Why Economists Are Wrong About Sweatshops and the Antisweatshop

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Why Economists Are Wrong About Sweatshops and the Antisweatshop

Why Economists Are Wrong About

    Sweatshops and the Antisweatshop Movement

John Miller

    Some economists argue that low-wage labor employed by multinational companies in developing nations is usually beneficial. Wages are typically higher than what is available in domestic work. But there is another view. This economist takes on some of our board members in a piece that argues that sweatshops should not be easily tolerated in developing nations.

    HE STUDENT-LED ANTISWEATSHOP MOVEMENT that took hold on many college

    campuses during the late 1990s should have pleased economists. Studying the working T conditions faced by factory workers across the globe offered powerful lessons about the

    workings of the world economy, the dimensions of world poverty, and most students' privileged position in that economy.

    On top of that, these students were dedicated not just to explaining sweatshop conditions, but also to changing them. They wanted desperately to do something to put a stop to the brutalization and assaults on human dignity suffered by the women and men who made their 1jeans, t-shirts, or sneakers. On many campuses, student activism succeeded in pressuring

    college administrators by demanding that clothing bearing their college logo not be made under sweatshop conditions, and, at best, that it be made by workers earning a living wage (Featherstone and United Students Against Sweatshops 2002).

    But most mainstream economists were not at all pleased. No, they did not dispute these tales from the factory floor, many of which had been confirmed in the business press (Roberts and Bernstein 2000) and by international agencies (ILO 2000). Rather, mainstream economists rushed to defend the positive role of lowwage factory jobs, the very kind we usually call sweatshops, in economic development and in alleviating poverty.

    JOHN MILLER is Williams Professor of Economics at Wheaton College. The author would like to thank Susan Porter Benson, James Devine, Peter Evans, Malcolm Fairbrot her, Tami Friedman, Barry Herman, Louis Kampf, Arthur MacEwan, Robert Pollin, and Chris Tilly for their helpful comments on the manuscript. The comments of James Heintz, who discussed an earlier version of the article at the meeting of the Allied Social Science Association (January 3, 2002), were especially valuable in refining the arguments presented below. The author alone is responsible for any shortcomings that remain in what follows.

    Challenge, vol. 46, no.1, January/February 2003, pp.93-122. ? 2003 M.E. Sharpe, Inc. All rights reserved.

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    Miller Why Economists Are Wrong About Sweatshops

    What is more, these economists were generally dismissive of the student-led antisweatshop movement. In summer 2000, the Academic Consortium on International Trade (ACIT), a group of advocates of globalization and free trade made up mostly of economists, took it upon themselves to write directly to the presidents of universities and colleges (see /rsie / acit/). The ACIT letter warned presidents that antisweatshop protesters on college campuse were often ill informed and that adopting codes of conduct requiring multinational corporations to pay higher wages recommended by the protesters may cost workers in poor countries their jobs.

    The response of mainstream economists to the antisweatshop movement was hardly surprising. Economists have a penchant for playing the contrarian, and, for the most part, they oppose interventions into market outcomes, even interventions into the labor markets of the developing world.

    No matter how predictable, their response was profoundly disappointing. Although it contains elements of truth, what economists have to say about sweatshops misses the mark. That was my conclusion after spending summer and fall of 2000 reading much of what economists and economic journalists had written about sweatshops as I prepared to teach my undergraduate 2seminar, "Sweatshops and the Global Economy." First, the propositions that mainstream

    economists rely on to defend sweatshops are misleading, rooted in an exchange perspective that obscures sweatshop oppression. Sweatshop oppression is not defined by labor market exchanges but by the characteristics of a job. Second, policy positions based on these propositions are equally flawed. Economists' claim that market-led economic development, independent of labor and social movements and government regulation, will put an end to sweatshop conditions distorts the historical record. Finally, their assertion that demands for better working conditions in the world-export factories will harm thirdworld workers and frustrate poverty alleviation is also suspect.

