The Good of Sweatshops: Does Capitalism Exploit Workers?

Justin Ong

Justin Ong

Justin Ong is an active contributor to the Adam Smith Center. His latest work is a series of introductory-level articles spanning various topics of politics, economics and philosophy. He is also an incoming student of philosophy with Nanyang Technological University.

The Marxist tale of worker exploitation

According to Marxists, exploitation of men has not ceased following the collapse of the institutions of slavery and feudalism and still persist today in the form of capitalism. Capitalists are monstrously depicted as the elite class consumed by greed, sustaining their lavish lifestyles on the backs of poor workers.

In our modern context, the vanguard against capitalism taps frequently on sweatshops, asserting that their abhorrent working conditions represent capitalism’s exploitative tendencies and a justification for greater government intervention. No doubt, their arguments appeal to our moral intuition as it easy to frown upon the mundane, manually intensive and even dangerous work sweatshops workers undertake at miserably low pay.

 

Marxist exploitation theory

The foundation of the Marxist theory of exploitation stems from the observation that workers are paid lesser than the prices of products and services sold by business owners. Instinctively, it appears unethical for workers toiling away in garment factories to be paid only a few pennies to produce clothes that are priced at above $100.

One could infer that business owners must be egregiously exploiting their employees by underpaying wages and appropriating the surplus labour output in the form of profits. Such an allegation would explain how capitalists earn an income seemingly without breaking any sweat. Socialist intellectual Ferdinand Lassalle predicted that that real wages of workers in the long run will decline towards the minimum necessary for subsistence in the long run – a term also known as the ‘iron law of wages’.

Marxists assert that gross wealth inequality is created because capitalists underpay wages while collecting immense profits from surplus labour output.

Marxists vouch for the adoption of a ‘labour theory of value’, in which prices of goods are exclusively determined by total labour employed in production. To illustrate their point, Marxists posit that resources such as raw minerals and machines are only valuable upon the participation of human labour to use them for producing goods. Absent of human labour, these resources may actually depreciate through the ravages of time and neglect.

But this has been debunked

The labour theory of value falls apart upon closer examination. It is unclear why Marxists privilege the cost of wages among other factors of production such as rent, marketing and logistics in the determination of prices. A more realistic world-view of how prices of goods are determined would be market forces of supply and demand, which also govern labour prices.

Goods are only valuable in so far as consumers desire for those goods. One would only harvest minerals in expectation of market demand, not because the act of harvesting minerals is valuable per se. Economist Carl Menger expresses this concept excellently in his remark that “whether a diamond was found accidentally or from a diamond pit with the thousand days of labour is completely irrelevant for its value”.

Menger’s student, Eugen von Böhm-Bawerk, also argued that even if we accept the premises of a labour theory of value, workers are still paid the full value of their labour due to differing time preferences of income. Employees prefer to receive a smaller stream of income at present, as opposed to business owners expecting a larger income in the future. The time difference accounts for the interest income business owners receive at a later date.

To illustrate his point, Böhm-Bawerk invites us to imagine a steam engine priced in the market at $5,500 and takes 5 years before it is completely assembled. Here, as Han-Hermann Hoppe puts it, the relationship between workers and capitalists are not antagonistic but harmonious. Workers, preferring to receive income in the short-run, receive a pay check of, say, $1,000 per year for assembling each fifth of the steam engine. Conversely, factory owners expect to receive not $5,000, but say, $5,500 in sales revenue at the end of 5 years. For businessmen, the interest revenue in the form of profits function as an incentive to finance their business and compensation for their waiting time and risks undertaken.

 

Shopping from sweatshops

Sweatshops, in the majority of instances, pay above the average national income, empowering poor workers with on-the-job training and savings growth so that their children can attend school.

Economist Benjamin Powell has a radically different view of sweatshops – that they are a force for good. He quotes a The New York Times writer, ‘problems in places like this [Cambodia] is not that there are too many workers being exploited in sweatshops, it’s that there are not enough.’

