 Welcome to Free Thoughts from Libertarianism.org and the Cato Institute. I'm Aaron Powell. And I'm Matthew Feeney. Joining us today is Benjamin Powell. He's director of the Free Market Institute at Texas Tech University and a professor of economics at the Rawls College of Business. Today we're talking about his book Out of Poverty, Sweatshops and the Global Economy from Cambridge University Press. Let's start with what is a sweatshop before we get into how we should think about these things. Well, you know, that's actually a challenge when you set out to do research on this because the word sweatshop has a connotation in everybody's mind, but you can't look up a precise definition and say that is a sweatshop and something else isn't. There's a general bundle of characteristics that sweatshops have, very low wages by the standards that we're used to in the developed part of the world, poor working conditions which could be dangerous working conditions, unsafe or unhealthy long-term buildup of particles in your lungs or whatever from working inside, long hours, sometimes variable and unpredictable hours, generally unpleasant working conditions, sometimes involves child labor. These are all the general characteristics of a sweatshop. And one, when I study them that I don't include in this is coerced labor. These are places where despite these bad working conditions that all of us agree are bad, people choose to work and admittedly from a bad set of choices otherwise they never choose to work there. But that choice is important in demonstrating that the worker believes it's their best available of their bad alternatives. The other type with coerced labor, then there are instances of. I call that slave labor and is not a subject of what my analysis is. I think the appropriate response to slave labor in all instances would be to ban the products, to not buy them, to boycott them, to dry up the demand for enslaving people. But those same set of conclusions, this is where the anti-sweatshop movement kind of blurs it, is they start mixing the two together and thinking the policy implications of one applied to the other. In terms of studying sweatshops, identifying them empirically, I gave you the list of kind of conditions, but how do you draw the line and say, that one's a sweatshop, that one's just low-wage industrialization? And the way I've done it operationally is to look at what anti-sweatshop protesters have called sweatshops and study those instances rather than make up some arbitrary line of my own. So we typically, if I think of sweatshops, I think of people making garments, shoes, other clothing items, is that accurate or are there other sorts of things that get made in sweatshops? So there's plenty of places with lousy working conditions around the world. The main one is agriculture. People have these kind of naive notions of the good life in agriculture, but it's miserable for most people who are in subsistence agriculture around the world, but those aren't sweatshops. So yeah, it's generally apparel production. The vast majority of them is some sort of textiles or clothing apparel. Some cases now you're seeing of the calling sweatshops things that are labor-intensive but low-skilled manufactured goods that aren't apparel, some types of technology occasionally are, but the vast majority are apparel industry. But a lot of these goods that are made, especially apparel, are the ones that seem to be highlighted a lot, and a lot of the apparel they're making are made for big companies that are worth billions. And so the obvious and very often heard complaint is companies that are worth billions of dollars afford to pay people more than what they are if these workers are in the third world. So two parts of this. One, the multi-billion-dollar companies are almost never the actual employers of sweatshops. Almost all of the sweatshop employers are some sort of subcontractor to them who gets purchase orders from them and then doesn't. But of course the response could be as part of their agreement to purchase they could demand higher wages for those workers from those companies. But the problem is of course they could do this but we live in a world of trade-offs and if they pay more or if they have to pay more for labor that raises the costs of labor relative to other ways to make the close and they're going to substitute for it because the companies don't suddenly become charities because we demand them to do more for third world workers. They're still trying to maximize profits. If we change the relative prices they respond by using less of the one that just got more expensive sweatshop workers and they substitute either fewer workers but more machinery or fewer low-skill workers but more high-skill workers who are higher cost but more productive. So you shift in fact and they do this within the third world as well. So part of it is a shift to the first world. So you can still buy garments made in North Carolina and that's high cost but high productivity labor. But also you see in general Latin American sweatshops tend to pay more than Asian ones. If you demand the companies pay a higher wage they don't just suddenly start paying the Bangladeshi workers more. They just do less in Bangladesh and more in a little bit higher productivity country. But to pick up on Matthew's question it seems like the criticisms that we hear of sweatshops especially of anti-sweatshop activists fall into two sorts although they intermingle a fair amount. So there's the economic criticisms of these are harmful in certain ways or these people could be paid more which is the one that you just addressed in your answer but there also seems to be there's a moral side to it which says like look okay yeah I understand that these companies if the price of sweatshop labor in country A goes up they're going to shift to country B where it hasn't that they may do that but then it's the right answer is to at least morally condemn them for doing it that if they were better people they wouldn't. They would be willing to pay the higher wages even if they could get cheaper wages somewhere else and so is there something to that side of the argument or is that getting it wrong as