Critics of sweatshop labor often accuse sweatshops of providing inhumane conditions and inadequate pay to the workers. Anti-sweatshop activists take several different modes of action in order to try and end sweatshop labor practices. Boycotts, petitioning for legislation, and buying “fair-trade” products are the typical paths that these activists pursue.
To be concerned with what the real world effects of any policy will be rather than just the intention behind it is crucial to accurate appraisal of policy. Indeed, when Henry Hazlitt condensed all of economics into a single lesson, it was that “the art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”(1) It is this type of analysis that leads me to type the following. The anti-sweatshop movement has done more harm than good and has harmed the very people that it claims to try and help. Examining the theory and real world results enables an understanding as to why this is the case.
When a person voluntarily chooses to work in a sweatshop, it is because that person views that option as their best choice among alternatives. This is a truth known a priori, and it is based on the fact that they chose to do so. This a priori theory is confirmed with empirical data from real world analysis. Oxford University published economist Benjamin Powell’s book, Out of Poverty: Sweatshops in the Global Economy, last month. Dr. Powell devoted an entire chapter to the alternative jobs that sweatshop workers would have if they lost their jobs in the sweatshops. He found that “in countries where sweatshops tend to be located large portions of the population work in agriculture.”(2) Furthermore, these agricultural workers tend to be subsistence farmers. In the poorest of these countries, other alternatives include prostitution and sifting through garbage dumps. How do these alternatives compare to sweatshop labor? In Bangladesh, over 80% of the population live with a daily income under $2 a day. In India, it’s 60% of the population. For China, just over half the population earns under $2 a day. The average daily income of a sweatshop worker in Bangladesh is just over $2. For the Chinese sweatshop worker, it’s over $4 a day. The average Indian sweatshop worker earns $8 a day.(3) There’s a reason that people choose to work in sweat shops. As Paul Krugman noted in his article, aptly titled “In Praise of Cheap Labor: Bad Jobs at Bad Wages Are Better than No Jobs at All,” “while wages and working conditions in the new export industries of the Third World are appalling, they are a big improvement over the previous, less visible rural poverty.”(4) These countries are countries with little capital. Thus, these countries are countries with little productivity. Wages rise as productivity rises. But the productivity must rise first.
The relationship between productivity and pay has been demonstrated countless times. But let’s look at the productivity of sweatshop labor and the productivity of subsistence farming. In Bangladesh, agriculture only accounts for 23% of the GDP, even though 58% of Bangladeshis are employed in agriculture. In China, almost half the population is employed in agriculture, yet agriculture only accounts for around 13% of the GDP.(5) There is a reason why sweatshop labor gets paid, on average, higher than the alternatives. Sweatshops are more productive and employ more capital than the agricultural alternatives. As more people invest in these companies, wages will rise. However, legally raising the wages of these workers higher than the value they produce will not result in higher productivity. It will result in unemployment. Productivity must rise before wages rise. Wages respond to productivity but productivity does not respond to artificially mandated wages.
It’s not just the pay that anti-sweatshop activists protest. They also protest working conditions, building codes, and safety standards. Powell also devoted an entire chapter to the consequences of legally mandating that sweatshops follow certain safety standards. He argued that “firms are indifferent about whether to pay monetary wages or in-kind benefits after adjusting for those benefits that improve productivity. Workers do care about the mix.”(6) He also argued that
when overall compensation goes up, workers are more likely to desire more nonmonetary benefits. Comfort and safety are what economists call “normal goods” for most people. Workers demand more of these goods as their income increases. Unfortunately, many workers have low productivity, so their overall compensation is level is low. As such, they demand most of their compensation in wages and little in health or safety improvements.(7)
This makes sense, seeing as the law of diminishing marginal utility states that the previous unit of consumption of a good or service yields more utility than the following unit of that same good. In other words, sweatshop workers prefer direct pay over health and safety improvements because they have such little wealth that their other needs take precedent over workplace safety. A law that directly raises the workplace safety of sweatshop workers, but indirectly reduces their pay, comes at the opportunity cost of the preferred purchases of the sweatshop workers (purchases like food and shelter).
Now that the fundamentals have been covered, let’s look at the real world consequences of anti-sweatshop activism. First let’s look at the forsaking of sweatshop goods for products labeled as fair trade. The “Shop with a Conscience Consumer Guide” lists forty-one different factories that produce products deemed “sweat free.” This guide states that “these sweat-free sources are either unionized or run as worker cooperatives, have healthy and safe working conditions, offer wages and benefits that will ‘lift workers’ families out of poverty,’ and treat the workers with ‘respect, dignity, and justice.’”(8) However,
Twenty-nine of these factories are located in the United States and Canada; only eleven are located in Latin and South America; and a single factory is in Asia. Although consumers might feel they are ‘shopping with a conscience,’ they are mostly buying products made by wealthy First World union workers, decreasing the demand for products made in poorer countries and harming the employment prospects of the poorer Third World workers.(9)
By abandoning sweatshop goods for “sweat free” goods, the buyer actually benefits the wealthier First World workers at the expense of the poorer Third World workers. This product swap effectively puts the sweatshop worker in a worse position.
