In Out of Poverty, Benjamin Powell, a young economics professor at Texas Tech University, provides a comprehensive analysis of sweat-shops. He carefully presents the anti-sweatshop arguments and the counterarguments provided by economic and philosophical analysis. He uses economic reasoning to analyze the facts.
Sweatshops are Third-World manufacturing plants where employees—sometimes children—work in rough and often unsafe conditions for wages equivalent to a few dollars a day. Sweatshops are found mainly in Southeast Asia and South America, often in the textile industry.
Since the 1990s, a movement has developed in rich countries (mainly the United States and Europe) against sweatshops. The movement is made of the usual do-gooders of the poverty industry, including trade unionists and student activists. Powell considers their arguments seriously; his reader may be less tolerant. A supporter of the United Students against Sweatshops (USAS) opines: "Everybody wants to have a living wage. … Everybody wants to retire and feel good, enjoy life. Breathe. Live. Eat." How can one argue against that? Why can't rich Westerners decide what is good for foreign sweatshop workers and call for laws to bring that about?
Alternatives and revealed preference / The book's central argument is that sweatshop workers are paid poorly because their productivity is low and their alternatives are even worse. Wages are determined by the demand and supply of labor. Demand is based on the workers' productivity; supply reflects what workers, according to their preferences, could do with their time if they did not work in a given market. The crucial fact is that, in poor countries, the alternative to sweatshop work is not a Western-type job or the dolce vita on the beach; the alternative is even lower earnings in farming jobs and menial tasks in domestic work—if not scavenging in garbage dumps, prostitution, or starving to death.
Imposing a minimum wage in sweatshops will create unemployment if the producer cannot adjust other margins—by reducing safety, for example. A mandated improvement in working conditions or other benefits amounts to the same outcome if the money wage is not reduced accordingly. What the vast majority of sweatshop workers want, as shown by interviews, is more money, not better working conditions. Economic theory reaches the same conclusion: "the mix of compensation is really driven by employee preferences"; the employer only cares about the total cost. A higher compensation package means that some workers will be let go.
Powell reviews the objections to standard labor market theory. He also offers many examples of how the standard labor market model applies to poor countries. For instance, in 2003 American activists helped in forcing BJ&B, a Dominican Republic sweatshop, to recognize a union, which rapidly obtained dramatically better conditions for its members. But the company's workforce fell from 2,000 employees to just 234—and ultimately the firm closed in 2007. In response to an ultimately failed proposal by then-senator Tom Harkin (D–Iowa) to ban imports from countries where children work in sweatshops, Bangladeshi firms laid off 50,000 children, many of whom ended up in worse jobs or on the street. "A significant number were forced into prostitution," noted Paul Krugman in a 2001 New York Times column, citing Oxfam.
As poet Friedrich Hölderlin wrote, "What has always made the state a hell on earth has been precisely that man has tried to make it his heaven."
The revealed preference argument is a good illustration of economic reasoning: "Because workers choose to work at these firms," Powell writes, "we know that the workers believe the jobs are the best alternative for them." This reminded me of a remark by Marxist economist Joan Robinson in her 1962 book Economic Philosophy (C.A. Watts): "As we see nowadays in South-East Asia or the Caribbean, the misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all."
With a database he created, Powell compares the wages paid in sweatshops with the average wage in the relevant countries. Sweatshop pay ranges from 6 cents an hour in Bangladesh to $1.12 in Costa Rica. Those are miserable wages, for sure. But here is the catch: "Sweatshop jobs are not just better when compared to scavenging in trash dumps. They are better than many jobs in the countries where they are located." Powell's research suggests that most sweatshop jobs pay over $2 a day (and sometimes much more) and that these wages amount to at least 50 percent of the average income in most of the countries covered. In Cambodia, sweatshop wages translate into earnings 50 percent higher than the average income. In Haiti, Honduras, and Nicaragua, they amount to twice the average income. No wonder many workers want these jobs.
New York Times columnist Nicholas Kristof, in a Jan. 15, 2009 column, wrote of a 19-year-old Cambodian woman he interviewed who was scavenging in a Phnom Penh dump, a "Dante-like vision of hell," as he described it. "I'd love to get a job in a factory," she told him. "At least that work is in the shade. Here is where it is hot." Another scavenger, age 13, said, "It's dirty, hot, and smelly here. A factory is better."
Economic growth / Powell's demonstration that sweatshop employees would be worse off without the sweatshops is so convincing that one wonders how activists and the scholars who support them can take the opposite view. One reason must be a disagreement about facts. But ignorance of the facts will be less of an excuse after Powell's book.
A whole chapter is devoted to defending the work of children in sweatshops. As with their elders, it is the least bad alternative for those children. In many underdeveloped countries, 10–20 percent of children ages 10–14 have to work, often in places where conditions are worse than in sweatshops. Of course, a child may not know what is best for him, so the revealed-preference argument does not apply directly. The child's parents, however, are quite likely the most competent to decide what is best for him. To physically survive, poor families often need their children to work. The alternative to the sweatshop for these children is not school or Disneyland, but a fate far worse than sweatshops: living on the street, prostitution, or starvation. Only economic growth can eventually produce better alternatives.
Today's developed countries experienced a sweatshop phase one or two centuries ago. Massachusetts's textile factories in the 19th century were sweatshops. This was a required stage in economic development. While it lasted 150 years in England and 100 years in the United States, this difficult phase now seems to have shrunk to less than two generations, as evidenced by the experiences of South Korea, Taiwan, Hong Kong, and Singapore—and now China. But this stage remains impossible to avoid. You cannot go from poverty to riches overnight. You need some capitalist "exploitation."