well. Yeah I think that's getting it wrong as well. So I think the moral arguments are important. I think economics without philosophy can do great evil and I think philosophy without economics is just daydreaming. What we need is to put the two together because economics puts limits on our utopias and what we have to understand is by interacting and trading with these people it creates more demand for their workers which if these workers are voluntarily choosing the job demonstrates it was better than their other alternative we've actually helped make their lives a little bit better. Now what I've encountered some philosophers and business ethicists who say is they'll say well we don't have a general obligation to help the world's poor but we do have an obligation for anybody we interact with to interact with them on terms that would be respect their humanity or something like that and that's all well and good but if that means we interact with fewer of them more of them are left in more extreme poverty that's a trade-off and without philosophy we don't know whether that's a good trade-off or not but the economics tells us those are the costs and benefits and I think most people who aren't philosophers anyway when they realize that you could help some people more than what philosophers tell you is morally required excuse me less than what they say is morally required but more than would be helped otherwise most of us would say that's a little bit better for those people. Well so I want to follow up on that by asking about the conditions on the sweatshops compared to the geographic area so sitting in Washington DC the sort of conditions in the Bangladeshi sweatshop look bad and are bad but why would someone choose to work in a sweatshop when there are other alternatives are these jobs really much better than the alternatives if someone in one of these sweatshops doesn't work in a sweatshop what are there other choices. Yeah so the main one of not working in the apparel industry or low wage industrialization in one of these countries is working in agriculture and often subsistence agriculture that is the main alternative and what we found what I found when I've studied sweatshops is I've looked at the cases of the wages paid in these third world sweatshops and then I've compared it to the domestic living standards there where the sizable chunks of the population living under two dollars or a dollar twenty five a day and these sweatshops in every country the average sweatshop pays more than the two dollar a day standard even Bangladesh that's the one that's been in the news the most the average Bangladesh sweatshop that has been protested in the popular press pays more than two dollars a day but yet sizable chunks over the time period studied more than half of the population of Bangladesh lives on less than two dollars a day. This brings up something I've wondered about when people are talking about sweatshops that you know we say like okay well they're making two dollars a day say at the sweatshop and that to us living in the United States sounds like a terrible unlivable wage and so it must be bad is it how much of our sense of badness is based on just not understanding differences in cost of living in these countries like is is two dollars a day even if it's higher than the average wage is it still a pretty bad wage that doesn't support a decent quality of life in Bangladesh or is it actually like a pretty good wage even by their standards yet no compared to how other people live in that country it's a higher wage but compared to anything that we'd call a decent standard of life it's not so yeah of course two dollars buys you a lot more in Bangladesh than it does in Washington DC but it doesn't buy you enough that I think any decent person in the United States would look at that and say that's a good standard of living for that person the point is it's a better standard of living than the alternatives that exist for them so unless you're proposing an alternative that gives them better you don't want to take away the option that's the best they have. So I'm wondering if you could address a criticism that I often hear about sweatshops when I express free market sympathies which is people might say that free markets do provide benefits but only under a certain set of conditions and those conditions do not apply for sweatshop owners it can't reasonably be said that they have access to all the right information that it's really voluntary and what's your response to those kind of criticism. Yeah so there's a whole line of what they call kind of left libertarian-ish critics of sweatshops and I think they're all a little bit misplaced because they don't offer a viable alternative so the one that I think I agree with is that they'll say that these sweatshops aren't purely a product of a free market they're the product of past injustices so we've had colonialism in the past that screwed up the institutions of these countries so these institutes these countries haven't supported economic freedom the same way so they haven't developed so now this is the best available alternative to the worker to that I say yeah that's true there's lots of the actually in fact we in the United States have suffered all from injustices of the past as well the question is what is the alternative you're offering we can't go back and undo history we're not actively responsible for their impoverishment now them not having good institutions is on them we can interact with them on terms that make them better and that's better for them than us ignoring them but this left criticism of it of it's not purely a product of the free market I think it's just it doesn't offer them a way out and there's another aspect to it and this is not a criticism of the the sweatshops per se but it's about the background injustices when I call it that that lead to them expect accepting these employment is that you'll find cases where it's not like the sweatshop who's gone in and tanked their other alternatives but let's say you have this happened in Indonesia people who live in the forest there who have an indigenous way of life and it doesn't look like a high-living standard to us but it was what they