Julian Simon taught me the importance of putting your money where your mouth is. Anyone who does so is much more likely than are those who don’t really to believe what he or she says. Consider the current antipathy for Wal-Mart. A typical example is this letter in today’s New York Times:
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“The Good Goliath” (column, Nov. 29), John Tierney’s defense of Wal-Mart, misses the point. Nobody denies that Wal-Mart offers low prices to consumers. What opponents of Wal-Mart’s practices argue is that the social good of low prices must be balanced against other important values.
Putting our children to work in factories would cut costs to consumers, but we all believe that this is morally unacceptable and would hurt our country in the long run.
In the same way, many of us believe that Americans working hard at full-time jobs should not be receiving wages that keep them living in poverty without health care.
James Dawes
Careful reading of this letter reveals all manner of implicit assumptions – such as that employers (rather, than, say, neighbors or charitable institutions) have the chief moral responsibility of providing philanthropic assistance to people who have jobs.
But the most interesting assumption is that Wal-Mart can afford to pay higher wages. This assumption, in turn, implies one of two deeper assumptions.
The most likely deeper assumption is that Wal-Mart’s failure to pay higher wages and fringes is born of that company’s greed. This assumption, in turn, implies that Wal-Mart is earning profits that it doesn’t need (“rents”) – returns that it or its shareholders can do without. It would be out of these super-normal profits that higher wages and fringe benefits are paid.
The alternative deeper assumption is that Wal-Mart is charging consumers prices that are too low – prices that, if they were raised, would increase Wal-Mart’s profits and, thereby, enable it to pay higher wages.
Because Wal-Mart is not protected by government from the competition of other retailers for its customers, or from the competition of other firms for its workers, the throngs of people who complain that Wal-Mart is paying its workers too little should also believe that an enormous profit opportunity is theirs for the taking. Here’s why.
Suppose that deeper-assumption one is true – that is, Wal-Mart is earning above-normal profits, principally by underpaying its workers. Well wow! What an opportunity to enter the market in competition with Wal-Mart. A new, rival retailer can match Wal-Mart’s low prices while at the same time offer higher pay-packages to workers. Wal-Mart will have to raise its employees’ pay to avoid losing its entire work force, or it’ll go bankrupt. (For a somewhat different angle on what he calls “the fallacy of affordability,” see Russ Roberts’s post here.)
Alternatively, suppose that deeper-assumption two is true – that is, Wal-Mart could, if it would only do so, raise its prices, earn higher profits, and use some of these higher profits to fund the payment of higher wages. Were this situation in fact the case, it would imply that Wal-Mart is currently failing to maximize its profits.
Here, too, entry by a new rival would be profitable, for Wal-Mart is here assumed to be an especially inept operation. Such a buffoon of a business surely can be out-competed by persons of even moderate intelligence and perception. (Of course, Wal-Mart is correctly and widely regarded as a profit-hungry, highly skilled operation that quickly and fully exploits all available opportunities for profit open to it. Thus, this deeper-assumption two would, quite sensibly, be rejected by everyone upon realizing its full implications.)
Regardless of which of these two deeper assumptions motivates the allegation that Wal-Mart “can afford” to pay higher wages and fringes, those who make this allegation – if they genuinely believe it to be true – should immediately open their own retail stores in competition with Wal-Mart. If they are correct, they’ll improve not only workers’ welfare and raise their own net worth; their involvement in running a commercial enterprise will spare us all their shrill complaints about Wal-Mart.
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First off, I find it interesting that you don't seem to take into account foreign manufacturing workers (i.e., China, but also in other places). Those workers could make more money in the US. They cannot demand higher wages, because unions are illegal in most other countries. $1/hr is considered good pay not because it is necessarily what they deserve, but because the company won't pay them more and they risk death if they complain. It is for these people, from China to Burma to Colombia, that I am primarily concerned- because there are more of them.
I'll discuss that again in a bit. Concerning your cases, the first is true:
"Wal-Mart is earning profits that it doesn’t need (“rents”) – returns that it or its shareholders can do without. It would be out of these super-normal profits that higher wages and fringe benefits are paid."
As I said in a reply to your Nov 30 post, Wal-Mart took in $10 Billion in profit last year, and thus could have instead paid its 1.3 Million workers an extra $8,000 each.
We who oppose Wal-Mart due so because we are disgusted by the treatment of workers, here and in other countries. It is not just, we say, for anyone to be so wealthy at the expense of so many. Our goal is justice for millions of mistreated people, at our expense, to cleanse a stain on our honor, and yet you insult us!
Your proposed solution (open a rival), is specious. Opening an international retail chain isn't something I can do by going down to my bank and taking out a loan. It would take the combined efforts of thousands of entrepeneurs and financiers many years to create something like that.
Why would any major bankers or venture capitalists want to finance a corporation which guarantees them less profit? It would be self-defeating. Currently they're getting filthy rich off Wal-Mart's workers' backs. Why would they want to change that?
Not that we're not trying. There is an alternative called Fair Trade which guarantees that the workers who brought us the product, at every stage of production and distribution, were paid decently. This also includes environmental and safety consideration.
No more sweatshops in Burma. No more mine collapses in China. No more union-suppression murders in Colombian Coca-Cola plants. To name a few.
Of course, there is a cost. Fair Trade products are more expensive than otherwise. So you see, your second case is true to some extent- If we raise workers' standard of living, the resulting product costs the consumer more. So you see the problem- People generally will buy what they percieve as cheaper. The welfare of a bunch of funny-talking people on the other side of the planet plays little part in the equation.
It takes a conscious sacrifice to switch to Fair Trade. But look at the alternative. Factories in the US shutting down because their workers were paid "too much"- they were paid a living wage, and now the jobs are sent where the workers can be paid next to nothing. This can only result in a 'Race to the bottom' that will undermine the middle-class.
And illegal immigration from South America continues to be a problem because workers there aren't paid enough- Look at how immigration has exploded since NAFTA was put into effect in 1994! I'm sure that Asians would also be trying to sneak across our border for the same reason if it wasn't for the Pacific Ocean- in other words, they're trapped without even viable illegal alternatives.
The problems with Wal-Mart are very tangible and specific. If you believe that people should be treated with respect, regardless of where they live or what they do, if you told/tell/will tell your children to be nice to people, then please 'put your money where your mouth is' and buy Fair Trade products..
I too "believe that people should be treated with respect, regardless of where they live or what they do." Which is why I respect the decision making abilities of Wal-Mart's employees. Perhaps I lack RanDomino's expertise on other people's lives but the very fact that people work at Wal-Mart or in "sweatshops" tells me those employment options are the best choice they've got. If it weren't, I doubt they would be doing it. Unfortunately Ran doesn't agree that they are capable of making a decision for themselves. I suggest respecting those you are trying to help enough to treat them like capable, responsible human beings. I fail to see how making decisions for someone else and imposing your idea of a "just" society constitutes putting your money where your mouth is.
Sigh again the audience doesn't understand economics, or it seems the real world. While I like the previous commentor deplore the impoverished conditions of workers around the world, their situation and problems are not caused by wal-mart. In fact they not even caused by a market economy. The plight of many workers around the world are the result of a lack of free market conditions. And this lack of market conditions is caused by corrupt governments.
The solution isn't barriers to trade. The solution is to unfetter the power of the capitalist market and allow its ability to raise the standard of living for all. The fight to free the oppressed people of the world is a political fight. It is a fight that we all must wage. And in order to be successfull in this fight we must have a strong and powerful free market economy as a shining example of the power of the market to lift all of the economy. It is also time that we reassess just how we provide aid to others. Any foreign aid must not go into propping up tolatarian governments. Also we need to be carefull of how we give aid so that it doesn't depress a local economy. Cause lets face it, anytime you introduce a massive increase in the supply of money you also cause inflation.
