Thursday, July 4, 2013

Race to the Bottom, Bangladesh and Cambodia

Race to the bottom refers to governments competing for jobs by offering corporate subsidies and in the case of poor countries, repressed workers who work cheap and don’t cause problems. It’s not a phenomenon that applies only to poor countries as US states and municipalities also lavish corporations with public money to lure their facilities. The competition that Boeing set up when it wished to move its corporate headquarters provides one of the most egregious examples. They didn’t look around for the best location, they searched out suitable locations and chose the one that offered the biggest subsidy. Did they really need to do that? Was the corporation going through hard times and requiring a handout? Was it really right for the people of Chicago where Boeing landed – many of whom are in difficult straits, not to mention the city itself which has mountainous social and financial problems - to spoon feed one of the world’s largest and wealthiest corporations? And yet that’s where we’ve descended as a society – starve the poor to feed the rich. I’m not referring just to America here, but a large part of the world has adopted that corporate philosophy.
In Cambodia, race to the bottom involves granting tax holidays of 5 or 7 years to new factories. Recently a minister mused that Cambodia should end those generous tax benefits since the country really needs to increase revenue. He want on to speculate that many businesses close up and move when the tax holiday ends, with some merely changing their names and starting over with new tax breaks. The news article then pointed out that all the neighboring countries do the same, so it might be difficult to implement such a change. Public subsidies for private businesses is just as evil in a developed country like the US as in Cambodia, but at least workers in the US pay income taxes to make up part of the shortfall in revenue. In Cambo workers are too poor to pay taxes so all the additional costs caused by providing infrastructure to the new factories or education for worker’s children, etc. is born by the people as a whole. Bangladesh also provides tax holidays of 5 years to new businesses. Countries get jobs for their people, a good thing for sure, but not the money to provide social services to improve their lives.
Bangladesh has been in the news a lot lately. In its desperation to provide jobs for its people, one of the world’s poorest, they’ve gone through great lengths to repress worker’s rights and income, thinking that was the way to make international corporations happy, since that gives them the ability to provide extra cheap garments for people in rich countries. The country is also hopelessly corrupt, which means common sense safety rules are routinely and easily ignored, like having factory doors locked so when a fire erupts, workers have no exit. They do that to prevent workers skipping out surreptitiously and to prevent theft. Late last year more than 100 workers died for that very reason. They can do that because small bribes there can solve all problems.
More recently, more than eleven hundred workers died in a building collapse in which multiple illegal and/or unethical and/or corruption factors were involved. In the first place the factory was built on a former wetland, which doesn’t automatically preclude developing an 8 story building there but does require extra care and higher costs in construction, which obviously didn’t happen in that case. Secondly, the building permit was issued by the local jurisdiction, though only the central government is authorized to do so for that type of building. The area is not zoned for industry so the building should’ve never been allowed in the first place. The permit was for a 5 story building to which an extra 3 stories were added illegally. None of those reasons would have necessarily caused the building to collapse if it had been designed properly for its purpose.
Corruption takes on many guises. In South Asia – Bangladesh, India, Pakistan, Nepal – corruption is social and ethical as well as financial. For instance, during the great flood in Pakistan in 2011, people who lost everything were denied basic food aid if they couldn’t show ID. Their whole lives had been washed away but they didn’t qualify for basic sustenance because of bureaucratic callousness and intransigence. In India, it takes 29 permits to open a supermarket, each one in a different office requiring a separate bribe unless the permit seeker is willing to wait interminable lengths of time for the permits.
The following is an experience I had at the Kathmandu Post Office on my first trip there in 1992; I doubt if it’s changed all that much. I was sending some paintings to the states in a mailing tube. I went into the office and stood in one of three lines with my package. When I got to the front – it took a while, there were about 10 people ahead of me – I was told I was in the wrong line, so I went over to the correct one. When I got to the window the clerk weighed the package, put a little scribble on it and told me to go to another line. A little odd, but okay, next line, another long wait, the clerk looks at the scribble and sells me stamps and tells me to put them on the tube and to go to a third line to mail it. What? All that rigmarole to mail one package? Well, at the time the largest denomination stamp had minimal value so I had to practically fill up the tube with stamps. That required that I separate long strips of stamps from a whole sheet and a half of them. In the process, I ripped off a very small portion of the corner of two of them, partly because they were printed on low quality paper. I thought nothing of it, but when I got to the head of the third line where the stamps were to get postmarked, the package was rejected for the two little corners that had gotten ripped off. Well, I freaked, said some decidedly unkind words to the clerk and stormed out, only to be forced to return some days later if I actually was going to get the thing mailed.
In all three cases you have bureaucracy run amok, seemingly almost gleefully devising rules designed to harass the citizen, and by the way stymieing growth, progress and advancement. That is in contrast to Cambodia where the permit process, with a little facilitating money thrown in, is very speedy and hassle free. Bureaucracy here also has its flexibility. For example, recently the process for obtaining a license plate for motorbikes was changed in a way that required long waits in an uncomfortable setting and was very confused since the government hadn’t properly made the process clear. Previously one paid an agent who charged a little extra but did all the paperwork and the plate was obtained very quickly. After a week of complaints the process was simplified and streamlined.
