 It's a great pleasure and honor to be back here to lecture you. This is my second Mises University as a lecturer, but just around 20 years ago, I was here in the audience as a student, and it was an absolutely life-changing experience for me. And I started my last time I lectured at Mises University this way, and I will, again, this time, of saying what it was like as a student because it relates to the topic I'm going to talk about today. I remember sitting there, and Rich Vetter was the speaker at the time. He was giving a lecture on multinational economics or something like that. He was talking about trade issues or what have you. And I remember watching him lecture. He was a little overweight at the time. His hair kind of went both ways. He had big, thick glasses. As he talked, Christian, you'd be in trouble. As he talked, he'd get more and more excited and sly. He would come out of his mouth and kind of spray the front row. He's talking, and he says, and I was doing this radio show, and someone calls in, and they said, but what about sweatshops? And he was like Tony the Tiger with his hand. He's like, sweatshops? I love sweatshops. I remember sitting there, and as I'm watching this, I'm like, someday I want to be just like that guy. And now I'm really happy to be with you here today. And to talk about this top sweatshops, I became interested actually at that MISI's U, but it was at least a half dozen years or so later that it started as a research program for me. And it was at the time, economists had said various defenses of sweatshops. But nobody had kind of really systematically dug into the data of how they operate, how they compare to other alternatives. And that's what I started doing. And I'm going to give my talk a little bit different than usual today. But it's worth at least making sure we're all on the same page to begin with what we're talking about here. Sweatshops, in the pejorative sense, in the international arena. Places that have really low pay by US standards. Long working hours, bad health and safety conditions. And otherwise, generally, conditions that we'd find a part here in the United States or other parts of the developed world. But where people voluntarily choose to work. Now by voluntarily, I mean from a bad set of options, otherwise you wouldn't choose this. But that choice is important. It's important on both moral grounds and on economic grounds. On economic grounds, it demonstrates to us that the worker in their mind, it's their best available among the bad alternatives. If we want to do something to improve their lives, it doesn't improve their lives by taking away options, by getting them more options and helping them graduate from sweatshops. That's fine, but we've got to make sure that we're not going to do something that jeopardize the currently least bad option. This is different than forced labor. There's some people who conflate this, when they're given their talks as a guy, Jim Keady, he goes around college campuses and he wears a T-shirt with a, and it says slavery and the V is a Nike swoosh. This is not slavery, it's not coerced labor. I think it's a tremendous injustice to the millions that have actually been held in bondage when you conflate these two things. Slave labor does exist on small scales in the world today, but it's not in the garment industry. In the garment industry, these are places where people choose these lousy conditions from their bad set of alternatives. So my approach to this has actually been a very Missessian value-free one in that I take the ends of the activist, the better lives for the workers, it's I'm going to embrace that and I'll let you use economics to talk about how we can improve their lives. So among the coalition of different groups that talk about these issues, the AFL, CIO, Unite, some of you on your college campuses might have a United Students Against Sweatshop Labor chapter, the National Labor Committee, ILO, various celebrities, ministers, others have been involved in this. There's kind of a common core set of policies that they talk about, a minimum wage or a living wage, meaning tied to a local cost of living in one of these countries, rather than imposing a US-style one. Improving safety and working condition laws, unionization for them, they're almost all against child labor, enforcing whatever labor laws happen to exist in these countries. This is the kind of package of laws that they tend to advocate. As one activist sociology student, by the way, 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, feel good, enjoy life, breathe, live, eat. You know, the regular shit. We're not asking for nothing extra special. And I largely agree, they're not asking for nothing extra special. The question is a means ends one. These ends, improving the lives of the workers, are those means on the second bullet point an efficient way to get there? Does it get you? Does it deliver on these things? So I take the standard when I'm working on sweatshop stuff of improving the lives of workers and for that matter, potential workers in these poorer countries as the ends. And now we're gonna talk about what are the better ways to do this? And at the start, and this is what I find when I deal with not only activists, but philosophy, professors, business, ethnic professors, et cetera, step one is understanding the economics of wage determination. I'll do this differently than I do in a different, you guys are kind of a weird audience to give this talk to. Most of the time, like Tom alluded to, I go into college campuses and like a third of the audience hates me. Two thirds of them are checked out maybe and come in with a kind of neutral attitude and maybe there's a small minority that likes this. But you all get wage determination. Upper bound is gonna be determined by worker productivity or in econ speak, right, marginal revenue product, how much they contribute to the firm's revenue. Lower bound is gonna be their next best alternative. So if we're gonna improve lives of workers, it's gotta be about moving these two bounds. Either things that make the workers more productive or that give them more opportunities. It's not just Nike bidding for their labor, Nike and Reebok are bidding against each other. It pushes you up towards that upper bound. In practice, the real game is gonna be at that upper bound worker productivity. When we look across countries, about 85% of the