TCS Daily

The Road From Serfdom

By Radley Balko - April 29, 2003 12:00 AM

Two reporters relay this anecdote from Thailand:

One of the half-dozen men and women sitting on a bench eating was a sinewy, bare-chested laborer in his late 30's named Mongkol Latlakorn. It was a hot, lazy day, and so we started chatting idly about the food and, eventually, our families. Mongkol mentioned that his daughter, Darin, was 15, and his voice softened as he spoke of her. She was beautiful and smart, and her father's hopes rested on her.

"Is she in school?" we asked.

"Oh, no," Mongkol said, his eyes sparkling with amusement. "She's working in a factory in Bangkok. She's making clothing for export to America." He explained that she was paid $2 a day for a nine-hour shift, six days a week.

"It's dangerous work," Mongkol added. "Twice the needles went right through her hands. But the managers bandaged up her hands, and both times she got better again and went back to work."

"How terrible," we murmured sympathetically.

So begins Nicholas Kristof and Sheryl WuDunn's article on sweatshops for the New York Times a few years ago. The two had lived off and on in Asia for 14 years, and were researching their upcoming book on emerging Asian economies, Thunder From the East. Like most westerners, Kristof and WuDunn arrived in Asia horrified by the sweatshop conditions they'd heard about and witnessed. Like most westerners - accustomed to 40-max hour workweeks, sick leave, and vacation - the two were outraged at the way western companies exploited third world labor. But read on:

Mongkol looked up, puzzled. "It's good pay," he said. "I hope she can keep that job. There's all this talk about factories closing now, and she said there are rumors that her factory might close. I hope that doesn't happen. I don't know what she would do then."

Mongkol's story illustrates how, by the time they wrote their book, Kristof and WuDunn had significantly upgraded their opinion of sweatshops. While regrettable, they concluded, sweatshops are a crucial and necessary step in most economies' evolution to prosperity.

Bans and Boycotts

Kristoff and WuDunn are right, of course. And efforts to ban, boycott, or otherwise shut down third world factories bring nothing but harm to the people they employ. Removing the best of a handful of bad options doesn't benefit the poor at all. It hurts them. And sometimes it kills them. Examples abound:

  • In the early 1990s, the United States Congress considered the "Child Labor Deterrence Act," which would have taken punitive action against companies benefiting from child labor. The Act never passed, but the public debate it triggered put enormous pressure on a number of multinational corporations with assets in the U.S. One German garment maker laid off 50,000 child workers in Bangladesh. The British charity organization Oxfam later conducted a study that found that thousands of those laid-off children later became prostitutes, turned to crime, or starved to death.

  • The United Nations organization UNICEF reports that an international boycott of the Nepalese carpet industry in the mid-1990s caused several plants to shut down; thousands of Nepalese girls later entered the sex trade.

  • In 1995, a consortium of anti-sweatshop groups threw the spotlight on football (soccer) stitching plants in Pakistan. In response, Nike and Reebok shut down their plants in Pakistan, and several other companies followed suit. The result: tens of thousands of unemployed Pakistanis. Mean income in Pakistan fell by 20%. According to University of Colorado economist Keith E. Maskus, studies later showed a large proportion of those laid off ended up in crime, begging, or working as prostitutes. (Masksus source: Race to the Top, by Tomas Larsson.)

  • In 2000 the BBC did an expose on sweatshop factories in Cambodia with ties to both Nike and the Gap. The BBC uncovered unsavory working conditions, and found several examples of children under 15 years of age working 12 or more hour shifts. After the BBC expose aired, both Nike and the Gap pulled out of Cambodia under public pressure. Cambodia lost $10 million in contracts, and hundreds of Cambodians lost their jobs.

How Free Trade Beats Sweatshops

In truth, every prosperous country on the planet today went through an industrial period heavily reliant on sweatshop labor. The United States, Britain, France, Sweden and others all rode to modernity on the backs of child laborers. The choice was simple: kids worked, or they went hungry. It wasn't a terribly rosy set of choices, but at least the choice was available. Anti-globalization activists are doing their damndest to make sure choice isn't available to those living in today's fledgling economies.

Critics counter that unlike in the early 20th century, western companies today are wealthy enough to pay "living" wages, to establish comfortable working conditions, and to protect third world environments. They may be right.

But then, what advantage would there be to investing in the developing world in the first place? Cheap labor is the only chit the third world has to lure much-needed western investment. Take it away, and there's no reason for western corporations to incur the costs of putting up factories, shipping, security and the bevy of other expenses that come with maintaining plants overseas.

One of free trade's chief critics admits as much. In the introduction his book The Race to the Bottom, anti-globalization icon Alan Tonelson writes the following, in reference to the World Trade Organization:

Most of the organization's third world members-or at least their governments-opposed including any labor rights and environmental protections in trade agreements. They viewed low wages and lax pollution control laws as major assets they could offer to international investors-prime lures for job-creating factories and the capital they so desperately needed for other development-related purposes. Indeed, they observed, most rich countries ignored the environment and limited workers' power (to put it kindly) early in their economic histories. Why should today's developing countries be held to higher standards?

