The discussion at Jonathan’s over sweatshops and the commentary on the Thursday thread has brought my mind away from unpacking my books (I still have 5 boxes left to unpack…) and back to definitions in global economics. This time the target is the word “sweatshop”.
All too often when discussion goes toward industrial labor in the developing world the term sweatshop is used interchangeably with any factory producing goods with low wage labor. This is convenient for those who have an interest in maintaining a mildly xenophobic attitude toward off-shore sourcing of goods and for those who seek to dismiss any concerns about exploitative relationships because it helps to blur the differences in conditions within a developing economy.
So let’s get the main title point out of the way first. Not all factories in the developing world are sweatshops. Heck it’s even likely the vast majority of factories are not sweatshops. For the sake of useful debate, let’s define the term down to a more narrow definition. A sweatshop will be defined as any low-wage/low-skill production facility that meets some combination of these conditions:
- The employees do not provide their labor voluntarily. Human trafficking and slavery still remain a large part of the picture for egregious abuses against labor in the developing world.
- Employers regularly engage in any of the following: intimidation against collective bargaining, forced employment through doors/locks, withholding pay in exchange for services.
- The physical location of the factory has inadequate means of evacuation and/or is a toxic environment for the employees.
Now the second point is that globalization of production has also led to the creation of dispersed supply-chains. With the widespread adoption of Just In Time (JIT) manufacturing chains, the days of multinationals owning and operating their own factories are as outmoded as teletypes and typewriters. Sure a handful of companies might still do it, but on the whole it’s not how the world works.
In essence, this means that whenever a giant multinational wants to start selling a new shirt or new shoes, it goes to a range of suppliers found in developing economies and finding one that can provide the quantity and quality they need at an acceptable price point. Until the exposes of Nike in the 90s, people weren’t particularly concerned with how those suppliers actually created the product.
Once the reality of life within those supplier factories was discovered, people recoiled and began to boycott Nike. This put a substantial dent into the company’s brand image. For a company like Nike the value of their product hinges upon the public’s perception of the swoosh symbol. If the public mind begins to associate the swoosh with slave labor and shoeless teenagers in South-East Asia, the value of the brand plummets and threatens its value.
Plinko (who works in the apparel industry as a buyer for a MNC) made the following point at the 49th’s comments section:
Companies like my employer don’t directly or indirectly employ anyone in factories. The question of why we don’t pay more assumes we can pay workers at all. We buy finished goods, so paying them extra is most likely going to go straight to the pockets of the owners, no different than Blaise’s examples of the despots and the highways.
This means of course that simply asking the multinational to pay more (and say that you’ll be willing to eat the increased cost) doesn’t work. The truly problematic element in the chain are the factory owners. They of course have every incentive to screw over their workers while taking home as much money as they can. Even if every MNC decided to pay them double the amount they’re paying now for shoes, the increase would just go into their pockets.
But such is the nature of the relationship between suppliers and buyers that the buyers imposing certain labor standards and conditions to contracts does have a measurable impact on whether the workers merely work in a low-wage setting or in a bona fide sweatshop. While third party verification schemes are not perfect compared to environmental and labor standards imposed by government, they do help to curb the worst excesses found in developing economies.
Developing world economies aren’t a picnic. They often have terrible lack of opportunity and low wages. Their competitive advantage in labor costs do make them an attractive place to locate low-margin, low-skill manufacturing like textiles. I don’t think we can dispute the usefulness the opportunities these types of jobs provide to people. But we should also bear in mind that weaker governance structures in those communities means that workers don’t have some of the most basic labor protections that are afforded to people in developed economies. Third party verification schemes, trade deal conditions and consumer awareness can all contribute to at least making certain the low-wage factories don’t turn into hellish sweatshops.
For those who are interested on this subject, I recommend checking out Branded! by Michael E. Conroy. A shorter version of his argument can be found in a 2001 working paper, but I really do recommend the book. (Full disclosure: I am acquainted with Michael and have taken a course on certification based global governance in the past)