Saturday, May 06, 2006


by Joe Miller

Sometime commentator, Catallarch and all-around smart guy (you owe me $20 for that last one, by the way) Matt McIntosh has written a nice defense of exploitation at TCS Daily. I'm going to rather shamelessly quote at length here:

Let us say that I am poor and you are wealthy. I live a harsh life of bare subsistence farming, while you make several thousand dollars per day as a business owner in the widget industry. One day you hire me to make widgets for you at a rate of $1 per widget, which you then sell to make a profit of $2 per widget. Which of us has benefited the most from this exchange?

If you answered that it must be you, this is wrong. It's true that you are still much, much better off than I am in absolute terms, and that in dollars, you have gained more than I have. But considering our relative starting points and the basic fact of diminishing marginal utility, this transaction has benefited me more than it has benefited you. Simply put, the principle of diminishing marginal utility states that each extra unit of a good provides less subjective benefit to an individual than the last one did: an extra dollar means much, much more to a pauper than to a millionaire. Thus I get much more subjective utility from the extra dollars I now have than you do from the extra dollars you have.

This is a straightforward lesson in basic economics, and yet it's constantly overlooked in discussions about trade with people of developing nations.
There is much more, and you should go read the whole thing. I've very little to add to Matt's analysis, other than to say that I think he's exactly right here. Indeed, part of my personal odyssey toward a somewhat more marketist view of the world involved this very point. I had one of those slap-my-forehead-why-didn't-I-think-of-that moments when I read this post by Matt Yglesias. Matt quotes a child labor activist who bemoans that there are people in the world who aspire to "move from misery to poverty." Matt's reply:
That's terrible. But it's also true. And it seems to me that what's terrible about it is precisely that there are people in this world with so little income that they aspire simply to move from misery to poverty. The problem, in other words, is that the people who don't have sweatshop jobs are miserable. So miserable, in fact, that the terrible conditions in sweatshops are better than their best other alternative. Closing down the sweatship option would seem to just force everyone to stick with misery, which doesn't sound very appealing.
Matt's suggestion is that the key to improving economic conditions in the developing world is not forcing American multinational to pay higher wages. Why would a corporation pay higher wages than it has to? Besides, I like cheap consumer goods, and judging by Wal-Mart's success, so do a lot of other people. No, asking Nike to lower its profits voluntarily is silly. A much better solution: make people less miserable to begin with. If your choice is (a) subsistence farming and misery or (b) sweatshops and mere poverty, then, unless you've been cluttered with too much romanticism about noble and free farmers, I suspect you opt for (b).

A lot of the reason that subsistence farming entails so much misery, however, is that we've decided for some reason that it's a really good idea to offer subsidies to farmers in this country (subsidies which, for the record, mostly benefit agribusiness and not the nice folks whose farms I pass every day on my drive to work). By subsidizing relatively rich American farmers, we make it impossible for farmers in developing nations to compete. Thus, rather than exporting cheap food to the United States, and in the process raising the floor such that Nike will need to pay more to convince someone that life in the factory will be better than life on the farm, developing nations instead find themselves filled with miserable subsistence farmers. And the real irony here: we pay twice for this sort of thing, first in taxes to fund the subsidies and then in the check out line in terms of higher prices.

So don't worry so much about the "Made in Cambodia" label on the back of your new shirt. Save your righteous indignation for the next $200,000 Archer Daniels Midland advertisement that seems to play at halftime during every single college football game all season long. Remember that the extra pennies that you paid for that bag of Doritos you've almost finished eating paid for that commercial. And if you wanna think about that whole "misery to poverty" thing, that'd be okay, too.


Blogger Jon Goff said...

The sad thing is that at least part of the problem with a lot of these third world countries is self-inflicted. Yes, agricultural subsidies are evil and should be gotten rid of. But many of those developing countries are also so protectionist that it makes it almost impossible to attract the capital and trade they need to pull themselves out. Having lived in the Philippines for two years, I can vouch for this. The tarriffs on motorcycles for instance were so high that a smuggled bike could be 2-3x cheaper. No businesses were allowed to be more than 49% foreign owned. And it goes on. But yeah, as terrible as those sweatshops are, making a living in the rice paddies, or selling charcoal, or fishing in reefs using explosives or poisons is far, far, worse.

And just in case you're curious, here's a link to an article where I link to an article with some more substantial data on the point:


2:29 PM  
Blogger Matt McIntosh said...

The cheque is in the mail, Jim. :)

7:10 PM  
Blogger Jeremy said...

I don't know, I'm loathe to jump on the typical libertarian "sweatshops are the best alternative" bandwagon. Given the relative starting points, yes, it is a mutually beneficial transaction. But libertarians should not simply accept the (quite statist) status quo. How each party got to that "starting point" relative to each other is everything.

