Bangladesh and the minimum wage

The New York Times:

As costs have risen in China, long the world’s shop floor, it is slowly losing work to countries like Bangladesh, Vietnam and Cambodia — at least for cheaper, labor-intensive goods like casual clothes, toys and simple electronics that do not necessarily require literate workers and can tolerate unreliable transportation systems and electrical grids.

Li & Fung, a Hong Kong company that handles sourcing and apparel manufacturing for companies like Wal-Mart and Liz Claiborne, reported that its production in Bangladesh jumped 20 percent last year, while China, its biggest supplier, slid 5 percent.

...In January, H&M, Wal-Mart, Gap, Tesco and other Western clothing buyers asked the Bangladeshi government to raise the minimum wage and reset it every year, although the group did not specify what the wage should be. A spokeswoman for H&M, Malin Bjorne, said the company was willing to pay more for clothing to help support higher wages. It is unclear whether other companies would do the same.

But factory owners here argue that a big increase in wages would make them uncompetitive against Vietnam and other big producers, which have higher labor costs but also have better infrastructure and are more efficient producers. If that happened, Bangladesh’s China opportunity could prove all too fleeting, they say.

“If it’s 5,000 taka, I would close all my factories,” said Anisul Huq, a former head of the Bangladeshi garment industry’s trade group and a factory owner whose customers include H&M and Wal-Mart. “Even if it’s 3,000 taka, lots of factories will close within three or four months.”

Besides further evidence that capitalism and free trade serve to raise wages -- with China now pricing itself out of certain segments of the textiles market -- the article also illustrates that the minimum wage is best understood not as a wealth transfer from businesses to workers but as a prohibition against the poor selling their labor for below a minimum price. The poor can not be raised into the ranks of the middle class through such legislative fiat, but rather via the free market which raises the demand, and thus compensation, for their labor.

If Bangladesh's government is truly interested in assisting its citizens, it will focus more on understanding why more businesses aren't flocking to the country than installing yet another barrier to investment through an increase in the minimum wage.