WB's 'doing business index' flaws exposed
More than 1,000 people died tragically from the collapse of Rana Plaza, making it the second most deadly industrial accident in history; after the gas leak in the Union Carbide factory in Bhopal, India.
Bangladesh textile story is often been cited as a great success of globalisation, and one of the reasons for national progress over the last two decades. But the collapse of the building has revealed the ugly side of doing business in the developing world: minimal regulations and standards.
As capital moved to find the cheapest locations for production in a race to the bottom, the repulsive side of globalisation exposed itself to the world through horrific photos of the survivors of this incident.
Poor regulations and standards are widespread in sweatshops across the developing world. Brand name buyers hide behind the notion that they are unaware of the working conditions under which their cheaply sourced products are being produced. The World Bank's (WB) famous 'Ease of Doing Business Index' widely used to improve business conditions around the world, in fact, encourages such practices because its underlying premise remains that less regulation is always better.
As noted by the WB's own watchdog, which reviewed the Ease of Doing Business Index, it rates countries higher if they have fewer restrictions on hours of work and on requirements for laying-off workers. It also gives high marks to fewer restrictions on permits for construction, ignoring safety and environmental concerns.
The Ease of Doing Business Index labour provisions are consistent with the latter but not the spirit of ILO regulations. It gives a lower rank to countries that provide better job protection.
In 2013, the WB dropped labour regulations altogether from the Ease of Doing Business Index. The Bangladesh factory collapse shows how costly it is to ignore safety and working condition standards, when thousands are packed into unsafe buildings in order to reduce costs and increase profits. The government is now considering allowing unionisation and raising the minimum wage.
Rising inequality built on lower wage has been a hallmark for the last two decades of globalisation. Joan Robinson, the famous British Marxist economist, observed: "It's better to be exploited by capitalists than not to be exploited at all."
Working in a textile sweatshop was a way out of rural poverty for thousands of Bangladeshi women, but can we not do better by ensuring a minimum safety and decent working conditions for them? A few cents extra for the clothes we buy in fancy department stores is a price worth paying for those who died in Bangladesh and for the millions who toil under very harsh conditions in similar factories around the world.
Some well-known major clothes chains who buy textiles from Bangladesh are coming together to agree on better labour and safety standards -- too late for those who died but hope for a better future after this wake-up call.
Environmental regulation is not even explicitly mentioned in the Ease of Doing Business Index. This encourages the movement of polluting industries to the developing world where environmental regulations are much weaker, and even when those regulations are on the books they are not adequately enforced.
We have not seen a dramatic disaster like the Union Carbide factory where over 16,000 people died and over half a million were affected. But there are a very large number of smaller and often unidentified environmental disasters linked to mining and industrial production all over the world. Some, such as the Ok Tedi mine disaster in Papua New Guinea in which some 50,000 people were affected after poisonous substances were dumped in the Fly River system, remain unresolved.
Chemical pollutants dumping and unprotected working conditions are common concerns, and display a complete disregard for the health of workers and people living in neighbourhood communities. Most major river systems in the developing world are so polluted that their waters remain unusable. The chances of factory-owners getting caught for flouting environmental regulations are low and even if charged they often get away with a small fine or a bribe.
Globalisation is not just a matter of finding the cheapest, least regulated part of the world to source products, and claim that jobs are being created. We need more responsible globalisation in which access to global markets requires a set of acceptable labour, safety and environmental standards.
Too much regulation is bad for business, and often leads to huge opportunities for corruption, but so is too little regulation, as we saw even in the developed world when the financial crisis was brought on by very weak financial regulation.
Pushing less regulation through instruments like WB's Ease of Doing Business Index is good when it attacks too much regulation. But when it helps avoid important labour and environmental regulation, it can lead to more disasters.
A revamp of the influential Ease of Doing Business Index is vital for helping foster more responsible means of globalisation. The deaths of the Bangladeshi workers should wake us up to the urgent need for a model of capitalism that is not just about less regulation but also the necessary amount of adequate regulation -- whether it be financial, labour, safety or environmental.
[A version of this article originally appeared in The Financial Times of London.]
The writer is UN assistant secretary-general, UNDP assistant administrator, and director of the UNDP's regional bureau for Asia and the Pacific.