Social up- and downgrading of apparel workers in Romania: fast fashion,post-socialist transformation,Europeanization,and the global economic crisis

Introduction

Since the 1990s scholars from different disciplinary fields have drawn on chain and network conceptualizations to understand the rise and consequences of organizationally fragmented and geographically dispersed global value chains (GVCs) or global production networks (GPNs) (Coe and Hess, 2007). More recent literature has explicitly focused on the effects on workers and their roles in GVCs/GPNs. One important finding from this literature is that, although the expansion of GVCs/GPNs has been an important source of employment generation in many developing and transition countries, the quality of this employment is often less promising, with jobs characterized by high flexibility, uncertainty and precariousness (e.g. Barrientos et al., 2011).

These employment characteristics are specifically relevant in the increasingly important fast fashion segment of the apparel industry. Fast fashion is a business model based on increased variety and fashionability and on permanently shrinking product life and production cycles that requires bringing new products to markets at an increasing pace and in shorter time spans (Tokatli, 2008; Plank et al., 2014). Retailers such as Zara and H&M have become known as the avant-garde in this respect, making cutting-edge fashion trends available in a matter of weeks. Fast fashion sourcing trends have however also become important for traditional retailers, particularly for specific product lines. This business model implies not only increased organizational flexibility and shrinking lead times for supplier firms but also the supply of high quality apparel items at low cost. With supplier firms struggling to accommodate these potentially conflicting requirements, the pressure is often passed on to workers (Raworth and Kidder, 2009).

Against this background, this article assesses how integration into GPNs, in the fast fashion apparel segment, has affected workers’ social up- and downgrading trajectories. The focus is on Romania, a main regional and predominantly fast fashion supplier in Central and Eastern Europe (CEE). The article shows that the role of workers and social up-/downgrading trajectories are strongly influenced by industry dynamics and that certain working conditions are enablers of prevailing lead firm strategies. Industry dynamics are however mediated by multi-scalar institutional and regulatory contexts and state policies. In Romania – as in other CEE countries – the legacy of the country’s state socialist past and its post-socialist transformation, Europeanization and the global economic crisis have been influential drivers of GPN outcomes (Smith et al., 2014; Plank and Staritz, 2015; Pickles et al., 2016).

The article is based on trade and sector data as well as primary data collected through semi-structured interviews with institutional stakeholders, managers and workers’ representatives in apparel firms as well as standardized interviews with workers. At the institutional level we interviewed 41 representatives from the relevant ministries, labour inspectorates, employer associations, trade unions, NGOs and sector experts in 2008–2009. Five additional institutional interviews were conducted in 2014. Firm-level interviews were conducted at 12 export-oriented apparel firms specialized in fast fashion production for the EU-15 market in 2008–2009. ¹ The selection criteria for firm interviews were based on geographical location (with a focus on Bucharest and the south and south-east of Romania), firm size and institutional specificities (former state-owned and greenfield locations, for the most part established in the early 1990s). Thirty-five standardized interviews were conducted with workers, focusing on the terms and conditions of employment. The interviews with local labour inspectorates were particularly useful in complementing and triangulating these findings.

The next two sections discuss social upgrading as analysed in the literature on global value chains and production networks, as well as regional suppliers in CEE and economic up-/downgrading trajectories of firms in Romania. This is followed by a section analysing social up-/downgrading experiences of workers in fast fashion apparel GPNs in Romania. The final section is dedicated to our conclusions.

Social up- and downgrading in global production networks

The literature on global value chains and production networks analyses how production, distribution and consumption are globally interconnected along organizationally fragmented and geographically dispersed chains or networks of activities and actors. Considerable attention has been dedicated to economic upgrading, defined as a firm’s, region’s or country’s trajectory from low- to higher-value activities (Bair and Gereffi, 2003). GVC research in particular has focused on the role of lead firms in governing chains and in enabling or restricting the entry and economic upgrading prospects of supplier firms. In doing so, it has tended to overlook the institutional dimensions of global production, even though these were conceptually mentioned early on (Gereffi, 1995). The GPN approach stresses the importance of non-firm actors and the embeddedness of production networks in social, institutional and policy contexts, stemming from the early recognition that firms’ behaviour is strongly influenced by the context in which they operate (Bair, 2009; Henderson et al., 2002).

