Nicholas Kristof Is Dreaming of Sweatshops

New York Times columnist Nicholas Kristof has just discovered that a sweatshop employment is not the bottom of the scale of poverty:

Talk to these families in the dump, and a job in a sweatshop is a cherished dream, an escalator out of poverty, the kind of gauzy if probably unrealistic ambition that parents everywhere often have for their children.

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I’m glad that many Americans are repulsed by the idea of importing products made by barely paid, barely legal workers in dangerous factories. Yet sweatshops are only a symptom of poverty, not a cause, and banning them closes off one route out of poverty. At a time of tremendous economic distress and protectionist pressures, there’s a special danger that tighter labor standards will be used as an excuse to curb trade.

What Mr. Kristof forgets is that there will always be relative differences in income. If the Cambodian sweatshop workers would get a proper paycheck, they would be able to employ the people now living in garbage dumps at better service sector jobs, like restaurants etc.

There will always be a part of the population that will be left outside of the employment in factories. The level of poverty of the people who live in the margins of society is more a reflection of the level of disposable income of the population in general.

If the people who work in sweatshops were not offered a very small but safe income from abroad, they would most probably engage in riskier, but potentially more rewarding activities, like farming. They would trade with each other, and everybody would have a chance for accumulation of capital. Instead, they merely subsist on food imported from countries with heavy export subsidies, while the rest of the economy gains nothing.

Whole populations of poor people can be kept in sweatshop conditions by paying them just enough to keep them away from the risks associated with independent economic action, but still not quite enough for any meaningful accumulation of capital.

Mr. Kristof is correct in his notion that absolute limits on minimum wages can result in activities moving to relatively more advanced locations. The focus should be on increasing the overall level of pay in underpaid industries, like garments. Thus, any criteria in labour standards should be defined on a relative local basis, to determine a level of pay that provides enough disposable income for the development of the local economy.

Economically marginal people in a sweatshop-based economy live in true squalor, just as Mr. Kristof has noticed. But such poverty is so complete exactly because of the lack of disposable income in the economic mainstream.