    With that said, the challenge issued by mainstream economists to the antisweatshop movement remains a formidable one. What economists have to say about the sweatshops has considerable power in the way of persuasion and influence, the protestations of Bhagwati and the ACIT notwithstanding. Often it is their writings that are being distilled in what journalists, government officials, and the general public have to say about sweatshops.

    Supporters of the antisweatshop movement, and instructors of sweatshop seminars, need to be able to answer each count of the economists' indictments of their movement with arguments that are equally persuasive.

    Today a group of economists is dedicated to doing just that. In the fall of 2001, Scholars Against Sweatshop Labor (SASL) issued a response to the ACIT indictment of the antisweatshop movement (SASL 2001). Its lead author, economist Robert Pollin, made the case

    that "the antisweatshop movement is taking constructive steps toward improving living and working conditions for millions of poor people throughout the world."

    Teaching about sweatshops also convinced me that supporters of the antisweatshop movement need to respond to the criticisms of mainstream economists with actions as well as words.

    We need to link antisweatshop campaigns for the betterment of the women and men who toil in the world-export factories with efforts to improve the lot of their brothers and sisters, who often work under even more oppressive conditions in the informal and agricultural sectors of the developing world.

Just Enforce the Law

    What to do about sweatshops? That is not a difficult question for most mainstream economists to answer. Just enforce the law, they say (Weidenbaum 1999, 26-28). And avoid other "institutional interventions" that might impair a market-led development that will enhance productivity and thereby raise wages and improve working conditions (Irwin 2002,214; Sengenberger 1994, 10). By law, they mean local labor law, not some labor standard that ill-informed protesters (or even the International Labor Organization, for that matter) would impose on multinational corporations and their subcontractors in developing economies.

    No one in the antisweatshop movement would quarrel with the insistence that the law be obeyed. In fact, several U.S. antisweatshop groups define a sweatshop in legal terms. According to Feminists Against Sweatshops (2002), for instance, sweatshop operators are employers who violate two or more labor laws, from the prohibition of child labor, to health, safety, fire, and 3building codes, to forced overtime and the minimum wage.

    Effective enforcement of local labor law in the developing world, where labor legislation in many countries-on paper,. at least-is quite extensive, would surely help to combat sweatshop abuse as well (Portes 1994,163). For instance, Made in China, a report of the National Labor Committee, the leading U.S.-based antisweatshop group, found that subcontractors producing goods for U.S. corporations, including Wal-Mart and Nike, "routinely violate" Chinese labor law. In some of these factories, young women work as long as seventy hours a week and are paid just pennies an hour after pay deductions for board and room, clear violations of China's labor law (Kernaghan 2000). A three-month Business Week investigation of the Chun Si Enterprise Handbag Factory in southern China, which makes Kathie Lee Gifford handbags sold by Wal-Mart stores, confirmed that workers there confronted labor practices that included illegally collected fines, confiscated identity papers, and beatings (Roberts and Bernstein 2000).

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    Miller Why Economists Are Wrong About Sweatshops

    But the limitations of this legal prescription for curing sweatshop abuse become obvious when we go to apply it to countries where local labor law, even on paper, does not measure up to the most minimal, internationally agreed-upon labor standards. Take the case of the high-performance economies of Southeast Asia, Indonesia, Malaysia, and Thailand. In those countries, several core labor conventions of the International Labor Organization (ILO) have gone unratified-including the right to organize. Minimum wages are well below the level necessary to lift a family of three above the poverty line, the usual definition of a living wage. And in those countries (as well as China), independent trade union activity is systematically and 4sometimes brutally suppressed.

    When labor law protections are limited and international labor conventions are neither ratified nor respected, then insisting "the law should be fully obeyed" will do little to prevent sweatshop abuse. In those cases, enforcing the law would seem to be a shaky foundation on which to build 5a strategy of alleviating sweatshop labor through improved market outcomes.

