Third World workers’ wage whining unlikely to spoil Canadian fashion discounts

Here is an excellent article written by Stephen Frost for CSR Asia, that we want to share with you.

As tens of thousands of workers in Bangladesh attacked factories and smashed vehicles in the capital Dhaka in protests over low wages this month, Canadian consumers were reassured that no matter what happened clothes would still be cheap.

If that sounds like the lead for an article in The Onion – an online satirical magazine – then think again. This analysis comes via an article published by Canada’s CBC on 6 August, which seemed to suggest that protests in Bangladesh over wage hikes shouldn’t concern Canadian consumers because clothing prices wouldn’t increase. Phew! I bet that’s a relief to Canadians concerned that worker anger in Bangladesh over an official wage hike to US$43 per month, and which resulted in workers injured and killed and labour leaders hiding for fear of violent retribution, would lead to more expensive jeans.

I stumbled upon this article after a visit to the ever excellent Social Alterations (an Education Lab for Socially Responsible Fashion Design), and read a short critique by Nadira Lamrad. She rightly focused on a comment by a spokesman for global retailer H&M, who was quoted as saying that “increased wages create better working conditions and are only positive. Furthermore, it is competition-neutral and affects all buyers equally.”

As Lamrad points out, you can only take these arguments so far. The first one, that increased wages are positive, stalls if wages increase too much. After all, H&M are not sourcing from Bangladesh because of high wages. The journalist who conducted the interview should have, upon hearing this, asked for a comment on Bangladeshi versus Chinese wages and whether the company believes that the 41.5 per cent real wage increase in China since 2004 for factory migrant workers (to around $US205 per month – or nearly five times as much as Bangladesh) is seen internally as “only positive”.

The second argument, that increased wages are competition-neutral, runs counter to the view from the procurement end of any retail business, which is focussed on finding ever more competitive suppliers. It also, as Lamrad argues, fails to consider that minimum wages are not enforced uniformly in Bangladesh (or, for that matter, in most places where apparel is produced), and that buyers can still find a competitive advantage by using suppliers who don’t comply with the law. Does H&M truly believe that some of its less ethical competitors are not advantaged by using factories that cut costs – and thus reduce product prices – by paying lower wages, ignoring health and safety and environmental standards, and failing to comply with a raft of other laws, standards and regulations?

Although not explicit in the CBC article, it also raises the gap between ethical sourcing (i.e., the work done by CSR or other similar departments/personnel) and day-to-day procurement. From the CSR team’s perspective, increased wages are positive. Looking at it from procurement (and sales), increased wages have to be priced into the product and ultimately reduce profit. The CBC quotes an industry expert who says that an 80 per cent wage hike (in Bangladesh) may translate into a four per cent retail hike. That seems about right. It sounds small in the context of the article, but a four per cent reduction in profit on apparel would eat into H&M’s quarterly figures significantly. It is hardly something that the Board would willingly (or could) foist on shareholders.

All of which leads to an uncomfortable, but logical, conclusion: given current retail pricing, wages and conditions generally for factory workers cannot improve much more. The CBC gets it perfectly correct (more by luck than design). The real issue is not Bangladeshi workers fighting for a decent wage; it’s that consumers won’t be slugged with higher prices. Or to put it another way; until consumers pay more, protests by Bangladeshi workers will result in few gains; unless – like Chinese workers – they become more competitive (i.e., unit labour costs fall). Yet even then, there is only so far that unit labour costs can fall. From 1995 to 2004, according to The Economist, they fell 43 per cent in China. That appears to have bottomed out, and firms fleeing China’s east cost as wages rise may be an indicator that H&M’s spokesman is not entirely correct on perceiving rising wages as only positive.

If this conclusion is correct, that improvement in wages and conditions have hit the ceiling due to the prices consumers are willing to pay, then we are in, as my mother would say, a pickle (or a difficult position). Initiatives designed to improve worker conditions that rely on corporate support are destined to come to a standstill as returns diminish. Unit labour costs can fall as buyers work with suppliers to increase efficiency, and working conditions (including wages) can be improved. But without a paradigm shift in the way we understand the relations between consumers, retailers, buyers and manufacturers (and a myriad of other actors), Bangladeshi workers are destined to read versions of that CBC headline over and over again.

If I was writing for The Onion, the satirical headline based on all of this would be as follows: “Clothing prices fall as offshore workers take 35% hit on already insignificant wages”. Now there would be a headline for Canadian consumers