To email me remove what spam is from my address.
My post was in response to randomino's
On one hand, you say workers have the ability to make decisions. On the other hand, you say this:
"Wal-Mart will have to raise its employees' pay to avoid losing its entire work force, or it’ll go bankrupt."
But I thought these people liked working there? Actually, they like making money. Workers prefer to work wherever will pay them the most, thus leading to your statement: If another company is paying more than this one, the worker will go there.
So really, concept of 'decision making' is ridiculous. There is no decision to be made. A worker will work for whoever is willing to pay them the most.
Now, if no one is willing to pay a worker what they think they deserve, they have several options.
They could look in a different geographic area (such as when Latin Americans look for higher-paying jobs in the US, leading to massive illegal immigration).
They could not work and starve to death.
There might be a lack of demand for that person's skills, leading to under-employment.
They could go to school and become more skilled and thus more desirable.
If they are employed in a field in which they are skilled and yet are not being paid enough, they could ask for more money. Obviously, there is the threat that they will go elsewhere (somewhere that pays more) if the raise is not given. If the employer does his cost-benefit analysis and agrees that it would be cheaper for him to pay up than to have to find and possibly train a new hire, then he will probably pay.
On the other hand, the employer might not think the employee is worth what they're asking. This would have to be based on one of two reasons: They employee might not be as skilled or useful as they think they are. Or the employer knows that the employee will not be able to get hired for more elsewhere, allowing the employer to profit from the worker's misfortune. That is coercion, and it is the basis for the problems I have addressed.
If the employee finds that they're not being paid enough and their request for a raise was rejected (for whichever reason), they have two new options. They could simply accept their unfairly low wages. Also, they might accept their position simply because they do not have the will or knowledge to challenge their employer, or because they dare not risk losing their job entirely and being unable to provide for their family.
Or they could protest their low wages by refusing to work for less than they deserve, quitting until the boss agrees to pay enough. After all, it is against the idea of Capitalism for someone to sell a product for less than what is necessary to profit, even if that means the product goes unsold (in which case an adjustment on the supply side is probably necessary). But wait, the worker doesn't have enough money to outlast the company. What choice do they have but to ask for their job back?
There is one other option, but you hate it.
They could talk to their fellow employees about if they think they're not getting paid enough. If the employer is willing to mistreat one employee in this way, they are likely to do the same to the rest. They are all in the same boat: If any of them protests individually, they'll never last.
But if they all quit in protest at the same time, refusing to come back until all are paid what they deserve, then the company will have to relent- One employee they can outlast, but not all of them. The employees have formed the most fundamental form of a Union and gone on strike.
In non-industrialized countries today (and Europe and the US 100 during the industrial revolution), workers are paid far less than they deserve because corporations (primarily American multinational manufacturers) are not willing to pay them enough, and corrupt governments keep the people in line: At the "They could talk to their fellow employees" stage, the union organizer all too often is threatened, intimidated, or murdered by goons hired by the company. Anyone else who was thinking about these sorts of ideas is probably now too intimidated to continue. If the employees manage to form a union and strike, this often results in police and military repression.
They don't have the choice of striking. So they live in squalor, misery, and fear, because corporations have found that it is cheaper to hire a few goons to keep everyone in line than to pay everyone enough. And they're manufacturing goods for sale in American and European stores.
And, of course, Wal-Mart actively prevents its employees from forming unions in its stores.
Because it is our money which compels corporations to continue the practices of low wages and sweatshops that lead to such misery, it is our duty, as human beings, to provide them with the option to work for a decent wage.
In other words, Fair Trade is actually more pro-Capitalism than Wal-Mart!
"The solution is to unfetter the power of the capitalist market and allow its ability to raise the standard of living for all. The fight to free the oppressed people of the world is a political fight. It is a fight that we all must wage."
I agree! It's enheartening to know that, at the root, we all agree on the fundamentals.
However, I think you're missing one thing- Who is causing all this oppression, and why? Obviously, corporations such as Wal-Mart and their suppliers a making a lot of money off all this third-world corruption. From what I can tell, since the details are sketchy, either leaders of these countries are in it for bribes (most likely), or (probably in fewer cases) they honestly think it's for the betterment of their people.
Anyway, it's unquestionably driven by the corporate profit aspect. We, as individuals, can't do much about politics. But we can refuse to support companies that profit off this whole mess. I don't just mean ones that are directly causing it (the ones doing the bribes), but also corporations that *profit* from it: They'll recognize the loss of sales and correct themselves by going Fair Trade, to the obvious betterment of all workers. Except us, of course, but we've been benefitting unfairly anyway.
One of RanDomino’s views which I believe is incorrect: the big discrepancy between what a worker earns and what they "deserve".
There is little objective mechanism for determining what something is worth than to see what someone interested in it is willing to pay for it.
For example, perhaps I think an iron-on T-shirt of my dog is worth $100,000. Am I correct? If I can't sell it at that price, is it "unfair"? Perhaps we should have a big Excel spreadsheet, where you can tell me what a fair price is and what isn't for everything! Please do take into account changing tastes, technology, exchange rates, population growth, etc. If only we could have a huge Central Committee for Common-good Planning to decide things like the value of my iron-on T-shirt. I'll put this farce aside directly and simple say: it's been tried, and proven to be a very bad idea.
"…or [governments act as they do because] they honestly think it's for the betterment of their people."
Check the numbers. Foreign companies in 3rd world nations pay _higher_ than the local average. Inviting foreign investment through, for example, a manufacturing plant is good for everyone involved. Look at both India and China, which have both opened their economies to the great benefit of hundreds of millions of people.
"But we can refuse to support companies that profit off this whole mess."
Yes, there I whole-heartedly agree. _You_ are free to buy your "fair" products. I disagree with you, so I will continue to shop as I do (though there aren't any convenient Wal-Marts where I live). But please don't advocate that I be coerced into agreement and forced to join you. The phrase is, after all, "put your money where your mouth is" and not "put MY money where YOUR mouth is".
Unfortunately, this is a popular tactic. The Wal-Marts that have been unable to get license to open are a good example. In some cases (like Queens, NY) this has occurred with a majority of people disagreeing with the actions of the municipal authority.
"There is little objective mechanism for determining what something is worth than to see what someone interested in it is willing to pay for it."
True. There are things we can look at, however. Namely, profitability of the company as a whole- Wal-Mart is a very profitable company, so it follows that its workers should be rewarded by being paid more. Prevailing market wages are another indicator, but that's less accurate as the number of employers decreases.
But I think we can all agree that pay on the order of $1/hr is "too little". "Overhead" cost of each person should be enough to grant them dignity- a clean, healthy living area, some sort of health care, quality food, so on. Sweatshop wages don't even come close.
"Check the numbers. Foreign companies in 3rd world nations pay _higher_ than the local average. Inviting foreign investment through, for example, a manufacturing plant is good for everyone involved."
Specious. Quick review:
Before most people in these countries had ever seen a European, they had agrarian, barter-based economies. Except for in cities, villages had little in the way of 'markets' as we think of them, instead being de facto communes. They were managed by tried-and-true traditional practices that provided enough for everyone.
Then Europeans came and basically destroyed these economies and put everyone to work exporting goods (tea, sugar, gold, etc) to Europe. The result was incredible poverty where there was little before, and periodic famine.