Public pressure is another tool that anti-sweatshop activists use to try and help the sweatshop workers. Just like the boycott, this tool also backfires. In 2003, for example, public pressure led the Yupoong owned BJ&B factory into an agreement that gave “workers a 10 percent wage increase, educational scholarships, paid holidays, and the establishment of a workers’ committee to deal with health and safety concerns at the factory.”(10) The anti-sweatshop activists praised this moment as a victory against the war on sweatshops. Public pressure kept the sweatshop from going back on this deal, even as the factory lost profit. By 2007, the BJ&B labor pool had shrunk from 2,000 workers to just 234. Later that year, the factory shut down.(11) 2,000 workers were thrown into their less desirable alternatives due to activism. Today, that factory is operated under The Altagracia Project, which “was set up to operate as a model factory, showcasing that a factory could pay a living wage, respect workers’ rights to join a union, and at the same time turn a profit.”(12) This project is praised as one of the latest successes of the anti-sweatshop activists. However, this project employs only 120 people. It baffles my mind how anyone could think that this movement (which cost 2,000 people the best job they could get and then reemployed only 6% of them) can be thought of anything other than a disaster.
The last, and perhaps most dangerous, tool at the anti-sweatshop movement’s disposal is government regulation. For example, “in 1993, U.S. Senator Tom Harkin introduced the Child Labor Deterrence Act, which would have banned imports from countries employing children.”(13) This promptly led to Bangladeshi garment companies firing “50,000 children that fall.”(14) At first, this might seem like another victory for the anti-sweatshop movement. However, children choose to work in sweat shops for the same reason that adults do. It is their best choice among alternatives. It is dangerous to assume that alternatives for children in these countries include things such as schooling and leisure time. Subsistence farming is one of the best case scenarios for the children who are banned from working in factories in these countries. Let’s look at what happened to the 50,000 children who lost their jobs. According to Paul Krugman, “the direct result was that Bangladeshi textile factories stopped employing children. But did the children go back to school? Did they return to happy homes? Not according to Oxfam, which found that the displaced child workers ended up in even worse jobs, or on the streets – and that a significant number were forced into prostitution [emphasis mine].”(15) It would be irresponsible for me to say that anti-sweatshop activists advocate increased child prostitution. However, I have no issues with pointing out that many of these activists advocate policies that would lead to such an increase. To paraphrase Murray Rothbard, it is totally reckless to have loud and vocal opinions on economic affairs without understanding the economic consequences of such opinions.
If we really want to help sweatshop laborers get out of sweatshop labor and into better situations, we need to increase their alternatives and not take away what they have chosen among their current alternatives. As such, I propose starting a pro-sweatshop worker movement. Historically speaking, almost every modernized country had a period of development in which the population switched from agriculture to sweatshop factory work. This transition is necessary to build the capital that can increase productivity. After all, “economists have found that approximately 70-80 percent in the variation in wages across nations can be attributed to differences in productivity.”(16) Therefore, this pro-sweatshop worker movement should focus on raising the productivity of the sweatshop workers. It can do this by encouraging governments to repeal restrictions to trade and foreign markets, especially in those countries where sweatshop labor is prevalent. This movement should also put public pressure on sweatshop countries to adopt sound monetary policy and protect private property rights. Money goes to where it is welcome. By following these freed market policies, investment becomes more appealing and capital will be able to accumulate. This, of course, will increase worker productivity. One only needs to look at the success stories of Hong Kong, Singapore, and South Korea to see that this is the case. In these countries, “the process of moving from sweatshops to a wealthy First World nation took less than two generations rather than the more than 100 years in Great Britain and the United States.”(17)
For the sake of these workers, do not support anti-sweatshop measures that only limit these workers abilities or price them out of the market. Support policies that will speed up the process of development and give these workers more alternatives rather than less.
(If you would like to learn more about well-intentioned policies that hurt the people they try to help, read my debate with Tom Engelhart on the Minimum Wage. http://www.breakingapathy.com/category/call-response-an-informed-debate/)
— Will Shanahan (@Will_Shanahan)
Contributing Editor, the Humane Condition
1. Henry Hazlitt, Economics in One Lesson (Auburn, Alabama: Ludwig von Mises Institute, 2008) 5.
2. Benjamin Powell, Out of Poverty: Sweatshops in the Global Economy (New York, NY: Cambridge University Press, 2014) 53.
3. Powell, Out of Poverty, 55.
4. Paul Krugman, “In Praise of Cheap Labor: Bad Jobs at Bad Wages Are Better Than No Jobs at All,” Slate, March 21, 1997. http://www.slate.com/articles/business/the_dismal_science/1997/03/in_praise_of_cheap_labor.html (Accessed April 15, 2014).
5. Powell, Out of Poverty, 54.
6. Powell, Out of Poverty, 66.
7. Powell, Out of Poverty, 66.
8. Powell, Out of Poverty, 33.
9. Powell, Out of Poverty, 33.
10. Powell, Out of Poverty, 35.
11. Powell, Out of Poverty, 35.
12. Powell, Out of Poverty, 35.
13. Powell, Out of Poverty, 84.
14. Powell, Out of Poverty, 84.
15. Paul Krugman, “Reckonings; Hearts and Heads,” New York Times, April 22, 2001, 17.
16. Out of Poverty, 25.
17. Powell, Out of Poverty, 120