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Bangladesh, Cheap Production, and Worker Safety: The Cost of Externalities

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Consumers and corporate shareholders will have to compromise if working conditions are to improve.

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Then there is the question of Wal-Mart's request to companies falling short of their standard to remedy the matter. In what time frame? Who will judge that it is done adequately, and that this is a sustained effort? And while Wal-Mart says a company may be axed from its supplier list for not complying, it doesn't say that this will be automatic. And what happens down the line, when Wal-Mart realizes that because of those renovations, their supplier is no longer the lowest-cost producer? Will it switch to a cheaper provider – and will that provider be held to the same high standard?

It boils down to the willingness of companies like Wal-Mart to accept the possibility of lower margins, and to the willingness of consumers to pay higher prices. And for all these well-intentioned petitions to work, everyone needs to be on the same page. There can't be any incentive for Wal-Mart to move to another, lower-cost jurisdiction, or any ability for a supplier whose safety and employment standards are subpar to play one European retailer in search of lower costs against another.

The same is true at the consumer end of the spectrum. When Wal-Mart released its earnings this week, the company's chief financial officer described its consumers as being financially "stretched" in his effort to explain why same-store sales slid 1.4% in the company's first quarter. At Gap, whose stock price has soared this year, one of the segments that has led sales growth has been Old Navy, the division dedicated to making the cheapest possible versions of styles seen elsewhere. A month ago, a cheaper version of a maxi dress being sold for about $75 at Gap was spotted on the racks at Old Navy for $30 – marked down to $15.

This is a difficult and emotionally charged issue – but while the cost in human lives in Bangladesh is dramatic, the issue itself is far from new. Over and over again, enough North American consumers have demonstrated their ability to shove to the back of their minds the working conditions of those who make the t-shirts they buy in countries they likely will never visit that it has been possible for retailers to view insisting on real and lasting improvements in working conditions in those countries as an overly costly externality. Only a years-long effort and the willingness to change our consumption habits will force a real change in corporate behavior.

Editor's Note: This article by Suzanne McGee originally appeared on The Fiscal Times.

For more from The Fiscal Times:

The 12 Worst Supermarkets in America


Should Mighty Wal-Mart Be Regulated Like a Bank?

A Wal-Mart Recession? Retail Giant Faces Tax Squeeze


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