were choosing and then the Indonesian government sells what we might think of as their justly homestead land to a logging company who comes in clear cuts that they can't live there anymore now what do they do they go to the city they need employment they work in a sweatshop it wasn't their best alternative until you took away their best alternative in their mind and I think we as free market types should justly condemn the government giving away what we call their land to a logging company but that doesn't make the sweatshop the exploiter it's you know if we're thinking about it in terms of you know they were a ship at sea somebody came along and torpedoed them then the sweatshop is the lifeboat that showed up but that lifeboat isn't what torpedoed them we can condemn the torpedoing while simultaneously endorsing the lifeboat I'm curious about the history of these things because we get you often get the sense that these are a relatively new thing or that they are they're somehow dependent upon kind of modern capitalism that the sweatshops that we talk about are you've got a large multinational corporation that wants some sort of product for very cheap and so therefore sets up or subcontracts with these new sweatshops to make this cheap product so are they has that always been how it is are they relatively new do we have a history of sweatshops say in countries outside of the ones that we typically think about yeah I know of no country that has a high living standard today that's not just rich off oil let's say that hasn't gone through something like a sweatshop stage of economic development in fact I grew up around this I grew up in Haverland, Massachusetts since Merrimack Valley and I did my undergraduate at University of Massachusetts Lowell my hometown Haver was referred to as the shoe city for its 19th century shoe production Lowell of course hard of the industrial revolution that's going on there but existed in the 1840s through late 19th century early 20th century there were essentially sweatshops they had long hours they paid wages that were similar they had harsh working conditions and workers just like they do in the third world would leave the farms come to the cities to work in them because they offered a better alternative and particularly actually it's freeing for women in the United States who used to be you know under their father's thumb until they got married on the farm many of them became the Lowell girls who went to be the work in the Lowell mills there and earn money and after a year of living in the boarding house and working there they'd often have more saved up than their father did who owned the farm so it's liberating to them as well so we had that here in the United States we had it in Great Britain but in Great Britain the United States to go from what I'd call a pre-industrial standard of living to something that we might call post-sweatshop was a period between 100 and 130 years 150 years maybe it took a long time because what causes the high standard of living the proximate causes are the technology the physical capital and the human capital but when the first countries were going through industrialization all of this stuff happened had to be created anew so it took a long time to build it up and get the higher standard if I said think of what the sweatshop countries were in 1950 what do you think the sweatshop countries were I mean probably countries that we consider quite developed now yeah like how about the Asian Tigers Hong Kong Singapore South Korea Taiwan to some extent Japan all of them except Japan had a pre-industrial standard of living prior to the 1950s and Japan of course had been industrialized but decimated in World War II all of them attract textile industries in this low-wage sweatshop type manufacturing but it's not a hundred-year process there it's not 150-year process about a generation that they go from pre-industrial to first world and then Hong Kong in particular but I mean any of these look at them today it's not just that they escape the pre-sweat the sweatshop standard of living it's some of them have a higher standard of living than we do here in the United States I mean Hong Kong is just amazing it's the freest country in the world ever since we've been able to measure it and the growth there is just spectacular you look out along the skyline and it looks like you know midtown midtown Manhattan except expanded across all five boroughs and some people mistakenly say well you know it's a global race to the bottom these countries you know they have sweatshops and they run and go get cheaper labor and they make it sound like they were raped and pillaged in the process like what happens Hong Kong's not raped and pillaged what happened was the sweatshops were there had built up more technology more capital in Hong Kong the workers started becoming more productive as they were more productive their their physical labor was more valuable in other industries so people bid them out of the sweatshops as a result the sweatshop employers couldn't hire people so what do they do they move on and go find workers somewhere else that they can bid away because they offer a better standard than their alternative so really rather than a race to the bottom it's like a ladder to the top and sweatshops are one of those low rungs on the ladders of economic development and as a country goes through that stage of development they eventually move past it if now I said proximate causes of of higher standards if you're underlying or fundamental causes of development or right and that's private property rights rule of law large degree of economic freedom when you have those the sweatshops come in and are a very quick stage of the economic development and yet despite all of that a common objection especially from anti-capitalists is that sweatshops or something like them are a fundamental part of a capitalist system that something like sweatshops will always have to exist and i'd be interested to hear how you respond to criticisms like that yeah so sometimes a variant of that would be okay that's all well and good you said it's the ladder of economic development but as people graduate where's the last place it's