So now these countries have been trying for the last few decades to piece together some sort of viable economy that will provide enough for as many people as possible. So while it's true that they're being paid "more than the local average", that's not too difficult when the local economies have been utterly laid waste by our ancestors.
Furthermore, would it be bad to pump *even more* money into these economies? Perhaps enough to allow more of their children to get good educations, which is a great long-term solution to the crippling poverty faced by most of the world.
"…the great benefit of hundreds of millions of people."
Not enough benefit, I'm afraid, to justify the horrible things that have been done.
not that we should close up; rather, we need to change gears and start trading right, for the benefit of people rather than corporations.
"please don't advocate that I be coerced into agreement and forced to join you. The phrase is, after all, "put your money where your mouth is" and not "put MY money where YOUR mouth is"."
Helping a person to see the error of their ways and remove a stain on their honor, or karma, or whatever, is doing them a favor.
If you disagree with me now, please browse TransFairUsa.org and other Fair Trade and anti-Corporate Globalization websites. Once you see all the evidence, it's impossible to honestly disagree.
I don't have much time to write anything. I should point out a mistake in the first comment. Wal Mart sold 13 billion dollars worth of product. That wasn't there profit. Lots of overhead in the grocery/retail business. My grocerty store alone "does" 22 million dollars a year. I work for albertsons a union store. Im not union. After labor and shrink costs we profit the company about 400,000 dollars. Lots and lots of overhead. On our side from people who are 'in the business' both labor and management hate walmart. labor for obvious reasons wal mart isn't union. managment because to us they aren't playing on a level playing ground. The only reason the major chains are cutting union contracts down is because wal mart is so so so good at "union busting". Anyway just some thoughts. It is naive to think that a company isn't going to do its best to turn a profit. And it is immoral to force them to do business the particular way you want them too. If you don't like Wal Mart do what i do and use your dollar to vote. You may not win but you still got your vote.
Yesterdays WSJ had a few good pieces on Wal-Mart – specifically some statistics regarding their provision of health-care. I believe that 46% of their full-time employees are covered, compared to 47% to the national average for retail industry.
The above debate exemplifies the socialist-capitalist divide in economic thinking. RanDomino obviously favors a socialist regime, with "fair" wages, government-imposed limits on corporate profits, and, in general, extensive top-down controls on economic activity. The problem for RanDomino, however, is that there is no historical or economic evidence that socialism leads to greater wealth overall or a more "equitable" distribution of wealth than capitalism (a more "equitable" distribution of poverty, perhaps, but not wealth). His (her?) nostaligia for pre-modern "barter" economies only highlights his profound ignorance in this area. The competitive free market is the most powerful generator of wealth known to man, and has led to ever-higher standards of living for "rich" and "poor" alike. (By the way, Chris, Wal-Mart had gross sales of around $250 billion in 2004.)
Professor Boudreaux,
I appreciate the insights about whether WalMart could afford to pay its workers higher wages. Your arguments certainly makes sense to me.
I was amused by RanDomino's comment that "Wal-Mart took in $10 Billion in profit last year, and thus could have instead paid its 1.3 Million workers an extra $8,000 each." I don't think the mission of WalMart is to maximize it's workers wages. But I would guess that is what the company has accomplished anyway.
If WalMart weren't such a good deal for its employees, the company wouldn't get hundreds and thousands of job applicants every time it opens a new store. These applicants know better than RanDomino and better than the NY Times letter writer James Dawes what they want. They know a WalMart job would provide greater satisfaction than whatever job they were holding.
If WalMart attempted to maximize its workers wages, it could not have earned the profits that has allowed it to expand the past 40 years. The tens of thousands of WalMart employees who did win jobs would not have obtained them. The many millions of consumers who benefitted from WalMart's efficiencies would not be enjoying the higher standard of living they have realized.
"it is immoral to force them to do business the particular way you want them too."
All we want are a few minor tweaks. Please browse web sites I've provided. Wal-Mart could afford to raise worker wages above the poverty level and still be fantastically profitable.
"If you don't like Wal Mart do what i do and use your dollar to vote. You may not win but you still got your vote."
But what about your vote? One person, or even a few million people, boycotting Wal-Mart's incontrovertible evils will have no impact. If we dare call ourselves ethical, moral, good human beings, then we should all pressure Wal-Mart (along with certain other corporations) to change its ways. And anyone whose first priority is a low price for themself, regardless of the human costs up the supply chain, has no right to consider themselves a decent person.
"The problem for RanDomino, however, is that there is no historical or economic evidence that socialism leads to greater wealth overall or a more "equitable" distribution of wealth than capitalism (a more "equitable" distribution of poverty, perhaps, but not wealth)."
I'm not saying we should turn into Europe tomorrow. In fact, It's not my intention to persuade you to change your political philosophy at all. All I'm asking is that you agree that Wal-Mart treats workers unfairly, and one only has to look at the evidence (such as at http://www.ufcw.org/press_room/fact_sheets_and_backgrounder/walmart/index.cfm) to agree to that.
So if you consider yourself a good person, do not accept the blood money (in the form of reduced prices) that Wal-Mart offers. That's all I ask.
"The competitive free market is the most powerful generator of wealth known to man, and has led to ever-higher standards of living for "rich" and "poor" alike."
Like I said, I'm no communist. I wish it was feasable, but I recognize that it takes profit to motivate.
But Capitalism only works as advertised when all parties have all the information: Ignorance and fear 'break' it, resulting in workers accepting unfairly low pay. We need correcting controls to ensure that people are not taken advantage of. In this case, it is up to us to demand that workers are treated fairly, or we'll take our business elsewhere.
"They know a WalMart job would provide greater satisfaction than whatever job they were holding."
There (effectively) *is no* other job for them to hold. There is always a surplus of unskilled labor. As I already said, their choices are "Work for too little" or "Starve", because they are unable to collectively strike and force Wal-Mart to pay a living wage.
"If we dare call ourselves ethical, moral, good human beings, then we should all pressure Wal-Mart"
Again, stop projecting. If I dare to have YOU call ME an ethical person, than, yes, I should pressure Wal-Mart. The problem: I believe Wal-Mart is perfectly correct in offering their employees compensation to which they agree by taking the job.
"There (effectively) *is no* other job for them to hold. There is always a surplus of unskilled labor."
I think you're getting closer to finding the true value of unskilled labor these days. There are, in fact, other jobs for these people to hold. The trick here is that they are _worse_. It is only because Wal-Mart is big that it is being attacked. All the employers of dish-washers and day-laborer are too distributed for you to attack.
"As I already said, their choices are "Work for too little" or "Starve", because they are unable to collectively strike and force Wal-Mart to pay a living wage."
I want you to take minimum wage for any reasonably size family, incorporate things like food-stamps, government provided health care, and the earned income tax credit, tell me with a straight face that these people are starving.
I'm not saying that there aren't starving people in America. Rather, I'm saying that there are _already_ government backed aides for the working poor.
The idea of the need for a "living wage" in the US, where people aren't starving to death en mass, is a bit backward. Certainly crusade for high wages and vote with your wallet, but don't wrap it in a life and death scenario. Yes, they probably can’t afford a new car or Xbox 360. Yes, they might have a hard life. No, they will not die.
As near as I can tell, RanDomino's argument is basically that he doesn't like the wages that sweatshop employees receive, and therefore we should boycott any business that resells the product of their labor. Fine, that's his choice, he is perfectly free to do that. He is even perfectly free to imply, as he already did, that anyone who chooses differently from him is karmically dirty. (If RanDomino is about to protest that he didn't intend anything so strongly worded, I'll point out that words like "blood money" imply that sort of thing.) But being karmically dirty is a religious point of view, not an economic one. Economics is not concerned with karma.