Both GVC and GPN research has recently focused on workers, labour processes and social upgrading and how they interact with GVC/GPN dynamics and economic upgrading (e.g. Barrientos et al., 2011; Coe and Hess, 2013; Rossi et al., 2014; Newsome et al., 2015). Social upgrading is generally defined as changes in the working conditions or rights of workers which improve the quality of their employment (Rossi, 2013). Such definitions relate to the ILO’s ‘decent work’ approach, i.e. work taking place under conditions of freedom, equity, security and human dignity, in which rights are protected and adequate remuneration and social coverage are provided (ILO, 1999). Recent criticism of the social upgrading literature posits that it is largely based on an elitist conception of labour relations that focuses on firms, states and international organizations, while neglecting workers and local actors, their struggles and the centrality of power asymmetries (Selwyn, 2013; Arnold, 2013).

Evidence on the outcomes for workers as a result of insertion in GPNs is mixed. On the one hand, GPNs have created new employment opportunities for marginalized groups such as women and unskilled workers without previous access to wage employment (ILO, 2015). At the same time, globalization of production and especially requirements deriving from buyers’ sourcing practices and their search for low costs often lead to high pressure being put on supplier firms (Barrientos et al., 2011; Locke, 2013). This in turn often translates into low wages and precarious labour arrangements, such as temporary, contract and migrant labour. In addition to low costs, buyers also demand high quality, short lead times, flexibility and responsiveness, reflecting the required lean production and just-in-time delivery principles which enable lead firms to reduce inventory costs and risks (Abernathy et al., 1999). Lead firms’ demand for seamless and flexible just-in-time supply goes hand in hand with an interest in avoiding disruptions through workers’ action or mobilization in GPNs (Anner, 2015). Hence, in contrast to standard conceptions of flexible labour markets, production in GPNs has been linked to the emergence of a new type of labour, characterized by a high degree of speed, flexibility and cost effectiveness but which also meets consistency, quality and fashion standards (Barrientos and Kritzinger, 2004; Barrientos et al., 2011), all of which are particularly pronounced in the fast fashion segment.

While industry dynamics and lead firms’ strategies significantly impact on workers, they are mediated by multi-scalar institutional and policy contexts. These contexts greatly shape market competition, firm behaviour, upgrading trajectories and GPN outcomes (Coe et al., 2008). But firms and their associations also influence institutions and policies, making processes and outcomes highly inter-related (Levy, 2008). Illustrative cases are labour control regimes that link GPN dynamics to domestic institutional arrangements. In this regard, Anner (2015) suggests a threefold typology for the global apparel sector, consisting of state control, market despotism and employer repression. Post-socialist CEE countries do not fit into any single one of these models, instead constituting a hybrid form. Taking Romania as an example, we find elements of all three: state control declined after 1989, but there was still an important institutional legacy of the ‘workers’ state’ (Pickles and Smith, 2010), though anti-labour policies increased in the context of the global economic crisis; market despotism became central in the 1990s in the context of deindustrialization, high unemployment and dependent trade relations; employer repression, as reflected in anti-union activity, was also observed, particularly in newly founded firms hostile to trade unions. Looking at the social up-/downgrading trajectories in Romania’s apparel industry, the institutional legacy of the state socialist past and post-socialist transformation, Europeanization and the global economic crisis hence deserve special attention (for CEE see Smith et al., 2014; Pickles et al., 2016).

