Benjamin Powell is director of the Free Market Institute at Texas Tech University. He is also a senior fellow with the Independent Institute and the North American editor of the Review of Austrian Economics. His new book is Out of Poverty: Sweatshops in the Global Economy, and it’s sure to leave some folks unsettled.
The Freeman: Sweatshop workers work long days with little time off for low pay in stifling conditions. How is that a good thing?
Powell: The way Penn (of Penn & Teller) put it once when he interviewed me is that “it’s better than tilling the soil with Grandpa’s femur.” That is a bit crass . . . but true. Wishing away reality doesn’t give these workers better alternatives. Workers choose to work in sweatshops because it is their best available option. Sweatshops, however, are better than just the least bad option. They bring with them the proximate causes of economic development (capital, technology, the opportunity to build human capital) that lead to greater productivity—which eventually raises pay, shortens working hours, and improves working conditions.
The Freeman: What are the alternatives for people in the developing world who don’t want to work in a sweatshop?
Powell: The main alternative is work in agriculture (sometimes subsistence) or domestic services. In countries where sweatshops locate—like Bangladesh, Cambodia, Haiti, Laos, Burma, and Vietnam—more than half of the population worked in agriculture. But agricultural work typically pays less, has similarly long hours, and often has higher rates of injuries.
The bottom line is that poverty is the norm in countries where sweatshops locate. I examined the 85 countries where “sweatshop wages” were reported in the popular press, and I found that large segments of the population lived on less than $2.00 and $1.25 per day (purchasing power adjusted). Yet the average wage reported in these sweatshops in every country exceeded $2.00 per day.
Bangladesh is often in the news because of factory accidents. More than 80 percent of the Bangladeshi population lived on less than $2.00 per day and more than 50 percent lived on less than $1.25 during my period of study. Yet the average reported sweatshop wage exceeded $2.00 per day and no factory was reported as paying less than $1.25 per day.
The Freeman: How is taking advantage of poor people’s lack of options not exploitation?
Powell: Exploitation is a bit of a loaded term and it is a contested concept in philosophy and business ethics. We’re not going to resolve that here. I do devote part of a chapter to the topic based on prior work that I did with philosopher Matt Zwolinski.
For our purposes, here’s the main point: Even if it is “exploitation,” how is that bad if the workers consent to it and the “exploitation” makes them better off? If it is not wrong to ignore poor people in the third world—meaning they don’t have a positive right to an income transfer from us—how is it more wrong to benefit the workers a little bit rather than not at all, even if that little bit doesn’t rise to the level of some philosopher’s definition of being non-exploitative?
The Freeman: If you’re right about the benefits of sweatshop labor for the world’s poor, do you have any concerns about robots replacing them—perhaps sending them back to the streets and fields?
Powell: None! Think about the countries with sweatshops in 1960: Japan, Hong Kong, Singapore, Taiwan, South Korea. All of them now have more machines but the workers haven’t gone back to the streets and the fields. Increased productivity is the result of more capital coming into those countries and now workers earn enough for first world living standards. Ironically, the sweatshops have disappeared precisely because the workers became too productive to justify using their labor for textiles and other goods made in sweatshops. Some people mistakenly think of this process as a “race to the bottom,” but it’s actually the opposite. Hong Kong and its cohort didn’t become impoverished when the sweatshops left to go to a poorer country. Hong Kong had simply moved up from the bottom rung of the ladder of economic development and that allowed a new poorer country to get on the bottom rung.
The Freeman: Can you tell us a little about “Nana”?
Powell: Ha! I never expected to be talking about my great grandmother in this interview!
In the 1920s she worked in the Cardinal Shoe Factory in Lawrence, Massachusetts. Lawrence, Lowell, and my hometown of Haverhill (nicknamed the Shoe City) were all cities that had many jobs during the industrial revolution that would be classified as sweatshops today. My great grandmother’s job was one of those. But it allowed her to earn an income and help her kids have a better life. One grew up to earn a doctorate and the other became a vice president of a bank. I’m in good company here. Milton Friedman’s mother also worked in what would be called a sweatshop today.
The Freeman: It seems like well-intentioned activists and young people want to universalize some ideal of working conditions. Why is this neither possible nor desirable in your mind?
Powell: If a worker has a productivity of $1.00 per hour, mandating any compensation greater than $1.00 per hour will result in that worker being fired. But from the employer’s perspective they are mostly indifferent as to whether they pay the $1.00 in wages or in better working conditions or other forms of compensation. The workers do care. In the case of sweatshop workers, most are desperately trying to feed, clothe, and shelter their families so they want all of their compensation in wages and little in working-condition improvements. As productivity and wages go up, then the market forces improvement in working conditions. Mandating universal working conditions will reverse the preferences of workers and kill jobs in poorer countries, as employers shift jobs to places that are more productive and already have better working conditions.
The Freeman: Recent reports say extreme global poverty has been cut in half during the last 20 years. To what major factors do you attribute this massive improvement in human wellbeing?
Powell: The biggest factor is the increase in economic freedom around the world. Even in places that are still relatively unfree, massive strides have taken place. Since 1980, China has made the biggest improvement in economic freedom in Asia. Since 1990, India has made the second biggest improvement. This improvement in economic freedom has brought economic growth that has lifted more people out of dire poverty than at any other time in human history.
The Freeman: And what BS reasons are given for the improvement?
Powell: People often mistake minimum wages, worker safety laws, bans on child labor, and other government regulations for improvements in living standards. Although these laws exist in wealthy countries today, the United States and other wealthy countries didn’t have these laws when we were at the level of development of countries with sweatshops today. Instead, the laws largely came after our development and mostly codified improvements in wages and conditions that market forces had already improved.
Take child labor for example: Massachusetts passed our nation’s first child labor law. It limited the work day to 10 hours for children under 12 years old. It was hardly a restriction at all. The United States didn’t pass a national child labor law until 1938, when our per capita income was already more than $10,000 (in 2010 dollars). It’s no coincidence, as child labor virtually disappears in all countries when incomes reach a little over $10,000. The laws were largely redundant.
The Freeman: Word on the street says you just started a free-market institute at Texas Tech University. . . . What sort of awesomeness can we expect from this institute—that is, what will your team get up to?
Powell: We’re up to big things at the Free Market Institute at Texas Tech. We just secured a major grant to study the origins and social change dynamics that lead to greater economic freedom. I’m in the process of hiring two more faculty members to join our team and we’re working on adding more after that. I even taught a course on Austrian economics last fall. We’re running conferences, holding lectures, working with graduate students, doing outreach . . . the whole nine yards. We are going to make Texas Tech one of the premier places to study free-market economics. Check out what we’re up to at www.fmi.ttu.edu.
The Freeman: Professor Powell, thank you very much.
Powell: Thank You!
(For more on this topic, see "Banning Sweatshops Only Hurts the Poor.")