That being said, I think that RanDomino has read a lot of websites instead of thoroughly thinking through his arguments. I will give one example of the many glaring contradictions I noticed in his responses. RanDomino responded to one commenter's suggestion that he vote with his dollar by saying "One person, or even a few million people, boycotting Wal-Mart's incontrovertible evils will have no impact." But a few paragraphs down, he says that all he's asking us (as readers of a blog with, presumably, fewer than millions of readers) to do is to "not accept the blood money (in the form of reduced prices) that Wal-Mart offers. That's all I ask." I'm curious how RanDomino thinks this would be effective, if he simultaneously thinks that even a few million people boycotting Wal-Mart will not be effective. Even if RanDomino could somehow persuade all blog readers everywhere, it wouldn't (by his own reckoning) be enough.
One other thing I noticed about RanDomino's ideas is that he seems to think that Wal-Mart's profits are obscene because they are larger than those of his Free Trade thing. He notes that the Free Trade profits are spread out between many people, but evidently the idea that Wal-Mart's X-million dollars of profit are not lining the pockets of one single snickering individual has escaped him.
Now if you'll excuse me, I have a list of purchases to make at my local Wal-Mart, whose employees make more than I do selling my homemade organic cotton dishcloths. (Which, I should point out, I do because I can do it at home while tending my children, which nets me more an hour than Wal-Mart minus child care.) I'd love to sell them for enough money to constitute a "living wage", but the "karmically clean" people who buy them are not interested in them if the price gets too high.
Just because a corporation has the largest share of its market, it does not necessarily mean it has successfully optimized every aspect of its business model. Why not entertain a hypothesis that Wal-Mart's success is solely due to its masterful management of its vendor relationships and to its supremely efficient logistics, both of which allow it to succeed despite its totally messed up labor policy? Costco, for one, would argue that treating employees well is good for business: it reduces the turnover and theft, while increasing productivity.
What if we take Don's logic and apply it to completely the business environment, which is much less regulated than that in the US, say Latin America or Eastern Europe and see if it holds? It is not uncommon there for sexual services to be an implied component of secretary job description. Don would say that those secretaries are free to choose are other jobs, maybe less well paid but without extra services. Many companies which tolerate this behavior are quite successful in their local markets. Don's logic would therefore lead us to believe that the local governments should not intervene since this state of affairs must be the optimal given the circumstances. Instead, the society would be well advised simply to wait until enough secretaries find enough smart and aggressive lawyers to sue those companies. Theoretically this is probably correct. It may make take a hundred years, but who are we to interfere with the natural course of events? For that matter, why should the society regulate working conditions at all?
Latin America is less regulated than the US? What country is that? I think the important point that Don is making is that markets essentialy set wages. If the government of China were to impose a living wage then we all know what would happen. The foreign multi nationals would stay home. However, because regulation is light, companies outsource production form the first world to the third world.
Therefore, poor sustenance farmers in China move away from the rural areas and become factory workers in China because they are better off. Now, just because they work in a factory in China does that mean that his standard of living is now automaticaly on par with say the average Norwegian or American? Hell no, in fact it is not even close. However, this does not signal injustice. Ironicaly, injustice would be to stop the poor rural Chinese farmer from working in the factory. You try working everyday of your life just trying to survive. I dont and that is because I get to live in a market economy that offers a severe, complex, and indescribable division of labor where almost anyone willing and able can earn some kind of living. This kind of market complexity that is spurned on by outsourcing and foreign investment is exactly what the poor nations of the world need more of and in some cases such as China are in the process of developing. If what Walmart and its third world suppliers are doing overseas is so bad then why do millions of people try to get jobs in the factories when they open? They do that because they benifit. Working in a factory and joining the extended human order and division of labor is greatly superior to living in even the most functional agrian communitarian society.
Let's say there is a country somewhere in this world, run by a government that severly restricts the liberty of its citizens (from the perspective of a libertarian). As an example, let's say that they do not, for the most part, allow private industry – most businesses are either run by the government or pay major bribes for the privilege of running a business in the country.
It turns out that many of the private businesses that do exist belong to companies based in first-world countries (where most of the end products are purchased). Some of the people (let's call them 'Dominos') who live in these first-world countries recognize that the workers, who make some the products they buy through company X, are mistreated. The company pays them much less than they would otherwise earn if the market in their country was open and competition was permitted. That their government is corrupt is a fact beyond the Dominos' control; that a company based in the Dominos' country is 'enabling' that corrupt government by paying a bribe in order to gain very cheap labor (and making a net profit greater than would be possible if that corrupt government did not exist), is a fact that they might have a chance to change.
Would it be reasonable for the Dominos to apply non-government (non-force) means to 'punish' company X? Such as boycotting the company, publicizing the company's activity in foreign countries, and purchasing products that do not follow the practices of companies like X? Would it even be reasonable for these Dominos to be considered libertarian?
Of course there is no government existing today that grants full libertarian liberty to its citizens, and so it is unreasonable to boycott just because a company necessarily has to do business with a (somewhat) corrupt government. But applying a scale by which governments can be measured, with regard to the measure of economic liberty granted its citizens, and applying pressure to companies based on that scale – is that unreasonable? And while there would be no solely economic reason for considering company X to be liable for legal action (ie, in the wrong), it seems that what most people consider moral isn't equivalent to what is allowed by law.
Is what RanDomino suggesting all that crazy, IF in fact Walmart is leveraging egregious rights violations in other countries to underpay workers?
Don Boudreaux's "fallacy of affordability" is utterly fallacious.
The argument – that if a company's wages were kept artificially low in order to maximize profits, then other companies could steal its workforce – is based upon the assumption that an economy's demand for workers is greater than the available supply.
In areas of high unemployment workers do not have the luxury of choosing between employers, and there is no incentive
for companies to raise wages to compete for
unskilled labor.
Say in a pool of unskilled workers, Wal-mart employs 10%, and 90% are jobless. Why, in setting up my new company requiring 10% of the unskilled workers, would I offer competitive wages out of anything other than charity?
Arguments defending Wal-mart are predicated on the notion that its employees work in market conditions identical to those of America, where employment is high, unions are legal, and there is great opportunity to receive skilled training. The majority of its employees do not.
Unless Boudreaux can think of a better counter-argument, then the "likely deeper assumption" about Wal-mart that he derides is in fact correct: Wal-mart pays its workers low wages out of greed.
Wow, RanDomino has a lot to say, but most of it doesn't make any sense. He has more time to spew nonsense than I do to correct it. Let me pick just one silly thing: Workers do not automatically work for whomever pays them the most. There are other factors involved, such as the risk of injury, the workers moral values (yes, Ran, even poor people have morals), the stability of the business, the required schedule, the distance between workplace and home, the ability to overcome that distance, etc.
Another silly RanDroid saying: "But Capitalism only works as advertised when all parties have all the information:" This is just damfoolery. Capitalism is advertised as being better than Mercantilism, Fascism, Socialism, and Communism. Note the term "better". That means that under the same conditions, a worker in a capitalist society will be better-off than a worker in any other kind of economic organization.
In other words, when NOT all parties have all the information, you still want free markets, because they're better for workers.
If you're going to criticize economists without making an ass of yourself, you have to become one yourself. And once you do that, you'll find that Don and Russ aren't wrong.
-russ
Tom presents a hypothetical case where 90% of unskilled workers are unemployed and 10% are employed by WalMart. WalMart would never open a store in such an economy, of course. So I cannot foresee WalMart ever employing any of those workers.
