Labor Ethics 13:48

Are sweatshops a least-bad choice for the third world? Is capitalism inherently exploitative of these workers? Brennan applies the foregoing discussion of political philosophy to the case of labor ethics.

Further Reading
Benjamin Powell, Out of Poverty: Sweatshops in the Global Economy

Also listen to our Free Thoughts podcast episode with Ben Powell on sweatshop labor.

Transcript
Brennan: Imagine there’s a guy named Innocent Ivan and he’s about to be executed.  And he is innocent as he is named Innocent Ivan.  And the executioner decides to give Ivan some options.  He says, “Choice one is I’ll kill you using the guillotine; choice two is I’ll boil you alive; and choice three is death by a thousand cuts.”  Ivan quite sensibly chooses the guillotine over the other two rather than be boiled alive or being killed by a thousand cuts because it’s relatively painless and merciful.  Now suppose you’re watching on the sidelines and you say, “Ivan shouldn’t be killed in the first place.  It’s unjust that he be subject to the guillotine because he’s innocent.”  Say you somehow destroy the guillotine to prevent him from being executed by the guillotine.  Well, you haven’t made his life better like you have taken away an injustice in a sense but you haven’t made his life any better.  You’ve taken away his best option and all he’s left are two worse options.  And so to give you kind of a general principle which is that if you see something that you think is unjust, it’s not enough to say it’s unjust to think it’s worth getting rid off unless you can replace it with something that’s an even better option for the people subject to it.

So what would be a real life example of this?  Well, when you think about the debates people have about exploitation and sweatshops and third world labor and so on, they often seem to be like this:  People look at sweatshops and they say their exploitative, they harm third world workers.  Let’s get rid of them.  And when you get rid of them though, what happens if it turns out all you’re doing is getting rid of the person’s best option?  That doesn’t seem like a very good thing to do even if you’re right that they’re unjust, it seemed like what you want to do instead is replace this with bad option with something that’s an even bad option.  And that might turn out to be harder to do than we think.  

So first of all, why think that sweatshops might actually be a better option?  Well think about what happened like in say the industrial revolution.  You have a bunch of people who were living on farms and were peasants working on farms and they start moving to cities and start working there working in factories.  Conditions are awful like working hours are long, they’re sweaty, they’re not getting sufficient breaks and benefits, the pay is that very low.  People start doing that and by our current standards, we think these are awful working conditions and they are awful working conditions.  But why would people choose to go work there even among the limited choices they have?  That seems like that’s pretty strong evidence that that’s their best choice.  Maybe the first person shows up at the factory and realizes how awful it is and wishes he could go back to the farm.  But you think some of them will send some letters back to the farm saying to their friends, “Stay on the farm.  Don’t come to Manchester, England to come work for the factories.  It’s awful here.”  No.  If people are choosing to do this in mass, it’s evidence that it’s their best option.  Otherwise, you have to say workers are just dumb.  A lot of people who are sympathetic to workers plight are in effect saying that workers are dumb and they’re choosing their worst option.  So what we see in the third world now that people are working in sweatshops as just as in the first world people used to work in sweatshops but don’t anymore, that’s evidence that’s probably their best option.  People are pretty rational overall.  They’re not perfectly informed but they’re pretty informed about their life options.  If they’re choosing that among all the lousy options they have, that’s probably the best of the options.  It’s not to say they’re fully autonomous.  It’s not to say that their choice to work there is fully consensual in a way that like my choice to work is fully consensual.  Maybe they’re bound, maybe they’re not as free as they ought to be.  But if one person picks that over all their other lousy options, it’s reason to think it’s their best option in the same way that if Ivan picks the guillotine over the other two options, it’s probably his best option.  So we don’t want to take that away unless we think we can offer something better.  

