ON RANA PLAZA, LIVING WAGES, A BROKEN INDUSTRY – & HOW TO FIX IT
we all should know but probably don't...
THE SYSTEM IS BROKEN
HOW TO FIX FASHION
Almost two years ago, a building collapsed - and we are still in shock.
More, we (!) still have a bad conscience.
And we do what we always do in such a situation: we find culprits.
We blamed companies who sourced from Rana Plaza.
Yet, the building also hosted a bank, offices, and shops - it looked safe. On April 23, it showed cracks and was evacuated. On the next day, two inspectors declared it as safe (bribed by Mr. Sohel Rana, the owner of the building), but only the garment workers went back, while the rest remained closed. They were threatened to lose a month’s salary. Instead, they lost their lives, loved ones, or the ability to work again and earn their livelihood.
We should blame the low wages which leave no room for choice.
On that subject, we have already blamed the fast fashion brands which offer cheap fashion for their alleged greed, who in turn blamed their own customers and their - equally alleged - unwillingness to pay more. Yet, all surveys and statistics demonstrate that most consumers would in fact be willing to pay an adequate markup for fair production conditions – we are talking about a few cents per piece, after all.
But while it may be easy to choose FairTrade sugar over conventional one (it is only slightly more expensive, can be found in the same stores and tastes at least as sweet) – fashion is a bit more complex.
Here, consumers have but a few options all of which would bring about limitations in convenience, choice, style, and/or budget.
So they may be ready to pay more for fair production, but not willing (or able!) to pay the quite substantial price difference charged by current FairTrade brands (which is not solely due to the treatment of workers but mainly to their lacking of the fast fashion brands’ economies of scale and efficiency). In addition, all options would reduce the total amount of garments sold, which would inarguably worsen the situation for the garment workers.
So, even though the ones who would in the end bear the additional costs of higher wages (the consumers) would be willing to do so, the market cannot regulate itself to create this mutually desired outcome. And where market cannot regulate itself, the underlying system is dysfunctional – the fashion industry is broken.
The weakness lies in the length of the supply chain and its lack of transparency.
The companies cannot simply raise the garment workers’ wages – because usually they don’t know them. Trying to change that in recent times, most now know their first- and second-tier suppliers, but there are so many subcontractors involved with whom orders are handled mainly via purchasing intermediaries, that they are not in direct contact with the majority.
This system is called Indirect Sourcing. It provides the flexibility necessary for fast fashion production. However, it also leads to an immense lack of transparency, wrong understanding of priorities, lack of identification and accountability, and enables time pressure to be a driving force. The actual price war takes place between the suppliers (not the retailers!), the actual price sensitivity lies with the purchasing agents (not the consumers!).
It makes no sense to blame the companies for sourcing from one special building, if the underlying system is the cause for the real problem. Instead every single company which relies on indirect sourcing should contribute to the Rana Plaza fund.
In fact, they should open an emergency fund for fast relief in future industry accidents. And the amount of contribution should depend on their total revenue. It would be tiny, if every major company would take part.
Yet, this wouldn’t fix the main issue, the wages.
There are two possible solutions:
1. Establishing strong, direct, long-term relationships with the suppliers AND the sub-contractors
2. Raising the minimum wage
Both is needed.
The first has already started, but progress can only be slow.
More efficient would be to raise the minimum wage. Some companies are trying to convince governments to do so, but they can’t, as long as they have to fear that all the other brands will move on to countries with even lower wages in case they would indeed raise theirs.
What is needed, is that as many brands as possible pledge to pay living wages.
This approach is shared by some of the biggest brands (H&M, Inditex, C&A, Tchibo, Primark, New Look, Next, N Brown Group), who have in a so far unprecedented move conjointly sent a letter to the Cambodian government preceding the upcoming wage negotiations, stating that they are willing to pay higher wages.
The minimum wage has then risen about 28%.
They now need to strengthen their pledge by adding credibility.
The not even half-filled Rana Plaza Fund continues to symbolize that there is no “charity” money in the fashion industry. So why should anyone believe that these companies are really ready to pay higher prices than they absolutely need?
Therefore, they should put some money into their talk – or into the Rana Plaza Fund.
The brands are in the driver’s seat.
So are we, the consumers.
It is a great step to take action like so many did on Fashion Revolution Day.
Now we need to put some money into our talks, too – and to ask for a precise action. In order to encourage more brands to follow those pioneer brands, and all of them to enhance their pledges with credibility, we should start to demonstrate that we indeed do care and are willing to pay a tiny little premium for the workers’ well-being - and put some money into our talk, too.
