Question

CASE STUDY A Tragedy in Bangladesh

Bangladesh is a very poor country. According to World Bank estimates, in 2010 some 77 percent of Bangladeshis were living on the equivalent of less than $2 a day, and 43 percent were living on less than $1.25 a day. Incredibly, however, these numbers reflected a major improvement from the not-so-distant past: In 1992, 93 percent of the population lived on less than $2 a day in today's dollars, 67 percent on less than $1.25.

This decline in poverty was the byproduct of two decades of impressive eco­ nomic growth that doubled the nation's GDP per capita. Bangladeshi growth, in turn, relied crucially on rising exports, specifically, exports of apparel. As we noted in Chapter 11, the Bangladeshi clothing industry is a classic case of com­ parative advantage: It has relatively low productivity, even compared with other developing countries, but Bangladesh has even lower relative productivity in other industries, so it has become a clothing export powerhouse.

Bangladeshi competitiveness in clothing depends, however, on low wages and poor working conditions. How poor? On April 24, 2013, the world was shocked by news that an eight-story building in Bangladesh, containing a number of gar­ ment factories, had collapsed, killing more than 1,200 people. Inquiries revealed that cracks had appeared in the building the day before, but garment workers had been ordered back to work anyway. It also appeared that the building was struc­ turally unsuited for manufacturing work and may have had extra stories added without a permit.

And who was buying the clothing made under these unsafe conditions? We were: The factories in the building were supplying clothing to a number of popular Western clothing brands.

Clearly, Bangladesh needs to take steps to protect its workers, starting by enforcing its own building and worker-safety laws. But how should consumers in wealthy nations—that means, among other people, you—respond?

An immediate, instinctive response is that we shouldn't buy goods produced in countries where workers are treated so badly. Yet as we've just seen, Bangladesh desperately needs to keep exporting clothing, and it can only do so if its workers receive very low wages by Western standards. Indeed, it needs to pay less even than China, whose apparel industry has higher productivity. And low wages and poor working conditions tend, whatever we might like, to go together.

Does this mean that nothing can be done to help Bangladeshi workers that won't end up hurting them instead? No. One can imagine trying, either by law or simply through consumer pressure, some basic standards for working conditions that apply not just to Bangladesh butto its competitors. Provided that they're not too ambitious, such standards could make life better for Bangladeshi workers without destroying the exports the country relies on.

But it won't be easy, and one shouldn't expect too much from such measures. For the foreseeable future, two uncomfortable facts will continue to be true when it comes to trade with poor countries: Workers in those countries will suffer from worse wages and working conditions than Westerners can easily imagine, yet refusing to buy what those workers produce would make them much worse off.

questions are: -What issues in international trade does the case of the clothing industry in Bangladesh depict?

-Why has Bangladesh become a clothing export powerhouse?

-What role do labor costs play in this?

-Briefly describe the April 24th industrial accident in Bangladesh, and its ramifications on world garment trade.

-What was the reaction of the developed world's retailers' to this tragedy.

-How effective have these efforts been?

-Does Bangladesh still have a comparable advantage in the garment making manufacturing? Why/ Why not?

Answer 1

Key points from the case:

Mainly due to rising exports Bangladesh GDP grew and many people came out of poverty in between 1990 to 2010.

Clothing is a major exporter: competitiveness in clothing depends on low wages and poor working conditions so costs are very less for manufacturers.

On 24th April 2013 an accident in a garment factory highlighted very poor working conditions. Option can be not to buy from them but this will make many poors go to poverty line again.

What issues in international trade does the case of the clothing industry in Bangladesh depict?

Following are the issues:

Comparative advantage is when a country has less opportunity cost in producing a certain good.

Economies of scale is when costs of production goes down with raised output. When firm grows big it is internal economies of scale and when industry grows big then it is external economies of scale.

However, When firm grows too big it is internal diseconomies of scale and when industry grows too big then it is external diseconomies of scale.

-Why has Bangladesh become a clothing export powerhouse?

As explained above due to comparative advantage and economies of scale. It gets cheaper labor and costs of production are very low too.