Counterparties: Improving Bangladesh’s clothing industry

May 13, 2013

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Two of the world’s largest retailers say they have a plan to stop tragedies like the Bangladesh collapse from ever happening again. H&M, along with Inditex, which owns the Zara brand and is the world’s largest clothing retailer, has agreed to work with the International Labour Organization on building and fire safety standards. Walmart hasn’t signed on, but is working on a separate safety program.

With more than 1,100 dead, this is, James Surowiecki notes, the deadliest disaster in the history of the garment industry and one of the worst industrial catastrophes ever. The Bangladesh story is also, he says, about how Western consumption habits have shaped the global supply chains:

Most of us have a sense that low prices in Dubuque have something to do with low wages in Dhaka, but that’s just one aspect of the pressure that we as consumers exert on global supply chains. Our insatiable demand for variety and novelty has led to ever-shorter product life cycles. In consumer electronics, the average product is replaced in just eight months. The rise of fast fashion means that clothing stores get new products almost every week.

Americans have become all-too accustomed to this kind of “fast fashion” (read: cheap) clothing. The WSJ reports that clothing prices are up just 10% since 1990, while food prices are up 82%. Global competition has put tremendous pressure on Bangladesh’s $18 billion garment industry to keep its already low costs from rising. “Average monthly pay in 2009 for workers in Dhaka was $47, vs. $235 in Shenzhen and $100 in Hanoi”, Bloomberg Businessweek reports. Already at the bottom of the global wage-scale, workers are quite literally prevented from bargaining by force: 40% of the industry’s workers, which are predominantly female, report being beaten by bosses.

As Olga Khazan points out, retailers have long dragged their feet on safety measures that would have added just a few cents to the cost of clothing. H&M, Gap and Walmart refused tougher safety standards after a November fire killed 112 Bangladeshi workers.

The dynamic that allowed the companies rejection of new standards to fly somewhat under the radar may be changing, and some retailers are making the origin of their clothing more transparent. However, there is also research that indicates that even a tragedy on the scale of Dhaka may not shift apparel buying behavior — aesthetics easily sweep the moral consequences of decisions from the consumer mind. Muhammad Yunus believes the solution lies in part in an international minimum wage. — Ryan McCarthy and Ben Walsh

On to today’s links:

Tax Arcana
Europe is talking tough on corporate tax-dodging — while helping big companies cut their tax bills – Jesse Drucker

How austerity killls – NYT

Exxon’s former CEO may decide Dimon’s future as JPMorgan’s chairman – DealBook

Bloomberg’s editor-in-chief apologies for reporters’ “inexcusable” snooping on clients – Matthew Winkler

“Some of the world’s leading hedge funds are pouring money into the Greek banking sector” – FT

“There will be no shortage of witnesses” in the investigation of the IRS’s targeting of conservative groups – NYT
Pro-Israel groups are also claiming they have been targeted – BuzzFeed

Data Points
“1.65 million U.S. households fell below the $2 a day per person threshold” – Dylan Matthews

Treat your first job like a first date, and other graduation advice from economists – Planet Money

New Normal
America’s Rust Belt is practically begging for new immigrants – WSJ
Young people are propelling the growth of the sandwich industry – AdAge

Financial Arcana
How Fannie Mae made its record profit – James Hamilton

And, of course, there are many more links at Counterparties.


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