ABOUT THE WAGES & PRICES
GARMENT WORKERS - HOW MUCH DO THEY REALLY EARN?
One of the most frequent comments and reactions to disclosing what garment workers earn is: “How can I know whether 38 Euro are much or little without knowing the exact purchasing power of that amount of money in Bangladesh?”. A hint would be: with a decent salary, no one walks into a building that shows widening cracks. Overlooked by the world (in spite of the Rana Plaza accident), Bangladeshi garment workers took to the streets in autumn 2013, protesting for a 100% raise in salaries. After almost 3 months, police ended the protests with tear gas, and the government agreed to raise the salaries by ca 50%.
But to leave Bangladesh’s example: Equally ignored by the world, garment workers in Cambodia also protested for doubling their wages. This was in spring 2014. At that point, a garment worker earned 85$ per month. The rent for a one-room concrete floor “apartment” without water or electricity was 50$. The union-led strikes disintegrated after military police shot into the crowd.
NGOs around the world postulate the payment of “living wages”. The Clean Clothes Campaign has provided useful graphics to illustrate what a living wage should cover.
Living wages are calculated by independent institutions as follows:
50% for food
40% for housing, transport, health, family (the latter is important because in most countries there are no social systems)
10% as discretionary income (as mentioned, with now social systems and security, a little saving should be allowed for.
The following graphic provides an overview of the current payment situation.
These huge differences give the impression that a minimum wage would be very expensive and hard to achieve.
The focus of interes usually lies in Asia due to the amounts produced there, and the media (especially after Rana Plaza) concentrate on Bangladesh, which is the second biggest textile exporter worldwide
– but the situation doesn’t look too different in Eastern Europe.
FASHION CONSUMERS - ARE THEY REALLY THAT PRICE-SENSITIVE?
Fashion consumers’ alleged price sensitivity is often blamed for the low wages paid to the garment workers.
But what are the choices the fashion consumers have? So far, the options consumers had were limited to
Buying higher priced products, which unfortunately doesn’t guarantee better working conditions, as expensive brands often work with the same suppliers as fast fashion brands.
Buying made-in-Europe products, which doesn’t guarantee better working conditions either, as fires in “Chinese” factories in North Italy (around Prato) have demonstrated last autumn.
Buying fair-trade products only, which seldom meet the individual styles in the same way like the extensive collections offered by fast fashion companies can.
All three options are linked to much higher expenses and therefore require a high involvement – on the other hand they don’t contribute much to an improvement for the millions of garment workers.
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ABOUT INDIRECT SOURCING
THE FLAW IN THE SYSTEM: INDIRECT SOURCING IN THE GARMENT INDUSTRY
The reason for this lies in the system of the garment production industry, or, to be more accurate,
in the length of the supply chain and its lack of transparency.
The brands/retailers cannot simply raise the garment workers’ wages
– this can only be done directly by the individual factories themselves.
But those suppliers work for different clients (brands/retailers), with whom they very often are not even in direct contact. Therefore, they cannot know the exact priorities of the clients, and instead have to guess on the most obvious priority: profit. Also, suppliers may take an order slightly too big for them in order to maximize the degree of capacity utilization, and then source out a part of it to sub-contractors – again, via intermediaries.
This practice of indirect sourcing is also due to the high time pressure in the industry:
If any part is late, orders get split up and shares of the production are outsourced in order to finish in time.
This further undermines any efforts to create transparency.
To summarize, the price sensitivity lies not with the brands/retailers, neither with the end consumers
– but with the purchasing agents.
This causes a price war between the suppliers. So, even though the ones who would in the end carry the additional costs of higher wages would be willing to do so, the market cannot regulate itself to create this mutually desired outcome.
And where market cannot regulate itself, the underlying system is dysfunctional
– what is needed is a mechanism to 1. fix the problems and 2. fix the system.
Here, Prof. Muhammad Yunus has made a simple, but powerful, proposition for relieving the most pressing problems.
THE GARMENT WORKERS' WELFARE TRUST
Nobel Laureate Prof. Muhammad Yunus (the Bangladeshi professor in economics who is known for introducing the system of micro credits with his Grameen Bank) proposed after the Rana Plaza accident an easy way to fix garment workers’ salaries in this broken system:
“With just a little effort only we can achieve a huge impact in the lives of those so-called “slave labours.”
My proposal relates to the little effort.