going to get sweatshops and they're just going to be stuck forever in sweatshops stand maybe it's somewhere in the interior of africa it's like well no when it eventually gets there one it'll be better than what africa currently has to know as that labor gets more skilled and they have more capital they also will be more valuable and alternative lines of work and we're still going to have a need for clothing though so as the relative price of that labor goes up the capitalist to try to make the clothing start changing the mix they use fewer workers who are more high skill and more capital with them so all the sudden clothing production in the last country that had sweatshops looks a lot more like it does in North Carolina today right and something that has has occurred to me while reading reading the book is a little bit about i suppose it occurred to me that my judgment about the anti-swirt shop movement might be a little naive perhaps i thought they were all college freshmen who decided to go on protests and everything but what do you think is the anti-swirt shop coalition and what are their motivations right because it's just a mean we talk on this podcast a fair amount about bootleggers and baptists and it seems like the the college student protesters look like the baptists so who are the bootleggers in this yeah so i think the vast majority of sweatshop activists are the baptists they're misinformed economically not particularly thoughtful people who honestly care about the poor of the world and want to help them and part of my message with this book when i go out and lecture on it is to try to reach those people and just i mean if you care about the world's poor you have an obligation to care about price theory to understand trade-offs so that you make sure when you're trying to do good that you actually achieve good and not just feel good about yourself then there's the bootleggers part of this and actually that's where the student anti-swirt shop movement really got their start and that's the the labor unions and the wealthy parts of the world and the united states afl cio and unite a garment workers union uh in the mid-1990s they started doing union summer programs with college students having them work on exposing sweatshops then go back when they went back to their campuses afterwards they start united students against sweatshops and the spreads to campuses around the country but the unions they care about it because they do understand the price theory and they understand that third world labor is a substitute for first world labor and if they raise the price of their competition third world labor then it will increase the demands to have their workers produce more which either allows them to expand union membership or preserve jobs and have fewer losses or raise the wages and working conditions of their own members they would have you believe you know that some workers of the world unite solidarity bs that they're they're contributing to but no union's job is to raise the wages and working conditions of its members the vast majority of third world sweatshop workers are not these union members so why are they advocating for higher wages for them it's precisely because they understand the trade-offs and know it'll help their members back in their home country they're disingenuous when they when they take up the cause of so called cause of third world workers but isn't another way to frame that to say that that's caring about the poor too just the poor closer to home because the union argument is look we used to have a thriving working class in this country that was making garments and then we all got super greedy because we wanted instead of paying a reasonable price for t-shirts we wanted to pay next to nothing for them so we shipped those jobs overseas and so okay let's let's accept for the moment that we've helped those Bangladeshis a little bit by giving them slightly higher paying jobs but it's come at the expense of the American worker who is now poor and those really cheap t-shirts aren't making it up yeah so let's decompose this into a couple different parts here so one is the plight of the American worker we we got to get real here because we hear stats about all wages of stagnated since the 1970s manufacturing is down no we're at a near all-time high for manufacturing output in the United States number of manufacturing jobs is down because we're getting more productivity out of each given job and if you think about as productivity is increased in the United States think about how manufacturing productivity has gone up since the 1970s the mechanization and using technology but then think about service productivity has that increased nearly as much I mean it has but not to the same scale so if we just have some constant constant preference between the amount of manufactured goods and services we consume and one gets way more productive than the other means we're going to need more service jobs and fewer manufactured jobs to maintain that mix so I'd say the average American worker it's not stagnated wages because that's a bad way to measure it when you actually look at total compensation and what it buys they live much better than they did just think about if you'd like to be talking into a phone that's tied to your wall and what's happened to this living standard for your average American but then the second part of this trade-off I care about the poor closer to home I think this is at least it can be an economically sound argument one that I would say is immoral but that's a difference of ethics not of economics if you recognize the trade-off and realize we're going to make third world workers worse off but we'll increase the demand for now again we shouldn't say poor Americans because your average union worker making garments in the United States is not a poor American but let's say lower middle class American will be slightly wealthier because we'll do more of it here and America as a whole will be poorer because we're making things in a more expensive way that lowers all of our standards of living and one says well I understand these trade-offs it screws the world's real poor helps out somewhere in somebody in the 30 