Regional suppliers in CEE: diverse economic up- and downgrading trajectories

In the 1990s and early 2000s, European macro-regional production networks deepened. This was driven by relatively cheap but skilled labour close to core markets, time and flexibility becoming crucial sourcing criteria, and regional trade agreements, particularly Outward Processing Trade (OPT) arrangements (Begg et al., 2003). OPT allowed EU-based firms to export temporarily inputs for processing to an OPT partner country and re-import products under preferential conditions, i.e. only paying duty on the value added abroad (Pellegrin, 2001). For supplier firms in CEE, this led to increased exports and employment, but also to a concentration of low-value activities and to the disintegration of the domestic textile and apparel complex (Pickles and Smith, 2010). Although Romania's transformation during the 1990s differed from market radical prescriptions adopted in other CEE countries (Pop, 2006; Bohle and Greskovits, 2012), this did not result in policies with the potential to alter this dependent OPT integration. Furthermore, apparel was perceived as a sun-set industry, despite being one of the few sectors buffering the ‘transition shock’. The industry structure changed dramatically, with former state-owned plants being either closed down or split into smaller units and privatized. Smaller private firms emerged, as reflected by the fact that more than half of the firms were micro-enterprises in the early 2000s (Pincheson, 1995; IFM, 2004).

The apparel export boom lost momentum at the end of 2004 with the phasing out of the Multi-Fibre Arrangement (MFA) quota system (Frederick and Staritz, 2011). The global economic crisis had mixed effects – on the one hand it reduced demand in the core EU-15 markets, leading to a dramatic drop in exports in 2008 and 2009; on the other hand a number of European buyers re-assessed their largely Asian-focused sourcing strategies in the context of global insecurities, Asian wage rises and a greater focus on flexibility (Plank and Staritz, 2015). As a result, regional supplier countries continue to play an important role in the EU-15 market, accounting for 19 per cent of total apparel imports in 2013 and with Romania ranking as the number six exporter. ² In Romania, the apparel sector went through a consolidation phase starting in the mid-2000s in the context of the MFA phase-out and rising domestic cost pressures related to EU accession and accelerated by the global economic crisis. Exports increased again in 2011 (though employment increased to a lesser extent) and subsequently stabilized at the level of the early 2000s (Figure 1). In 2013, the apparel sector still accounted for 7 per cent of exports and for an important share of – largely female (above 85 per cent) – manufacturing employment (14 per cent) (NIS, 2015). While dependency on the EU-15 market has declined over the last decade, it was still 73 per cent in 2013. Alongside German retailers with a long history of sourcing apparel from Romania (e.g. C&A and KarstadtQuelle), a number of Italian branded manufacturers are important buyers in Romania, as are fast fashion retailers such as H&M and Zara.

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Figure 1.

Exports and employment in Romania’s apparel sector.

Romania’s continuing importance for the EU-15 market can be attributed to several economic upgrading processes. In the second half of the 2000s, OPT production – referred to as the ‘Lohnsystem’ in Romania – became increasingly unviable, since the main reason for using this production model was low labour costs. This led to firms trying to move away from it, following four broad categories (Plank and Staritz, 2015): (i) product upgrading to higher value products with smaller runs (often combined with continued production under the ‘Lohnsystem’), (ii) limited functional upgrading in traditional EU-15 markets, (iii) market diversification to non-traditional export markets and the domestic market, and (iv) relocations to poorer regions within Romania and neighbouring non-EU countries.

Social up- and downgrading in fast fashion: findings from Romania

We define social up-/downgrading in line with the ILO’s decent work approach, specifically using the categorization of labour standards made by Elliott and Freeman (2003) and Barrientos and Smith (2007) and consisting of two broad elements – a) measurable standards, including wages, physical well-being (e.g. occupational health and safety (OHS), working hours) and employment security (e.g. type of contract, social protection); and b) enabling rights, including key trade union rights such as freedom of association and collective bargaining, the right to freely choose employment, non-discrimination and voice. Buyers’ sourcing strategies as well as institutional, regulatory and policy contexts are also discussed in this section as drivers of social up- and downgrading.

