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That Taco Bell Brouhaha

Mises Daily: Monday, January 10, 2005 by

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The cacophony over Taco Bell's allegedly scandalous wage practices is getting louder, at least on college campuses. Some of my students have asked about the Taco Bell boycott being pushed by organizations like the Coalition of Immokalee Workers (CIW) and Students Against Sweatshops. Is Taco Bell really impoverishing workers? Will boycotting Taco Bell actually increase wages? Is it likely that people will be willing to pay more for "fair trade" tacos? How will this affect unskilled workers in the long run?

Trends in public opinion are not encouraging. A Google search for "Taco Bell wages" returns, in the first ten pages, only five hits that either supported the company or were neutral (two links were to Daniel D'Amico's splendid piece on the issue, two were to an Acton Institute commentary, and one was to a Taco Bell site). All other sites painted the company as a vicious exploiter of migrant labor who must be stopped at all costs.

Is Taco Bell really "exploiting" and impoverishing workers?  The CIW and other anti-labor organizations answer in the affirmative. On their website, the CIW claims that "by contracting for cheap tomatoes grown and picked by farmworkers (sic) paid sub-poverty wages in Florida, Taco Bell contributes significantly to the continued misery of farmworkers and their families."

This is precisely wrong. Taco Bell's wage policy alleviates the "continued misery of farmworkers and their families" rather than contributing to it. Wages are not foisted upon workers; they agree to pick tomatoes for "sub-poverty wages" for a reason. In a market economy, they do so because the 'sub-poverty wages" paid by Taco Bell suppliers are a better deal than anyone else is offering. It's the same reason people line up for "sweatshop" jobs in developing countries. Far from contributing to "continued misery," Taco Bell is making workers' lives a little bit better by offering something better than their next-best option.

Before we rush to condemn free markets and market forces, we have to ask where the workers are coming from. In many cases, Taco Bell suppliers employ migrant workers who are making their own "run for the border."  Migrant workers in Immokalee come from places like Haiti, Mexico, and Central America—areas where markets have been crippled by state intervention for generations. The end result is a veritable army of workers who have not been allowed to build a skill set through free market employment and who are now suited to do nothing better than pick tomatoes for pennies. Far from being the enemies of labor, American markets are offering migrant workers an opportunity to substantially improve their standards of living and the prospects of their children.

Among other things, the CIW is calling for a one-cent per pound increase in employee wages, arguing that large corporations like Taco Bell and McDonald's are responsible for the conditions of their workers. Profits are high enough, the protesters argue, that Taco Bell can share the wealth. This is misguided for three reasons.

First, consumers are a fickle bunch. There are a lot of substitutes for Taco Bell, and Taco Bell consumers—who usually have low incomes—are very price-sensitive (in econo-speak, the demand curve for fast food is highly elastic). A change in prices of just a few cents could have a big impact on the bottom line. Market forces discipline producers to keep quality high and prices low.

Second, investors are a fickle bunch. Falling profits will tell investors to look for greener pastures. If Taco Bell wishes to attract capital—and by extension, if Taco Bell employees wish to stay employed—they have to maintain a healthy bottom line.

Third, market wages are not arbitrary. If an extra penny a pound is so great for workers, why not an extra ten cents?  An extra ten dollars?  Why don't we legislate that Taco Bell pay workers $100 billion per pound of tomatoes, and failing that, boycott them until they do? The answer comes back to market discipline. Just as people aren't willing to pay taco prices sufficient to allow workers $100 billion per pound, they aren't willing to pay taco prices sufficient to allow workers an extra penny a pound without hurting Taco Bell sales and, by extension, Taco Bell employees.

"Exploitation" is also terribly ambiguous. To the extent that voluntarily agreed to wages are below someone's notion of what is "fair," no exploitation exists. No doubt, some Taco Bell workers are still exploited. The CIW reports on several slavery operations in which workers have been kept in trailers under the watch of armed guards. In cases where Taco Bell or a Taco Bell supplier is coercing workers or reneging on agreements, they should be prosecuted. This may give us a reason to re-evaluate immigration policy. Many migrant farm workers come to this country illegally. Since they do not enjoy contracting rights available to American citizens and "legal" migrants, they are at a disadvantage.

