Sweatshops

There is a lot of support for the idea that sweatshops are better than the alternative in many developing countries:

In Praise of the Maligned Sweatshop, by Nicholas D. Kristof: Africa desperately needs Western help in the form of schools, clinics and sweatshops. Oops, don't spill your coffee. We in the West mostly despise sweatshops as exploiters of the poor, while the poor themselves tend to see sweatshops as opportunities. ...

On a street here in the capital of Namibia, ... I spoke to a group of young men who were trying to get hired as day laborers on construction sites. "I come here every day," said Naftal Shaanika, a 20-year-old. "I actually find work only about once a week."

Mr. Shaanika and the other young men noted that the construction jobs were dangerous and arduous, and that they would vastly prefer steady jobs in, yes, sweatshops. Sure, sweatshop work is tedious, grueling and sometimes dangerous. But over all, sewing clothes is considerably less dangerous or arduous — or sweaty — than most alternatives in poor countries.

Well-meaning American university students regularly campaign against sweatshops. But instead, anyone who cares about fighting poverty should campaign in favor of sweatshops, demanding that companies set up factories in Africa. ... [T]hat would fight poverty far more effectively than any foreign aid program. ...

The problem is that it's still costly to manufacture in Africa. The headaches ... include red tape, corruption, political instability, unreliable electricity and ports, and an inexperienced labor force... The anti-sweatshop movement isn't a prime obstacle, but it's one more reason not to manufacture in Africa. ...

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 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 ... by noting that they aren't against factories in Africa, but only demand a "living wage" in them. ... One problem ... 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. ...

I haven't studied the research in this area extensively, but a colleague that has agrees with this position. Do you? Here's a summary of his views:

Comments to the Faculty Senate Ad Hoc Committee on Trademark Licensing, by Prof. Bruce Blonigen February 1, 2001: ...What I want to do today is to first outline what seems to me to be a popular perception of multinational firms and their role in globalization. Then I want to explain how the evidence from many studies does not support this view and, in fact, offers a much different view. Then, I want to talk about how these two views suggest very different things about how the University should approach the issues of trademark licensing in the world apparel industry.

A common view of multinational firms and globalization that I have seen in the press, and from what I have heard from students, is often taught in many classes at the University of Oregon, is of competitive, profit-seeking firms that have the ability to be footloose and, thus, locate production in countries that offer the lowest wages, the poorest environmental standards, and the lowest taxes. These firms have no regard for the welfare of its workers or the community and country in which they happen to locate. Once they enter a given country, they are able to push wages and working conditions even lower because they now have the upper hand in bargaining position. Inexplicably, countries compete for these firms in a race to the bottom, where the "winning" country gets the multinational because it has the lowest wages, working standards and environmental conditions.

I could add more detail, but this seems to capture the essence of the common view. As an economist, I certainly believe that firms try to maximize profits. But I think that the rest of the common view is inaccurate. In fact, the evidence is that we are witnessing a much more positive outcome from increasing investment by multinational firms around the world, including less-developed countries.

The first thing that everyone always focuses on with multinational firms is the wages of the workers. So, let's focus on that first. A new wave of research has had access to plant-level data on manufacturing production from less-developed countries. The researchers have obtained data on every single manufacturing plant in Chile, Mexico, Colombia, Taiwan, Venezuela, Turkey and more new countries are being added every year. Every single one of these studies comes to the same conclusion: Controlling for all other plant-level characteristics, foreign-owned plants pay higher, often substantially higher, wages than locally owned firms.

Note first, this is examining the universe of all manufacturing plants in a country and is the overall effect, which is much more powerful than previous case studies that either document a few "good" or "bad" foreign-owned plants. Second, note that the relevant comparison is between the wages at foreign-owned plants versus local-owned plants, not how these wages at foreign-owned plants compare to U.S. wages or some other metric that is not directly comparable. In the end, the stark conclusion is that no matter which country you look at, multinational firms pay higher wages.