Now a lot of people say sweatshops are exploitative.  And do they mean by exploitation?  So exploitation is supposed to be something like taking pernicious advantage of other people’s misfortune; and the thought experiment philosophers like to use illustrate the idea of exploitation involves as many philosophers’ thought experiments do, someone drowning.  So in this case, you’re drowning in the middle of the lake, you don’t know how to swim, and I show up with my rowboat and I say, “Hey, I’m willing to rescue you provided you give me half of your future lifetime income.” And most likely, you would take that because I’ve made your life better.  You’re going to die of drowning which is a horrible way of dying.  If you get on the boat, you get half your future income, you’re better off, we make a mutually beneficial trade.  I’ve actually improved your situation.  Nevertheless, almost everyone who hears that thinks in this thought experiment that I’ve done something wrong.  I shouldn’t make that trade with you.  I should rescue you at maybe a lower cost or maybe at no cost to myself if I can, and it would be wrong for me to make this kind of transaction.  So a lot of people think sweatshops are kind of like that as well, perhaps a sweatshop owner’s coming in and provided people with work, and maybe it’s better than the alternatives but it’s not good enough.  

Again, is it actually better than the alternative?  Surprisingly, economists are pretty unanimous on this.  So people often treat it as it’s the right wing versus left wing thing or classical liberal versus left liberal thing, but you can go and see people like Sachs and Krugman saying the same thing:  Sweatshops are better than the alternatives.  Sachs says, “Maybe we need more sweatshops, not less.”  Krugman, back in the late 90’s, he wrote an article saying like a lot of the moral indignation that attaches to sweatshops and globalization comes from people who just don’t understand the process. 

Recently, the economist Ben Powell published a book with Cambridge and he was looking there at the kinds of wages that people receive in the apparel industry like in the third world, you find that the people working there are usually making well over the national average, even after working like 40 hours a week.  And these are people who aren’t expected to make the national average income because they’re lower skilled people.  But nevertheless, they’re getting paid something like 3 to 7 times what they would get paid if they were working anywhere else.  So like maybe their options aren’t very good compared to my options.  I’m not saying that their situation is great but nevertheless, it looks like it’s better than the alternatives.  It’s also worth noting from an economic perspective that pretty much every country that is now developed has gone through a sweatshop period.  The Uniteds States had a very long sweatshop period because it was a growth leader.  The UK, The Netherlands, and so on also had long sweatshop periods.  Other countries have a sort of period of development with sweatshops that goes much faster.  So say, take South Korea.  Back in say 1965, South Korea has a third world standard of living.  It’s a very poor country.  Fast forward 40 years later, it’s one of the richest countries in the world.  They had tremendous economic growth but they also went through a sweatshop period.  Japan, same thing.  So a lot of countries do this.  It’s sort of a step on the way up.  so we don’t want to stop that from happening.  Again, maybe it’s too bad that people are working in these lousy conditions but if it’s a temporary thing and it’s going to be followed by something better, we don’t want to stop that process from happening.  At best, what we want to do is skip it and get to the good thing right away.  So again, the idea here is even if you think sweatshops are exploitative, you don’t want to take away someone’s best option unless you can replace it with an even better option.  

So, one response to that is to say, “Well we can replace it with a better option.  Couldn’t businesses just pay people even more?  Maybe seven times the going rate in Honduras might be pretty good compared to what people getting but shouldn’t they pay them ten times or fifteen times the going rate?  Can’t they pay even more money?  Businesses are in a position where they can easily help others, they could pay more wages, they should just do that.  They should offer more benefits like lower working hours, and so on.”  They might be right.  I like this topic because here’s the question where notions of justice and morality kind of run up pretty quickly because now to know whether that’s true, you have to know a lot about the economic situation.  You need to know a lot about economic tradeoffs.  You need to know a lot of social science because there’s some worries about this.  One is that if I push a company to have higher labor standards, one thing they might do in response is just move to another country where they’re going to use a more capital intensive method of production with more skilled workers and hire fewer of them.  So if I hire let’s say, I’ve been talking about some guitar stuff, one of my guitars is made in San Luis Obispo, California.  And with people are getting paid a lot of money who are in the global 1% using capital intensive production methods.  I also have an amplifier made in Vietnam.  Which do you think helps the third world poor more, the one that I bought from Vietnam or the one that I bought from the United States?  Kind of obvious, right?  Also, companies are often competing against other companies so if we decide to unilaterally raise our cost, then we have to compete with the person who doesn’t, and so we might not actually be able to raise our cost because our competitors won’t, and then we’ll go out of business.  

