The story of growth of the garment sector and the textile sector supporting it are well known. By 1985, industrial development in Bangladesh had made very little progress and the focus on import substitution as the basis for development of manufacturing growth had failed. The basis for a shift to export-led growth was rejected by the government planners believing that it was impossible to expect Bangladesh to become competitive in the international markets. This pessimistic view was deeply rooted in the thinking of most of the senior economists in Bangladesh who had been trained in Britain. This pessimism that resulted in the weak performance of the British economy for decades was accepted in Bangladesh. Surprisingly, a few of the Korean companies believed it was possible to develop competitive export industries making garments. The quota system in place meant that exports from Bangladesh were initially free of quota restrictions so if the Bangladeshi workers were able to produce the clothes at a competitive wage rate, then there would be a future for Bangladesh in the global textile market.
First, the skills needed to organise a factory were relatively simple for uncomplicated garments. Second, once it was realised that this was a good industry for women a large number of young women were prepared to work for relatively low wages. Third, the capital costs to start a factory were very low, both absolutely and relatively, to the value of output. Fourth, energy requirements were low, so the use of diesel generators during the frequent outages was cheap and easy to manage. Fifth, the use of back-to-back L/Cs (letters of credit) and duty-free entry for clothe and accessories maintained in special bonded warehouses reduced the costs of inputs and shifted the financing of inputs to foreign banks. This type of foreign investment was essential and rarely recognised in the discussions of the role of foreign investment.
To develop the industry it was essential to have labour peace. Union activity had played a continuing role in the destruction of much of the private manufacturing sector and investors were really concerned about the vicious behaviour of labour organisations. Foreign investors in the sector needed access to land and utility services. Satisfaction over all of these needs was achieved for foreign and domestic investors through the establishment of export processing zones (EPZs). Foreign investors brought marketing knowledge, had connections with buying companies in the major markets, and of course had the production skills and experience. Knowledge spread rapidly. Middle management services were hired from Pakistan, India, and Sri Lanka. From 1980 to 1994, the RMG sector grew rapidly with hundreds of new factories springing up every year – thereby rapidly increasing employment and exports. The light hand of the government, the entrepreneurial spirits of Bangladeshis, the free access to Europe and North American markets combined resulted in rapid growth of production.
By 1995 a second phase began which was characterised by increased size of factories, backward linkages investments in spinning, weaving and dyeing, and the emergence of a competitive private banking system that had the flexibility to support a rapidly growing industry. Direct support industries emerged for buttons, zippers, packing materials, and logistical services. Quotas were imposed by the United States, however, skilful negotiations by Bangladeshis and recognition by the USTR that this was the path to overcoming the high level of poverty, did not cause much hardship. Indeed, these quotas provided some protection for the Bangladeshi industry as skills were improved, labour force gained experience and greater investments took place. Within the general category of the RMG sector, diversification took place, particularly in the knitting and more complex garments requiring greater sewing skills.
The third phase began with the end of the quota system. The industry was confident of their competitiveness and the ability to survive in the open competition following the end of the restrictive measures. Rather than being a threat factor, these events provided an opportunity for the industry to expand more rapidly. For the first time, the industry ran into problems of power and gas availability, weak transport systems, dangers from larger factories, and the emergence of labour problems. This phase has more or less ended.
The beginning of the fourth phase is characterised by movement towards very large factories where problems of safety and managing workers have grown. The supply of workers to the industry is slowing and the overall growth of the economy is going to push up wages. Rapid changes in the financial management of exports and imports for the industry have been managed by the banking system. But problems of our times are beginning to impact the industry. The growth of terrorism in Bangladesh concerns the buyers, increases costs, and leads to an uncertain future. Threats of terrorism and radicalisation need to be nipped in the bud. For the RMG sector, the proper management of this challenge by the government is essential.
The industry must also move towards greater productivity through more capital-intensive investments, raising the quality of the labour force through training and continuing to deal with safety and labour rights issues.
The industry has gained its footing and grown through labour-intensive manufacturing with a diligent labour force. There have been a large number of small factories. The structure of the industry has been changing towards much larger factories. This focus towards several hundred large factories will continue and should be encouraged. But along with this process, new problems arise: safety has been given much attention, but there is still a long way to go and improvements are needed. The management of labour is a second growing problem. More importance on labour rights has been put on by the major buyers. Until now, the industry believed that it could get away with denial of labour rights to workers, use of management-sponsored unions, corruption of labour leaders and influence to subdue feisty workers demanding their rights. At the same time, most of the labour force is still not being treated fairly.
Everyone knows that this is going on and the old-style business leaders in the sector have tried to use underhanded techniques to block workers demanding their rights under existing agreements. There are a new generation of factory owners who are trying to tackle the labour problem in a just way. They understand that the workers should be treated fairly; but equally the workers must understand that they have an agreement to work diligently and to follow the rules of the National Labour Act and the factory in which they work. It is not clear whether the western model of the labour union as the protector of worker rights is suitable for Bangladesh just yet. History teaches us that this model has not worked in Bangladesh, but equally if the factory owners do not treat their workers fairly, then both parties will lose out.