By Fabian Bogg
One of the most characteristic features of the 21st-century West is the rise of moral self-elevation thought. Many people willingly ignore policy results to satisfy their egocentric need to feel moral superiority by supporting ideas that look good at face value. No longer is the intent to change things for the better but instead to feel better than your neighbor. A trend starkly accelerated by the rise of social media and a development populist politicians are more than happy to take advantage of.
In terms of trade policy, this is particularly true. This essay provides an alternative based on thoughtful reasoning. In place of elevating intentions, the article examines the consequences. The focus lies on the topic of 3rd world remuneration.
The most common criticism free trade advocates face is the supposed exploitation of employees in 3rd world countries. Critics contrast hourly wages of employees and multi-billion-dollar profits of employers to moan about unjustness. Representing themselves as advocates of the poor, they pressure businesses to voluntarily increase their remuneration or call on weak-minded politicians to execute their objectives. If all else fails, sure as death and taxes, they will convince a supranational organization to push through their wishes.
However, a few lines of reasoning illustrate that it would be more appropriate to call them hangmen of the poor. What first strikes the eye is the mere subjectivity of the exploitation claims based on personal feelings regarding the fair wage. As lies in the nature of man, such an assessment does not stand out for its impartiality. Easily displayable by asking the honest reader, “Have you ever heard anyone claim they are overpaid?”. Besides, the absurdity of the exploitation claim also emerges when we remind ourselves that private autonomy, by its inherent characteristic of gratuitousness, requires both parties to consent. As a result, employees only participate in personally beneficial deals that, by definition, rules out exploitation.
The poor judgment on the “fair” wage proponents’ side derives from the comparison with their careers instead of the regional alternatives. Indeed, local reporters paint a completely distinct picture. Nicholas Kristof, a New York Times writer in Cambodia, wittily notes: “Nhep Chanda averages 75 cents a day for her efforts. For her, the idea of being exploited in a garment factory – working only six days a week, inside instead of the broiling sun, for up to $2 a day – is a dream”.
While this negates the claim of the moral demerit of 3rd world employment practices, one might still support minimum wage rules or similar measures. After all, why not help poverty-stricken workers catch up faster? In contradiction to what proponents think, that would have painful effects.
To begin with, the issue of worker replacement comes up. Inherent to minimum wage laws or similar measures, an artificially above-market price reduces employment or increases prices – depending on the circumstances. The foreseeable reaction by global companies is to reallocate their production facilities to low-cost countries not covered by the statute or push automation, leaving the country with fewer jobs and the employees worse off. Even if one could prevent cost structure changes, higher retail prices would result in shifting consumer choices. In turn, the companies’ production volume would fall, leading to mass lay-offs. Either way, workers like Nhep Chanda end up worse off.
Moreover, higher wages radically distort the local economy. With its primary role of conveying information, prices guide people, i.e. affect choices through incentive structures. Artificially high remunerations at MNEs lead people to discontinue working for local companies resulting in the destruction of entrepreneurial thinking and the establishment of a culture of dependence.
Furthermore, it concentrates an artificially high number of people in the branches the MNEs are active in. That hampers the natural tendency of an economy to increase employment in more complex jobs while simultaneously suppressing innovation. Adolescents, often much better educated than their parents and grandparents, stick to simple factory jobs to profit from the unnatural prices while simultaneously forgoing the chance to be schooled in more sophisticated work environments and later earn significantly better wages.
Alas, the travesty doesn’t stop there. Draining people from law & order and healthcare jobs, the moral superiority policy has the potential to create a lack in essential places. A short anecdote of Phil Knight serves as an insightful illustration. Having planned to raise wages in a 3rd world country, the Nike founder was suddenly confronted by a nation’s leading representative and summoned to his office. Instead of the praise you might expect, he was instructed to cancel the plans immediately. Justifying the command, the official told Phil that Nike was about to destroy the whole economic system, allowing a worker in a shoe factory to earn more than a doctor.
To conclude, passing laws establishing artificially high remunerations in 3rd world countries has dire consequences. It creates dependency, annihilates good jobs, and eliminates long-term economic progress. Thus, I urge everyone to firmly reject such foreign trade interventions – regardless of whether they are masquerading under the guise of social justice, global fairness, or other euphemisms!