It’s interesting even Marx seemed to have agreed with this.  So Marx is often misread as saying that the capitalists are just exploiting the proletariat, and that’s all because they’re mean.  That’s not what he’s saying.  Marx thought even the capitalist were kind of forced by capitalism into having to do the kinds of things that they do.  But even now, I’m still might be painting capitalists as being worse than they are because what happens if a company decides to raise wages?  At long last, justice will be done and Walmart will pay its floor associates $25 an hour, really good decent amount of money.  The problem though is who will go and end up working at Walmart?  You can go in the census bureau right now and look at the wages of people all across the country and you find that lots of skilled workers, mechanics, and floor carpenters, and administrative assistants, and dental hygienists, and so on are making less than $25 an hour on average.  As Walmart decides to raise its wages more and more and more, some of those people will decide it’s no longer worth doing their skilled labor job and will decide to go work at Walmart, and they’ll be competing with the kinds of people who currently work at Walmart who are people who tend to have fewer skills or less of a job history and less experience.  So if Walmart decides to raise its wages, what will likely happen is the people who then go and work at Walmart will get more money and they’ll be a person with like a better background, and the kinds of people who currently work at Walmart, the ones who have fewer job skills and less employment history will get excluded from that market and have to go work somewhere else if they can get a job.  So it sounds nice Walmart just raise its wages but what might happen is that we get a phenomenon called job gentrification.  And these are worries.  Maybe they’ll all work out in the end.  But it’s just a note that the economics of this is much more complicated.  And our hearts beat on behalf and bleed on behalf of the people that we think are suffering, and so we look for kind of easy solutions.  But when you’re talking about changing an economy or intervening in economy on behalf of justice, we have to recognize that an economy is like an ecosystem and you can’t manage it all that easily.  When you manage it, there’ll be unintended consequences and it’s not a machine that can simply be tinkered with and have things go the way that you want without any problems.

Question: So is exploitation inherent in capitalism?

Brennan: Some people thought so.  Marx thought it was impossible to make a profit without exploiting somebody.  And part of his reasoning for that was his view about where profit came from.  He thought you couldn’t make a profit without underpaying workers.  But we’re now going to technical parts of that.  It was because he had a certain view about what the prices were and how they came from.  He didn’t really understand supply and demand the way that we now do.  We do see that in capitalism, people do exploit each other.  We also see in non-capitalist economies people exploit each other.  The thing is some people aren’t very nice and they will take advantage of other people’s misfortune.  They’ll do that through politics, they’ll do that through markets, they’ll do that through things that are neither politics nor markets. We can ask whether it happens more in capitalism than other systems and there have been attempts to try to measure that, so for example, Herbert Gintis and Joseph Henrich, and a few others have done studies trying to look at moral behavior of people in market societies versus non-market societies.  In general, they find, perhaps this is surprising that people from market societies are actually more generous and kind, and altruistic and trusting, and trustworthy than others.  Still, it’s worth thinking that why do we see this sort of thing happen?  Why do we see companies moving overseas to get cheap labor?  Is this just a nasty thing that’s going to happen with free market capitalism?   And a lot of people say that but we have to keep in mind what we’re seeing in the global economy is not free market capitalism.  We have a system that works like this:  If you are rich and want to buy labor, you can go wherever you want to buy it.  If you are a poor laborer, you’re not allowed to move wherever you want to get a better deal.  Instead, you’re basically required to stay put in your home country and you can’t move elsewhere.  So let’s say you’re a medical doctor and you have a degree from Oxford.  Someone will give you any immigration visa to go anywhere you want.  You can practice medicine pretty much anywhere.  If you’re a poor laborer in say Bangladesh, you are not allowed to leave Bangladesh.  No one else will take you in.  So you might wonder if the conditions there are so bad for the Bangladeshi worker, why doesn’t he just move to say, Washington D.C. where he can get a job as a janitor making ten times that he was making before even after you adjust for cost of living, and have a much better life?  And the answer is because we don’t let him.  We have immigration restrictions.  So the system is actually rigged against the poorest workers. It’s designed.  It’s almost as if one designed it to benefit large corporations who want to employ workers at the expense of the poor.