A country cannot legislate its way out of poverty. "If the United States had adopted more stringent standards when it was as poor as the sweatshop countries today," Powell observes, "it would never have grown to be as rich as it is now." Perhaps the United States would now resemble a typical South American country.
In today's poor countries, only economic growth can solve the sweatshop problem, which is a poverty problem. Sweatshops represent "the first rung on the ladder out of extreme poverty," wrote Columbia University's Jeffrey Sachs in his 2005 book The End of Poverty (Penguin Press). "Sweatshops themselves are part of the very process of development that will lead to their own elimination," adds Powell. Economic growth raises workers' productivity and thus their remuneration. Economic growth, in turn, requires private property rights and economic freedom, as demonstrated by much research. A whole chapter of Out of Poverty deals with economic development.
Ethics and interests / Another reason why some people fight against sweatshops may be a disagreement on ethical values. What values would the anti-sweatshop crowd espouse? There is an understandable impulse to not support a system that seems to provide laborers poor wages and conditions. But Powell shows that if people value the welfare of sweatshop workers, there is no reason to oppose sweatshops—quite the contrary.
He analyzes the philosophical arguments about sweatshops in the chapter, "Is It Ethical to Buy Sweatshop Products?" The answer is a resounding yes. The higher the sweatshop sales, the more the remuneration of sweatshop workers will be bid up, fueling the process of economic development.
Like anti-sweatshop activists, Powell opposes slave labor: "Sweatshops that coerce their workers with the threat of violence or use the local government to do it for them are the only type of sweatshop I condemn." But the typical sweatshop does not resort to violence. Employees work there voluntarily. And they are happy to have a job there, as interviews by Powell and others show. Voluntary work in poor conditions is not slave labor.
Opposing slave labor suggests also opposing government regulations that prevent voluntary labor. On this point, Powell debunks the easy and fallacious argument that multinationals must obey local laws. It depends on which laws, he argues. Coercive injustices in poor countries are usually committed by their own governments.
Self-interest is another reason for anti-sweatshop sentiments. Many activists hide their interests behind moral high horses. American trade unions defend their members against competition from poorer workers. Supporting another failed bill that would prohibit the import and sale of sweatshop products, the AFL-CIO hailed the legislation as "a powerful vehicle … to take back our economy"—that is, to protect its members against poor foreign workers who offer a better deal to American consumers. The trade unions, Powell observes, "intentionally advocate policies that will harm those very workers and naive young activists end up acting as tools to help the unions achieve their protectionist goals."
Among those who don't have direct interests in closing down Third-World businesses, the disagreement about sweatshops may boil down to an ignorance of economics. Even value judgments, as long as they have some consequentialist element, require some knowledge of economics. It is difficult to offer a serious opinion about sweatshops if one does not understand how wages are determined, how increasing work amenities implies a lower wage or the unemployment of some current employees, or how economic development is the only solution to sweatshops and other manifestations of poverty.
The last chapter of Out of Poverty gives useful advice to anti-sweatshop activists if they really want to help sweatshop workers. Powell recommends that activists specifically target the rare instances of slave labor, launch "Buy from the Third World" campaigns, fund programs to pay poor Third-World children to go to school, promote economic development through economic freedom and free trade, and advocate relaxed immigration restrictions in the United States.
A no-sweat book / I do have a few quibbles with the book. None are worth developing here, except about economic efficiency. Powell stresses that his argument has nothing to do with economic efficiency, but only with the welfare of sweatshop workers. "Nowhere do I advocate 'economic efficiency' as my ethical standard," he writes. "The welfare of the worker is the end." This focus may be rhetorically necessary to counter the anti-sweatshop crowd's simplistic morals, but I think it is misleading.
The first problem is that the concept of economic efficiency is all about social welfare—that is, the welfare of all individuals—and nothing else. Powell does admit at some point that we should be concerned with the welfare of all people in Third-World countries. One may choose to focus on the welfare of a limited group of individuals, but this must be part of a general framework of economic efficiency.
The second problem is that one must be careful about how social welfare is conceptually measured. The notion of economic efficiency that Powell pushes aside is the cost-benefit concept (following Alfred Marshall), where the benefits of poor sweatshop workers should be weighed against (say) the losses of unionized workers in the rich world. If one adopts, instead, a Pareto concept of efficiency, where social welfare cannot increase if any individual loses out, it becomes easier to pinpoint the value judgments that the policy analyst cannot avoid making—in favor of Third-World workers in the case of Powell. Once everything in production is narrowly efficient, the broader concept of economic efficiency requires a value judgment about how the benefits of exchange are distributed.
Out of Poverty is not a very politically correct book. In the Acknowledgments section, Powell wishes to "thank two of the three anonymous Cambridge University Press referees for valuable feedback." I assume the third one could not swallow the economic truth the book contains—that is, you don't help poor workers by restricting their alternatives.
Anybody who does care about the welfare of sweatshop workers and is not close-minded to the evidence will cringe at the testimonies of sweatshop workers happy to work there and to be paid in money instead of safety or other amenities. An anti-sweatshop activist, Joshua Samuel Brown, reported (quite honestly) what a worker told him: "I don't want to tell you anything because you'll close my factory and ruin any chances I have at having a better life one day." Powell quotes Frank Knight: "It is hard to believe in the utility of trying to teach what men refuse to learn or even seriously listen to." Brown did not change his mind.
For the general reader, Out of Poverty is instructive from the first page to the last. It is a short, no-sweat, yet deep book, with good economic reasoning and enlightening data. Even the seasoned economist will find in it much to think about.
