Exploitation Part IV (d), Exploiting Exploitation−The Effects

In Exploitation Part IV chapters (a), (b), and (c), I claimed the anti-sweatshop movement inflicted much misery on poor people around the world. With the foundation laid in those chapters, we can now sort out how the anti-sweatshop movement caused those negative effects.

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AUTHOR’S NOTE: Surely nearly all anti-sweatshop activists had good intentions. That the lives of some poor people in impoverished countries were improved by their activism is undeniable. In particular, the pay and working conditions for the few lucky people who held jobs in rich company sweatshops after the activism was improved. They also made it easier for native owned sweatshops in impoverished countries to compete with (take business from) foreign-owned sweatshops who were forced to improve pay and working conditions—because native owned sweatshops were able to produce similar goods at lower cost by spending less on working conditions and worker pay.

The tragedy of this story is that the thousands of rich country activists caused great damage to many millions, and some damage to billions, of poor people. It is a sad commentary on our education system that activists were not taught enough about economics to understand the net harm they were causing by letting emotions rather than facts and logic guide their actions. Doing things that induce good feelings about one’s self is a powerful motivator to do more of what caused those good feelings.[i] Lest the world be continually plagued by actions based on emotion rather than facts and logic, it is incumbent on those who do know enough about economics to heap scorn on people who act on the basis of emotion, i.e., “People who do not clean up their room.”[ii]

However, unless it is good to value the good feelings of rich country people over the well-being of the vast majority of poor people in impoverished countries, the relatively trivial positive effects activists achieved for a lucky few were overwhelmed by the negative consequences of the activism. Their actions impeded improvements in the standard of living of and dashed reasons for hope for a better tomorrow for many, many millions of poor people. Anyone who values improvements in the lives of a few poor people who are lucky enough to have a job in a sweatshop (what Bastiat called, “the seen”)[iii] over putting many, many millions of poor people on a path to prosperity (the “unseen”) will not likely find the following argument persuasive. Hopefully, few people have such values.

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Businesses gravitate to where profits are easy or high, and especially to where both are present. Consequently, cheap labor is a possible way for a poor country to attract foreign investment and business operations. However, distant countries whose people speak languages different from those of rich countries, have few capable managers, live in a society that is not conducive to business, and/or have confiscatory and confounding governments have many strikes against them in their efforts to attract foreign investment. Succumbing to demands for higher pay and spending on better working conditions increases the cost of doing business, i.e., lessens the desirability of opening factories there. Defaming  As the costs and hassles of operating in an impoverished county rise, the gravitational pull of business to that country weakens.

In previous posts, I have explained the virtuous cycle[iv] of growth that economic development produces. In short, other things being equal, growth begets growth. Economic growth, though far from a panacea, is the best elixir for bringing an ever larger percentage of humans out of abject poverty and human thriving yet identified.[v] Accordingly, the fact that there are too few jobs in impoverished countries is a sure sign those countries need economic growth. Nothing has been proven to be more effective at accelerating economic growth in countries with an overabundance of low skilled workers than factory jobs. Delaying economic development condemns a poor country’s poor to extended poverty and to less reason for the hope that they or their children will build the economic and human capital necessary for a brighter future.

The most harmful aspect of the anti-sweatshop movement reducing the profitability of sweatshops and defaming sweatshop owners with negative publicity (which damaged the profitability of the company’s other lines of business) was the reduction in the desirability of and enthusiasm for opening factories in impoverished countries. In short, the activists diminished the “gravitational” pull on business to open factories in impoverished countries. The weakening of that pull resulted in delaying, if not squelching, economic development in poor countries. Activists both reduced the desirability of sweatshop owners expanding their operations and caused would-be sweatshop owners not to consider or to abandon plans for such operations.

Development delayed is development denied to all who live in unnecessary poverty while waiting and helplessly hoping for opportunities to obtain a better standard of living.

Note also that it will be better for every country, and therefore every human, in the world when poor country consumers can afford to buy more exports from other countries, and poor people everywhere can buy stuff (clothing and shoes, for example) at lower prices. Anti-sweatshop activism kept poor people from becoming richer and raised the price the poor everywhere must pay for their necessities.

The in terrorem effects of the anti-sweatshop movement described above are based on sound economic theory, i.e., the described effects surely happened. I would love to site multiple studies that quantify the in terrorem effects of the anti-sweatshop movement. It is not for want of trying that I have not found an article or study that focuses on those effects. (I would welcome a citation to such an article.)

There are plenty of papers on the improvements in sweatshop working conditions and pay, and the employment effects of those higher costs in impoverished countries. Those studies often attempt to quantify of some of those effects, but, to my knowledge, not the in terrorem effects—which are the most important. Perhaps there are no such studies because (1) it is hard, if not impossible to quantify what was prevented from happening, (2) papers that don’t quantify something are much harder to get published, and/or (3) university professors are uninterested in or fearful of the repercussions of studying things that would disprove their or their peer’s presuppositions. Whatever the reason, they are looking for lost keys under the streetlight because that is “where the light is” rather than where the keys are.[vi] The fact that there are no such studies does not mean there is nothing to be discovered in the dimmer, more difficult light. Hopefully, this post will trigger attempts to study the most important effects of the anti-sweatshop movement.

