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A reader suggests he might not say, “Cool! Cheap stuff! Screw the overseas poor! Walmart Rulz!”
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Actually, I have been wondering how a job with a salary of something like $38 a month was a step up from poverty… Perhaps some of the economists who sometimes contribute to this combox and have far more experience and knowledge than my several post-graduate credits in economics could explain this to me? Of course I have read the arguments that, for example, $38 buys much more in Bangladesh than in the US, but this is not enough to convince me.
I would also appreciate an “economist’s” response. It seems simple enough to me for people/families in developed countries (e.g. the USA and Canada) to re-allocate their monthly budgets toward purchasing more ethically-sourced clothing (and perhaps other goods) and away from more superfluous goods, like a second iPad or third TV. I wonder how much of the demand for these kinds of goods is driven by the US consumer.
I personally liked the copious amounts of links in Tim’s article. This is a subject that has been tugging at my heart after the Bangladesh factory collapse this year. Indeed, I think some facets of the discussion are complex, but others don’t immediately seem to be.
It would be better to invest in a venture to hire people at 2-5% higher than local average in a developing country and produce a good or service that is not yet being produced. Soak up the excess labor and you get wage inflation across the board, increasing the wages of those who are suffering under the lousiest of sweatshops, a process that is in full swing in China right now.
As relatively rich American consumers with disposable income, couldn’t we do both?
I don’t know why coffee or a shirt is superior to an iphone or a TV as a source of employment for someone in China or Vietnam. Could you explain it to me? Production is production as far as present wages go. Skill building seems to be higher on the electronics front so I do not really understand why this should be disfavored.
I decided to move the whole discussion up to our longer thread. Hope you don’t mind!
The answer being marginal relative value. When your society’s median wage is $.38/day, a wage increase to $1.00/day can feel like luxury.
It is an interesting question on when there is a sea of unemployed who are all looking to get a little more than average whether it is more just to hire the maximum number of people at 5% higher than local average or a hundredth of that amount at 500% higher than the local average. It’s great for the 1 guy who hits the lottery but not so good a deal for the other 99 who aren’t hired by you at all.
I have looked for, and not found scriptural support on either side of the question but perhaps you have found such a thing.
The only New Testament I know of is James Chapter 5, where he goes into a rather long discourse on the subject.
Having said that, his emphasis seems to be from the point of view of Labor being in Scarcity, not in Surplus. Labor in surplus is a rather recent phenomenon in the history of the world, it took the industrial revolution to create it.
James 5 seems to be anti-hoarding and anti-fraud. The rich have heaped up treasure and it has cankered or rusted as they wait to spend it in the last days. They defraud their laborers, but we are not talking about defrauding anyone, merely paying market rates vs paying a living wage.
Heaping up treasure is what investors do,. it is the entire purpose of investment. Not paying a living wage is a form of fraud. The market is based on fraud, that’s why it produces winners and losers.
But none of that solves the basic problem. In a world where we have economy of scale and automated production, we have a surplus of people and goods and a severe lack of employment.
Sorry, fraud is deceit. While there can be deceit by employers, that’s not what is being discussed, but rather openly offered and accepted low wages. The market is not based on fraud. It is based on the very real phenomenon of an uncertain future. What will the weather be like this summer? Will the crop be good or not? You and every other market participant guess and those who guess right profit while those who guess wrong lose money. How is this fraudulent?
The idea that we have a surplus of people is a failure of imagination on your part. What we have is a great many laws that prevent many people from working productively. We also have laws that distort production and cause too much of certain goods to be produced. That’s nothing to do with economies of scale and it’s nothing to do with capitalism.
Those who have more information, are far more likely to guess correctly. Those who have significantly less information, are far more likely to guess incorrectly. The owners have more information than the labor, and thus are able to take advantage of that position.
But once again, what we are seeing is that people are working *too efficiently*, not *not efficiently enough*, that is, many people are not working productively, but they’re not working productively because we already have all of the production that our current level of consumption can handle. ALL the consumption the world can handle, is already matched by our current production rate- we don’t need any more producers, we need more consumers.
You have got to be kidding me. There are entire categories of stuff that we do without simply because at present it’s too expensive to manage. I’m not even talking of exotica like solar power satellites (though it’s true for that too) but basics like sidewalks. We don’t even pave all our roads.
Too expensive means that under our current priorities as consumers, those things don’t need to be done.
That’s not a prioritization screen that would be familiar to any capitalist. I’ll give you an example. Fracking was invented decades ago but it was too expensive to access the Marcellus shale formation until perhaps a few years ago, so we didn’t. We got the cheaper oil and gas out of the ground first. Along the way we got a lot better at fracking so the cost also dropped and the efficiency went up.
