Wednesday, 24 September 2014

T-Shirt Economics Update


In June 2011, I published an article on this blog: "What the 'China Price' Really Means". The article discussed international wage differentials, productivity and how low wages in poor countries translated into economic gains for rich countries. Using the data I had found, together with an investigative report from Die Zeit, I made a guess that the unit labour cost of a T-shirt produced in Bangladesh was some 10-15 euro cents (it sold for 4.95 euros in a German shop). That seemed reasonable, but a reader contacted me recently to point out some problems.
If the 10-15 cents labour cost estimate were true, he noted that it contradicted the other data I cited from Die Zeit, namely the 1.36 euro daily wage of one of the machine workers in the Bangladesh factory. Or else it implied that an implausibly large number of workers were employed, perhaps around 200 per machine. So, I examined the issue again, revised my guess and have reached a more damning conclusion about the rate of exploitation of workers in Bangladesh!
The usual caveats with data apply: do the figures really measure what they claim to measure? Furthermore, there are gaps in the data available, and I had to make some estimates. However, the main reason behind the much lower guess I would make now for the unit labour cost of a T-shirt produced in Bangladesh is the rise in productivity. These data come from the Bangladesh Statistics Office, and I had not seen these, and am not sure they were even published, when I wrote my blog article. They show a much larger rise than I had previously allowed for.
Another point is that I had used the results of a study by S C Zohir, published in 2000, that the unit labour cost in 1994 of a 'shirt' in Bangladesh was 11 cents (in US dollars). I did not then take into account that if the labour cost of a (full) shirt was 11 cents, then presumably a T-shirt would cost less. Assume 8 cents for a T-shirt (excluding working on the sleeves, buttons, etc, on a full shirt).
Starting from 8 US cents unit labour cost for a T-shirt in 1994, this can be translated into Bangladeshi currency (the taka) at that point. Then, the number can be inflated by the rise in wages for Bangladeshi cotton workers, but also deflated by the increase in productivity of cotton production workers. I have done this to estimate the unit labour cost in taka for the T-shirt (in 2011). In addition, the depreciation of the taka versus the euro and the dollar since 1994 also needs to be taken into account to work out what the T-shirt costs are for the buyers in rich countries.
The end result is that instead of the unit labour cost for producing a T-shirt being 10-15 euro cents, it is very likely to have been more like 2-3 cents. Even if that estimate were 20-30% too low, it would not really make any appreciable difference, given the minuscule starting point.
Going back to the original article, on the basis of 10-15 euro cents per T-shirt, I estimated that H&M's net profit per T-shirt in 2011 was 4-6 times higher than what was paid to the Bangladeshi producer. My apologies for underestimating the fruits of exploitation: the ratio is closer to 20-30 times higher.
The lesson to draw from this is that the closer you examine the economics of imperialism, the worse it gets!

Tony Norfield, 24 September 2014

5 comments:

SteveH said...

I would be interested in your take on 3 related ideas:

The labour aristocracy theory

The idea that Western workers are bribed with the super profits from the less advanced nations

Will there be an equalisation of wages across the globe under capitalism? Didn't Keynes believe exports would become a non issue due to general industrialisation?

Tony Norfield said...

Re: Steve H questions ...

Labour aristocracy: the notion is associated with Lenin and, as usually understood, refers to a section of the working class - eg union leaders or political leaders of 'working class parties' - bought off by the economic privileges of their imperialist country so that they advance the interests of their state, including supporting imperialist wars. The privileges were taken to mean higher incomes and social status, 'being important' and consulted by the capitalists, rather than being a normal worker. The main problem with this idea is that it is far too narrow. The economic benefits of imperialism extend to masses of people, not just to a small elite. Even the unemployed in imperialist powers today have a standard of living far above that of full time workers in poor countries. This is not to argue that the 'privileged' cannot be anti-capitalist or anti-imperialist - after all, the system does not work! - but it does make it far less likely that there will be the basis for a mass movement against the system itself in the richer countries.

Western workers bribed with profits from poor countries? It may not feel like much of a bribe when you have trouble paying the bills, but if the ruling class of your country judges that it has to deal with the mass of the working class in order to have political backing for its actions against other powers (or for foreign interventions, generally), then it will make concessions if it can afford to do so. From the late 19th century, the main European powers, the US and Japan, did this with a shorter working day, education, welfare, etc. This is backed by external profits, but those are not necessarily only from a group of dominated countries; they can come from anywhere. However, the data show that rates of return from investing in poor countries is higher.

