Better Safety in Bangladesh Could Raise Clothing Prices by About 25 Cents (The Atlantic)
Senior Fellow Kimberley Ann Elliott is quoted in The Atlantic on price competition and worker safety.
The Rena Plaza incident is officially the worst disaster in the history of the global clothing industry, and it renewed calls for improved safety protections and building code standards in Bangladesh -- a country that owes much of its recent economic growth largely to low-wage clothing work.
The dangerous conditions have been partly blamed on price-conscious businesses, some of whom go with the cheapest and often least-safe local suppliers at the expense of protections for workers. After a November fire that killed 112 workers, brands like Wal-Mart, Gap, and H&M refused to sign a new union-proposed safety plan, which would have introduced more rigorous safety inspections, saying it was "not financially feasible."
This consumer cognitive dissonance raises the question: just how much more expensive would our clothes get if factories in Bangladesh were safer?
For a major retailer, with 5 percent of its production in Bangladesh, which is typical, the increased cost would be about four one-thousandths of a percent of total corporate revenue.
The scenario that would lead to the largest increase in retail price is as follows: all of it is passed along, with full markup, and all of the increase is put only on products from Bangladesh. This would mean a retail price increase of 25 or 30 cents at retail, with no impact on retail prices for any product not made in Bangladesh.
In the cut-throat world of retailing, though, even a small amount might make all the difference.
"There's also a collective action problem ... with the buyers, who are looking for the cheapest possible price for the product and aren't willing to raise that price a bit if their competitors aren't," Kimberly Ann Elliott, a senior fellow at the Center for Global Development, told the Washington Post. "It feeds into a vicious cycle."