Both problems of exploitation stem from state monopolies on contract enforcement. If slavery does in fact exist among migrant farm communities, it tells us that some people are evil and that the state isn't very good at its job. We may not want to rely on the state to fix the problem. The second problem comes from the fact that an "illegal" worker has little recourse when wronged. The US government is under no obligation to enforce his contracts or agreements. Competitive markets for contract enforcement would mean more enforcement, higher quality enforcement, and cheaper enforcement. There are already thriving markets for services that help immigrants adjust to life in the United States; we can expect to see thriving markets for immigrant contract enforcement crop up in the absence of state monopoly.

The boycotters also argue that the boycott will reduce Taco Bell's profits and bring the company to its knees. Taco Bell, seeing that low wages aren't good for the bottom line, will be forced to offer higher wages to their workers. While boycotts are far superior to state intervention, it isn't clear that a boycott will have its intended effect. They are less costly, they don't rely on violent intervention, and they even present opportunities for entrepreneurs who can sell "fair trade tacos." In the long run, the boycott will reduce wages and opportunities for migrant workers.

When socially-conscious consumers reduce their demand for Taco Bell products, they reduce the demand for Taco Bell's inputs, like tomatoes. Lower demand for tomatoes in turn means lower demand for tomato-pickers, which means lower wages for tomato pickers. Reduced demand for tomato-picker labor means fewer tomato-picking jobs at lower wages, which is exactly the opposite of what the Taco Bell boycotters wish to accomplish.

This may create a market for "fair trade" tacos. This is again preferable to state intervention, but it still hurts workers who sell "unfair trade" tomatoes and rewards people who may be wasting resources. Unfair trade tomatoes are good substitutes for fair trade tomatoes, so people who buy "fair trade" tomatoes and other goods are bidding resources into tomato production unnecessarily. Not that there's anything wrong with that—we should do nothing to impede voluntary exchange—but we must recognize that the fair trade tomato picker's gains are coming at the expense of would-be tomato pickers who must pursue other options.

It may be that Taco Bell will capitulate to worker demands and offer higher wages. Is this a triumph for workers?  At best it is a mixed blessing. Taco Bell may offer higher-than-market-clearing wages to some workers, but it is also likely that they will look elsewhere for tomatoes. Florida tomato employment may be lower than it would otherwise be as Taco Bell looks to other, less well-organized suppliers. The net effect is to redistribute wages and opportunities from some low-productivity workers to other low-productivity workers.

This point has been made before, but it is worth repeating. If people are interested solely in Taco Bell tomato-picker welfare, they shouldn't boycott the restaurant. They should stop eating at other restaurants and eat only at Taco Bell. For that matter, they should stop cooking and eat every meal at Taco Bell. This will increase the demand for tomato-pickers and, therefore, will increase tomato-picker wages and tomato-picking opportunities.

This still leads to ambiguous results. The net "social gain," to the extent that such a term has any coherent meaning, is minimal at best. In order to support Taco Bell tomato-pickers, consumers have to take the dollars they were spending at McDonald's, Burger King, and other restaurants and spend them instead at Taco Bell. While it may well be a bonanza for Taco Bell tomato-pickers, it is a disaster for the people who provide McDonald's and other restaurants with all-beef patties, special sauce, lettuce, cheese, pickles, onions, and sesame seed buns. The problem hasn't been solved; it has merely been shifted into a different sector.

Organizations like the CIW and Students Against Sweatshops should be commended for fighting slavery and fraud wherever they exist. However, by seeking to build consumer movements, encouraging "socially conscious" shopping, and by seeking to use the coercive power of the state to achieve their goals, they're actually hurting the people they want to help.

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Art Carden is a graduate student in Economics at Washington University in Saint Louis, a Humane Studies Fellow of the Institute for Humane Studies, and a Fellow of the Center for New Institutional Social Sciences. carden@wueconc.wustl.edu. Comment on the Blog.