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Growing Pains
Steven Christoforou • A small price to pay for economic development • May 2001

 Prostitution. Mining. Subsistence farming. These are some of the options available to people in the Third World – the ways these people attempt to drag themselves out of poverty. However, with the rise of globalization, a new and arguably better alternative is available to the people of the Third World. With the rise of multinational corporations comes an increased availability of jobs. However, what are called increased employment opportunities by some are called sweatshops by others. Many investigators have found serious physical and sexual abuse at some factories. These abuses should be stopped immediately, and the activists are performing a true public service in exposing them and condemning the companies that tolerate them. 

But most activists go beyond abuses like denying bathroom breaks and forcing women to trade sex for employment. Anti-sweatshop activists generally claim that low pay in itself is abusive, and that companies must significantly raise their wage rates to bring workers’ standard of living closer to that of Americans. This economic debate must become just that: an economic one rather than one ruled by emotions. As a recent article in Lingua Franca (March 2001) by Liza Featherstone and Doug Henwood states, up until now, “economic analysis has barely played any part in the drama, which has been more about morality and public relations.”

 Recently, a number of prominent economists signed a letter addressed to university presidents asking them to rethink the recent changes to their sweatshop policies in regards to apparel licensing. The letter, sponsored by the Academic Consortium on International Trade, argued that sweatshop labor provides higher wages than those found elsewhere in developing economies and that forcing multinational corporations to increase the wages they pay their workers in Third World countries would lead to these workers losing their jobs. One of the signatories of the letter is Yale Assistant Professor of Economics Phillip Levy.

As Levy told the YFP, “The key to this [debate] is that it has to be a free choice.” The “it” Levy refers to is the choice to work in a sweatshop. No one favors having corporations kidnap people from their villages and force them to work. Sweatshops reflect the workings of a free market, not one hampered by government regulations or corporate thuggery. So are the people that work in sweatshops freely choosing to do so?  It appears that they are, though the choices are admittedly limited.

When people are free to choose, people will choose the option that is best for them. If they choose to work in sweatshops, then they are doing what they think is best for them. It is true that sweatshop work is unpleasant. “The sad thing is this shows how bad the next best option is,” said Levy. Take child labor as an example. No parent would make their child work twelve hours a day for no reason. “Parents don’t have their kids work because they want them to save up for summer camp,” said Levy. Parents choose to send their children into the work force to avoid starving. Certainly, there must be other options for Third World children besides working in sweatshops, however. There are, said Levy: “Prostitution or mining.”

“But why are wages so low there?” asks Yale Assistant Professor of Economics George Hall. The answer, he said, is that workers in underdeveloped countries “just aren’t that productive.” Lack of education and poor health services combine to make Third World workers less productive than their American counterparts. As Levy noted, “Wages have some relation to productivity.” Sweatshops, in the end, bring people more money than no sweatshops. As the ACIT letter said, the multinational corporations who use sweatshop labor pay higher wages than those generally found in that country. With the increase in capital also comes a rise in the standard of living. This makes workers more productive which allows them to become skilled labor and thus earn more money.

Some anti-sweatshop economists, like Robert Pollin, a professor of economics at the University of Massachusetts at Amherst, argue that corporations can raise their wages in underdeveloped countries with little or no damage to their profit margin. Pollin told Lingua Franca that based on the numbers he found for nations like Mexico, corporations could double their wages and not feel any ill economic effects. Levy counters such arguments by citing the theory of general equilibrium. Roughly speaking, it posits that one must step back and take a look at the big picture to understand the full effects of an economic change. Forcing Nike, for instance, to raise its wages in some country would help out the beneficiaries of that wage hike. However, according to Levy, “other corporations won’t go there.” If corporations have to pay more in wages than what they are getting in return for productivity, they will start their operations in areas where they can get more out of their investment. “Everyone’s for higher wages,” said Hall. “The way you get them in the long run is with productive workers.” 

Hall also noted is an inconsistency in the plan to have corporations increase wages. “Say Nike raises wages by a dollar, so I have to pay an extra dollar to get those shoes. That’s a transfer payment.” However, it is a very specifically targeted transfer payment. “Money is going from the consumer to the worker.” Yet, those who oppose sweatshops claim that the problem is a social one, that we as a society are obligated to do something about it. Instead of asking the federal government to send out more foreign aid, protestors clamor for higher wages and, consequently, higher prices. “It’s kind of a weird way to do public policy,” noted Hall. In addition, it is a very ineffective one. “The people getting the money are already the best off,” said Hall. This transfer payment will only affect those working for corporations, those taking advantage of the best available option. It does nothing to help those who are forced into prostitution or mining, for instance, or those barely scraping an income together through subsistence farming.

The effect of productivity on wages raises the question of whether sweatshops can help advance a nation’s economy. Hall and Levy seem to think they can. “We used to be a developing country, and now we’re not,” said Hall. We used to have sweatshops and now we don’t. “Uneducated [and unproductive] populations get richer over time, can then afford to be more demanding, so they eventually get higher wages.” The United States and Europe followed this path in the 19th century. Japan and the “Asian Tigers” (Singapore, South Korea, Hong Kong, and Taiwan) followed that track in the 20th century. “‘Made in Japan’ used to be seen as low quality in the 50’s and 60’s,” said Hall. However, with time the work force improved, as did the economy. Levy conceded that the causality of this process is still in question. “Many people like to ask: Did these countries [America, Western Europe, etc.] get richer because of or in spite of sweatshops?”  In the case of Third World nations, Levy rightly asks: “What exactly is the alternative?”

The view of the people of the Third World countries themselves is typically ignored in the sweatshop debate. How do they feel about the anti-sweatshop movements that have mobilized so many people in first world countries?  Levy, who has visited many of these nations and spoken to their citizens, said that third-world workers “see this movement as protectionist.” As was noted earlier, unnaturally raising workers’ wages so that they do not reflect the workers’ productivity will drive corporations to other areas where they can better spend their money. This results in third-world nations losing the economic opportunities they would have otherwise had.

Most people in Western nations, however, still refuse to see any benefit to sweatshops. Hall noted that “many people think economists are pro-business,” so they try to take the opposite view. Hall thinks that that assumption is preposterous. “Most economists are for free trade, but many corporations aren’t; free trade is pro-consumer.” Levy echoed these sentiments. “What do economists gain from corporate greed?  What is corporate greed?” since it is the job of a corporation to make money. “I think what happens is that people like to wear blinders.”

Until the Third World can develop the kind of economic and political structures requisite of civil society, it is necessary that corporations continue to use “sweatshop” labor, for it will lead to the development of the things requisite for economic and political progress. 

Steven Christoforou is a freshman in Calhoun College

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