to 40th percentile in the United States and overall makes the United States poor and I favor it economics has nothing to tell you those are trade-offs but they're not the types of trade-offs that most people talk about in this debate so I want to follow that economic point with a philosophy question because we talked earlier about the importance of it and what is someone with free market sympathies like us to do who is also not happy about conditions in sweatshots what's the ethical thing to do should we be buying more garments that were produced in sweatshops or should we just be buying American t-shirts and American shoes what's the ethical thing to do if you're a free market person concerned about sweatshots yeah so we need an anti buy made in the USA campaign so let's buy foreign increases the demand for products made by them that increases the number of them that need to be employed and the wages that they can go on from it now related to that and I think we should talk a little bit about what can be done for these workers so staying within the the anti sweatshop movement let's talk about one more thing that doesn't usually help them very much but it's related to this ethical branding part so sometimes they'll say you know it's we need products that are made sweat free and certified you know like fair trade coffee equivalent and this doesn't have to be bad for the workers but in practice it often is so one companies can get them branded sweat free by paying a living quote living wage having better working conditions or whatever but one way you do that is you shift where you produce it to where the labor is more productive so you don't do it in Bangladesh anymore you subcontract to Mexico and there the labor is much more productive than it is in Bangladesh and you're sweat free but if we care about the world's poor have we really helped them or have we just shifted away from the poorest of the poor or some others or worse there's this fraud called shop with a conscience guide and they claim everything that they sell is sourced from sweat free factories except when you actually plot where their factories are located most of them are in North America particularly the United States and Canada it's a by-union I made in the USA campaign in disguise there are a few scattered through Latin America a single one in Asia but it's a shifting of production but people who go to that think I'm hoping poor workers of the world but it ends up just being a fraud so I think we have to be very careful about they're catering to buyers who want to feel good but who aren't willing to invest very much to find out if they're actually doing good just describe the entire American political system that's fitting when we're in this city so I don't think so I think the correct answer as a consumer just buy products don't worry about it buy them from foreign countries unless you find out that it's made with slave labor but I can tell you in a decade of studying this I could count on one hand the number of questionable instances where there might have been something that's coerced labor the vast vast majority these are places where people choose to work because it's the best of really lousy alternatives but if we really want to help these workers there are policies we could advocate for they're just not the things the anti sweatshop movement talks about the number one so I said sweatshops are a stage in the process of economic development that means they don't you know disappear overnight it takes time and it's quicker now than it used to be but there is something you could do that would take an impoverished worker and enrich him basically overnight let's advocate for more open borders or more immigration from these countries if you take a Haitian out of Haiti where there are sweatshops and bring them to the United States on average his income will go up by a thousand percent that's not in a generation that's not after years of accumulating capital it's overnight and it's because he comes and interacts with the American capital technology and human capital that's here it's not that he himself intrinsically doesn't have any skills and he does it in an environment that better protects property rights and has greater economic freedom so that he can use his skills better so if you care about the welfare of these workers that's very tough to promote development in another country it's hard to force it on them because ultimately they need the underlying institutions of economic freedom property rights rule of law and just writing in a U.S. style constitution or having a military invasion doesn't do this constitutions of pieces of parchment they don't enforce themselves needs to be the hearts and minds of citizens there who buy into it it's you can't give that what we can do though is allow some of them to come to us and that would help more of the workers I imagine though that the bootleggers we discussed earlier might be among those objecting to such a policy of increased immigration it's uh I haven't heard it on a AFL-CIO's plank yet I so you mentioned that we can bring so one of the reasons that you might move from Bangladesh to Mexico if you're being forced to pay more is because the Mexican factories are more productive than the Bangladeshi ones and then you mentioned that bringing you know if we open up the borders we let the Bangladeshi come here his productivity will go up so what is tie those together like what is the cause of these productivity differences is it that you know on the one hand like so we say American workers are very productive but very expensive are they more skilled are they say better at sewing shirts than the Bangladeshis is it or is it just a matter of like the the sweatshops in other countries have worse technology and so it takes more man hours to make the same shirt and if that's the case could we fix it by simply investing in better technology in these other countries what's so that yeah what's the cause of what do we mean by differences in productivity between the countries yes so it's a combination of all of these things that you're talking about right it's differences in technological levels differences in the amount of physical capital