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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

Thinking Through Rana Plaza



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I recently saw, via an acquaintance, the following quote from a Richard Epstein article on the Rana Plaza disaster in Bangladesh, in which over 800 garment workers (and counting) have died:

Ironically, that labor agitation was itself one of the contributing causes to the collapse at Rana Plaza.

I think the idea was that I was supposed to be shocked that Epstein, a libertarian legal scholar at NYU, would suggest that organized labor might have had anything to do with the disaster, as organized labor is an unalloyed force for good. That is, Epstein’s statement was truncated in such a way as to make him look like a heartless libertarian caricature, eager to blame organized labor for a profound human tragedy. Yet when seen in context, Epstein’s observation looks rather different:

The conditions in Bangladesh are ripe for labor agitation, which in fact occurred last year in the country as workers from hundreds of factories walked off their jobs in protest demanding yet another increase in the minimum wage. That action prompted a nasty retaliation by Bangladesh’s industrial police, who were charged with controlling labor unrest and resorted to using tear gas, rubber bullets, and water cannons.

Ironically, that labor agitation was itself one of the contributing causes to the collapse at Rana Plaza. Quite simply, the occurrence of such disruptions—and the threat of future ones—places enormous strains on the firms that have to deliver goods to foreign purchasers in order to remain in business. The threat of a repeat protest has led many firm bosses to step up the pace of work in the factories, which in turn means longer shifts, more workers, more extensive use of heavy equipment in order to make up for lost production, and stockpiling goods. That maneuver turned into a fatal insurance policy against future labor disruptions.

The threat of massive labor market turmoil strengthens the case for the effective public enforcement of state building codes. These codes are directed only toward safety issues, and do not touch the hot-button topics of wages and working conditions. Yet, if Bangladesh could only make good on this one public commitment, it would take the safety issue off the table, which would in turn remove from local unions the one key issue that makes their activist campaign so credible in the eyes of workers.

So let’s walk through Epstein’s statement carefully:

1. He acknowledges that the conditions in Bangladesh’s garment factories are in some cases so intolerable that labor agitation is an entirely predictable response, and that the state retaliation that followed was brutal and (implicitly) disproportionate.

2. Yet he also suggests that despite the fact that labor agitation may well have been justified, the occurrence and threat of disruption threatened to undermine the relative attractiveness of Bangladeshi garment manufacturing firms. This isn’t exactly an exotic claim. If I am purchasing garments and I am in a position to choose between two locations, one in which labor agitation is commonplace and another in which it is unheard of, all other things being equal, I will presumably be inclined to choose the location in which labor agitation is unheard of, as this will make it more likely that my orders will be delivered on time, etc. In order to remain competitive, Bangladeshi firms cut corners, in many cases in violation of the law, to increase production — hence Epstein’s reference to a “fatal insurance policy against future labor disruptions.” This hardly sounds like a robust defense of Bangladeshi industrialists.

To be sure, all other things aren’t generally equal. For example, it seems plausible that countries in which labor agitation are uncommon are also countries in which wages and productivity levels are higher, etc. Unfortunately, transitioning from one equilibrium (low productivity, low safety standards, low wages) to a more favorable equilibrium (high productivity, high safety standards, high wages) is not the kind of thing that happens instantaneously. Rather, it is usually the product of a long historical process. Labor agitation can be part of this process if, for example, it fosters a good public policy response, e.g., more investment in human capital. Another scenario, however, is that labor agitation yields a bifurcated economy, like the economy of South Africa, in which a high-wage unionized sector is cordoned off from a much larger informal economy. Ideally, labor agitation would be oriented towards system-wide change. Bangladesh is an interesting case study that is not very well understood, as it has made considerable progress on social indicators — where it tends to match or in some cases exceed India’s performance, despite a much lower GDP per capita (PPP) — despite having a very weak, corrupt state, a development that some attribute to the strength of its NGO networks, many of which are organized around the idea of female empowerment.* But if anything, Rana Plaza demonstrates that NGO networks alone aren’t enough to achieve progress, which is actually Epstein’s point.

3. And finally, Epstein states that it is the obligation of the public sector to step up its enforcement of building codes, as it would address one of the core legitimate demands of Bangladeshi labor campaigners. This is a reminder that Epstein’s libertarianism is rooted in the sense that while the domain of state authority ought to be limited, the state ought to be strong and effective within its domain. 

Epstein goes on to argue that stronger safety standards might necessitate somewhat lower wages, in light of the competitive nature of the global garment manufacturing industry and the cost structure of Bangladeshi firms. In effect, higher safety levels represent a form of compensation, and higher compensation in one domain will generally mean either lower compensation in another domain or lower profits. One challenge is that Bangladesh’s garment manufacturing sector is highly competitive, and so it is not clear that profits can go much lower before large numbers of firms go bust. That might not be such a bad thing: perhaps a smaller, better-capitalized Bangladeshi garment manufacturing sector that employs fewer workers who are on average more productive would be a good thing. But one can see why some humanitarians, who see how labor-intensive export-oriented manufacturing has alleviated poverty in select parts of the developing world, might object. 

Charles Kenny of the Center for Global Development and Bloomberg Businessweek offers a more optimistic take:

Improving worker safety doesn’t even need to be that expensive. The International Labor Organization and International Finance Corporation (the private-sector arm of the World Bank) has developed the Better Work program to help countries enforce labor laws while sustaining productivity growth. According to the Center for Global Development’s Kim Elliot, research in Cambodia and Vietnam suggests that the Better Work program and related efforts have improved not only working conditions but also industrial relations without reducing productivity .

The answer for companies like Disney, Wal-Mart, and PVH is to stay and do better, not run away. Caring consumers in the U.S. should be pushing for responsible sourcing but should continue buying products made in the developing world. It is one of the most powerful antipoverty techniques we know. That can improve lives—and save them—well beyond the factory floor.

Kenny leaves some questions unanswered. If improving worker safety doesn’t reduce productivity but rather keeps it constant while costing more than absolutely nothing, even that small amount will have to come from somewhere, whether it’s lower wages or higher prices. In an ideal world, improving worker safety would yield higher productivity, and perhaps this outcome will eventually come to pass. Regardless, Kenny surely agrees with Epstein on the fundamental question: while “corporate social responsibility” might yield some benefits for Bangladeshi workers, the real imperative is that the Bangladeshi state grow suficiently strong, or rather sufficiently competent, to enforce its own laws regarding public safety. 

* A friend writes in to note that human development indicators, e.g., female literacy, are also relatively strong in West Bengal, despite the fact that West Bengal has income levels slightly below the Indian average. West Bengal has been governed by the Communist Party of India (Marxist) for much of its existence, while political cleavages in Bangladesh tend to be more historical than ideological in nature. One possibility is that it’s not NGOs that are responsible for Bangladesh’s relatively good performance on human development, but rather that there is something about Bengali culture, on both sides of the border, that has yielded economic underperformance and social overperformance. 



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