I. Background

Across the globe, the growing dominance of trade has enveloped countries, both developed and developing, into asserting whatever advantages they might boast so as to remain globally competitive. This phenomenon is best described by the term ‘globalization’. While the uses of the term reach into matters of economic (de)regulation, the overlap of business and political legislation as well as international treatises, the objective of this paper relates to globalization specifically in terms of multinational enterprises (MNE) and their growing propensity to employ sweatshop workers in developing nations. In these developing nations, the cost of living is a fraction of what is required relative to developed nations. As a result, market forces, which are best described as the “interaction of supply and demand that shape a market economy”,¹ require that employers pay wages that are only a fraction of what would be paid in more developed economies. From the perspective of an economist, this proves favourable for both participating parties; the MNEs come in search of cost-saving measures on labour and as part of the exchange bring investment and the prospect of ameliorating a country’s overall standard of living.

It is important to note that market forces do not at all times require that a living wage - that is, a wage sufficient to fulfill one’s basic nutritional requirements and to live with dignity² - be paid to workers. The reasoning behind paying insufficient wages is arguably defensible if a numbers-based macroeconomic stance is taken, but is next to impossible when basic human rights are brought into the equation. There are numerous charges raised by ‘critics’ of MNEs that involve, to name a few, the exploitation of workers, collaboration with repressive regimes and the immizeration of the economies in which they operate. In response, defenders of MNEs, whom I shall call ‘producers’, argue that arbitrary deviations from the demands of market forces, even with the right intentions, would worsen the living standards of the countries in question.

II. The Debate

Taking the side of the critics are Dennis Arnold and Norman Bowie. The overall themes of their two papers argue that sweatshop workers are not given the respect due to them as humans. The keystone argument in making in this purports that MNEs have a duty to assure their employees have the wages and conditions necessary to function as humans. To do any less would be to treat these workers, in the Kantian language, as means towards an end. Writing on behalf of the producers is Ian Maitland, who believes that MNEs have three options for how to pay their employees and that they should choose the “classical liberal standard” over the “home country” and “living wage” standards.³ Keeping with the stance taken by economists, Maitland contends that MNEs who cave to public pressure from critics and the like risk harming the economies in which they operate in terms of unemployment, foreign investment and the rich-poor gap.

One of the main issues taken against the defenders of sweatshops is not just the use of textbook economic theory; it’s the structure of the argument, being one that that is purely economics-based. The critics, however, are equally guilty. Neither side of the argument makes a compelling case in terms of the other’s lens. Arnold’s and Bowie’s arguments hinge on an appeal to human rights that ought to be upheld, while giving only minor attention to the macroeconomic issues. Conversely, Maitland admits that “not a single company [facing pressure from the critics] has tried to mount a serious defence of its contracting policies.”⁴ My essay will attempt to show how critics of MNEs need not address the debate so heavily in terms of human rights by neglecting the economic issues. I will make frequent appeals to the textbook economics approach that Maitland is so fond of and how its very foundation, or at the very least, its presentation, contains two substantial flaws. In the search for cheap, unskilled labour, MNEs cannot excuse themselves, whether directly or by immediate proxy, of their duties to uphold human rights. Where the conduct of MNEs in international sweatshops becomes subject to criticism, those defending it 1) fail to address the issue in terms of universal human rights and 2) employ a rudimentary economical argument that is selective in what measurements it does or does not take into consideration.

III. Human Rights

The critics hold many reasons for opposing certain forms of conduct engaged in by MNEs, one of the more popular forms being the call for human dignity and rights. These appeals, insofar as those from Arnold and Bowie, are done through application of the ethical theories of, in particular, Alan Gerwith and Immanuel Kant. Arnold outlines the requisites for human rights by retelling the writings of Gerwith, among others. He starts by noting that

“A person [is] capable of reflecting on one’s desires at a second-order level and [] must be capable of acting in a manner consistent with one’s considered preferences … it is our capacity to reflect … that distinguishes persons from mere animals.”⁵

Thus far, it can be asserted that all persons must be unrestricted in their capacity to contemplate; to do otherwise is to treat them as something less.