variation in wages is explained by productivity differences. So in terms of moving people from that $2 a day type standard of extreme poverty to middle income, it's not about just bargaining power or something, it's about making them more productive. Which by the way, I'm not gonna talk that much about unionization. I do it a little bit in the book, but not a ton in the book. And it's because at its best, unions are about narrowing that range from lower bound to upper bound and getting you up against your upper bound. There's not an argument that goes that they raise the worker productivity. That means we're not gonna transform lives and get them out of poverty by having unionization. And if we're counting all workers, the main way of course, unions raise wages is by excluding people from the industry and restricting supply, which is the benefit of the members, but hurts everybody else in that country who would rather be in the industry as well. Speaking of the book, by the way, I saw I think there's six copies left out in the bookstore. Don't run out while I'm lecturing, but when it's all over, go down there and get it, I'll sign it later. That was my best Tom Woods pitch. So, well, I'll do this a little bit different actually. The best criticism I've heard of my work on this, and this isn't exactly in the book, it's in there implicitly. Turns out philosophers and they're not very good price theorist people, but they wrote a critique up of me in Journal of Business Ethics, and it said that I embrace worker welfare as my standard, true, and said, but he argues against minimum wages, for example, for sweatshop workers because it unemployed some. So, standard what we have here, right? Upper bound, place a minimum wage higher than the upper bound, it's gonna unemployed any worker who's below that bound. So it's gonna throw them into worse alternatives. I'll get into the worst alternatives in a few minutes. And by the way, in terms of living versus minimum wage, there is a historical example of where we took a US style minimum wage to a third world country situation. The first US minimum wage in 1938 under the Fair Labor Standards Act set the US minimum wage, I believe, 25 cents per hour. At the time, average productivity in the United States was about 62 and a half cents per hour. This of course is 38, one of the double dip years of the Great Depression, so it did have negative consequences here, but it applied to the United States and all of its territories. At the time, Puerto Rico had productivity about three to four cents an hour. You got massive business closure and unemployment immediately in Puerto Rico. They had to change the law and exempt the territories from it. So that's an illustration of putting a US style minimum wage in a much poorer country. Most advocates of this realized they can't do that now. They said, no, it has to be a living wage. We tie it to their local cost of living in that country. I'm always confused by the way, but living wage, if the people are already alive, don't they have a living wage? But regardless, so the critique from the philosophers came, if we're gonna use worker welfare as our standard and it's gonna employ some, unemploy some, some people will keep their job though. Yes. And if the gains to those people who keep their job are bigger than the losses to those who lose, then if we're losing using worker welfare, not economic efficiency as our metric, then me, Powell should embrace minimum wages. Fair enough as a logical point. The question is, does it imply, apply empirically? Do more people keep their jobs and get the higher wages than who lose the jobs and become unemployed? So that we need to think about like elasticities of supply and demand, right? So think about price sensitivity of workers in the third world. What does the labor supply curve probably look like? You can work or you can starve. Most people aren't issuing you visas, in my mind, unfortunately, to move to other more productive countries. You got a pretty inelastic labor supply. Meanwhile, how do most garments get produced? It's contract work to factories that multinationals can switch between countries like this. Super elastic labor demand curve. So get an inelastic labor supply and elastic labor demand, who's gonna bear most of the burden of any imposition of a minimum wage? It's gonna be the laborers, the glosses to the losers is gonna fire away the gains to the winners who remain employed. And I go through some examples of illustrating some of this. And also, by the way, thinking about, since it was philosophers, I had to play the game. If worker welfare is our metric, we're explicitly not counting the utility of some people. First world consumers, first world capitalists. Why are we not doing that? Well, presumably it's because of some sort of Rawlsian care about the poor in this case. Well, once we're not counting everybody equally and we're counting the more poor, well, then if some of them lose their jobs and some keep their jobs, wouldn't we count the welfare of the ones who lose their jobs more than the ones who keep their jobs by the same logic? What is it that makes it zero one? Isn't there a continuum? Didn't really work. It's in the Journal of Business Ethics. And you don't have to pay for that like you do in the bookstore for the book. That was a bad Tom Woods. He wouldn't do that. All right, so some people will respond to this book. If we raise the price, you know, labor is such a small amount of the price of shoes. Can't it just come out of the employer's profits? Nike's not gonna just stop making shoes. Of course Nike's not gonna just stop making shoes, but they don't confront the choice of make shoes or not make shoes. They confront the choice of how do I make shoes? Increase the price of one of the inputs, third world labor. They are gonna use substitutes for it to now still maximize profits. They are still greedy profit maximizers. Most of my critics would agree with that. So what are the substitutes for it? Less third world labor, more first world labor, more expensive, but more productive, or fewer workers, more capital. It's still gonna substitute away and get this unemployment effect. Just identifying a pool of profits doesn't change that. So we've talked about minimum wages a little bit. I'll get to labor standards in a minute. I will say to their credit, increasingly they haven't advocated boycotts as much