Perhaps Tom is referring to WalMart's suppliers in some third world nation. I find it hard to believe that 90% of unskilled workers are going to sit around doing nothing. Most will be employed as farmers or hunter-gatherers or thieves or horse stall cleaners or whatever necessary in order to survive. If WalMart's suppliers provide jobs to 10% of those unskilled workers, the jobs will likely improve their standard of living beyond that of their brethren.
Tom may consider the foreign supplier of WalMart to be evil and greedy, but the workers it employs are happy to be employed. Those foreign suppliers are pleased to be earning a profit through sales to WalMart. The U.S. customers of WalMart are pleased that they can get T-shirts for a couple of bucks. The shareholders of WalMart are pleased because the company has found a way to provide a return on their investment, though that return is only about normal for its industry. Everyone seems happy except Tom, who seems to be arguing that WalMart is somehow evil for making everyone better off than they were before WalMart existed.
So who wants WalMart to stop providing goods to its customers at a low cost? Perhaps it is the unions who somehow think they can return to a world where the pay of unskilled U.S. garment workers drives up prices to twice what they are now. Is it not greed that motivates those union leaders?
The former U.S. garment workers are likely employed doing something else. In any event, those workers are not starving, unless they just decide to starve. There are plenty of jobs available for unskilled workers in the U.S.
WalMart, of course, is not the only U.S. retailer selling goods produced in third world countries. Shirts I've purchased at Dillard's and at Macy's and at Kohl's were all manufactured in Asia or Central America. Hardware I picked up at Home Depot was also. So was the television I bought at Best Buy. Even though all that work is now done overseas, the U.S. economy is still humming along, with employment levels at all-time highs.
Frank N Stein:
"But applying a scale by which governments can be measured, with regard to the measure of economic liberty granted its citizens, and applying pressure to companies based on that scale – is that unreasonable?"
Yes, it is unreasonable. The main reason is that you do not punish the party truly at fault and able to correct the situation: the corrupt government.
I say this mainly because there is no information relayed as to _why_ you aren't buying from the company.
Further, even if the company was to deduce investment in countries X, Y, & Z as the cause of lower sales, and if that company then divested, what would the result be for the country? The first result: greater unemployment and lower standards of living. Secondly, the government most likely wouldn't become bankrupt. This goes back to the issue of Wal-Mart being a target only because of its size. Wal-Mart will not make or break a country.
Even if bankrupt, a corrupt government need not be overthrown; it could simply turn more dictatorial.
I think the best way to reform these governments is to open them more to trade and international accountability. Yet, those same protestors complaining about Wal-Mart complain about trade negotiations. How, in god's name, will a government reform with _less_ investment?
It is only through the influence of markets that many of today's corrupt governments are beginning to reform. Just compare China with N.Korea or Cuba. China is in the process of reform, especially with respect to government and business. The others have much less trade and are more backwards. China is an easy example because it is so large, but looking at the international scene, more trade means more reform and higher growth.
Finally, I would like to stress something very important for this debate: it doesn't make sense to talk about labor markets in the US (where Wal-Mart store employees work) and labor markets in 3rd world nations (where presumably most of Wal-Mart's products are made) as the same thing.
They are not the same thing.
The issue in this original post is with the former, with people complaining about Wal-Mart’s low wages and lack of unions.
The issues with the latter are the main motivation for RanDomino and the like.
How about I boil is all down for clarity?
1) Wal-Mart's store employees are unskilled, and get a great deal by working at Wal-Mart. The only thing a union would do is make is so fewer people get that good deal. It would do nothing for the millions that would love a job at Wal-Mart.
2) Wal-Mart's product manufacturers generally have choices: subsistence farming, non-factory-condition jobs, or factory conditions. Remember those good jobs (which many in the US are complaining are being lost) in manufacturing? Those jobs are the best available in other countries and are GOOD. How better to help someone in another country than give them a job you don’t want to leave the US?
Randomino,
A simple question; why stop at Walmart?
Migrant workers for example make less than Walmart workers in an industry that is much larger than Walmart. Do you propose that migrant workers be paid a "decent" wage?
How about janitors, maids, short order cooks, and for that matter, the unemployed? Do you really not see that these are the people who will be supplementing the wages of Walmart workers if you have your way? Why do you care so little about them? And since you care so little about them, why should I take you seriously when you say you care about the workers at Walmart?
Hi -
What RanDomino clear states is that he BELIEVES that WalMart is evil, that by buying their stuff we are consumers of blood money, and that WalMart is evil.
And did I mention that he believes that WalMart is evil?
There's no discussion here.
/begin quote
Your proposed solution (open a rival), is specious. Opening an international retail chain isn't something I can do by going down to my bank and taking out a loan. It would take the combined efforts of thousands of entrepeneurs and financiers many years to create something like that.
Why would any major bankers or venture capitalists want to finance a corporation which guarantees them less profit? It would be self-defeating. Currently they're getting filthy rich off Wal-Mart's workers' backs. Why would they want to change that?
/end quote
Uh, RanDomino even admits that for him to recreate WalMart would mean lots of time and money, and that he refuses to do so: duh. That's why WalMart makes money and is successful as it is: they have invested their time and money to make it what it is. And the banks aren't making their money off "WalMart's workers' backs", but rather through the investments they made.
WalMart has a profit ratio of around 3.5%, which is fairly typical of most retail chains. WalMart gets picked on because it's the biggest and the most obviously non-union of all retailers.
And sorry to disappoint anyone who thinks things are better in Europe: there are WalMarts here, too. And I love 'em: even with their profitability problems, they are the biggest bang for my consumer dollars. Or Euros, as the case might be.
The depressing fact for socialists to face is that unions in the long run harm the poor the most. Think deeply about this supposition for a moment. If unions are good at what they do then they will raise wages for their employees within an industry. If these wages are raised above the market level then they will begin to eat at total employment levels within that industry. So under this scenario the poor and middle class who arent under the protection of unions are now without work.
If you think that scenario sucks then try this one on for size. Lets assume that unions are really really good at what they do and get fifty percent above market levels for their member's wages. Lets assume that their isnt a surplus in available labor so the company is forced to comply. The only thing that they can do to combat this input price increase is to raise prices. Lets assume that this company is Walmart and that they raise prices by five percent accross the board. I think you can get the picture by now because the Bill Gates's of the world arent the ones who truely value what Walmart has to offer. It is the janitor, dishwasher, fast food employee, unskilled immigrant laborer who all suffer the most under this scenario. So essentialy the poor are eating the poor.
Evidently John is unable to extrapolate. So: Let's assume Wal-mart employs 1% of all unskilled workers in a place with 5% unemployment. Precisely the same applies: a new company has no incentive to offer higher wages to attract the 1% of unskilled workers it needs to compete. Duh. And even were an economy such as my previous hypothetical to exist, whether Wal-mart were to want to open a store there is irrelevant to opening sweatshops.
Of course, to claim Wal-mart employees are "happy" in developing countries is undoubtedly true: WE might not be happy were we to have to work 70 hours a week for a few dollars, paying to sleep in company dormitories as the wages aren't enough for proper housing, paying them again to bathe and eat, and getting fired if we attempted to tried to create a union, or even chat on the production line – but these other nationalities are a simple, backward folk, who would be morally outraged at a higher share in Wal-mart's profits.
Tom
If I were to understand you correctly, you are essentialy saying that an unemployed person in a 3rd world country is not better off by taking a factory job working for a Walmart supplier? So it is better to starve than to have a job that pays.
