Exploitation-Part III, The Dangers of Incorrectly Detecting Exploitation

“Exploitation-Part I, The Bay For Justice” sorted out how conflating punishment of crimes with compensation for losses suffered by exploited people in determining a fair reparation amount for colonization would produce an unjust result. “Exploitation-Part II, Reparations—Calculating A Fair Amount” sorted out many of the imponderables involved in calculating a fair amount of reparations for the exploitation committed by Colonizers. In this part, let’s sort out some problems concerning the detection of exploitation.

Let’s start by reviewing the definition of “Exploitation,” “the action or fact of treating someone unfairly in order to benefit from their work.” Unfairness to a worker invokes “a broad range of topics and issues, from working time (hours of work, rest periods, and work schedules) to remuneration, as well as the physical conditions and mental demands that exist in the workplace.” (Hereafter, I will use the words “pay” or “paid”^[i] instead of “working conditions” to substitute for the many and varied elements of working conditions). When “unfairness” is the standard by which something is to be discerned, what is and is not exploitation is subjective and subject to abuse. The abuse of the word, “exploitation” is a prime example.

These days, the word, “exploitation,” is applied by some activists to essentially every working condition that compensates an employee less than an economically illiterate activist believes an employee should be paid. That belief is usually grounded on the strength of little more than a gut feeling. Without a good understanding of economics, a gut feeling about economic matters is typically wrong. For example, in a free market, regardless of what a third party might subjectively believe to be fair pay, an employee should, and will generally be, paid a little less than the local market value of the employee’s “work product”―all other things being equal.^[ii]

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AUTHOR’S NOTE: In response to the preceding sentence, you might think to yourself, “I’ve just read another reason to give up on free markets.” That thought would be a most unfortunate. As many problems as free market capitalism create, humans have not yet invented an alternative economic system that leads to better results, especially for the poor. How a society treats its poor is extremely important. (Sadly, however, other than improving the poor’s standards of living over time and treating them equally under the law, humans have not yet figured out how to help the poor become thriving members of society.) However, contrary to what Ghandi (how society treats its weakest members) or Dostoyevsky (how society treats its criminals) have said, the best test of societies is how they treat each of their individual members. If you doubt the first claim, please take a look at “The Deadly Isms.” If you doubt the second claim, please read Diedre McCloskey’s book, “Bourgeois Dignity” (Or at least read her very abbreviated summary, “Bourgeois Dignity: A Revolution in Rhetoric.”) If after doing so you still believe either or both claims to be untrue, please let me know why in the comments section.

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The primary reasons employees are paid “a little less” rather than the full value of their work product are: (1) employers incur costs to enable employees to produce, and (2) if employees were paid a greater amount, then (a) above market employee costs would put the employer at a competitive disadvantage with other companies, and (b) keeping an employee who is paid an above-market amount creates losses that can be avoided by replacing her with someone who is willing to work for a fair market value pay. The good news is that, by and large, employers cannot pay employees less than a little bit less than the value of their work product because they cannot prevent employees from taking a job with a company that will pay them the fair market amount. (For example, in a competitive marketplace, if women are systematically underpaid by their employer, then competing companies are given the opportunity to profit greatly by hiring female workers who are underpaid.^[iii] As labor costs are a large percentage of most employers total costs, cutting labor costs by 23 or 17 percent (the amount by which many claim women are underpaid in America) by hiring underpaid women would be a huge advantage. The bidding war to get in on that advantage would bid up what women had to be paid, thereby eliminating the pay gap (if there were one―Hint: It doesn’t exist.^[iv]). so competition between employers erodes any irrational difference in pay by rewarding businesses that successfully overcome gender biases. Individuals may be biased, but that doesn’t necessarily mean the market is.”

Any amount paid to employees that is in excess of “a little less” than the value of a worker’s work product is either charity or forced redistribution. To be uncharitable may be a character flaw, but it is not an act of unfairness to the person who desires handouts.