Tonelson, of course, was on his way to making another point. But he inadvertently revealed an inconsistency that will always plague the legitimacy of anti-globalist logic: boycotts, "fair trade" regulations and public pressure do nothing to punish the corporations who benefit from sweatshops. They punish only third world laborers and, to a lesser extent, western consumers.

The best way to lessen the plight of sweatshop workers is more free trade, not less. If workers make 75 cents per day in factory A - the only plant in town - the best thing that could happen to them would be for a second factory to open up. If Factory B pays less than 75 cents, it won't attract any workers. If it offers exactly 75 cents, it might attract a few workers who couldn't get jobs at factory A. If it pays more than 75 cents, however, it might attract the best and brightest from factory A. Factory A then must decide whether to up its wages, or look for new labor - which means more jobs.

The alternative: force factory A to pay artificially high wages. That negates the advantage factory A had by investing in a developing country in the first place. Factory A packs up and returns to the U.S. Factory B never happens, because factory B's parent company sees no advantage (see: cheap labor) in investing in the developing country. Factory A's workers' wages go from 75 cents per day to nothing.

Instead of two factories paying twice as many workers higher wages, enabling them to inch their way out of poverty, a community is left with no factories, no jobs, and no hope.

Sweatshop Success: Some Examples

Recent history teems with examples of how sweatshop labor has helped poor economies leap to prosperity. And given the interconnectivity and technology available in the current world economy - and that there's lots of western wealth to help them along - they can make the leap in a fraction of the time it took the west.

Kristoff and WuDunn note, for example, that it took Britain 58 years to double per capita GDP after its industrial revolution. China - home to millions of sweatshop workers - doubles its per capita GDP every ten years. In the sweatshop-dotted southern providence of Dongguan, wages have increased fivefold in just the last few years. "A private housing market has appeared," Kristof and WuDunn write, "and video arcades and computer schools have opened to cater to workers with rising incomes....a hint of a middle class has appeared."

If China's provinces were separate countries, the two authors write, the 20 fastest growing economies from 1978 to 1995 would all have been Chinese.

Swedish economist Johan Norberg writes in his book In Defence of Global Capitalism that where it took Sweden 80 years to reach modernity, it has taken Taiwan and Hong Kong just 25. He predicts that all of South and East Asia will be prosperous enough to ban child labor entirely by 2010.

But that's just it. A country must be able to afford to ban child labor before child labor is pulled out from under it. Otherwise, without work, the children there beg, or starve, or die of malaria, or diarrhea.

China, Taiwan, Hong Kong - all accepted sweatshop labor as an unsavory stepping stone to prosperity.

Good Intentions and the Road to Poverty

Contrast those nations to the countries that have traditionally been "spared" sweatshops: the results are striking.

India, for example, has long resisted allowing itself to be "exploited" by foreign investment. It was one of the last major countries in the world to be introduced to Coca-Cola. Consequently, India festered in abject poverty for decades. India has only opened its markets to the west in the latter part of the last century and, as Norberg writes, its economy immediately showed signs of life. India's percentage of child laborers in the workforce has fallen from 35% to just 12%.

The economist and syndicated columnist Thomas Sowell describes how anti-sweatshop sentiments in the 1950s hindered progress in West Africa:

Half a century ago, public opinion in Britain caused British firms in colonial West Africa to pay higher wages than local economic conditions would have warranted. Net result? Vastly more job applicants than jobs.

Not only did great numbers of frustrated Africans not get jobs. They did not get the work experience that would have allowed them to upgrade their skills and become more valuable and higher-paid workers later on.

Today, of course, western and sub-Saharan Africa are among the most destitute regions on earth. Per capita GDP there is actually lower today than it was in the 1960s.

But even within that desolation, there flicker feint glimmers of hope. Norberg writes that a few countries - Botswana, Ghana, and most notably Uganda - have liberalized their trade policies in recent years and have already seen double-digit decreases in poverty rates. One wonders what might have happened if well-intentioned public opinion in 1950s Britain could have stomached the short-term discomfort of early industrialization in Africa for the long term benefits of modernized economies. Today's Africa may have been much, much different.

The Debate Goes On...

In the end, it's perfectly natural and acceptable for comfortable western consumers to feel unsettled about sweatshops overseas. Modest public pressure on companies might even help to lessen the burden borne by third world economies in transition. But boycotting sweatshops - or lobbying for laws at home that enforce "living wages" overseas - rob developing countries of their competitive advantage over western markets.

Third world governments welcome sweatshops. Most third world laborers welcome them, too. History has shown that they're important for the maturation of developing economies. Western consumers win cheaper goods. It seems the only losers here are anti-globalization activists and organized labor groups unable to compete with cheaper workforces overseas. On balance, the clear winners in the sweatshop debate seem clear.

Radley Balko is a freelance writer living in Alexandria, VA. He also publishes This essay is part of a longer piece that will run on the globalization education website A World Connected.

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