 I'm very pleased to be here. This is the first time I've taught at Mises University. And it means a lot to me, because in 1999, I was a student sitting where all of you were. And I came here from Mises University between my junior and senior years as an undergraduate. And it was a life-changing week. I went into the week thinking I might want to become an economics professor. Joe Salerno was here, a number of the other faculty that he's organized for you this week were there as professors too. And it was just such a striking contrast to what I had as an undergraduate at home. In terms of their commitment to these ideas, the ideas about liberty, their passion for it, their engagement with the students, I left at the end of the week knowing exactly what I wanted to do for the rest of my life. So I'm very happy to be back here at Mises University. In fact, I can remember this one guy who's not here this year. It was Rich Vetter. His book out of work, I think, is in the bookstore still. And Rich was given some lectures. And as he got going, now Rich at the time was a little bit overweight. And he had hair kind of going in both directions, but not like the crazy Hollywood style, but like the absent-minded professor style. A little bit of chalk on him, thick glasses, kind of sweaty as he's getting into his lecture. And then spit starts kind of coming out of his mouth as he's lecturing. And he's getting really into this. And I remember sitting there at 21 years old thinking, I want to be just like that guy someday. Still working on it. And actually, it relates to the topic of today's talk. Because his lecture then was on multinational corporations and international trade. And after lecturing on the benefits of trade, some student raised their hand and said, what about sweatshops? And Rich said, sweatshops? And he's best like Tony the Tiger type mode. Sweatshops, sweatshops. I love sweatshops. And his reason was just because they were better than the alternatives for lots of these workers. And that's what I want to talk about today. Because I don't think he loves sweatshops in an absolute sense, I think, like most other decent human beings. We can aspire to have better wages and working conditions for these people in the poorer countries. But the question is, is it attainable with the policies that people advocate in the name of these poor workers? Or would they do things that make these workers worse off? This is a topic I've been working on for over 10 years. I've done a book out of poverty. There's a few of them down in the bookstore for sale. It's coming from New England, not from Texas. So I only had a few copies with me. If I was Tom Woods, I probably would have got a U-Haul and brought a whole bunch of them here to hock on you. But there's a few down there if you're interested. Basically what it is, is it's a means ends value freestyle analysis of looking at what the anti-sweatshop groups, the AFL-CIO, unite a garment workers union, United Students Against Sweatshop Labor, the National Labor Committee, the ILO, various celebs, some other NGOs, looking at the basket of policies that they say we should adopt to try to help these workers. So minimum or living wages, improved safety and working condition laws, unionization, enforcing whatever labor laws happen to exist in these countries, almost universally all of them want to ban child labor. And their goal is one activist of sociology, master student from Ohio State, not so eloquently put it. Everybody wants to have a living wage. Everybody wants to be able to take care of themselves and their family. Everybody wants to retire and feel good, enjoy life, breathe, live, eat, you know, the regular shit. We're not asking for nothing extra special. And I agree they're not asking for nothing extra special. It's what many of us in the United States, I didn't mean it that way, would consider like the minimum standard of, you know, living a decent life. But the means ends question for this is, will these means, minimum wages, improve safety condition laws, et cetera, deliver the ends of the regular shit for these normal people? Or will it deliver them a much worse outcome? And I'd argue that many of these policies would deliver a much worse outcome. What I'm gonna do with my lecture today, I'll talk about some of the policies in the theoretic sets, but I'll also go through, I'm gonna give lots of empirical examples of this to go along with it. I'll start just briefly with the minimum or living wage, because I know some of you, about a third of you maybe, just had Mark Thornton's lecture on minimum wages, so I don't wanna repeat all of it. But a minimum or a living wage, the living being it's gonna be tied to some sort of basket of local cost of living index. It's the recognition basically, if they took Western U.S. style minimum wage, as it said, 7.25 or God forbid, Bernie Sanders, $15 an hour for Guatemala. It's not going to work out too well. In fact, there is an empirical case of that happening. The United States first minimum wage law in 1938 set the U.S. minimum wage at 25 cents an hour at a time when average productivity in the United States was about 62 and a half cents an hour. 1938, not a particularly good year in the Great Depression, so of course there were negative consequences here. But they were sloppy when they wrote the law. It applied to the United States and all of its territories, including Puerto Rico, where average productivity was about three to four cents an hour. If you put a 25 cents an hour minimum wage there, you got massive unemployment and business closures. They had to amend the law because they couldn't apply it there without bankrupting the entire country. Most of these people realized that they can't impose a Western minimum wage. They said, instead we need a local, a living wage minimum that's, I'm always curious, by the way, when they say a living wage, that implies everybody's dead before they get this wage. But at any event, what it's really about doing is we need to change the relative cost of low-skill labor. And businesses, when they face a higher cost of low-skill labor, are gonna use its substitutes. Its substitutes are higher-skill labor. There's no accident that AFL and CIO and UNITER in this movement. How many unionized workers in the first world earn the minimum wage? In fact, if you're a union worker and you're earning the legal minimum, your union's doing a lousy damn job. The whole point of the union, if it's doing its job, is to raise the wages and working conditions of its members. But its members aren't in third-world countries. So why are they going around advocating for higher minimum wages for third-world workers? That have you believe it's in the name of solidarity workers of the world unite? Hell no. What it is is they understand it's their substitute. Unite garment workers in the United States are higher productivity, higher wage workers. Their substitute is lower wage, lower productivity workers for the third world. If they can raise the price of their substitute, it prices some of them out of the market and maintains wages and working conditions for union workers here. If we want to actually, the other substitute, of course, is capital. So you lay off some workers and replace