DOING THE RAG TRADE RIGHT.

While most manufacturers have spent millions securing subcontractors or even factories in Third World countries, Dov Charney's operation, American Apparel LLC, is in downtown Los Angeles. His factory workers--who can receive health-care and immigration support, English and computer classes, even on-the-job massages--earn an average of $10 an hour, with the potential of making much more. In five years, Charney, a self-described neurotic Jew from Montreal, has built American Apparel into a $40-million business. In an era when corporate responsibility is top of mind and in an industry notorious for its treatment of workers, Charney, 34, stands out. He makes clothing in a "sweatshop-free" environment--and, with unerring market savvy, labels each piece that way. American Apparel manufactures T-shirts, all-cotton sweats, tank tops, polo shirts and panties, sold primarily in the so-called imprintables market--that is, clothing with nothing printed on it.