There are lots of points to consider here with this debate. Is it prudent to argue against Walmart suppliers paying a dollar an hour overseas when the price level of those economies is obviously dramaticaly lower than in the U.S. A dollar will go much farther in China than it will in the states. For instance, housing and food is dramaticaly cheeper overseas than it is in the U.S.
Even still, where do maximum profits come from? Is treating your workers as slaves, as you essentialy suppose in your latest hypothetical, the most prudent way to achieve maximum profitability? Do you have any evidence to prove that these walmart suppliers are making their workers toil eighty, ninety, a hundred hours at pay rates that get them no where? The only evidence that I have seen about outsourcing shows that 1st world companies pay 150 percent above the average wage in 3rd world countries as compared to domestic producers. Not too shabby I say.
John,
Okay, several points:
(1) I agree fully that I would rather connive in my own exploitation rather than starve, but this does not exculpiate a company for taking advantage of me if they have the OPTION of paying me a fair wage. I realize Boudreaux and Roberts believe companies have no business being charitable – I guess that just comes down to personal morality and religion.
(2) It is true that a dollar goes further in China than the States, but, having lived in China, I can say quite honestly that the parity you suggest nowhere near exists.
(3) I do not suggest workers in sweatshops work 90 or 100 hours a week – I have never seen over 80 reported. 60-70 seems the average.
(4) The conditions I gave were not "hypothetical", but are reported common conditions in suppliers to Western multinationals. Interesting you perceived them as akin to "slave labor". I can't open pdfs at the moment to source those conditions – I'll post again or e-mail you with them when I can if you want. In the meantime, this links to a New York Times article about a sweatshop that produced clothing for JC Penney and Wal-mart: http://www.nlcnet.org/campaigns/archive/samoa/NYTimes.shtml – and elsewhere on the site a Wal-mart whistleblower cites enforced 24 hour shifts in dangerous conditions as standard in other of their suppliers' factories (in html format!).
(5) The conditions cited above are, of course, extreme, but bear in mind they happened in American territory and were only exposed by someone going undercover: most out-sourced suppliers to Wal-mart are in countries without such stringent monitoring or human rights laws.
(6) I had not heard that out-sourced suppliers paid higher than average wages; I'm prepared to take your word and accept that it's most likely that many companies DO pay fair wages – but plenty of evidence proves many others do not. Complete kudos to those who do – but I would simply like legislation to compel ALL to demonstrate similar morality.
Plus – you don't re-address my argument about "the fallacy of affordability" only being viable in certain market conditions: admittedly my first example of market conditions were so extreme you dismissed it on the grounds of improbability – but how about the more realistic second? Are there holes in it?
I'm always ready to concede if an argument is demonstrably illogical.
the basic issue with walmart is that it is a monoposonistic buyer of both labor and goods. of course the labor issue is related to regions disregarding labor mobility. however, the gist is the key point. they are often times the sole provider of gainful employment and deliberately position themselves so.
is it wrong? i dont think so. but its a clearly capitalistic possibility to beoome the sole purchaser of a good and therefore extract rents.
Tom
I think you and I might be able to find some common ground. There are hundreds of thousands of first world companies who export the production of their products and services overseas. I am sure that any activist who is against this process can cherrypick a couple of hundred or maybe even a thousand instances where some sort of impropriety exists. I am sure that some businesses are treating their employees terribly overseas. However, this does not mean the process is all for not. The gains from this process that we call globalization are way way too great to try and restrain it through regulation, which is often more succesful in enhancing the potency of the problem for which it was comenced to correct.
When it comes to first world companies outsourcing their labor, this study's numbers should aleviate some of your worries.
Try this http://www.csmonitor.com/2005/0802/p09s02-coop.html
As for your argument that I failed to address earlier, I dont know what to think about it. I know that in the United States unemployment is at 5.5 percent. This, however, does not mean that new firms have total bargaining leverage over new hires.
Maybe the U.S is a bad example. Lets suppose it is a third world country with high unemployment and zero regulation. Under these conditions I am fairly sure that these people would be living in shacks and probably extremely malnurished. If a factory were to open there I am sure that their wages would be extremely low by any standard because all that these people have to offer is their ability to do meanial labor tasks. However, this does not mean that they will be automaticaly harmed by factory work. In fact they and their society as a whole should be significantly better off as compared to their prior condition. The new factory represents new capital which will only serve to attract more capital which will only serve to deepen the division of labor within the country thereby significantly improving the standard of living of the nation as compared to before outsourcing. This process has dramaticaly improved the standard of living for people in Hong Kong, South Korea, Malyasia, Singapore, Tawain, and Mexico.
John,
Well, I appreciate your honesty in saying you're not sure what to think about my affordability argument.
I entirely agree with you that Taiwan, Hong Kong et al. have been much improved by globalization, and the wages cited in the link are impressive. I'm all for globalization in principle – and maybe even in general. I'm sure you agree, however, that in the cases where people sign up to work for factories for such low wages that they then have to pay most of their earnings BACK to the company for the only affordable (and demeaning) shelter and food, it's slave labor by any other name. The examples of this ARE cherrypicked – but in the orchard with a torch, as the extent of such exceptions to good practice is currently impossible to tell. Certainly the governments of developing countries are culpable in their neglect of enforcing local regulation in many cases – but multinationals who knowingly profit from such conditions should also be made to accept responsibility.
I'm all for US companies going to other countries to reduce production costs, as this can be beneficial to both developing nations and Western consumers. However, I'm utterly against US companies out-sourcing and profitably avoiding US labor laws.
I've utterly skewed this debate away from US Wal-mart workers' wages, and am in danger of veering off elsewhere. So I'll leave it at this: Anti-Americanism is not so-much against American values as against a perceived moral hypocricy that "truths self-evident" seem to have geographic limit. Country X outsourcing to country Y should be obliged to treat employees as if they WERE IN country X (excepting legal conflict) – including a wage proportional. Surely that would be the most effective and expeditious way to spread true Americcan values overseas?
I think that we have exhausted the limits of this debate. I dont have absolute knowledge of exactly what is going on overseas. However, I will say that the evidence does seem to support the idea that globalization is a win win for both sides. The people in third world nations are obviously choosing to work in the factories because that work is superior to their other alternatives. Also, I dont know if it is such a bad thing for these people to be working 70 hours a week. After all many of them are living in dire poverty and the factory work is ultimately benifical for them. I have read many a report about these new factories opening and literaly thousands of workers flock to get the limited jobs. Are they being paid slave wages? I think the data that I have shown says probably not.
I think the more important point that needs to be made is do you know of another way to make these poor countries grow? When you are talking about employing a nation of uneducated people where there is an enormous surplus of labor, then I think it would be tough to come up with some other kind of attractive scenario. Personaly, I cant get bent out of shape at a few reports citing worker abuse because I know that in the long run and compared to other alternatives this process is vital to the future advancement of the rest of the poor world.
Tom: "Country X outsourcing to country Y should be obliged to treat employees as if they WERE IN country X (excepting legal conflict) – including a wage proportional."
Why? Workers in country Y are willing – and in most cases happy – to work under conditions and wages far inferior to those in the U.S. Why should U.S. consumers and U.S. business owners not take advantage?
Tom: "I'm sure you agree, however, that in the cases where people sign up to work for factories for such low wages that they then have to pay most of their earnings BACK to the company for the only affordable (and demeaning) shelter and food, it's slave labor by any other name."
Do you have evidence that's happening on any large scale in factories supplying the goods to American retailers?
Different John,
As I said, evidently too subtly in my last post, no – it's not currently possible to talk numbers either way due to the current absence of regulation. It doesn't even matter if this happens on a small scale – minorities should be protected through legislation. It's about the powerful protecting the weak.
