By William K. Black

This is the third article in a series on some of the additional lessons we should learn from the mass murder of Bangladeshi garment workers by anti-employee control frauds.  I discuss new allegations about the senior executives involved in producing the terrible loss of life and maiming of so many workers because they are relevant to the broader harms that control fraud can cause that I discussed in the first article in this series.

I have often explained that the most audacious CEOs running control frauds are able to change the external environment to increase their ability to defraud with impunity.  I noted in the first article in this series on the mass murder of Bangladeshi workers that when the CEOs directing the control frauds suborn politicians, regulators, and professionals the risk that these people will act improperly in other contexts rises.  I tied this to the loss of trust that George Akerlof discussed as one of the injuries that control fraud can cause in his article on a market for “lemons.”

I also stressed that many forms of control fraud are lethal.  White-collar criminologists have long warned that white-collar crimes sicken, maim, and kill more people than traditional blue-collar crimes.  (They also cause vast damage to the environment.)

The most recent information as I write is that there are over 400 confirmed deaths, 2,500 injuries, and over 1,300 missing (the list of missing may contain many duplicates because multiple reports are often made).

“Pope Francis said he was shocked by a headline from the building collapse that said some of the workers were living on 38 euros a month.

‘This was the payment of these people who have died…And this is called ‘slave labor,’’ he said.”

http://online.wsj.com/article/SB10001424127887323628004578456932088855270.html?mod=WSJ_hps_MIDDLENexttoWhatsNewsFifth

One of the messages we try to get across as criminologists is that many criminals are equal opportunity offenders who engage in blue-collar and white-collar crimes (including corruption).  Ultimately, the “lines” often blur in practice.  The means (and cost) by which the CEOs suborn politicians, regulators, and professionals vary by locality, but the means are recognizable globally.

Theoclassical economists ignore the criminogenic pressures, and facilitation, that for-profit firms provide that can produce widespread fraud through perverse incentives that economists and criminologists refer to as a “Gresham’s dynamic” in which markets become perverse because those that cheat gain a competitive advantage.  A Gresham’s dynamic tends to cause bad ethics to drive good ethics out of the markets.  Such a dynamic often exists between nations and within nations.  Bangladesh “won” the global “race to the bottom” in garment manufacturing, and Sohel Rana and the manufacturers who rented space in his building exemplify the (mostly) Bangladeshi subcontractors who “won” the “race to the bottom” among Bangladeshi manufacturers.

“For years, though, Rana had sat at the nexus of party politics and the powerful $20 billion garment industry that drives the economy of this deeply impoverished nation. This intersection of politics and business, combined with a minimum wage of $9.50 a week that has made Bangladesh the go-to nation for many of the world’s largest clothing brands, has made dangerous factory conditions almost normal, experts say.

Government officials, labor activists, manufacturers and retailers all called for improved safety standards after a November garment factory fire in the same suburb, when locked emergency exits trapped hundreds of workers inside and 112 people died. But almost nothing has changed.

‘Successive Bangladeshi governments have paid lip service to worker safety but in reality it is only the factory owners who have the ear of policymakers,’ Brad Adams, the Asia director for Human Rights Watch, said in a statement.”

http://www.nytimes.com/aponline/2013/04/28/world/asia/ap-as-bangladesh-politics-and-business.html?ref=news

I noted in my second article that my co-panelists at the Kilkenomics Economics Festival in Kilkenny, Ireland in November 2012 responded to my criticism that Germany’s austerity plus wage reduction strategy was creating a “Road to Bangladesh” dynamic by lauding Bangladesh’s ultra-low wage strategy of economic development.  I cited this as another example of how criminogenic theoclassical economic dogmas are.  It is important to understand that the World Economic Forum (WEF) and the World Bank sponsor “competitiveness” and “doing business” scales that purport to demonstrate that countries that adopt labor protection standards promulgated by the International Labor Organization (ILO) are bad places to do business.  I denounced this treatment at the site of the most recent WEF as a keynote speaker for the “Public Eye Awards, co-sponsored by Greenpeace, Switzerland and the Berne Declaration.

http://neweconomicperspectives.org/20 13/01/why-the-world-economic-forum-and-goldman-sachs-are-capitalisms-worst-enemies.html

The ILO has written extensively on why the “doing business” scales are false and harmful.

http://www.ilo.org/wcmsp5/groups/public/—ed_norm/—relconf/documents/meetingdocument/wcms_085125.pdf

The CEO that the police are investigating for allegedly running an anti-employee control fraud is Sohel Rana.  As more details come out about Rana he displays many of the traits and tactics that are so well-known to criminologists.

“SAVAR, Bangladesh — Barely 20 miles from the national capital, this gritty suburb is now a dusty, chaotic industrial center littered with factories that produce clothes for leading Western brands. Building codes are often unenforced, regulatory oversight is flimsy and the men wielding power often travel with armed guards.

And perhaps no one wielded power more brazenly than Sohel Rana. He traveled by motorcycle, as untouchable as a mafia don, trailed by his own biker gang. Local officials and the Bangladeshi news media say he was involved in illegal drugs and guns, but he also had a building, Rana Plaza, that housed five factories.