them with capital. You have a few remaining workers who earn the higher wage, but more capital and you throw the other workers into worse alternatives. It also will shift production if you try to do this in a global sense, between countries. In general, the Latin American countries tend to be higher wage, higher productivity than the poorer Asian ones. It would shift manufacturing from Asian countries towards Latin American ones, leaving them much poorer workers worse off. Basically, if we want to improve wages, you can't just mandate it. The wages come from two things. The workers' productivity or marginal revenue product in EconSpeak, basically how much do they contribute to the revenue of the firm? That's the upper bound, the most the firm's willing to pay. The lower bound is whatever the workers' next best alternative is. If we want to move up their wages, it's about moving those two bounds, making them more productive, giving them more opportunities, not just Nike in town, Nike and Reebok bidding against each other to push you up towards that upper bound. But it's really that upper one, the productivity, that's where the lion shares of the gains are. About 85% of the variation of wages across countries is explained by differences in worker productivity. If you make them more productive, that's how the wages really go up. That's why actually in the book and in this talk, I'm not gonna talk that much about unionization, because unionization at its best is about bargaining power and getting you closer to the upper bound. It's not about making you more productive, but marginally changing this 15% doesn't change the calculus of living a life that doesn't have the, we'll say, normal stuff versus achieving it. It's just a marginal change, however real isn't transformative. Transformative is becoming more productive. And I should say the productivity isn't limited because the workers aren't smart, don't have skills, don't try. It's because they live in a lot of places with bad rules of the game that doesn't let them use their human capital and doesn't attract the physical capital to mate with them. Humans are the ultimate resources, Julie and Simon describes them, the ultimate resources being underutilized where they are because of bad government policies for the most part. That's why if you take a Haitian out of Haiti and drop them in the United States without changing any of their physical characteristics on average their income goes up by 1,000%. It's not that they're unskilled, it's that they're in a place where there's bad rules of the game and they can't use those skills. I'll come back to improve safety and working conditions in a little bit. Actually, I'll come back to a bunch of these in a little bit. Let's think about first, let's look at what are the alternatives for these workers. If you unemployed them because you raised the cost of it, so some of them benefit but others get thrown into worse alternatives, is that what is going to be the welfare implications for the workers. So it's very similar to the point that Von Mises made when describing the transformation from the pre-industrial to the industrial revolution. It's deplorable that such impoverished conditions existed outside the factories but if one wants to blame those responsible one must not blame the factory owners who are driven by selfishness of course and not by altruism, did all they could to eradicate the evils. What had caused these evils was the economic order of the pre-capitalist error. Poverty was caused by having bad rules of the game that didn't allow for the industrialization and the rise of the standard of living. The workers left the fields and went to the factories because it was a better alternative for them. And I should say also, I grew up in a city called Havel, Massachusetts that was known as the Shoe City. I went to undergraduate at the University of Massachusetts Lowell. So the heart of industrial revolution. This was all that was going on in the 19th century. I had ancestors who worked in the shoe factories there that would be called sweatshops. People went there because they earned more money in doing it. In fact, for many cases, women got greater freedom by going there instead of being under their father's thumb on the farm. They went and lived in the city in a dormitory and often made more money than their father did over the course of the year. Got to partake in city life. Also related to this, there's some libertarians who criticize sweatshops and in particular my work on sweatshops that are so-called left libertarians. And they say, well, all the things you say are fine if it was really a capitalist economy. But we don't, excuse me, they wouldn't use the word capital, a free market economy. I fully grant that we don't live in a world of perfect economic freedom, certainly not here in the United States and a heck of a lot worse in a lot of the world. And this is compatible with saying these workers suffer from severe injustices. I believe their own governments are imposing injustices on them and not recognizing their proper rights, severely curtailing their economic freedoms. In particular actually in situations such as Indonesia where sometimes you find indigenous population that was living in a forest that many of us would say is some sort of justly homesteaded land for them but the government doesn't recognize it. And the government sells that forest off to a logging company and they get displaced. They've had an injustice done against them. And then the sweatshops, as a result, they end up going to the city and being cheap labor that goes into the sweatshops. But the sweatshops, much like these factory owners are not responsible for their deplorable condition. Their own governments, I'd call this the kind of the submarine that torpedoed their ship. The sweatshops are the lifeboat that's picking them up afterwards, not creating the injustice. The left libertarians who talk about injustices being suffered by these workers, I can sympathize and agree with, but I say this is hardly the fault, much like Mises in this context of the factory owners, hardly the fault of the sweatshop owners. In fact, they're part of the solution. And actually more importantly, for the left libertarians who have given me this critique before, not once have they offered me real world alternatives that would lift the workers up. Instead, most of the things they talk about would do nothing and would just leave them floating in the sea to drown. So the empirical question of how bad is the sea? What are the alternatives? So I got into this line of research first in 2003, when a debate that was going on between scholars against sweatshop labor and some international trade economists. And the trade economists said that basically empirical results showed that multinational firms paid more than domestic firms in third world countries. But the scholars against sweatshop labor correctly pointed out, sweatshops aren't usually done by the multinationals. It's almost always domestic subcontractors. So they basically said your evidence isn't very good. So what I wanted to do was go around and try to create some systematic evidence so we can compare how good are these alternatives? So there's a famous case