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

Sitting on the Dock of the Bay

(This is a guest article)

That millions of workers in Asia on minimal wages produce a huge amount of consumer goods for the West is such a well-established and undisputed fact that it does not require much further comment. These goods are often so cheap that their price astonishes us. Of course, once we consider the economics of the lives of the people who produce these goods, there is no mystery in this. Yet we rarely ponder such issues for long, because the inevitable conclusion can only be that living standards in the West are supported by the toil and sweat of millions of others.

But the systematic exploitation of what used to be called the ‘Third World’ - and is now fast becoming the First World in terms of industrial organisation and manufacturing competence - is not restricted to production. Every aspect of this production and trade is parasitical and hugely exploitative. Consider, for example, maritime shipping - the main way these goods get from the hands of distant toiling masses into the hands of consumers in the rich countries.

Almost all goods produced in Asia for the West are transported in large container ships. Airfreight accounts for less than 7% of the total. Despite the West’s clear technical superiority, not a single developed western nation builds container ships. They are all built in Asia, mainly in South Korea. So, it is not only the goods, but also the ships they travel in that are produced in Asia. What little shipbuilding of any kind remains in the West survives only because of the most stringent protective barriers or due to social policy protecting employment (the disparity in wages is so great that a global free market in shipbuilding would wipe out what is left of this protected industry).

The exploitative and parasitical nature of Western consumption even determines the design of container ships because of the unequal loading on the forward and return journeys. Ships stacked up with containers on the outward East-West journey can be the equivalent of a 10-storey building above the water line. A ship is stable when a proportion of it is below the water line, but a ship built to handle such huge capacities would be unstable in rough seas when unladen. Because we give Asia practically no goods in return, container ships have to return empty. So, to maintain stability the ships have to be built with huge ballast tanks to take on seawater. The ships are designed on the assumption that the West takes but does not give and that this will continue to be the case throughout the working life of the vessel!

A large container ship has a crew of around 30. The captain is almost always a very-well-paid European. The crew is invariably staffed by ratings from extremely poor countries that command extremely poor wages (mostly from the Philippines, Bangladesh and Malaysia). Were merchant seamen paid decent wages these would be reflected in a higher price for the goods transported.

Considering that 80% of world trade is from ‘East to West’, and that all container ships are built in the Far East, it would not be unreasonable to expect Far Eastern operators to dominate world maritime business. Not a bit of it. For 120 years very powerful Western companies, backed by monopoly practices of linked banks and insurance companies, and supported by port authority regulations, ensure that a whopping 90% of world shipping is controlled by a dozen Western cartels. Only 8% of shipping is in the hands of Far Eastern operators, the people who build the ships, who sail them, who make the goods transported in them, and who dispose of the ships at the end of their working life. Cartel shipping fees represent another transfer of income from Asia to the West.

A container ship has a working life of around 20 years. The cost of disposal is also a cost that must be reflected in the price of goods transported. Ship breaking is a very labour intensive and extremely dangerous activity. There are no breaker’s yards catering for large ships in the West. They are all located in countries where wages are extremely low (Bangladesh, Pakistan), where health and safety legislation is non-existent or not enforced, and where the compensation for death and injury at work is a pittance. Another sign of how cheap goods are bought on the exploitation of others.

O Redding, 13 December 2013

Cats, Dogs and People in the Imperialist World Economy

Here is a selection of facts to ponder, sent to me today by a friend. They indicate how it is better to be a cat or a dog in an imperialist economic power than a worker in an oppressed country.

This is another angle on the Bangladesh textile factory atrocity that was recently in the news, something which gave a dramatic example of the human cost of exploitation that goes beyond the figures for wages that I covered in the article 'What the "China Price" Really Means' on 3 June 2011, when analysing how much of the value produced in poor countries finds its way into the consumer lifestyles of the rich.

You should probably sit down before you read this, although the information does not contradict what everyone knows is true:

The UK spends £14.9 billion a year on pet care – an average of around £11 per pet each week – of which pet food is estimated at £2.7bn.

People in the West spend £11 billion a year on ringtones for their mobile phones.

The average monthly wage of a Bangladeshi textile worker is £29.

Bangladesh State annual spending on education $11 per capita.

Mintel Industry Report on the UK retail sector

Pet Food and Supplies - UK - March 2011

* UK consumers are heavily invested in the pet care market. Their personal lifestyle, health and hygiene expectations are being transferred to pets, and the market is only too happy to cater to this demand.

* Weight control is becoming as relevant to pets as it is to humans with a third of dogs and a quarter of cats considered to be overweight. The growing awareness of pet obesity has prompted a number of targeted initiatives and also provides further opportunities for specific diet foods for certain breeds and ages.

* Pet treat brands can continue to add value to the category by refocusing on the less mature and relatively underdeveloped cat treat market at the expense of dog treats.

