The Bangladeshi garment industry gives us an elegant example of the collective action problem. This is where it is generally rational for everyone to act together but individually rational for everyone, acting individually, to do their best to undermine that general action. An obvious example of this is taxation – sure, we’d all like better government services.
But we’d also rather prefer not to be having to pay for them ourselves. It might even be rational for us to vote for higher taxes but then we’ll all cheat (OK, “manage our tax bill”) so as to reduce the effect upon ourselves of what we’ve just voted for.
Equally, people in a cartel (when people cooperate to try to control prices) will find that perhaps they can indeed make an agreement to limit output, or to raise prices. But there will always be the incentive for the individual to cheat, to offer more than their quota, very slightly lower prices, so as to profit from the engineered solution.
Here we’ve something a little different. The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) is arguing that the minimum wage for garment workers should rise.
This sounds like a slightly odd thing, that a producer should be insisting that one of their major costs should rise. However, I’ve met Mr Rahman who is arguing for this and he’s a smart chap, knows what he’s doing. The problem the BGMEA has to face is that there’s significant consumer pressure for wages in Bangladesh to rise.