Friday 15 May 2009


EconSoc held a debate between a couple of economists and a couple of philosophers on the merits of sweatshops. My opening salvo is copied below, though the actual delivery truncated things somewhat. Enjoy!

Sweatshops and the Nirvana Fallacy.

I’m a big Simpsons fan. A few seasons ago, Lisa complained about how mean Bart was to her and wished he could be nicer and not wreck her stuff and stick up for her at school. She then shook her head and sighed that she might as well wish for a pony while she’s at it. In other words, wishing her brother to be nicer can’t make it so.

I think everyone here would prefer a world in which everyone is richer, where all kids have opportunities at least as good as those that kids here in New Zealand have, where nobody has to work more than an 8 hour day to make a living. So when we look out into the world and see places where folks no less morally worthy than ourselves work under worse conditions than us for less rewards, we recoil. And we want to make things better. It’s laudable that we care about others: Adam Smith, as much moral philosopher as economist, called it the sympathetic principle. We imagine ourselves in the position of the other and we make assessments on that basis. But we make a mistake when we imagine ourselves in the place of a sweatshop worker in Southeast Asia or Central America and imagine that, but for the existence of oppressive sweatshops, these folks could enjoy a standard of living like ours. We’re comparing their conditions with our relevant alternatives, and reasonably finding them wanting from that standard, when we ought instead to be comparing their conditions to their relevant alternatives. Comparing their conditions with our relevant alternatives, well, we might as well be wishing for ponies. Or, as economist Harold Demsetz put it, we’re committing the Nirvana Fallacy.

Harold Demsetz warned in a beautiful piece of economic writing back in 1969 against what he called Nirvana Theorizing. He said there that we can’t say markets fail just because they deliver outcomes that we don’t like; rather, we have to compare the outcomes of markets to real-world achievable alternatives. We can’t just assume Nirvana on the other side of the scale. And, most of the arguments against sweatshops effectively assume Nirvana on the other side: if only we were to ban sweatshops or, more realistically, impose bans on the import of products produced by sweatshop labour, the employees would suddenly be freed to pursue fulfilling careers or to go and get that Bachelor’s in Cultural Studies that they’ve always wanted. Their kids would be in great schools provided by their governments instead of working in the factory with their parents. And they’d all have ponies. It’s only the evil sweatshops that are keeping them from achieving their dreams. If only it were that easy. For proper comparative institutional analysis, we really have to look at how working in a sweatshop compares with what else these workers could be doing.

Now, we could take a strong aprioristic argument and say that the very fact that workers in these countries choose working in the factories means that factory work has to be better than their next best alternative as they judge it. And, barring cases of prison-labour in China, we’d be right in doing so. Some folks could raise arguments about parents forcing their kids into that kind of work, but they’d have to be making the assumption that parents in these countries don’t care much about their kids and are choosing options that make the parents better off and the kids worse off: it’s more than a little paternalistic of us to think that we care more about other peoples’ kids than those people do themselves. But some folks could make that argument about child labour in sweatshops.

Instead of relying on the aprioristic argument, let’s look at some actual evidence. What are the relevant alternatives for folks choosing to work in sweatshops? Well, some economists have actually done that. Steve Hickson will be talking about a few such studies in a few minutes; I’ll highlight a few others. Benjamin Powell was a classmate of mine in grad school. He’s recently finished some research looking at standards of living associated with sweatshop work. Powell looked through the US media for reporting on exploitative sweatshop labour. He found 43 cases mentioned. He took the wage rates reported in those very articles and compared them to the average national income per worker in the countries where the factories are located: In 9 of the 11 countries, average reported sweatshop wages – the wages reported in the stories complaining about the sweatshops -- matched or bettered national average wages for a 70 hour work week. In countries like Cambodia, Haiti, Nicaragua and Honduras, “sweatshop” wages were more than double the country’s average income. Powell then compared average wages in the apparel industry with average national wages and again found that workers earning the average wage earn more than the average national income at even a 40 hour work week for 8 of 10 countries where he could find data: 9 of 10 on a 50 hour week and 10 on 10 for a 70 hour week. Recall that in countries like Bangladesh, about 80% of the population lives on less than $2 per day.

