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Will the New Agreement Help Safety Standards in Bangladesh?

- May 13, 2013

The collapse of the Rana Plaza complex, which included several garment manufacturers, is yet another reminder of the working conditions that too often prevail in the apparel sector. The collapse resulted in over 1,100 deaths, and the toll continues to rise.

The global apparel industry is characterized by a vast network of subcontracting relationships. Major brands rarely own the factories in which their products are made; most factories process orders for a variety of firms, and most brands rely on an array of subcontractors. These arm’s length relationships make it difficult for even well-intentioned global brands to monitor conditions in their supply chains (see here for my argument the effects of subcontracting versus directly owned production on workers’ rights). Additionally, with competition in the industry based on speed and price – the subcontractor who can deliver cheaply and quickly enough to satisfy fickle Western consumer markets tends to win business – local factories have incentives to ignore domestic laws and corporate codes of conduct related to working hours and health and safety.

These dynamics have rendered violations of labor standards a commonplace occurrence in the apparel sector. This is not to say, of course, that such violations do not occur elsewhere in developing world economies. Indeed, some would argue that citizens of Bangladesh might prefer conditions in garment factories to those in the agriculture sector, or to unemployment. But when workers in these factories routinely risk their lives to produce low-cost fashions for consumers in wealthy nations, there is a sense that we can, and should, do better.

Indeed, it is that sense that motivated the now decades-old movement toward corporate social responsibility. The CSR ideal suggested that US- and European-based firms would use their market power to compel first their subsidiaries, and then their suppliers, to comply with basic standards in the treatment of their workers as well as their local environment. Consumers and shareholders would attend to and reward such behavior, further building a virtuous circle of improved conditions in low and middle income countries.

But this ideal often has not been achieved:  problems of monitoring and compliance have been rife, and many consumers are unwilling to pay more for “ethical consumption.” Where consumers are interested in “fair trade” product (see Hainmueller and Hiscox’s field experiments on this), they often have great difficulty accessing information about the conditions under which goods are produced  (here’s one attempt to help them). Even well-intentioned multinationals, seeking to help their suppliers and subsidiaries build the capacity to improve working conditions, often fell short. Thus, private governance increasingly has seemed a poor substitute for public sector regulation. (See Rick Locke’s recently-published book on this subject, as well as this Boston Review symposium, for a discussion of the private governance model).

What, then, should we make of today’s announcement by four large Western apparel retailers that they will help fund safety upgrades at factories in Bangladesh? Does this offer any hope for preventing incidents like the Rana Plaza collapse or the Tarzeen factory fires? The agreement mandates third-party safety inspections, as well as mandatory repairs (paid for by Western firms) when problems are identified. The agreement obligates retailers to cease doing business with facilities that do not make safety improvements’, and it calls for a greater voice for organized labor.

The good news is that the number of global firms involved has now expanded to include key players in the global market.  US-based PVH and German firm Tchibo signed this agreement late last year, but other firms had been slow to take part. The spotlight of Rana Plaza has mobilized some consumers, and it has compelled firms such as Swedish-based H&M (the largest purchaser of garments made in Bangladesh) and Spanish-based Inditex (owner of fast-fashion chain Zara) to commit to the accord. British-based Primark and Tesco also signed on today, as did Dutch firm C&A. With more global brands involved, it will be more difficult for Bangladesh-based factories to ignore domestic laws or corporate codes of conduct.

At the same time, however, the problem of enforcement remains: will the independent inspectors offer thorough reports; will global firms follow through on their commitments to fund improvements or to transfer their order; and will local labor groups be more empowered? On the latter, the government of Bangladesh has proposed labor law reforms which would make it easier for workers to form and join unions. Whether this succeeds in Parliament, and whether it comes into practice, remains to be seen.

Finally, other global brands – including US-based Gap and Walmart – have thus far resisted signing the “PVH-Tchibo” agreement. They argue that their own efforts will sufficiently address safety problems, and they bristle at the legally-binding nature of the accord. Activists worry that non-participation by some large firms will imperil the accord’s suggest.  It also is interesting to note the cross-national – dare one say “varieties of capitalism” differences in retailers’ willingness to join the agreement.  European firms have so far been more willing to participate, a pattern that may reflect stronger traditions of predicting labor rights at home (the participation of British firms notwithstanding), as well as greater consumer and shareholder attention to how firms behave abroad. This seems consistent with the finding that the labor standards that prevail in importing nations can have a significant effect on labor standards in producing countries. Time will tell whether, in this case, trade-based upgrading of standards occurs.