Multi-scalar institutional contexts and policies

Legacy of the state socialist past and post-socialist transformation

Due to Romania’s state socialist legacy, national labour codes, labour inspectorates and trade unions played a role in safeguarding certain labour rights. This legacy distinguishes Romania from other apparel-exporting countries in the Global South, where similar structures are often weak or non-existent (Rossi et al., 2014). Labour inspectorates were in particular active with regard to OHS standards and formal employment contracts in larger core and former state-owned firms. This explains for example the limited use of non-regular and informal employment within these firms. To accommodate flexibility demands, larger suppliers tended instead to use subcontractors. Recurring issues, also in core firms, were however the use of employment contracts only covering the minimum wage, the payment of additional wages off the books and the hiring of workers for long probationary periods. Also criticized was the fact that enforcement by labour inspectorates had only a limited impact, given the generally low fines (Lukas, 2013). Moreover, low staff numbers also limited the effectiveness of regulation, an aspect further exacerbated by the austerity measures adopted in the aftermath of the global economic crisis under which labour inspectorate staff was reduced by more than 20 per cent (EPSU, 2012).

However, the legacy of state socialism not only entailed ‘assets’ such as existing regulation and inspection structures but also ‘liabilities’. In particular the traditional trade union role as ‘transmission belts’ for the communist party limited their legitimacy in safeguarding workers’ interests after 1989 (Trif, 2004). Trade unions also faced major challenges in the years immediately after the ‘transition shock’ and the implosion of the economic system. The ensuing massive restructuring, including firm closures and privatization, and the subsequent rise of the ‘Lohnsystem’ resulted in a complete overhaul of the firm landscape. The number of firms rose from 544 to almost 5700, while total apparel employment decreased from 260,000 to 180,000 between 1989 and 1997 (Surubaru, 2007; NIS, 2015). This trend towards smaller private firms continued throughout the early 2000s and was a key obstacle to organizing efforts (Surubaru, 2007). The situation was further complicated by the emerging company-based and decentralized bargaining systems where workers’ power is generally weaker than at the sectoral or national level (Schulten, 2005; Surubaru, 2007). These challenges were compounded by the exclusion of trade unions by leading institutions in the early transformation process, in particular by the World Bank, the IMF and the European Bank for Reconstruction and Development which created what Standing (2002) called the ‘first revolution by international financial institutions’. Furthermore, Romanian trade unions were highly fragmented, had no joint strategy and were slow in adapting to changing conditions related to global production and fast fashion and to organizing a feminized industry. However, Romania's trade unions were generally still relatively successful in maintaining their influence over strategic national policy areas during the 1990s, in contrast to other CEE countries (Varga and Freyberg-Inan, 2015). But this has changed in recent years, as reflected by the adoption of anti-trade union policies, in particular in the context of the global economic crisis (Trif, 2013; Varga and Freyberg-Inan, 2015).

Europeanization and EU accession

EU accession has influenced the national institutional context in a variety of policy fields. In particular the economic integration model promoted by the EU and the key role of OPT trade in the apparel sector have greatly circumscribed the potential for economic and social upgrading. Europeanization has also impacted labour legislation and, more directly, the social upgrading prospects of Romanian apparel workers. As Romania had a national labour code rooted in state socialist ideology, and thus offering high levels of workers’ protection (Pickles and Smith, 2010), EU accession had varying effects on labour legislation. In areas such as discrimination legislation has been improved (Trif, 2008). However, in others, in particular with regard to the flexibility of employment relationships and working time, labour legislation has been weakened (Lukas, 2013). In this regard the role of the IMF and foreign firms and their representatives, particularly the Council of Foreign Investors, needs to be highlighted. They criticized the strong influence of trade unions and the too restrictive regulations on working hours in the new and comprehensive Labour Code adopted in 2003 in preparation for Romania’s EU membership. This led to it being renegotiated in 2004 by the government, the Council of Foreign Investors and the IMF – without trade union involvement (EIRO, 2004). Foreign TNCs such as Nokia and certain employer associations continued to lobby for a further ‘flexibilization’ of labour legislation after EU accession in 2007, with success in the context of the global economic crisis.