So, while the wages paid in sweatshops are pretty poor by our standards, they’re very good by comparison to other alternative employment that folks in those countries could get. But what about other working conditions? 70 hours a week sounds like a lot: surely the workers would be happier working only 40 hours per week. Nicolas Kristof and Sheryl WuDunn received a Pulitzer Prize for their reporting on China. They report in the New York Times Magazine on sweatshops in China. They there find folks very happy to be working 10 hour days, and finding it a plus that the factory that they work at allows them to work seven days.
“The others we talked to all seemed to regard it as a plus that the factory allowed them to work long hours. Indeed, some had sought out this factory precisely because it offered them the chance to work more.”
In one case, western pressure to reduce work hours resulted in riots and protest at the company: people wanted to earn more money to improve their kids’ lives and were furious at being denied the opportunity. Many of the kids currently employed in sweatshops would otherwise be employed in agriculture, working on small farms with high risk of malarial exposure and even worse working conditions than those found in the factories. For others, the relevant alternative is even worse than the farm: I’ll come to that shortly.

Some folks argue that they don’t want to ban sweatshop imports, they just want to mandate that imported products be allowed only if the sweatshops live up to certain labour conditions. But requiring higher standards raises the total costs of labour in third world countries: some factories will employ fewer people, and others will shut down. It’s no surprise that the most vocal advocates of high labour standard imposition are western labour unions who don’t really care about poor people abroad but instead just want to price the competition out of business. A few workers who get to keep their jobs will be made better off by these regulations, but the folks who are currently working in the sweatshops are already the winners. The losers are the folks who never get a chance to work in a sweatshop.

More recently, Kristof’s been reporting on the conditions in a garbage dump in Phnom Penh. What’s that got to do with sweatshops? Well, you probably didn’t know it, but lots of people live and work in garbage dumps in third world countries, scavenging through the trash looking for scraps of metal or old plastic cups that they can sell to recyclers. It’s terrible work. Writes Kristof this January in the New York Times:
“Another woman, Vath Sam Oeun, hopes her 10-year-old boy, scavenging beside her, grows up to get a factory job, partly because she has seen other children run over by garbage trucks. Her boy has never been to a doctor or a dentist, and last bathed when he was 2, so a sweatshop job by comparison would be far more pleasant and less dangerous.

I’m glad that many Americans are repulsed by the idea of importing products made by barely paid, barely legal workers in dangerous factories. Yet sweatshops are only a symptom of poverty, not a cause, and banning them closes off one route out of poverty. At a time of tremendous economic distress and protectionist pressures, there’s a special danger that tighter labor standards will be used as an excuse to curb trade.

When I defend sweatshops, people always ask me: But would you want to work in a sweatshop? No, of course not. But I would want even less to pull a rickshaw. In the hierarchy of jobs in poor countries, sweltering at a sewing machine isn’t the bottom.”
Kids are born, live, and die in the garbage dumps, and know no life except walking barefoot through rubbish looking for scraps. For these folks, work in a sweatshop is a dream. However bad conditions in the factories sound to us, when we compare them to our comfy offices, they’re almost infinitely better than self-employment in the garbage dumps. And, the garbage dump is the relevant alternative for a lot of folks. For others, it’s worse. Radley Balko reports on some of the costs of anti-sweatshop protests. One German company bowed to popular pressure and laid off 50,000 child garment workers in Bangladesh. Some of you would have cheered on hearing it. But when Oxfam followed up, they found that thousands had turned to prostitution, crime, or starved to death. In 1995, anti-sweatshop protesters led Nike, Reebok and others to close down soccer-ball and other garment manufacturing plants in Pakistan; mean family income dropped considerably; University of Colorado economist Keith Maskus found that many of the child labourers were later found begging or getting bought and sold in international prostitution rings. What happens when we talk about legislation banning the import of goods produced using child labour? Let’s look at the 1997 UNICEF report that details the effects of the Harkin Bill.
“The Harkin Bill, which was introduced into the US Congress in 1992 with the laudable aim of prohibiting the import of products made by children under 15, is a case in point. As of September 1996, the Bill had yet to find its way onto the statute books. But the mere threat of such a measure panicked the garment industry of Bangladesh, 60 per cent of whose products — some $900 million in value — were exported to the US in 1994.8 Child workers, most of them girls, were summarily dismissed from the garment factories. A study sponsored by international organizations took the unusual step of tracing some of these children to see what happened to them after their dismissal. Some were found working in more hazardous situations, in unsafe workshops where they were paid less, or in prostitution.”
We imagine that if we could only ban sweatshops, we’d be putting kids into school. We’re deluding ourselves. Every little bit of smug satisfaction you get by working to ban sweatshop imports, or by turning your nose up at products produced in those factories, comes at a cost: the marginal employee in a sweatshop is sent back to his next best alternative. UNICEF reports that only a tiny minority of child labourers work in the export sector: most hawk goods on the streets, engage in local production, or work at rag picking. Conditions in the export factories are better. If you’ve been working to ban imported products produced by child labour or in sweatshops, you are buying warm fuzzy feelings at the cost of pushing some of the world’s most vulnerable children into even worse conditions: the garbage dump, begging, child prostitution and starvation. It’s no good to complain that that isn’t what you wanted: you’re just wishing for ponies. It’s no good to complain that foreign governments should be ensuring that every child is in school: they can’t afford it, and the most we can do is contribute to charities that subsidize local education in third world countries. It’s no good to complain that foreign countries should crack down on child prostitution: of course they should, but they haven’t the resources. The best we can do is assist charities that work to get kids off the streets. If you care about poor children in the poorest part of the world, don’t work to make their lives worse. Work for the charities that are out there trying to help these kids, like Canodia – they’re an organization that runs orphanages for kids rescued from the garbage dumps. If you’re working in the anti-sweatshop movement, consider such donations as an offset for the likely effects of your activism, because the likely effects of your efforts is to push kids into the garbage dumps, or worse.

