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In Defense of Cheap Labor

December 3, 1999

One of the complaints raised at the WTO meetings in Seattle,
Washington, echoes the accusations that have for years been leveled at
Nike, Kathy Lee Gifford, WalMart and others, all of whom have employed
workers abroad who charge far less for their labor than do workers in
most Western countries, especially in the US.

It is that it is evil
to pay so little for the work being provided in the developing world, and
unfair to other workers who have fought long and hard to obtain better
wages from their Western employers.

Now, after all this struggle and
the benefits finally reaped from it, companies are managing to escape
the results by moving to countries where wages are still low, where
there is no organized "labor movement," and where other harms befall
workers as well (for example, environmental destruction via the
costless dumping of wastes, wrought by the lack of legal sanctions).

It is difficult to judge these charges without actually living in the
regions of the world where labor accepts the "cheap" wages, at least
cheap in comparison to what labor gets paid in, say, Detroit or Dallas.

After all, medical care is less expensive and less up to snuff in most
such regions, as well, as is entertainment, transportation, clothing,
food, furniture and the rest. "Cheap" is not an absolute concept!

In short, in most regions of the world, the quality of life is lower
than in the West. Ironically, that is largely because in most regions
of the world free trade had been either outlawed completely or
curtailed severely by governments that have ruled there.

Without free
trade, labor cannot organize, wages cannot be bid up, the environment
suffers, and, of course, the quality of goods and services lags. It is
hardly the fault of corporations that do business in these regions that
they need not pay more for what they get.
But to this the response is that corporations ought to and even be
made to pay more for the work.

On a recent TV magazine
program Kathy Lee herself said that she wished the minimum wage were
higher in Central America, where she does some business--as if she
were prevented from raising wages unless the government forced her to
do so.

At any rate, there is a widespread sentiment, fueled by the likes of
Ralph Nader and Michael Moore (the man responsible for those sentimental movies "Roger and Me" and
"The Big One") that it is the obligation of people in business to seek
out badly paid workers and raise their wages to what is confusedly
called a "living wage."

I don't wish to address the basic moral issue here. Suffice it to note that
this complaint very likely does not square with the behavior of most
people--I'd bet even those who advance it.

Consider just this much. You are in a grocery store and shop for some
item, say tea or chicken or soda pop. If you see that your preferred
item comes in both an expensive and a cheap rendition, which do you
purchase? At the mall, do you avoid the very expensive stores and the
very expensive items and, instead, look for sales or good deals?

you shop for shoes, do you seek out the most expensive if you can find
more reasonably priced ones that meet your needs? When you bid on a
house, do you volunteer a higher price than the seller is asking? How
about a car?

When considering going to a hair
dresser or barber, do you look for the most expensive place to get this

I doubt that the answer is that most folks want to part with more rather than
less of their wealth as they make their way about the market place. To waste money is
is to throw away good opportunities--for saving for a rainy day, or
being able to afford something else. It is to behave irresponsibly.

People in the market place aren't there to be
charitable: that goes for everyone, not just managers of
multinational corporations. If you shopped the way the protestors expect
companies to shop, your family would be outraged at your carelessness,
your lack of prudence.

But it must be remembered now that just as charity begins at home, so
does charitable wage negotiation. If you avoid the stores where goods
are expensively priced, you are putting into motion a process that
leads to the manufacturer of the goods sold there to seek out the
cheaper rather than more expensive labor, overhead, and transportation.
Those who buck this trend simply cannot attract customers and will go
out of business, thus leaving what used to be cheap now simply
unemployed labor!

The fact is that in a free market there are better opportunities to
improve one's bargaining power than in a regimented economy of the type the Clinton administration wants the WTO to impose around the world. The
latter relies on the non-existent omniscience of bureaucrats to set
prices, wages, and production levels, with the result that the entire
system is usually very badly mismanaged.

Even such American academic sympathizers with socialism as John
Kenneth Galbraith and Robert Heilbroner have admitted that critics of
the planned system such as Ludwig von Mises and F. A. Hayek were
completely vindicated when the Soviet Union's socialist economy
collapsed. These latter economists argued for decades that when
there is a lack of freedom to engage in local pricing, communication
between the massive number of market agents is impossible, so shortages
and other forms of mismanagement will be inevitable. (This is called
the famous "calculation problem" of planned economies.)

Nor are heavily regulated--rather than outright planned--economies
able to escape the brunt of this criticism. There, too, bureaucrats
pretend to be able to know what people ought to want for themselves and
under what terms. But this also misfires and leaves costly wastes, all
in the name of humanitarian sentiment that lacks economic sense. (But
such sentiment is a lazy type of humanitarianism at best!)

What is fundamental to an economic system is freedom
of trade among all the participants. This means no slave labor, no
restraints on trade by governments and criminals, no protectionism, and no regulations imposed by the WTO. The more freedom, the better the
likelihood of economic opportunities of all concerned.

But freedom is not enough. Market agents will have to be alert to new
ways of doing business, new technologies and so forth. Complacency is
deadly for economic prosperity.
Sadly, however, a lot of people believe short cuts can be taken and
the flexibility economic progress requires, both in their households
and on the global economy, can be dodged by instituting government
protection against competition. That is why so many clamor for
government interference.

Finally, what about child labor? President Clinton proudly signed an
WTO agreement against it, but even that is no help to millions who do
not have the option to enter some nice school (which Mr. Clinton
dreamily envisioned) instead of going to work. For such kids it is
either some kind of work or some level of starvation, in most cases.

In some developing countries sending a child to work can mean the
difference between a reasonably solvent family and one that is on the
brink of economic collapse--which means also the collapse of medical,
educational, and various other areas of their lives.

In Hungary, as a kid of 11, I worked as a baker's assistant, getting
up at 4:30 AM and then leaving the bakery for school at 8 AM, pretty
run down, in desperate need of sleep. But given that economically
mismanaged society, the alternative was for me not to work and for the
family to eat far less.

My mother already had to bring soup home from
work every noon since we could not afford to buy any. Under such
circumstances child labor is a blessing! Had it been forbidden, it
would have been a back breaker for our family.

What President Clinton signed in Seattle on December 2nd is probably a
back breaker for millions of families across the globe. In the name of
resentment against corporations that make profits from the work of
children, the president and his colleagues consigned a lot of children
to hopelessness.

* * * * *

Tibor R. Machan teaches business ethics at Chapman University and is an adjunct scholar of the Ludwig von Mises Institute in Auburn, Alabama.

See also The WTO: Threat to Free Trade.

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