There are a number of reasons why multinational firms would do this. First, these multinational firms often have much better technology than local firms, which makes their workers more productive and valuable. Second, they can use higher wages to attract better workers. Third, as related to me by a former Intel executive, high wages can lead to lower costs if it means higher productivity from the workers because of better nutrition and health care. All of this is consistent with profit maximization on the part of firms.

Economics research has also uncovered other channels by which multinational firms benefit the countries in which they locate. First, there may be spillovers in technology from multinational firms to local firms - they learn about better technologies, which make them more productive. Multinational firms often provide extensive training of workers, who may then form their own enterprises or go work for local firms. Third, multinational firms often may use much more environmentally friendly production techniques because it is already used by the firm in industrialized countries and is cost-effective to continue in the less-developed country. Thus, the competition by countries for multinational firms may actually be a race to the top, because of the benefits that accrue to countries from the presence of multinational firms.

So this is the view of multinational firms that I wanted to relate to you today, which I think is based on some solid evidence: Multinational firms are more often than not an agent for positive change in their host countries, providing higher incomes, better technologies that can spillover to local firms, and a better trained workforce. This contrasts with the common view of multinationals as forces that need to be reined in and closely watched.

The apparel industry is special in that many multinational firms contract with foreign plants, rather than own them. This may dampen some of the positive aspects, but presumably it will not completely eliminate them. For example, studies find that apparel firms that contract with multinational firms pay at least the average industry wage and almost always well above most countries' established minimum wages. At the very least, we know that demand by the multinational firms will increase demand for workers and raise general wage levels, which is an improvement from prior conditions.

So, what do these two very different views of multinational firms mean with respect to the University's policies on trademark licensing in the global apparel industry? I think the common view leads to taking a very adversarial relationship with the University's licensees and argues we need to ally with watchdog groups. The alternative view I have just presented is to encourage and enhance the positive impacts that licensees can have on these countries; in other words, a much more constructive relationship.

I make these distinctions because I think the two organizations the University has joined in response to these issues, the Worker's Rights Consortium and the Fair Labor Association, split across these two viewpoints. The WRC believes that it is counterproductive to even engage in a conversation with the multinational firms, whereas the FLA is intended to combine efforts of all interested parties to come up with constructive long-term solutions to encourage the positive aspects we often see from multinational firm presence in less-developed countries. ...

In summary, we should keep in mind that the poverty of these countries is not due to the multinational firms. In fact, rather than blaming these firms for the country's poverty in a "guilt by association" reaction, we need to realize that the evidence is that these firms bring a positive change to these countries. Licensees are already paying market or above-market wages. If we think this still does not meet some criterion (often bandied about as a "living wage") then the licensors need to share the lost profits with the licensees and consumers need to bear higher prices for these products. The alternative is to raise the bar too high for these firms to bear by themselves and see them leave these countries - a scenario in which the workers in the less-developed countries likely lose the most. ...

Comments

[dryfly]

I think it is wage arbitrage that so many are appauled by... working long hours in dirt floor factories for little pay just so WalMart can sell cheap crap here even cheaper while many of the local's needs go unanswered. Then in the end the cheap crap just ends up in one of our landfills (or worse yet - shipped back to put in THEIR dumps). In this model you have to make an awful lot of garbage per unit increase in standard of living. Not terribly efficient.

There has to be a better way to raise peoples standards of living other than grinding them up to fill our landfills.

How's that for a response? Bounce that off your collegue.

[Joe Davis]

I lived in Venezuela for a couple of years and met some people that work in these "sweatshops" and came to the conclusion that there existed an interesting distiction between these people and the majority of I met down there: they didn't complain about not having a job. What's more is that they didn't seem to hate the U.S. even though they were a part of the poor class, two things that don't often go hand-in-hand (Thanks Chavez). My only concern, keep in mind that I'm no economist, was with U.S. dollars going out of the U.S. to a less developed country. After I realized that it was probably a drop in the bucket next the crazy amount of money we ship there to buy thier oil, I decided that outsourcing to Venezuela couldn't be all that bad.