as they used to. If you wanna think about upper and lower bounds, right? The second that you start doing boycotts of products, those products become less valuable. If the product becomes less valuable, what happened to the worker's productivity? Just went down, right? They still stitch the same number of shoes, but those shoes are less valuable, which means the revenue they create for the firm is smaller. Their productivity just went down through no fault of their own. And a very effective boycott, of course, totally drives up demand for the product and firms just close up and throw them into worse alternatives. Activists have been kinda moving away from this. What got me into this research-wise was an empirical question about what are these worse alternatives? How do sweatshops stack up against it? There was a group of scholars who circulated a letter in the early 2000s to university presidents saying, don't ban sweatshop products from your bookstores. It's better than the alternatives. And what they specifically pointed out was multi-nationals in third world countries tend to pay more than domestic firms. And a group, out of, of course, UMass Amherst started a petition of scholars against sweatshop labor. And what they said is they said, it might be true that multi-nationals pay more than domestic firms in third world countries, but that doesn't speak to the situation in sweatshops because it's not Nike or Reebok that actually employ sweatshop workers. It's domestic subcontractors in these countries that do and then provide to the multi-nationals. So they basically said your empirical evidence that you're citing doesn't speak to the case, which is a fair enough point, particularly good for people from UMass Amherst. So what I decided to do is I'll set out to compare sweatshops to these other alternatives then. So there's the famous case with Kathie Lee Gifford. She was employing, in her line of clothing, a Honduran girl named Wendy Diaz in her sweatshop, and she was confronted by Charlie Kearnegan of the National Labor Committee on Television with who brought Wendy to the country and said, you're exploiting this poor girl, you're paying her 31 cents an hour. And Kathie Lee, she burst into tears and apologized. It's, I'm gonna change my ways, but everyone was comparing the 31 cents an hour to what we could earn in the United States. But that was $967 a year, that translates into $2.75 per day. At that time in Honduras, more than 15% of the population was living on less than $1 a day. Almost a third were living on less than $2 a day. And in fact, as a 15-year-old, this girl was earning 37% above the national average. Now, could we want her to do better, of course, but we have to compare it to the realistic alternatives in that economy. She is not one of the worst people off there at that time. In fact, people getting her job would be a step up for most of them. Incidentally, chapter four of the book is called Don't Cry for Me, Kathie Lee, sweatshop jobs and third world alternatives or something like that. I'm getting back to my Tom Wood stick, still in the book. So what I set out to do on the first article on this was try to systematically compare these sweatshop jobs to the alternatives because economists had made one-off comparisons of scavenging in a trash dump in Vietnam or Cambodia or something compared to what the wages of a sweatshop were. I said, well, let's look at it more systematically. So what we did, the problem, of course, why nobody did this was there's no nice neat database that you can download from the World Bank or something that says, hey, sweatshop jobs doesn't exist. And in fact, I started by giving you a list of characteristics of a sweatshop. But given those characteristics, we can all nod our head but it doesn't get us very far in putting our finger on that's a sweatshop in a pejorative term. Well, that's just production in a third world country. Like, how low do wages have to be? How bad do working conditions have to be? What if working conditions are bad but wages are high? My brother's a commercial diver. He swims up sewer pipes. I would call that pretty shitty conditions but he makes good wages. So now turn this to a sweatshop. Where do you draw the line? So what we did is we said, and by we, it's David Scarbeck, he's a professor at Brown now. He's my student at the time. What we did is we said, what we're gonna do is we're gonna just let protesters tell us what sweatshops are. We'll scan US and world popular news sources and look for all instances of activists protesting sweatshops that get reported in the popular press and whatever they say, that's a sweatshop. We'll say, that's a sweatshop. And we'll document the wages that they're talking about and then we'll start trying to compare it to the alternatives. Now this does introduce a little bit of a bias into our data because often the news reporter, their source for the wages is the activists themselves. But if you're an activist protesting a sweatshop, if you were going to misrepresent things, you would misrepresent it in, this is so bad in understate wages compared to what they really are, either by using the least favorable exchange rate or if you got quoted a peace rate to how you estimate how many garments an hour they produce, something like that. But to the extent I'm trying to show these jobs are better than the alternatives, if there's a systematic bias in the data, it cuts against what I'm trying to say. So I was about to show you the wages. This was in here. This is the face of various sweatshop employers that we found. It was Walmart, of course. The Olsen twins. And I thought that was p-ditty, but then someone told me when I was given this lecture that I picked the wrong wrapper because I just Googled names. It's, who is it? 50 cents. So he's not guilty. 