with Kathy Lee Gifford when she was hosting her TV show, she also had her garment line. And this guy, Charlie Cairnegan, confronted around the television show with this girl, Wendy Diaz, 15 years old who was working in on her Honduran sweatshop and worked for 31 cents an hour the equivalent of about $967 a year at a 60 hour work week translates into about $2.75 a day. Kathy Lee, she explodes into tears, says she's sorry she's gonna reform her factories. Well, everyone was making the wrong comparison. They were comparing that with what you can earn in the United States. The real question is, what were the available alternatives to Wendy in her home country? Well, more than 15% of the population was living on less than a dollar a day. Nearly a third of them were living on less than $2 a day. In fact, as a 15 year old female, she was earning 37% above the national average. This was a job that while we can aspire for it to become better over time is certainly much better than what most of the population was dealing with. We better be darn careful that we're not advocating for policies that would jeopardize those jobs and throw her in with everybody else. So the question I went to investigate is how systematic is this? Now, there's no nice World Bank database of sweatshop jobs because sweatshops, when I say it, you know what I'm talking about? Low wage is bad working conditions, long hours, child labor possibly. I can go on with other ones, but this basic bundle, but this begs the question, how long do the hours have to be? How bad does the pay have to be? How bad does the working conditions have to be? How about if the pay is really good but the working conditions are really bad? It's my brother, he's a commercial diver. He has to swim in sewer pipes sometimes. I wouldn't call that a sweatshop though. Might rhyme with it. So while we can give these characteristics to actually put your finger on one and say that's a sweatshop, it's actually problematic. So what myself and another guy, Dave Scarbeck, who's now a professor at King's College, he was my student at the time, actually he was my sweatshop worker at the time because he did a lot of online research. What we did is we said, we're gonna comb Lexis Nexus for US World and news sources. We're gonna say, what are all the things protesters call a sweatshop? And when they report them in the news and say how much the people are making, those are a sweatshop. If you protested and say it's bad enough to be a sweatshop and a reporter puts it in the newspaper, we'll take your word for it. Data's not perfect. One, we don't know what exchange rates were used. If they had peace rate pay and then they translated that into daily or hourly. And it's gonna vary from one to another. A lot of that's just noise. If there's a bias in the data though, it's that often the reporter sources the protesters themselves, which means if someone has an incentive to do the least charitable interpretation of the data, it would be the person who's giving that to them. So if I'm gonna tell you these jobs are good compared to the alternatives to the extent that there's a bias in the data, it cuts against what I'm trying to say. This is what we did our first article on and then I updated in the book through 2010 when I was getting that ready for publication. Sometimes we did have the multinational corporation associated with Mary, Kate and Ashley's line. Of course, Walmart was in multiple ones. That I thought was P. Diddy, but last time I gave this lecture, people told me it wasn't. This is the problem when you just Google P. Diddy and a bunch of wrappers come up and I don't know any wrappers. So who is it? So 50 cents pays his workers more than 50 cents. He's not in here. So this, if you're in the front, will be okay. In the back might be a little tough, but I'll give you some of the punchline here. What we have is the individual examples, which in those news sources, you get lots of repetition of the same thing as each person's repeating the same example. But each of these should be a unique example. The country, the year, if we have a company associated with it and then the pay, which is sometimes monthly, sometimes hourly, sometimes weekly, you got a bunch from Bangladesh throughout the period. Brazil, Burma, I'm not gonna do comparisons there because the place is such a hellhole, you can't get reliable standard of living data from it, which means you can guess how they might compare. Cambodia, a ton in China throughout the time period. Latin America, you got Costa Rica, Dominican Republic, El Salvador, Haiti, Honduras. India, later in the time period, a bunch of examples. Indonesia, a bunch, many of them, Nike, Laos, Mauritius, which is kind of a unique one, I'll come back to, Nicaragua, South Africa, Thailand, and Vietnam. So first thing to appreciate, so I've got the time span for each of these of when we first reported to sweatshops when the last one is. So looking in these countries over the relevant time span that they're reported in each country, this is your average percent of the population controlling for purchasing power differences, living in extreme poverty under a dollar or $1.25 a day. Bangladesh, the one that's been in the news the most in recent years with the factory fire and collapse, I mean, on average in this time period, 85% of the population living under $2 a day, half the population living under $1.25 a day. This is widespread extreme poverty. Even countries that are a little bit lower on this, Costa Rica, Dominican Republic, El Salvador, still, I mean, you're dealing with between one in 10 and one in four people in your country living in under $2 a day standards of living. This is to be kept in mind when we start looking at these low sweatshop wages that were reported. In fact, what we can do is we can use the same purchasing power conversion to all those sweatshop wages that are reported, and then look at how much they're earning on average in each country in the sweatshops. On every one of them, you're up over the $2 a day threshold, including Bangladesh. These averages aren't masking many individual outliers, I think out of the 85 individual examples, 81 of them individually got their workers above the $2 a day threshold. Three of the four exceptions were in Bangladesh where you had 85% of the population under $2 a day. One was from China in 1997 when what poverty was much more widespread in China than it is even today. Those countries that had relatively lower poverty, Dominican Republic, El Salvador, Haiti, here you're dealing with up to 10 to $18 even per day in earnings from these sweatshops. Low by our standards, but compared to the extreme poverty there, much higher. We can take it one step better compared to average incomes in these countries. And average income is maybe a tough standard since you also have a lot of income inequality here where you have some very poor and very rich. But even here, many of the countries compare quite favorably. So we don't have data on the number of hours worked. What I was just doing on that dollars per day one was just assuming a 60 hour a week which is not at all uncommon in a sweatshop that's 10 hours a day for six days a week. Here I give you various estimates, 40, 50, 60, 70 hours. In