Against the backdrop of continued limited decent employment opportunities in Romania (Stan and Erne, 2014), EU accession and the associated lifting of visa and work permit requirements boosted the out-migration of Romanians and contributed to labour shortages – in particular in the apparel sector with its relatively low wages and poor working conditions (Ciutacu, 2006). Unlike earlier migration waves, the composition of migrants changed – from predominantly male, middle-aged, better educated urban workers to female, younger and less educated people (Surubaru, 2007; Stan and Erne, 2014). In addition, workers also moved to other emerging sectors within Romania such as retailing which had a better image and promised better working conditions. Notwithstanding regional differences, this led to additional efforts by employers to retain or attract skilled workers in particular. Real wage developments with average growth rates of around 9 per cent in the pre-crisis period reflected this relative improvement of bargaining power. ³

In view of these developments, suppliers relocated production to poorer regions within and outside Romania. Thus, subcontracting networks set up to cope with the divergent demands from buyers in GPNs remain important but have been extended domestically and regionally. A few large firms also resorted to lower-cost workers in their production sites, with the result that migrant contract workers increased in importance in the apparel sector in the mid-2000s. These foreign workers came primarily from Asian countries and information on them and their working conditions is scarce. In January 2007 this issue gained publicity when 300 female Chinese workers, employed legally under the work permit scheme in an apparel factory in Bacau, protested for higher wages (BBC News, 2007). They had worked in Bacau since mid-2006 on contracts concluded between the Romanian employer and an Italian and a Chinese employment agency. According to the ITUC, the workers were promised wages of US$700 per month at the time of their recruitment. In fact they only received US$300 per month. Their contract with the recruitment agency stipulated that they had to pay up to US$4000 to be selected for working. Twenty-five per cent of the workers’ wages went on repaying this sum every month. Additional deductions were made for food and accommodation by the employer (ITUC, 2008). The Romanian manager initially threatened to send the workers back to China. Only after pressure from international trade unions was a solution negotiated. Since then similar cases have become public, involving apparel workers from the Philippines (in Sibiu) and Bangladesh (in Bacau), and further firms announced plans to hire migrant workers from Asia (Gelich, 2008). However, with the onset of the global economic crisis this practice lost importance.

Global economic crisis

The CEE region was particularly hit by the sharp decrease in financial inflows and export demand in the context of the global economic crisis (Myant and Drahokoupil, 2012). As a consequence Romania’s apparel exports declined by 24 per cent in 2009 and sector employment dropped by around 30 per cent from 193,000 in 2008 to 138,000 in 2010. The subsequent recession also had a negative impact on public finances and spending in most CEE countries and reduced the public policy space (Myant and Drahokoupil, 2012). In Romania, the crisis was also used as a pretext to push through further neoliberal reform agendas, particularly in the labour market (Trif, 2014). One particular feature that distinguished Romania from other ‘dependent market economies’ in the CEE (Nölke and Vliegenthart, 2009) was its relatively strong labour code and collective bargaining rights (Bohle and Greskovits, 2012; Trif, 2014). This institutional pillar was, however, further dismantled in the context of the crisis. Austerity measures agreed with the IMF, the World Bank and the European Commission involved amongst others a 25 per cent pay cut for public sector employees, a 15 per cent reduction of social protection benefits and a VAT increase from 19 per cent to 24 per cent. Furthermore, the government pursued structural reforms in response to the crisis, flexibilizing the labour market and reducing social dialogue. This was applauded by international business groups, including AmCham and the Foreign Investors Council, both of which were involved in drafting the ‘reform’ laws (Trif, 2013). ⁴

The increase in workers’ bargaining power in the context of EU accession and the pre-crisis labour shortage fell apart under the austerity measures and the structural reforms undertaken by the government in the immediate crisis years. These measures also had a negative impact on the nascent domestic market that some apparel suppliers had been targeting since the mid-2000s and boosted the negative effects of collapsing export revenues. Post-crisis real wage developments are an indication of these developments (Figure 2). They contrast with Romania’s pre-crisis real wage growth (Schulten, 2013) – albeit against the background of dramatic losses in the 1990s (see Figure 2). It was not until 2007 that average real earnings reached their 1990 level (Stan and Erne, 2015). As highlighted in a publication by the Clean Clothes Campaign (CCC), recent field research has revealed that some workers have to struggle even to achieve the minimum net wage per month (€133 in 2013) and earn far from what workers regard as a living wage (CCC, 2014).

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Figure 2.

