IEA Director of Public Policy and Communications Matthew Lesh has written in CapX, discussing the history and economics of Bangladesh’s controversial garment industry, warning that moral crusades against such economic activity has unintended consequences and makes us all poorer.

Matthew wrote:

“Factories in developing countries are often framed as the ultimate capitalist evil. It’s not hard to see why. So-called sweatshops conjure a powerful image of the world’s poorest working long hours in gruelling conditions, just to provide textiles, toys and electronics for pampered Westerners.

“Nor is it surprising that appalling events such as the 2013 Rana Plaza factory disaster in Bangladesh provoked a profound sense of moral outrage. The collapse of a building housing five garment factories killed 1,135 people and injured another 2,500.

“However, as so often with simple morality tales, the reality is a bit more complex. As a new article by three American academics makes clear, the response to the Rana Plaza disaster had a number of unintended consequences which may actually have ended up costing the very workers it was intended to help.

“By comparing Bangladesh’s garment industry to those of its near neighbours, [one study] conclude[s] that activist activity after the disaster was linked to one-third fewer garment factories in Bangladesh by 2016, with 28% fewer people employed in the industry by 2017.

“Other studies support these findings. An earlier investigation found that efforts to improve working conditions in Indonesia, which resulted in the doubling of the country’s minimum wage, also led to a significant fall in employment (of between 12 per cent and 36 per cent), reduced investment and the closure of smaller plants. A separate study by Ryo Makioka found that targeted firms in Indonesia reduced their employment by 30%, which is attributed to a mixture of minimum wage laws, voluntarily paying higher wages and providing higher standards.”

Read Matthew’s full piece here.