We are already on the right track

I agree with Mushfique Wadud's argument in “Two sides of the same cloth” which was published few a few days ago in Dhaka Tribune -- the wages on offer on Bangladesh’s garment industry are low and we’d all like to see them get higher. I also believe that something must be done. The only disagreement I might possibly have with the distinguished journalist is that something is already being done -- that $50bn exports from the 2021 Vision, that’s exactly what is going to raise the workers’ wages. This is such simple economics that even Karl Marx was able to get it correct. As background to this, another story from this past week, one I’ve been shouting about in America as well. Last year’s economics Nobel Laureate, Angus Deaton, pondered on whether poverty in Mississippi was the same as poverty in Bangladesh. As someone who has been to both places, one of the few perhaps, I have to tell you that poverty means very different things in the two places. But Deaton has been blind-sided by a recent book $2 a day published in the US. It looks at people who have a cash income of only that $2 per person in the household. As the World Bank definition of absolute poverty is $1.90 a day, aren’t these the same thing therefore? No, absolutely not, they’re entirely different. The World Bank number needs a bit of adjustment, we use PPP to do this (no, the explanation is boring) and what we mean is the lifestyle you can buy for Tk60 a day a person in Bangladesh. That’s our global number for absolute poverty, extreme poverty.

The battle is fought by raising wages to attract workers from one factory to another

Life is pretty sparse at that level as a quick look around tells anyone. Note though that it is what you can consume which is worth that much -- your housing, your clothes, your food, your health care, and even that pension you’re not going to live long enough to get. All from that Tk60 -- and yes, it includes the value of any food you grow at home or anything like that. The American poverty being described is less than $2 a day in cash income. That’s not counting food stamps, part of the welfare system -- which for those who get them average $4 per day per person. It’s also not the value of government paid housing or any of the other things available to aid the poor. It’s purely, well, what’s the cash income? So, someone who loses their job and doesn’t get unemployment pay until next week is listed as having no cash income by this standard. Whatever their savings may be. The result is that there is no one, not one single person, in America living in what Bangladesh would call poverty. Which brings us to low wages -- that Tk60 lifestyle is pretty miserable, agreed. It’s also how just about every person has lived from the time of agriculture to the Industrial Revolution -- because $2 to $3 a day is what rural peasantry buys as a lifestyle. The only way out of it is to have that industrial revolution. Which is why, as in my native Britain, as in France, Japan, Hong Kong, and so on started with textiles and garments -- exactly the stage that Bangladesh is at now. We all wish it had happened two centuries ago, but it didn’t. At which point Karl Marx had one of those few economic points he got right -- which is when there are the unemployed people around (his “reserve army”) then the factory owners don’t need to raise wages. If they need more labour they just hire unemployed people. But what if there aren’t any left? Then the capitalists have to compete with each other for those workers they can profit from. Then it becomes not employers against workers, but capitalist against capitalist and the battle is fought by raising wages to attract workers from one factory to another. And, of course, wages are raised to stop workers leaving a factory. And that’s how it all happens -- that’s what makes the workers’ wage rise, the need for more workers than there are available. I was recently privileged to see three BGMEA owners snarling at each other about the poaching of workers. It’s happening out there right now, that lift off when wages rise considerably. And it’s only going to accelerate under the Vision 2021. The aim is to near double garment exports, there are other such schemes to increase leather and footwear exports, the tech industry is growing too. That pool of underused labour is being rapidly drained and it’s exactly these targets for ever greater production, using ever more labour, which is going to lead to the rise in wages. This is not some pie in the sky hope, some dream of what might be. This is how economic development happens. In 1978 China was at the same level of economic wealth, about that $2 or $3 a day, that England was in 1600. Today it’s about where England was in 1970. Yes, that’s after we adjust for inflation. Singapore made the same leap between 1950 and 1980, Hong Kong at the same time -- both are now richer than England. Taiwan was a decade later to make the same progress, South Korea a few years later again. Japan did it from 1950 to 1970. There’s no reason at all why Bangladesh won’t do it in the coming 20 to 40 years. All that’s necessary is that the current plans to sustain industry expansion and that these plans run up against the large, but still limited, number of people available to work in those factories. And thus, wages will rise and the workers will get rich. Something indeed needs to be done to make Bangladeshis richer -- fortunately, we’re already doing just that.

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Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.