ALAL O DULAL analyses RMG 10 point manifesto
by Irfan Chowdhury, Farhad Mahmud and Zia Hassan for AlalODulal.org
Since the collapse of Rana Plaza that killed over 1100 garment workers, news reports, opinion pieces, analyses, recommendations and implacable public sentiment at home and abroad keep pressure on the government and the industry to act. For its part, the government has set up a 10 member cabinet committee under its Labour Ministry which has announced a minimum wage board and has started discussions with Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and the International Labour Organisation to deploy 200 inspectors to review at-risk factories, of which some are currently closed. The Cabinet also passed a new Labor Law to make unionisation easier in the RMG sector.
The BGMEA’s actions in the past and in the wake of Rana Plaza were extremely defensive and self-serving. However, perhaps as a response to intense pressure to do something, a set of recommendations from a group of eminent RMG owners has come out. Titled Emerging from the Rana Plaza Tragedy: A 10 Point Reform Roadmap for a Sustainable Bangladesh RMG Sector , (Download here: RMG Sector 10 Point Plan) the report outlines a 10 point reform agenda/roadmap that the group believes should be implemented.
While there are suitable and sensible ideas in this report, at first sight appearing to be attractive and well-meaning, there are significant gaps, especially in relation to the owners’ financial contribution to reform agendas and promoting workers’ rights and entitlements. The proposed roadmap also fails to acknowledge the subsidies and export incentives already received from the government.
A fundamental debate at present appears to be to decide where the primary responsibility of the reforms lies – is it at home or abroad? It is encouraging to see that the roadmap suggests that a domestically led solution is preferred, but only if this aims first at sorting out issues within the industry, directly involving the government, before we ask outsiders to contribute.
The proposal to source finance for the reforms primarily through Government of Bangladesh (GoB) aid, investment by foreign buyers and contribution by foreign consumers may appear reasonable, but it is overly optimistic to expect such large-scale investment from foreign buyers.
It is imperative that the reforms focus on the improvement of working and payment conditions of the RMG workers, who have so far been neglected. Disappointingly, while the roadmap names sensible initiatives – e.g. hostels for workers, health and safety checks, free schools/childcare facilities, a BRIDGE to act in addition to the workers’ union – it lacks practical reasoning and we consider that the suggestions may be too far-fetched, given the plight of the workers and the track record of the RMG owners’ current non-contribution to such initiatives.
Our analysis of the proposed roadmap is as follows:
1. Public scrutiny and governance should complement classifications of factories
The proposal to use classification to identify factories at immediate risk is a good one; it is known that there is a mix of ‘good’ and ‘bad’ factories, and categorising them would help to prioritise urgent restorative action or closure of at-risk factories. Formation of an independent body to oversee this task through a National Action Plan (NAP) and a comprehensive audit also make sense.
However, maintenance and administration of risk classification will be the key to success – some factories in Rana Plaza were compliant. We suggest that a public risk database be created, stemming from a comprehensive risk audit, so that workers are aware of potential risks. We further suggest that NAP reports to a high level steering committee, disclosing progress in removing risk to workers on a monthly basis and including the updated risk database, so that the governance of the reform is transparent and open to public scrutiny.
There must be an enhanced focus on compliance and rigorous monitoring. Highly regulated and strictly monitored industries in the developed world still try to use loopholes, but overt public scrutiny and criticism discourage regulators as well as industries from taking risks.
We would also like to highlight that there is an increasing trend for top tier producers in the country to become order-procurers, taking orders in the name of their factory, then passing the manufacturing to third tier or high-risk factories, with the manufactured goods being delivered to their warehouse prior to shipment.
The problem lies in the fact that these producers thrive on profit made from a lower cost production function such as outsourcing to third tier factories, meaning that products are not made in the first tier ‘good’ factories but in third tier factories that are subcontracted or literally run as their own.
The recommendations must include a way to overcome this trend so that uniform acceptable factory conditions can be achieved.
2. BGMEA Responsibilities have to be binding
While the roadmap lists a set of necessary actions by BGMEA such as a directors’ and managers’ training program, compliance requirements and random fire evacuation drills and verifying building compliance, these are merely commonsense and BGMEA as an apex body should already be doing them.
