What America’s most controversial clothing CEO can teach us about world trade
February 21, 2014 Leave a comment
What America’s most controversial clothing CEO can teach us about world trade
By Tim Fernholz @timfernholz February 11, 2014
Dov Charney, CEO of US clothing retailer American Apparel, does not have a great reputation. Whether it’s the employee harassment lawsuits, the racy ads or that time he masturbated in front of a reporter, Charney’s over-the-top style has obscured his company, known for its pricey but not fancy clothes made in Los Angeles by workers earning more than minimum wage.
So it was a surprise when Buzzfeed’s Sapna Maheshwari, sent into the lion’s den to talk to Charney about his company’s trouble earning a profit, returned with this bit of insight from the provocateur on why American Apparel, unlike many of its competitors, makes its products in the US. It’s not because Charney particularly cares about Americans: ”What we’re trying to do is build a business that’s very futuristic in the sense that we don’t want to rely on these labor inequalities that are not going to be sustainable forever anyway.”
Charney makes a good point: The supply-chain advantage that comes with manufacturing goods in countries with cheap labor costs is both arbitrary and temporary.
You can see his point in Asia’s history as an export market. While Bangladesh and its troubled working conditions are the current poster-child for cheap clothing, in the 1950s and 1960s retailers bought cheap goods from Japan, and then from Hong Kong, Taiwan and South Korea, and after that, in the 1990s and 2000s, from mainland China and southeast Asia. Cheap labor costs are a moving target: Trade increases investment, investment creates prosperity, and prosperity raises wages. You can now see this happening within China itself, where industrialization is spreading inland as wages have risen on the coast.
For a business like American Apparel, though, recognizing the trend may not be a great advantage for years or decades to come. For now, whatever savings American Apparel ekes out from not having to ship clothes around the world it probably loses in higher labor costs—even if its made-in-the-USA branding attracts some extra customers.
But Charney’s betting, essentially, that the current trade system won’t create a permanent global underclass of low-wage workers: Either it’ll make them wealthier, or it will break down—perhaps violently—because it failed to make them wealthier. Either way, other clothing retailers chasing low wages around the globe will eventually put their own strategy out of business.
In which case the only question is whether Charney’s firm can keep running at a loss long enough for that fate to befall its competitors.
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