The Bangladesh Problem Will Be Solved The Same Way The China Problem Is Being Solved

I think we would all agree that wages in Bangladesh are shockingly low: those textile workers are getting $40 a month or so for very long hours in what we know to be dangerous conditions. I’m equally sure that we’d all like such wages to be higher: and the problem comes as we try to work out how to raise them.

At which point let us switch to a different country and use it as an example of where wages have been rising strongly for some years now:

The continued rise in wages, even as China’s economic growth slowed to 7.8% last year from 9.3% in 2011, is likely to put fresh pressure on manufacturers already pinched by deteriorating profits, especially in low-end and labor-intensive industries.

After taking into account inflation, wages of employees at non-private companies rose 9% in 2012 over the year earlier, exceeding the 8.5% growth in real wages in 2011. Real wages in the private sector rose 14%, higher than the 12.3% growth in 2011.

Wages in China have been growing at these sorts of rates for near 15 years now. At 12% for 15 years that means wages are 5.5 times what they were at the turn of the millennium: at 14% it’s just over 7 times. And that is the sort of increase that we’ve seen in Chinese wages over this time period for those have been the rough annual increases. And do note that these are real wages: after we’ve taken account of inflation.

I think we’d all agree that we’d like to see these sorts of wages rises in Bangladesh too: I certainly would because I think it’s a great idea that the poor get rich.

Which leaves us with this question of how to encourage such a wondrous outcome. How did China manage it for example?

Well, it certainly wasn’t independent union representation of the workers now, was it? Apple AAPL -0.49%‘s Foxconn supplier is only just allowing these to come into existence this year after substantial pressure from labour rights activists inside and outside the country. I certainly think that’s a good idea: freedom of association is as much a fundamental human right as free speech is (something also not entirely guaranteed even in today’s China) but we cannot credit unions forming this year with the 5 to 7 times upgrade in wages over the past 15 years.

Similar stories can be told about mandated improvements in working conditions, factory safety, overtime rates, vacations, sick pay and all the rest. These haven’t been responsible for China’s leap in wages as they’ve only just started happening there: so there’s very little reason to think that they would be responsible for causing such a leap in Bangladesh.

What we do know has raised wages in China is that we’ve all been buying stuff from the country. This has led to people setting up factories to supply said stuff and then hiring people to staff them. As the available labour supply has been exhausted, they’re all now working in these factories, the employers have to improve working conditions and wages in order to keep that labour force. They’re competing with the factory the next door over for the profits that can be made from the workers. And it’s actually this that we’d like to see in Bangladesh too: more factories employing more people. That’s what raises wages and improves conditions: capitalists competing with each other for the profits they can squeeze out of the employment of the workers.

Which leads us to our policy prescription for how to improve matters in Bangladesh. We should be urging more of the companies that we buy from to contract with Bangladeshi factories to make the stuff that we buy. Far from trying to boycott the place we should be trying to swamp it with business.

After all, this is exactly what is making the people of China rich today and there’s absolutely no reason at all why the same policy wouldn’t make the people of Bangladesh rich tomorrow. And that is what we all want, isn’t it? That the poor get the chance to become rich?

Source: Forbes

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