they have to work with and differences in the skill levels of the workers and differences in the environment in which you combine these things and I'd say that that's the fundamental imported one so in a lot of these poorer countries you're operating in places that don't have a rule of law that don't have secure property rights that have all sorts of restrictions on your economic freedom and as a result your cost of doing business is a lot higher i.e. the workers productivity for each dollar invests a lot lower if you have to worry about how many government officials you pay off to get it out if you have to worry if your profits might be inflated away if you are restricted into how difficult it is to set up a business only one big one comes to town instead of a thousand flowers blooming all of these things that kind of the the magic recipe of how to mix the stuff together the pricing the relative prices that's what coordinates an entire economy are messed up in these countries and that means you don't get the most bang for your buck out of any of the inputs so it's both the quantity of them and how they're combined that are differences in productivity across countries which means it's not just like a magic recipe i mean this is the you know down cross town here the world bank's problem for 60 plus years of trying to force development into poorer countries focuses on the inputs it's aid for investment aid for education like if we just give them physical capital if we just give them education they'll get poor they'll get richer it doesn't happen it never works and the reason is because the environment that you're stuffing it into isn't conducive to growth and higher productivity unfortunately there is no magic recipe about how to change that country's institutions to better respect these things we talk about like the way to help the sweatshops is to ultimately raise their productivity so that their wages go up and we often we often point out the kind of oddness of one of the things that free markets does do is drives down the price of goods like it costs you know far fewer in average man hours to buy eggs today than it did in the past and that things tend to get cheaper over time except in those heavily regulated industries except wages wages tend to go up over time and we attribute that to people are more productive but sweatshops seem to be running in the other direction like if if it's the fact that the say American worker is way more productive than the Bangladeshi then why are countries paying Bangladeshis when they could be getting much more productive workers elsewhere and is there kind of a tipping point you know where like it suddenly they're so no matter how low the wages are their productivity is so poor or no matter how high so that we don't want to hire them or no matter how high the productivity is the wages are so high that we can't earn anything and do we need to be aware of where that tipping point is as we progress so there are tipping points but they're not like all or nothing once they're all trade-offs on the margin and it's at least conceivable that you could have a society where there's nobody making garments at any wages but it's not one that we live in whether you're in Hong Kong or the United States they have people making garments there but for higher wages who are very productive at doing it and for a company who's let's say subcontracting things to be made and they have the choice they might pick high productivity high pay high cost us or low productivity low cost Bangladesh and at the equilibrium between these two the company should be just about indifferent between choosing high cost but more productivity low cost but low productivity which means whenever we intervene in the name of helping workers to say push up their wages or demand better working conditions we've tipped that equilibrium now it's not that Nike will choose to like close up shop and not make shoes in Indonesia anymore it's how many of these shoes do they make in Indonesia or somewhere else and it's going to move that balance towards higher scale higher higher productivity away from lower What do people who work in sweatshops think of the let's say the Baptist side of the anti sweatshop movement like do they are they champ when these college students you know that go overseas and say like we're going to help you say are are the sweatshop workers saying yes please help us we applaud you or are they grumbling or is there like an anti anti sweatshop movement among sweatshop workers yeah so I certainly can't speak for all sweatshop workers around the world nor I presume to but what I'd say is that often it's not unusual at all for them to be able to take a worker from a poorer part of the world and have them say oh we want better working conditions we want higher pay you know I do this I talk on this at universities and I'll pick out a professor from the audience sometimes and they'll say hey would you like higher pay yeah would you like a bigger office would you like longer sabbaticals you know you've got one of the cushiest jobs in the world a tenured professor at a university he'll say yes to all these things it's not a constrained question so often you'll see demands from third world workers in conjunction with these anti sweatshop groups and they say these workers want better yeah we all do that's not just dependent on you being poor the question is would you like your mix of compensation to change to have more of those if you have to give something up so I went down to Guatemala and surveyed workers in two sweatshops there that the national labor committee had singled out and had workers sign on that they were protesting and wanted shorter working hours more predictable working hours they weren't giving paid vacation which Guatemalan law says you have to they weren't rolling them the state health insurance with the Guatemalan law says you have to and they had the list of demands from the workers I went down I surveyed the workers though and I asked them would you be willing to work for lower pay if and then listed the number of characteristics that the NLC said that the workers wanted universally no more than 90% of them on almost every question