50 cent pays his workers more than 50 cents. And this in this room is gonna be too hard to read, but this is the table that we put together. And I should say we have to eliminate lots because the news sources, there's 15 articles for every one instance because other news sources all report the same one. So you have to sort them out so that you get the unique instances. I think it's 85 in the 1995 through 2010 range when I updated it for the book that we have. Bunch in Bangladesh, Brazil, couple in Burma. I'm not gonna be able to give comparisons there because the place is such a hellhole. You can't get reliable standard of living data which gives you an idea of what the sweatshops are compared to alternatives. Cambodia, tons in China throughout the period. Latin America, you got Costa Rica, Dominican Republic, El Salvador, Haiti, Honduras. India kind of later on in the period. Bunch in Indonesia, most of them Nike, Laos. Then Mauritius which is kind of an odd one I'll come back to, Nicaragua, South Africa, Thailand, Vietnam. Sometimes we have it weekly, sometimes we have it daily, sometimes we have it hourly in terms of how it was reported. Sometimes we have a multinational associated with it in the article, sometimes we don't. So first thing, take this list of countries and let's look where we can get data on extreme poverty. So percent of the population living under $1.25 or $2 per day adjusted for purchasing power differences. So adjusting by basically cost of living differences across countries. What you see is in these countries that have sweatshops, there's widespread extreme poverty. So Bangladesh, this is the one that's been in the news the most in recent years. Over this overall time period, 85% of the population on average living under $2 a day. 50% of the population under $1.25 a day. Even some of the better ones there, Costa Rica, Dominican Republic, El Salvador, you're still dealing with 10 to 25%, one in 10, one in four people under $2 a day on average over the time period when the sweatshops are being reported. That's a lot of widespread extreme poverty. Well, let's take these numbers from this. Let's adjust them for purchasing power and let's look in these countries and see how the sweatshop jobs compare. So this is your average sweatshop job in each country, adjusting for purchasing power differences. Every single one of them, you get above the $2 a day threshold, including in Bangladesh where 85% of the population in this time period did not. Out of the 85 individual examples, I think 81 of them get you above that threshold. So this average isn't masking the outliers. Three of those outliers were Bangladesh where the extreme poverty is the worst and the other one was China in 1997 when there was literally almost a billion fewer people, billion more people in extreme poverty in China than there is today. So let's up the bar of comparison. This is doing it to extreme poverty. How about to average incomes? So for this one, we didn't have systematic data obviously from these news articles on how many hours the people worked. So we do it for 40, 50, 60 or 70 hours. Some of them, like you see Cambodia's flat across, that's because I think we had weekly data from them so doing different hourly estimates didn't change it. And for the most part, of course, one of the characteristics of a sweatshop is long working hours. 100% line going across that means they're earning as much as the average in that country, which of course when incomes are very unequal in these countries, average isn't necessarily representative of the median person in the country, but you see some of them, Cambodia, particularly Haiti, Honduras, Nicaragua, 150, 200, 250% of average national income. Not just doing as well on average, but way better than the average job. For a lot of them, say Bangladesh, Costa Rica, I guess Dominican Republic, El Salvador, India, Indonesia, Vietnam, they're hovering somewhere in that 80 to 110%, or 65 to 110% maybe of average income. So somewhere around normal in that country, but these, by the way, these are the ones being singled out for protests too, by the way. Somewhere around average. Now, some of them you've seen by now are way below the average. This is what the protesters would be saying, aha, see, these are really bad jobs. Now, of course, just because something's below average doesn't mean it's bad for that worker. Almost by definition, half of your jobs are gonna be below average. The key is that it's better than their next best alternative. However, you do see some, the point of the exercise is to look and say, how does it compare just to every other opportunity in the economy? Some of them Brazil, China to some extent, Mauritius definitely, South Africa, Thailand, these are way below average. What's going on in these ones? Well, Brazil, turns out when you look at the actual case, it's not Brazilians working in the sweatshop. It's illegal immigrants from Bolivia working in a Brazilian sweatshop. If you compare the income they're making in the Brazilian sweatshop to Bolivian average income, they're well over 100%. Brazil itself is a relatively wealthy country as this group goes. So average in Brazil happens to be relatively high. Mauritius, same game. Their average income is something like $12,000, $13,000 over this time period. It's immigrants from India, Sri Lanka, and Bangladesh. Again, home country income, well over 100%. That's why they're moving there to take the jobs. Each one of these had an immigration story. China's is a little bit unique. It's not international migration. It's vast inequalities between enterprise zones and cities and rural China. And it's migration from rural, poor areas of China to city areas that have higher income that's doing it. So it's not international migration, but the dynamics the same. South Africa was the lone exception. And there it was a single instance of a rural factory having an urban minimum wage applied to it. But the interesting thing about the news story is when the officials showed up to try to enforce it, the workers themselves rioted and threw the officials out. Apparently, they understood their jobs were at jeopardy. All right, so that's what got me into this. I've done a lot of debates on college. Actually, I love debates. They're more fun than giving the lecture because it's like academics is kind of boring. Like you work on your work, and by the time it gets published, you're like just so done with it. Like debates is as close as we get to like sports. It's like, oh, you got the ball in your hand. There's four seconds to go. I might win. The TV is kind of like that too. The judge has more fun than us academics on that. But I was giving, I was doing a debate. I think it was in Michigan, a labor rights activist. And the anti-switch shop group had picked her and the econ club had picked me. And she started the debate by saying, I'm not gonna dispute that wages aren't better in sweatshops than the alternative. And you should have seen all the unshowered people in