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Giving the workers a piece of the pie

  • Published at 02:35 pm May 18th, 2018
Photo: Syed Zakir Hossain

'It would be both just and also efficient to graduate workers from adversaries engaged in a class war with employers into prospective stakeholders in the future growth of the industry'

We have observed that the garment industry is Bangladesh’s largest manufacturing industry and also its principal export industry. It is also a highly troubled industry because of the fraught nature of industrial relations within the industry, which are aggravated by the non-formal status of large numbers of workers.

The major industrial disaster of Rana Plaza in April 2013, where over a thousand workers in several RMG enterprises perished due to poor construction and safety standards in the factory building, is indicative of the adverse working conditions for workers.

Whilst considerable effort under pressure from Bangladesh’s international buyers has led to significant improvement in building and safety standards in RMG enterprises, the working and living environment of the workers remains unsatisfactory. This denial of the right of workers to form trade unions, their low wages, and the consequent growing disparities in lifestyle between the workers and owners, is likely to keep Bangladesh’s largest export industry mired in perpetual conflict.

Enhancement through state intervention to raise the minimum wage of the workers still leaves Bangladesh with one of the lowest rates of wages for RMG workers across the globe.

To the extent that the rapid export growth of Bangladesh’s RMG sector is contingent on its global competitiveness, derived from the low wages paid to its workers, the workers also need to be recognized as contributors and stakeholders in the industry. 

Low wages would be an insufficient metric for competitiveness, if the workers were not able to generate value addition over and above their wages and the high profits derived from the productivity. The increasing global competitiveness of the RMG industry, as new countries and enterprises enter the market, reduces the scope for a significant rise in real wages for workers across Bangladesh in the near future, given the high volume of unemployed and under-employed labour available in the country.

In contrast, the earnings and lifestyles of Bangladesh’s garment entrepreneurs have been greatly enhanced. In such circumstances, social disparities are likely to widen within Bangladesh and industrial conflicts are likely to accelerate in the future. 

Given the substantial contribution of the workers to the viability of Bangladesh’s RMG industry, it would be both just and also efficient to graduate workers from adversaries engaged in a class war with employers into prospective stakeholders in the future growth of the industry.

Such a transformation in the role of workers in the industry could be realized by providing them with opportunities to become partners in the industry. These partnerships could be forged through offer of an equity stake to RMG workers in the enterprises where they work. The workers would thereby identify themselves with the future growth and profitability of the company where they work.

This would not only motivate owners/workers to work more intensively, but would also encourage them to constantly explore opportunities on the shop floor to improve their productivity as well as the quality of the final products produced by the enterprises. In extending such an offer in the specific circumstances of Bangladesh’s RMG sector, several issues will need to be resolved:

Who are the workers to whom the shares would be provided? In many of Bangladesh’s RMG companies, no formal letter of appointment is issued to a worker, who is employed in these at the will of the employer on verbal contracts. The workers are treated as casual labourers and can be dis-employed at the will of the employers who can hire and fire workers depending on the fluctuating global demand for their product. As casual employees, the worker enjoys no rights statutorily open to workers under the Factories Act, including access to the mandated five percent bonus; nor do they have claims for health, injury, or retirement benefits. In such circumstances, casual workers would first need to be contractually recognized as regular employees of a company who can, on this basis, be offered a share in the company.

What would be the extent of the share? This share may, at the outset of this policy, be left open to individual enterprises, but a floor may be set in the range of five percent of the equity. This policy would be consistent with the prevailing provision of the Factories Act which stipulates that all companies registered under the act are mandated to assign five percent of their profits to their employers. This provision is rarely applied by any company in Bangladesh, partly because it might be regarded as establishing a formal contractual relationship between the employer and employee.

Critical to the model of employee share ownership is the need for RMG enterprises to transform their institutional status from partnerships, or private limited companies, into public limited companies registered under the Registrar of Joint Stock Companies. This would involve a major structural change in the RMG sector where most companies remain private companies. 

The added benefit of incorporating the RMG sector would be the listing of such companies on the stock exchange. The market remains starved of shares due to the absence of Bangladesh’s largest and most profitable sector. The government would need to encourage RMG owners to offer shares to their workers through extending tax concessions, currently on offer to incentivize private companies to go public.

The government would need to decide whether to make the system of worker ownership legally binding. It is suggested that the floor provision of five percent ownership should be made mandatory, but offers above this may be left open. The government may again incentivise, extending the workers’ share in the equity through further tax concession to the corporate RMG. 

Should employee shareholders be represented on the board of the company? Dialogue with the RMG sector indicate that such a provision is regarded as the most indigestible part of the worker-ownership process. Employers are reluctant to expose their accounts to their workers. Owners possibly apprehend that this would cast a light on the high profits earned by these companies which underwrite their lavish lifestyles and enable them to syphon off a part of their profits abroad. In such circumstances employers may be more receptive to offering non-voting stocks to their workers. How far this constraint on the exercise of ownership rights by the workers would be acceptable, would need to be further explored.

How would workers finance their purchase of their equity? The RMG employer may establish a trust for the workers and negotiate a loan with a bank under the employer’s guarantee, for the worker’s trust to buy up his/her share in the company. This loan could then be repaid to the bank through the automatic deduction of a percentage of the individual loan to the worker from the worker’s annual dividend cheque until the loan is fully repaid. Other alternatives, such as a dedicated equity fund sponsored by the government, may need to be established to underwrite loans for the buyout, since few, if any, employers may be willing to initially become guarantors for equity finance for buying up their own shares by their workers. 

Issues of exit would need to be addressed. Here, the most practical model would be to ensure that an employee who is leaving the employ of the enterprise would be obligated to sell back his/her share to the trust.

Should workers sit on the board of these companies? Here the initial approach may be to offer the workers non-voting shares with no representation on the board. This concession should by eventually modified, perhaps after three to five years, where the employee trust/collective should be assigned seats on the board commensurate with their equity stake in the company. Until such time as workers formally sit on the company board, it would be appropriate to set up a consultation council of employers and worker shareholders who would regularly discuss the financial and market status of the companies as well as other worker-related issues. 

Legal implications in the way of changes in the Companies and Factories Act to accommodate this change in the status of the workers should be examined. 

To take this initiative of worker ownership forward, it is proposed that one or two pilot projects may be initiated, under negotiation with selected RMG companies in Bangladesh, who may be invited to participate in a two to three-year experiment to test out the model. The workers’ share of the equity may be staked by an international development agency or even an NGO. Depending on the response from both sides, this pilot project may be expanded to more enterprises, under official sponsorship. Eventually, the government may consider graduating the initiatives to promote worker ownership into a mandated national policy. As a prelude to initiate such a pilot project, a feasibility study of the pilot may be carried out, spelling out the specifics of the project, its financing, and eventual outcomes. This work may be centred around identification of particular RMG companies who may be agreeable to participate in the pilot, so that the specific concerns of the prospective enterprises and their ideas on improving the viability of the project may be incorporated into the study. 

Professor Rehman Sobhan is a Bangladeshi economist and freedom fighter, and recipient of the Swadhinata Padak

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