save the paid vacation and there it was 80% or so said no I wouldn't work for any lower pay because there was a follow-up K. Mucho Cazades which became irrelevant because they were saying zero because they all wanted what meager pay they were getting which because some activists and I've debated a labor union activists who said this one time she said I'm not going to say that the wages aren't better in sweatshops and the alternatives I'm just saying that we need to improve their working conditions I'm like well the two are related because the employer doesn't care they care about total compensation wages plus whatever other compensation I have to give you employees do care so some of them would like higher pay some of them would like better working conditions an employer has every incentive to get the mix right in line with their preferences otherwise they're paying workers more than the workers value it they could reshuffle that and make better profits so when we see the conditions as they are it's constrained by the overall productivity and compensation the employee is going to get that they want most of it and pay and if you think about it all these other things are normal goods you demand more of them when your income goes up if you're desperately poor and trying to feed clothes shelter your family you want the vast majority of your meager pay in money and that's exactly how employers then provide it so are you optimistic about the future of the Guatemans that you interviewed or their children so after studying this for a while what can we expect from the future of sweat shops should we be optimistic about the conditions and wages so let me separate out from you ask Guatemala specifically I'm very mixed on Guatemala has a wonderful university the University of Francisco Mendequín where they study the principles of classical liberalism and educate the intellectually lead of that country and I'm optimistic on that but at the same time as long as the U.S. maintains its war on drugs it's just disaster for Guatemalan institutions there it's hard to believe that they'll have something that resembles the rule of law and good property rights while we have a war on drugs from the United States that's screwing up Central America and Guatemala in particular but taking it as worldwide sweatshops yeah I'm very optimistic for some places they're the crutch that's currently the least bad option and a place like Bangladesh doesn't have great prospects of increasing economic freedom in the near term probably but for a lot of them they're just a stage of the development where they're improving their property rights and institutions I mean take China at China and India right in the last decade we've seen more people escape extreme poverty than any other time in human history and somehow Pope Francis seems to be missing this when he talks about capitalism and the world's poor but in sheer numbers we're seeing more of them escape it and what's happened now it's China purely capitalist of course not but in terms of its economic freedom it's made huge improvements from 1980 to now and what we find is not only is a good environment of economic freedom important but just improving it from whatever level you start at does a lot to increase your growth and get people out of poverty so I think as we look around more genies are going to get out of the bottle where more countries have become more free and that this process will lead to sustained development that gets them out of poverty Is there though a possibility of a so not a cycle of sustained development but hitting a point where the cycle goes in the other direction because so the way you become wealthier is to get more outputs with fewer inputs and so in to some extent like the way that we have become wealthier is taking is getting more of the stuff we want clothes shoes whatever else for cheaper by offloading that to places where we can pay less and then so we've gotten wealthier because of that they have gotten wealthier because we have basically funded their industrialization but if their industrialization rises to a point where now we're getting poorer because the cost of those goods are going in the other direction say does that then end up hurting their economic development No, no, no forget this this blowback on us just thought experiment right forget military considerations for a moment on this but just in terms of would you like the United States to be a developed country and the rest of the world the level of sub-saharan Africa or the United States have a higher standard of living if the rest of the world was a little bit more developed than us it means they're that much more productive and create that many more goods and services that they can trade with us instead of us innovating the new medicines that spread to the rest of the world we benefit from you know cancer being cured in Africa because they're so developed and then it trickles over to us this as these other countries get more productive sure the cost of making clothing goes up relative to their ability to produce other great things that we would like to trade with and we'll have to reshuffle how and where we make clothing as these resources are more valuable doing something else but that that quote more valuable doing something else is a more valuable thing they can trade with us it's a wonderful world one of the problems that I often run into when trying to make these sorts of arguments to people that like look the market has these processes that lead to improvements across the board and that you know property rights and rule of law really help the poor more than the other things that you want to do is kind of long-term solutions to acute problems which is often a hard sell because of the argument that you're making in favor of allowing sweatshops and allowing this sort of development is is a long-term thing like look because you said it took it took western countries about 100 to 150 years often to pass through this phase and that's a lot of generations of people stuck in bad things it doesn't take that today okay but still it's still as a it's like a it's not only a longer term than like I'm going to raise I'm going to make a law