What economists think about sweatshops
Levinson, Mark
Comments and Opinions "When smart people," Robert Lekachman once said, "say stupid things, the question arises, why is their perception of reality so blurred?" I recalled Lekachman's query when...
...And just in case anyone thought he was kidding, Paul Krugman from MIT added that "the overwhelming mainstream view among economists is that the growth of this kind of employment is tremendous good news for the world's poor...
...In copying this passage from Keynes I thought he was writing about Krugman...
...In many Latin American countries the factories that produce for export to the United States generate few linkages with the local economy that might spur economic development...
...Krugman cites the industrial development of East Asia, in which the assembly of garments and electronics for export "kicked off' the growth of modern industry...
...This would, of course, be very complicated...
...At best, forcing developing countries to adhere to our [emphasis added] labor standards would create a privileged labor aristocracy, leaving the poor majority no better off...
...I recalled Lekachman's query when reading a recent New York Times article in which Harvard economist Jeffrey Sachs claimed "there are too few sweatshops...
...For example, all countries should have a reasonable wage floor, not necessarily a uniform minimum wage...
...And yet wherever the new export industries have grown, there has been measurable improvement in the lives of ordinary people...
...The current treaties that regulate the global economy consist mainly of elaborately detailed protections for property, corporations, and capital...
...Bangladesh and Sri Lanka posted the highest percentage employment gains in clothing, but earnings fell in both cases...
...The market was eventually constrained by national rules—food and drug standards, antitrust regulation, fair labor standards, a ban on child labor, worker rights, social security, consumer and environmental standards...
...First, who benefits from low wages...
...In claiming that there are no alternatives to industrialization based on low wages, Krugman FALL • 1997.11 Comments and Opinions fails to make a crucial distinction...
...Krugman also presents a caricature of the case 12 • DISSENT Comments and Opinions for labor standards...
...When American consumers pay $125 for Nike sneakers made by workers in Indonesia who earn 31 cents an hour, they may feel "unclean," but not because they are benefiting from cheap labor...
...The suppression of rights keeps workers poor and perpetuates sweatshops...
...Krugman elaborated on this argument in Slate: [Workers in poor countries] are, inevitably, paid very little and expected to endure terrible working conditions...
...although this was true in a few cases, it was not a general trend...
...FALL • 1997 • 13...
...By workers' rights I mean human rights that every woman and man should enjoy: the right to free speech, the right to freedom of association, and the right to organize and bargain collectively...
...Where workers don't have the right to bargain for their share of productivity increases, or to organize in the political arena for higher labor standards, there is little evidence that wages, or living standards, will naturally rise...
...Each nation's standards must be appropriate to its level of economic development...
...To concentrate only on economic incentives (which the market system provides) while ignoring political incentives (which democratic systems provide) is to opt for a deeply unbalanced set of ground rules [emphasis added...
...These rights do not depend on a nation's level of economic development...
...Where does that leave Krugman...
...But these reforms did not come automatically...
...This sounds fair—but is it...
...The most effective way to achieve that is to guarantee workers basic rights...
...While this connection is clearest in the case of famine prevention, the positive role of political and civil rights applies to the prevention of economic and social disasters generally...
...I say "inevitably" because their employers are not in business for their (or their workers') health...
...It is another thing entirely (and not legitimate) for the government of a country, acting in concert with multinational corporations, to suppress wages by violating internationally recognized worker rights...
...The global economy is a reality...
...His argument that labor standards would lead to "good jobs in theory and no jobs in practice" is based on the assumption that labor standards would be imposed on single countries...
...We faced this challenge before, at the beginning of this century, when the great corporations and trusts forged a national market and escaped the regulation of states and localities...
...in economics, that however well-intentioned one's concern about exploited workers in poor countries, any attempt to do something about oppressive working conditions is fruitless, or worse, counterproductive: [T]he women and children in the sneaker factory are working at slave wages for our benefit—and this makes us feel unclean...
...N]o matter how base the motives of those involved, the result has been to move hundreds of millions of people from abject poverty to something still awful but nonetheless significantly better...
...Allowing those who produce wealth to share in it is essential to creating a virtuous circle in which higher wages translate into more sales, new investment, and job growth...
...Someone is benefiting, but it isn't American consumers...
...In the Dominican Republic, for example, the growth of export industries has been accompanied by an increase in unemployment and a sharp decline in wages (from 1977 to 1991 unemployment increased from 13.7 percent to 26.8 percent, while manufacturing wages fell by almost 50 percent...
...they pay as little as possible, and that minimum is determined by the other opportunities available to workers...
...The old debate—between isolationist and internationalist, protectionist and free trader— is over...
...But the newly industrializing countries of Asia achieved economic growth with trade protection, state controls on capital, and manipulated exchange rates...
...Amartya Sen makes a similar point in arguing against the idea that authoritarian governments are more effective in promoting economic development: The governmental response to acute suffering often depends on the pressure that is put on it, and this is where the exercise of political rights (voting, criticizing, protesting, and so on) can make a real difference...
...He was in fact writing about David Ricardo...
...A]s long as you have no realistic alternative to industrialization based on low wages, to oppose it means that you are willing to deny desperately poor people the best chance they have of progress for the sake of what amounts to as aesthetic standard—that is, the fact that you don't like the idea of workers being paid a pittance to supply rich Westerners with fashion items...
...This does not mean that developing countries should adopt our standards...
...Let's think through the consequences...
...There is no nation on earth so poor that it cannot afford free speech and freedom of association for its citizens...
...It is one thing (and legitimate) for a country to attract investment because it is poor and its wages are low...
...Export-led growth fueled by cheap labor and deregulation can have very different results...
...That [his thought] reached conclusions quite different from what the ordinary uninstructed person would expect, added, I suppose, to its intellectual prestige...
...Would this eliminate sweatshops overnight...
...That its teaching, translated into practice, was austere and often unpalatable, lent it virtue . . . . That it could explain much social injustice and apparent cruelty as an inevitable incident in the scheme of progress, and the attempt to change such things as likely on the whole to do more harm than good, commended it to authority...
...They required worker organizing, citizen movements, courageous leaders, and even an occasional economist willing to say that the status quo was not inevitable...
...And so there are self-righteous demands for international labor standards...
...The question is: what are the rules...
...But complexity is no reason not to pursue standards...
...Future treaties must include protections for the rights of workers...
...However, standards would not cause job flight if they were applied everywhere...
...That it afforded a measure of justification to the free activities of the individual capitalist, attracted to it the support of the dominant social force behind authority.* *Author's note: I apologize...
...According to a recent report from the International Labor Organization (ILO) on the global textile, clothing and footwear industries, the Dominican Republic is not an exception: It might have been expected that the countries benefiting most from relocations in terms of employment would have posted significant earnings growth...
...We now face the same challenge—only this time at a global level...
...What are the boundaries placed on the market that will ensure that it works for working people...
...But it would be a step in the right direction, and as Amartya Sen argued, it would lead to a more balanced set of ground rules...
...A policy of good jobs in principle, but no jobs in practice, might assuage our consciences, but it is no favor to its alleged beneficiaries...
...In Slate Krugman explains, to those not burdened with a Ph.D...
...It is not the case, as Krugman claims, that the growth of export industries will inevitably lead to higher living standards...
Vol. 44 • September 1997 • No. 4
