In 1911, 146 workers, mostly women as in Bangladesh, died in a fire at the Triangle Shirtwaist Factory in the US, becoming a catalyst for the growth of the International Ladies' Garment Workers' Union, which successfully fought for safer and better conditions for factory workers. In emerging markets, such changes were always unlikely.
With its garments intended for foreign markets, the Rana Plaza incident quickly became "framed" from a western perspective.
Foreign customers were deeply shocked, expressing concern about the unsafe and poor working conditions. Firms that sourced products from the factory went into damage control, concerned about reduced sales and "brand damage" from picketing and threats of consumer boycotts.
Labour rights advocates, local unions and the International Labour Organisation (ILO) focused on the need for unions to effectively represent worker interests.
Economists argued that the tragic death of workers should not detract from an emerging nation on a positive trajectory. Outsourcing of manufacturing to Bangladesh had benefitted the emerging country, providing work, improving wages and living standards.
The proximate cause of the Rana Plaza collapse is relatively clear. According to the police report, the original 2006 building approval was for a five-storey building, which was correctly designed and constructed. Later, three floors were added, with permission based on allegedly false documents. The extension overloaded the structure. Vibrations from heavy generators used to provide standby electricity contributed to the collapse.
Warnings were disregarded. Large cracks, which appeared a day or so before the collapse, were inspected but not considered serious. An agreement to suspend production until an inspection by experts from the Bangladesh University of Engineering and Technology (BUET) could occur was ignored, to avoid production losses.
The fundamental causes are more complex. In a globalised world, advances in technology and communication now allow each stage of production to be undertaken in the most efficient location. Businesses seek out competitively priced raw materials, labour and locations that lower costs, enhance profitability and ultimately offer reduced prices to consumers. In practice, production migrates to emerging markets such as Bangladesh.
There is a race to the bottom in costs and working conditions, as emerging market manufacturers compete for the business of foreign purchasers. Everyone in the supply chain seeks to maximise market share and profitability, sometimes by cutting corners. In emerging markets, corruption and failures of government and business compound these pressures.
Lower costs come from lower wages. In Bangladesh, the minimum wage is $38 a month with typical take-home pay at around $65, among the lowest rates in the world. Benefits, such as leave, retirement or health benefits, are lower, if they exist at all.
Lower costs also come from less stringent regulations. Desperately poor and seeking improved living standards for its population, emerging countries embrace this model, which has been the first step in the development of nations in Asia, Latin America, eastern Europe and Africa.
Bangladesh is now one of the world's fastest-growing economies, with parallel improvement in several measures of social well-being such as child mortality. It is growing at five to six per cent a year, based substantially on its successful garment industry and the remittances from Bangladeshi migrant workers, employed under frequently poor working conditions in richer Asian and West Asian countries.
The garment industry generates over $24 billion in revenue, employing about 3.5 million people, mainly young women, and is a major source of foreign currency.
Bangladesh must compete with Vietnam, Cambodia, Laos and Myanmar for foreign clients. Continuous cost pressures and competition make this economic model difficult to sustain. Prices have decreased 10 to 12 per cent over the past five years. Return on investment in the garment trade has decreased from 50 to 20 per cent, close to the cost of debt in Bangladesh. In turn, this drives further cost-reduction measures.
The problems are compounded by Bangladesh's unstable politics, dominated by the bitter personal history and rivalry between the head of the Awami League, Sheikh Hasina, and the head of the Bangladesh Nationalist party, Khaleda Zia (known as the "Battling Begums"). Weak governments, under either party, habitually persecute opponents. Corruption, rent-seeking and poor administration is pervasive.
Bangladeshi building regulations are routinely not enforced. Many factories are located in buildings not intended for industrial use and set up without regulatory approval. According to a BUET survey, up to 60 per cent of garment factories may be unsafe. Bangladeshi trade unions are also aggressively suppressed.
In this environment, the garment industry exerts significant influence. Some two dozen factory owners are members of Parliament. Mohammad Sohel Rana, the owner of Rana Plaza, had links to the Awami League and was a local leader of its youth wing. Rana allegedly used his influence to obtain approvals from the authorities, even though the building did not comply with standards.
In the aftermath of Rana Plaza, despite a flurry of activity, little has changed.
A number of retailers, such as Primark and C&A, a Dutch-German company, are involved in an argument with Walmart, Sears, Children's Place and other American companies about long-term compensation for workers and their families.
Under pressure, the Bangladesh Garment Makers and Exporters Association has agreed to measures to ensure the structural integrity of factories. Western firms are discussing improved working conditions, including funding for the work. But US firms have rejected the European plan, especially proposed dispute resolution and accountability mechanisms.
Following a petition about labour and safety standards from the AFL-CIO, the largest US union federation, the US suspended trade privileges for Bangladesh. The action was symbolic since the suspension from the so-called generalised system of preferences, a status that allows recipient countries to export some goods tariff-free, does not cover garments. The suspension covers around $35 million of US imports from Bangladesh, which totals around $5 billion.
The EU, which buys 60 per cent of Bangladesh's garment exports, threatened to restrict duty-free access to the European market unless conditions for factory workers improved. But no action was taken because of the retailers' accord and agreements between the ILO and the Bangladesh government.
Although the enhanced safety measures are unlikely to be implemented or enforced, the garment industry has complained that they will make Bangladesh uncompetitive globally.
Garment exports are increasing by as much as 15 to 16 per cent a year. Bangladesh is the world's second-largest garment exporter by value after China, with shipments increasing more than five times in the past decade. The industry is likely to continue to expand, reflecting increasing labour costs in China and Bangladesh's combination of scale (it has 5,500 factories, about double its closest competitor), low wages and a large workforce with the requisite skills.
Over the past 20 years, there have been significant efforts to improve safety in dangerous factories and workplaces in emerging countries. But the short attention span of the media and western buyers has meant that the ethical purchasing campaigns have lost momentum. Surveys suggest that only 10 to 15 per cent of buyers are likely to enquire where the garments were made. In reality, an even lower percentage would change their buying decision even if they were aware of the conditions under which the item was manufactured.
The failure can be traced to financial considerations. The costs of improving safety in Bangladesh's clothing factories to adequate levels is estimated at $3 billion over a number of years, which would translate into only a few cents per garment. Consumers, business managers and shareholders seem unwilling to accept this outcome.
George Orwell was prescient when he wrote "…we all live by robbing Asiatic coolies, and those of us who are 'enlightened' all maintain that those coolies ought to set free; but our standard of living and hence our 'enlightenment' demands that robbery shall continue."
The second part of this article appears tomorrow
The writer is a former banker and author of Extreme Money and Traders, Guns & Money
The writer is a former banker and author of Extreme Money and Traders, Guns & Money