Economics of Indian Sweatshops: The Need for Sturdy Labour Laws
– Urvi Dhar
As India reels to achieve a sense of normalcy in a post-COVID world, a term often thrown around is new normal. And as we strive to achieve this normalcy, there is a sense of having to ‘do more for less’. One example is the rolling back of labour laws, that were carefully curated over years with protests and human rights movements. In May this year, the State of Uttar Pradesh announced that it had cleared the ‘UP Labour Law Ordinance, 2020’ to exempt all establishments from the purview of all but four labour laws, for the next three years.
While there are already industries, most prominently, the garment industry, in developing nations such as ours, that have been known through history to violate labour laws, and therefore operate at the crossroads of human rights violation and trade, sweatshops are a long-standing example of why such an Ordinance does not work. Before one can analyse the possible outcomes of the Ordinance, it is important to acknowledge the outcomes of the lack of strong labour laws, as demonstrated by sweatshops, that plague the fashion and IT industries in developing nations. Along with this, it is also essential to view the impact that strengthening the integrity of labour laws in a developing country has on the macroeconomic indicators of that country.
The underbelly of the garment industry in India provides cheap labour to multi-national apparel brands, like H & M, Zara, and Walmart, in the form of a system that condenses into a number of sweatshops, which invariably subject its workers to extreme exploitation – taking the shape of low wages, long working hours, arbitrary discipline, and the denial of just about any basic human right. Research conducted by the University of California, Berkeley, brought forth in a report titled, ‘Tainted Garments’, found that women and marginalised communities were the most vulnerable to such exploitation, and that a majority of them did not belong to any trade unions nor had a written contract, which left them with no means to seek redressal. More than 99 percent of the women and girls interviewed for this report were paid less than the State-stipulated minimum wage under Indian Law. On 6th June this year, nearly 1,300 garment workers employed at the Euro Clothing Company’s unit in Bangalore faced layoffs, effective immediately. In 2019, H & M accounted for 80% of their orders, and so far, H & M have been their only client in 2020.
There are economic theories that argue that low wage employment in developing countries is actually beneficial, an ‘escalator out of poverty’. Two most commonly cited reasons for this are that over time a booming industrial sector is bound to raise wages, and that factory jobs are a better option than their even lower paying alternatives. Such an advocacy sells pro-sweatshop arguments often made in lieu of an economic justification the least bad option. But the primary issue with this rationale is that it does not incorporate what it means to be a sweatshop. The argument does not determine whether the factory is actually a sweatshop or if the workers at the factory are being exploited. This argument, to a great extent, takes for granted that there are over-arching labour laws that make the narrative about only ‘doing more for less’, laws that are beyond the bounds of sovereignty of a nation, or even local laws that are somewhat similar, but implemented perfectly. But, relying on these legal prescriptions becomes somewhat problematic in countries where the local labour laws don’t match up to even the minimum of internationally agreed upon standards. And even more problematic in situations where the labour laws can be arbitrarily called off.
Recognising the importance of strong labour laws, I will cite two studies, that discuss the effect of their strength on the macro-economic variables in the country. The Organisation for Economic Co-operation and Development (OECD) led a study to determine that countries that strengthen labour standards, can actually increase growth and efficiency (OECD 1994). Another study, by Prof. Dani Rodrik, at Harvard University finds that low labour standards may increase the comparative advantage of the country in the production of labour-intensive goods, but also deter FDIs. There is also an ongoing narrative that “all developed nations go through the sweatshop phase in their development”. To this, Prof. Jagdish Bhagwati, an eminent Economist explained, in his commentary for the New York Times dated June 25, 1995, that although sweatshops existed in early 19th century Britain during early industrialization, nothing in this century requires us to go down that route again. Nations should join nongovernmental groups like the International Labour Organization to rid the world of sweat- shops. In addition, we can require multinationals to apply our own labour, safety and environmental standards when they manufacture abroad. “In Rome, they must do not as Romans do but as we do. Their example would spread”
So, while the justification for the recent U.P. Labour Law Ordinance, which is to provide a temporary reprieve in order to establish new industries, and boosting existing industries, remains less than satisfactory. A few questions that one needs to ask are: What will stop these industries from reaching a sweatshop like situation? And who will be accountable for it?
This article is authored by Urvi Dhar. She is a Masters student of International Economics at the Gokhale Institute of Politics and Economics, Pune.