I ask whether a consumer in a shopping mall would feel upset if he is asked to pay $35.50 instead of $35 for the item of clothing. My answer is: No, he will not even notice the little change.
If we could create a “Grameen (or Brac) Garment Workers Welfare Trust” in Bangladesh
with that additional $0.50, then we could resolve most of the problems faced by the workers
- their physical safety, social safety, individual safety, work environment, pensions, healthcare, housing, their children’s health, education, childcare, retirement, old age, travel could all
be taken care of through this Trust.”
This proposal circumvents the main problem, the long supply chain, by having retailers collect the money
(the 50 cents are calculated as 10% of the production costs) and forward it to the garment workers’ welfare trust.
It is a great proposal, which unfortunately didn’t gain the deserved and necessary attention and reactions from the brands/retailers. The reason for this is that it contains too many other challenges for them:
The majority of products in question is made for brands/retailers, who generate profits by quantity, fewer for those with high margins. Those first ones would havedifficulties to pay the additional 50 cents from their margins, so they have to charge the customers (as proposed).
In that case they might have difficulties to advance the money. If not all can advance the money, it would lead to problems in ensuring that the 50 cents actually benefit the “right” garment workers (the garment workers in the factory that produced the particular items).
The brands/retailers with low margins have very price sensitive customers. They cannot raise the prices just like that, they would have to fear that the competition wouldn’t drag along and that suddenly they would be the only ones with higher prices.
Therefore they would explain what and who the money is for. This would drawattention on the production conditions, something they don’t want their customers to have in mind while shopping.
By charging an additional 10% of the production costs (or: 50 Cents in average) they first have to disclose them, which could damage the perceptions of the particular brand (especially for those with higher margins).
The customers, willing as they may be to pay the little premium, would still be hard to convince why they have to pay “themselves” for the workers whose salary should be covered by the product’s price, especially when the retailers themselves are the ones who collect the money.
These challenges explain why no brand or retailer has adopted the proposal so far.
Unfortunately, even if some did, it wouldn’t be enough.
As mentioned, it does circumvent the main problem
(which would work if everybody did agree to it), but it doesn’t solve it:
The workers would depend on that trust of voluntary contributions.
So, the proposal does provide a useful approach for part one of the mechanism (fixing the biggest problems),
but has no impact for part two (fixing the system itself).
Yet, what is needed in the long run IS a change in the system.
 The listed issues are what a living wage should be able to cover (Clean Clothes Campaign).
FIXING THE INDUSTRY
It has become an essential feature of the garment sector in Bangladesh as a means of increasing margins and boosting production capacity while keeping costs low. In the absence of an effective regulatory framework, the prevalence of indirect sourcing strategies has resulted in a supply chain driven by the pursuit of lowest nominal costs. This has increased risks for business and workers by undermining wages and working conditions, as well as investment in technology and training, and improvements in productivity and quality.
There are two possible solutions:
Abolishing the practice of indirect sourcing: Brands/retailers establish stronger, direct relationships with the suppliers AND the sub-contractors.
Regulating the practice of indirect sourcing: Governments raise the minimum wage of the industry to meet living wages, for which the brands/retailers need to agree to an international minimum wage (otherwise the governments have to fear that by raising the minimum wage, they are driving the brands away). Yet, since in some places the living wages (calculated as the Asia Floor Wage) are as much as five times above the current minimum wages, it is unlikely that the governments could raise them that much at once.
The most actable, and probable, way to achieve the goal of a living minimum wage would be to combine both ways:
First, the brands would have to agree on higher minimum wages, then the governments could raise them.
Although they probably wouldn’t (be able to) raise them at once to meet living wages, this would be a good starting point for the brands/retailers to establish relationships with their suppliers and their suppliers’ subcontractors.
This is also postulated as conclusion of NYU Stern’s Report “Business as Usual is Not an Option – Supply Chains and Sourcing after Rana Plaza”:
“Global brands should acknowledge the role of indirect sourcing in their supply chains and begin to build more transparent, trust-based, and long-term relationships with their primary suppliers.
Beginning with their closest suppliers, they should work to identify the full scope of subcontracting in their supply chains.
Brands should prioritize transparency, rather than continuing empty rhetoric about policies against ‘unauthorized’ subcontracting” (Labowitz & Baumann-Pauly, 2014).
In all cases, the brands/retailers’ activity is required, and they need (more) incentives to act with more determination and speed.
With your contributions and statements you encourage them to take action and use their power.