My personal experience with Bangladesh is very limited but telling nonetheless. The first time was in 1992 when I chose to fly Biman Air, the Bangladesh national carrier, from Bangkok to Calcutta, to save money. That involved a long layover in Dhaka. During the wait, I was able to observe the main waiting room being expanded right outside the big picture window. They - mostly women - were bringing concrete for the floor by carrying one bucket at a time on their heads up a flight of stairs... at an international airport.
I used Biman a second time in 2000, also to save money. On that trip I spent overnight till mid-morning in Dhaka at a special hotel run by the airline near the airport. The special hotel was supposed to be for emergency use only when flight connections didn’t happen, but obviously wasn’t an emergency in our case. This time it was a flight from BKK to Kathmandu, but since they had little traffic on the Dhaka-Kathmandu leg they used us travelers to add to the nearly empty plane. They served us a very simple dinner and breakfast the next morning and I got to walk around the neighborhood for about two hours before the mid-morning flight. The meal served to the hotel staff consisted of rice colored with spices and a small amount of eggs, no vegetables or meat... not much to it.
Though the immediate area around the hotel was middle class, just a short distance away the poverty was impressive even compared to India. One picture that stands out in my mind was seeing people breaking up new bricks with small sledgehammers, which I assumed was to take the place of construction rock. Almost the entire country consists of the vast delta formed at the confluence of the Ganges and Brahmaputra rivers. Except for some foothills in the north and far southeast of the country, there’s just no place to quarry rock. Being a delta makes it a very fertile land, but it’s also one of the most crowded places on Earth. It has a population of about 160 million in an area the size of Wisconsin in the US – about 55,000 square miles or 135,000 square kilometers. It’s about 2/3 the size of Cambodia which has less than one tenth the people.
The industrial makeup of Bangladesh is very similar to Cambodia’s. In both cases garments make up 80% of export earnings. Bangladesh’s garment industry is ten times the size of Cambodia’s, which matches the population differential. Per capita income is very similar - $2000 for Bangladesh, $2400 for Cambodia - based on Purchasing Power Parity which is a better indicator of wealth than merely converting to US dollars.
Treatment of workers, however, has been very different. Minimum wage in Bangladesh’s garment industry was recently raised from $25 per month to $38, whereas Cambodia’s wage was recently raised from $61 to $75 – almost twice as much though Cambodia’s income is only 20% larger. Where the countries diverge is in worker’s rights. Cambo, being dependent on the international community for the last 20 years was forced to allow unions and today the entire industry is unionized with several unions vying for worker support. Some buyers, like The Gap, for instance, purposely have located here so they can say the workers that make their clothes have the right to join unions and are treated fairly. Cambodia’s garment workers are not at all shy about work stoppages and asserting their rights. Manufacturers and the government don’t like it, but they live with it.
In contrast, Bangladesh has prohibited all union organizing. Change towards improving worker rights is being talked about with the recent disasters affecting so many workers. It’s possible, maybe even likely, that unionized workers would’ve refused to enter the building that later collapsed. It was evacuated the day before because of serious cracks in the concrete, but workers were told they had to return to work. With no rights whatever and in fear of their jobs, they felt they had no choice.
At the time of the collapse, I was thinking that it couldn’t happen here, or at least wasn’t very likely, but then in quick succession two events in Cambodia caused death and injury. In the first an illegally constructed mezzanine floor collapsed killing two and injuring another 20 or so and then only four days later a dining area on a raised platform fell down and injured about two dozen. Both were cases of shoddy construction and careless thinking. Still a sharp contrast to the large numbers killed in Bangladesh. There, because of extreme population density, they have no choice but to build multistory. There’s no way they could take very large greenfields, as in Cambodia, to build one story factories.
Multistory factories in themselves are no problem but require good design and conscientious engineering. They’re an efficient use of land and in some ways, in my mind, preferred to sprawling Cambodia style factories build on open land in the middle of nowhere. Many Cambo workers are forced to travel as much as two hours each way to get to work, a tremendous burden added to an already long workday. The industry of late has been having difficulty recruiting workers; getting to the worksite is one of the drawbacks of current development.
Even if only one story, it’d be far preferable to locate compact factories in or close to population centers. There’s a factory located close to the heart of Kampot which, until recently, employed about 300 workers (I’m not sure why it closed down). The vast majority of its workers were within 15 minutes of the factory by walking, bicycling or motorbike.
Cambodia and many other places in the world are being designed as if fossil fuels will always be cheap and easily available, a dubious proposition at best. They’re obviously oblivious to shortages that are inevitable and not in the distant future.
In America, good planning principles encourage industrial zones near the heart of the city since that’s where the workers are. Industrial jobs need to be balanced with retail, commercial and office jobs since there are a lot of people who are not suited to the latter. Having people travel long distances to work is never a good idea for the individuals involved or the increase in traffic that results. A few years ago a multistory garment factory employing hundreds of workers which was located on Street 51 in the center of Phnom Penh was replaced with an English school. Few would suggest that a garment factory is a better use of very valuable land in that location than an English school but it made it possible for large numbers of workers to easily get to work. Instead factories are being built 20, 30, 40 kilometers from the city in former rice paddies. This will at some point constitute a big problem.

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