Should I boycott goods made in sweatshop factories?

what-would-keynes-do-170-211Should I boycott goods made in sweatshop factories? Another question from – What would Keynes do?

This is a dilemma for an economist. If we boycott goods made in ‘sweatshop factories’ – does it help or hinder workers in developing economies?

Firstly, when we hear about working conditions in some ‘sweatshop factories’ – low pay, harsh and dangerous conditions,  and military-style discipline – it is human nature to want better conditions for those workers who make the products we use. When asked whether consumers would pay a small premium to enable better conditions for workers of the goods, a large majority say they would be willing. A study conducted by Robert Pollin (2001) found that retail prices for clothing in the US would need to only rise by 1.8 per cent in order to cover a 100 per cent wage increase for sweatshop workers in Mexican garment factories.

However, is a blanket boycott actually helpful? Economists such as Nicholas Kristof, Paul Krugman and Jeffrey Sachs all suggest that sweatshop labour can be better than the alternative – which is no job or really badly paid jobs like scavaging on rubbish heaps to earn a few cents per day. The danger is that a blanket ban on sweatshop products could see low-paid workers in developing economies going back to even lower paid jobs in agriculture or worse.

Sweatshop labour may seem very unattractive, but it could be more amenable than back-breaking labour in agriculture, with even gloomier prospects?

Arguments for sweatshop labour

Suppose the average wage in the US is $20 an hour, but, workers in developing economies get paid only $0.50 – by this metric, it seems unfair and gross inequality for those in the developing world.

But, if you are earning $0.10 working on a farm or at a recycling plant, a sweatshop job which pays $0.50 – may appear relatively more attractive.

It is understandable to be repulsed by the way workers in developing countries can be used by monopsony employers – but, a boycott of sweatshop goods could cause a loss of income, jobs and potential.

Also, by outsourcing production to cheap labour abroad, it could cause domestic job losses.

It may seem wrong for goods to be made by child labour, but for very poor parents, what are the alternatives? If there is no free education, the parents may be forced to sell children to work in gangs or begging.

Many developing economies started off with very badly paid sweatshop labour – but it provides a step on the road to economic development and economic growth. The inward investment and higher wages cause a positive multiplier effect and benefits throughout the economy.

A campaign against Wal Mart using child labour in Honduras to make the Kathie Lee Gifford clothing line led to Wal Mart cancelling its contract. However, this was criticised by those young girls who lost their ‘sweatshop’ jobs. (link)

The best of both worlds

Some economists fear a boycott of sweatshop labour could lead to job losses and even worse conditions. But, a better campaign would put pressure on companies to produce responsibly and ensure minimum standards in factories where their products are made. Even a small increase in wages will have only a minimal impact on overall costs for a multinational.

Furthermore, ensuring fair, safe and decent working conditions, can help increase labour productivity in the long-term. The Efficiency Wage Theoryefficiency wage theory states – better wages and better conditions can almost pay for itself through increased productivity.

For multinationals, there can be a reputational cost of producing goods from sweatshop labour which appears to be exploited. Some multinationals have sought to improve conditions in factories where their products are produced. Arnold and Hartman (2003) noted Adidas-Saloman and Nike Management had relative success in improving conditions for workers – without changing production to other factories. This shows that developing economies can benefit from inward investment, new jobs but also maintain reasonable standards for workers – it is not a case of either very poor jobs or no jobs at all.

Buycott of firms who do make efforts

‘Buycott’ – making effort to buy from firms who deserve support. An alternative strategy is to make efforts to reward companies who do ensure certain standards in their supply chain.

Conclusion

A blanket boycott of goods on its own, could prove counter-productive if a multinational was simply to move production to another country and job losses would occur.

However, the threat of boycotts or reputational damage can put pressure on multinationals to improve conditions for workers in developing economies. When multinationals make the effort to ensure basic standards, it can also be compatible with maintaining profitability and long-term good relations.

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