Weekend Economists Enumerate the Wealth of Nations, February 10-12, 2012

[Demeter]

66. Are 'sweatshops' an economic necessity?

http://business.blogs.cnn.com/2012/02/06/are-sweatshops-an-economic-necessity/

A few years back, influential New York Times columnist Nicholas Kristof shocked readers by opening a column this way: “Africa desperately needs Western help in the form of schools, clinics and sweatshops.”
For Kristof, who regularly advocates better conditions for people in the developing world, this advice seems to belie his progressive views. But he’s part of a chorus of liberal economic thinkers who advocate that sweatshops – a broad term for factories or workshops characterized low wages, long hours, sometimes underage workers and unsafe conditions – are an unsavory but necessary first step to help bootstrap the world’s poorer economies. Nobel Laureate Paul Krugman penned a 1997 piece for Slate entitled “In Praise of Cheap Labor” that argued “bad jobs at bad wages are better than no jobs at all.”

That brings us to the once sleepy fishing village of Shenzhen, across the border from Hong Kong, which was the center for China's economic reforms in 1979. In just three decades the city has grown to more than 10 million people. Shenzhen is now home for numerous technology manufacturers and a large part of the Chinese operations of Foxconn, the electronics manufacturing giant that help builds the bulk of the world’s Apple iPhones, Microsoft Xboxes and Amazon Kindles. Foxconn – and by association, Apple, Microsoft and other multinational tech companies who lean on Foxconn’s million-plus Chinese workforce – are now under the microscope for allegations of poor labor conditions, especially after a more than a dozen of employee suicides at company plants in 2010.

Under the “sweatshop economics” argument, the troubles at Foxconn suggests Chinese labor development has reached an adolescent stage, with workers no longer content that any job is better than no job at all. The progression follows the route that Singapore, South Korea, Hong Kong and Taiwan took toward building their developed economies – a path laid out by post-World War II Japan. “Made in Japan” has disappeared from back of low-cost electronics, much like the once proliferate “Made in Hong Kong” or “Made in Singapore” can no longer be found clothing labels. Foxconn itself is a Taiwanese company that has shifted the bulk of its labor-intensive operations to the mainland. The sweat from the first generation of factory laborers in those East Asian nations paid for the education of their children and grandchildren, and the rise of their companies and economies creates higher value jobs in management, research and design, marketing and the like.

At least, that’s the dream. The ultimate macroeconomic test of the virtue of the sweatshop is does it really create upward social mobility? Some critics say no. In a piece for Foreign Policy in Focus, Jason Hickel of the London School of Economics, argues that especially in post-colonial areas of the third world, sweatshops arose not because of market forces but “the outcome of a deliberate strategy to render people desperate enough to take jobs that paid pennies...People — in Thailand and Peru, for example — only choose sweatshop jobs because they have been made desperate and given no alternatives for livelihood. So it’s not really a 'choice' at all,” he wrote. Yet looking at the macroeconomic success of China, it’s hard to not be awed by the country’s incredible strides since cracking open its markets to capitalism “with Chinese characteristics.” Since 1979 about 600 million people – or 10% of the entire population of the planet – have escaped poverty in China, according to the World Bank, a feat more successful “than all the aid programs we have seen throughout the world,” as Stanford economist Paul Romer put it.

Whether Western consumers will start to feel guilty – and switch off – from electronics products made in China remains to be seen. But as thousands lined up for jobs late last month at a new Foxconn plant in Zhengzhou, the spigot of Chinese workers who want to make your iPhone appears in no danger of running dry.