    If you are not convinced of the inadequacy of using local or existing labor law to detect sweatshop abuse, then try this exercise involving a famous U.S. workplace from the past. In February 2001, Rose Freedman, the last survivor of the 1911 Triangle Shirtwaist fire, died at the age of 107 (Martin 2001). That horrific blaze killed 146 of her 500 coworkers at the 6Triangle Shirtwaist Company in lower Manhattan. Most of the victims were young women,

    some as young as thirteen years old (Kheel Center 1998, narrative 3). Many jumped to their death from the ninth-story windows of the Triangle factory. A fire escape that led to nowhere and locked doors blocked their exit (Kheel Center 1998, narrative 3). Neither firefighters' Iladders nor the water from their hoses reached the factory on the upper floors of the modern Asch building, and their nets buckled under the weight of falling bodies (McClymer 1998, 133-38).

    These images shocked the nation. The Triangle fire led to a burst of city, state, and federal laws regulating the garment industry and dealing with workers' safety. For instance, by just two years later, the state of New York had passed into law eight new factory safety acts (McClymer 1998, 88). Following another burst of union organizing during the Great Depression, the legislation-reform movement culminated in 1938 with the passage of the federal Fair Labor 7Standards Act under the Roosevelt administration. That act established the national minimum

    wage, required premium pay for overtime, and limited child labor.

    Would enforcing existing labor law have been an adequate response to the worst industrial accident in the history of the United States? Triangle's co-owners were tried on manslaughter charges. But they were acquitted because the jury could not establish if they had ordered the factory doors locked or had known about it, a practice Freedman claimed was routine. In a civil case, claims against the owner of the building were eventually settled for $75 per victim. Those rulings promised to do little to improve the tragic conditions of employment in the garment

    industry of 1911. Both historical and contemporary evidence, then, makes clear that simply enforcing labor law has not and will not ensure the safety of garment workers.

A Defense of Sweatshops?

    The defense of sweatshops offered up by mainstream economists turns on two elegantly simple and ideologically powerful propositions. The first is that workers freely choose to enter these jobs, and the second is that these sweatshop jobs are better than the alternative employments available to them in developing economies. Both propositions have a certain truth to them.

An Exchange Perspective

    From the perspective of mainstream economics, every exchange, including the exchange between worker and boss, is freely entered into and only takes place because both parties are made better off. Hiring workers to fill the jobs in the world-export factories is no exception.

    Of course, in some cases, workers do not freely enter into sweatshop employment even by the usual standards of wage labor. Sometimes workers are held captive. For example, a 1995 police raid of a fenced-in compound of seven apartments in El Monte, California, found a clandestine garment sweatshop where some seventy-two illegal Thai immigrants were held in virtual captivity as they sewed clothes for brand-name labels (Su 1997, 143). Other times, workers find themselves locked into walled factory compounds surrounded by barbed wire, sometimes required to work fifteen hours a day, seven days a week, subject to physical abuse, and, after fines and charges are deducted from their paycheck, left without the money necessary to repay exorbitant hiring fees. That was the case for the more than 50,000 young female immigrants from China, the Philippines, Bangladesh, and Thailand who were recently discovered in Saipan (part of the Commonwealth of the Northern Mariana Islands, a territory of the United States) working under these near-slavelike conditions as they produced clothing for major American distributors bearing the label "Made in the United States" (ILO 2000).

    But in most cases, workers do choose these jobs, if hardly freely or without the coercion of economic necessity. Seen from the exchange perspective of mainstream economics, that choice alone demonstrates that these factory job are neither sweatshops nor exploitative.

    Listen to how mainstream economists and their followers make this argument. In response to the National Labor Committee's exposé of conditions in the Honduran factories manufacturing Kathie Lee clothing for Wal-Mart, El Salvadoran economist Lucy Martinez-Mont assured us that "People choose to work in maquila shops of their own free will, because those are the best jobs available to them" (Martinez-Mont 1996, sec. A, p. 14). For economic journalist Nicholas Challenge, vol. 46, no.1, January/February 2003, pp.93-122. ? 2003 M.E. Sharpe, Inc. All rights reserved.