There was no time at which oil and gas companies were uninterested in getting oil and gas out of the ground, but certain things were left unexploited because they were too expensive. Had we observed some other priority method, we could have satisfied our wants from domestic sources in the 1970s, but it would have killed our economy, just like uneconomic energy choices are killing the EU’s economy as they adopt a different priority screen than capitalism where it regards energy.
Too expensive means not now and maybe not ever but always with an eye towards possibly tomorrow.
Who gives a rip about tomorrow? Unless of course you’re saying James Watt wasn’t a capitalist.
One of the most attractive bits about capitalism is that it is forward looking.
Apparently you’ve never had a manager tell you that all research and development projects that take more than 4 months are a failure, because if they show up more than once on the balance sheet without showing a profit, the stockholders will reject them.
The manager who said this was an idiot. He was ceding to the firm’s competitors all advances that took more than four months to create.
I have had idiot managers. Capitalism is not a system without idiots. Capitalism is a system where idiots go broke over time, reducing their influence.
In this case, the idiots are rewarded by stockholders due to the fact they hace a higher P/E ratio than the competitors who invest too much in R&D. I think you are forgetting what the only real business of a publically traded corporation is: value to stockbrokers
I’m not quite sure if you’re joking or mistaken when you substitute stockbroker for the more usual stockholder. Irrespective, you seem to have a certain specific situation in mind and I don’t have the facts to comment specifically because you haven’t given them to me.
In the general case, it is possible to goose your P/E by eating your seed corn but eventually this strategy fails and your company dies.
Your country can die of it too. China goosed their economic growth by reducing their dependency ratio via abortion and infanticide. And it worked, too. Within the parameters of the strategy, it executed well. But now they’re starting to pay the piper and they will likely not survive in their current form due to their choices since the 1970s.
Just a recognition of where the *real* profit in the stock market eventually accrues, and who makes the real decisions, not with an eye to the future, but with an eye solidly fixed on those quarterly reports and the bottom line. As long as that bottom line is positive, and you’re paying dividends, your company could be actually going down in flames and nobody will notice.or care.
Haven’t you ever noticed that very few CEOs ever last more than a few years?
Yes, I’ve noticed. It’s a dumb system and will eventually be replaced by something better. Apple was making decisions in 1983 that are still paying off for it. Other companies also have an eye beyond quarterly profits. Capitalism isn’t about how every company is fantastic. It’s about sorting winners and losers better than competing systems and getting rid of the losers faster.
I would agree that our companies have a responsibility to treat their overseas workers with respect. It also makes sense to extend that responsibilities to overseas companies from which we purchase our goods. However, I can’t agree that paying wages substantially less than a US livable wage is automatically mistreatment of the workers. That argument is the equivalent of arguing that we need to eliminate the livelihood of all the people working in those factories. Paying even close to US wages in most of these countries would result in a cost of manufacturing that can’t compete with developed countries. I’m not willing to starve these people to death to save them.
To think clearly about sweatshops in a way consistent with Christ, I believe it is necessary to start with the person, and their actual, available choices. If a sweatshop earning, as Marthe Lépine says, $38 a month is the high end of what is available to the person, then it is a step up in dignity, not a step down. I am unaware of sweatshop critiques that ever examine the alternatives to the sweatshops and find that the poor are choosing sweatshops over better available opportunities.
I do not think that sweatshops are ever viewed as anything better than a transitional phenomenon emerging from a little spoken of reality that globally we have a shortage of capital and when, for some reason internal to a country, reforms are made that permit sweatshops, what is happening is a partial liberation from preceding economic bondage (among perhaps other types as well) that was much worse. Available labor goes up and swamps the available capital to invest and take advantage of the new labor source. The best we can do to soak up that labor quickly is the sweatshop. If we could do better, we would.
So from the perspective of people who have some experience in hiring or trying to gather capital for an enterprise, or at least have seriously studied the problem, sweatshop critiques have the feel of the toddler who is very certain that somehow, some way, things can be arranged better if he shouts loud enough and holds his breath long enough. It might be true but only by accident.
We could, in fact, increase available capital by saving more and directing our savings to investments, sacrificing our present living standards for the future. This would shorten the window where sweatshops make economic sense as the capital shortage would ease. But it would also meant more sweatshops during that shorter period so probably not what most critics of the system are looking for.
What I find disgusting is romanticizing the preceding poverty with a soft focus that never quite describes how nasty it is as well as infantilizing the poor and adopting a paternalistic attitude that they do not actually know what they are doing when they take these jobs.
