Tolerating Sweatshops

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?