Saving capitalism from the capitalists?

The RMG industry has been the dominant industry, employing four million people and earning $20bn every year

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The Savar tragedy has claimed the lives of more than 1,100 workers and approximately 2,500 people are injured.  Considered to be the deadliest garments-factory accident in history, Bangladesh, and the whole world, is trying to find out what went wrong and who are responsible for the tragedy.

The players who have been considered responsible are the building owner, factory owners and, the apparel buyers. The degree and, extent of responsibility of each of this group is debatable. However, all three can be classified under one umbrella – capitalists. The Savar tragedy resonates with the book, Saving Capitalism from the Capitalists by Raghuram Rajan and Luigi Zingales.

The authors suggest several things in their book. The first is that “the free market is the form of economic organisation most beneficial to human society and for improving human condition.”  Bangladesh has experienced impressive growth in GDP and GDP per capita over the last two decades, while experiencing substantial reduction in poverty. According to the Bangladesh Bureau of Statistics, its per capita income stands at $923 this year. Much of this growth can be contributed to free trade and the country benefiting from globalisation. In the context of free trade, the RMG industry has been the dominant industry, employing four million people and earning $20bn every year. Being the second-largest exporter of garments, the industry has contributed to the growth of the national economy, generated employment, and improved the living standard of the people. On the other hand, the major buyers who source from Bangladesh have also helped Bangladesh economy and society to grow.

The authors’ second point is that “free markets can flourish over the long run only when the government plays a visible role in determining the rules that govern the market and supports it with the proper infrastructure.”

In Bangladesh, there are rules and regulations for the free market to operate. However, there are debates about how effective and visible these rules are. Regarding the country’s infrastructure, it is widely agreed that it is very inadequate and outdated.

Many entrepreneurs will argue that developing the infrastructure will improve their trade and, consequently, increase the economic growth of the country. In spite of the inadequate infrastructure, the RMG industry has grown phenomenally in the last two decades.

The third point is “the government is subject to influence by organised private interests. Therefore, the incumbent private interests may be able to leverage the power of government regulation to protect their own economic position at the expense of the public interest by repressing the same free market through which they originally achieved success.”

The Savar tragedy is a perfect example of how this is possible. The factory owner built eight-storeyed building even though he did not have the permit to build eight floors; he used his political clout and muscle power to construct it without bothering to get recognition from the relevant bodies.

Again, the building was constructed with low-quality materials. It was possible for him to do this because of his ability to manipulate the local political scenario. On the day before the building collapse, he said that the building did not have any structural problems – he tried to maintain his rent without any regard for the lives of the workers in the building.

If the factory owners are evaluated, the same thing is observed. They achieved success as exporters by taking advantage of the free market and by utilising the workers who made clothing for them. On the fateful day, even when the workers did not want to enter the building, the management of the factories forced them to enter the building and start work.

This decision by the management led to the death of more than a thousand workers. The management wanted to meet their deadlines in shipping the products; they put their personal profits ahead of the lives of the workers, even though it was the workers for whom they achieved their original success.

In the book, after outlining the problems that capitalists can cause in capitalism, the authors suggest a few recommendations. Their first suggestion is to “reduce incumbent capitalists’ incentives to oppose markets.” 

The building owner and, the factory owners had incentives to oppose the free markets in terms of higher rent and more profit respectively (the factory owners forced the workers to work to maintain and maximise their private profits).

Now, the government can enact and enforce strict labour laws, and allow trade unions to operate. It can also enact laws to punish building and factory owners who endanger the lives of the workers. These may dissuade the owners to endanger the lives of the workers for their personal gains.

Then, the authors recommend to “provide a social safety net for the economically distressed to help maintain broad political support for free markets.”

There have been many strikes and agitations by the RMG factory workers over low wages, long work hours, and sometimes, difficult working conditions. Their wages have not kept up with the rise in rent and overall inflation, which has made their lives difficult. These workers are not entitled to pensions, medical allowances, death benefits, etc.

They feel exploited and consider themselves victimised by the garment factory owners and buyers. The workers feel that they are being exploited by the powerful forces of the free market and may start resenting the free market. When the government introduces a social safety net for these workers in collaboration with the factory owners and the buyers, the workers will feel more valued and less exploited. This will increase their support and consequently, the economically distressed populations’ support for the free market.

The authors’ third recommendation is to “keep the borders of the economy open to free trade and, maintain a high level of competitive pressure on the incumbent firms.” 

Bangladesh has kept the borders of the economy open to free trade, which has allowed the readymade garment industry to experience phenomenal growth. There is also a high level of competition between the garment factories. Unfortunately, the competition has been with prices where one factory tries to undercut the price of another factory.

 Compounded with this is the long-term downward trend of clothing prices in the international market – this has created more problems for the workers, in terms of wages not keeping up with inflation. If the factories start competing in terms of quality while bargaining for higher prices from the buyers, it may benefit the workers as well as the factory owners.

The final recommendation is to “educate the public regarding the benefits of free markets to build political support for free market policies, or more specifically, oppose governmental interventions in the market designed to protect incumbents at the expense of overall economic opportunity.”

Most of the people in Bangladesh do understand and realise the benefits of free trade. The garments industry has employed almost four million workers. However, the gains of free trade need to flow more to the workers so that they can live a decent life.

Also, the country needs to be aware so that individuals and groups cannot influence the government or administration (like the Savar tragedy) to benefit themselves at the expense of the industry, economy and society. The RMG industry is a vital industry of the country and, it is possible for the whole society to benefit from its prosperity.

http://www.dhakatribune.com/op-ed/2013/may/26/saving-capitalism-capitalists

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