general, it's the 60, 70 that's more relevant. Some like you can see Cambodia is flat. That's because we didn't have hourly earnings data. We either had only weekly or monthly there so there was no need to do different averages. What you see is some of them, Cambodia, Haiti, Honduras, Nicaragua. We're well up 150 to 250% of average income in the country. I mean, the United States at $40,000 or so per capita. This is taking somebody who's earning $200,000 a year in the United States and saying, gosh, he's got an impoverished job relative to his countrymen. That's insane. Now, you see a lot of them. There's a lot that are hanging somewhere around average. Your Bangladesh, Costa Rica, Dominican Republic, Al Salvador, you get into 60%, 70% of average. India, Indonesia, right around it. Vietnam just over it. Now, by the way, being below average, that 100% line, doesn't mean the job's bad. Almost by definition, half of your jobs are gonna be below average. Just to give some perspective on these very jobs that are being protested in the factory, how they compared everything else. The key is the worker chooses to work there because they deem it as the best available alternative to them, not necessarily the best. I am an economics professor. I believe it's the best alternative available to me to for me to compare my earnings with LeBron James and say I'd really like to be a basketball player is irrelevant because that's not an available job for my skills. So some of them a little bit below, but around average. By now, you've obviously noticed that there's some extreme outliers out here that the anti-sweatshop movement is exactly what they'd expect. Brazil way down there, China, about 50%. Mauritius really low, South Africa or Thailand. So, oh, Brazil, that one was down there too. So Brazil, when you actually investigate what's going on, it's illegal immigrants from Bolivia are working in Brazilian sweatshops. Brazil, a country with relatively high per capita income for the region. If you compared the relevant alternative for the Bolivians, average income in Bolivia, they're well up over 100% of that. So it's much better for them. That's why they illegally migrate to Brazil. In fact, in Thailand, the stories people coming across from Burma, Ditto for Laos, Mauritius, it's immigrants from Bangladesh, Sri Lanka and India. Mauritius, of course, is a small island nation in the Indian Ocean that actually has relatively high per capita income. In each of these cases, they're origin countries. They're earning far above 100% by being in Mauritius. The loan accepts, in China, has a migration story, but it's really an internal migration score. You have vast inequality and wealth in China. It's rural peasants moving to coastal zones where they can earn more money there for themselves. If you compared it to their home territory incomes, it would be much higher. The loan exception is South Africa. There was no migration story there, but it was a single case of urban minimum wage being applied to a rural area. And presumably there, the workers understood that their jobs were in jeopardy because they actually kind of rioted and threw out the authorities when they came to enforce the law. So what about working condition laws then? So one time, I've done debates on this a lot. I love doing debates. It's kind of more like sports instead of academia where everything's boring. I was debating this woman who's a labor rights activist, and she started, and it was actually the anti-sweatshot group that brought her in and the economics club that brought me in. She started by saying, I'm not gonna dispute that wages are higher in sweatshops than the alternatives, which all the kids who hadn't taken a bath kind of looked horrified. Then she follows up with, I'm gonna say, the real problem is the working conditions. We have to address the working conditions, except there's a problem with this. Wages and working conditions are intimately linked. It's called compensating differential theory in economics. So why do garbage men get paid so much relative to their skill level? Because in order to entice them to do a job that's dirty and for that matter, dangerous working on the road, you have to pay them more in order to get people to do it. Why do musicians earn so little unless they're super rock stars? They get a lot of other benefits from playing music. One, music playing is fun. Two, if you like having casual relations with the opposite sex and you play in local bars, you're probably likely to get to go to home with one of them at the end of the night. If you offer that up, you don't have to pay very much to get you to come play in the bar. I mean, Bob Murphy's probably gonna do karaoke for free tonight. So this means wages and working conditions are interlinked. So if we observe an employer, they have to pay, let's make up a number, of $2 a day in benefits to their workers or in compensation. To them, a cost is a cost is a cost. Whether they pay it in wages or whether they pay a buck 50 in wages and 50 extra cents in better health, safety, paid vacation time, whatever you want, more air conditioning. Unless it impacts productivity, they don't care. Cost is a cost is a cost. To some extent, they might actually want some help in safety because if you're literally like lopping off a finger every third stitch, you're not gonna stitch very much. But other than things that adjust productivity, they largely don't care. But workers care. You all who've had jobs probably care about the mix of your compensation. Now put yourself in the position of a poor worker in the third world desperately trying to feed, clothe and shelter your family. How much of your meager compensation do you think you want as wages? Almost all of it. The bad working conditions we see are a reflection of their poverty that they're trying to cope with. When we say we need to impose better working conditions on you, we're not reversing the preferences of some evil multinational corporation. We're reversing the preferences of the workers. The employers have every incentive to give roughly the bundle of mix that the employees desire. Because otherwise, if they're giving them something that doesn't match the employees' preferences, they're paying $2 and the employee's getting, say, $1.90 worth of utility out of that. Well, that means you could reshuffle the package, pay them less, make them happier, you make more profits. The employer's got every incentive to target that. Now, they're not gonna design it for each person individually because there's transactions costs to doing this, but to get it in general right for your workforce. Now, what you get is these first world activists, though, and they go down and they interview sweatshop workers in these countries and they say, would you like higher pay? Yes, would you like better working conditions? Yes, would you like shorter hours? Yes, more health, yes, more safety, yes. I mean, these are absurd questions to be asking them. Peter Klein's here. Peter is an endowed professor at a U.S. university. It's one of the cushiest jobs in the world, right? Peter, would you like a higher salary? Would you like shorter working hours? Bigger office? And that's the cushy job. Now imagine someone operating a sewing