the crowd kind of go like, oh, really? Like we invited her? Apparently she had seen some of my stuff and she didn't want to argue that. And what she said is it's the working conditions. The working conditions are the problem. And we have to mandate better working conditions. I said, well, it's kind of a problem with that because wages and working conditions are like intimately linked. They're all part of total compensation. I started to explain. And you guys, everybody knows this, by the way, right? So when you go out to a bar in Auburn, do you think the musicians paid very much? No, why? It's a kind of fun job, right? You don't have to pay them very much. You kind of like singing anyway. And in fact, total compensation. If they want to hook up with somebody from the opposite sex is a pretty good chance. They get to do it at the end of the show. So as a result, you don't have to pay them very much to get them to entertain, right? I think that's why Bob Murphy sings karaoke. Uh... Uh... Meanwhile, if you're a garbage man, it's an unpleasant job, it doesn't take very much skills, but its pay relative to the skill set is relatively high because it's an unpleasant job. So wages and working conditions are tied together. And I explained this during the debate, and she said, well, that's just economic theory. And I was like, yeah, but it's core micro. It's not macro. This is the nonfiction part of the discipline. But... But she inspired me then, she wanted evidence for it. So I said, okay, I'll do a study, not to her, but afterwards. I was like, you know what? I'm gonna do a study on this, because this is easy enough to do, and I can kind of have fun. I'm gonna go explore the trade-off in workers' minds between wages and working conditions in sweatshops. So I chose Guatemala. Do I have any UFM students in the crowd? No University of Francisco Marrakeen students? I thought there was always one at Mises U. You guys missed out this year. UFM's an inspiring place in Guatemala. A university where every student, regardless of major, takes a course in the thought of Mises and the course in the thought of Hayek. It's a phenomenal place. I've been down there many times. And the National Labor Committee had done an expose on four different Guatemalan firms that they were protesting as sweatshops. One of them had since gone out of business. One was like an ag processing plant, so it doesn't fit the typical apparel sweatshop. The other two, Sandbridge and Nicotex, did. So I went down there, went to survey the workers and asked them, the National Labor Committee had a long list of things that they complained about. Inadequate pay, long hours, poor working conditions, Guatemalan law mandates that all of the workers had to be enrolled in the state health insurance. They were only enrolling like 20, 25% of the workers at any one time and changing who was enrolled. So like you could go for your annual checkup, but if you had an emergency at a non-other part of the time of the year, it didn't work out so well. Not giving them the mandated legal vacation time, being verbally abusive to the employees. So we took this list and we created a survey to ask the workers. Now there's a problem if you go to survey the workers. If you ask the company's permission and go in and do it on company property, you have to be worried that they're going to taint your sample by either intimidating the workers directly or the workers just thinking that the employer might be listening in or something or the firm choosing which sample of workers you get to choose. So we didn't want to get permission. In fact, we didn't want them to know it was doing it. So what we did is we surveyed the workers outside of the firms as they were coming or going at the beginning or end of the day from their job. And by we, I mean, I paid a Guatemalan survey firm to do this because I kind of stand out in Guatemala. So I had a survey firm who did this and we tried to get, it's not a statistically random sample, we tried to get a random sampling of workers as their representative sample of workers as they were coming in and out. And we collected demographic data on them and it looks like a relatively representative sample that we got. So we asked them a whole bunch of things actually, but for purposes of this talk, I wanted to do the working conditions part. We asked them about this trade-off between wages and working conditions. Are you willing to work for lower pay if you're employer? And then we went down a list of things that the National Labor Committee talked about. Reduce the number of hours you had to work. Major hours more predictable, gave you bathroom breaks, gave you longer lunch breaks. Major working conditions more pleasant, made them safer, provided health insurance, gave you paid vacation, treated you more fairly. Reduced the risk of sexual harassment. The last one wasn't in the NLC's complaints, we just put it in there since we were asking anyway. There was a second follow-up question. If so, K. Mucho-Catzates turns out that the follow-up question was irrelevant because they weren't willing to trade off any pay for these things. If we go to the total column on the right that puts the two firms together. No, no, no, no, no, no, no, no, no, no, no. Not willing to trade off any pay to improve them. I'm gonna assume the 100% on the risk of sexual harassment is because there wasn't sexual harassment going on there. Otherwise, probably there would have been some answers for that. The one that gets the most agreement out of this is paid vacation, but still fully 81% say, no, I wouldn't trade any pay in order to be able to have paid time off. This tells me that, by and large, in terms of mix of compensation, the employers are largely hitting the mix, constrained by what total upper bound is gonna be, how it's divided, they're doing it, on average, to the preferences of their workers, which, guess what, for profit maximizers makes sense. If you're not giving the mix between wages and other working conditions that your employees prefer, you're giving a package of compensation that costs you more to give than the employee values. That means if you can remix it and give them more of the part that they value, you can save yourself money and be more profitable. So employers everywhere, whether in a sweatshop or in the Ludwig von Mises Institute, have an incentive to tailor the total compensation, the benefits