Upstairs, workers earned as little as $40 a month making clothes for retailers like J. C. Penney. Downstairs, Mr. Rana hosted local politicians, playing pool, drinking and, the officials say, indulging in drugs.”

A building owner can gain a competitive advantage by building on cheaper land, i.e., swampy land that is unsafe to build on without special (expensive) construction techniques.  An owner can gain a competitive advantage if he can get his construction project approved more quickly than his rivals, if he can permission (or build without permission) a larger building, and if he can build it with cheaper materials.

“But if Mr. Rana has been vilified, he is partly a creation of the garment era in Bangladesh, during which global businesses have arrived in search of cheap labor to keep profits high and costs low. Directly or indirectly, international brands are now sometimes interlinked with men like Mr. Rana, and placed at risk by them.

Global apparel companies often depict their international supply chains as tightly scrutinized systems to ensure that clothing sold to American buyers is produced in safe, monitored factories. Yet their inspectors usually check safety factors and working conditions, but not the soundness of the buildings themselves, and the companies often have little control over the subcontractors who do much of the work.

Criminality and politics have long intersected in Bangladesh, especially at the local level. But the garment industry has introduced what had mostly been the missing element: money. Savar land values soared as new factories hurriedly opened to meet the new Western demand.”

But Rana was old school.  He is alleged to have resurrected the old adage that “property is theft” in order to secure an even greater competitive advantage.

“To build Rana Plaza, Mr. Rana and his father bullied adjacent landowners, the landowners themselves say, and ultimately took their property by force. His political allies gave him a construction permit, despite his dubious claims of title to the land, and a second permit later to add upper floors that may have destabilized the building.

Mr. Rana existed largely above scrutiny. Many local people say his political clout was such that not even the police dared to confront him. Television stations reported the cracks in the building the night before it collapsed, but no local authority prevented Mr. Rana from opening the building the next morning.

‘Money is his power,’ said Ashraf Uddin Khan, a former mayor of Savar, who accused Mr. Rana of being deeply involved in the drug trade. ‘Illegal money.’”

Rana is alleged to have used the intersection of labor, firms, and politics as a weapon and a shield.

“He held what appeared to be an innocuous position as secretary of the local student wing for the Awami League, the country’s majority political party. But that position translated into influence and helped him mobilize people. He developed a following that local people say he used as political muscle, sometimes to enforce strikes, sometimes to defy them.”

Rana, of course, was in politics to make money and power, not policy.  He is the face of Bangladeshi crony capitalism writ small.  Rana was only locally powerful.  Consider how much damage a CEO of a nationally prominent firm tied to the head of state can do to a nation through control fraud.

“The son of a local businessman with political connections, Rana became a neighborhood force by working as an organizer for the two political parties that have competed for power for decades in Bangladesh, according to local politicians, as well as someone who grew up near Rana and still lives in the area.

While Rana is currently a leader of the youth group of the ruling Awami League, he has also worked for that party’s archrival, the Bangladesh National Party.

‘He doesn’t belong to any particular political party,’ said Ashrafuddin Khan Imu, an Awami League leader and longtime Rana rival. ‘Whatever party is in power, he is there.’”

While Rana got a form of permission to build a factory on a site that was formerly a pond and to add additional floors to that factory, that form of permission was created by a political ally for the purpose of circumventing normal building safety standards.  The permission was allegedly only available to cronies.

“By 2011, Mr. Rana had rented out the existing five floors and gotten a permit from the local mayor, a political ally, to build additional floors. Mr. Khan, the former mayor, said this practice created serious risks, since officials were handing out permits, often for bribes, without insisting on the necessary safeguards.”

Rana, of course, did not want the building to collapse.  Like many owners of buildings who cause the building to be built in a shoddy fashion he too occupied the building.

“[O]n April 23, [2013] a problem arose. Workers on the third floor were stitching clothing when they were startled by a noise that sounded like an explosion. Cracks had appeared in the building. Workers rushed outside in terror.

By late morning, Mr. Rana’s representatives had brought in Abdur Razzaque Khan, an engineer. Taken to the third floor, Mr. Khan examined three support pillars, and became horrified at the cracks he found.

“I became scared,” Mr. Khan said. “It was not safe to stay inside this building.”

He rushed downstairs and told one of Mr. Rana’s administrators that the building needed to be closed immediately. But Mr. Rana was apparently not impressed; he was holding court with about a dozen local journalists.

“This is not a crack,” he said, according to Shamim Hossain, a local newspaper reporter. “The plaster on the wall is broken, nothing more. It is not a problem.”

But it was. The next morning, Rana Plaza collapsed. Mr. Rana managed to escape from his basement office, but was eventually discovered hiding near the Indian border.”

Consider Rana’s behavior when you are inclined to assume that a CEO is innocent of wrongdoing because he owns stock in the firm he is looting.  When one thinks of the damage crony capitalism causes, recall Rana as an example of how fraud and corruption maim and kill.  But do not puff Rana up too much.  He was a tiny crony, low on the food chain of the kleptocrats who loot entire nations.  As one Bangladeshi told the New York Times reporter, the key is to understand that “we have so many Ranas.”