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    Miller Why Economists Are Wrong About Sweatshops

    Kristof (1998), the story of Mrs. Tratiwoon, an Indonesian woman, makes the same point. She sustains herself and her son by picking through a garbage dump outside of Jakarta in search of metal scraps to sell. She tells Kristof of her dreams for her three-year-old son as she works. "She wants him to grow up to work in a sweatshop."

    Stories such as this one are powerful. The fact that many in the developing world are worse off than workers in the world-export factories is a point that economists supportive of the antisweatshop movement do not deny. For instance, a few years back, economist Arthur MacEwan, my colleague at Dollars & Sense, a popular economics magazine, made much the same point. He observed that in a poor country like Indonesia, where women working in agriculture are paid wages one-fifth those of women working in manufacturing, sweatshops do not seem to have a hard time finding workers (MacEwan 1998). And the Scholars Against Sweatshop Labor statement (2001) admits that "Even after allowing for the frequent low wages and poor working conditions in these jobs, they are still generally superior to 'informal' employment in, for example, much of agriculture or urban street vending."

    This is not meant to suggest that these exchanges between employers and poor workers with few alternatives are in reality voluntary or that world-export factory jobs are not sweatshops or places of exploitation. Rather, as political philosopher Michael Waltzer argues, these exchanges should be seen as "trades of last resort" or "desperate" exchanges that need to be protected by labor legislation regulating such things as limits on hours, a wage floor, and guaranteed health 8and safety requirements (Rodrik 1997, 35).

Prevailing Wages and Working Conditions

    What mainstream economists say in defense of sweatshops is limited in other ways as well. For instance, an ACIT letter (2000) misstates the argument. The ACIT writes that multinational corporations "commonly pay their workers more on average in comparison to the prevailing market wage for similar workers employed elsewhere in the economy" But, as the SASL authors correctly point out, "While this is true, it does not speak to the situation in which most garments are produced throughout the world-which is by firms subcontracted by multinational corporations, not the MNCs themselves." The ACIT authors implicitly acknowledge as much, for in the next sentence they write that, "in cases where subcontracting is involved, workers are 9generally paid no less than the prevailing market wage."

    The SASL statement also warns that the ACIT claim that subcontractors pay the prevailing market wage does not by itself make a persuasive case that the world export factories we commonly call sweatshops are anything but that. The SASL authors (2001) emphasize that the prevailing market wage is frequently extremely low for garment workers in less developed countries. In addition, the recent university-sponsored studies as well as an October 2000 report by the International Labor Organization consistently find that serious workplace abuses and violations of workers' rights are occurring in the garment industry throughout the world.

    The same can be said about other world-export factories. Consider for a minute the working conditions at the Indonesian factories that produce footwear for Reebok, the Stoughton, Massachusetts-based international corporation that "goes to great lengths to portray itself as a conscientious promoter of human rights in the Third World" (Zuckoff 1994). Despite its status as a model employer, working conditions at factories that make Reebok footwear became the focus of the Boston Globe 1994 series entitled "Foul Trade" (Zuckoff 1994). The Globe tells the

    story of Yati, a young Indonesian woman in Tangerang, Indonesia. She works sewing bits of leather and lace for tennis shoes sold as Reeboks.

    Yati sits at a sewing machine, which is one of sixty in her row. There are forty-six rows on the factory floor. For working sixtythree hours a week, Yati earns not quite $80 a month-just about the price of a pair of Reeboks in the United States. Her hourly pay is less than 32 cents per hour, which exceeds the minimum wage for her region of Indonesia. Yati lives in a nearby ten-bytwelve-foot shack with no furniture. She and her two roommates sleep on the mud and tile floor.

    A factory like the one Yati works in is typically owned by an East Asian company. For instance, PT Tong Yang Indonesia, a South Korean-owned factory, pumped out 400,00 pairs of Reeboks a month in 1993. In return, Reebok paid its owner, Tan Chuan Cheng, $10.20 for each pair of shoes and then sold them for $60 or more in the United States. Most of Tan's payment went to purchase materials. Tan told the Globe that wages accounted for as little as $1.40 of the cost of 10a pair of shoes (Zuckoff 1994).

