Bangladesh’s political economy made it into the front page of the New York Times this morning. Unfortunately, though important, it was a story about the garments industry in Bangladesh. That is, it was a story about the downward push of wages and regulations in the garments industry in Bangladesh. The kind of downward push that is attracting international firms away from low-end garments production in China. The kind of downward push that is consistent with exploitive wage-setting in the garments industry.
No doubt the Times published the piece because Chinese workers have been demanding higher wages and its exports are expected to become slightly less competitive because Beijing floated up the renminbi, under international pressure. Bangladesh and its surplus of garments industry workers is more than capable of picking up the slack. But before they get to that business, the workers are demanding higher wages. And that’s the rub.
To broaden the picture a bit, here’s the take away from the Times piece:
“…while workers in Bangladesh and other developing countries are demanding higher pay, too — leading to a clash between police and protesters earlier this week in a garment hub outside Dhaka — they still earn much less than Chinese factory workers.”
“Bangladesh, for instance, has the lowest garment wages in the world, according to labor rights advocates. Ms. Akthar, who is relatively well paid by local standards, earns about $64 a month. That compares to minimum wages in China’s coastal industrial provinces ranging from $117 to $147 a month.”
Bangladesh suffers from weak infrastructure and investment opportunities. Chronic rolling blackouts have handicapped Bangladesh’s manufacturing industry. Moreover Bangladeshi managers do not enjoy cheap government subsidized loans to build their business. Turnover rates are higher; skilled managers leave the industry quickly to invest their time and capital to better uses, such as real estate.
Given the blighted conditions on the ground, Bangladesh is competitive against China for two reasons (neither offers cause for celebration). As the piece suggest Bangladeshi garments wages are lower than wages paid to Chinese workers. Second Bangladesh has an overabundance of the type of low-skilled labor and human capital that is perfectly matched for employment in garments manufacturing. What it fails to garner with high productivity and reliable infrastructure, Bangladesh more than covers by sheer numbers of unskilled workers, 70 million strong at working age, who would otherwise be unemployed, go hungry.
Hence, “despite its handicaps, Bangladesh nearly doubled garment exports from 2004 to 2009. And the industry now employs about three million people, more than any other industrial segment in this largely agrarian country of 160 million. From June through November last year, garment exports accounted for more than 80 percent of the country’s total exports of $7.1 billion.”
However, the story of garments manufacturing cuts in different ways. China’s reevaluation of the renmimbi makes garments exports less competitive, but it also makes industrial machinery produced in China more expensive. This trend could be broadly ruinous for asset owners in Bangladesh. As inflation has risen, so has the cost of living in and around Dhaka (rather, the slums of Dhaka). The opposing ways that the Chinese market cuts suggests that workers in Bangladesh are, at the same time, more important to the owners of capital and are an increasingly risky investment. Only time will tell which way the story will go.
With their growing leverage, garments workers have demanded a increased minimum wage of 5000 Taka a year. Indeed, international firms support increasing the wage to that level gradually, nevertheless Bangladeshi owners of garments factories claim that those wages would deal a fatal blow to the garments sector in Bangladesh.
Whatever the argument against higher wages, workers haven’t sat quietly on the sidelines. A rush of massive protests stung the streets recently. Indeed, wounded and otherwise, over 50,000 workers were sued on charges of assaulting law enforcement officers and for looting the assets of factory owners. Exports have suffered tremendously, while confidence is wavering in the uneasy compromises that have built the garments sector. The country needs swift resolution in these troubles. Otherwise parties will beggar themselves.
