The Question of Sweatshops: Cutting out the Bleeding Heart Arguments

Fair trade is an interesting movement based on the premise that trade is not necessarily bad, but it needs to be done in a socially responsible manner to “help the poor.” Because the movement is not pushing for any government action, only private action by individual firms and consumers, I do not have a general problem with it. However, there is evidence that fair trade in some industries, like coffee, is actually hurting small growers or producers in poor countries. But that is a discussion for a different time.

One of the main premises pushed by fair trade supporters, and skeptics of globalization more generally, is that unrestrained free trade has led to sweatshops, which by their very nature are wrong. To combat this, we need to boycott the companies with unfair labor practices and push our governments to restrain outsourcing of labor.

This is a narrative that pulls at the heart strings. But deeper analysis shows that it privileges rich consumer conscience (and rich country labor unions) over poor worker welfare. Let me explain.

I sat in a class several years ago when a professor explained why he does not necessarily oppose sweatshops. Naturally, there was an uproar. Students stood up, voicing their moral outrage. But the professor continued on calmly. He made an interesting distinction between types of sweatshops:

  • Prison Sweatshops: Places where low skilled workers are lured in and then not allowed to leave. These sweatshops have locked doors or other restraint mechanisms that make leaving impossible.
  • Long Hour Sweatshops: Places where low skilled works may work for long, often obscene hours under less than ideal conditions for low pay. However, unlike the prison sweatshops, workers may leave the job at any time.

The professor went on to say that he is vehemently against the first type, because this is very obviously a human rights violation. However, he is not opposed to the second. I agree, and the reason is because of the counterfactual.

To consider the counterfactual we must consider what would happen if the firm employing the people did not exist. And it is the romanticized counterfactual that drives the knee jerk opposition to all sweatshops. We can presumably accept that if people are allowed to leave a low-skill manufacturing job at any time,  (meaning they are employed in a type 2 sweatshop)  then they are at the best paying job possible in their area. If this is true, it means that absent the sweatshop job, the person would be working at a lower paying, often locally owned job, or not working at all. If the person is not working, they are not sitting comfortably receiving an unemployment check like in the U.S. They are likely near starvation and suffering from diseases that they cannot afford vaccines for.

Many opponents of long hour sweatshops with conditions not on par with rich western countries forget how American industry started. They also paint a picture of rural poverty that is out of touch with reality. In general, sweatshop labor that does not involve coercion must make the people employed better off then the rural poverty experienced by the unemployed in that country. The absence of an “evil firm” that has sweatshops might make purchasing vaccines or food for children impossible.

With this new perspective on the counterfactual, the debate changes: sweatshops are not glorious. They are not comfortable. But trying to end them without some alternative replacement is dooming impoverished workers to even worse poverty.  Poor countries rely on their comparative advantage in unskilled labor to produce certain manufactured goods at competitive world prices. Unless the morally outraged volunteer to invest their own capital in a foreign production plant, or unless they have some economically feasible alternative to multinationals, their outrage is nothing more than a drug to assuage their own conscience.

 

Advertisements

Higher Education Funding Series: How the Wrong Assumption Drives the Wrong Policies

The affordability of college in tandem with the student loan debt crisis has been a hot topic at UCLA and a lot of other places for a long time now. The topic is important, because as a society we have chosen to provide federal support for education. The reasons for this choice are simple:

  • Education is a primary way through which individuals can increase their lifetime wealth and thus exercise income mobility. I call this the poverty prevention reason.
  • Education provides positive externalities to society, meaning that the benefits of education accrue not just to the student but also to those surrounding the student, and the US economy as a whole. This means that in a purely free market, one would expect education to be under demanded.

I am not going to argue with these, even though there is plenty to argue about. (I would imagine that the marginal benefit of each year of education beyond high school declines). Instead, I will take these as the primary goals of federal support of education. Over the course of several articles, I will discuss why current reform propositions will fail to advance these goals. In this first entry, I want to start with background and discuss a core wrong assumption.

Most reformers suggest one of several options:

  • Pegging the federal student loan interest rate at a lower level
  • Enacting a loan forgiveness program or easing the process of student loan bankruptcy.
  • A new, interesting idea: Giving tax breaks to companies that help students pay off their debt.