In the case of third world countries, it borders on purposeful myopia to focus on marginal utility without mentioning the forces that allow corporations such a buyer's market for labor. After all, oppressive third world gov'ts have a long track record of squeezing the scope of available livelihoods through their brutality and interventionism. But we're to believe that it's just a mere coincidence multinationals happen to be hanging around, ready to offer the next best thing to an independent life?

It's great that corporations can provide opportunities for people who have no other. But asking why they have no opportunities outside exploitative labor would shed more light on the situation. Sometimes I wonder whether third world politics work explicitly in the favor of employers, and whether they act to maintain this situation for their own purposes.

10:14 PM  
Blogger Matt McIntosh said...

I wonder who this Jim is that I thought I was talking to up there. Ugh, sorry Joe.

(My only defense is that I've been spending the last several (long) days working the IT side of a corporate restructuring. I've spent so many hours making and modifying user accounts in MS Active Directory that I'm surprised I haven't screwed up more people's names this week...)

9:51 PM  
Blogger Kevin Carson said...

Thanks for including that last point about the role of government policy in making subsistence farming a less attractive alternative to sweatshop labor, and thereby reducing the range of "available alternatives."

But it goes further than that. Subsistence farming is made still less tenable by land expropriations, abrogating subsistence farmers' traditional property rights in the land in favor of absentee landlords. These policies, usually carried out by landlord-and-general oligarchies, have often been made by Third World governments *in collusion* with Western capital. The U.S. is a traditional ally of Latifundismo in Latin America.

And such authoritarian regimes are also prone to persecuting independent union organizers. There's a reason sweatshop employers have gravitated toward "workers' paradises" like China, Central American banana republics, and places like Indonesia where the right to organize exists mainly on paper.

When I break your leg then give you crutches, it's somewhat misleading to say that I give you a "better alternative."

12:52 PM  
Blogger Joe Miller said...

Jeremy and Kevin,
You're both right to point out that simply accepting the status quo and then proudly proclaiming the triumph of capitalism over subsistence farming fails to recognize the complexity of the issues.

I quite agree that there are a number of policies in developing countries that make conditions even worse for subsistence farmers, and I'm not at all intending to endorse those. And I agree with you, Kevin, that many of these policies exist at the behest of Western corporations.

It is, I think, important to distinguish between a free market and what Western politicians and corporate types call a "free market." The former is a (largely unregulated) forum for mutually beneficial transactions. The latter is often something more like corporatism or mercantilism. It's just not the case that what's good for GM is good for America. What's good for GM might sometimes be good for America; more reliably, though, what's good for GM is good for the stockholders of GM. It's not at all clear that open competition in unregulated markets is what is best from the perspective of GM.

I'm not intending to claim that we should ignore the poor in developing nations or that we should sit back and wait for the invisible hand (via the agency of the big multinationls) to cure all the ills of the developing world. My claim was intended to be more modest: to the extent that one dislikes sweatshops, one would do far better to work toward the elimination of conditions that make sweatshops possible. Refusing to wear clothing made in Cambodia won't make multinationls pay higher wages. It will, however, force Cambodians out of the poverty of sweatshops and back into the misery of subsistence farming. That hardly seems like a good trade off.

1:17 PM  
Anonymous P.M.Lawrence said...

Unfortunately for the argument, $1 doesn't necessarily work out as more important to the cash-poor subsistence farmer. Here's what typically happens to a displaced subsistence farmer in (say) India: he has to go to an urban slum, where his cash income leaps - but he no longer has subsistence resources. He has to pay for his keep rather than for luxuries and non-daily essentials (he may well have to pay rent).

The "subsistence farmer" in the comparison is burdened separately. As a truly independent person he would have had no outgoings either - but in a mixed economy he generally has to pay rent, taxes, and for some essentials on a non-daily basis. This is what gives him problems. Nevertheless he is better off than he would be if he fell off the edges of the rural lifestyle and went to the slums.

This issue used to be well known even in the west as recently as a century ago. I have a reference book that describes the downside of a higher urban cost of living that was written about then; it describes it under the heading "rural exodus" or some such.

There's more. When farmers get to sell their crops overseas, it's only they who end up better off. The obverse of this is that the marginalised and landless - the slum dwellers, by and large - find that they no longer have the economic power to buy as much food as they could before. They actually become worse off! And, of course, if the farmers can afford to mechanise to cut their own costs, that swells the ranks of the marginalised.

This is what happened to the poor in France, pretty well described in "Les Miserables", as a result of the British repeal of the Corn Laws. Suddenly the British workers were buying food from France. Things only worked out better overall once all the downstream countries had industrialised in their turn, until the food producers ended up in countries like Russia and the USA with more land to bring into production.

Anyway, paying developing countries' farmers for food they export does not help the worst off in those countries, it harms them. It's just that the farmers aren't at the bottom of the heap, and in fact when people get driven out of their older subsistence lifestyles they cease to get counted as farmers. This is what is known as "survivor bias", giving the illusion that farmers' lots have improved by ignoring those squeezed out.

It's like improving health statistics by shooting the sick.

7:09 AM  

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