A More Effective Response

    As I taught my seminar on sweatshops, I settled on a more effective response to the mainstream economic argument. It is simply this: Their argument is irrelevant for determining if a factory is a sweatshop or if workers are exploited. Sweatshop conditions are defined by the characteristics of a job. If workers are denied the right to organize, suffer unsafe and abusive working conditions, are forced to work overtime, or are paid less than a living wage, then they work in a sweatshop, regardless of how they came to take their jobs or if the alternatives they face are worse yet.

    A careful reading of what the mainstream exchange perspective suggests about sweatshop jobs is not they are "good news" for the world's poor but "less bad news" than the usual conditions of work in the agricultural and informal sectors. The oppressive conditions of the work in the world-export factories are not denied by their argument. For instance, ACIT leader Jagdish Bhagwati says sweatshop jobs are a "ticket to slightly less impoverishment" (Goldberg 2001, 30).

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    Miller Why Economists Are Wrong About Sweatshops

    Consider again the Triangle Shirtwaist fire of 1911. What should we say about the Triangle Shirtwaist Company? Was it a sweatshop, a site of exploitation of poor immigrant women? Looked at from this exchange perspective, the answers would seem to be no. "A garment factory in 1911 was pretty bad by today's standards, but not compared with alternates back then," economic historian Price Fishback told the New York Times (Tierney 1999). He says that,

    according to the data collected in 1908 by the United States Immigration Commission, garment workers' pay was 8 percent higher than the average of twentyone industries surveyed. Their wage nearly equaled that of American-born workers, and was triple the typical wage in Italy or East Europe (Tierney 1999). At the time, even muckraking journalists allowed that the Triangle factory, lodged in a modern high-rise building, was "safer than average" (McClymer 1998, 134-38), and Triangle's workers readily admitted that its "steady employment" made them "eager to work for the company" (Kheel Center 1998, Letters, Newman).

    But on that basis, are we really prepared to accept that employment in the Triangle Shirtwaist factory, the site of the worst industrial fire in our history, was good news for the immigrant poor? After all, the Triangle Shirtwaist Company was "in many ways a typical sweatshop" (Kheel Center 1998, narrative 2). Much of its work was overseen by subcontractors -sweaters who paid their women workers rock-bottom wages and regularly fined them for lateness (McClymer 1998, 130). In addition, the wages of these Italian and Jewish immigrant women, whatever their level, were essential for the support of their families, according to the reports of Red Cross relief workers (McClymer 1998, 107-9). Triangle's steady employment also came at a cost. During the busy season, workers were forced to endure fourteen-hour days that lasted well into the evening (Kheel Center 1998, Letters, Newman). Finally, while the supposedly fireproof Asch building suffered little structural damage from the 1911 fire, it could not protect the women who worked in the Triangle factory (McClymer 1998, 86).

    When measured against the safety standards imposed by the state of New York and the victories won for garment workers in the years immediately following the fire-hardly an inappropriately ahistorical labor standard-the working conditions at the Triangle Shirtwaist factory are found wanting.

Confronting Critics of the Antisweatshop Movement

    Still, none of the above speaks directly to the contention of mainstream economists that imposing "enlightened standards" advocated by the antisweatshop activists onto conditions for employment in the export factories of the developing world will immiserate the very workers the movement intends to help (ACIT '2000).

Core Labor Standards

    To begin with, as labor economist Richard Freeman (1994, 80) writes, "Everyone, almost everyone is for some standards" (emphasis in the original). Surely that includes economists who would combat sweatshops by insisting that local labor law be respected. Even their position recognizes that the "voluntary" exchange of labor for wages must be delimited by rules, collectively determined and obeyed by all.

    The relevant question is: What are those rules, and are any so basic that they should be applied universally, transcending the normal bounds of sovereignty? For the most part, economists, trained after all as economists and not political philosophers, have little to say on this matter other than to caution that outside of the condemnation of slavery, there is no universal agreement about the appropriateness of labor standards even when it comes to bonded labor and child labor (Bhagwati 1995, 754; Brown 2001, 94; Irwin 2002, 216).