Although each one has different effects in terms of who it helps, the overall net effect is the same: making it easier to acquire money to go to college.

A large number of advocates who are currently in college start from the assumption that college is for everyone. This is an honest mistake, which is likely the result of generalizing their own experience (they chose college) onto everyone. It is also likely a result of those advocates mistakenly equating the idea that “education is good for everyone”, with college is good for everyone. The first phrase is almost certainly true. For the individual, education increases their marginal product of labor, that is it makes them able to produce things more efficiently, as they are able to use better tools with better skill. If you accept, at least loosely, that a person’s real wage is equal to their marginal product of labor, than this increase means they are unequivocally better off.

But education is a broad term, and college attending lobbyists assume that it only means a liberal arts education. In truth, a liberal arts education is only a small subset of the things that count as education. Technical schools, internships, jobs, military service, self-training, Khan Academy, and so many other things are sources of education. All of them can equip people to increase their own skills and therefore increase their wage. All of them enable people to increase American output. They are no more of less honorable or useful than a traditional college degree. And in many cases, they may be more useful.

This is because when someone decides how to increase their human capital through education, they not only consider benefits but also costs. And in a pure market, internships and apprenticeships, while perhaps lower in benefits, are also lower in cost. They do not require a person to give up working fulltime, and they rarely involve paying tuition. In our current market, the government has subsidized liberal arts degrees while disadvantaging internship and apprenticeship opportunities.

The subsidization of liberal arts degrees is through loan forgiveness, federal grants, and held down interest rates. The disadvantaging of internships is indirect. The mechanism is the national and state wide minimum wage laws. Such laws prevent a business from hiring someone in a training position for a low wage. In many cases they force young people to accept volunteer positions with some educational benefit, which at times requires college enrollment (in order to receive credit).

The true travesty of this situation plays out when one connects the dots. Since federal aid is spent mainly on liberal arts education, and federal aid is paid for with tax dollars from U.S. companies and working individuals, it means that we are making some of the working individuals pay for the degrees of those in college. Further, we are making companies pay for degrees, when that tax money could have been used by the company to hire paid interns.

So to return to the original proposition: The higher education funding discussion is premised on a narrow view of education. And, as I have argued, this is mainly because the lobbying movement is composed of people currently in college. This drives the conversation towards further subsidization of one type of education. As I will show in my next post, the current solutions are only more of what we are already doing. And what we are already doing is driving the inefficiency of modern universities.

The Silver Bullet: How Free Markets Can Win Back the Millennial Generation

Freedom, specifically economic freedom, has a pr problem. For the past few decades, advocates of government regulation and state planning have successfully re-branded free markets as the philosophy of the past. In a two pronged attack, economists, educators, and politicians deftly chalked the 2009 crash up as a failure of the private sector, while rewriting history to portray market excess as the driver of the Great Depression. At the same time, progressive policies, like mandated health insurance, sky high minimum wages, trade restrictions, and new taxes gained political and cultural traction.

Enter millennials: a group of individuals, of which I am a part, who grew up during the pinnacle of this brave new age. We saw the mortgage bubble rise and fall. We immersed ourselves in the new wave of technological innovation, and we absorbed the media that came along with it. The reality is that progressive or pro-government messages have won the ground war. From influential, sexy economics books like Piketty’s Capital in the Twenty First Century, to well-produced Buzzfeed and AJ+ videos, the left has managed to blame capitalism for wealth inequality and present government as not only innocent, but as the savior. All the while, well managed and culturally relevant messaging is selling to America the idea that free markets and individual choice are ideas for the dustbin of history.

But there is a silver lining to this situation. First, the narrative that has been winning the millennial war is wrong.  It was not free markets that destroyed economic prosperity in the 30s and again in 2009. Any examination of the Smoot-Hartley Tariff, government subsidization of the mortgage industry, tight and lax monetary policy, and massive government intervention will tell a more nuanced story. It is not economic freedom that restrains wages and crushes advancement: it is regulation, union monopolies, minimum wages, corporate subsidization, state licensing requirements, and government paternalism. Of course, some of these ideas are debatable. But others, like the economic benefits of right to work legislation, are almost foregone conclusions.

