Sweating Out Third-World Poverty

4 November 2014
Sweating Out Third-World Poverty - Featured image

This article from the November 2014 edition of the IPA Review is by Research Fellow at the IPA, Peter Gregory.

Benjamin Powell’s latest book, Out of Poverty, is a brilliant culmination of a decade’s worth of research on sweatshops. Powell, who is director of the Free Market Institute at Texas Tech University and a Senior Fellow at the Independent Institute, provides not just the economically and morally sound defence of third world sweatshops; he refreshingly offers an alternative course of action for anti-sweatshop activists, rather than just dismissing their concerns out of hand.

Powell’s argument in favour of sweatshops is simple: as reprehensible as the pay and conditions workers receive in sweatshops may be, the fact that people choose to work in them indicates they provide a better option for poor people than the existing alternatives. He finds that not only do sweatshops pay wages well above the alternatives available to workers (mostly in agriculture or the service sector), but in many cases sweatshop wages are even higher than the country’s national average income.

To illustrate this point, he highlights a key moment of the anti-sweatshop movement. In 1996 Wendy Diaz, a fifteen-yearold Honduran garment worker, confronted Kathie Lee Gifford on American television regarding her wage of 31 cents an hour to produce Gifford’s clothing range. Gifford burst into tears and promised to increase wages. However, Powell’s research shows that Diaz’s remuneration was well above the national average income in Honduras that year.

Indeed, Powell’s indictment of the anti-sweatshop movement is a key feature of Out of Poverty. He demonstrates how the minimum or ‘living’ wages campaigns that are often the goals of anti-sweatshop activists end up costing jobs and forcing people into even worse situations.

For example, in 2003 the Fair Labor Association and the Worker Rights Consortium pressured Korean firm Yupoong into an agreement with a union at their factory in the Dominican Republic. It promised to give the factory’s 2000 workers ‘a 10 per cent wage increase, educational scholarships, paid holidays, and the establishment of a workers’ committee to deal with health and safety concerns at the factory.’ It was hailed as ‘a sign of the success of transnational organizing.’ Four years later, the factory had closed.

He also shows that calls to force factory owners to improve health and safety conditions result in lower wages and that workers, if given the choice between conditions and wages, almost always choose higher wages.

Out of Poverty highlights the sinister and disturbing behaviour of the US labour movement which has underhandedly used the antisweatshop lobby, often comprising of naïve college students, to protect manufacturing in the United States at the expense of third world workers. In support of a failed bill which would have banned the import of sweatshop goods into the US, the American Federation of Labor and Congress of Industrial Organisations said the bill would be ‘a powerful vehicle…to take back our economy.’

Powell also promotes the idea that the antidote to sweatshops is economic development. He charts the historical economic development of Western nations, all of whom accommodated sweatshops in the past, like the infamous workhouses of nineteenthcentury Britain. He notes that in Western countries, anti-sweatshop labour laws did not exist until economic development had consigned sweatshops to history.

If given enough time, sweatshops drive technology transfer and human capital development, and actually play a key role in economic development.

This occurred in the Asian tiger economies after World War II where textiles and simple consumer plastics sweatshops were the precursor to much more technologically advanced manufacturing such as electrical appliances. This drove the huge growth and improvement in living standards in these countries, where sweatshops no longer exist. Even free market sceptic Jeffrey Sachs calls sweatshops the ‘lowest rung’ on the ladder of development.

Apart from outlining the traditional economic and moral arguments for sweatshops—and conveniently compiling the best and latest research to support them—what’s different about this book is that Powell takes the time to spell out a new plan of attack for anti-sweatshop activists.

Powell believes that the low-hanging fruit for activists is slave labour. Clearly slave labour is an egregious violation of an individual’s rights. The book’s support for sweatshops is based on the premise that if people choose to work in them, they must be a better choice than the alternatives available to them.

Obviously this is not the case with slave labour where workers are forced into the factory by threat of violence or some other threat. Although Out of Poverty shows that slave labour in sweatshops is actually extremely rare, where it does occur Powell wholeheartedly supports and encourages boycotts, law enforcement, legal changes, and other measures from activists.

Powell also traverses the thorny issue of child labour. He approaches child labour in the same way he deals with adult sweatshop workers—even though children working long hours in factories is morally outrageous, preventing them from doing so means they will be forced into something worse. This usually means long, unprofitable hours in the fields, but it can also force children into scavenging, begging or—even worse—prostitution. The key to countering this is to expand the options of children (and their parents)—not reduce them. To do this, he advocates that activists create nongovernment organisations that pay children to go to school.

He also notes that child labour rates fall dramatically as incomes rise above the poverty line. Once again, his argument illustrates that economic development is the real key to improving lives and ending sweatshops.

Out of Poverty offers heavily qualified support for so-called ‘ethical’ branding where garments and other products are marketed as being produced in factories where workers are paid a so-called ‘living’ wage and employment conditions are similar to those found in rich countries. Fair Trade coffee and chocolate are two great examples of this type of ‘ethical’ branding. Clearly, many consumers care about the wages and conditions of the people who make the products they buy. To the point where they impact on consumer choices, it is in companies’ interests to address these concerns with improved conditions.

However, when the improvements demanded by activists mean the company can no longer employ the worker, ‘ethical’ branding is obviously counter-productive. Activists can educate the public on this reality, help find the balance, and assist companies in discovering new ways to improve workers lives that appeal to consumers but don’t end up with job losses.

Furthermore, activists can expose fraudulent versions of ‘ethical’ branding such as the ‘Shop with a Conscience Consumer Guide’. Most of the factories identified in this guide are actually located in the USA and Canada: rather than helping poor sweatshop workers, it is a tool that directs income into the hands of wealthy Western union workers.

Activists could also instigate a campaign for a new ‘ethical’ branding called ‘Made in the Third World’. Economic development is, as noted throughout the book, the true antidote to sweatshops. Purchasing sweatshop goods actually instigates the process of technology transfer and human capital development that will eventually see their demise. At the very least, keeping sweatshops viable enables a poor person in a poor country to take up a better employment option than they might otherwise have.

Apart from these specific recommendations, Powell believes those concerned with the plight of third world sweatshop workers should agitate for change that helps poor countries more generally. These include encouraging free trade by removing trade barriers to western markets, opening up prosperous nations to increased immigration, and spreading the ideas of free market economics and individual liberty to poor countries that currently don’t have the institutional environment to support them.

For those who despair at global poverty, Powell sets a fantastic example to help readers understand that free economics and individual liberty are the keys to ending global poverty. Rather than scorning other compassionate people as economically illiterate, Powell invites them into the tent. And instead of viewing the institutional malaise of most poor countries as intractable, he offers a modest, workable, but nonetheless impactful set of actions that meet William Easterly’s test of what humanitarian activities should aim to achieve: help ‘some people, some of the time’.

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