The widespread lack of understanding of the above realities concerning fair and unfair pay is hurting people today who most desperately need their lives to be improved. Sorting this out would be tremendously helpful to poor people here and around the world.

“Sweatshops” is the name given to what is perceived to be grotesque examples of exploitation in the modern world. Wikipedia’s description of “sweatshop” is, “. . . a factory or workshop where workers are treated unfairly, for example having low wages, working long hours and in poor conditions.” “Unfairly” is the key word in the definition. Note also the words “low,” “long,” and “poor.” None of these words have objective criteria. All of these subjective variables beg the question, “compared to what?” Consequently, each observer applies his own subjective conceptions of “fair,” “low,” “long,” and “poor.” That would be fine if it were not the fact that people of good faith tend to assume their subjective definitions for each of the words is objectively fair. Sadly, many tragedies have been inflicted on the world’s poor by such people. It is a classic case of the pursuit of perfection creating unnecessarily worse outcomes.

A shop with working conditions that can be reasonably and objectively be characterized as unfair deserves the evil moniker, “sweatshop.” Objective standards for “fair,” “low,” “long,” and “poor” are harder to envision than one might think. For example, what an average San Franciscan would consider being “fair pay” today is vastly different from what an average San Franciscan in 1776 would have considered being fair. Similarly, the average San Franciscan in 1776 would have likely considered a fair pay to be somewhere between the pay received by an average Gambian and Burundian worker today (less than $3.00 per day in 2011 U.S. dollars). Obviously, “fair pay” depends on time, place, circumstances, and perspectives of the perceiver and the perceived.

Anyone’s subjective conception of fair pay for someone in a faraway place and/or time is nearly worthless. Nevertheless, using nearly worthless criteria to define “fair pay” is what most activists do.  Nickolas Kristoff noted, “Well-meaning American university students regularly campaign against sweatshops.” That is fine for someone who cares more about being (or appearing to be) compassionate than the plight of the people they believe their compassion is helping. If one, however, really cares more about the people they believe their policies would help, such simple-minded analysis is irresponsible. Kristoff again, “But instead, anyone who cares about fighting poverty should campaign in favor of sweatshops, demanding that companies set up factories in Africa. … [T]hat would fight poverty far more effectively than any foreign aid program….”^[v] Let’s sort out why that is true.

When a first-world company opens a factory in another first-world country, it can attract employees only if it offers to pay on par with what other companies are paying for similar work. As people in an economy take newly created jobs, the resulting lower supply of people seeking jobs in the market increases pressure for pay to increase for those kinds of jobs―usually with much spillover to other kinds of jobs. (It’s a supply and demand thing).^[vi] The same occurs when a first-world company opens a factory in a poor country. When they do so and offer to pay an amount that appears to denizens of rich countries to be astoundingly low, lines of applicants quickly become long. If the offered pay is not more valuable to the person than the cost to the person of doing the work, the person will not take the job. Having a job in a country where few have jobs are available is not only a source of extra income, relief, and security, it gives the employee status, and hope for a better future. Being able to lower the likelihood that your children will starve is very valuable. Enabling people to have better lives is a fundamentally good thing. The more first-world companies do that, the better.

Of course, first-world companies could pay their employees more. Obviously, the employees who happen to get the jobs and the above-market pay are that much better off. Everyone else in the world, however, is made worse off if above market amounts are paid―and the poor are hit the hardest. If everyone in the world could understand why this is true, the world would be a much better place for everyone, especially the poor.  Let’s sort out why is this so?