and the wages in a way that the workers most prefer. And guess what, back to core micro theory, this is exactly what would predict. So it wasn't like a, wow, I can't believe I got this answer when I did the survey, but it was useful for the next time I have a debate with one of these people. All right, so we got this far. And if I was with a normal crowd and not you guys, maybe I've pulled them along a little bit and they understand that you can't just legislate higher wages, that it's better compared to the alternatives and that working conditions and wages are tied, but they got this residual and I'm, dude, save the children. You can't be for child labor, right? Wrong. And I guess, I mean, I'm against child labor in the aspirational sense. We'd like everybody to escape poverty and children to have a good life growing up, but that doesn't mean I'd pass a law against children working. So we have to be really clear about why children work. Because their families are desperately poor and need the meager income that the children provide. Otherwise, they would not have them work. The parents aren't mean or stupid. And when we outlaw it, you get bad consequences. So in the early 1990s, a Congressman Tom Harkin proposed banning imports from Bangladesh because they were being made with child labor. The bill never became law, but in response to it, firms fired thousands of child employees. Oxfam reported on it and said many of them became child prostitutes or starved. Clearly worse alternatives than working in a factory. In fact, that arch neoliberal economist, Paul Krugman, wrote an article at the time, I know Tom loves him, wrote an article at the time called Bad Jobs at Bad Wages Are Better Than No Jobs At All. I favorably quote Krugman in the introduction to this book. It was painful, but I did it. I don't know if that deters you from buying it or not. But he made the point of them going into child prostitution or starving is clearly worse than the alternatives. So we shouldn't outlaw child labor. Of course, where most children work are not factories, but in agriculture, this is a picture coming off actually a Katanango and Fuego. Fuego's the volcano that just had a major eruption in Guatemala. I was hiking there and coming down. These were children working on the fields in the lower part of the volcano. It's hard to kind of tell by this, but probably nine years old, 10 years old or so. This wasn't the weekend in the family farm. This was their job. They were working there. And this is typical of most child labor. So when we look at that list of sweatshop countries that I can get child labor data out of, which sectors do the children work in? The blue is agriculture. By far the most, where they work in these countries is in agriculture. Second most is services. That's the red lines. And by services, this doesn't mean like McDonald's. This typically means like households, nannying, gardening, cleaning, stuff around a house. The green line is manufacturing, the smallest in all of these countries. But how do we interact with child labor? For the most part, we don't consume the services unless you live in the country. The agriculture, a lot of it's subsistence agriculture and very little of it's exported to the first world anyway because of the awful agricultural barriers that we have on trade here in the United States and Europe. If we're gonna interact with the child labor, it's through the manufacturer of exported goods. So when we say child labor is icky, I don't wanna buy its products, we decrease the demand for children in manufacturing, but that means more of them go to ag and services. Which of these three do you think is the most renumerative manufacturing? Which one is the most human capital being built for upside future earnings? Manufacturing, and in fact, when it comes to danger for children, child injury rates in agriculture in the third world are higher than they are in manufacturing. Banning child labor or abstaining from buying products from child labor pushes children usually not into the dire prostitution or starvation of that Oxfam report, but into less renumerative and more dangerous working conditions. The argument that I've made for adults applies equally to children. Now the real cure for child labor is the process of economic development. So this is breaking down countries by income quintile and you see it, it's the poorest fifth of countries, a third of children work. As soon as you get out of that, child labor rates plummet. By the time you're up to the top 40%, there's basically no child labor. And that corresponds to an income of about 11,000 dollars or so per capita over this time period that I'm looking at. And really it's here, it's this under ballpark, $3,000 per capita. We see a significant chunk of child labor. And even this understates that the best study I've seen on this was a husband-wife team out of Dartmouth. And what they did is they tracked individual families in Vietnam throughout the 1990s. And the 1990s were a decade of tremendous growth in Vietnam. And there's not like a linear relationship as income goes up, how child labor goes down. The actions very segmented all around poverty lines. So what they found is families, I think it was 1800 or 2000 calories per day. As soon as they could afford that many calories per day for each family member, boom, big drop in children leaving the labor force. Next one was around Vietnam's poverty line. Boom, another big drop. Families who stayed below those thresholds, children kept working even as incomes went up. Families who were above those thresholds never had the children in the workplace to start with. So it was basically, can I feed my family? Children leave labor force. Can I feed and shelter my family? Rest of children leave labor force. That's where all of the action was. So some people will say that, when you look at this, yeah, but those richer countries, we all have laws against child labor. And it's the child labor laws why we don't have child labor. Well, no, most of the poor countries have laws against it too. They're just not enforced. But it's also the case that we didn't have anti-child labor laws the same way when we were as poor as they were. So the United States, this is various labor laws that came in. Child labor one for right now, 1938. Updated to $2,010. That's $10,000 per capita. That's when we put our first national anti-child labor law