Even when scholars conduct research on things that can be more easily quantified, they tend to bend over backward to avoid putting activists in too bad a light (which could be a sign that their presuppositions have gotten the best of them). Even then they do not redeemed the anti-sweatshop movement.

For example, two UC Berkeley professors with PhDs in economics studied and then wrote a paper[vii] that examined some lesser important effects of (a) anti-sweatshop activism, and (b) Indonesia raising its minimum wage due to U.S. pressure—as if one did not cause the other. (Separating the effects of activism from the effects of US pressure erroneously suggests that activism was not instrumental in creating the political climate that caused the government actions to be politically popular—a necessary ingredient for US government action.) By separating the issues, however, the researchers erroneously put activists in a more benign light than was warranted. Their report concludes:

“… direct pressure from the US government …, which contributed to a doubling of the minimum wage, resulted in a 25 percent increase in real wages for unskilled workers…. Unskilled real wages increased by an additional 10 to 20 percent for exporters and multinational plants in [textiles, footwear, and apparel] sweatshop industries….

Although we find no direct impact of anti-sweatshop campaigns on employment, we do find that the minimum wage increases reduced unskilled employment… [by] as much as 10 percentage points over the period. Our results also suggest that [the studied] exporters were significantly more likely to leave Indonesia during this period.”

If one (more accurately) acknowledge that the activism induced the pressure, the researchers found that the general minimum wage increases Indonesia adopted in the 1990s due to (activist induced) U.S. pressure caused working conditions to improve and wages for those fortunate few who held jobs in the rich country factories to increase by about 30%, without reducing the number of those employees. Good for those lucky few. But the higher minimum wage reduced “unskilled” employment across the economy by as much as 10 percentage points and exporting companies left Indonesia. This is exceptionally bad because Indonesia so desperately needed more jobs, not fewer.

So, activist pressure reduced total “unskilled” labor jobs by around 10%. The impact was swift, significant, and horrible. In 1999 30%[viii] of Indonesian factory workers worked in foreign-owned factories. That means that activists induced the losses of unskilled factory jobs owned by natives by more than 14%. That was not only a tragedy to those workers who lost their jobs.[ix] Those former workers who became job seekers added to the surpluses of workers for the unnecessarily few jobs that were available, thereby putting downward pressure on the wages of all of the country’s unskilled workers. Another terrible effect is that those people no longer produced wealth for themselves and the economy, i.e., the combination of these effects was counterproductive.

To get a feel for the cumulative effects of all of these effects, take a look at this chart of Indonesian employment in textiles, footwear, and apparel plants (“TFA”):

Indonesian Employment

The chart depicts noisy data because in 1997 Thailand induced an economic crisis in Asia that hit Indonesia as activists were wrecking their havoc. The activists were not likely a material cause of the downturn. Because however, Indonesia was in the activists’ crosshairs, activists were likely a material factor in why Indonesia was hit harder than other Asian countries. (Compare rates of GDP growth of Indonesian ad India in the chart below.)

GDP Growth Indonesia

It is certain that the activists caused doing business in Indonesia to be less profitable than it would otherwise have been. Prospects for less profits results in less investment. Fewer/smaller investments result in fewer jobs than would have otherwise have been the case. Fewer jobs result in extended hardships for everyone in the country, and the world is poorer as fewer people are not producing wealth.[x]

The winners of the movement were (1) Keady, Kretzu[xi] and other movement notables who exploited the public’s economic ignorance about “exploitation” and gained wealth, self-esteem, and/or admiration from millions of similarly economically illiterate supporters, and (2) the lucky few employees of Nike and other “exploiters” who held onto their factory jobs in impoverished countries. The benefits enjoyed by the activists were unjust. The meager positive consequences of the movement were dwarfed by its negative consequence to the many millions (likely billions) of poor people around the world whose lives were made worse—very possibly including some of the workers in the videos who lost their jobs to higher skilled workers who displaced them to obtain the higher pay and better working conditions the activists caused.

Postscript: A few other negative consequences of the anti-sweatshop movement will be described in another post.


[i]      See “The Economics of Caring.” The idea that humans are motivated only to maximize their utility is false.

[ii]      See “Jordan Peterson: Delusions of Leftist Political Activism.”

[iii]    See “Frederic Bastiat on the Seen and Unseen.”

[iv]    For example, see “Wealth,” and its comments, “Wealth Creation – It’s For The Children, and their children, and their children….,” and “Wealth Creation. No Happiness, Why Bother?”

[v]      See “Tyler Cowen on The Complacent Class.”

[vi]     See “Streetlight effect.”

[vii]    See “The Nike Effect: Anti-Sweatshop Activists and Labor Market Outcomes in Indonesia.”

[viii]   See “Indonesia Labor Market Policies and International Competitiveness.”

[ix]     See “Two Cheers for Sweatshops,” “The truth is, those grim factories in Dongguan and the rest of southern China contributed to a remarkable explosion of wealth.”

[x]      See “Two Cheers for Sweatshops,” “When Britain launched the Industrial Revolution in the late 18th century, it took 58 years for per capita output to double. In China, per capita output has been doubling every 10 years.”

[xi]     See “Exploitation Part IV, Exploiting Exploitation−The Cause.”

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