Help the World’s Poor: Buy Some New Clothes
Help the World’s Poor: Buy Some New Clothes:
"Back to school shopping leads many people to buy apparel that was made in sweatshops. Rather than feel guilty for “exploiting” poor workers, shoppers should rejoice. Their spending is some of the best aid we can give to people in poorer countries."
So says Benjamin Powell on the always provocative AidWatch blog. Liberal New York Times columnist and Economics Nobel Prize international economist Paul Krugman wrote an earlier and now often cited statement along similar lines titled "In Praise of Cheap Labor: Bad jobs at bad wages are better than no jobs at all." Do you agree with these arguments?
Comments
Paying workers more is beneficial to the developed countries. If the workers can afford basic items, like healthcare and food, developed countries will complain less about the pressure they feel to send FDI and other help to the these countries. Also, they will be fewer wars, and these countries will have means to form a market for these goods.
At last, buying these clothes is not helping the poor on the long run. We are keeping them enslaved for generations to come.
The larger question is whether over time trade improves wages and working conditions. A model like the Ricardian trade model suggests that workers' real wages ought to rise over time as trade increases demand for workers in those sectors that produce products that are valued highly and lowers the prices of some of the goods they purchase. In that model competition amongst firms ought to force firms to compete for workers through a combination of higher wages and/or better working conditions. But it's a very simple model, and we really ought to examine on the ground whether that is indeed what happens when a country opens up to trade.
There is much more to be investigated and said on this topic and I hope we can bring much of this discussion into the classroom.
Trade models suggest
Furthermore, the Ricardian Model implies that workers are commodities, much as the goods that they produce. This conception of human beings allows low wage workers to be further exploited since their skills are low, therefore, they are worth less as workers.
And again, how long will it take for competition to drive the wage up? Will it happen? Don't we have more low skilled workers anyone can be converted into one) than these transnational corporations. Once these corporations leave an area, usually they also leave with the technology that they brought.
Nonetheless, one may argue that the knowledge that these corporations brought should be useful for something. It is indeed. These laid off workers have a leg up to be reemployed by another big corporations that will not pay them any better.
The Ricardian model has much to say about technological change. The first ATMs where introduced in the 1960s but they didn't become ubiquitous until the late 1980s and early 1990s. Lots of other labor saving technologies, particular computer technologies became available as well. This did not create mass unemployment. In fact the decade of the 90s was an era of low unemployment. So it seems that most of those displaced workers found new jobs. Since we ended up with more or less the same level of overall employment, but the new technologies raised productivity then, by definition, output per person and hence GDP per capita rose. It's quite true that a large portion of this increase output per person was captured by owners of capital and intellectual property, rather than by just the workers themselves.
More generally it seems unlikely that technological progress should create a rise in long run structural unemployment because if that were the case then unemployment would be highest in the most technologically dynamic societies, and that seems quite wrong.
The basic element in the story of rising standards of living over the centuries is a story of improving technology raising productivity and choice.
(more below)
Where will these low skilled workers go? Also, the skills that these workers possess are not valued anywhere but the sector they work in and the world they live in.
Good. Now you are bringing in different types of labor (high skill, low skill, etc). This is precisely what we plan to do with the next models: specific factors model and Hecksher-Ohlin. These models will in fact suggest that if technological progress is skill-biased then over time the wages of the skilled may tend to rise relative to the unskilled. But the real wage of the unskilled might still rise in real terms, particularly if this tech progress brings down the prices of goods that the unskilled consume.
A similar story will be told about the effects of trade as we shall see the possibility that real wages of the unskilled may fall in countries like the United States. But the very same model will predict that this trade should lead to an increase in real worker wages
in the labor abundant countries like China or Haiti. So who do you side with? With US unskilled workers who want protection to keep goods from China or Haiti from entering the country, or with workers in China and Haiti who are likely to benefit from the expansion of unskilled-labor intensive industries that export to places like the United States?
They cannot migrate to the North and expect to find jobs in these sectors...
But most economic models that I can think of would show that an improvement in technology in a low income country typically leads to expanded employment and higher standards of living in low-skill countries, so I have trouble agreeing with the premise here.
Take a very poor country like Malawi. You bring new technology to raise crop yields. Yes that might mean that you need only 2 rather than 5 family members out in your 0.1 acre plot, but that doesn't meant that three become unemployed. It might mean that you expand production to 0.5 acres so end up employing 4 family members on a larger farm and greatly increasing their consumption (relative to what it was before the new technology) and one family member now emigrates to the city, or stays in school for an extra year or two, which wasn't possible before.
There are many stories such as this that one can tell about the effects of technological change on outcomes in poor countries and a great many of them suggest the intuitive outcome which is that with better technology and resources you can move out the production possibility frontier and end up better.
That said there is a very interesting literature on the 'political economy of development' that documents how the blessing of new resources or technology can sometimes become a curse. Almost all those stories however involve dysfunctional politics or policy distorted economic incentives leading to situations where resources become misallocated or elites grab too much at the expense of the more weak.
One objective of this course is to try to look into such situations and pinpoint the nature of the problem so that rather than reject new technology or trading opportunities we instead focus on building the institutions that help people get the most of those new opportunities.
Don't we have more low skilled workers anyone can be converted into one) than these transnational corporations. Once these corporations leave an area, usually they also leave with the technology that they brought.
Nonetheless, one may argue that the knowledge that these corporations brought should be useful for something. It is indeed. These laid off workers have a leg up to be reemployed by another big corporations that will not pay them any better.
These are interesting hypotheses and questions that have partly empirical answers. Much more on this later in class.
It seems like there are two points being made. The first, illegal working conditions and second the equilibrium wage rate that exists in developing countries.
May be the international community can encourage, through economic methods, humane treatment of other human beings.
The wage that labor makes in a developing country may be sufficient to sustain basic needs and even a few luxury items. The wage equilibrium that has been reached in other factories or "borderline" sweatshops (i.e. Foxconn Corp) may be just enough to encourage growth and development. I might be stretching the analogy but I see similarities with the U.S. around 1890-1940s. A surge in low wage employment lead to laws, social change and wage increases.
Just attempting to increase wages artificially could actually cause an opposite effect; increasing poverty and boosting unemployment.
Ed D.
By not buying what they are making, we are essence denying them a livelihood and preventing any chance of economic growth. I think we have to compare these conditions with their alternative options and weigh whether these jobs lead to further growth in the country and whether these workers are benefiting from this growth both economically and politically. As the economist Joan Robinson said, "the misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all."