in place. Guess what? That corresponds just about to when we were here. We codified it after the child labor was already disappearing from the workplace. And we did have individual laws in states before we had the national one. The earliest one dates to the 1840s in my home state of Massachusetts. Here's what it said. Children under 12, so 12, 13, 14, that doesn't matter. Children under 12 can't work more than 10 hours per day in a factory. So the normal 60 hour work week at that time of Monday through Saturday, 10 hour shifts for eight year olds was perfectly fine. We put that law in. Other states passed similar laws from there until we got the national one. Basically they were non-binding. You look at England, its first child labor law, France, Germany, same things. They put in laws that were largely symbolic and non-binding. What happened? The labor unions of course, they were agitating for child labor laws because they want to outlaw competition throughout much of the 19th century. They didn't get them. Why? Think about interest group politics, right? Big business would lobby back and prevent it from happening. Why did we all of a sudden get anti-child labor laws? Because big business stopped lobbying against it. Why? Because they weren't employing children. They didn't give a shit anymore. So the political economy of it, they would allow you to codify what was the market process was already happening of getting children out of the labor force. Once it was, you know, of course, there's some industry laggards or something, but basically it codified what was already happening. The economists who have looked at progressive era labor laws and mandatory school attendance laws, what they find is once you account for economic growth, either mandatory school attendance or anti-child labor laws don't explain the reduction in child labor. It's all economic growth that's creating the action there. The laws were largely symbolic. So, not unlike child labor, the real cure for sweatshops is this process of economic development. These things are not new. My original home state is Massachusetts. I went to University of Massachusetts at Lowell. So I grew up around the factory. In fact, my hometown is Haverhill, Massachusetts. It was known as the shoe city. Lowell, of course, is the heart of the industrial revolution. What we had in those cities were sweatshops. In fact, my ancestors worked in places that today we would call sweatshops. So my great-grandmother worked in the Cardinal Shoe Factory in Lawrence, Massachusetts. But we no longer have them there. What happened? Well, as we became more productive, we accumulated the proximate causes of economic development, more physical capital, better technology, more human capital, upper bound started increasing, total compensation started increasing. We started switching what we were doing. Textiles started leaving New England. First, they came down to the South, and they left the South and started going international. We became more productive. We graduated sweatshops like the bottom rungs, one of the bottom rungs of the ladder of economic development. And sometimes people will talk about this process. Oh, it ticks so long in United States and Great Britain. Yeah, United States is probably about 100, depending what you date of start of industrial revolution to post-sweatshop, about 100 years. Britain may be 125, 130, depending precisely how you want to date this. But why did the United States go quicker than Britain? Well, where did we get our technology? Started by stealing it from Great Britain, right? Where did we get some of the physical capital? Well, investment from Great Britain. The process happened a little bit quicker. Sweatshop countries circa 1960, Taiwan, Hong Kong, Singapore, South Korea. What happens? They were pre-industrial 1950, like $300 per capita standard of living. In a generation, they shoot to first world standards of living. What happened? The world was so much wealthier. There was so much better technology capital. Once they got their institutions right, what I would call the fundamental causes of economic development, having strong property rights, a tolerable degree of the rule of law and a decent amount of economic freedom, once they get those right, those proximate causes can fly in and make the process happen so much quicker today than what it could before. Some people, when I talk about this tool, I'll say, yeah, okay, but they'll say, you know, it's a global race to the bottom. These companies keep going to poorer and poorer places. And I'm like, yeah, you know, better style, that's great. But they make it sound like, you know, Hong Kong got raped and pillaged. Like, what? No, what happened? It's circa, I don't know if you've ever seen, if we can say Milton Friedman here. If you've ever seen Milton Friedman's Free to Choose video series, the old 1978 one, he goes to like Hong Kong and shows like Manufacturing that if you see that today, he's talking about how advanced they've become. And you see it today, you're like, oh my God, they were so backwards that Hong Kong from 19th, you know, beacon of economic freedom in the world went from pre-industrial to what he thought was amazing development by 1978, 80, whenever the video was coming out. And today is launched far beyond that. It makes, you know, New York City look like, you know, child's play actually, when you look across from Kowloon to Central and see the skyline. It's actually awesome capitalist inspiring place to go up to the top of the tallest building on the mainland side and just watch the commerce and the harbor and the buildings in every direction. It's like, and think 1950, this was pre-industrial. It's a freaking rock with a deep port. We gave them a little bit, they gave themselves a little bit of economic freedom and boom, that's what she got. But what happened there, right? It was textile as workers became more productive the opportunity cost of employing them in garment manufacturing rose. The garment manufacturers couldn't bid enough to get their labor because they were being bid into more productive industries. So the garment manufacturers had to go elsewhere for their laborers. They start going somewhere. Hong Kong didn't get raped and pillaged. It graduated up and the garment manufacturers had to go somewhere. As they keep running this global race to the bottom, it's people are graduating up the level of