A Chinese factory in Ethiopia.

Photographer: JENNY VAUGHAN/AFP/Getty Images

Africa Should Lure Bangladesh's Garment Industry

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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If Africa wants to get rich, a good place to start is probably the garment trade.

Historically, the path to wealth for nations has run through manufacturing. Manufacturing gives you a way to quickly move a lot of people from low-productivity farming to higher-productivity jobs without requiring that they pick up lots of new skills first. And the garment industry fits the bill admirably; it does not not require lots of expensive infrastructure or a skilled population that can supply and maintain fancy machines, and it does use lots of low-skilled labor. Once you get people through the factory gates, their higher productivity and earnings will support improvements in infrastructure, education and services, that can fuel further growth. Eventually, one hopes that your country will get too rich to support much garment manufacturing, because workers will be able to command wages too high for low-margin, hypercompetitive garment factories. Then the workers move into higher-wage jobs, the factories move to a lower-wage locale, and everyone enjoys a higher income through the magic of Ricardo's theory of comparative advantage.

Over the last few decades, we've seen the dazzling effects of this as economies moved up the value chain from simple products to fancy ones. There was a time in America when "Made in Japan" was a standard joke denoting cheap schlock, but the Japanese had the last laugh, as they leveraged their tchotchke dominance into a global manufacturing juggernaut that started competing to make our cars and televisions. Japan, in turn, shed its low-skill jobs to neighbors like South Korea and China. And now China is getting rich enough that other countries are luring away some of the lower-skilled work.

But normally, we think about that work going to Vietnam or Bangladesh, not Africa. That may be starting to change; the Wall Street Journal notes that "Ethiopia was recently identified as a top sourcing destination by apparel companies, according to McKinsey & Co., which surveyed executives responsible for procuring $70 billion of goods annually — the first time an African country was mentioned alongside Bangladesh, Vietnam and Myanmar." With Asia getting richer, global corporations are looking farther afield. A garment worker in China, the Journal says, gets anywhere from $150 to $300 a month; that same worker in Ethiopia makes only $21. Those those kinds of wage differentials are quite enticing, as Americans have learned by watching manufacturing jobs move abroad.

That said, there are still a lot of hurdles to overcome. African manufacturing is currently a blip on the radar compared to China, and it will take a long time to see the kind of revolution we've seen elsewhere. Catch-up growth takes quite a while to take off. There's a lot standing between Africa and that goal, such as some basic infrastructure; it doesn't matter how low your wages are if there aren't any good roads to get your products to port, or if there are no good ports.

Armed conflict is obviously another. Corruption usually makes this list as well, and at a certain level -- say, where Iraq was a few years ago -- it seems clear that it's going to choke off growth. But I doubt you need Swedish levels of corruption control to get economic growth, either. Corruption is a huge civic issue, but quite a lot of Asian countries have managed quite a lot of growth without anything like the corruption control and "good government" that I used to assume would naturally boost a country's economic prospects. So I've gone back to loving good government for its own beautiful self, rather than its economic benefits. Economically, I'm much more interested in whether you have reliable electric power and somewhere nearby that a container ship can dock.

The remaining question is, of course, whether we should be rooting for profit-seeking global corporations to take manufacturing jobs to Africa if they will pay such pitifully low wages. You'll probably not be surprised to hear that my unequivocal answer is "yes." Just consider what the alternatives must be if people are willing to slave in a factory for $21 a month. So moving jobs to Ethiopia, or elsewhere in Africa, does good for dreadfully impoverished people. 

Sure, you say, a $21-a-month manufacturing job might be an improvement, but why settle for such a small improvement? What if we just raised the garment factories' initial wages a little, or mandated some basic worker protections? The problem is that any such measures add costs to employing workers there. Garment factories are a classic "footloose" global business; because they are relatively low-tech, and relatively labor-intensive, they look very hard at the price of employing a worker ... and if the price is not low enough, they keep looking. Manufacturers might well take a chance on Africa only if the wage differential were quite high. Otherwise why uproot the operations in Bangladesh that pay workers $67 a month?

This is not an argument for permanent low wages. It is an argument for some improvement for African workers, as a step toward many bigger improvements. The hope is that Africa would eventually experience what we've seen in Japan, South Korea and now China: As the economy develops, garment factories will move on from country to country, until every country has industrialized to the point where no one in the world is working for $21 a month.

These jobs aren't great on any absolute scale, but compared to local alternatives, they provide an above-average standard of living. The richer Africa gets, the more its citizens' wages will rise -- and the more its citizens will be able to invest in things like a cleaner environment, more years of education for their children, better worker protections and more leisure, just as workers have done in the west.

Of course, not all the Chinese garment workers would necessarily agree that this movement is beneficial, any more than American garment workers were pleased to hear that everyone was getting richer in China. But this process does have a natural stopping point, and that's when Africa industrializes. If Africa can manage the same kind of growth that Asia has managed in the last 70 years, then eventually we can look forward to a much more equal and much more wealthy world. That's obviously not the only possible future, but it's one possible future. Definitely the one to push toward.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editor on this story:
Philip Gray at philipgray@bloomberg.net