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It is the workers who matter

  • Published at 02:48 pm May 18th, 2018
  • Last updated at 02:49 pm May 18th, 2018
rmg worker
Apparel workers at a garment factory that the EU parliament believes still needs safety improvement Mehedi Hasan/Dhaka Tribune

The RMG sector needs to focus on its workers in order to progress in any tangible way

The prayers for the prosperity of the Bangladesh economy rest on manufacturing and exports.  The centre of manufacturing in Bangladesh is the RMG sector. Enhancing the work ability and the welfare of these workers is the most important problem to be solved to ensure the future growth of the economy. How the conditions of these workers evolve will have an important influence over the growth of manufacturing, setting an example for other sectors.  

The very successful history of the RMG sector in Bangladesh is no guarantee for continued competitive, profitable expanding output and export. There are inevitably many problems that must be overcome. The sector is under attack by organizations in the buying markets for Bangladesh’s alleged poor labour practices. There is no serious effort to deal with these accusations. All that is done is to deny that there are difficulties. All serious scholars of the RMG sector know there are serious problems. It is not all bad but it is certainly not all good.

This article sets out a different approach to the problems of the workers and suggests a solution that is feasible and focusses on six key areas. The first four deal with the workers, the fifth and sixth with critical conditions needed for success of the industry.

  • Factory safety
  • Availability of safe, affordable housing for workers
  • Child care for the young offspring of workers
  • Opportunities to improve worker skills with growing complexity of the production processes
  • Providing support for infrastructure improvements
  • Providing trade policy protection for the RMG industry

In addition to the main large factories, there are several thousand small factories where labour conditions are poor and the risks facing workers are much greater. This calls for special care.  

Although there are many words written and spoken on these matters, actual accomplishments, other than for safety, are few. This article sets out a way to tackle these problems. It is controversial and many will reject out of hand the underlying idea, but I am convinced this would work.  

The approach suggested here is meant to reduce the need for the establishment of labour unions. Dealing with the issues listed above can be done much more effectively with this proposal than it can through labour unions. The union concept is of limited value in the context of the RMG workers; unions are unable to address effectively the worker’s problems. The key problems listed above, particularly items 1-4, can never be managed through union action.

Labour unions, the workers joining together to negotiate with the owner, are a form of economic organization that is increasingly irrelevant to the real problems of workers everywhere but particularly in Bangladesh. The genuine needs of workers need to be managed in a different way.  Achievement of higher wages can come only with higher productivity. The idea that the RMG companies have levels of profitability sufficient to increase wages significantly is false. Actions to raise productivity are the essential undertaking. One aspect of higher productivity is for workers to remain in their jobs for longer periods; another is to receive training in operation of more complex machinery and manufacturing methods.

The fifth point is that the RMG industry is plagued by infrastructure problems and that a massive expansion of the industry is blocked by these shortcomings. The target of $50 billion of exports is impossible as the current transport and energy infrastructure could not manage that volume of garment exports and required imports.

The final point is that Bangladesh’s position in the world trade in garments is undermined by the trade policies of other countries and that this nation should not be passive, but should aggressively bring cases against such violations of international trade law.

The core of this proposal is creation of a fund for the RMG sector aimed at improving worker productivity and better management for infrastructure. Such a fund would be financed from two sources: An export tax of 1.5 percent of the fob value of the exports and a direct contribution from the government exchequer of the same amount.

The existing 0.8 percent levy on exports would be abolished. The new tax would be paid when the payment for the export is received. When the payment is received by Bangladesh Bank, the 1.5 percent is deduced and deposited to the special account establish for this purpose. A matching amount is paid into the special account by the Bangladesh Bank drawing from the general account of the government.

The earnings from this tax will be about one $500 million per year. Total payments into the fund will be $1bn per year. This fund would be under the control of a board with representatives from the government, industry, and workers. It would be used for a number of purposes as I outline below.

Who would pay the export tax? Properly handled, the export tax would be largely borne by the buyers. The tax would be explicit -- ie the Bangladesh manufacturer would provide his prices based on his cost estimates. The 1.5 percent export tax would be explicit on the invoice. As the purposes of the fund are to help the workers the buyers can sell these garments as having costs that deliver a better deal for the workers. 

The board would be required to place 20 percent of the proceeds into investments. These investments would be 50 percent in foreign investments and 50 percent in domestic investments (same authorized assets that apply to insurance companies). Earnings from the assets would be used for the purposes of the fund.

Up to $300 million per annum would be used to facilitate the implementation of safety and structural adjustments of factories. These funds could be joined with commercial bank funds, and funds from donors or buyers and made available at zero interest. Thus, the fund would be used to promote safety in the RMG industry, reducing costs to factories, and providing a permanent source of financial support for factory safety.  

The fund would use up to $300m per year to find ways to improve housing conditions for RMG workers. This would involve a number of means to construct high rise apartment buildings for worker families and single workers located near to factory locations. This housing should provide for worker families to build up equity in their housing. Housing is probably the greatest single issue facing worker welfare. This will become increasingly acute if the garment sector continues to expand and employment grows.

With improved housing facilities, the provision of child care becomes much simpler. The fund would support development of ways to do this and examine ways for employers to pay part of the child care costs.

The fund would take responsibility for the establishment and management of the central registry of RMG workers. This registry would provide the basis for proper management of retirement benefits, medical care, and skills registration. The registry would provide many important benefits for workers: The ability to keep continuity of retirement programs and potential for a good health care system for RMG workers. Registration would insure that the workers were considered permanent employees of the RMG factory.

The fund would develop appropriate skill certifications, encourage development of skill development centers, and maintain registries of worker skill certifications. Upgrading skills is vital for the future of the industry. Most training now takes place inside factories. While this is important, it always results in under-investment of training as no one wants to train workers who may then go elsewhere.

The infrastructure problems facing the industry are immense and currently prevent rapid growth of output.  Great progress has been made in the provision of electrical energy but quality and reliability remain elusive; port and air cargo facilities remain under great pressure and major increases in volumes will be difficult to achieve without changed approaches. The fund will finance management and infrastructure studies supporting relevant government agencies to determine short term improvements that can provide the needed transport flows and suggest improvements in management of the power system.  The fund’s efforts would focus on short-term improvements of infrastructure.

The fund would sponsor studies of the trade policy of other countries to bring information to stop subsidies and other illegal support for competitors. Many countries provide hidden subsidies to their garment factories and these must be identified and legal action taken to block such illegal support. The RMG sector must defend itself from predatory actions by competitors. 

The fund would provide resources to help small factories that want to continue to function within the framework of the rules of the industry to make the necessary adjustments and changes. 

Forrest Cookson is an American economist

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