* Another way in which brands can continue to grow sales is by tapping into the trend towards pet parenting, with 70% of pet owners treating their pets with as much care as they would a child, with products such as greetings cards and other gifts.

Tony Norfield, 9 May 2013

Value of labour-power & wage differentials

On 6 June, Dave Z put a comment at the end of my article on “What the ‘China price’ really means”.

This note addresses the two main points raised by Dave Z (in blue – if you want to see the full comment, refer to the original article) and answers them. His focus was on the “parts of your theory dealing with the lower wages of the industrializing countries.”

1) “Firstly, I think your argument about productivity is inadequate. There is surely a significant productivity gap between capitalist regions that explain a significant part of the wage gap.”

I agree that there is likely to be a large productivity gap between capitalist countries at very different levels of development. After all, that is an important part of what being a developed economy means – to have high(er) productivity. Where I do not agree is on whether that difference in productivity ‘explains’ most of the wage gap (in the article a gap of 10x, 20x or 30x was noted!), and on how big the relevant productivity gap is (see point 2 below).

A key point is that the level of wages depends on the reproduction costs of labour-power, or what capitalists need to pay the worker to get them to be able to show up for work (not just individually, but also to allow for family costs, etc). This, in turn, depends on subsistence costs as a minimum, plus what Marx called a ‘historical and moral element’. This latter element is based on the social conditions prevailing, including the success or otherwise of working class struggle for higher wages, benefits, etc.

There is not necessarily a direct relationship of wages to productivity. It is true that higher productivity can allow the capitalist to make some concessions on wages and benefits while still making a profit. Equally, low productivity means the capitalist will have to impose harsh conditions in order to survive in competition. However, there is no one-to-one relationship. It depends on the political and social situation. A defeat of the working class can lead to high levels of exploitation and high productivity but low wages. This was true for the west German ‘economic miracle’ in the 1950s, for example, where exploitation of the working class was comparable to that under Hitler.

In periods of crisis-free growth, it is likely that wages will rise, but commonly we find that nominal wages grow less than productivity. The degree to which that happens is not predetermined. Rising productivity is usually an indication of a rise in the rate of exploitation, despite what may be improved living standards (higher real wages) for workers. However, one message in my article on the ‘China price’ was that this mechanism does not work in the same way for workers in the dominating, imperialist countries and for those in a more subordinate position.

In the imperialist countries, the capitalist class may attack living standards, but it has far less freedom to do so than in the dominated countries. In the latter, it is also starting from a lower level of living standards from which to begin exploitation. In this case, the ‘historical and moral elements’ work in capital’s interests. Especially for countries that are newer entrants to the global economy, the more traditional social relationships can substitute for higher wages paid by the capitalist (eg growing some of your own food). Wages are likely to be very much lower than in the major countries, even if productivity in the factory is not that much lower than in the more developed economies.

2) “Secondly, it does not follow that differentials in rates of return on capital invested between regions A and B are the result of higher rates of exploitation in the latter. In fact, we have shown that the differentials are invariant to such distributional differences ….”

I use a lot of statistics in my analysis, but try to treat them with the relevant degree of scepticism. I have not seen your analysis, so I don’t know for sure, but I suspect that there may be several issues invalidating your results, or at least your interpretation of what I am arguing.

a) I agree, differences in rates of exploitation may not be the reason or the only reason for the different measured rates of profit. Tax concessions for foreign capital, or other concessionary deals to attract foreign capital can also be important. One important factor is buying up local productive capacity at knock-down prices (as happened after the 1997-98 Asian crisis in South Korea, for example, with the sale of parts of Daewoo). These issues were not raised in my article, which focused on wages.

b) Measuring productivity is another issue. The national average productivity level may be low, but my argument is that foreign companies invest in, or are supplied by, companies with levels of productivity that are not materially different from those in the major countries. This then highlights the massive gap between wage levels paid in China, India, etc, and the wage levels paid at home. When I say ‘not materially different’, I mean not 3, 5 or 10 times lower than in the major countries. For the same reason, national measures of investment as a share of profit or the growth rate of the total national workforce are not valid factors to explain the rate of profit measured by foreign capital’s activities.

The scarcity of good statistics means that sometimes we have to rely on a good journalist report (as I did for the Bangladeshi textiles example), or a study that may only give a snapshot of developments and which is also limited by its own assumptions (eg the BLS studies of China and India that I cited). In my professional experience, the worse the exploitation, the less you are likely to find consistent, detailed timeseries. No surprise there, really.

The BLS study of Chinese data implies (on my reading) that US corporations invest in the upper level urban companies, and pay the higher-level wages and benefits ($1.47 per hour versus the $0.53 for the TVEs). However, this ‘higher’ wage is a trivial hike in labour costs for a US corporation used to paying more like $30 per hour at home. I find it completely implausible to argue, as you seem to be doing, that the rate of profit on investment in China has little relationship to this fact, and instead is a mix of a range of other factors.

Tony Norfield, 7 June 2011