Western Multinationals Can Improve Workers’ Safety, If They Want to: The Case of Bangladesh

In 2013, one of the largest factories in Bangladesh collapsed, killing 1,134 workers. Many multinationals committed to improving safety standards. A new study shows that Western corporations can improve labor standards in developing countries, without harming their competitiveness. The result is even more compelling because the study is co-funded by multinationals.

 

 

The Rana Plaza collapse, April 24, 2013. Photo by Jaber Al Nahian, via Flickr [CC BY-SA 2.0]

 

On April 24, 2013, one of the largest garment factories in Bangladesh collapsed: 1,134 workers were killed and 2,500 were injured. The Rana Plaza disaster was a human tragedy but also a reputational catastrophe for Western brands that manufactured their products in that facility: Benetton, Prada, Gucci, Walmart, Primark, and many others. Companies reacted with the promise to commit to better safety standards, regardless of whether or not the Bangladeshi government enforced its labor laws.

 

According to a new study by Laura Boudreau, a postdoctoral research fellow at Columbia Business School, the plan worked: When companies monitored law enforcement, the establishments’ compliance and safety standards improved, with no significant additional costs. The study was co-funded and supported by the coalition of companies that sponsored the program (they paid 50percent of the cost, the rest of the cost was covered through grants). However, this makes the paper’s policy implication even more compelling: Western companies can apply better labor standards in developing countries and save lives if they only want to.

 

After the Rana Plaza tragedy, a set of 29 multinational retail and apparel firms formed the Alliance for Bangladesh Worker Safety to increase protection of its shared supplier base: more than 600 factories and 1.2 million workers. The Alliance expired on December 2018, after five years. To test the impact of its program, Boudreau implemented a randomized controlled trial over 2017 and 2018.  

 

 

Alliance members committed to enforcing the safety-related amendments that the government of Bangladesh passed in July 2013. One of the key requirements was for factories to have worker-manager safety committees (SCs). Those safety committees were supposed to conduct risk assessments at least once every three months, make regular safety-related recommendations to employers, and arrange safety training and fire drills. Employers needed to comply with their safety council’s recommendations.

 

Boudreau’s random controlled trial included 84 garment and garment-related factories in Bangladesh. The “treatment” she wanted to test was their participation in the Alliance’s Safety Committees program. Boudreau randomly assigned 41 factories to immediate participation in the program (the treatment group), while 43 factories joined the program eleven months later (control group). The time lag allows for a counterfactual to compare what would have happened in the absence of the Alliance’s program.

 

To collect data, the research team made three full-day visits to factories: the first one before the program was implemented, the second one after 4-5 months—when factories were supposed to have completed the most significant part of the safety committee’s program. The last visit took place 9-10 months later, to test whether the program’s effects persisted after the multinationals ceased intensive enforcement of the law. The first visit proved that almost all the factories were non-compliant with the law’s requirements.

 

 

Boudreau finds that when multinationals enforce the law on safety committees, treatment factories’ compliance with the law significantly improves. The second finding is that, under multinationals’ enforcement, pre-specified indicators of the safety committees’ effectiveness improve as well. None of the individual differences between treatment and control groups is statistically significant. However, “aggregated, they indicate that the intervention has a small, positive effect on physical indicators of factory safety. This effect is consistent with the dramatic increase in safety committees’ implementation of risk assessment at treatment factories,” Boudreau argues.

 

Before the randomized control trial, Boudreau’s expectation was that a safer workplace would make workers more satisfied. On the contrary, the stricter enforcement of safety laws negatively affects workers’ job satisfaction in the short term. A possible explanation is related to poor managerial quality in some factories: Workers have higher expectations about a security committee’s impact, but the performance is disappointing. Workers become more aware of how dangerous the factories are, but they do not see any improvement because of difficult interactions with management.

 

A more surprising result is that increased safety measures do not harm competitiveness. There is no statistical evidence that security committees increase suppliers’ costs. Therefore, multinationals have no incentive to switch to cheaper and less safe suppliers. According to Boudreau’s conclusion, “The results support the potential for multinationals’ enforcement interventions to improve labor standards without coming at significant costs in terms of suppliers’ efficiency.”

 

Randomized controlled trials are a powerful research tool, but their results can be extremely context-specific and hard to generalize. However, thanks to Boudreau’s paper we know that, at least in the garment industry in Bangladesh, multinationals’ private law enforcement proved helpful to increase safety standards. Unfortunately, the Alliance for Bangladesh Worker Safety does not exist anymore. More than six years after the Rana Plaza collapse, the coordinated effort of big corporations to prevent new tragedies is over, despite the fact that Boudreau’s paper hints that law enforcement’s effects tend to vanish quickly when monitoring gets less intense.

 

To conduct her randomized trials, Boudreau had to cooperate with the corporate Alliance. Does this cooperation undermine the paper’s reliability and research independence? In other words: Is this a case of academic capture? 

 

There is no way to conduct such a field experiment without open cooperation from the parties involved. In an ideal world, this should not be the case. But this is not an ideal world. However, Alliance companies were not forced to measure the impact of their program by any external authority: The vast majority of corporate social responsibility initiatives are pure lip-service and there is no interest in testing their effectiveness.

 

Moreover, in this case, the final outcome is not so favorable to Western multinationals: A company’s sponsored research proves that they should feel responsible for the safety of their suppliers’ workforce in developing countries. Blaming poor local regulation is not exculpatory anymore.

 

The ProMarket blog is dedicated to discussing how competition tends to be subverted by special interests. The posts represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty. For more information, please visit ProMarket Blog Policy.