Post Savar: Time to fix things

As the dust settles in Savar, Bangladesh needs to look forward on how to prevent another industrial disaster of the scale of Rana Plaza or Tazreen. There are calls for foreign buyers, local manufacturers and the Bangladesh government to do their parts. Each stakeholder is a critical cog in the wheel towards fixing the dismal working conditions at the 4,500+ garment manufacturing sites. Some have called for unionization of garments workers to ensure collective bargaining while others rightfully are urging the state to deploy more inspectors and enforce structural and safety standards.

Yet, one of the most challenging aspects of reforming the status quo remains the lack of transparency. Put crudely, the political system – both its formal institutions and ancillaries such as the local Jubo League/Dal – are corrupt, morally bankrupt and lacks the wherewithal to enforce a new building code or minimum safety standards. Let us be honest with ourselves – the building codes for ensuring structural integrity already exists as do the provisions for minimum wages, hours and safety clauses under existing labour laws. Individual experiences will tell that exceptions to these laws are the norm: greasing the palms of the local building authority often secures a less-than-compliant architectural structure to be raised in most places in Bangladesh. Hence, if legislation is already in place but execution is a key risk, any promises by the Prime Minister and her cohort may never materialise to prevent another Savar-like incident.

Given Savar's link to the global race towards the cheapest prices, it may sound ironic that two market-based solutions can play a key part in circumventing some of these issues of transparency and help to prevent another Rana Plaza. The first such policy measure can be around enforcing accounting standards at each of these manufacturing companies. Save the largest garment manufacturers in Bangladesh, few at present are likely to maintain audited financial statements: in market lingo, 'books' which detail company operating expenses in labour costs, capital expenditures in fixed assets such as the building they operate out of, asset depreciation and maintenance spending as well as expenses on regulation and compliance. Without details on how each of these businesses maintains and operates their facilities and how much they actually pay their workers, it is nearly an impossible task to differentiate sites which are compliant versus ones which are not. Intuitively, a factory which spends a meaningful amount of capital to carry out regular building inspections and ensure worker rights' are likely to be more compliant than others that allocate little to these cost items.

In the aftermath of Savar, we now know that Ethertex, Phantom Apparels and New Wave were clearly not investing sufficiently to meet minimum safety benchmarks. But for the rest, we are left guessing as to how many other such factories exist. More importantly, none of the Savar manufacturers have managed to produce a complete list of its employees at the time of the collapse – presumably, if management is not accountable to anyone for its standards around payroll and hence overall accounting, they have little incentive to maintain any comprehensive list of its employees. Again, we are left guessing how many people actually worked at Rana Plaza on the day of the collapse and only deductive math tells us how many might have perished.

In theory, strict accounting standards create a self-run mechanism at the factory level for owners and management to track their investments in key metrics such as labour compensation, safety standards (fire inspection, health conditions, working hours per employee) and structural maintenance. Importantly, if asked to report at any point of time – and not only in the wake of an accident – the factories would be able to produce details on its compliance activities till date. The obvious question arises around how to enforce these standards. Unfortunately, as I mentioned above, the state is incapable of executing such an initiative, both because of its lack of capacity and credibility. Even if our government institutions were credible, it would be a tough task to single handedly keep regulation in pace with a sector that is projected to grow in folds over the next few decades. This is the juncture where foreign buyers have to step in and take serious responsibility. Walmart, H&M and Primark are familiar with – and legally required in their home countries – to maintain financial statements and report detailed breakdown of investments in similar human resources and safety standards at the parent company or corporate levels. These retail giants ought to move downstream now. Supplier contracts should be tied to manufacturers' ability to produce comprehensive reporting on investments in labour safety and structural integrity.

Given the current dearth of reporting at present in Bangladesh, Western retailers should offer and ensure to train and setup such accounting practices at supplier locations. In a way, this addresses the issue of sub-contractors' negligence at the same time. The 'middlemen', buying houses and primary manufacturer will be bound to ask for the same details of their sub-contractors. For all the talk of corporate social responsibility, manufacturers in Bangladesh and retailers abroad both can be accountable to present actual data that backs their commitment to worker safety and compliance.

A second line of policy that needs to arise out of Rana Plaza is a domestic one – a diversification of our manufacturing base. As I highlighted in another op-ed after the Tazreen fire, Bangladesh has become overly dependent on one single sector to drive its growth. Many a Bangladeshis' fortunes are tied to one industry – millions of young women and men who work at these plants, garment owners, suppliers along the production chain and the government's finances are all linked to the fate of the garment industry. While the sector has propelled us from a largely agro-based rural economy to a fast urbanizing manufacturing country, we cannot sustainably rely on the garment industry for over 80% of our foreign export earnings. A diversification of our economy away from garment manufacturing is necessary both for the benefit of stakeholders within and outside the sector.

At present, Bangladesh faces its homegrown version of a 'resource curse': in the hope of securing retail shelves in New York and Berlin, we have sacrificed labour wages and workplace safety in Savar and Ashulia while stifling investments into other sectors. The combination of a weak state and a financially powerful industry has meant that a new class of garment manufacturers sits in parliament on both parties and is able to secure preferential import duties and special economic zones for the industry. In principle, there is little wrong with the clout of the likes of BGMEA and others; if the sector is contributing significantly to national growth, it should be able to ask for preferential (and legitimate) treatment by the state. However, vesting too much influence with one stakeholder has negated the rightful interests of the less organized and little connected millions of garment workers. Worker demands for minimum wages and working conditions had become frequent even before the latest disasters but there are few avenues to highlight and correct for the concerns of the people working at these manufacturing sites.

As Fazle Hasan Abed rightly pointed out, unionization may be the way forward to grant workers that avenue to collectively bargain for wages and safety. This can only be helped further if we reduce our dependence on the garment sector: an outsized influence of one sector on national industrial policy can be altered if multiple business sectors can compete for both human capital and investment in the country. This is where rest of Bangladesh's business community has a crucial role to play. The country's pharmaceutical industry is an example of an alternative sector which has been able to generate a higher value addition in its supply chain and secure stable earnings for itself and its stakeholders. If we are to reverse the crowding out effect of relying on garment manufacturing, we ought to actively build and invest into robust sectors including information technology and healthcare. Alternative industries that open up new employment opportunities and allow us greater influence on cost and quality through higher value addition becomes key in drawing out a sustainable growth map.

The dual policy suggestion offered here will inevitably face challenges in its design and implementation on the ground. However, hopefully these can be part of the broad discussions that have started around policy changes post-Savar. A broken garment industry is in no one's interest. In time, the 'Made in Bangladesh' label will surely make a comeback – let us work to ensure that this time, our turnaround is an ethically sound one that guarantees the rights of those who stitches this industry's – and the country's – fate.

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Safwan Shabab is a Bangladeshi investor currently based in Chicago.