machine and Honduras these questions. It's very easy to say yes, but these are not the appropriate questions to ask. You have to ask the constrained ones. Peter, would you like to give up 25% of your salary for a bigger office? Yeah. This is the question that needs to be asked. So I explained this compensating differential theory in the debate and she looked at me and responded, that's just economic theory. And I was kind of like, well, it's microeconomics. That's the nonfiction part of economics. But she said, what's the evidence? So I said, well, okay, I'll go do another journal article. So for this one, what we did is I looked at National Labor Committee and where they had been doing investigations exposing factories. And they had just done some in Guatemala, actually four firms, but one of them had gone out of business since and one was like an ag processing plant. It's not your typical fiber, peril industry type sweatshop. Sandbridge and Nicotex were. And they had their long list of things that the factories were bad about. Inadequate pay, long hours, bad working conditions. Guatemalan law says that you have to pay mandatory health insurance and roll them in the state health insurance. Give them mandated legal paid vacation time that they were being verbally abusive. And then they asked the workers, would you like these conditions improved? And of course the workers, much like Peter when I unconstrained, say yes. So what I decided to do is go down and survey the workers on a bunch of things. But for our purposes here, particularly on the working conditions, but ask them the real constrained questions then, of would you like these conditions improved? If you were going to receive lower pay for it, basically as your employer getting your mix of compensation wrong. And if so, okay. How much money would you give up in order to improve these conditions? This incidentally is a picture inside Sandbridge, which took quite some negotiation to get me in there. They kept thinking like I was gonna be like, I was dressed like actually the sweat stain, by the way, has nothing to do with the factory. Just purely accident the car didn't have air conditioning when I drove it, but it works. They kept thinking like I was gonna have like an overcoat or something and be like, ah, I'm a labor rights activist. So, which I guess I am in correctly understood sense. But they didn't want to let me in, but there's a great university down there, University of Francisco, Niquin, that's really dedicated to ideas of Austrian economics is inspiring university. In fact, the guy who's currently a president there was a MISI's U student with me in 1999. Great place. But it was a former president then and friend who wrote me a letter of introduction that helped get me into the factory because he's like, is the guy foreign born who owns it? I'm like, yeah, he's Korean. He's like, he'd probably like his kids to be able to go to my school. Let me write you a letter of introduction. And that's what got me in. So, the way I surveyed the workers though, this was actually a follow up visit that I went to go try to meet with owners, which I did in that case and see the factories. But the way I did it was, the problem is if you try to survey the workers and get the company's permission, you worry if they taint the sample of which ones you get to talk to, if they intimidate them so that they feel that they might be being recorded or observed somehow so that you're not gonna get truthful answers that you can use in any sort of scientific journal article. So, I decided I wouldn't get the company's permission and I'd interview them immediately off company property as they're coming and going from work, which resulted in me hiring a Guatemalan survey firm for two reasons. One, my Spanish can get me buy in bars but definitely can't do an interview. Two, I'm trying to do this without the company's knowing and I kinda stand out in Guatemala. So, these are the questions that we ask them. Would you be willing to work for lower pay if your employer reduced the number of hours you have to work, made them more predictable, gave you more bathroom breaks, gave you longer lunch breaks. By the way, this is just going down the list of complaints that the NGO had. Major working conditions more pleasant, made them safer, provided the legally mandated health insurance, gave you paid vacation, treated you more fairly and reduced the risk of sexual harassment. Incidentally, there weren't reports of sexual harassment, we just threw it in since we were asking anyway, which probably explains the 100% response. Let's just go to the total between the two firms. What you get overwhelmingly, it's not even like in play. No, no, no, no, no, no, no, no, no, no. The follow up question of Kim Uchukatsales is completely irrelevant. Basically, the workers are saying we wouldn't give up on any of these, give up any pay to improve any of these margins. Paid vacation got the highest agreement, but even there, 81% of the workers were saying, no, I wouldn't give up any pay in order to have it. Basically, they want the meager pay that they have, not improvements in these other conditions. And in fact, Nicotex signed an agreement of capitulation with the National Labor Committee saying that they would improve some of these conditions and we were able to ask the workers, is your job better after this agreement than before? And more of them thought their job was worse than was better. And then actually Nicotex went out of business about six months later after that. All right, we've got this far. Usually if I was talking to a normal audience, I said, okay, maybe I will have convinced you something on wages, maybe on working conditions, but you gotta be holding out on children. With a Mises U crowd, maybe not. So why did children work? Children work because their families are desperately poor and they need their meager earnings in order to provide food shelter for the family. Banning products made with child labor does not end their poverty. It just takes away what their family viewed as their best solution to their poverty. So in some cases, the outcomes can be very bad. So in 1993, Congressman Tom Harkin proposed banning imports from Bangladesh because they were using child labor. The bill never became law, but in response while it was being debated, Bangladesh factories laid off many child employees. Oxfam did a study of this and found that many of them became child prostitutes or starved. Clearly worse alternatives than working in the garment factory. In fact, the noted free market economist, Paul Krugman, reported on, he reported on this back when he was still writing as an economist and sort of purely a political hack. In a slate column that was called bad jobs at bad wages are better than no jobs at all. It actually kind of pained me in the opening chapter of the book I quote Paul Krugman right away. It's like in favorably, Bob wouldn't talk to me for a week after he found out. So for most children, the alternative is in child labor. It's agricultural work where most of the children work in the world is agriculture and particularly subsistence agriculture. This is a picture from Guatemala coming off of volcano of a couple of kids working. This is a midday