U-M Sweatshop Code Ill-conceived

by Charles Goodman

Would a strong sweatshop code of the type SOLE (Student Organization for Labor Equity) has been demanding, including a “living wage” provision, benefit workers in developing countries? According to SPEED (Students Promoting Export-oriented Economic Growth), the right answer is: We don’t know for sure, but probably not. And I’m sure many students on campus think that can’t be the right answer. After all, aren’t the workers who make U-M licensed apparel oppressed by evil capitalists who pay them virtually nothing and force them to work long hours in awful conditions? Wouldn’t the workers be better off if their terms of employment were required to improve?

Some of SOLE’s claims are certainly true. When it comes to wages and working conditions, Indonesia is not a very nice place. Nor are most of the countries where the garment industry is now expanding. But the poverty and misery in these nations isn’t caused by the presence of capitalists — almost the reverse: it’s caused by the absence of capital of various types. What these countries need are managers, machines, skills, and organizational forms from developed nations that can help them to become more productive as quickly as possible. In other words, pouring investment dollars into developing countries, as Nike and numerous other apparel companies have been doing, is just about the best possible way to help them climb out of their poverty.

Why do Western investors put money into places like Indonesia? To make profits there, of course — which is harder than you might think. The people in impoverished countries often lack education and skills, and the infrastructure there is usually rudimentary. Therefore, technically each worker is much less productive than an American or a German would be. The only way workers in developing nations can compete with workers in richer nations is by accepting lower wages and working longer hours. If you forbid companies to employ them at wages that seem unfair to us in the United States, you risk costing workers in these countries their jobs or, at the very least, slowing the rate of job growth there. But people only take such jobs because they have no other options! That’s just the point: they have no other options. If you eliminate sweatshop jobs, what will they do?

Economic theory predicts that if you lower the rate of profit on any particular use of capital, you lower the amount of capital that will be used that way. Sure, multinational corporations could reduce their profits and pay their workers more. But if you try to make them do so, they may react in ways you don’t want or expect, say, by building their next factory in Germany, where the workers are more productive and markets for the products are close by.

The debate about “living wage” provisions is like the debate about minimum wage laws. (Though at least minimum wage laws are precise. Nobody knows how to define “living wage” — not me, not Bollinger, and certainly not SOLE.) Though a few economists disagree, the bulk of the economics profession is convinced that minimum wage laws cause unemployment among those who need jobs most: teenage workers and the poor. But certainly, at some point a minimum wage becomes a very bad thing. Suppose we raised the minimum wage to $100 an hour. What would happen? Doctors and lawyers would keep their jobs, but half the factories in the U.S. would shut down, and the other half would go underground. The measure would be a monumental disaster. Even raising the minimum wage to $10 or $20 an hour would still destroy the jobs of everyone who couldn’t produce enough to make it profitable to pay them that wage. If you define a “living wage” in too strong a way, you will have a similar effect on employment by multinationals in poor countries. The same is true about too-restrictive constraints on terms and conditions of employment.

Just like minimum wage laws, strong sweatshop codes will help only the workers who keep their jobs. It’s possible that the overall good it will cause for them will be greater than the harm for others. In the absence of detailed empirical studies, we just don’t know. We do know that it will cost at least some money for enforcement and through reduced revenues from licenses. There are some provisions in the proposed U-M code that are clearly appropriate; the University is right to refuse to buy products made by child labor or prison labor. But why implement a code that is sure to be costly and may very well hurt the people it is supposed to help? MR

Editor’s note: The Review also invited the Student Organization for Labor Equity (SOLE) to submit a viewpoint on this topic, as part of a proposed pro-con forum; however, they refused.

This article was published in the 31 March 1999 edition of The Michigan Review (Volume 17, Number 9).
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