Real net earnings growth for selected branches in Romania (1990–2013, simple average).

Furthermore, relocations, in particular of low-value production, to more remote and poorer regions within Romania or to lower-cost neighbouring non-EU countries have continued in the crisis context. The relatively stronger expansion of new firms in poorer counties since the crisis underlines the internal relocation pattern. More capable firms relied on cross-border subcontracting to neighbouring non-EU countries, including the Republic of Moldova, Ukraine and Serbia. The rise of OPT apparel imports ⁵ to Romania from these countries shows the increasing importance of cross-border relocations in sustaining cost-competitive production, with OPT apparel imports from Ukraine, Moldova, Serbia, Macedonia and Turkey increasing sixfold between 2007 and 2012 (Plank and Staritz, 2015).

Conclusions

The analysis of social up- and downgrading trajectories in fast fashion apparel GPNs in Romania reveals the strong impact of industry and GPN dynamics on workers and their prospects for social up-/downgrading, and in turn the central role of workers in enabling these dynamics and lead firm strategies. The fast fashion business model, relying on quick responses to fashion changes, high production flexibility, low costs and high quality puts particular pressure on workers in supplier firms. While EU-15 retailers were key to ensuring continued apparel exports from and employment in Romania, integration into their production networks had mixed outcomes for the quality of employment. In particular, short lead times and highly fluctuating order levels had negative implications in terms of flexible work arrangements, unrealistic production targets, excessive overtime and high work intensity.

Social up- and downgrading was, however, selective both with regard to the dimension of upgrading and the type of workers. A number of workers with regular contracts in core firms have experienced a certain degree of social upgrading as a result of the increased need for skills demanded by fast fashion and higher value-low volume production, public and private monitoring efforts and labour shortages in the context of EU accession. Workers in subcontractor firms were however largely excluded from these social upgrading opportunities, given their role as a buffer for containing costs and meeting flexibility demands. There are also differences with regard to former state-owned and newly established private firms, particularly with regard to trade union representation, with former state-owned firms being broadly unionized in contrast to the largely union-free newly established firms. However, social upgrading remains limited for all workers, since certain issues such as wages, working time, work intensity and trade union representation are contested, as they are in contradiction to fast fashion business strategies.

Industry pressure within GPNs is mediated through institutional structures and regulatory contexts. In particular, the legacy of the state socialist past and post-socialist transformation, Europeanization and the global economic crisis are crucial to understand how industry dynamics and pressure from lead firms have affected workers in the Romanian apparel sector. The legacy of state socialism provided certain structures with regard to labour regulation, labour inspectorates and trade union representation. Given stricter legislation and inspection, employment contracts are more widely enforced in core firms, in turn preventing the emergence of a dual workforce within core firms but promoting subcontracting to small firms or workshops. The ‘transition shock’ and the ensuing massive restructuring and rise of the ‘Lohnsystem’ resulted in a complete overhaul of the firm landscape, with smaller and private firms now dominating the apparel sector. This fragmentation has hampered organizing efforts, as have the emerging company-based and decentralized bargaining systems. EU accession has had contradictory impacts, resulting in certain improvements in such areas as discrimination, but in deteriorating conditions in other areas such as flexibility and overtime. A further consequence of EU accession was a labour shortage which increased the bargaining power of skilled workers in particular before the crisis. But the global economic crisis changed this situation, reducing export demand and allowing austerity measures and structural reforms to be introduced by the government. In this respect the role of the EU in the de facto reduction of workers’ protection and the recent attack on social dialogue and particularly trade unions need to be critically scrutinized (ILO, 2013; Trif, 2014).

As an alternative to the ‘dependent’ export focus, the domestic market has played an increasing role in the Romanian apparel sector, though with the global economic and subsequent eurozone crisis halting demand growth. More generally, political debates and struggles need to focus on the core fields of the labour market, social protection and industrial relations policies. But they must also go further, encompassing strategic economic, trade and industrial policies. It is of key importance to move away from dependent export-based development and to ensure more sustainable socio-economic outcomes for firms and workers (Plank et al., 2014; ILO, 2015, Anner, 2015).