Sweatshops, in the majority of instances, pay above the average national income, empowering poor workers with on-the-job training and savings growth so that their children can attend school.

He revealed that sweatshop wages are considerably larger than average national incomes of poor nations where these workers come from and poor workers strive to be there. For example, a Honduran sweatshop worker earning $3.10, fares much better than nearly a quarter of Hondurans who earn less than $1 per day and nearly half of Hondurans who earn less than $2 per day.

The closure of sweatshops condemn impoverished populations into accepting more brutal alternatives such as selling drugs, prostitution and subsistence agriculture. While governments neglect and corruption has ruined education and employment opportunities, sweatshops equip poor workers with basic job skills and boost their savings so their children can attend school.

Even with Powell’s observations about the significant economic advantages, we struggle to rally behind sweatshops and tremble at the idea of restraining labour unions and state agencies to make way for sweatshops. After all, it seems noble and innocuous to legally mandate certain number of days of paid leave and minimal safety standards.

Powell points out that wages and working conditions are jointly determined. Compensation can be paid directly as wages or indirectly as work benefits such as longer breaks, lesser working hours, reduction in safety and health hazards, etc. A poor worker with an already short life expectancy may not bother with improvements in health standards in the workplace. Eager to provide for their families, most workers would opt for a reduction indirect benefits in exchange for higher wages – a decision we can only honour if we don’t compel companies to adhere to certain standards of working conditions. Having more sweatshops would actually provide better working conditions as employers would have to compete more fiercely with other employers in offering more attractive work benefits.

 

The moral good

Corrupt governments and poor education policies are not the fault of MNCs. If there’s any obligation to uplift these poor workers from poverty, we should applaud and not protest MNCs with sweatshops. (Image credit: Shutterstock)

Nonetheless, many critics still insist that these workers are exploited by multinational corporations (MNCs). They allege that MNCs take advantage of desperate and impoverished circumstances to coerce workers into accepting sweatshop employment.

Sure, MNCs take advantage of workers but it remains unclear why these advantages are inherently unfair. MNCs are not culpable for the circumstances workers are struggling with and actually offer a brighter future for these workers they would otherwise not received. Even if we accept that MNCs are obliged to liberate poor workers from poverty, it would be logically incoherent to direct our protests against MNCs that employ sweatshop labour rather than MNCs who have contributed far less to the lives of poor workers by not employing them at all.

If we follow the logic that MNCs implicitly coerce poor workers into accepting sweatshop labour, then any act of rational persuasion by a salesperson would be exploitative – would there an attempt at implicit coercion if, say, I am offered a million dollars for an unwanted watch? Antecedent circumstances should not be proof of exploitation – they form the basis for encouraging and inviting parties to participate in a mutually advantageous arrangement in the first place.

A scarcity of options should never be grounds for us to trample on the economic freedom of poor workers. We must accord poor workers the autonomy and dignity to choose the least terrible option out of their range of terrible options. Unknowingly and regrettably, sweat shops protestors sap away the very economic freedom workers that is necessary for liberating them from the poverty cycle.

Next time, we should think twice before buying the arguments of sweatshop critics.

 

Resources

Murphy, Robert. Böhm-Bawerk’s Critique of the Exploitation Theory of Interest. Mises Institute, 2004

Hoppe, Hans-Hermann. Marxist and Austrian Class Analysis. The Journal of Libertarian Studies, 1990

Powell and Zwolinski. The Ethical and Economic Case Against Sweatshop Labor: A Critical Assessment. Journal of Business Ethics, 2011

 

Featured image credit from Presstv.

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Justin Ong

Justin Ong

Justin Ong is an active contributor to the Adam Smith Center. His latest work is a series of introductory-level articles spanning various topics of politics, economics and philosophy. He is also an incoming student of philosophy with Nanyang Technological University.