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Bloomberg View: How to Fix Bangladesh's Factories

Bloomberg View: How to Fix Bangladesh's Factories

Illustration by Bloomberg View

As this went to press, at least 411 people had died in the April 25 collapse of Rana Plaza, an eight-story building in Savar, Bangladesh, housing multiple factories. In total, more than 1,000 garment workers have been killed in Bangladesh since 2005, according to the International Labor Rights Forum, an advocacy group.

First-world consumers have been the chief beneficiaries of the growth of garment manufacturing in Bangladesh and other developing countries. Americans are reaping bargains by importing more than 97 percent of what they wear. Since 1998, women’s clothing costs have fallen 7 percent, and men’s have fallen 8 percent. In the U.K., costs have dropped 20 percent since 2005.

The Worker Rights Consortium, an independent labor rights monitoring group, estimates that it would cost $600,000 on average to elevate each of Bangladesh’s 5,000 factories to Western safety standards, for a total of $3 billion. If the $3 billion were spread over five years, it would add less than 10¢ to the factory price of each of the 7 billion garments that Bangladesh sells each year to Western brands. If the factory owner passed on that cost to the retailer and the retailer passed it on to the consumer, with markups, this could mean, perhaps, a 25¢ increase for the final buyer per item.

For global brand retailers, ensuring factories are safe is not only right but also smart. Brands that take steps to improve working conditions can potentially charge a premium for their wares: A 2009 study undertaken at a major retail store in New York suggested that companies could use “social labeling” to charge from 10 percent to 20 percent more and still expect sales to rise.

Retailers can ensure factory improvements are made by signing on to the Bangladesh Fire and Building Safety Agreement, a program promoted by workers’ rights advocates. The agreement would establish a chief inspector—independent of companies, trade unions, and factories—to execute a safety program. Audits of hazards would be made public. Corrective actions recommended by the inspector would be mandatory. Retailers would agree to pay factories enough so that they could afford renovations, and retailers would be forbidden from doing business with noncompliant facilities. These obligations would be enforceable through the courts in retailers’ home countries.

Signing now offers protection for Bangladesh’s workers against factory catastrophes. Failing such reforms, the “Made in Bangladesh” label seems likely to turn into a scarlet letter.

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