Workers are happy to work in conditions and for wages inferior to that of the US? No – they PREFER it to starvation. I'm sure they would be HAPPY to work for a decent – though obviously not numerically equal -wage, for 40 hours a week. Which, assuming my take on the affordability fallacy is accurate, companies like Walmart could afford to do.
The whole debate rests upon two principles.
Either you believe businesses should carry a moral responsibility, or you believe businesses should only be responsible for the maximization of profits. Either you believe that all men are created equal, or you believe that Americans somehow deserve better treatment than other men.
If your morality is the reverse of mine, I can respect the arguments which logically stem from it even as we disagree. But if you are uncomfortable with the latter choices, then your arguments stem from moral hypocrisy, which is fundamentally wrong.
So: if you can unashamedly admit to the
latter beliefs, then fine: We're obviously not going to change each other's basic morality here, so there would be absolutely no point in arguing over resulting details. The only point in continuing would be if you believe you can reconcile your arguments to my morality, or you can point out some moral hypocrisy in mine.
I think that us free market types dont see any harm in an exchange between two sides where they both benifit. The most important question that I have is does it pay for companies to treat their employees like slaves? Is that profit maximizing behavior to pay them such a low wage that they can barely afford sustenance? If I were running a business that wouldnt be my modus operandi because I could probably get more production out of my worker if he were well fed and in good health. But the most important point that I would like to make is that this outsourcing of labor process is bringing significant chunks of capital to the first world and this is a really really GOOD thing.
Since such conditions DO happen – though, again, nowhere near universally – such as in that NYT article, – the logical answer is that either yes: it must help maximize profits (I guess the common practice of docking several days' wages for each sick day helps them recoup some lost production value?) as otherwise local companies WOULDN'T do it; or no: in which case those local factory bosses must be doing it because they're – what? – kind of psychotic, who'd willingly sacrifice potential profit in return for a bit of unfettered sociopathy?
Thus, there's either a moral case to compel Walmart et al to switch suppliers if they WILL accept abuse to maximize profit, OR economically it's in Walmart's best interests to switch if they're paying extra so some factory boss can get his kicks. Compelling multinationals to make sure they out-source to companies that practice what WE'D accept as humane labor in America is either way then surely the moral OR moral AND financially best thing to do.
Did you mean to write "first" or "third" in your post above, John? – as I'm kinda surprised at how "dependency theory" it sounds as it stands.
Incidentally, on the question of China/US parity we talked about a while back:
The BBC reports (http://news.bbc.co.uk/1/hi/business/2415241.stm) that in 2002 average factory wage in China was 40 cents an hour, and that "upward pressure on wages is likely to be almost non-existent for the foreseeable future" due to the huge unemployment – which is what I was arguing against Boudreaux about to start off with. The National Committee on Labor says (http://www.nlcnet.org/campaigns/he-yi/he-yi.shtm,l) that in at least one factory for Walmart, Chinese workers earned 17 cents an hour, and were sometimes forced to work 130 hours a week – which contradicts what I said earlier, and which I'd prefer not to believe, frankly out of sheer hope. (I agree with you – God knows how that's profitable – I'd collapse by the Tuesday).
So, let's go with the average factory wage of 40 cents. The Economist's Big Mac Index (http://www.economist.com/markets/Bigmac/Index.cfm) – which is predicated on the price of bread and meat in producing countries – says that a US Big Mac was in June 2005 2.4 times more expensive than in China. Elsewhere the PPP of $1000 in China is put more generously at $4420 in the US, taking into account housing prices, etc as well as food. On that basis, the average Chinese factory worker has the purchasing power in China of someone in the US earning $1.77 dollars an hour. This is probably artificially low as they seem to get forced overtime – but on the other hand, as this is the AVERAGE hourly wage, many may actually get less.
Obviously these equivalencies can't be 100% accurate; I may be being overly simplistic; and neither of us can prove that Walmart mostly uses companies that pay above or below the average – though clearly, as cited above, they SOMETIMES pay well below.
But this hopefully indicates that in general Chinese factory workers get paid wages that would be intolerable in the US, even when purchasing power is taken into account. And given that the "affordability fallacy" seems nonsense under certain levels of unemployment, out-sourcing multinationals may well be ABLE to pay fairer wages to the people who do most of the work – which I would call about 4.42 times lower than the equivalent US wage on this evidence (still making huge profits by outsourcing) – but simply don't WANT to out of greed.
(And before anyone says it – I mean can afford to by reducing rents, not by increasing prices).
Trickle-down economics works much better if there's not someone at the top busting a muscle to tighten the faucet.
Tom,
Re; "…a moral case to compel Walmart et al to switch suppliers…"
You're right, there is. And there is also a moral case to be made for allowing Walmart to continue doing what they are doing, providing reasonable quality at low prices, thus helping a great many people who can't afford higher prices.
The problem for you is that moral code A does not automatically trump moral code B. Thus it becomes a matter for politicians, who will decide by counting votes.
Having stumbled onto this exciting site entirely by accident, I feel called to action.
Wal-Mart, or Whore-Mart as I like to call it, is a total disgrace to the system that allows it to operate. Sam Walton is no Henry Ford and Low Prices are an illusion. The one thing that allows W-M to sell-out America is the monthly government check. As large as this company has become, it is not a self sustaining economic entity. Compare this with the rise of the Ford Motor Co., which allowed its' workers a living wage and the ability to buy the product it built. The Ford model is self sustaining. It builds on itself. This is prosperity. This is how America achieved economic dominance. This is capitalism.
Wal*Mart is a virus, an infection to this working system. Wal*Mart takes far more than it gives back. What it takes are the reserves produced by the Ford economy. It is not clear to see , but the fact that a federal social security system exists is only by virtue of the Ford economic model. A social security system could never exist with the Wal-Mart economic model. Wal_Mart is a giant economic leech, sucking the lifeblood out of America. The unwitting receipients of monthly Social Security, Welfare, Disability and Pension checks are helping Wal Mart plunder America's wealth. They do not rely on Wal-Mart for the ability to purchases imported goods. As long as the monthly check keeps rolling in they do not care who produces their goods. As long as the check keeps coming, they can continue shopping at Whore Mart. We get the monthly check, we spend it at Wal*Mart, and Whore Mart spends it in China. This creates SUPER high gasoline prices, since China now has all the American dollars it needs to compete for oil in the open market. Oh, except for 90% of the American dollars that Whore-Mart kept to invest in building new stores in China. I know none of this is true, right?
Randy –
I'm glad you agree that the moral case I make SHOULD be answered – and I'll point out that equal pay for equal work is in the Univeral Declaration of Human Rights – IF Wal-mart could do it without raising prices.
But evidently you didn't read my post immediately above yours where I pre-empted your point: Wal-Mart CAN afford to keep prices low, and SIMULTANEOUSLY pay employees higher wages, as they have huge rents and the "affordability fallacy" is nonsense. Thus both moral concerns CAN be satisfied. But Wal-Mart won't as they are an immoral business.
And, again, the reason Boudreaux's argument that they can't afford to do so is utter nonsense is this:
In a community where Wal-Mart employs 1% of unskilled workers and 5% of unskilled workers are unemployed, my new, competing business, requiring again 1% of the unskilled workers, has no incentive to offer higher wages to attract them. Hence why, as reported in the BBC link above, in China where 100 million are unemployed, there is no upward pressure on wages. Companies in China have no reason to offer competitive wages to steal another's workforce. And this situation is still true, even if a competing company had billions and billions in rents.
What Boudreaux says: "Wal-Mart would have to raise its employees' pay to avoid losing its entire work force, or it’ll go bankrupt" – is absolute, utter rubbish.