Second, the internet and technology revolution has established itself as inherently pro-liberty. The internet has made competing sources of information accessible to the average person. Lyft, Uber, and Sidecar have begun to bring down the taxi monopolies. Ebay, Amazon, and other online retailers have forced conversations about sales taxes. WebMD and other websites allow for free medical advice. Acorn and Scottrade allow people with small initial deposits to begin investing. All of these changes have one thing in common: they mean more choices. And millennials, despite their learned inclination against free markets, like more choices.

What remains now is for a political force to leverage the millennial opportunity to counter the past few years of statist victories. The party of economic freedom has traditionally been the Republicans. But riding the millennial wave will take more than a few awkwardly produced videos by the national organization. It will take three fundamental changes.

First, the party must embrace a comprehensive and consistent view of freedom and liberty. This means dropping platforms like harsh criminalization of low level drug offenders, opposition to same sex marriage (at least adopting a more Rand Paulish position on this one), and support of massive state surveillance programs. Polls numbers suggest these positions are no-goes with millennials, and I contend that this is likely because they are not consistent with a philosophy of liberty. In the place of old platforms, the party can reorganize and debate more fundamental issues. One such issue, abortion, is a philosophical question where government action could be defended. If a fetus is a person, than laws against abortion are not only justifiable, but necessary to protect human liberty. A more nuanced set of poll numbers regarding abortion suggests millennials appreciate the need for a discussion on this issue. Other areas include new ground, like right to try legislation. People, especially those facing near certain death, deserve the chance to try experimental drugs. The FDA does not have the right to stand in their way. In the immigration debate, Republicans should spend time convincing the non-millennial base of the value of a more free and open immigration system. Such a system recognizes the realities of our global world, and it resonates with millennials, who due to the Internet and an increase in foreign students, feel connected to those who wish to make the United States their new home.

Second, the Republican Party has to embrace the technological revolution. While this may seem easy, it requires accepting not just the shining tools of the future but the cultural changes of the present. Many libertarian think tanks, like the Cato Institute and the Mercatus Center are already doing this. One mainstream Republican candidate, Marco Rubio, has made technological changes a pillar of his campaign. He should be commended, but he and the other candidates would do well to not just embrace the Amazons and the Ubers of the world, but also the Reddits, The Onions, and Khan Academies. Millennials and the younger generations already recognize the value in these and other noncommercial aspects of the technological revolution. By recognizing the value of the disruption and even sometimes social change that comes with technological, Republicans can rebrand themselves as the torchbearers of the future instead of the gate keepers of the past.

Finally, the Republican Party needs to be willing to form unlikely alliances to accomplish policy goals. Political elections often conjure hatred, and sometimes rightfully so. But Republicans would win political points for taking the higher road when possible to work with nontraditional allies. Tax reform and licensing reform offer two areas for this type of cooperation, where pro-market reforms can help reduce poverty.

Republicans should also drop the personal attacks on political opponents.  Rhetoric targeting a person’s religious beliefs or racial identity has become central to politics, especially with the rise of Donald Trump. And while his tactics may provide short term gains within the base, they are not sustainable in the general election or the future. Recent polls showed Trump polling at 25 percent among millennial conservatives, but dwelling on this result is missing the point. Conservative millennials are a small faction within a diverse generation. According to Pew Research, only 35 percent of millennials identify as Republican, meaning that even if the 25 percent number is accurate, it represents less than nine percent of the generation as a whole.

Overall, Millennials want action, not rhetoric. Some polling even suggests that the direction of this action is irrelevant. And if the Republican Party wants to win the hearts and minds of America’s future, it will need to act. It will need to generate ideas, be willing to evolve, and most importantly, embrace the full meaning of liberty.

Polling links:

https://www.aclu.org/news/international-poll-shows-millennials-have-positive-opinion-edward-snowden

http://www.people-press.org/2015/04/07/a-deep-dive-into-party-affiliation/

 

Millennials want action:

https://reason.com/poll/2014/07/11/millennials-like-action-support-both-pol