In Bangladesh, the fellow who owned the building that collapsed was the head of the youth wing of the ruling party and had no fear of the law. This, I would submit, is the heart of the problem that ended with so many dead. Changing his tenant mix to something other than sweatshops does not seem to be anything more than rearranging the deck chairs on the Titanic. The culture of political impunity seems to be a clearer evil.
Thanks, TM, I was thinking of you when I wrote my question.
“…The best we can do to soak up that labor quickly is the sweatshop. If we could do better, we would.” Why do you assume “we” would do better? Or, that “we” can’t? Isn’t that the problem with large global enterprises that capitalize on cheap labor to keep costs down so their EPS looks good at quarter-end? Who is the “we” to whom you refer?
Perhaps it would be better to slowly soak up this labor with jobs that pay a just/living/family wage, by deploying capital in a prudent manner while continuing to support the missions and charitable efforts of those (e.g. Cross Catholic Outreach) who try to help the ones who don’t get employed.
Your syntax and posture seem to imply that you have a little more than common knowledge about this problem, so I’d like to pick your brain if you don’t mind. Thank you!
I assume that we would do better if we could do better because our fallen natures turn out to have some nearly universal quirks that lead to this outcome. Avarice is pretty reliable.
There is a simple fact of hiring on the low end. Your employees have zero loyalty to you as a company. A tiny rise in wages to do the same work elsewhere leaves you with unexpected holes in your employee roster and an increase in costs as you have to hire people and train them to do the work. If this worked with CompUSA and Staples in the US when I was a fresh faced kid, you can bet that the same strategies are playing out in Vietnam, China, and Ghana. You keep up with average wages to defend your own bottom line against excessive turnover eating up your profits. Other companies will actually target your workforce to reduce their hiring costs and drive down your profitability.
There is another fact, that if you can add more production lines, more business lines, more headcount actually put to work on profitable tasks, you make more money. If you have the capital to invest and there are large pools of people who are looking for better work, people do invest and make more products and perform more services. Again, the desire for profit moves things along in a positive direction.
In short, the two factors I lay out above work together to ensure that profit seeking will lead to hiring absent negative factors that we haven’t covered. For instance, after the Soviet war communism period (1917-1918), there might have been a reluctance to hire during the NEP period (1918-1921), a reluctance that was rewarded by not being subsequently shot by Stalin for doing so.
You say that perhaps it would be better to slowly soak up this labor, and for an individual employer this may very well be true. Go slow may allow for a better economic operation and may be better for those who you hire. But we are not only concerned about those who are hired but also those who are not. A hypothetical from the world of charity might illustrate the issue better.
If a soup kitchen can feed 500 well and 510 show up at the door to start the day, is it morally better to turn the last ten away or to short the portions and give everybody something at least? I think the latter would be better but I’m willing to be persuaded that I’m wrong. There is a limit to this. If 50,000 show up, shorting things that badly would not work either. But if 50,000 show up do you short the rations to the limit and serve 1,000 or do you serve 500? There is no universally happy outcome here. You are going to have to disappoint some people and some people may even die of your choices. So it also is with employment in undeveloped nations.
When you are talking about the collective behavior of all employers, the collective potential for expansion in a polity is generally larger than what anybody in the polity would see as go slow economic expansion. Go slow collectively means that some get the advantage of this expansion and others are not permitted to take advantage at all. I can’t see how that could be done justly as the only way to do so is to prevent people who want a job from getting one that would better their economic condition but not by a margin sufficient according to some outsider’s yardstick.
I do not believe that it is in any way superior to give charity when employment is a possibility with the same funds. One should always have a generous heart and to give charity. Employment is not always possible. But employment is dignifying in ways that a hand out, no matter how well intentioned, cannot be. Where it is possible, it is the better option.
Thanks for the quick reply. I can follow most of your post, but some of your points just don’t settle well with me. I was confused about the “doing better if we could” point because I thought you meant it wasn’t POSSIBLE for people/companies to do better. I now understand you to be making more of a philosophical argument, to which I would reply that those of us who CAN do better, OUGHT to do better; even though I would agree that avarice is a major obstacle. However, I don’t think it afflicts those in developing nations as severely as it afflicts us in the first world.
Do you think that better governmental regulation of businesses in these developing countries would help to steady the flow of capital into enterprises? I guess it sounds to me like you’re saying that the capital flows have profit as their goal, and production as the means to that goal. Is that correct? I like that model, and I’m sure it’s Finance 101, but the production of goods seems to lead to the consumption of those goods – maybe production is even spurred by consumption. If we as consumers were to direct our consumption toward those businesses whose practices are less “sweatshop”-like, and more living/just/family wage-like, do you think that would serve as an adequate market signal for adopting best business practices, perhaps in lieu of governmental regulations? E.g.: sorry to blend threads, but this is more to my point about the iPads below. I don’t see a problem with iPads or TVs per se (our family has one of each ourselves!), but more a problem with developed-country consumer budget allocations that see cheap goods (shirts, shoes, pants, which are disputably large culprits in these sweatshop discussions) as means to allocate larger portions of disposable income toward goods that may in fact be skill-building industries. In other words, we take the cheap sweatshop clothing, or even just cheap clothing that perhaps doesn’t result in living/just/family wages, as a (subconscious) signal that all labor is paid adequate returns and we move on to other expense decisions, without paying heed to the effects of our decisions.
