Organized Crime

One of the oldest myths about capitalism is the notion that factories that offer the poor higher wages to lure them off the streets (and lives of begging, stealing, prostitution, or worse) or away from back-breaking farm labor somehow impoverishes and exploits them. They are said to work in “sweatshops” for “subsistence wages.” That was the Marxist-inspired claim made by socialists in the nineteenth century, and it is still made today by various neo-Marxists, most of whom have never themselves performed manual labor and experienced breaking a sweat while working.

The greed and selfishness of unions in this generations-long, anti-capitalistic crusade has always been transparent: Unions cannot exist without somehow prohibiting competition by non-union labor; hence the demonization of non-union factories as “sweatshops.”

American unions are not the least bit concerned with the plight of the poor in Third World countries. They are concerned about the financial health of their union organizations. If the unions had their way, the workers in Third World “sweatshops” operated by American corporations would all be thrown out of work and forced to survive on begging, stealing, or worse. This is the “moral high ground” that union propaganda has created on college campuses all across America where they have instigated “anti-sweatshop” campaigns, seminars, and protests.

The fraudulent nature of the anti-sweatshop campaign was revealed in a 2007 article in the Journal of Labor Research by economists Ben Powell and David Skarbek who presented the results of a survey of “sweatshops” in eleven Third World countries. In nine of the eleven countries, “sweatshop” wages in foreign-owned factories located there were higher than the average local wage. In Honduras, where almost half of the working population lives on $2/day, “sweatshops” paid more than six times that amount—$13.10/day. “Sweatshop” wages were more than double the national average of wages in Cambodia, Haiti, Nicaragua, and Honduras according to Powell and Skarbek.

It is never the workers in countries like Honduras who complain about the existence of a non-union factory that offers them an immediate 500 percent pay increase. The people benefit as consumers as well as workers in such situations, since there are also more (and cheaper) consumer goods sold in their countries. Capital investment of this sort is infinitely superior to the alternative of “foreign aid.” So-called foreign aid is always a government-to-government transfer of funds that empowers the state in the recipient countries, even when the state is a corrupt and oppressive regime. Market-based capital investment is always far superior to politicized capital reallocation.

Foreign investment in the Third World also has the potential of transferring business knowledge to countries where it previously did not exist. It is not just technology that is transferred, but knowledge about business practices and the entire culture of capitalism and wealth creation. Without it no nation can make progress against poverty.

The existence of foreign-owned factories in poor countries creates what economists call “agglomeration economies.” The location of a factory will cause many businesses of all types to sprout all around the factory to serve the factory itself as input suppliers and to serve the employees as well (with restaurants, etc.). Thus, it is not just factory jobs that are created. A successful investment in a poor country will also signal to other potential investors that there is a stable environment for investment there, which can lead to even more investment, job creation, and greater prosperity.

Capital investment by foreign investors in poor countries will also cause wages to rise there by increasing the marginal productivity of labor. Discouraging such investment, which is the goal of the anti-sweatshop movement, will do the opposite and cause wages to stagnate or decline.

One of the strongest virtues of the existence of “sweatshops” in the Third World is that they weaken the power of American unions. With few exceptions, unions have been at the forefront of anti-capitalist ideology and supporters of growth-stifling government interventionism. Thus, the weaker they become, the better off all American workers will be.

The best way of supporting the Third World poor as a single individual is to purchase more of the products produced by the capitalist enterprises that have located there.