Forrest Cookson PhD
The past month since the overthrow of the Hasina regime has seen widespread labor disturbances in the garment sector. The representatives of the industry have blamed persons outride the industry. This should surprise no one as there is little appetite for taking responsibility for labor disputes, all of which are the fault of outsiders and workers.
Accelerating the growth of garment exports is the most important task for the economy. There are three approaches that present themselves. First is depreciating the Taka to make the offer price to buyers lower in dollar terms. The 40% depreciation since FY2022 has been accompanied by a decline in the dollar value of exports. While it is difficult to make estimates of cost increases but with little increases in labor costs [40%of total production costs] the condition of the garment enterprises would seem to be favorable. However, there seems to be a loss of competitiveness. With a 40% increase in revenue and 40% of costs fixed [labor] there would seem to be room for increases in wages. Yet the industry cries poor and begs for more support from the Government.
The second approach to increase exports is to reduce the supply constraints. In this area we see many problems: Excessive time of customs actions; high cost, poor quality, irregular energy and electricity supply; slow, expensive air freight; failure to provide deep sea access for outgoing garments. Poor quality facilities for transport of Indian raw materials into Bangladesh. This arises from inefficient facilities at the land ports. Lack of serious effort to build better relations with buyers, with the leadership of the country not taking firm steps to improve relations is a serious delinquency, The financial system has failed to provide the support badly needed by the industry garment makers. There is little attempt to use the capital markets nor private equity; the industry prefers to borrow money and default on its loans. Private Equity companies can provide better financing with stronger supervision of the financial operations. More listed companies will provide greater financial discipline. Reliance on banks has failed, improved financing is an essential part of accelerating RMG exports. All discussions on the financial system focusses on revoking NPL. This approach may help the banks a bit but it does nothing for the industry itself except reinforce the continuation of financing through NPLs or rescheduling without adjustments in the functioning of the factory.
The contrast between the two approaches: enhancing demand by reducing prices vs reducing supply side disruptions, is more and more recognized. The traditional reliance on manipulation of the exchange rate is increasing seen as an unsuccessful strategy. It is increasingly difficult to clearly identify a particular commodity and the impact on its price. Most factories with a 40% increase in revenues would find themselves in a strong position. Along with such a sharp change in revenues there is a decline in the dollar value of exports. Rather than focusing on the demand side [lower prices] the importance of the supply constraints is recognized as the key to increasing exports.
There is a third way — raise productivity through training, improved organization of production processes or use of improved technology. There are insufficient industrial engineers focused on the RMG sector; university faculties have limited interest in working with actual factories and their problems. Ultimately it is raising productivity that’ll result in a more efficient, larger industry.
If the industry is to grow then all three of enhancement actions must be tackled. However, these are all demand of effort by management and costly in the short run so find life favor among the owners. The future is seen as stealing from the banks and maintaining low wages through the coercive forces of the Government.
Relations with workers: The current set up for managing workers is disastrous if the objective is to create a modern high productivity industry. Most factories have limited interest in treating their workers as little more than animals. For years the US Trade Representative and the ILO have tried to establish a reasonable system for workers to have a say in what they earn and the conditions under which they work. This effort has failed. The approach to managing workers established by the Government in to deny them a choice or a role in determining their compensation, work condition nor a fair way of settling conflicts.
It is time to change this system of exploitation and to introduce a fairer system. The way to do this is to follow the experience of other countries and other sectors.
The basic model is the workers form a union which represents them in negotiations with the owners. To make this work both sides have to bring a cooperative attitude to the negotiating table. Alas both sides usually set out to trick and manipulate the negotiations. What is at stake here is negotiating a contract between the workers and the owners. Under this agreement the owner agrees to pay the salary levels and the benefits in the contract; the workers agree to show up and do the work. The contract is enforced by both sides and for disputes that cannot be settled through both sides on seeks recourse to the courts.
Nothing like this happens in the RMG sector. Rather a Wage Board is established. The Government appoints a representative of the workers, the BGMEA appoints a representative for the companies and the Government helps themselves at the table and eventually decides the issues. There is no real negotiation; there is no consideration of the many issues that need resolution. There is no acceptance by the workers of the final agreement. There is no freedom here, the workers are dictated to by the owners. The owners are only interested in maintaining low wages and assurance there will be no, horror of horrors, a strike.
If necessary, we will call out the police and beat a few women up. The industrial police— big guys with sticks to beat up the female workers. This is the garment from Bangladesh stained with the semen of the excited man beating the woman with his stick and the blood of the beaten female worker.
How can this be improved?
First, every factory must have its union selected by the workers. There must be regular training for the union leaders and perhaps a professional secretary to maintain records, etc.
Second, unions and factories can form groups to negotiate. Owners with multiple factories will negotiate as one; a single unit will represent workers.
Third, the negotiations will take place between unions and companies to establish wages, benefits etc. The factory will operate and disputes will be resolved, both sides taking the contract seriously. In the negotiations there may be as many as 100 different contracts. These are real negotiations and strikes are allowed. [Strike must be voted for by a majority of the workers.]
Fourth, a number of labor courts [Tribunals] [ say 50] will be established to resolve disputes. An individual worker with a grievance will normally approach the court through the union. Labor Tribunals as presently operated are notoriously ineffective, with company lawyers delaying court actions and the worker runs out of money. It is a fraudulent attempt at law. This approach will mean a great deal of training and dealing with the real abuses of workers; or unjustified strikes etc.
This approach will shift power to the workers and create a more just society. Factory owners will manage higher wages through enhancing productivity. Higher productivity will provide the resources for high wages.
The industry has sat for years on low productivity manufacturing processes limiting the wages and benefits the workers can earn. Government interference on the side of the owners and the large number of defaulted loans destroyed the prospect for a strong, growing garment sector. Contrast the above proposed system with the current system where a government appointed Wage Board produces a “contact “covering wages and benefits. The workers have no effective role in establishing this contract. The owners take the profit but invest little in raising productivity making growth of wages impossible. Some thought the large depreciation of the Taka should have led to higher wages but alas the owners took all for themselves.
Once the Wage Board has set the wages any protests or expression by workers of discontent is met by the Industrial Police. This is a disgraceful way to manage wages and benefits. The United States, the EU and the ILO have sat back and watched this abuse of the workers and the exploitation by the owners. The efforts to improve the condition of the workers and to build a system that encourages proper financing and investment to achieve greater productivity have failed. There are a few factories that have tried to do better. But these are few in number.
Bangladesh can only grow rapidly through expanding and diversifying manufacturing. Manufacturing growth comes through productivity growth driven by educated, attentive workers. Markets of sufficient size are based on exports where economies of scale can be achieved. The garment industry must shift from low productivity industry financed by low wages and not repaying loans, to one making investments to achieve a higher level of productivity with financing shifting away from loans.
The first step is to move away from a Wage Board imposing levels of benefits and wages. Instead, unions with serious negotiations capabilities must be established. This will take time but everyone involved has to learn to compromise. This transition is complex. But over time unions will join together and companies will join together for negotiations. This will limit the number of actual negotiations.
In brief there must be true negotiations between freely chosen representatives of the workers and the owners. Improved financial management will support higher productivity factories allowing higher wages and a more just society.
Is the new government ready to move from an industry based on exploitation, government dictated wages, and stealing the bank depositors’ money, to a system of fair treatment of workers, depositors, and management? But this an area where prompt action is needed. Once started it will lead to other export industries.