It is surprising that actions such as BGMEA requiring its members to check compliance of factory-buildings have not become standard procedures for a billion dollar industry.
Change has to happen within BGMEA, within its owner groups and in their conduct. Otherwise, as discussed above, these so-called regulations will fail to achieve much needed improvement of work-safety conditions, “In December 2012 a rare BGMEA inspection identified four factories judged to be dangerous as they had been built in breach of construction regulations, including Rose Dresses Limited in Ashulia, owned by Ariqul Islam. Three months later, he was elected BGMEA president. Given that garment manufacturing businesses openly flout the law, there are suspicions that the sole aim of the inspection was to give the protectors of the future president leverage over him” .
We do not understand the preference for hearing out only the bigger voices either: “Voters with only US$ 500,000 and above in export should be allowed to make policy decisions in BGMEA committees”. Is it because they are the biggest employers? The next set of solutions, government or owner driven, should be inclusive and should not leave out any players.
We suggest that roles and responsibilities of BGMEA are revisited; any proposed roles by the industry peak body must be binding in nature. Only through application of strict industry legislations coupled with sustained public scrutiny can progress be monitored in terms of the implementation of the promised changes.
3. Owners must share the cost of relocation of factories and proposed reforms
Under Point 4, the roadmap casts a need for relocation of factories, already a well-canvassed idea, and strategies to create a fund for reform through budgetary allocation and an export tax. Although it is stated that the reform should be financed by GoB and BGMEA members, one needs to read carefully to find that, while the recommendations point out what is needed, they ask the government (and thus the citizens of Bangladesh) to bear the whole cost. It is proposed that the government allocate Tk 3000 crores in the upcoming budget and “khas” lands but fails to specify the contribution of BGMEA or its member/owners.
We imagine a sentiment amongst the owners is that they have built this industry by employing so many people without any help from the GoB and now the industry needs support to avoid further accidents and to remain competitive. Yet it would be a fair assumption that few owners would probably admit to the business loans that they have sourced through GoB initiatives or various domestic and foreign financiers — some of which are defaulted.
Our entrepreneurs have worked hard to build their empires and to employ four million people. They have not, however, become successful by selling garments, but rather in essence by trading cheap labour. Therefore, government investment must focus on the welfare of the RMG workers, who work tirelessly, contributing to the economy and to entrepreneurs’ profits.
Idea no. 5 recommends, “World Bank, IFC, Asian Development Bank, Islamic Development Bank and bilateral development partners (EU, DFID, JICA, USAID, SIDA, CIDA, NORAID etc) to fund a $1 billion RMG Sector Transformation Fund at concessional interest rates that can be accessed by BGMEA members to finance either relocations or other necessary compliance/safety measures.” It even demands local funds, “…Funds from local banks will also be needed. The interest rate should be on concessional terms under a special discount facility of Bangladesh Bank. Money allocated in the budget may be partly used to finance the discount operation. Bangladesh Bank is currently operating several discount facilities and this may be an additional one but its implicit costs should preferably be fully financed through the budgetary allocation…”.
Our immediate reaction is why would anyone give the factory owners or their peak body another set of loans, significant soft loans, when its members have a history of treating workers abysmally and hogging profits? What guarantee can it give us that this massive investment won’t go astray and would largely benefit factory owners although designed to help the workers?
There are so many instances where government, private entrepreneurs and individuals have misused funding – in some cases funds have been used for totally different purposes (read: for personal gain). Our domestic banks, industry owners and even petty businesses have earned a bad reputation and the mistrust of international financiers: for example, the Inland Bill of Lading, a banking instrument later used by the Hallmark Group for fraudulent practice, as was recently exposed.
The industrialists have to provide concrete evidence how these funds will be managed, and by whom. It is one thing to be arguing why these funds are needed but quite another to ensure their proper use.