Lastly, I appreciate your analogy of a soup kitchen as a means to explain some of your principles. I think it’s good. However, haven’t we seen that aggressive and all-out expansion of industry in countries with poor governmental structures (like in Bangladesh where you pointed out the fault of factory building owner) – the kind that would be spurred by unfettered capital flows – leads to many of the human rights abuses that spurred this whole conversation? I can’t tell you whether 500, or 1000, or 5000 is a good cutoff point for a soup kitchen/business, in terms of who to employ; but how do we avoid the extreme of deleterious working conditions while avoiding the other extreme of “too slow” growth?
Better government regulation in the 3rd world would largely consist of the ending of political impunity. If all had to obey the rules, even the powerful, the rules would be adjusted to be tolerable for all. But when the rules are mostly for the little people, you get tremendous injustice and periodic disaster as gravity meets poor engineering and paid off inspectors.
By saying we can’t do better, I mean that we have yet to figure out a way to do better and thus, literally can’t do it until we discover one. The person who discovers one will create a greater economic surplus and thus a greater profit. Nobody’s going to hold back on that.
The veterans of the soviet system can tell you that production does not, in fact, automatically create consumption. If you make lousy products, they simply will sit on the shelves.
Overall, I am not against the idea of ethical consumption, of establishing a real economic preference for business rules more consistent with Catholic rules. But we should be very realistic about what this is going to do. There is no magic social welfare fairy that is going to intervene in the lives of those not hired because of lack of capital. This is currently very hard to track and so anti-sweatshop reformers often try to get away with not accounting for those who do not get jobs due to their initiatives. But God can track it and no doubt he does know how these rich people are making invisible victims in order for them to feel better about themselves. I do not like self-actualization of the well off on the backs of increasing the misery of the poor.
My point about the soup kitchen is that someone has to actually decide. They’re on the spot and they decide. If we want to second guess them, we need to go through the same process and count the cost of it. There is no perfect answer in my experience. For my part, I water the soup and try like mad to ensure that the next day there will be more food. In a developing country investment analogue, I pay slightly more than average wages and try to expand as fast as I can to create the labor shortage conditions that will raise wage rates sustainably.
Thanks for the reply. Your first paragraph is spot on. I think political impunity is much more of a problem (and a structure of sin) in developing countries than in developed countries, though it very obviously exists in developed countries too.
I think your indignation at flashy “ethical consumption” is well-founded, but we can’t read people’s hearts. One major point of this discussion has centered around the flow of capital/investment. Flashy or not, capital is getting diverted – typically from those who already have quite a bit of it to expend – into this more human(e) way of consuming. You say: “I mean that we have yet to figure out a way to do better and thus, literally can’t do it until we discover one.” I would say we have, but it’s not caught on at a scale large enough to tip some of the factors you’ve alluded to in previous posts, like rising wages and higher employment. Your solution isn’t really to discuss things like fair/just/living wages, and to encourage widespread promulgation/discussion of tactics that may (and may not!) encourage such outcomes, but to adapt a solution that will work in our current models of ephemeral production market forces – I’m sure a cousin or close relative to the “magic social welfare fairy”.
“But God can track it and no doubt he does know how these rich people are making invisible victims in order for them to feel better about themselves. I do not like self-actualization of the well off on the backs of increasing the misery of the poor.” I prefer to stick to what I can know. Since it’s very difficult to count the number who WOULDN’T be employed by encouraging “ethical consumption”, who are you to say it would be such an egregious number? I hope your disgust of the “rich” who may help promote these practices won’t cloud your continued discernment of this topic. I know quite a few people, including my family, who are NOT “rich” or “well off” who choose to more prudently discern their consumption choices than the average American or Catholic.
I was taking aim at those who are doing the disinvestment campaign route and trying to guilt or threaten people into shifting major pension fund money more than any individual action. Lowering returns and/or raising risk profiles just to shift investment flows away from the developing world is a different cup of tea. Looking back, I see too much of that stayed in my head to be clear. Sorry about that.
As a part of my charity budget or my entertainment budget doing personal purchase choices to ethical consumption is, in my opinion, a net positive.
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