EFFECTS ON THE FIRST-WORLD: If factory workers are paid an above-market amount, the cost of what they produce will be sold at a higher price than would be the case than if a market amount were paid to employees. That higher price will cost more to everyone who purchases their work product. With prices being arbitrarily higher than they need to be:

1. People must pay more for what they buy―and the poor are hit the hardest, which means,
2. People will have less money left over to spend on things supplied by other providers, which means,
3. Those other providers will make less profit than they otherwise would have, which means.
4. Those providers cannot grow as fast as they otherwise would, which means,
5. Those providers cannot expand their workforce as fast as they otherwise could, which means,
6. The supply of people looking for jobs will be higher than it otherwise would be, which means,
7. The rate at which pay increases for all workers is slower than it otherwise would be, which means,
8. Workers everywhere will have a lower pay than would have otherwise been the case, which means,
9. The standard of living of everyone will be lower than would otherwise be the case, and less capital and incentive to invent cheaper and/or better products will be available, which means,
10. Things will improve for everyone more slowly.

EFFECTS ON IMPOVERISHED COUNTRIES: Each of those negative effects are tiny to any individual and especially tiny to the people in first-world―consequently the poor are hit the hardest. However, the cumulative negative effect of all of those tiny rippling effects can be large for the economy as a whole because each effect feeds the next. As unfortunate as all of those negative effects are for people in the first-world and elsewhere, they pale in comparison to the damage that they do to the poor in impoverished countries.

The worst effects of a select few people getting higher than market pay in impoverished countries are that:

1. The economic advantage of first-world companies opening factories in impoverished countries is smaller than it would otherwise be, which means,
2. Fewer factories will be opened or expanded in impoverished countries, which means,
3. Fewer jobs will become available in impoverished countries, which means,
4. Vastly fewer people will have the opportunity to improve their lives by having the extra money from a job, and
5. Vastly less human capital that is built by having a job and learning the ropes of business is unnecessarily denied to impoverished people will be built (witness all the businesses in America that are owned by Hispanics, Chinese, Koreans, Vietnamese, and Indians who learned skills and gained knowledge about business by taking a low-level job when they were young), which means,
6. The people who were unnecessarily denied a job (because the job was never created) will continue to live on the brink of catastrophe and in near hopelessness, which means,
7. Those destitute people cannot buy things from local merchants that they could if they had a job, which means,
8. Local business will languish due to lack of demand for their products, which means,
9. Jobs that could have been created locally do not get created, which means. . ..

Wishing that working conditions in poor countries were far better than what they are now is commendable. The hue and cry about sweatshops,^[vii] however, has inflicted and is inflicting grievous harm on poor people across the world.^[viii] Today’s quixotic sweatshop activists haplessly and damnably make matters worse for the people they wish and believe they are helping.

In short, paying people a little less than the value of their work product is not exploitation. It is by far the most effective way people in poor countries can accumulate human and money capital which is essential to steady improvement of their lives.^[ix] Such demands condemn people in poor countries to the perpetuation of their abject poverty at a minimum and greatly slows their climb out of poverty at best.^[x]

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^[i] Using the terms “pay” and “value of work product” simplifies a very complex set of variables, each of which is worth discussing. That discussion, however, is not essential to an understanding of the general point here being made. For example, if in the perception of the employer an employee is harder to get along with, has less reliable attendance, excessively disrupts or otherwise causes fellow employees to be less productive or is less committed to the enterprise than an average employee, then that employee would be paid less than “a little less” than the value of the work product of an average employee. The inverse is true also.

^[ii] For another example, see “‘He’s a Hater!’”

^[iii] Of course, the popular memes to the contrary are false. See “There Is No Gender Wage Gap” and “Jordan Peterson debate on the gender pay gap, campus protests and postmodernism.”

^[iv] See ““The Size of the Gender Pay Gap Matters,” and “There Is No Gender Wage Gap.”

^[v] See “Sweatshops.” For a broader take on people activating for things they do not understand, see “Jordan Peterson tells you to clean your room.”

^[vi] See “Tax Cuts and Employee Compensation.”

^[vii] See “The Injustice of Sweatshops and Exploitation.”

^[viii] See, “John Stossel – Does Free Trade Exploit the Poor?”

^[ix] See “Sweatshops: A Way Out of Poverty.”

^[x] See “Yaron Brook – ‘Sweatshops’,” “John Stossel – Sweatshops,” and “The Unbelievable Truth about Sweatshops.”