Demand-driven, private sector enforcement of labour law in Bangladesh

Global supply chains often extend into weak states with limited social and environmental regulations and with little formal enforcement of existing regulations. Integration into global supply chains provides benefits to firms and workers in these countries (Tanaka, 2016; Atkin et al., 2016). But lack of regulation and lack of enforcement of existing regulation also carry potentially important but poorly understood social costs. For example, workers often endure dismal working conditions and limited labour rights.

It is in these poor societies where labour regulation could have the largest impact, but states may not have the capacity to enforce it. In such environments, incentives provided by private sector actors, such as multinational firms, may be able to serve as a substitute for government enforcement. Indeed, multinational firms are increasingly adopting standard setting and enforcement roles in the absence of formal regulation and enforcement (O’Rourke, 2014). Little is known, however, about whether these actions increase targeted firms’ compliance and whether they generate net benefits or costs to targeted firms and their workers. We also do not know how these interventions affect the broader local industries in which targeted firms are situated.

In this project, we aim to provide among the first experimental evidence on these topics. We study a large-scale, corporate social responsibility (C.S.R.) intervention of a coalition of multinational retail and apparel firms in their Bangladeshi garment supplier bases. The coalition is requiring its suppliers to comply with Bangladeshi labour law related to health and safety. Using a randomised control trial, we evaluate the coalitions’ effectiveness at bringing its suppliers into compliance with the labour law and, if the coalition succeeds, the effects of becoming more compliant on establishments’ safety and business performances. We also study whether the coalition’s intervention has broader effects on the Bangladeshi garments sector through analysis of spillovers across establishments.

This research will provide singular evidence on the effectiveness of multinational firms’ acting as standard-setters and monitors for local firms when the local government does not fulfil these roles. It will contribute to our understanding of the potential for large-scale C.S.R. to support the sustainable economic growth of the private sector in weak states where formal institutions are lacking. We anticipate that this project will have direct impacts on policy influencers and policymakers in Bangladesh and elsewhere. The results will directly influence the coalition of multinational retail and apparel firms’ operations in Bangladesh and potentially their other source countries. We also expect that it will influence other policy stakeholders’ approaches to improving health and safety conditions in Bangladesh’s garments sector.