Factory Fires Illustrate a Culture of Lax Safety Standards in South Asia

Some have called the clothing and textile factories in South Asia “death traps.” And many would find it hard to argue otherwise, taking into account the region’s spate of factory fires in recent months. In September, 289 people perished during a fire in a Pakistani textile factory complex. As is the case in many of these tragedies, workers were trapped behind locked doors and windows were barred. That same month, a fire at an India fireworks factory killed 34.

So what’s the deal with South Asia’s factories?

As Business Insider states:

Several factors combine to make death traps of factories across south Asia. In many instances, exits have been padlocked, basements used as store rooms for highly flammable raw materials and no fire escapes installed, while smoke alarms or sprinkler systems are unheard of.

Adding to that is the fact that fire services in South Asia are not properly or comprehensively trained and resources are lacking. In addition, because of lax zoning requirements, factories are often erected and operated within crowded residential areas. In India, industrial zones and overcrowded slums combine to create a horrific fire hazard. And let’s not forget corruption that is rampant among South Asian countries, an area where government inspectors are easily and often paid off.

There have been more than 600 factory fire deaths in Bangladesh over the last five years. The industry has been warned time and time again, but has taken no action to prevent future fires. As ABC News reports, the brands associated with the fatal fire include Faded Glory (Walmart), Sears clothing brands and a clothing company owned by Sean Combs, who is better known as rap mogul P. Diddy.

The Clean Clothes Campaign, an initiative dedicated to improving working conditions in the global garment industries, has called for immediate action from international brands.

“These brands have known for years that many of the factories they choose to work with are death traps,” said Ineke Zeldenrust from the Clean Clothes Campaign. “Their failure to take action amounts to criminal negligence.”

Though criminal negligence may be the worst charge against these brands, they also face severe reputational damage. But it begs the question — how many factory fires will it take to motivate regional governments to create a safer working environment in the region’s fabric and textile factories?

Note: This article has been edited to highlight that this is a regional problem not confined to India.

Lester Brown on How Climate Change Is Catastrophically Straining the Global Food Supply

Lester Brown, founder and president of the Earth Policy Institute

Throughout his distinguished career, Earth Policy Institute founder and president Lester Brown has sought to protect resources across the globe. This morning in his opening address at the World Conference on Disaster Management in Toronto, he stressed the importance of one that may now be as important as any ocean, rainforest or glacier. “Time is our scarcest resource,” said Brown on the urgency for the world to begin mitigating the effects of climate change. “How much do we have? No one knows for sure. When do we reach the point of no return. We don’t know.”

The theme of disaster prevention and catastrophe management will be at the forefront of all discussions that take place this week at the conference. But in Brown’s view, there is one disaster that supersedes all others: runaway climate change. To him, that’s “the Big D … the one that could end civilization.”

In addition to the ticking clock and the world’s inability to meaningfully cooperate on the issue, what makes the threat of climate change so catastrophic today is the volatility it places on the global food supply. More than ever, the world grain supply is being strained. And this comes at the same time that demand is increasing.

In the past, major grain surpluses for U.S. production could make up for unexpected droughts, floods or fires that wipe out crop yields in other areas of the globe. Today, however, those surpluses no longer exist. And this is likely the new normal.

To drive home his point, Brown highlighted the massive heat wave, drought and wildfires that wiped out 40% of the Russian grain harvest last summer. He said that if someone had told him before the disaster that the average temperature in Moscow in July would be 14 degrees Fahrenheit above average, he wouldn’t have believed it. “I’m not a climate denier, but that’s unreasonable,” is how he said he would have responded. “Well, that’s what happened.”

In and of itself, that supply shortage affected global prices and stressed the market. But if a similar event were to occur in Chicago? Grain prices would go through the roof.

Again, in the past, agriculture speculators could just chalk up such events as anomalies. Maybe a disaster wiped out some percentage of the global supply that year, but they could be confident that the next season would balance things out. Brown doesn’t seen that happening anymore, however. “There is no normal to go back to,” he said. “The climate is in a constant state of flux.”

And even without a single, identifiable disaster like the one in Russia, the future of the global food supply is troubling. Brown said that estimates project a 10% decrease in grain crop yields for every additional degree Celsius increase in global temperatures. “Each year, agriculture and the climate are more out of sync,” said Brown.

That’s not the only bad news on the supply side.

There is also an irrigation bubble that means today’s global output is artificially high. The United States, China and India are the three top grain-producing nations in the world. Only one-fifth of the U.S. grain yield comes from irrigated land. Even if the continually strained Colorado River basin or Mississippi River region were to dry up somewhat, the nation could still produce at nearly the same level it does today. It’s a different story in India and China, however, according to Brown.

World Bank data says that in India there are 175 million people being fed with grain produced by the over-pumping of local aquifers. The Earth Policy Institute estimates that number at 130 million in China.

It doesn’t take a scientist to see that this is unsustainable. Eventually, the aquifers that are being aggressively pumped will be depleted and, once they are, the rate of irrigation will only be able to match the natural aquifer’s rate of recovery, says Brown. So eventually the current levels will have to fall. The irrigation bubble will burst.

“That bubble has already burst in Saudi Arabia,” he said, adding that the nation will likely be out of the grain production business altogether in just a few years. Since Saudi Arabia only produces 0.5% of the world’s global grain supply, this won’t significantly hamper the global market. And if anyone can afford to import, it’s the Saudis. But this, in addition to depleting water tables throughout the the Middle East, and the bubbles in China and Israel, spells trouble.

“We are only one harvest away from chaos,” said Brown.

