Recent vandalism in garment industry-how to avert recurrence?

Media reports reveal that the workers of Universal Knitting Garments Ltd (UKGT) chalked out an 11-point demand to address their grievances of poor wages, non-payment of arrears, excessive workload, lack of job security, harassment, etc. They were agitating to realise those demands since May 3, 2006. The factory authorities assured them of a decision, but chose to close the factory on May 16, forcing the workers to take to the street. Hundreds of similarly aggrieved workers of nearby factories joined them. The workers resorted to vandalism when musclemen hired by factory owners swung into action against them on Monday, May 23. The rampage engulfed the entire Savar and Gazipur areas quickly. The following day, the vandalism increased and fanned out to Uttara, Mirpur, Kafrul, Tejgaon, and old Dhaka (DS, May 24-27). A few precious lives were lost, several hundred factories were affected - a few ransacked and gutted. In monetary terms the estimated loss, including production, varies between Taka 5,000 7,000 million.

In the late 1970s and early 1980s 'buying house' agents, in view of quota restrictions in the USA and Europe on imports from major producers South Korea, Taiwan, Hong Kong, China, Philippines, Thailand, Sri Lanka, etc., started visiting Bangladesh in increasing numbers looking for garment manufacturers. Short gestation periods in setting up factories coupled with facilities provided by the government like 'bonded warehouse' and 'back to back L.C' encouraged many young and energetic but inexperienced entrepreneurs to start apparel production, particularly shirts. Hundreds of new factories dotted Dhaka and Chittagong rapidly, mostly in hired premises. Private sector banks, particularly National and Islamic, seized the opportunity and liberally financed many producers.

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The first challenge came in 1984 when the US served 'call notice' to impose quota alleging 'market disruption' from an import surge of shirts from Bangladesh. Many factories went out of business. The US proposed somewhat liberal 'global quota' on exports of all kinds of apparel and textiles. Bangladesh government, however, negotiated a restrictive quota on shirts only, keeping the door open for other items. Many entrepreneurs availed the opportunity and diversified production. About 30 other categories came under the purview of US quota during the next few years till the Uruguay Round WTO 'Agreement on Textiles and Clothing' became effective in January, 1995. Meanwhile, some entrepreneurs started exporting to European countries. Europe also imposed quota on certain categories but withdrew the restrictions when import started declining. Further, European countries provided tariff concessions to importers from Least Developed Countries (LDCs) under their GSP scheme, which facilitated Bangladesh exports.

The 'demand pull' generated by Multi-Fiber Arrangement (MFA) restrictions on imports from East and South Asian countries propelled the growth and diversification of garment exports from Bangladesh till it was phased out on 31 December, 2004. It was widely apprehended in the post MFA era that Bangladesh would lose its market share as it did not produce the basic raw materials required for apparel production - cotton, yarn and fabrics in any significant quantity. Further, the productivity of Bangladesh workers is far less compared to the skilled workers of China, India, Pakistan, etc. Most trade specialists and economists including those in World Bank, IMF and WTO predicted a doomsday scenario, including loss of as many as 2 million jobs. However, when the moment of reckoning came in January 2005 Bangladesh proved its resilience by not only holding its market share but also growing since then at more than 10% and 30% percent in woven and knit garment export respectively.

What factors contributed to this remarkable feat and proved the pundits wrong? First, with the growth of garment sector a group of world class entrepreneurs emerged in Bangladesh and confronted the situation with ingenuity and courage. They established long lasting mutually supportive business relations with leading importers in the US and Europe. Second, with the phasing out of MFA and gradual integration of trade in textiles and clothing in the GATT regime exporters came out of 'demand pull' scenario and embarked on a campaign of 'supply push' in the global apparel market. The tariff concessions that Bangladesh had been enjoying as an LDC in EU countries and Canada were particularly helpful. A depreciating Taka enabled them to offer more competitive prices to buyers abroad. Third, in a possible annihilation syndrome in post MFA period, measures were undertaken to raise productivity using ITC and modern management techniques as well as increasing workers' skill, in most cases through “learning by doing”. Last but not the least, workers fearful of losing jobs in global competition worked very hard and fully cooperated with the factory management by working late hours and for seven days a week.

