Manhattan Institute for Policy Research.
search  
 
Subscribe   Subscribe   MI on Facebook Find us on Twitter Find us on Instagram      
 
 
   
 
     
 

Forbes.com

 

The Bangladesh Fire and Corporate Social Responsibility

May 02, 2013

By Howard Husock

PRINTER FRIENDLY

In the wake of the horrific clothing factory fire which killed some 400 near Dhaka, Bangladesh, international brand name retailers whose apparel products may have been produced there are under mounting pressure both to contribute to a compensation fund and to provide financial support for improving safety at some of the country’s 4,000 garment factories. For international anti-sweatshop organizations such the Amsterdam-based Clean Clothes Campaign, such steps would be appropriate—indeed, morally required—examples of corporate social responsibility, examples of a sort of corporate code of conduct to which firms should subscribe, even if they are not legally required to do so. In fact, in the wake of a previous deadly fire in November, Wal-Mart had already pledged $1.8 million to train Bangladesh plant managers in safety techniques.

Such "CSR " pressure aims to force firms to meet a so-called "triple bottom line" that considers not just profit but working conditions and impact on the environment, as well. It can actually be thought of as a form of corporate philanthropy—the voluntary (albeit under pressure in this case) re-direction of profits to social causes. As the Harvard Kennedy School’s Corporate Social Responsibility Initiative has put it, "throughout the industrialized world and in many developing countries there has been a sharp escalation in the social roles corporations are expected to play."

This latest terrible fire is a good example of when such corporate social responsibility can best be justified. But it demonstrates, too, how much less justification there is for such corporate norms in other situations—such as in advanced industrial economies. What’s more, it highlights the limits of such an approach even in a place such as Bangladesh, which would seem to need it most. Indeed, as one who has written often about what private philanthropy can do better than government, the Bangladesh case demonstrates the opposite: that which only government can ultimately do.

Consider the difference between the home countries where Wal-Mart, Gap GPS +0.8%, Children’s Place (the U.S.), H&M (UK) or Carrefour (France) sell their products, and the world of Rana Plaza, near Dhaka, where some of those products were apparently "sourced." Bangladesh is, to all appearances, characterized by a "Wild East" regulatory regime, one in which corrupt political relationships allow owners and operators to ignore safety inspectors, if, indeed, such inspectors even visit. As the New York Times editorialized, Bangladesh has "labor laws and safety standards which theoretically provide protection but are rarely honored. In international comparisons, such as Transparency International’s Corruption Perception Index, Bangladesh falls between countries like Cameroon, Pakistan, and Nigeria – all places where bribery and favors, not equal treatment under law, are, are standard operating procedure. In the case of the Rana Plaza fire, the owner of the buildings used for apparel manufacture is said to be politically well-connected.

When businesses rely on the products of a country where regulation is weak or non-existent, or easily avoided through corrupt relationships, it is entirely appropriate for international groups to seek to enforce safety and labor standards by pressuring major firms to agree to them. The same firms should be quick, as well, to provide help to those families and communities harmed by the absence of such standards.

But the home countries of the international firms under fire for their links to Bangladesh have dramatically different political economies. They are democracies—and, in a democracy, it is through the rule of law, forged through the political process, that safety and labor standards are appropriately set. In the U.S., factory owners fear the arrival of OSHA inspectors—and that’s essentially as it should be. When firms are pressured in democracies to meet standards that go beyond regulatory requirements, whether in the name of the environment or other social causes, such pressure—whether through boycott campaigns or proxy suits—is ultimately disrespectful of the democratic process. It is elected officials who should be the focus of such demands.

As I’ve written in National Affairs, "there are some serious arguments in favor of compelling firms to abide by the standards of CSR. They are particularly relevant in the context of weak states, where even rudimentary regulatory standards might not exist or be enforced, or where such basic regulation might be subverted by corruption. It is certainly possible that industrial operations in weak or corrupt states can produce what economists call negative externalities—air pollution, water contamination, human-rights abuses—and that the pressure of an international CSR organization might help matters. But this is clearly not the situation in the United States and in other advanced industrial economies, where CSR is, in effect, seeking to bypass the give-and-take of the political process (through which the compromises of regulations’ costs and benefits are sorted out)."

Ultimately, moreover, it is only honest government which can make possible health, safety and labor standards. Indeed, that is made clear by reactions of those involved to the Bangladesh fire. The New York Times reports that "PVH, the parent company of Calvin Klein and Tommy Hilfiger, and Tchibo, a German retailer, have endorsed a plan in which Western retailers would finance fire safety efforts and structural upgrades in Bangladeshi factories — although they first want other companies to sign on" (emphasis added). In other words, absent the sort of consistent regulation that government provides, it’s difficult for firms to agree to standards they fear competitors might profit by violating. That same tragic dynamic was implicit in remarks attributed to Sohel Rana, owner of the building in which the fire occurred. In response to reports that structural flaws in the building had been known to factory owners who nonetheless continued to operate, he said, "I did not force the owners," according to bdnews24.com, an online news source in Bangladesh, as quoted by the Times. "It was them who forced me, saying they would face huge losses, and shipments would be canceled if the factories were closed for even one day."

Of course, it could be that, even in a non-corrupt and democratic Bangladesh, the government could decide to adopt relatively lax health and labor standards—in order to keep down costs and permit its poverty-stricken population to compete in the international marketplace. In such a situation, one would look to the press and the political process there as the source of change—of the same sort that happened in the U.S. in the wake of the early-twentieth century crusades of Upton Sinclair and Progressives. But the lesson here may be this: those campaigning against the sweatshops of Bangladesh and elsewhere, might, rather than vilifying corporations, better focus on improving governments.

Original Source: http://www.forbes.com/sites/howardhusock/2013/05/02/the-bangladesh-fire-and-corporate-social-responsibility/

 

 
 
 

The Manhattan Institute, a 501(c)(3), is a think tank whose mission is to develop and disseminate new ideas
that foster greater economic choice and individual responsibility.

Copyright © 2014 Manhattan Institute for Policy Research, Inc. All rights reserved.

52 Vanderbilt Avenue, New York, N.Y. 10017
phone (212) 599-7000 / fax (212) 599-3494