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Bangladesh Tragedy Proves Global Garment Trade Too Big To Supervise

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We already know that our banks remain too big to fail, threatening regular people with crisis. Now, a parallel reality is emerging in the garment trade: Most of our clothing is produced by global enterprises so vast and complex that they are simply too big to supervise.

The inability of these multinational brands to monitor factories that produce their goods in poor countries combined with their power to extract cut-rate prices reinforces an uncomfortable yet unavoidable truth: People will suffer and die making our clothes.

No matter how well-intentioned the brand, no matter how diligently it may scrutinize its supply chain, the global nature of large-scale manufacturing entails so many hands touching products in so many different places that no system can possibly keep tabs on all of them.

And that, combined with the pressures incumbent on factories to produce clothes at the lowest possible prices, ensures that some of this production will wind up taking place in the underground market -- beyond the purview of local regulators, and outside the realm of the lawyered-up codes of conduct that supposedly govern modern commerce.

There was ample evidence for this reality long ago. But in the wake of the deadliest garment industry disaster in history -- the collapse of a factory complex in Bangladesh, which took the lives of more than 900 people -- this truth is more evident than ever.

This truth explains how Benetton -- a prominent brand that has marketed itself as an archetype of global style -- now finds itself cast as the latest poster child of the sweatshop conditions that put clothes in our closets.

First, the company said none of its products had been made inside the doomed Bangladesh factory. Then, after photographs taken at the scene of the disaster revealed Benetton products strewn in the rubble, the company said that, yes, it had once placed an order. Then, in an exclusive interview with my colleague Kim Bhasin this week, Benetton's chief executive officer confirmed that the company had indeed purchased about 200,000 cotton shirts from a supplier inside the factory, though it was a relationship of short duration.

The confusion, Benetton executives explained, came from the fact that the order had initially been placed with another supplier in India. When the Indian firm struggled to fulfill the order, it shifted some of the work to another factory -- the plant in Bangladesh.

Benetton presumably had to move quickly to keep the product moving. That meant taking a leap of faith that shifting to another factory -- a company Benetton has acknowledged it failed to fully scrutinize -- would not deliver precisely the sort of public relations disaster the company now confronts.

Even companies that operate with the highest discipline can wind up purchasing items produced in factories about which they know little to nothing, for the simple reason that their suppliers routinely engage subcontractors who themselves subcontract out some of their work. Layer by layer, the brand gets further removed from knowledge and control. The production sinks deeper into the underground economy.

I saw this repeatedly in the years that I was based in China, at factories that were producing goods for some of the most recognizable brands on earth.

Ikea has become an icon of responsible production, a brand that markets itself as committed to sustainable living. But in 2004, in an industrial hub in northeastern China that was well understood to be a major trans-shipment point for wood harvested illegally in neighboring Russia, scores of small-scale backyard wood processing operations were engaged in producing boards. Many managers said their wares were destined for Ikea. Some told me they would sell to a larger factory that had a contract to make 100,000 pine dining sets a year for Ikea using timber harvested in the Russian Far East.

A sales manager at that plant told me that Ikea gave managers wide purview to purchase wood as they thought best. "Ikea will provide some guidance, such as a list of endangered species we can't use, but they never send people to supervise the purchasing," the factory manager told me. "Basically, they just let us pick what wood we want."

Ikea had a range of well-intentioned policies in place. It did not mean to use illegally harvested logs, I'm willing to assume. But the purchasing was simply too vast and decentralized for the company to fully monitor. At least, not without deploying more people to the scene, a step that would cost the company money -- a cost presumably passed on to those of us whose patios boast Ikea dining sets. Instead, Ikea relied upon paperwork produced by logging companies and factories. And if the paperwork looked okay, that box got checked off and the product stream continued.

We need not understand the complexities of global supply chains to see how such a system can go awry. Here in the United States, the orgy of mortgage lending that culminated in a housing bust, the worst financial crisis in generations and then the Great Recession all stemmed in large part from people filling out paperwork as required while failing to scrutinize reality. (And, yes, some of the paperwork was bad, as the robosigning scandal revealed, but plenty of predatory lending, foreclosure and sticking of taxpayers with terrible loans resulted from files that were seemingly in order, with required forms in place.)

Every time another garment industry disaster reveals the seamy underside of this production, major brands start talking about their audit processes: "We know that our goods are clean, because we inspect the factories that make them," runs the script. "Buy our products without guilt."

But as workers have told me in factories from China to Cambodia to Turkey to Guatemala, they are routinely coached on how to answer questions posed by inspectors who arrive every so often, working for accounting firms at the behest of the brands. Bathrooms that are ordinarily foul and denied to many workers are suddenly pristine and stocked with the necessary accouterments. Managers who routinely cheat workers of legally mandated overtime and meal breaks speak of the lawful policies in place.

So it goes in Bangladesh, now the world's second largest apparel maker, as my colleagues Dave Jamieson and Emran Hossain revealed in an eye-opening report last week. "What to say to the auditors always comes from the owners," one worker in a factory in Bangladesh told them. "The owners in most cases would warn workers not to say negative things about the factories."

The global brands have built a system designed to inoculate themselves from liability to disaster, while effectively pushing the dirty work further into the crevices of the underground economy. They have built an apparatus that enables them to say that they inspect the factories that make their goods, while ensuring that dangers persist by dint of the stuff they do not talk about publicly: The prices they pay for their products. Prices that can only be met by someone cutting corners on safety, wages and environmental stewardship.

In 2004 and 2005, I visited scores of factories making a range of goods for Walmart in southern China, from baby strollers to cabinets for stereo speakers. Seemingly every factory that had a direct contract to produce for Walmart appeared gleaming, well-lit and new, indistinguishable from industrial facilities in the United States, Japan and Germany. They maintained logs inspected by the auditors who visited.

But the people running such factories often confided that they saw no way to avoid farming out some tasks to less-regulated facilities, and typically without Walmart knowing about it. That was the only way they could make what Walmart wanted at the price Walmart was willing to pay, they said.

Inside Walmart's global procurement center in Shenzhen, agents from factories throughout China sat in plastic chairs, waiting to meet with buyers for the largest retailer on earth. They sat there alongside representatives from their competitors.

When the agents got their turn to sit face to face with a Walmart representative, they found that the conversation was far from a negotiation: It was more like a directive. Walmart would simply name the price it was willing to pay. The factory typically felt compelled to accept, knowing that the Walmart representative could go right out to the waiting room and grab a competitor who would oblige.

Time and again, we absorb another tragedy -- families weeping in Bangladesh or China or Pakistan -- and we indulge the language appropriate for an accident. Bangladesh is poor, and poverty is dangerous. But these tragedies are systemic. The factories that produce the goods we are buying are too far away and too scattered for any company to supervise. And the prices we are paying are too low.

Which means someone else has to pay, someone typically far away.

This story appears in Issue 49 of our weekly iPad magazine, Huffington, in the iTunes App store, available Friday, May 17.