We do not suggest that owners are left without assistance. The relocation of RMG factories is definitely a good idea, but it should not be funded solely by government aid. Doing so would be seen as rewarding and protecting the interest of owners who have not adhered to basic safety, cramming thousands of workers into unsafe buildings to take advantage of low operating costs. Loans secured by appropriate collaterals could be available to factories which are performing well, have potential to grow and, above all, manage workers with dignity and humanity.
4. A just wage is needed and is possible
A wage rise retrospectively from 1st May is perhaps unreasonable. However, the fact is that without a substantial wage rise the situation is unlikely to improve. Pre-existing contracts should be fulfilled within the next three months and a readjustment of wages by the end of the year with an immediate announcement seems to be a more pragmatic approach.
The arguments put forward in favor of a cautious wage rise for the workers are one-sided – in particular, the use of a quote from a retail-sourcing consultant Mike Flanagan, stating that there would not even be 4000 workers left if the minimum wage is raised by a miserly 50 cents, is unnecessary. That statement cannot be supported by the fact that when minimum wages were doubled in 2010 there was not a single case of factory closure and widespread unemployment reported, despite warnings from the then BGMEA president of such impending doom. Unless, of course, one accepts the assumption, which is without any basis, that with that increase the wages will have suddenly reached optimum in less than three years.
The government and the general public appreciate the industry in that it employs a large number of people and brings in income. At the same time, exploitation, unfair treatment and unsafe working conditions are what promote criticism and concern.
The extremely low wage for workers gives rise to tensions. This has now gained international media attention and it could be argued that it is harming brand Bangladesh. Further, there are economic analyses and views that support much fairer options for the workers without drastic effects on the owners’ profit. Munir Quddus, a professor of economics and dean of the business school at Prairie View A&M University in Texas, argues that a minimum wage of Tk 6000 per month is roughly equivalent to $0.22 per hour and claims that Bangladesh will still be competitive in its global exports and his suggested raise will help to bring Bangladesh garment workers up to par with Vietnam ($0.23/hour), India ($0.28/hour) and Cambodia ($0.32/hour), all close competitors in the global garment export business.
And it is widely accepted that fairly paid happy workers are more productive, which is most desirable.
To support his claims Professor Quddus further states, “One can argue that raising the minimum wage too high and too soon will create disruptions in the rest of the economy. For example, the maid-servants — another major employment for younger women workers in the city — still receive around Tk 1,000 to Tk 2,000 per month (plus room and board) and drivers of private cars receive Tk 5,000 to Tk 10,000 per month, an employment available only to men.
Certainly, a lot more maid servants will attempt to find jobs in factories, and the flow of labour from the countryside seeking such employment will also rise. The imbalance between jobs available and jobseekers may further increase. However, this is not expected to be a negative in the long-run”. 
Other sources also suggest that buyers are attracted to countries such as Vietnam – where wages are some three times higher than Bangladesh – which shows that it is possible to have strict labour laws, fair wages and a healthy garment industry. This stands in sharp contrast to our industry that has grown quickly, specialising in low cost production and embracing the sweatshop model rather than investing in technology and upgrading. 
The attitude that owners need all the funds, subsidies and donations, but restricting the workers’ wage, hitherto irregularly paid, would not help the situation. In fact, this could be interpreted as the usual exploitative behavior, especially if living cost is considered. One cannot survive for long with Tk 3000 per month, let alone on the current Tk 1662.50, last increased in 2010.
Just as in any business the owner group’s intention to raise the wage as little as possible is evident. Yet it is to the industry’s long-term benefit that wages are increased justly and this can be achieved without making exporters uncompetitive.
5. BRIDGE must not undermine proposed workers unions/collective bargaining
Effective collective bargaining is the right way as suggested BRAC’s founder Fazle Hasan Abed. Workers should have the right to negotiate collectively for their pay and conditions. We acknowledge that the plan rightly agrees with the workers’ right to form unions. It also suggests BRIDGE, an owners’-workers’ platform could be formed, which would act as a supplementary entity to the trade union/workers’ participatory committee. This seems like a good idea.
However, we remain cautious in our optimism noting that although collective bargaining is the much-needed first step, desperate workers do not enjoy a position of power. And there are ways to circumvent regulations and procedures. With very limited job opportunities and abundant labour supply the effectiveness of labour unions is doubtful.