In the post MFA period entrepreneurs glowed in success and pocketed handsome profits from increase in export, rise in productivity and windfall from depreciating value of Taka. The exporters receive payments in foreign exchange, but pay salary and wages in Taka. The government fixed minimum wage at Tk. 940.00 in 1994. Since then, the value of the dollar has appreciated from Tk. 40.20 in 1994 to Tk. 70.00 now. In the meantime, purchasing power of Taka has fallen drastically, particularly in the years of present Government. Workers have been finding it increasingly difficult to make both ends meet with meager wages. The appalling scenes we witnessed last week would not have happened at all if the entrepreneurs had shared their gains from rising productivity and appreciating dollar with the workers or if the government had raised mandatory minimum wage commensurate with price spiral.

The toil and sacrifices of workers helped the country to overcome the immediate challenge of post MFA era, but neither the factory owners nor the government looked after their welfare. The industry has created several hundred billionaire owner-entrepreneurs but the pitiful situation of the 2 million or so garment workers, 80% of whom are women, has changed little, except that these girls have become bread earners in their poor household.

The BNP led alliance government in its usual pattern of economic management is pursuing a pro-rich hand off laissez faire approach in this vital sector too. Garment factories remained outside the purview of the country's labour laws since their inception. Every attempt to form unions in the garment factories were subdued heavy handedly. Neither the owners nor the government made any effort to develop alternative institutional channels for airing of and the looking after of the concerns and interests of laborers -- poor working conditions, low wage, job insecurity, non-payment of arrears, etc. The conditions in so called compliant factories, however, improved because of foreign buyers' sourcing guidelines.

The lesson of last week's unrest is that no business enterprise will be able to grow and prosper in post MFA global competitive environment without maintaining harmonious labour-management relations. Happily, soon after the incident, in a tripartite meeting of government officials, labor leaders and entrepreneurs the 11-point demand of garment workers was fully endorsed for implementation and the situation has become normal.

The challenge now is the development of a permanent institutional framework to ensure harmonious labour-management relations to avert recurrence of any disturbance. The entrepreneurs are wary about traditional trade unions in view of their political linkages. 'Productivity Council' in each factory comprising of representatives of workers, management and independent observers acceptable to both sides may be considered as an alternative to 'unions' for mutual appreciation of problems and the resolution of disputes/ demands/ grievances amicably. In case of disagreement, the matter may be referred to a government agency for arbitration.

More than 75 per cent of the country's foreign exchange earnings of about $ 8.0 billion come from garment export. However, in the Finance Minister's view, garment factories are nothing but 'tailoring shops'. Initiatives to set up an 'apparel board' to regulate and look after the affairs of the garment sector did not succeed in the face of opposition from the Finance and Textile ministries. The entrepreneurs, apprehensive of bureaucratic interferences, had also shown little enthusiasm for its creation. They feel that self-regulations would serve their interests better. When the industry confronted the issue of child labor, they somehow with donors' assistance, tackled it. It may, however, recur any time. Every now and then incidents of fire occur in garment factories, causing loss of precious lives and property. The industry and the government have so far taken ad-hoc and half-hearted measures to compensate the victims and avoid such incidents.

The garment industry is a multi-billion dollar export industry and is likely to grow double digit annually if nurtured properly. Its full potential can be realized and uninterrupted growth ensured only in a peaceful working environment. The sine qua non for achieving such an environment is the willingness and agreement of owner-entrepreneurs to share the gains from business expansion and rise in labour productivity with the workers equitably. Otherwise, the vandalism and ransacking that occurred last week could happen again. In this scenario, the constitution of a governmental agency an 'apparel board' with the authority to regulate and monitor all activities in the sector, look after the interests of all 'stakeholders' and arbitrate in disputes among them, is an urgent requirement. The ultimate responsibility for ensuring equity and justice, industrial peace and law and order lies with the government.

The author is a former Secretary, Government of Bangladesh.