right now that's going to increase your wages on January 1st but it also is kind of a dispersed and nebulous process like look if we let these things happen and we don't do we basically leave stuff alone which is what we often free marketers advocate then over time different people doing different things will lead to a process that will improve things which is often when you're either someone who's hurting right now right or you're someone who deeply feels the pain of someone who's hurting right now saying trust us things will get better is like a harder sell than the even potentially harmful but promised like look if you vote for me or if we change this one thing or we institute a minimum wage or whatever else I can fix it right now and so how do we as we're making these arguments to people is there a better way or how can we sell that kind of harder you know long term and emergent process help over the like I can promise to fix it tomorrow yeah it's it's the the kind of unicorn theory here I can fix well I think that's incumbent upon us to ask instead of just defending this nebulous you know long term process okay how are you going to fix it tomorrow name me the policy then when you do let's use economics let's think about cause and effect and we can identify the trade-offs and invariably unless they're their immediate term solution is offer them a visa to the united states what we find is that their intended interventions will often make the workers worse off in the short run and also impede the very process that would increase productivity and raise them over time and so it's as I've done dozens of these debates at universities and I have an opponent and I just keep shooting down each of these things that gets tossed up and then we're left with at the end process of development migration maybe a little bit of ethical branding if it were done more intelligently and free trade trade with them more freely so if the arguments in favor of we won't say in favor of sweatshops but in favor of markets in this process are this strong and the economics is this clear and we're not talking I mean this isn't you're not like presenting fringe economics to us I mean you're applying basically textbook economics to the situation then why do people why do so many people disagree because the argument that you're making is I'm sure not very popular on college campuses it doesn't it it often comes across as like cold or uncaring or even immoral to a lot of people but if the arguments are so good the data is so clear why don't they agree with you yeah so this isn't a fringe economics thing at all I mean that far right libertarian economist Paul Krugman wrote a column in 1997 called bad jobs at bad wages are better than no jobs at all so the vast majority of economists who think about this issue are pretty much on my side on it there are fringe exceptions and I debate them and usually what they'd say is textbook economics doesn't apply and then they'd offer reasons for that and I've gone through this debate with them in journals and other places arguing actually the different mechanisms they're identifying don't undermine textbook economics and we end up right back at supply and demand that we were thinking about at the beginning but that's not the majority of people who don't find this argument persuasive or who just haven't heard it most of them haven't heard it or they're not educated in economics to think about the trade-offs so they favor policies that feel good I actually find when I give this top on the majority of college campuses your average person in the audience when I start probably has a negative feeling about sweatshops but hasn't made it part of their worldview or whatever and when I start talking about these trade-offs their opinions move a bit for your hard dedicated anti-sweatshop activist it usually just makes them feel really uncomfortable because they don't have good arguments against it but it's damaging their worldview so they kind of dig in their heels and get upset you're probably not going to change that person's mind by laying out the logic at least in the short run if they really care about the workers they'll study the work harder and then probably change their views or come up with the unicorn that I haven't seen yet and presumably that's not a phenomenon just isolated to sweatshops it seems like mainstream economic views are not widely held in many college campuses I mean related to sweatshops just minimum wage and what we see people around the country react to in that and they pick out one study from the mid-90s that said one thing that they liked and ignore the mountain of evidence that says something else including just the basic price theory this is the life that we are lead as economists is often finding that general population has no interest in hearing you tell them about the trade-offs that they wished didn't exist well then let's close by asking about that because you've done a few videos at least for learn liberty which so you're popularizing economic views presenting them to non-academic audiences why I mean so if economists are not being listened to is there something that economists or even just us non-economists who are in favor of this economic free market approach is there something we're doing wrong to get these ideas across are there ways that we could improve how we can communicate these ideas not just about sweatshops but about these economic principles in general yeah I'm sure the vast majority of economists are boring and turn people off and maybe people have already turned off this podcast from me but I think in general we could do better at trying to relate to normal people and talking about real-world issues instead of playing with mathematical models that have little correspondence to the real world kidding ourselves that it's advancing science so if more of us were doing more to reach out to people I think could help but ultimately it's a question of whether people want to hear as well and I'm not sure I have any great advice about that free thoughts is produced by Evan Banks and Mark McDaniel to learn more about libertarianism and the ideas that influence it visit us on the web at www.libertarianism.org