Myths of sweatshops exposed
By Christian McClellan "The Hard Nosed Liberal"
This week you may have seen the large board in the campus center where students were encouraged to pin the tags from their clothing to the country in which the clothing was produced. When you see the concentration of tags in Southeast Asia you are supposed to be struck and saddened by the great injustice your consumption is causing people in this poor region. To me, this display is another monument to the positive effects of liberal globalization. Continuing with topics of global economic integration, and inspired by the display, I want to discuss the pervasive viewpoint that foreign direct investment in developing countries operates against the interests of the poor.

While I too am moved by sob stories of sweatshop conditions, the view that foreign direct investment somehow makes the poor worse off is both mistaken and ludicrous. In the manufacturing sector, the area most often maligned in anti-globalization diatribes, there is tremendous evidence that multinational corporations pay more and treat their workers better than local companies. According to Edward Graham of the Institute for International Economics, U.S.-owned companies in the manufacturing sector paid 1.4 times the average wage in high income countries, 1.8 times in middle income developing countries and twice the average salary in low income developing countries. The same result is supported by other studies. Take for example Mexico, where incomes are higher along the border where the investments of U.S.-owned companies are concentrated. Perhaps the most exhaustive study was that of Indonesian manufacturing. The study examined almost 20,000 plants. It concluded that the wage was, on average, 50 percent higher in foreign-owned plants than in domestic plants. Moreover, it concluded that total compensation (including other non-wage benefits) was 60 percent higher.

One might accept these benefits, but still be troubled by the plight of workers in the so-called "sweatshop" industries: clothing, footwear, sporting goods and toys. First, let us recognize that despite the attention given to these industries by anti-globalization activists, they are relatively insignificant. These industries accounted for only eight percent of world merchandise exports in 1997 and seven percent of U.S. investment abroad the following year. Despite the insignificance of these markets in the scheme of world manufacturing exports, they are very important for developing countries as they can act as the first step in development. Here too, there is evidence that, while the wages in these industries may be low compared to wages in developed countries, they are better than alternatives in agriculture or elsewhere. According to the U.S. Department of Labor, firms producing footwear and apparel generally pay more than minimum wage and offer conditions better than those found in agriculture.

While I feel the evidence is clear that foreign investment, specifically the creation of manufacturing jobs, benefits poor residents of developing countries, I made the stronger claim that to believe anything else is ludicrous. Consider the claim anti-globalization activists make: workers are better off without global economic integration and the jobs that accompany it. The claim is ludicrous because it is false by construction. If the jobs did make the workers worse off, the multinational corporations would have no employees. People make decisions by comparing alternatives, so it seems clear that from the very fact that people have taken manufacturing jobs with multinational corporations that these jobs were better than their alternatives. Had the jobs been inferior, they would not have taken them. For this reason, foreign companies hoping to attract workers must offer better wages or conditions or both. Moreover, as newly arriving foreign companies offer higher wages, domestic companies must offer higher wages to keep up. In economic terms, the demand for labor in these developing countries goes up, so the market price goes up. Over time as new multinationals want to set up shop, they also must offer more, further driving up the wage. In this respect, the problem is not too much globalization, but too little.

Ultimately, like anti-globalization activists, I deplore poverty. However, for the workers who choose them, manufacturing jobs with multinational corporations are the best jobs they can get, and often are much better than the alternatives. This is why I find the anti-globalization argument so untenable: In denouncing multinationals and disparaging globalization, they seem to be suggesting more extensive poverty as the solution to conditions in the developing world. To suggest that we boycott goods because they are made by residents in a developing nation is to take away the very jobs which these workers rely on. 

Issue 08, Submitted 2004-11-03 15:40:46