on maybe a Thursday. It wasn't the weekend. It's not the family farm. This is probably nine years old, 10 years old. This is their job and this is not uncommon. So in countries that had the reported sweatshops and I could get child labor data by sector, the blue lines represent the percent of the children who are working who are working agriculture by far the most services is next. Then manufacturing is the smallest in all the countries almost all the countries. Services, by the way, doesn't mean working at McDonald's. It usually means household servant stuff except of these three sectors. Where do you think pays highest manufacturing? How about injury risk? Actually, children in agriculture have a higher injury rate than children in manufacturing. So when we, but we in the first world, we don't interact with their services very much. That's mostly domestic services. Agriculture, we have lots of barriers to international trade in agriculture still. It's a small minority of their labor through agriculture that we interact with where we interact with it is the products from manufacturing. So when we say we're not going to interact with child labor, what we're really saying is the children who have the best jobs among the kids where they earn the most don't have the worst risk of injury and are probably building more human capital than the other industries where they could have higher earnings later. We're not going to interact with them. We're going to push more of them to these worst sectors. The real cure for child labor, of course, is the process of economic development. This breaks down child labor participation by quintiles of the richest countries to the poorest. Once you get that first and second, basically above $11,000 per capita, you have essentially no child labor. And it's really just in that bottom group around $2,500 or so or less. We're about a third of the children work. When you escape that, child labor plummets. And even these numbers mask what's really going on. The best studies of this were a couple of Dartmouth economists, husband-wife team there. And what they did is they tracked individual families in Vietnam throughout the 1990s, a decade of a lot of economic growth there, where they had a lot of child labor at the beginning and a lot less at the end. And what they said is there's no like linear effect of this as the country grows. Because if you were already above the poverty line, your children weren't working. Extra economic growth doesn't change that. If you were below the poverty line before and at the end of the period, you're still below the poverty line, your children are still working. All the action happened at two spots. Basically when you got up to, I think it was around 1800, 2000 calories per family member when you could afford that much, rates of child labor big drop. Then again at the official poverty line in Vietnam, another big drop. So it's individual families escape that extreme poverty, child labor goes away. A lot of people would like to tell you it's because we had child labor laws. But the first child labor law in the United States didn't come to 1938 with the Fair Labor Standards Act. And at that time in today's dollar in 2010 dollars, we had an income per capita of 10,200. But back right here, that second group's 11,000. That's when child labor's gone anyway. We passed laws to codify what was already happening. When states enacted child labor laws before that, they were largely non-binding. So my home state of Massachusetts enacted the nation's first child labor law, I believe in 1842. Here's what it said. Children under 12 can't work more than 10 hours per day in a factory. So first of all, 12, 13, 14, whatever goes. Under 12, not more than 10 hours a day. That means the 60 hour work week of six days a week, 10 hours a day. This wasn't a binding constraint at all. The economists who studied child labor participation during the progressive era and the state-based laws for anti-child labor and mandatory school attendance find that once you control for economic growth, basically these laws had no effect. What they were doing is codifying what the market process was already doing. And I'd argue that this is same with a lot of the health and safety codes. There's always the individual laggard business or whatever. But it also, by the way, makes sense from a political economy standpoint because it's not like the labor unions in the United States hadn't agitated for this stuff for years, but they never got it through. Why would they all of a sudden be able to get it through? Well, if the market's process of competition had already ended child labor and now the unions are saying, hey, we need a bill that says end child labor, why lobby against it if you're a business? Competition already took care of it. Ditto if they say, well, we need more of a minimum wage. We're already paying all of our workers more of that. Anyway, who cares? So this is why these laws tended to follow rather than lead. I think if you put US-style laws in poor countries today instead of the US-style laws we had when we were as poor as they were, it'd be an utter disaster for these countries. So the real cure for sweatshops is the process of economic development. Sweatshops are not new. They existed in the United States. They existed in Great Britain. In fact, virtually any wealthy country today that's not just wealthy off natural resources had something that looked somewhat like a sweatshop stage of economic development. Now, the proximate causes of the higher standard of living are physical capital, technology, human capital. All of these things, sweatshops relative to the antecedent situation bring with them. When the multinational comes in and hires the domestic contract to create a new firm, that brings physical capital. Also, relative to the old ways of production, it brings new ways of putting things together, new technology. Relative to working on the farm, people can build human capital while they're there. So these help the process of economic development. Now, I call these proximate causes of economic development because I think the underlying causes are the most important and these proximents take care of themselves if you have good underlying, which means a tolerable degree of the rule of law or a large degree of economic freedom and good respect for private property rights. You have those things, the country's going to grow. It's going to attract these and make use of them. Because of course, all of the attempts to force development on parts of the world by injecting capital or human capital via education loans or something into it fail because these by themselves don't do it and it's not just capital. Capital, as we know, is Austria's heterogeneous and multi-specific. In fact, I can see it in this room right now. So can everybody in the back of the room? Look at the back of the projector. There's a couple of books under there that are pointing it at the right place. That's capital that is multi-specific and is heterogeneous and has been repurposed to a higher valued use. I can only assume that that's an old Paul Samuelson book under there. So we need good property rights and economic freedom so that our price system works and that we create