Did the Profit Motive Spark the Recent Asian Factory Fires?

[This is an expanded version of my opinion piece in the New York Times online, today.]

Critics of capitalism and globalization have rendered judgment: Western apparel brands and big box retailers, in their zeal to perpetuate and profit from soulless, rampant consumerism, are to blame for the recent, tragic fires in Bangladeshi and Pakistani apparel factories. Fealty to nothing but the bottom line, so the story goes, drives investment toward the low wages that persist alongside lax health, environmental, and safety standards. Such characterizations evoke Friedrich Engels’ mid-19th century Manchester. Abuse and tragedy are inevitable… unless good people speak out.

(For a sampling of these viewpoints, just Google "factory fire Bangladesh" or read some of the views and comments at "Room for Debate.")

Most outspoken people express empathy for the victims and sadness about the recent tragedies and then proceed to vent their rage against capitalism and globalization without considering how those processes have improved the lives of billions of people in developing countries. Those for whom feeling crowds-out thinking tend to assume someone can just wave a magic wand and rid the planet of poverty. If Walmart and Target and Sears and Tommy Hilfiger and L.L. Bean weren’t so damn greedy, the thinking goes, life would be better for workers in poor countries.

It’s a bit rich to see enlightened, cosmopolitan members of the media elite expressing disdain for consumerism and demanding greater accountability from the retailers and brands, when their own advertising-revenue-dependent employers are just as complicit (if that’s the right word) in fueling consumerism. Yesterday, when clicking to the second page of this online New York Times story, which seems to confer blame for 112 deaths in Bangladesh on Western brands and retailers, I was mugged by a pop-up ad for Banana Republic. (Hey, before finishing this article, you must spend $199 on this faux-safari outfit or $99 on these seersucker picnic trousers.)

If Walmart is responsible for insuring safety at the factories with which it contracts because the relationship enhances it's bottom line , shouldn’t the networks, the newspapers, and the magazine publishers (who profit from Walmart’s advertising budget and whose ads perpetuate consumerism) be accountable, too? Alas, nothing would cause greater deforestation than a project cataloging the hypocrisy of the sanctimonious Left – except, perhaps, a project documenting the hypocrisy of the puritanical Right.

Obviously, developing country factory conditions do not appeal to rich-country sensibilities. But the proper comparison is not between wages and conditions in a factory in Dhaka, Bangladesh and Dayton, Ohio. More appropriate is to consider the alternatives that would exist in poor countries in the absence of Western investment. In a series of articles over the years, New York Times columnist Nicholas Kristof has argued that factory work offers a step up the ladder for billions of impoverished people around the world. His stories about the subsistence options confronting Cambodian women before the arrival of apparel factories – picking through garbage dumps, backbreaking agricultural work, and prostitution – remind us to not make the perfect the enemy of the good.

Of course that doesn’t justify an unsafe work environment. And, in fact, Western investment in developing country factories, whether through ownership or partnership with local owners, tends to raise the average wage, improve the health and safety conditions of the workplace, and reduce the average environmental impacts. Why? Because of that reviled profit motive.

Western companies usually offer wages that are higher than the local average to attract the most productive workers. Those companies are protective of their brands, which in some cases are their most valuable assets. Labor or environmental abuse, lax safety standards, and unhealthy or hazardous products associated with the brand are detrimental to the bottom line. As cold as that may sound, those considerations compel companies to submit to third party verifications of all sorts of working conditions because they have incentives, through the market, to get it right (or, perhaps more aptly, disincentives to get it wrong).

Exposure of labor abuses, safety violations, tainted products, environmental degradation, and other social ills associated with a brand or a retailer hurts to bottom line. Thus, company management doesn’t necessarily have to have genuine empathy for its workers and concern for the environment when there are proper incentives in place to compel them to behave as if they do have genuine empathy or concern for the environment. Bad press and bad perceptions can quickly degrade or destroy a brand in an age where the public increasingly demands social accountability as an attribute of the products and services it consumes. The verdict of the marketplace can be swift and unambiguous. Just ask Mattel, whose bottom line took a beating during the lead-paint-in-kids-toys debacle a few years ago or Nike, which has suffered boycotts and profit suppression over the years for allegedly contracting with "sweatshops."

Critics wrongly complain that there’s little accountability. There is accountability, but that doesn’t insure against all accidents or abuses. There are industrial accidents and abuses in U.S. workplaces. But what if there were no Western investment in poor countries? What employment options would the locals have? Working for a local factory? Okay, but there is certain to be much less accountability under that arrangement. Western investment in developing country factories and just doing business with locals brings much greater accountability to the work environment. It doesn’t mean there won’t be any problems, but without that investment, abuses and tragedies would be more frequent.

The most prominent entities in the supply chain will be held to account for these fires, and safety procedures and infrastructure will surely be evaluated and upgraded, not only in Pakistan and Bangladesh, but in whatever jurisdictions these entities’ supply chains traverse. Tragedies have provided teaching moments throughout history. Unfortunately, one lesson that hasn't been absorbed by enough Americans is that capitalism and globalization are making life much better for people in developing countries.