[outsider]

I recall an argument that exploited child labour in Bangladesh was horrible. The offending workshops were closed by the frightened multinationals of appearing insensitive.

The children were then forced into even worse jobs, homelessness, and prostitution...oops!

[Ed]

This strikes me as praising the crook who only takes one's money after saying "Your money or your life." Are sweat shop labor or homelessness and prostitution really the only choices? Can we only "help" people by offering them pennies for their toil? We are capable of more, but choose to do otherwise

[dryfly]

There is never an excuse for child labor - those kids need to be in school, not sewing shirts or turning tricks.

[crack]

Krugman wrote about this at Slate in '97.

http://web.mit.edu/krugman/www/smokey.html

@Dryfly

Way to conflate two issues!

[anne]

"There is never an excuse for child labor - those kids need to be in school, not sewing shirts or turning tricks."

This blends to why free education is absolutely essential to economic development, as China is so clearly showing but that we always should have understood. There must be free education everywhere through Africa, and beyond.

[Blissex]

«This strikes me as praising the crook who only takes one's money after saying "Your money or your life." Are sweat shop labor or homelessness and prostitution really the only choices?»

Surely not: there are always painful illness and early death as alternatives. :-(

The big question here that Mark Thoma is addressing is facing the facts, and the facts are stark, even if very unpleasant.

Sweatshops are awful, but they are an improvement on something worse.

«Can we only "help" people by offering them pennies for their toil? We are capable of more, but choose to do otherwise»

In the secret of the ballot box many people vote with their wallets (at best). Politicians know that there are many more votes in keeping the 3rd world poor than in helping them; sending the voters' children to good schools has a much higher priority than sending some brown skinned nobody's children to school.

Anyhow, my reading of the literature of development aid is that well meaning intervention usually turns out to be stupidly self serving; for example I think that schemes like ''fair trade'' are perhaps the pinnacle of self serving well meaning hypochrisy (no wonder that they are popular in the UK), and brutal exploitation by foreign oppressors often works better (if the country has a semi-decent ruling class).

In practice it is hard to give any examples of poor, underdeveloped countries that have escaped that without going through a phase of more or less savage exploitation of the weak (children, women in particular). Practitioners of the dismal science call that ''primary capital accumulation''.

Such exploitation is borne by the weak not just because they are weak, but because to be brutally exploited is unfortunately often better than the alternative.

Perhaps Mark Thomas should have mentioned Landes' splendid "The wealth and poverty of nations" which supports the argument powerfully with many examples from the past...

[save_the_rustbelt]

I'm sitting about 2 miles from the Marathon Oil headquarters. Interesting history.

In the early 80s Mobil tried to do a forced takeover. After wasting much money and building political backing the big M merged with U.S. Steel to be somewhat independent.

The M/US marriage was prety weird, and probably wasted resources for about 15 years, but M was able to be spun-out to be independent again.

If the feds had squashed the Mobil deal quickly then M could have focused on being an oil company, rather than dodging buy-outs.

[crack]

Rusty, I believe your comment was meant for the next post.

[ken melvin]

"Sweat shops are good" is another rationalization like "they take the jobs Americans don't want", "they could find a job if they really wanted one", etc.

[tom s.]

outsider - you were probably thinking of Paul Krugman's piece in the New York Times in 2001: http://www.pkarchive.org/column/42201.html

A letter in response disputed his claims: http://tinyurl.com/hc35p

Or, to do an anne:

Bangladesh Sweatshops
Published: April 29, 2001

To the Editor:

Re ''Hearts and Heads,'' by Paul Krugman (column, April 22):

It is true that in 1993 the threat of United States legislation led irresponsible garment factory owners in Banladesh to dismiss child workers, who had no immediate prospects for schooling. But a five-year memorandum of understanding, signed in 1995 by Unicef and the International Labor Organization with the Bangladesh Garment Manufacturers and Exporters Association, has provided schooling and income support for more than 27,000 former child laborers.