the right type of capital that best complements the existing labor and existing capital stock. Then we get this process of economic growth like we had in Great Britain and the United States. In Great Britain, it's from pre-industrial to post-sweatshop, something like 130, 150 year process, depending on when you want to define the start of industrialization and post-sweatshop. For the United States, it's more like 100 to 120 years maybe. Little quicker in the United States because in Britain, all of this had to be created anew. The United States was following. So first, we could steal the production technology from Britain and import the plans for the mills. Second, British companies invested in the United States that helped inject capital into the process. But we were still kind of the leaders in this. But if I asked what were the sweatshop countries in 1950? It's Hong Kong, Taiwan, South Korea, Japan to some extent, Singapore, these, all of them except Japan, which had been decimated by the war, had pre-industrial economies. And they went in a span of a generation from pre-industrial to first world. And then the generation after that to, I mean, Hong Kong is one of the most inspiring places I've ever been. It's the most economically free in the world. And if you go up to the top of the ICC, the tallest building above the harbor and just look out, and it's like central and Kowloon, these things make Manhattan look like. It's as if Manhattan spread across all five boroughs. It's just to think, in 1950, this was a pre-industrial $350 per capita place. Give it a little bit of economic freedom and private property rights. Capital goes in. It's a sweatshop country in the 1950s and 60s. As the labor gets more productive and has a higher opportunity cost, the factories leave and go elsewhere, which, by the way, the lefties would have you, they always, it's a global race to the bottom. Did they scorch Hong Kong? What happened was the workers became too valuable to keep them in low-skill manufacturing. Apparel people couldn't bid to keep that labor from people who were doing more high-tech production. As a result, the factories had to go to somewhere else. Instead, it's more like the first rung on the ladder of economic prosperity. As you climb the ladder, other people get on the bottom rung behind you. Happily because development is open-ended. It doesn't mean that the last place in central, sub-Saharan Africa to get sweatshops is doomed to sweatshops forever. As that labor gets more productive, it'll change how much of it gets used, what the ratio between capital and labor is, until it looks something more like what North Carolina garment manufacturer looks like today. All right, so, oh, I get protest every now and then when I'm talking places, and this was Florida State put together this meme for me on their Facebook page. Benefits from white privilege and denies it advocate sweatshops and third-word growth. Second part's true. First part, I just take issue with the word white. Because as I mentioned before, take a Haiti out of Haiti, drop them in the United States, his income goes up by 1,000%. For a Mexican, it's about 150%. Nigerian, it's closer to the 1,000%. What we benefit from is the privilege of living in a place with an accumulated capital stock, who's already gone through this process of development, and that has a reasonable degree of the rule of law, a semi-reasonable degree of economic freedom. When I think of the United States, and I try to say things nice, sometimes it's so disheartening. It's like, relative to the rest of the world, it's like being the tallest dwarf. Like, you're the tallest somehow, but your potential's still much greater. But the privilege, regardless of your skin color, and I don't dispute that there's differences in how different races do with interacting with the government in the United States, but compared to the poverty that's in the third world, what happens in the first world, the privilege is living in the country with the capital stock and the decent rules of the game compared to the rest of the world. So I'll start to wrap up here. Some of the good kind of activists do. So some people talk about so-called ethical branding. So this here I think of as like air sweatshops. Presumably they were limited to how many characters they could put in there. And Nike pays Jordan millions of dollars because by having Michael Jordan endorse it, and everyone wants to be like Mike, creates extra subjective value in your head so you're willing to pay more for the product that shifts out the demand curve for it. Well, if everybody felt that way about sweatshop workers, like if they advertised, this is produced in my Honduran sweatshop and the workers make $1 above the going market rate. People were like, yeah, I'll buy that product. Well, that had shifted demand curve out. It's compatible with the increase in that upper bound. The worker just became more productive because it now creates more subjective value in your mind which means their compensation can go up. I'm fine with that, but I think it's a niche thing that most people don't actually care about and that there's room for a lot of fraud. So there's one group that seems like they're doing this. It's called Shop with a Conscience Consumer Guide and they guarantee that all of their products are made sweat free, where the workers have a living wage, the right to unionize and good working conditions. Here's a map of the factory source locations. Each granola, get on there, feel good about yourself but really what you're doing is unemploying workers in the third world for the benefit of wealthy workers in the first world who already have to have the right to decent working conditions, have high pay because of their high productivity and have the right to unionize. I cheated, I left, there was one firm in Asia and didn't want to expend the map for one. So to wrap up, I'll consider just a couple things that some of my semi-informed critics have brought up. And usually it's someone who learns just a little bit about economics and then is like, aha, this undermines what you say because you're just doing simple supply and demand and the world is more complex. One is efficiency wages. So the notion if you pay workers more, they'll work harder. The problem of course with this is twofold. One, the general model of it is like a worker, a gift exchange relationship. We pay you a higher wage so your work so that there's a penalty if you become unemployed because your next guy is not going to be given you an above market weight. But this only works when you have an extremely tight labor market when otherwise there wouldn't be a penalty to becoming unemployed. It also has to be when it's hard to monitor workers so that you have to rely on their motivation. Neither of these things apply to sweatshop workers. Monitoring their output is very easy and the labor market alternatives, as I showed you, are really lousy so that doesn't make sense. Furthermore, if it actually did apply, the firms would already be doing it, you wouldn't need a law. Then there's the version, the Stiglitz version of nutritional efficiency wages. Well, the workers are so poor if you actually paid them higher, they'd consume more calories and