development and doing better and they're resorting to going, finding other people who are even poorer and helping them start up the ladder. This is great, but it doesn't imply that there's like some last place in, you know, central sub-Saharan Africa that gets sweatshops and is like permanently at the sweatshop stage. At that point, there's no poorer country to go. Well, as the workers become more productive, they're gonna have to start getting better wages and working conditions just like everywhere else. But now there's nowhere for the employers to go. So garment manufacturing starts looking more like it does in say North Carolina today than what it does in Bangladesh today. And the relative price of clothes compared to other goods starts going up, but we're in a much wealthier world and everybody is better off. This is a wonderful process. So when they say it's a global race to the bottom, just remember it's great. It's a top mention that I've got protests on campuses and stuff when I've been there. This was from Florida State. They have a particular commie group there and they started a Facebook thing and they took this picture off my Facebook and put this meme on it, benefits from white privilege and doesn't advocate sweatshops and third world growth and the New England Patriots. The second part's right, but it's worth just mentioning the first part. Now I'm not gonna dispute about white privilege in the United States via each other here in the United States, but in a global context, in the context of sweatshops and development, it's not white privilege. It's the privilege of living in a place like the United States of Europe that has a tolerable degree of, semi tolerable degree of economic freedom and rule of law and has had it for a long time in whose ancestors accumulated physical capital, technology and made us a wealthier place. It ain't about your skin color. Take a Haitian out of Haiti, let them move to the United States today. On average, their income goes up 1000%. It ain't about black or white, 1000% Haiti moves. It's about the same for a Nigerian, about 150% for a Mexican. So it's the privilege of the institutions that better allow us to use our human capital. So when I talk about upper bound being limited in these countries, it's often through no fault of the worker themselves and their capital. It's the crappy environment that they operate in with their bad government that doesn't respect the rule and give them very much economic freedom. So when a firm goes in to employ them, they have to worry if their profits are gonna be inflated away, if their business is gonna be nationalized. And then all of this goes into estimating how much can I pay a worker? Take that same worker, let them match with other physical capital, other human capital in a better environment. They become much more productive. So it's not about skin color. This sweatshops have helped white people escape poverty. They've helped yellow people escape poverty. They've helped brown people escape poverty. They've helped black people escape poverty. It's not about skin color. All right, so as I wrap up here, what good connectivists do, this is air sweatshops. Someone had this stitched into a shoe. I swear it wasn't me. I can only assume that they were limited in the number of letters that they could use. There's nothing anti-market about some of these ethical branding campaigns necessarily. If, so why does Nike pay Michael Jordan so much? Because everyone wants to be like Mike, right? It creates extra subjective value in your brain so you're willing to pay more for the product. To the extent that people value products because they were air sweatshops and would be willing to pay a worker more because of it. Great, their upper bound just went up. You can market it that way. Except there's a whole lot of fraud in this. So just like the fair trade coffee stuff, often it's not making the workers better off. So there's a group called Shop with the Conscience Consumer Guide. They guarantee all products on their website are sourced from sweat-free facilities where the workers have a living wage, the right to unionize, and good working conditions. Rennie, here's their source factories. Feel like you're helping third world workers. It's a made in the USA campaign in disguise. It's bullshit. So there's a, when sweatshop activists ask me like, what can I do? I'd be like, create a non-profit that exposes the frauds that are this stuff if you really want to try to help workers. I did admit one factory. There was one in Asia, but it made the map smaller. All right, so what good they can they do? I'd be careful about this branding stuff. Say buy the products, but advocate for different things. Free trade. To the extent that goods can come into our markets without tariffs, that raises the upper bounds of the workers by increasing their marginal revenue products. In fact, for substitute goods like agriculture, let that come into the United States duty-free, and that gives them better alternatives than just working in the factory as well. It raises the upper bound in other industries. If you're really concerned about their next best alternative, instead of leaving them trapped in the impoverished country, give more of them visas to move to the United States, then their next best alternative isn't working in subsistence agriculture. It's moving to the United States and working in agriculture or something else here. What they really need, of course, is institutional reform. They need more economic freedom, better property rights. I'm very pessimistic about us in the West or outside activists to be able to do that in any third world country. I mean, I think the exchange of ideas is hugely important to the extent we have international students coming to places like Mises University and bringing books back and talking to people in their country. This is all crucial. This is why I love what University of Francisco Marrakeen does so much. But it's not something I think that can be done from the outside. It's a spontaneous bottom-up process that has to be the hearts and minds of citizens in these countries that enforce it on their bad governments. But until then, rule number one for all of us in the first world should be do no harm. And that means engage in commerce and trade with these people because it makes not just us better off, but them better off too. Thank you very much. Thank you.