The justification for human rights continues: the ability to act upon one’s desires is not possible without two requisites: freedom and well-being. Calling this a matter of rational consistency, Gerwith states that “a person must acknowledge that she is a purposive being … to deny [others their rights] … is a purposive act, [which] contradicts the proposition being asserted.”⁶ It is also contended that even if persons are prevented from exercising their rights, it does not follow that their rights bear any less weight.⁷ While the contributions of Gerwith give the critics ample grounds upon which to target MNEs for their misconduct, Arnold and Bowie also apply the works of Immanuel Kant. Even though both authors’ works could be used to defend the worker or give obligation to the manager, it is Kant’s second formulation of the categorical imperative, which states that “man cannot be used merely as a means by any man … but must always be used at the same time as an end”⁸ that places greater emphasis upon the duties of management.

The Sweatshop

The definition given to Gerwith’s precursor of freedom intentionally has a minimalist nature to it. All that is required to acknowledge one’s humanity is non-interference necessary for the capacity to reflect. It is important to parse between what actions constitute fundamental violations and what causes mere discomfort. Some of the more vocal critics contend that the producers are violating their workers’ rights, citing such points as the lengthy work hours involved. This can be refuted quite easily by claiming the workers are doing so voluntarily.

Following by implication from Kant’s second formulation, Arnold and Bowie are contending that certain sweatshop supervisors lack respect for their workers by treating them as means. In many instances, the claims are justified,⁹while in others they are exaggerated for the purpose of shock value.¹⁰ As a general rule, the producers are obligated to respect their workers as moral creatures. Many times this respect falls short, thus Arnold and Bowie explore at length the violations committed by sweatshops. Their charges are categorized into violations of law, coercion, poor working conditions and unconscionable wages. As was mentioned earlier in this essay, the greater number of these charges go unanswered by the producers (or Maitland, in this case), while those that are answered employ a type of public-relations approach that resolve apples with oranges, if you will. In response to charges of workers being exposed to dangerously high levels of hazardous materials,¹¹ the producer counters by noting how an increase in working standards would cost money and thus render one’s plant less competitive. In response to Kernaghan’s appeals for MNEs to respect human rights, Maitland invokes the name of Marx, which if anything was little more than sensationalist detraction. And of course, in response to charges of MNEs paying less than living wages, the producer counters by referring to wages demanded by market forces. I turn now to the economics of sweatshops and how the critics can indeed step onto the territory of the producers.

IV. Economics

Throughout this section, I will refer specifically to the type of economist that is libertarian in her philosophy. It would be highly unjust and inaccurate to refer to all economists as prioritizing the supremacy of an unregulated market over that of basic human needs. The type of economist I specifically refer to is, to paraphrase Jagdish Bhagwati, “viewing the field of study as an arid mathematical toy, rather than as a serious social science.”¹² The reasoning this economist uses for defending the current conduct of sweatshops is oversimplified and at times frustrating for those debating against it. In arguing for the producers, Maitland takes the arid approach, as I shall illustrate.

One-Step, Two-Step

Maitland argues on behalf of the producers by use of economic theory as it relates to wages and employment. His methodology involves the use of the simple one-step and two-step macroeconomic models, which entails noting how an output will change due to the shift of movement of an input. A basic example of a one-step model would go as follows: the higher demand for firewood during the winter months enables those selling wood to temporarily increase their prices. Maitland employs both models by arguing that an increase in wages would result in higher unemployment and lower profits, which as a consequence would discourage foreign investment.¹³ The argument, by itself, will bear no criticism from me. What I do take issue with is the lack of any follow-up. In a simplified experiment using the one or two-step model, the change of an input or condition will result in at most two changes to any other variable relevant to the model. Maitland’s narrative might by implication leave some readers believing that his description of adjustments to the wage level will result in what he has outlined and nothing more. If a simplified model is used, it can follow that Maitland’s assertions are true. However, we are dealing with complex economic matters that are difficult to even model on the usual supply vs. demand graph. I will outline the details of this claim in the following section.

Ceteris Paribus

This Latin term, popular with respect to predictive sciences, means “with other things [being] the same”¹⁴ or “holding all else constant”.¹⁵ Its use is prominent in the conduct of experiments, such as using regression analysis to calculate the effect of rainfall and fertilizer on a crop of corn. Using ceteris paribus enables the experimenter to determine how much growth can be attributed to rainfall and fertilizer by themselves, as well as the overall effect. In studying economic models, one must consider multiple inputs, conditions and outputs. They are, to name a few, labour supply, wages, demand for goods, time value of money, consumption, inflation, unemployment, and so on … The use of ceteris paribus enables a professor of economics to explain, for example, how a change to the real interest rate will affect spending behaviour with much greater simplicity than if she had to consider other factors, such as changes in income or the age demographic.

