a higher price for the product, as they will deem the strategy grossly unfair on the part of the factory owners whosesole objectivewill be deemed as to cling on to their profits at the expense of theirs [the factory owners'].
On whether most garment workers are getting higher than minimum wages in reality, a popular claim made by the factory owners for obvious reasons, this is not borne out by facts. A study done by the organisation Fair Wear Foundation shows that they aren’t (reference below). We must also remember that when the minimum wages were doubled in 2010 none of the factories cost themselves out of the business, despite extreme resistance by the then President of BGMEA who threatened closure of hundreds of factories, neither did the price to our buyers go up even marginally.
I feel Bangladesh should not continually play up poverty to outsiders, especially not the factory owners and should not make the case that our abject state of affairs are somehow the buyers’ responsibility. Here I would like to quote a paragraph from Harvard Business Review on the aftermath of the Savar tradegy:
“In Europe and the US, just about every substantial step forward in workplace safety and employment rights was wrested from unwilling employers by organised labor”. In that article, Steve New goes on to say:“This means eschewing simplistic labels (“ethical,” “green”) that ascribe products with a magical quality that absolves us from culpability. “Ethical consumption” might be a great way to raise awareness and maybe leads some to serious engagement in the real economics and politics of global supply chains. But if it serves to close our minds in soporific smugness, it is a very bad thing indeed."
It is important to make that distinction between "good player" and "bad player" as RubanaHuq, an enlightened garment factory owner in Bangladesh, had written in her recent article in the Financial Express, but it is also necessary to see how both are intertwined, and perhaps culpable. We do have world class factories with working conditions comparable to anywhere in the world, but these came out of a need to go beyond extracting profits out of low cost labour and adding value in terms of manufacturing higher end products and improved productivity. These factories are owned by owners relatively wealthier (making more profits?), working out higher margins not from low labour cost alone. Nothing wrong with that, but the problem lies in the fact that these same producers are also sold on profits they can make from a lower cost production function from the third tier factories, thus end up taking orders for products they will not produce in their factory but outsource to the third tier ones that they subcontract or literally run as their own. We may have overlooked Rubana’s statement when she was describing the first, second and third tier factories: “The first tier factories are also the ones who run many third tier factories as their own or as their sub-contract establishments”.
It is common knowledge in Bangladesh that most of the top producers in the country have now become order-procurers playing the role of a buying agent rather than a producer. It is very easy to do that. They take the order in the name of their factory, pass off the manufacturing to these third tier factories, the manufactured goods are delivered to their warehouse prior to shipment. On a related but separate note, this developed the popularity of the Inland Bill of Lading, a banking instrument that the Hallmark Group later used for their fraudulent practice which was recently exposed. So I don’t think the problem will be so simple as Rubana suggests, that the first tier factories become a shining example for the third tier factories on which they will "impose" their standards. How can they do that when they are willfully perpetuating the sub-standards in these factories?
If and when the wages are increased, the unnatural margins which allow for this to happen, will be depressed, creating a disincentive to carry on such activities for the larger producers. Unless that happens, the first tier factories will neither have the moral authority nor the will to bring changes in the third tier factories in spite of having better standards in their own factories.
My views would be only from the point of view of a businessman, although it may appear that I am supporting only the interest of the workers. What others are saying is very correct; the departure of the buyers will be disastrous for our economy. My only point is, all this was predictable and we didn’t do anything about it. Not very long ago (but before Tazreen and Savar) I argued with my friends the urgent need to increase workers wages, improve the workings conditions (all of which means costs to the industry) before we are compelled to do so, as we are doing now. Otherwise the problem would be that we may fall into the danger of doing too little too late if it is part of a damage control exercise rather than part of a strategy. At that time I was mistaken to be a "leftist buddhijibi," the worst kind of name you can call people these days.
The issue isn’t, and never was, whether the garment industry is good or bad for our economy, but what it is. Any country with a large number of agrarian workers will have a pool of low wage workers as competitive advantage to draw on for industrial transformation. As with many other countries with similar characteristics, Bangladesh too wisely capitalised on it. But three decades on, unlike other such countries who eventually moved on to a trajectory of adding value, triggered by a rise in wages, we choose to cling on to our natural "comparative advantage" with its obvious disastrous consequences. This happened because even though the garment industry is the "sacred cow" of our economy, we forget that if we milk it to death, we will be sacrificing it on the alter of economic nihilism.
Reference:
1. Joint letter to our Prime Minister by the top ten garment buyers from Bangladesh in 2010 pleading higher wages for our garment workers: http://about.hm.com/content/dam/hm/about/documents/masterlanguage/CSR/Others/Letter_to_BD_Government_18_August_2010.pdf
2. H&M’s fair Wages advocacy website: http://about.hm.com/AboutSection/en/About/Sustainability/Reporting-and-Resources/Case-Studies/Wages-Bangladesh.html
3. Fair Wear Foundation study on minimum wage implementation: http://www.fairwear.org/ul/cms/fck-uploaded/documents/countrystudies/bangladesh/MinimumWageImplementationBangladesh.pdf
4. Harvard Business Review: Preventing Another Bangladesh Tradegy: http://blogs.hbr.org/cs/2013/05/preventing_another_bangladesh.html
5. RubanaHuq: The Phoenix Syndrome and the Garment Industry in Bangladesh: http://www.thefinancialexpress-bd.com/index.php?ref=MjBfMDVfMTFfMTNfMV8yXzE2OTA3NQ%3D%3