    Nonetheless other economists, even some critical of the antisweatshop movement, are favorably disposed toward international labor standards about safety and health, forced labor, and the right to organize. For instance, Alice Amsden, an economist who opposes establishing wage standards on developing economies, favors the imposition of other labor standards. "The issue," she says, "is not health and safety conditions, the right of workers to be treated like human beings-not to be murdered for organizing unions, for example. These rights are inviolate" (Amsden 1995). At times, even Jagdish Bhagwati has taken a similar position (Bhagwati 2002, 60).

    The International Labor Organization, in its 1998 Declaration on Fundamental Principles at Work, took a similar position. The ILO held that each of its 175 members (even if they have not ratified the conventions in question) was obligated "to respect, to promote and to realize" the fundamental rights of "freedom of association and the effective recognition of the right to collective bargaining, the elimination of all forms of forced or compulsory labour, the effective abolition of child labour and the elimination of discrimination in respect of employment and occupation" (2002a).

    The empirical evidence of the effect of these core labor standards on economic development is ambiguous. For instance, the Organization for Economic Cooperation and Development (OECD) found that countries that strengthen these core labor standards "can increase economic growth and efficiency" (OECD 2000, 14). International trade economist Jai Mah, on the other hand, found that ratification of the ILO Conventions on freedom of association and on the right to nondiscrimination negatively affected the export performance of developing countries (Mah 1997, 781). And a study conducted by Dani Rodrik, another international trade economist, suggested that low core labor standards enhanced a country's comparative advantage in the production of labor-intensive goods but deterred rather than attracted direct foreign investment (Rodrik 1996, 59).

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    Miller Why Economists Are Wrong About Sweatshops

The Living Wage

    Nevertheless, almost all mainstream economists draw the line at labor codes designed to boost wages as opposed to leaving the determination of wages to labor market outcomes. That surely goes for labor codes that call for the payment of a living wage, usually defined as a wage adequate to lift a worker and two dependents out of poverty. The ACIT worries that if multinational corporations are persuaded to increase their wages (and those of their subcontractors) "in response to what the on-going studies by the anti-sweatshop movement may conclude are appropriate wage levels, the net result would be shifts in employments that will worsen the collective welfare of the very workers who are –supposed to be helped.” (2001).

    And ACIT leader Bhagwati dismisses the call for multinationals and their subcontractors to pay a living wage as so much first-world protectionism cloaked in the language of "social responsibility" (Bhagwati 2000, 11). As he sees it, students' demand that a "living wage" be paid in developing countries would dull the one competitive advantage enjoyed by these countries, cheap labor.

    But, in practice, would a labor standard demanding that multinational corporations and their subcontractors boost their wages beyond the local minimum wage and toward a living wage be a jobs killer? On that point the ACIT letter is silent, as journalists Featherstone and Henwood point out (2001a).

    These economists may be short on evidence about the effects of higher wages on the demand for labor by multinational corporations and their subcontractors, but they are long on authority. Their proposition is as simple as this: "Either you believe labor demand curves are downward sloping, or you don't," as a neoclassical colleague said to me. Of course, not to believe that demand curves are negatively sloped would be tantamount to declaring yourself an economic illiterate.

    Still, we can ask just how responsive are the hiring decisions of multinational corporations and their subcontractors to higher wages. There is real reason to believe that the right answer is, not very responsive.

    Economists Robert Pollin, James Heintz, and Justine Burns recently looked more closely at this question (Pollin et al. 2001). They examined the impact that a 100 percent increase in the pay for apparel workers in Mexico and in the United States would have on costs relative to the retail price those garments sell for in the United States. Their preliminary findings are that doubling the pay of nonsupervisory workers would add just 50 cents to the production costs of a men's casual shirt sold for $32 in the United States, or just 1.6 percent of the retail price. And even if the wage increase were passed on to consumers, which seems likely because retailers in the U.S. garment industry enjoy substantial market power, Pollin et al. argue that the increase in price is

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