It is not the concept with which I take issue, but the lethargic application of both it in conjunction with the one-step model and a related concept that I might call ceteris excludis, for lack of a better term. The producer’s defence revolves around hammering home the negative effects of wage increases via ceteris paribus, all the while (intentionally?) excluding what effects the improved incomes might have outside of what is not a sterilized laboratory, but a real-life scenario. Maitland is very much guilty of this. In denouncing the idea that MNEs ought to pay above-market wages to their employees, Maitland argued that jobs would be lost and foreign investment would be discouraged. Employment and foreign investment are macro-variables; that is, they are measured in terms of what an entire region or country has in their possession. Private consumption and savings are also macro-variables and would increase with wages, which would further stimulate the local economy, but Maitland makes no mention of either.

Further, the wage-to-unemployment theory holds true only under two rather interesting precursors, which Maitland hints at in his outline of the classical liberal approach. First, for unemployment to rise in any measurable form, wages must increase across the board. (Even in his conclusion, Maitland hints at this) Having wages increase in select factories will not necessarily affect a country’s entire economy. Similarly, the dismantling of a paper mill in rural Québec will bear no measurable effect on Montréal’s job market. Second, setting a floor on wages that might result in deadweight losses must be legislated and enforced by the public sphere. The producer that raises this argument will see it at best diminished and at worst quashed; the critics are appealing to the MNE’s, not the local governments, to raise wages. Finally, if it wasn’t bad enough for the producer-advocate, the very theory might not necessarily be true. Referred to in the Arnold-Bowie article is the Card-Krueger study, which proved, at least in the US, the “estimated effect of the minimum wage [on employment] was either zero or positive.”¹⁶

The Utilitarian

Briefly, I will argue for a utilitarian argument that favours increased wages for workers in the formal sector. The term economists use to refer to a person’s well-being is utility. While there is no set method for measuring utility, a property of utility relevant to this discussion is the property of diminishing marginal returns. For each additional unit of income a person earns via ceteris paribus, the rate at which their utility increases is diminished.¹⁷ That is to say, a person earning efficiency wages will be more grateful for an additional ten dollars a week than would a manager already earning a premium. Add to that the sheer number of workers relative to management and the net utility gain to be had from an increase in wages is considerable.

V. Conclusion

I have stated my belief that critics of MNEs have more tools than what is normally assumed. I also believe it necessary that the critics make use of a more economics-based discussion when challenging the producers, as the justifications for their actions are oversimplified and tend to omit information relevant to worker well-being. The argument for the supremacy of human rights goes unchallenged by those who in part are violating said rights, which gives further credence to the critics. However, changes appear to be slower than what the critics are hoping for, which can be attributed to a host of factors, ranging from resource scarcity to poor law enforcement. Much like the property of human rights stating that its violation in no way invalidates its authority, the lack of care for sweatshop workers by the producers in no way diminishes the basic obligations that are due.

Notes:

1. wordnet.princeton.ed… [↩]
2. United Nations Declaration of Human Rights, Article 25, Section 1 [↩]
3. ETB: Maitland, pp. 581-2 [↩]
4. ETB: Maitland, pp. 580 [↩]
5. ETB: Arnold, pp. 559 [↩]
6. ETB: Arnold, pp. 560 [↩]
7. ETB: Arnold, pp. 562 [↩]
8. Kant, Immanuel. The Metaphysics of Morals, Mary Gregor, trans., Cambridge University Press, 1991. pp. 255 [↩]
9. Varley, Pamela. The Sweatshop Quandary: Corporation Responsibility on the Global Frontier. Washington, DC. Investor Responsibility Research Center, 1998. pp.185-6 [↩]
10. Bhagwati, Jagdish. In Defence of Globalization. New York, NY. Oxford University Press, 2004, p. 171 [↩]
11. ETB: Arnold/Bowie, pp. 598 [↩]
12. Parkin, Michael; Bade, Robin. Economics: A Canadian Approach. 5^th ed. pp. 854 [↩]
13. ETB: Maitland, pp. 587 [↩]
14. en.wikipedia.org/wik… [↩]
15. Parkin/Bade, pp. 13 [↩]
16. ETB: Arnold/Bowie, pp. 603 [↩]
17. en.wikipedia.org/wik… [↩]

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