Equalisation of wages? I am not familiar with Keynes's view on this question. In a market economy, there tends to be an averaging out of wages, prices, profits, etc. However, you do not have to look far to find many examples today of longstanding differences. These are backed up by immigration controls, cartel pricing, limits on competition, ownership of land, patents, etc. An important factor in the downward pressure on European and US wages in recent years has been competition from Asia, through direct investment, supply chains, outsourcing, etc. So, there is some pressure towards wage equalisation, but it is a slow process and one that currently still leaves huge wage gaps, as cited in the articles on this blog. Individual capitalist companies gravitate towards the lowest cost area (likely abroad), but the imperialist state will also have a view of how this can undermine political support at home for whatever it may need to do, and may offer policy concessions.

Tony Norfield

Jojo said...

Will the BRICS countries be able to break this imperialist system of domination if they manage to create an alternative international reserve currency, a petrorublo, a petroyuan, a kind of gold standard, or given that the idea that there is no alternative seems do dominate the working class ideology in the so called developing countries as well we are going to have to put up with this system of explotation for many years or at least until a financial crisis implode the system and destroy the dollar as international reserve currency. For I can't see how the imperialist countries could afford to keep the Welfare State without being able to imprint dollar, pound, yen and euro., without the FED Quantity Easy..

Tony Norfield said...

Reply to Jojo:

The BRICS are challenging the world's existing financial set up, with the US dollar at its centre and the power that this gives the US. This is just at the margins, although it has been important for some countries, especially in Africa, to have an alternative access to funds.

However, the logic of the BRICS-bank system is for it to be based on China's currency. China has much the largest foreign exchange reserves and is more important in international trade. So far, the BRICS bank is set up with China having the biggest investment, but not an overly dominant one, and they have many grounds on which to cooperate with each other in the new bank's policy. It will be interesting to see if tensions develop between China, India and the other founding members.

China is far from offering an alternative to the US dollar in the world system, but it has challenged the status quo on investment policy, who gets funds and on what conditions. Of course, this is done China's interests, so that it can get access to raw materials, etc. However, the evidence suggests that this has also had more of a development effect than was the case with previous western-led investment.

All of this goes beyond the more narrow issue of which currency is a 'reserve currency', by which is usually meant being one of the currencies held in a central bank's foreign exchange reserves. The renminbi has only a minuscule proportion of reserves, but China's investment policy and its ability to offer (US dollar) funds has been much more important.

One of the ironies of how the global financial system works is that, at least up until now, financial crises have actually strengthened the financial position of the US. After all, they are providing the world's money! So, you should not count on a financial crisis to bring the system down by itself.

The imperialist countries need to maintain their financial (and other economic) privileges to keep welfare spending. But in a crisis, that becomes more difficult. So the ruling class in each of the powerful countries has a problem of implementing austerity while maintaining social peace, and support of imperialist policy. Unfortunately, this is not too difficult for them. The politics of workers in many countries is to blame 'immigrants' for putting demands on the welfare system, and that is why we have seen the rise of UKIP in the UK (together with xenophobic policies from the other parties) and worse in a number of other European countries.

Tony Norfield, 20 October 2014

John Smith said...

In your original article, each T-shirt maker earned '1.36 euros per day, based on a 10-12 hour day', so, let's say 13.6 euro cents per hour; and each machine produced 250 T-shirts per hour. We can safely assume one machinist per machine; helpers are also employed, typically at much lower wages, with one helper serving more than one machinist. If we conservatively assume one helper per machine, and that s/he is paid the same as the machinist, this means 27.2 euro cents per 250 T-shirts - i.e. a little over a tenth of a cent per T-shirt. The 77% pay increase won in November 2013 in the aftermath of the Rana Plaza disaster (which still leaves Bangladeshi garment workers' wages at one-fifth of what they need to achieve a living wage, according to the Asia Floor Wage Alliance) might raise the direct labour cost to a fifth of one cent per T-shirt. Of course, a similar calculation can be performed on the cost of raw materials and sewing machines, but neither of these are manufactured in Bangladesh, so we can safely say that, on the Der Spiegel figures used in your original article, Bangladeshi T-shirt makers actually receive far less than one euro cent per T-shirt.
250 T-shirts per hour works out at 14.4 seconds per shirt; a hellish work pace to keep up for a 10-12 hour day, and it's hard to imagine how this is enough time to hem the neck and sleeves and sew on a label. I therefore wonder whether there's some inaccuracies or missing details in the original Der Spiegel article. In any case, the T-shirt is about a simple as garments get; a lot more labour is required to produce tailored and be-buttoned garments, but then their mark-ups are higher still: the mark-up on the production cost (inc. shipping) of the Der Speigel T-shirt was 152%. Dan Duane estimates that a Bangladesh-made KP MacLane polo shirt, retailing in the USA for $175, generates a cool 718% mark-up on its cost of production, while a Herm├Ęs polo shirt retailing at $455 boasts a mark-up in excess of 1800% (see http://practicalstockinvesting.com/2013/05/21/pricing-out-a-low-end-shirt-investment-implications/).