by Charles Rubenfeld
Day after day, we hear of the evils of sweatshops. Movie stars, student groups, and political talking heads alike rant about the “horrors” they inflict on society. Swedish Economist Johan Norberg has a different view. “One mistake that Western critics of globalization make is that they compare their current working standards to those in the developing world: ‘Look, I’m sitting in a nice, air-conditioned office. Why should people in Vietnam really have to work in those terrible factories?’ But you’ve got to compare things with the alternatives that people actually have in their own countries.” Here, Norberg touches on a very important point—while sweatshops are bad, their alternatives are worse. Whether we boycott goods produced in these conditions or push for labor law reform, ultimately, we would be causing more harm than good.
In order to understand why sweatshops are necessary, one must first understand why free trade works. The law of comparative advantage states that countries ought to specialize in goods that they can produce relatively efficiently, while importing goods that other countries produce more efficiently. We can see a clear example of this when the United States exports Hollywood movies and China exports cheap toys. Because each country is specializing in something it produces more efficiently, both countries benefit from trade.
On a more emotional level, sweatshops often take flack for facilitating child labor. But while child labor is unfortunate, it is still necessary in many countries. Children must work in sweatshops because their families may starve without the extra income, or because they need money to finance their own educations. And while some say these children should be in school, who can ultimately make the best decision: family or the government? Clearly the former. For example, political pressure in the 1990s forced a German company to lay off 50,000 child garment workers in Bangladesh. The British charity group Oxfam found that many of these laid off children turned to crime, prostitution, or simply starved to death. Similarly, an international boycott of Nepal’s carpet industry put thousands of children out of work. UNICEF found that many of these children turned to the sex trade for money. Examples like these are abundant throughout the developing world.
Sweatshops also provide the best jobs available for many workers. The alternative, agricultural work, is much worse. A young Vietnamese sweatshop worker Norberg met concurred, with Norberg commenting that the most important thing “is that she doesn’t have to work outdoors on a farm anymore. Farming means 10 to 14 hours a day in the burning sun or the intensive rain, in rice fields with water up to your ankles and insects in your face.” Polling of workers in Vietnam and similar countries likewise show sweatshop workers have a comparably high job satisfaction rate.
But it is not just the working conditions that attract workers; wages at sweatshops are significantly higher compared to alternative jobs. One study determined that sweatshops paid above average wages in nine of eleven countries surveyed. In Honduras, for example, sweatshops pay about six times the average national wage. Perhaps most shocking is that those who work for an American multinational in a typical developing nation earn about eight times the average wage in that respective country. Many third world workers dream of working for companies like Nike, a frequent target of globalization critics.
So workers in poor countries are better off, and when companies sell cheap goods from foreign countries, American consumers benefit greatly: It’s truly a win-win situation. But what about American workers? Shouldn’t we worry about those losing jobs to foreign competition? Considering this issue, we find the answer to be no. It is true that in the short run, there will be “losers.” Certain industries like manufacturing may permanently “lose jobs” due to foreign competition. But in the long run, these workers are retrained into areas where their labor may be used more efficiently; and consumer savings due to lower prices will help foster demand for new jobs anyway. The Industrial Revolution aptly illustrates this phenomenon. In the pre-Revolution period, roughly 70-80% of Americans were farmers. Today, only 2-3% make a living off of agriculture. While there was obvious short-term pain and suffering for many farmers, it is easy to see why everyone is better off due to the altered composition of the economy. Labor allocated most efficiently always leads to the best outcome. Our efforts to prevent it may seem noble in the short run, but they hurt in the long term.
Finally, we should tolerate sweatshops because of the impact of direct foreign investment on economic growth. Nike not only employs people when it sets up a factory, it transfers knowledge and technology to local economies. Foreign investment also fosters a culture of entrepreneurship and capitalism, which is crucial to a country’s long-term success. If Nike profits from its investment, it is a signal to other investors of opportunities in a given country. This kind of investment can improve workers’ productivity and eventually leads to wage hikes in the long run. To understand this phenomenon, consider the economic history of many modern industrial powers. Some present day economic powerhouses like Hong Kong had sweatshops as recently as sixty years ago. Direct foreign investment was a major contributor to their growth.
The evidence in support of sweatshops is overwhelming. The next time you hear about how terrible they are, do not ask why. Instead, ask compared to what?