become more productive. Again, if true, firms would already be doing this. This doesn't justify imposing minimum wages. Furthermore, if it was practical where you needed more calories for them, unless they have very weird preferences where they spend 100% of extra income on nutritious calories for themselves, there's going to be leakage where they spend on the rest of their family or the things that aren't nutritious food. It would be easier just to stick food in their mouth as they come in the door. You'd have to make some really weird assumptions about transactions cost of providing food in order for this to work. So when I first wrote the book, I said it's impossible to never be a case where it would make sense to pay any nutritional efficiency wage. Then I actually started working on an internal critique of Stiglitz. And I was able to come up with some bizarre scenarios where it would make sense but doesn't actually apply to the real world, which means economists were interested in it, so I got to publish it in a journal. Some will talk about monopsony power, so these regulations might just offset the monopsony power, but most sweatshops operate in like enterprise zones where there's tons of different factories all around in the area. There's not much monopsony power there anyway. It's worth considering, I think I'm in a debate with some business ethicists right now on welfare of the workers, because note the standard I took. I'm trying to approach this as an Austrian value free analysis of saying, I'm going to address the people with the concerns. Their concern is the welfare of these workers. They don't care about economic efficiency. They don't care about profits. They don't care about first world consumers. If we're doing efficiency economics, all of these things come in and the analysis of minimum wages or whatever is much simpler. But if we're going to discount all of the deadweight costs that accrue to everybody who's not the workers, and we're just thinking about welfare of the workers, the bar of argument has kind of been set higher by the definition of how I'm taking on these people. And some of them have argued, depending what you believe about elasticities or price sensitivities. Yes, you could employ workers with a minimum wage, but the gains to those who remain employed would offset the losses to those who are unemployed so that net welfare. By the way, notice how problematic as economic sciences is becoming. Net welfare where we're measuring losses to some, gains to other, or violating interpersonal comparisons of utility right away. But this is what they're engaged in. Net welfare has gone down. Of course, now net welfare, the way they're gonna measure it so that they feel like they're not violating interpersonal utility comparisons is just do it in money. But presumably the only reason what we care about the money is because we believe it is some proxy into people's actual utility. So I'm engaged in this debate now and I show them that basically if we think about elasticities and this just real simple, people aren't offering these workers a green card. Their labor supply elasticity is pretty inelastic. They gotta work to feed their families. However, capital is internationally mobile. Do some policy that's gonna increase the cost of using the capital in one country, it easily switches to another. That means anytime you impose a regulation, who's going to bear the lion's share of this burden? It's gonna be the workers. This leads to big unemployment effects. Also, if you read the economic studies that have been done on it, like the one on Indonesia and minimum wage unemployment, that's what it shows. Although they're really squirrely, that study, it tried to show that there was no additional impact of anti-sweatshop activism on unemployment when you control for the minimum wage. But Indonesia more than doubled the minimum wage during the period of analysis in response to anti-sweatshop activism, which created big unemployment and losses of factories. So you actually have to read their tables and not what they write. But the other thing then that I find bizarre about them and this is beyond the scope of economic science now and it's doing philosophy and kind of doing welfare-constandard comparisons is beyond science, but there is somewhat of an art to being reasonable about this. It strikes me, if you're not gonna count first world consumers and capitalists, you've abandoned treating everybody equally. Now you're saying the utility of some ways more than others. Why do you just add up dollar losses to factory workers who stayed employed and those who lost jobs? You've already set the bar that those who are poorest count more. So why isn't there like a gradated scale where a dollar in extra revenue for the guy who remains employed counts less than the guy who lost money unemployed? It would seem if you're doing one, either in the world of dollars for everybody, efficiency, you lose, or in this other one where the losses to the people who get laid off which seem to count for more by their own standard, not the standard I might adopt. And also then when do we count them? So I think actually any static gains or losses in this are really not as important as what the long-term process is. If you put in higher minimum wages, more worker regulation, you're gonna have less economic development in these places. And ultimately it's that process of development that transforms life from the $2 a day to the first world standards of living. Even if it doesn't completely stop that process, if it just slows it, the welfare losses implied by that, I think dwarf anything that even under the most unrealistic assumptions that they might make about elasticities that they could pick up. So that's kind of some of the people I'm debating right now. So I'll wrap up here with buy the products, free trade. So I think if we trade more freely with them, that means their marginal revenue product goes up slightly, their productivity, because now it's not taxed when it comes into our country. As an added bonus, there's some evidence of what we call contagious capitalism when a more free country trades with a less free country, some of that freedom spills over over time to the less free country that helps improve their process of development. If you really care about, if your metric is the welfare of those workers, offering them more green cards is your surest way to improve their welfare, not unemploying some of them. Really what they need of course is institutional reform in their home countries. I don't think there's much that we from the outside can do for that, other than participate in the exchange of ideas, talk about the value of economic freedom in Austrian economics, like the Mises does here with all of you who come and are many international guests and everybody who can watch anywhere on the world and the internet. And after that, it's gotta be an indigenous process that holds up these ideas and enforces it on their governments and other tyrants who are limiting their economic freedoms. Until then, sweatshops are the crutch that gets them by it, but they're also part of the solution that ends the phenomena of sweatshop and brings higher standard of living. Thank you very much.