It’s easy to imagine perfect worlds where there aren’t any sweatshops. But getting rid of sweatshops in the world we have makes the families that work there worse off. At minimum, we should do no harm. Working to ban sweatshops does harm. Stop it.


  1. Really insightful article. Very well written, compassionate and grounded in reality. Thank you for sharing this point of view and for encouraging people to give to organizations that help children get off the streets and go to school. It seems to us that as the countries become more educated this will definitely fade. It is a symptom of a greater problem.

  2. Great piece. For the past few years I've time researched and written about much of what you've laid out here. I looked at the tags of my five favorite items of clothing and I followed them to the factories where they were made in Honduras, Bangladesh, Cambodia, China, and a pair of old shorts to a factory in the U.S.

    I mostly agree with your assessment, although, I'm somewhat concerned about the apathy the "they could have it worse" mentality could lead to. Before Kristof wrote about the dump, I visited the exact same dump and wrestled with the same realizations. I think what we need to keep in mind is that these aren't "sweatshops" many of them are factories. But the workers could be treated better. In Cambodia the girls I met often had to pay a bribe to get the job. In China the workers would clock out and then go back to work. Often they would work more than 100 hours per week.

    Yes, these jobs are important, and even an opportunity, in some developing countries, but there is room for improvement.

  3. This is a great post - thanks for the links to actual research.

  4. The only problem with sweatshops and 70-80 hour weeks is that these aren't the norm in NZ

    Get some real reforms going here and it won't be a problem.

  5. Suddenly I'm the bad guy because I want workers in other countries to work only 40-50 hours at most, not be treated cruelly, and not driven to suicide?!

    Forget it! I don't want utopia - I just want the people who make the things I buy treated decently, because I don't want karmic retribution in the afterlife. Plus it's the right thing to do.

  6. @Anon: it's fine to want that, but when it's legislated, it puts poor people in poor countries out of work and into worse options.

  7. This is bullshit. The choice is not between sweatshops and 'Nirvana'. It's between conditions as they are now vs better conditions. All you're doing is making excuses to do nothing.

  8. @Ross: If you can come up with some way of getting better conditions at zero cost that isn't already being implemented, you'd be doing a great service to the world. But improvements that ramp up costs to employers often result in some employees losing their jobs. So then which matters more: small gains to the folks keeping their jobs, or huge losses to the ones forced out?

  9. This is just as much a political issue as an economic one; it's no coincidence sweatshops exist in countries with extremely lax labour laws.

    And I'm sure you don't really believe the economics of sweatshops are in equilibrium. They can't afford to pay more than 10/20c per hour without cutting staff? what a joke.

  10. If I see someone who is facing terrible circumstances and so make them an offer that is better than their current circumstances but still harmful to them, because it is in my interest to do so, is that morally right or wrong?

  11. places where folks no less morally worthy than ourselves work under worse conditions than us for less rewards,

    Their ancestors, at least, were less morally worthy than ours. Our ancestors built up the capital - not just the machines and factories, but the roads, the markets, the support businesses, the laws, the habits of societies, which make it possible for one family in Iowa to farm 100 times the land of one family in Bangladesh, or for an American factory worker to make 10 times as much as a Chinese one who works twice as many hours in a less healthy environment.

    Their ancestors did not.

    By the looks of it, many of those folks in the present aren't doing anything which would help build up the social capital (infrastructure and social relations) which would make possible better conditions for future generations.