There's a Reason They Call It a Supply 'Chain'

The garment industry finds that oversight of its far-off contractors is back in fashion. How tightly the industry wants to regulate itself is a matter of style.
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Rescuers carrying out one of the survivors from the collapsed building in Bangladesh. (PHOTO: SHARAT CHOWDHURY/WIKIMEDIA COMMONS)

Rescuers carrying out one of the survivors from the collapsed building in Bangladesh. (PHOTO: SHARAT CHOWDHURY/WIKIMEDIA COMMONS)

In a grim superlative, this spring’s collapse of the eight-story Rana Plaza in Bangladesh’s capital has gone down as the worst accidental building failure in history. Tarred by their association with the business going on in the building—cheaply piecing together clothing that would later be sold at a premium—the global garment biz last week debuted not one, but two, approaches for ensuring that Bangladeshi clothing suppliers offer at least rudimentary nods toward safety in their factories.

The two approaches differ in several ways, most obviously by geography. Seventy-two mostly European-based clothing companies signed onto the Accord on Fire and Building Safety in Bangladesh, while 14 American firms like Walmart and The Gap inked the Bangladesh Worker Safety Initiative. Both plans feature inspection of factories, training, and financial support to bring bad buildings up to snuff; Bangladeshi bosses who don’t eventually measure up will be blacklisted.

The more important difference, however, isn’t locale but accountability. The Europeans created a plan in which they—the clothing retailers themselves—are voluntarily on the hook for seeing that improvements are made in Bangladesh’s corrupt, lowest-common-denominator factory system. (The retailers are also required to keep using Bangladeshi suppliers for at least two years, preventing them from immediately hightailing it to the next cheapest destination.) The Americans have on the surface a more real-world oriented plan, featuring employee hotlines, a focus on the broader issue of worker—not just building—safety (hello, leather tanneries), and the understanding that manufacturers may keep their own noses clean by subcontracting work to less pristine operators. But their responsibility, while also voluntary, isn’t legally binding beyond writing a check.

There’s no reason that the two approaches have to compete; and an even stronger set of protections would result if the two were used complementarily, and not competitively. But that’s not the way they’re being viewed.

Perhaps not surprisingly, the European approach with its reduced wiggle room has been winning more plaudits. An editorial in The New York Times, for example, argues that “Recent tragedies provide ample evidence that voluntary measures to monitor factories are not enough to protect workers,” while an article in The Economist suggests that inertia might take the upper hand as factory owners play safety arbitrage with the competing proposals:

Foreign firms have been promising for around 20 years to do something about Bangladesh’s dangerous factories, to little effect. Now, as then, they will make significant progress only if the government, and the factory owners, also undertake serious efforts to bring about change. Lamentably, even after the tragedy at Rana Plaza there has been little sign of this.

While putting enforceable heat on the retailers does seem like the approach most likely to provide real results, why would any company put itself in the legal crosshairs rather than remaining a dilettante at the corporate social responsibility ball? Backers of the American initiative specifically cite the fear of litigation (although as a harm for the program, not themselves!) for their approach. “If you have to find $10m for factory safety and put aside another $10m for lawyers, you will really start to suck the energy out of this,” Walmart’s Jay Jorgensen told The Economist.

Will Gans, an environmental analyst for economic consultancy NERA, looked at self-imposed corporate regulation in a recent paper in the journal Environmental & Resource Economics. Gans and his co-author Beat Hinterman examined the late and unlamented Chicago Climate Exchange, a voluntary-mandatory experiment to create a cap-and-trade market in carbon dioxide. The exchange essentially folded, but Gans wanted to understand what private companies got out of signing away their rights when in most instances their traditional bottom line prospered by avoiding regulation.

As he told Pacific Standard last month, the benefit was experience—but only when it appeared a harsher set of mandates might be looming. "When wading into a completely new regulatory area like this," he said, "it makes a lot of sense to me for firms, and for the actors involved, to gain experience."

Gans carefully avoided making too grand of conclusions from his study, saying that even another example from the emissions arena would have its own peculiarities, making comparison inexact. He did offer one possible example that would be similar—Western clothing retailers operating in Bangladesh, albeit before the Rana Plaza disaster, taking on serious oversight of their supply chains.

It wasn’t obvious why they should be doing it, but they were trying to assuage their consumers that they were doing the right things, that they were going to be responsible manufacturers. Then Bangladesh rolls around, and they were members of this particular cooperative or organization, and they weren’t tied that closely to the Bangladesh issue, and therefore they might have seen a benefit to their stock in the market.

Especially for companies that deal directly with consumers, Gans suggests that such gilding of the lily, sincere or not, can improve the market’s perception of a company. Whether there’s a market benefit now that more than 1,100 people are dead and all the big boys are climbing on the bandwagon is an open question, but the possibility that individual Western governments might try their hand at some legislation can’t be ignored.

“Without external pressure, whether from consumers/customers, say fear of a boycott or threat of looming regulation,” Gans said, “it doesn’t make a whole lot of sense for companies to engage in these sorts of voluntary actions, based on the literal charter of these companies to maximize share price for stock holders. ... Unless you change the system or inflate one of these other external pressures, I wouldn’t expect to see a lot of change or things that are meaningful.”

Much of this assumes, of course, the notion that Western companies and consumers share responsibility with Southwest Asian plutocrats and bureaucrats (often the same people) to make things better. Given other developed-world initiatives ranging from free-trade coffee to the Forest Stewardship Council, it appears the notion is accepted.

On a visit to Dhaka before both accords were fully fleshed out, the French ambassador at-large for human rights, François Zimeray, suggested both sides had some lifting to do—although “first the solution will come from here, not from abroad.” (This morning Bangladesh did institute some improvements in worker rights, including the right to unionize and the requirement that employers set aside some money from their profits for their employees’ welfare. The new law didn’t up the minimum wage, equivalent to $38 a month, or address worker safety issues.) Quoted by the English-language paper The Star, Zimeray added, “But our part as consumers, as buyers, as clients is to ask the brands to check more carefully. ... We must put an end to the era of fashion cynicism. Ignorance, indifference and complicity are only one step removed. We refuse to be accomplices.”

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