The garment-factory fire in Bangladesh last weekend that killed at least 112 workers was a horrific tragedy. Emergency exits were padlocked. Fire equipment couldn't reach the blaze through dense, overcrowded roads.
Accidents of this type are often due to more than industrial causes. The political economy usually contributes, too. The factory disaster is a case in point, the deadliest bog fire in a swamp created by long-running trade protectionism abroad and retrograde industrial policy at home.
Seemingly unappreciated in much of the reporting about the fire is the fact that a country of Bangladesh's populationapproximately 150 millionis so dependent on a single industry in which it has no natural advantage. Garment exports earn around $19 billion per year, accounting for 80% of total exports and around 17% of total economic output. Clothing is Bangladesh's only manufactured product of note.
Such single-mindedness might be understandable in a newly developing economy. But Bangladesh is not "newly developing," it is merely inefficiently and insufficiently developing. The country has been making a concerted push into textiles for nearly three decades, but the effort has not led to the sequential flowering of other industries, as economic theory would predict.
It turns out that the policies that created the garment-manufacturing boom now stifle the development of other businesses. Related problems such as low wages and poor working conditions have contributed to a string of factory fires in recent years. Despite some limited progress over the past decade, Bangladesh's economic policies are stuck in the subcontinent's socialist past. Government meddling and corruption are pervasive.
Applied tariffs in general are higher than those of its neighbors India, Pakistan and Sri Lanka, the World Bank noted in a report this year. The Bangladeshi government produces five-year plans heavy on discredited import-substitution development theories and light on economic freedom. Garment manufacture is about the only industry exempted from such rules, which is why it is the country's only consistently successful industry.
Policy malfeasance among developed countries has also played a role. In 1974, the U.S., Europeans and others crafted the Multi-Fiber Agreement to restrain the import of ultracheap textiles from the likes of Japan, Korea and Hong Kong, the garment powerhouses of the era. Under the MFA, those producers adhered to an export quota system, leaving other countries to pick up the production slack.
Dhaka quickly liberalized investment and trade in the garment industry to attract clothing companies searching for new production in countries with quota allowances. The industry in Bangladesh has boomed ever since, even past the MFA's expiration in 1994boosted in part by continued favorable access to the European Union.
But other industries have never been similarly favored, so they haven't developed. Garment manufacturers enjoy duty-free imports of inputs such as fabric and machinery; everyone else pays high duties. Clothing companies receive preferential tax rates that have only recently started becoming available to other industries.
Most pertinent to last weekend's fire, the garment industry enjoys special labor rules, including a ban on unionization, and regulated pay rates that depress wages in the name of competitiveness. In this respect, Bangladesh is like China and other East Asian tiger economies that repressed domestic demand in order to steer more capital and energy into exporting industries.
Except that Dhaka hasn't had the wit to push the economy further up the value chain. Instead, it has skewed investment toward the garment industry at the expense of other fields, such as the business-process outsourcing that has been a cash cow for India and Sri Lanka.
One consequence is that government policies funnel ever more members of a rapidly urbanizing population into a single industry where wages and conditions are abysmal. It's no wonder that wage protests have grown more frequent.
Meanwhile, Dhaka has created a monster industry that now threatens to "devour" the government. The Associated Press reported this week on the interconnection between policy makers and the garment industry: Garment magnates sit in parliament, and labor activists accused government security services of complicity in the alleged murder of a union organizer earlier this year (the investigation is ongoing).
The arrangement is a classic recipe for regulatory capture: a relatively weak government and a big industry with a lot on the line. Already there is talk in Dhaka that any safety or wage redress in the tragedy's wake must be balanced against the importance of garments to the national economy.
Labor activists are scolding global companies for tolerating such terrible conditions in Bangladesh. The ire is misplaced.
Companies such as Wal-Mart, WMT +1.53% aware of the reputational risks of sweatshop sourcing, run themselves ragged trying to monitor working conditions among their suppliers. But determined factory owners abetted by local authorities can always fool inspectors.
Instead of blaming globalization for the suffering of Bangladeshi workers, how about pressing Dhaka to give them more of what globalization is good at providingmore investors, in more industries, bringing more opportunities?
Mr. Sternberg is an editorial page writer for The Wall Street Journal Asia.
Joseph Sternberg: Why Bangladesh Keeps Burning - WSJ.com