Now, in the trackback at the top it says: "Don Boudreaux surgically fisks an anti-Wal-Mart complaint. Things get even more interesting in the comments as pro-capitalists pulverize economics ignorance".
Don't prove him wrong! Someone explain to me why my counter-argument is wrong and the economics professor isn't being deceitful. Pulverize me!
If you can't, you're admitting, as Boudreaux says – that "Wal-Mart’s failure to pay higher wages… is born of that company’s greed" when they have, as Randy says, a moral case to switch suppliers to those who'd pay a fairer share of profits.
(Of course, if people are willing to admit that Wal-mart is immoral, but don't really care, as profits are more important – then obviously I'm not going to argue with THAT. As I say, if you're comfortable with and honest about that morality, then fine.)
Tom,
A moral case could be made that every person in the world is entitled to a minimum of $30K/year, but that doesn't make it feasible.
Walmart provides value to me and many others. That's why we shop there. If what you value is something other than low prices, then it is your prerogative to take action in accordance with your values. As I said before, politicians will decide.
Tom, I'm a late-comer to this thread, but I appreciate your opinion and your argumentation, which is focused on the issues and not "You lying, stinking Capitalist bastard" that Helen whats-her-name above uses.
That said, I disagree with one of your premises, and it's an important one that hasn't been mentioned yet (at least very explicitly). Walmart, as another poster or two pointed out earlier, has a profit margin of 3.5%, roughly average for retailers. For the math challenged, that means that for every $1 of sales, they earn 3.5 cents of profit. Is that "obscene"? If you think so, compare it to the drug manufacturers.
Your premise that I take issue with is that you're suggesting that Walmart, out of a moral motivation, SHOULD pay it's workers more if it can. Arguably, it could do so. But if it did so, its profit margin would fall and, here's the rub, so would its market value. Afterall, it's less profitable. To simplify things, if Walmart is now viewed as less profitable, all of the "hot money" in the financial markets will move on and, now, Walmart will not have the same access to capital that it once had, leading to a slowdown in its growth. And if Walmart's growth slows or stops, it slows or stops its hiring, buys less from its suppliers (those Third Worlders you – and I – care about), Third World laborors are thrown out of work (and, for many of them, they end up in the sex trades) and its "empire" will begin to unravel…afterall, the "hot money" will find the next Sam Walton and will back him. Sad to say, what you're ultimately arguing would ultimately lead to the death of Walmart and negative disruptions in the very labor markets you wish to help.
I'm afraid that you're trying to "catch up" Third World economies to US standards overnight. That can only be done one way: Time. And then, only with the kind of POLITICAL reforms that sustain market economies. Thus, the best thing you can do for the people of the Third World is to support policies of political reform there (Corruption is EASILY the biggest reason for poverty in the Third World — it is assuredly NOT multinationals).
Randy,
If you can only afford to shop at Wal-Mart, then that's fine – I wouldn't ask you to bankrupt yourself on principle any more than I would ask would-be Chinese factory workers to starve.
It doesn't mean though that you cannot also petition politicians to ensure Wal-Mart both keeps prices low AND pays FAIR wages, as, I repeat, Don Boudreaux is either a fool or a liar, and Wal-Mart can logically afford to do BOTH. It's not a question of having to choose between values. BOTH benefits are simultaneously feasible and you've already agreed BOTH are important.
Blithely saying that politicians will decide passes the moral buck. Politicians won't decide to act unless they hear a groundswell of public opinion in support. Wal-Mart can simultaneously be championed for its benefitting American consumers and viscerated for its exploitation of employees in developing countries: there's no hypocrisy or conflict of interest in taking that position.
So do so: do both.
Jabber – having written that while you posted, I kind of got near the "lying stinking capitalist-bastard line"…
I do, however, agree that that is a much sounder economic argument than the pseudo-logic Don Boudreaux put forward – I respect that – and I admit I was being somewhat nefarious in suggesting that just because his argument was fallacious there were no other alternative justifications.
I agree with you to an extent. Obviously what was posted right at the top of this page about Wal-Mart affording to pay third world workers an extra $8000 each is ridiculous as (a) that's a bonus of about $35,000 when purchasing-power parity is taken into account – hell, I might emigrate – and (b) yes, Wal-mart obviously needs profits to continue – I wouldn't expect it to turn into a communist co-operative. I also accept that in some economies – without as high unemployment as China – paying an equalized wage to blue-collar workers could have dangerous consequences on the economy as a whole, as it could be a disincentive for others to develop skills needed for white-collar jobs.
I also freely admit that I'm artificially targetting Wal-mart, and there are other – less well-known companies – that are probably much worse. I'm using Wal-mart more-or-less as Boudreaux used it – as a metaphor for multinationals in general.
But both of those reasons are why I favour a system of regulation to compel Western multinationals to pay a fair and feasible wage to employees which is neither ruinous to company or country. If such regulation were universal – which is not beyond the capabilities of the WTO or IMF – then yes, companies which already pay fair wages to employees would probably get more investment and see an increase in share price, and Wal-Mart and its ilk could crash and burn. This does not necessarily mean though that Randy would lose low priced groceries, as there are other profitable grocery companies that make a point of keeping very low prices and paying ethical wages – and I'm sure they'd come in and fill the gap.
I agree too however that governments in developing countries need to step up – half the time unethical wages and working conditions are in direct violation of local labor laws, and my argument may be predicated on the basis that since those governments won't force companies to take moral responsibility ours should. I concede that if third world and developing nations collectively legislated against race-to-the-bottom effects and took violative multinationals to court, my arguments for international regulation could be moot. I am wary, as I say, however, of how easy and tempting it is to pass the moral buck.
Tom, thanks for your considered response. You and I can find common ground, although you have far more faith in regulation than I. I can live with regulation — up front, ala Friedrich Hayek — which set the "rules of the game" and apply to ALL the players in the Market, but too often regulation is a capricious, political beast that does FAR more harm than good. You mention of the WTO and IMF frankly make me cringe. The latter in particular has bollixed up far too many Third World economies for my tastes. I strongly commend to you William Easterly's book, "The Elusive Quest for Growth." He's a former World Bank economist who has seen the depradations of the Third World up close and personal, and how poor economics has led to it, primarily via ass backward incentives. I'm hopeful that some people are starting to get the message, namely that when you truly believe in the power of the individual to make intelligent choices for their own welfare, you have leashed enormous power for social change. To do this, you need to provide a consistent, fair Rule of Law, limited government, broad civil liberties, and education, education, education combined with the support to finally use that education (ie, via micro-capitalism projects whereby the poor – but skilled – are helped by 'starter loans' through which they can purchase needed equipment, such as sewing machines or tractors, etc.) In sum, the answer is to use the power of Capitalism, not to throttle it. The problem is and always will be the politics behind it, not the system itself.
Thanks, Jabber. I entirely agree with you about the IMF and the WTO – but I blame their policies, rather than their powers of execution.
Ideally I'd like to see your ideas enacted; then have first world countries remove all tariffs and subsidies, but allow developing countries to protect their key industries until they are competitive, if they so wish – pretty much the opposite of our current "free trade" (sic) system.
Funnily enough, this is also the policy of the UK's equivalent of the Republicans, which surprised me greatly, as I assumed, as right-wingers, that they would support poor countries removing all barriers to free trade. I guess though it's easier for them to take the moral high ground than the US, as they won't stand a chance in hell of enacting it through the EU, let alone the WTO.
I may check out that book…
I have, of course. now utterly diverted this thread from discussing your local Wal-mart cashier.