Lessons From Dhaka

More than 1100 workers lost their lives in a Dhaka building collapse, and the target for blame is widespread, suggests Nayan Chanda, YaleGlobal’s editor, in his column for Businessworld. The apparel industry has long depended on supply chains, with large corporations seeking out low-cost materials and low-wage workers – at every link, managers compete, applying pressures to reduce costs and increase profits. Of course, the owners of the building and the local governments that failed to enact safety regulations are at fault, but so are all levels of management in the multinational corporations, the investors and shareholders who profit from such trade, and the consumers who consistently demand prices that prohibit fair wages to the poor in developing world. NGOs and labor groups have mobilized; new regulations, the potential loss of trading privileges for Bangladesh and company monitoring may provide more protections for a few – and costs will rise. Other manufacturers may move to new locations with desperate workers, with the likelihood of more accidents. – YaleGlobal

Lessons From Dhaka

The building tragedy in Bangladesh has its roots in the way large corporations squeeze developing country suppliers
Nayan Chanda
Monday, June 10, 2013

At a recent demonstration in front of a Gap store in Chicago, protestors held up placards saying “Stop Corporate Greed.” Indeed, low-wage Bangladeshi workers toiling in hazardous factories brought in high profits to western corporations such as Gap. But the reality of a worldwide supply chain with the unfortunate workers at the bottom is far more complex. As a result, attributing blame for the tragedy that claimed more than 1,100 lives in a building collapse in Dhaka last month is more difficult than the instinctive emotional appeal of protest slogans suggests. 

Unlike other episodes of globalisation gone wrong, worldwide awareness of the Dhaka tragedy may eventually clarify the picture and force reform. Historically, supply chains have been an integral part of global trade. In the 18th century, weavers of Bengal brought enormous profits to the East India Company. When the Industrial Revolution and mercantilist duties dealt a blow to Indian textiles, responsibility for the tragedy was clear. In a confidential cable, Governor General William Bentinck blamed British policy for leaving “India’s plains… bleached by the bones of cotton weavers.” 


When Rana Plaza, the eight-story building with five garment factories, collapsed in Dhaka, the immediate culprits were the factories’ owners, who kept them running despite evidence of structural damage. They ignored workers’ safety to avoid penalties for late delivery to western clients. 


There are other actors, however, that played a role in this tragedy — from the owner of the illegal building to regulators. While the owner violated building codes to construct additional floors, the government failed to regulate construction and monitor safety standards of the factories that had already led to many deaths and injuries. What about the reality that textile exports bring Bangladesh $20 billion a year and that factory owners are thus wealthy and politically well-connected enough to influence the government to ignore safety concerns that might cut into their earnings?

But beyond Bangladesh, responsibility lies on large corporations that seek to maximise profit margins by squeezing suppliers of developing countries.  Not surprisingly, Bangladesh offering the lowest ‘$37 a month’ minimum wage (less than the price of a jacket a seamstress sews) has attracted the world’s top retailers. From a few thousand as recently as 1985, the number of workers in the garment industry has risen to 4 million. By stocking their shelves with low-priced goods made in countries such as Bangladesh, the Walmarts and Primarks of the world have boosted their bottom lines. Consumers’ demand for low-priced clothing and investors’ demand for ever-larger dividends have transmitted the price pressure down the chain to the most vulnerable members of society in the developing world.

The heart-rending images of the Dhaka disaster have now mobilised labour groups and NGOs to demand reform. The owner of Rana Plaza may yet be punished — unlike many others who escaped jail after tragedies. The Bangladesh government, facing the loss of trading privilege from the US and European Union, has shut down 18 factories for safety violations and announced plan to raise the minimum wage.


Important changes may also manifest themselves further up the supply chain. Stung by bad publicity in this age of social media and amid threats of consumer boycotts, some retailers connected with the Dhaka disaster have pledged to pay full compensation to the victims and their families. Under pressure from NGOs and unions, some institutional investors have warned retail management teams to take responsibility for problems occurring at the bottom of the supply chain.

Gap has also pledged to spend $22 million for fire safety improvement. A group of European retailers have signed a binding agreement on factory safety standards.

Greed cannot be stopped, but corporations can be made to take responsibility for the outcome.


The author is director of publications at the Yale Center for the Study of Globalization and editor of YaleGlobal Online.

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