6. Fund for Worker Welfare
In idea no. 8 it is suggested that foreign consumers and buyers chip in 0.25% of Freight On Board and promises that the supplier would match the amount, but the concept is left at surface level without specific analysis and proposed mechanisms. Who will set up and administer such provident funds for vulnerable workers (some of whom could be old and illiterate)? It is certain, however, that this would open further funds for the keepers to play with. And when poor workers reach pension age who would guarantee that they will get superannuation?
Apart from the challenge of convincing foreign buyers to contribute, it is critical to ensure honest and sincere management of these funds so that all workers are entitled to the superannuation scheme. As wide spread corruption has been part of the economy, guarding this fund from abuse could prove to be yet another difficulty, unless of course the scheme can be guaranteed by government underwriting.
7. Progressing through the value chain and promotion of brand Bangladesh can be improved by real reforms on the ground, rather than by hollow promotional activities
Moving up the value chain is mentioned in idea no. 9, indeed a noble and much needed action – but again, who will train and up-skill the labourers? A revamped Bangladesh Fashion Institute of Technology and a Business Development Studies Team could go some way, but it is unlikely to fully address this.
We agree that economies and industries go through development phases, for example, from an agricultural export base to electronic goods, or within an industry there could be technological advancement and economies of scales achieved. And though there are precedents when desperate workers had been absorbed in an industry before nations/industries moved up to the next level of production, we would expect that a roadmap included a comprehensive plan to invest in the training and development of its existing labour force. It would be unwise to wait until all the surplus labour force is absorbed before the industry increases wages or moves up the value ladder, as argued in the plan.
In idea no. 10, PR strategies, campaigns and promotional videos to highlight that working conditions are safely providing jobs for many poor people are argued as a way of improving the brand Bangladesh.
This is necessary given the coverage of the disaster, but promotion of brands should only happen if remedial actions have been taken and only after working conditions have improved throughout the industry. It will otherwise be a misleading promotion to pursue buyers.
8. Infrastructure and other constraints
We agree with the roadmap that political instability and inadequate infrastructure are significant challenges facing the industry, and have been for some time. The government should try to address infrastructure issues. Our entrepreneurs face undue disadvantage due to incessant political turmoil and bottlenecks caused by insufficient infrastructure; while lip service is always paid, the real actions are never in sight.
This could potentially harm the industry in the long term as buyers may look to competitors for consistent services. The relocation of factories to new export zones set up close to ports and redevelopment and modernisation of ports are urgently needed. Government and other political parties could significantly help the industry in this area by investing in infrastructure development and by being sensitive to business activities when announcing programs.
9. What was left out
We expected a roadmap from the RMG owners that would not only look ahead from the owners’ perspective but also allow ideas to offer compensation for the victims of its blatant and cruel negligence. It was disheartening to find that this set of ideas has no room for any compensation scheme for injured survivors, many without limbs, or for disabled or victims’ families which are as usual left to GoB and compassionate donors.
The roadmap, however, carefully smoothed over inconvenient issues such as the rampant practice of over-invoicing on back-to-back material import and under-invoicing on garment selling price, by which factory owners regularly siphon off undeclared profits abroad; this practice has been popular among factory owners since the inception of the industry in 1980s. Prices are not real prices, neither are the declared profits, rendering attempts to rationalise a wages-profit distribution based on declared numbers practically useless.
The roadmap deliberately avoids issues which were prevalent even before the collapse of the building: paying workers on time, reasonable working hours with proper breaks, or the option of refusing overtime as time is of the essence in order to earn and maintain business in the industry.
And then there is the issue of delegation of risks by established contractors onto sub-contractors who cannot afford to maintain reasonable work-safety:
“There is an established trend to delegate the risk onto the contractors and sub-contractors, who have to meet the deadlines by any means. Buyers must acknowledge that they benefit from the system of subcontracting to factories that won’t, and sometimes can’t, afford to let people work on healthy terms.
