Consumers not to blame for sweatshop wages

September 23, 2013

Hong Kong-based business executive Bruce Rockowitz told the New York Times recently that consumers are ultimately the ones responsible for dangerous conditions in garment assembly plants in the global South.

The problem is that improved safety would raise the price of clothing, according to Rockowitz, who heads Li & Fung Limited, a sourcing company that hooks up retailers like Macy’s and Kohl’s with suppliers in low-wage countries like Bangladesh.

“So far”, he said, “consumers have just not been willing to accept higher costs”.

Li & Fung is controlled by the billionaire brothers Victor and William Fung, ranked seventh among Hong Kong’s wealthiest people with a combined net worth of US$6.2 billion.

Li & Fung’s largest market by far is the US, accounting for 62% of its revenue in the first half of last year, while China remains its key sourcing country, representing 56% of that business. Li & Fung also announced in September last year that it had signed an outsourcing deal with Target Australia.

Rockowitz isn’t alone in blaming consumers in Europe and the United States for sweatshop conditions in the apparel industry. The idea pervades popular culture.

When 1129 Bangladeshi sweatshop workers died in the Rana Plaza collapse in April, a lawyer in Britain proposed raising money for the victims by having consumers pay a voluntary “T-shirt tax” on clothing stitched in Bangladesh.

“This isn’t just the fault of companies who supply cheap clothes,” barrister Victoria Butler-Cole explained.

Calculating the 'T-shirt tax'

But people rarely ask whether the facts support this idea. How much money do we really save because of cheap labour in the global South?

The quick answer is: very little. Although estimates of the percentage of labour costs in clothing’s retail price “vary by product and location of production”, World Bank senior economist Zahid Hussain wrote in 2010, “it is clear from published academic research that labor costs typically constitute 1-3% for a garment produced in the developing world. Hence, large increases in labour costs do not require correspondingly large increases in retail price.”

The Worker Rights Consortium, a group monitoring sweatshop conditions, came to a similar conclusion in 2005.

Significant wage rises and improvements in conditions at Bangladeshi apparel plants would probably add 40 or 50 cents to the price of a $10 T-shirt, at most. And this is assuming, as Rockowitz does, that manufacturers and retailers would pass the extra cost on to us.

The assumption might have been valid in the time of Adam Smith. In the 18th century, there were many small capitalists competing with each other; any savings they made in production, either by cutting wages or adopting new technologies, they would use to reduce prices and undersell their competitors.

But as leftist economists Paul Baran and Paul Sweezy showed almost 50 years ago in their book Monopoly Capital, pricing methods are very different now.

By the start of the 20th century, the most successful companies had succeeded in swallowing up the others, and it didn’t make sense for the remaining giant corporations to engage in protracted price wars among themselves. Instead, they started holding prices steady while increasing sales through other means, with an emphasis on marketing.

Companies occasionally revert to the practice of underselling their rivals, and they often take advantage of new technologies to cut prices and generate an increase in sales, as has happened with personal computers since the early 1980s.

But there is no automatic connection between lower labour costs and lower prices. The price of a commodity is set by a complicated formula with many different factors, and labour costs are often a minor one.

This is especially true in an industry like apparel, where changing fashions and brand name prestige have a disproportionate effect on pricing; the difference between a $120 pair of Nike sneakers and the $30 shoes at a discount store doesn’t come from high wages for workers at Nike’s Indonesian suppliers.

Choosing between profits and workers

To get a sense of the relative importance of labour costs, we just need to look at advertising. It is not easy to find exact information on advertising costs, but the staff of the magazine Ad Age made an effort in 2007. They estimated that spending on advertising was equal to 5.1% of total sales in the apparel industry, while for apparel stores the number was 4.5%.

In other words, the cost for advertising the clothes can be as much as five times the cost of stitching them.

Other forms of marketing, such as telemarketing, email marketing and junk mail, may account for an even larger share of an item’s cost. In 2009 writers for Monthly Review calculated that advertising might represent as little as 30% of the total cost of marketing.

Suppose we were to cut marketing down to the minimum that consumers really find useful ― information on product availability and prices, for example. The savings would certainly be enough to allow for doubling the wages of many assembly workers and creating safe conditions in their factories, all at no extra cost to consumers.

If we had a say in the matter, it is not likely that we would choose to let workers die in Bangladesh so that we can have our lives cluttered with ads, junk mail and celebrity endorsements.

After all, the workers, mostly young women and teenage girls, actually stitch our clothes. But the main purpose of advertising is just to get us to buy more products from one company than from another, or to create an artificial demand so that we will buy more than we need.

But the sweatshop system is not about what consumers want, and it is certainly not about what the workers want; the goal is to raise profits for manufacturers and retailers, to make the super-rich even richer.

While blaming consumers for sweatshop conditions, Rockowitz has done quite well from the business of sourcing sweatshops for multinationals. His company had about $20 billion in revenues last year, and owners Victor and William Fung are each worth about $3 billion.

Business Week estimates Rockowitz’s personal compensation last year was $6.955 million (and his net worth is reportedly $2 billion). In October 2011, Rockowitz married Hong Kong pop star Coco Lee in a ceremony that reportedly cost $20 million.

[This article was first published in MRZine. David L. Wilson is co-author, with Jane Guskin, of The Politics of Immigration: Questions and Answers. He also co-edits Weekly News Update on the Americas, a summary of news from Latin America and the Caribbean.]

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