Another fire in a Bangladesh garment factory

Despite the US government shutdown, the world goes on.  Once again, Bangladesh is in the news adding another garment factory fire to a recent history of major fires, which includes one that killed more than 1100 workers in April of this year and another that killed 112 workers in November of last year.  With 20 billon dollars in exports, the Bangladeshi government and People are struggling to balance competing interests of worker safety and job creation.  Although the government and major clothing companies have pledged to improve safety standards, the economic mechanisms, which allowed this industry to take root in this poor nation of 150 million people, discourage necessary changes.  

Weak regulation can encourage business growth through the displacement of costs.  In this case, businesses can keep prices suppressed by taking advantage of greater production space and capacity without paying for well-maintained and properly expanded building space thanks to the unscrupulous practices of subcontractors.  The conundrum for Bangladesh stems from the reality that a crackdown on safety regulations and building codes, which will likely need to be improved, will add costs.  The reason clothing is being made in Bangladesh for the West rests in its People’s ability to reliably produce products at the near lowest cost.  If costs start to rise due to the cost of safety and building upgrades, the clothing industry will eventually shift production to lower cost countries or back to the US and other developed countries where it does not have to deal with the fallout of these safety failures. 

These fires provide a very clear example of the hazards that our lowest-bidder global economy has created.  Without sufficient tariffs, developed countries like the US cannot complete with the labor of poorer countries when it comes to industries that utilize relatively low skilled labor.  Not only does this mean Americans’ lose jobs, it also means the US government loses its ability to regulate and tax an industry.  As such, the lack of regulation and taxation adds to the cost savings associated with outsourcing productions to countries with lower standards of living. 

On the flip side, countries like Bangladesh attract businesses to their shores by allowing their people to be paid such low wages and by loosening regulations.  Because underdeveloped countries have less economic leverage than developed countries and many big businesses, these governments have little choice when it comes to governing companies that setup in their territories.  Basically, the governments of poor countries can choose to accept what businesses want or lose out on economic development.  Because underdeveloped and developed countries now compete by trying to lower costs, poor countries lose what little leverage they have, i.e. their ability to demand increased safety standards and the enforcement of building codes. 

As such, the clothing industry will likely move on from Bangladesh once this PR nightmare is over for them.   The Bangladeshi government may try to improve safety regulations and the enforcement of building codes at first while the clothing industry will promise to improve standards, but the economic realities dictate that Bangladesh will soon lose its ability to provide the most cost effective opportunities for the garment industry on a global scale.  Just as the clothing industry was driven out of the US, it will abandon Bangladesh.  The only way it will stay is if the Bangladeshi People and government absorb the cost of improved safety.  The lowest-bidder global economy we live in places the burden of safety on non-business actors.  Unless safe infrastructure exists or improvements are funded by governments, businesses will likely move to onto the new lowest-bidder.