The buildings that collapse or catch on fire often belong to factories that don’t make much profit to begin with, and can’t take risk. So they gamble on workers’ lives. Survival with compliance, for these factories, will have to be subsidized by the people higher up in production chain – either the local garment producer from which they are sub-contracting or the foreign buyers that have awarded the contract to the local garment producer”. 
Anu Mohammed, economics professor at Jahangirnagar University, summarised the history of the industry: “Bangladesh hasn’t always been under the thumb of the clothing industry. Until the mid-1980s, jute was the main earner. Then the IMF and the World Bank arrived. Under their aegis, privatisations and public spending cuts caused unemployment to rise and led to massive dependence on imports and the decline of local industries. Bureaucrats in the main parties, army officers, the upper echelons of the police and the sons of prominent families jumped at the opportunities. The incentives to invest in textiles were irresistible: low labour costs, unions weakened by the privatisation of state enterprises, and the elimination of import duty on machinery for export industries. Corruption did the rest”. 
The roadmap also wrongly interprets Adam Davidson’s suggestion in a recent New York Times article as “once the factories have absorbed all the desperate farmers, they need to find a new competitive advantage”. In reality few countries wait that long, i.e., until all the surplus agricultural labour force is absorbed before they increase wages and move up the value ladder. Empirically, instead we see that wages are not left to market forces alone, but to a host of other factors that act as socio-economic drivers that push a country forward.
Adam Davidson had argued that ‘Race to the Top’ should ideally start before ‘Race to the Bottom’ hits rock bottom and ends his article with this concluding remark, “For now, Bangladesh might be where this centuries-long T-shirt journey ends, which means that their race to the bottom may be rooted in a misunderstanding. The country’s manufacturers can afford to take a step or two up the value chain. Not only can they pay their workers more, treat them better and house them in safe and clean factories, but there is also a significant economic incentive to do so”. 
Intentional omissions such as these will not only make the general public skeptical of the proposed reform agenda but will also hinder the engagement of stakeholders in the process.
This document came across as self-interested promotional material trying to woo stakeholders by using the plight of the industry and poor workers so that big owners do not lose their business and profit margins and do not have to absorb costs of reform to the industry.
The recommendations overlooked BGMEA’s many failures including its inability even to produce a credible list of victims and months of unpaid wages for the victims’ families, but the authors did not hesitate to mention that they have worked on the recommendations on a pro-bono basis to develop these germs of ideas. We appreciate their work as they are bound to be busy individuals with tight business schedules. However, along with the nation’s good it is their stakes that are in balance.
We also note that the roadmap tries to use findings from a consultancy report (we dare say aided by industry owners), the McKinsey CPO survey, which only focuses on the benefits of the owners and their potential for further earnings, and should not be a guide to improve the situation of poor workers. We suggest that the owner group look into research and economic arguments put forward already which indicate that improvement and redevelopment of the industry is possible without much damage to the owners’ revenues and profit margins.
A decent minimum wage and collective bargaining is a fundamental tenet of capitalism. This is how the system works in other capitalist countries. Bypassing those standards inflames labor unrest, oppression, and a wealthy class with a harmful monopoly.
Despite its vagueness and the omission of contributions from the owner group, we acknowledge that this manifesto has some good ideas which could work if, and only if:
- a balance is found between GoB and other contributors’ investment; in particular, private and public investment has to be clearly outlined and monitored by a third independent party/body that would have no stake in the industry except from ensuring project implementation and governance; and
- cronyism, corruption and short cuts to make quick and easy profits are countered – this is a big if, as we are overburdened with red tape and lack of due diligence in all sectors, but mostly in government and large bureaucracies such as BGMEA.
Many nations and many industries before us have faced epic challenges. As a consequence some perished, some came out stronger and more prosperous. Even though it is tempting to choose an easier path involving minimum investment and lesser responsibilities, inevitably it is the honest intention (to contribute rather than to protect self-interest) and the generosity of taking the harder path that have been the keys to improvement.
Irfan Chowdhury is an opinion columnist. Zia Hasan is a small business owner and a writer. Farhad Mahmud is the founding Managing Director of ETV and an entrepreneur in the carbon consulting industry.