Since then, the number of exporting factories using children has dropped from 43 to 5 percent, allowing more Bangladeshi adults to move into jobs previously held by children. Meanwhile, the Bangladesh garment export industry grew almost 500 percent from 1990 to 2000.

BARBARA SHAILOR
Director, International Affairs
A.F.L.-C.I.O.
Washington, April 26, 2001

[Blissex]

«"Sweat shops are good" is another rationalization»

Oh please -- nobody is arguing that sweat shops are good (except perhaps Rand republicans, but not in public), rather that they are less awful than the actually available alternatives.

If there is a proven working model for improving a poor underdeveloped country that does not involve a phase of vile abuse of the weak, we would like to know, urgently...

But the stories about England in the 19th century read the same as the later stories about Japan, Taiwan, Singapore, Brazil, ...

Economics was not called the dismal science for nothing. :-(

«like "they take the jobs Americans don't want", "they could find a job if they really wanted one", etc.»

Ah but these are ''rationalization'' because the USA is both wealthy, therefore with ample margins for choice, and a single political system. Therefore there is a choice between good and bad.

The problem with sweatshops is that the countries that have them have a choice between bad and worse.

BTW, shamefully there are a number of sweatshops with indentured labour in the USA (and several other 1st world countries) too, usually staffed by desperate migrants, and occasionally the police and the labour agencies close one down here or there or they get in the news because a few dozen employees die in a fire...

Also most construction sites staffed by migrants in 1st world countries are sweatshops too, even if not factories.

Never mind prostitution rackets for migrant women...

[Jc]

I would like to comment on the Professors response to why countries are poor "In summary, we should keep in mind that the poverty of these countries is not due to the multinational firms. In fact, rather than blaming these firms for the country's poverty in a "guilt by association" reaction, we need to realize that the evidence is that these firms bring a positive change to these countries." These countries are poor not due to multinational firms being there but because of their leave or plain in simple their needs in more cost effective labor that lowers the labor cost these countries offer, while lowering the actual benefits they need. You forgot to mention all the major manufactures that cause this low margin making competition even harder for underdeveloped countries that need to catch up with their economy.

[Osama Bin Nixon]

Suharto's henchmen murdered approximately one million Indonesians in the mid-late sixtees so that US and Britain led corporate interests could get a foothold in 'Asia's greatest prize'. This a familiar story across this sad world - democratic government wants to use its own resources for its OWN people - US and Britain back murderous dictator with funds and machinery - hundreds of thousands of innocents die violent deaths at the hands of brutal dictator's regime - brutal dictator goes to lunch at Whitehouse for photo opportunities and handshakes allround - Brutal dictator steals billions in public funds and pockets loans from IMF/World Bank to finance himself, his family and cronies -Western Corporate interests takeover former public services with compliance of brutal puppet dictatorhip - Western dominated corporations become inordinately wealthy - the people who belong to these countries don't see a penny - Dictatorship incurs massive debts through stealing/misusing 'loan' money from the West, loans which today, can never be payed back - those who work in sweatshops today do so because the West does not give a collective shit about their fates' - Mr. Kristof, for example would cope enormously well, i believe, with working 36 hour shifts in 40 degree heat, shitting his pants because his boss refused toilet breaks, all on less than $1 a day. I'm all for sweatshops too! - y'know there are people and there are un-people - The people posting here, i have concluded, are 'people'. But what would I know, I'm not an economist.

[chelsy]

I don't think we have the right to judge how life is lived in other countries. We never hear opinions from those working in the sweatshops, they may think its great - it may be the equivalent to being sucessful in the western world. We dont know- we just rely on what people tell us, people who dont live it they just comment on it. I would like to see these anti - sweatshop activists live in one of these poor nations, and then decide - "what would be a better job? - sweatshop or prostitution?"