Sweatshop nations

About 10 days ago, after more than 1,100 workers were crushed in the collapse of Rana Plaza, an eight-storey sweatshop owned by an Awami League politician, some of the world's leading garment and fashion labels signed up to a legally binding code. This requires them to ensure and pay for improved safety and health standards in the factories where their products are made.

One notable exception to this was Walmart, the world's largest retailer. It declined on grounds that it had signed its own accord with suppliers that went beyond this collective deal. Walmart's large army of detractors has pounced on what it sees as yet another example of the conglomerate's elastic ethics.
 

In this instance, Walmart is probably being more honest than the signatories to the safety code because it has a more realistic understanding of how these things works. To get an idea of this, let's turn to former Financial Times journalist Alexandra Harney's excellent book The China Price (Penguin, 2008), a deeply researched and dispassionate assessment of "the true cost of Chinese competitive advantage".

Ms Harney describes a Walmart executive's visit to a factory in Guangzhou to ensure that it was producing according to the retail chain's ethical standards. The exercise couldn't have been more perfunctory.

"The inspector asked the manager to retrieve payroll and other data and to choose 15 assembly-line workers she could interview later that morning. 'Do it as fast as you can,' she said. 'I have to finish by 1 P.M. latest.' Clipboard in hand, the auditor briskly toured the factory, peering over employees' shoulders and asking them about their work…," Ms Harney wrote.

After inspecting the warehouse, quality control records, fire extinguishers and first aid box, she pronounced the factory "pretty good". The manager, relieved, "treated her to a Cantonese lunch - steamed fish, rice, soup and vegetables…" before she drove off to inspect another factory.

The twist in this story is that just 10 minutes from the restaurant at which the inspector lunched was another factory owned by the same manager, making the same products for Walmart but "under wholly different conditions and a cloak of secrecy". This factory was not even registered with the Chinese government, and its 500 hands "work on a single floor, without safety equipment or insurance and in excess of legal working hours".

That tells you the real worth of the guarantees to which the world's retailers may have signed up.

It is equally telling that the Bangladeshi government is ambivalent about these agreements. Although it has agreed to raise monthly wages from the current $38, it is worried that these obligations will raise costs and prompt buyers to take their business elsewhere where lax standards translate into competitive costs. Bangladesh's commerce minister admitted as much when he said oversight had been lax because they wanted the jobs.

And since jobs are the first shaky step on the long road to poverty reduction, the sweatshop will remain a grim reality in poor countries in which there are too many workers and too few jobs. Economists formally call it labour arbitrage and it characterises the hyper-competition among the world's large corporations - the "race to zero", as a businessman in Ms Harney's book put it.

China, of course, institutionalised the practice like never before, yoking a vast workforce eager to get rich quick to a brazenly manipulated exchange rate. There were occasional feeble protests about the non-commercial advantage China derived from lax labour standards, but they only became a big issue after a series of quality problems - from tyres and toothpaste to toys - imperilled western consumers.

Still, the visible wealth creation of the China story (and South Korea before that) explains why the consciously casual approach to labour standards will persist across Asia. India falls well within that category, as a brief visit to the industrial suburbs of any big city will testify and despite the existence of a reasonably draconian Factories Act and a powerful trade union movement. One indication: if the official statistics are to be believed, Indian factories have become safer, with the number of fatal accidents falling from 1,068 in 2006 to 668 in 2009 and the number of non-fatal accidents falling from 18,884 to 5,983 in the same period. Yet, the government admits that it is hard to determine the veracity of these numbers because many states do not submit data regularly.

In any case, sweatshops were a fact of life long before China styled itself the factory to the world, first in the US where waves of immigrants provided reservoirs of cheap labour, and later in Asia and Latin America (a writer called sweatshops "as American as apple pie"). There were occasional embarrassing reminders of this: Garry Trudeau's 1997 Doonesbury cartoon about Nike's overseas factories was one, provoking some token outrage and fierce denials from the sports goods maker. Similarly, tragedies of the Rana Plaza variety will jog the collective conscience. Then all the stakeholders in the business will find ingenious ways to lapse back to the bad old ways. Until the next big death toll.