Wednesday, June 07, 2006

In Praise of Sweatshops

Nicholas Kristof has another excellent piece in yesterday's New York Times: "In Praise of the Maligned Sweatshop." The article is part of A recurring theme of Kristof's on development and policy in the developing world, and more specifically, follows on the argument of "Two Cheers for Sweatshops"in the Times magazine on 9/24/00. The argument: "Anyone who cares about fighting poverty should campaign in favor of sweatshops, demanding that companies set up factories in Africa."

Kristof goes on:

Imagine that a Nike vice president proposed manufacturing cheap T-shirts in Ethiopia: "Look, boss, it would be tough to operate there, but a factory would be a godsend to one of the poorest countries in the world. And if we kept a tight eye on costs and paid 25 cents an hour, we might be able to make a go of it."

The boss would reply: "You're crazy! We'd be boycotted on every campus in the country."

So companies like Nike, itself once a target of sweatshop critics, tend not to have highly labor-intensive factories in the very poorest countries, but rather more capital-intensive factories (in which machines do more of the work) in better-off nations like Malaysia or Indonesia. And the real losers are the world's poorest people.

Some of those who campaign against sweatshops respond to my arguments by noting that they aren't against factories in Africa, but only demand a "living wage" in them. After all, if labor costs amount to only $1 per shirt, then doubling wages would barely make a difference in the final cost.

One problem — as the closure of the Namibian factories suggests — is that it already isn't profitable to pay respectable salaries, and so any pressure to raise them becomes one more reason to avoid Africa altogether. Moreover, when Western companies do pay above-market wages, in places like Cambodia, local managers extort huge bribes in exchange for jobs. So the workers themselves don't get the benefit.

Kristof is exactly right. This isn't a question of our own moral sensibilities or labor standards, nor is it an argument that sweatshops are nice, pleasant places to work. It's a question of what is best in the long run for the economic development of these countries and the improvement of the lives of their citizens.

The comparative advantage that these countries and their workforces have to offer is cheap, unskilled labor. When the price of that labor rises, it no longer becomes economically efficient to open factories in poor, developing countries. If a company has to pay a higher wage, it would prefer to "get more" for that wage, in terms of better trained and educated workers, healthier workers, better infrastructure, etc. Only if the cost of labor and production is low will businesses choose to open factories in places like Namibia.

OK, so cheap labor may attract businesses to the developing world, but, goes the anti-sweatshop logic, those jobs are exploitative, cruel, dangerous, and so on. But, the alternatives are much, much worse. As Kristof notes in yesterday's and his early article, "sewing clothes is considerable less dangerous or arduous -- or sweaty -- than most alternatives in poor countries." For example: "a 40-year-old woman named Nhem Yen, who told [Kristof] why she moved to an area with particularly lethal malaria. 'We needed to eat," she said. "And here there is wood, so we thought we could cut it and sell it.'" ("Two Cheers")

Furthermore, the development of a industrial base, even a cheap and unskilled one, is critical for the economic advancement of a country. "Over the past 50 years, countries like India resisted foreign exploitation, while countries that started at a similar economic level -- like Taiwan and South Korea -- accepted sweatshops as the price of development. Today there can be no doubt about which approach worked better. Taiwan and South Korea are modern countries with low rates of infant mortality and high levels of education; in contrast, every year 3.1 million Indian children die before the age of 5, mostly from diseases of poverty like diarrhea." ("Two Cheers")

Think back to the 1970s..."Made in Japan" was synonymous with cheap piece of junk. Japan was known for producing crappy electronics, cheap plastics, and shoddy clothes. Not anymore. That mantle passed to South Korea and Taiwan. And then to Thailand and Malaysia. And then to China, which is currently passing it onto other countries. As workers work in sweatshops they save their wages. Those wages go to improving their lives, and in particular the lives of their children. More businesses come in to sell to those workers, which brings more and better jobs, which demand improved worker skills and national infrastructure. As the local labor pool improves to meet those demands, living conditions rise. And rise. This is the pattern that has lifted millions in Asia and Southeast Asia out of poverty. It is the pattern that the developed countries went through in their own Industrial Revolutions. It is the pattern that all developing countries must go through. Trying to circumvent it just means that businesses will take their factories elsewhere, denying the poor the jobs, and aborting the pattern before it starts. There is no evidence that trying to force Western-style labor standards improves living conditions or human welfare in the developing world. [Please see In Defense of Global Capitalism, Johan Norberg, CATO Press, 2003, esp. pp. 192-201]

Sweatshops may be repugnant to our own sensibilities, but when cheap labor is all a poor country, or a poor person, has to offer, who are we to say that they shouldn't be able to utilize that? In the words of Jesus Reyes-Heroles, Mexican Ambassador to the US, "in a poor country like [Mexico], the alternative to low-paying jobs isn't high-paying jobs -- it's no jobs at all."

UPDATE: This letter to the New York Times couldn't do more to make Kristof's point. The author, a geography professor at the University of North Carolina, writes "student organizers understand that the competition among poor countries is a race to the bottom for the poorest people." Therefore, "a humane approach must begin with workplace democracy (collective bargaining), recognition of the right to earn a living wage, and international agreement about the differences between a sweatshop and a factory."

First, there is absolutely no evidence of the much-feared "race to the bottom." Yes, business gravitates towards markets with lower costs. But no, there is no evidence of countries slashing their regulations to compete for business. Second, and more important, the author of the letter completely misses the basic economic understanding of the argument. Countries that specialize in cheap unskilled labor are not in a position to demand living wages or collective bargaining agreements, and attempts to do so will result in no jobs at all. Sweatshops come first, and collective bargaining follows.

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