Additionally, demand is increasing. Throughout the developing world, particularly in India and China, there are hundreds of millions of people rising out of poverty who will greatly inflate the world’s middle class in the coming decades. Along with a larger middle class comes more people wanting to live a middle-class standard of life. Perhaps more than anything, this affluence will lead to greater food consumption. And since grain feeds both people and livestock, grain consumption per capita will only rise.

Then there are biofuels. In this sense, ethanol is a non-solution solution. It may cut down on carbon dioxide emissions. But crop yields are now being divided between the dinner plate and the gas tank.

The grim reality of all this is that, as the global food supply becomes more strained, so will nations. Food supply security is something that citizens demand from their government and if it disappears, so could the social order, leading to more failed states. “How many failing states before the whole system begins to unravel?” said Brown. “We don’t know this yet. We haven’t been there.”

And that’s the scariest part of all.

(In addition to listening to Lester Brown’s keynote address at the 2011 WCDM, I had the chance to interview him to get even more insight about climate change and the global food supply. Our Q&A will appear in the July/August issue of Risk Management magazine.)

Transportation in India: No Good Options

india traffic

“Organized” chaos

A few weeks ago, a report came out that — once again — India led the world in traffic deaths. Given its population (estimated at nearly 1.2 billion, which puts it behind only China), the nation would logically be near the top of the list regardless of any priority it placed on safety. In fact, when India took over the number one spot for road fatalities (from China) in 2006, many people saw this as further evidence that India was truly becoming a economic power.

While having many of you citizens die on the road is obviously counterintuitive to progress, more people driving meant more people were buying cars because more people had more money. Safety needed to be improved, sure, but automobile transportation is always going to lead to some casualties that correlate to population and/or what percentage of that population has purchasing power great enough to afford a luxury like a car.

Anyone who subscribed to that theory five years ago, however, is probably starting to see India’s high death rate for what it is: tragic and avoidable. This New York Times article breaks it down.

While road deaths in many other big emerging markets have declined or stabilized in recent years, even as vehicle sales jumped, in India, fatalities are skyrocketing — up 40 percent in five years to more than 118,000 in 2008, the last figure available.

A lethal brew of poor road planning, inadequate law enforcement, a surge in trucks and cars, and a flood of untrained drivers have made India the world’s road death capital. As the country’s fast-growing economy and huge population raise its importance on the world stage, the rising toll is a reminder that the government still struggles to keep its more than a billion people safe.

In China, by contrast, which has undergone an auto boom of its own, official figures for road deaths have been falling for much of the past decade, to 73,500 in 2008, as new highways segregate cars from pedestrians, tractors and other slow-moving traffic, and the government cracks down on drunken driving and other violations.

It has been illustrated through various means time and time again, but this is just one more example of how India’s city planners and public officials are failing to provide adequate infrastructure to support the nation’s booming economy.

Unfortunately for Indians, roadways aren’t the only transportation problem. As you can see in the video below, the trains are not a much better option. Marked by overcrowding and delays, it takes workers who commute to the major cities an exorbitant effort just to make it to their jobs every day. Worse still, there are still many political and religious-based attacks on railways in many regions. The 2006 Mumbai bombings, for example, killed more than 200 and injured another 700.

A few weeks ago I went to the annual meeting of Coface, a company that specializes in international credit risk. As it does each year, Coface brought in a group of experts to talk about the most pressing global economic issues and professor David Denoon of New York University spoke about China and India, painting a much different development picture of the world’s two most populous locales.

China, he said, is characterized by places like Shanghai, where just in recent years alone construction has begun on more high rises than exist in all of Chicago. By contrast, he emphasized that the per capita income in India is merely $3,100. That’s equal to one-third of the average income in Brazil and one-fifth the average in Russia.

Looking at those numbers, it seems that both infrastructure and income distribution will pose a growing concern for the nation that puts the I in BRIC.*

* (The acronym for the world’s four biggest emerging economic powers, Brazil, Russia, India and China. Also, for a look at some of the risks that have plagued the largest Indian carmaker, check out Bill Coffin’s look at Tata Motors’ “Cheap Cars, Costly Protests.”)

Economic Crisis Advances Risk Management in India

According to the Times of India, risk management has come into much greater in focus in India ever since the financial collapse rocked the global economy twelve months ago.

The global shockwaves following Lehman Brothers’ collapse have woken India Inc to the importance of sound risk management system to tide over future crises. Despite the fact the India was less affected by the meltdown, companies here are pulling up their socks as the slump has demonstrated that risks are entwined and cut across boundaries.

It’s a brief article without many specific examples, but it touches on the fact that risk management in something that many companies now expect from all their units — and they expect them to report their findings to the CFO. All this looks like many businesses in the country are beginning to see that there are real benefits to holistic risk management.

Much like their U.S. and European counterparts, Indian companies will undoubtedly struggle to turn this good idea into good practice, but the underlying concepts have to come first, and this looks like a positive sign in that a key driver of the developing world economy is moving towards incorporating better forethought throughout its private sector.

Most big players have sought international risk advisory firms like Marsh, to step up the internal control process of their portfolio companies. “The global credit crisis has driven home the point that although US was the epicentre, its effect has been felt elsewhere too, in today’s inter-connected world. Risk management must factor inter-linkages and remote possibilities,” said Marsh India head Sanjay Kedia. “Low-probability and high-severity catastrophes like the recent financial turmoil or the Mumbai terror attacks do happen,” he said.

And when they do, hopefully many companies in India will be able deflect the blow.

bangalore risk management

Bangalore, or The Silicon Valley of India, has seen large-scale economic expansion in recent years. Now, a focus in risk management is expanding there as well.