Wal-Mart and Slavery

by Don Boudreaux on October 21, 2006

in Myths and Fallacies, Wal-Mart

In yesterday’s New York Times, Andrew Grossman — Executive Director of Wal-Mart Watch — wrote the letter below in response to John Tierney’s recent (and superb) argument that Wal-Mart lifts countless people out of poverty:

To the Editor:

Did John Tierney write “Shopping for a Nobel”
tongue in cheek? Is he really claiming that there is no more effective
antipoverty organization than Wal-Mart?

Drawing parallels
between Wal-Mart, the corporate giant, and the Grameen Bank is beyond
belief. The Grameen Bank creates wealth and capital and is about
empowerment. Wal-Mart rents labor at the lowest possible price and
discards people when they are done.

Wal-Mart has long tried to portray exploitation as efficiency, and now, according to Mr. Tierney, it deserves the Nobel Prize.

Yes, any wage is better than no wage, but to state that overseas factory workers have been lifted out of poverty is a fallacy.

It has been widely reported that workers abroad in Wal-Mart’s
suppliers’ factories routinely experience forced labor, minimum-wage
violations, maternity-leave violations, overtime pay violations and

We need to understand that suppliers overseas perpetuate
inhumane conditions in an attempt to maintain the low prices that
Wal-Mart demands.

Andrew Grossman
Exec. Director, Wal-Mart Watch
Washington, Oct. 18, 2006

Perhaps it’s true that "[i]t has been widely reported that workers abroad in Wal-Mart’s
suppliers’ factories routinely experience forced labor."  But the frequency of these reports no more proves their truth than do the frequency of reports of people being abducted by aliens from outer space prove that people really are frequently abducted by aliens from outer space.  Indeed, the plausibility of slaves producing manufactured goods for sale by Wal-Mart is just as implausible as the wackiest alien-abduction allegation.

Slaves simply are too unlikely to be good factory workers.  Put differently, the cost of monitoring an  enslaved workforce is likely way to high to make slavery an economically efficient means of producing modern consumer goods.

Suppose country X’s workforce is enslaved.  The benefit of slavery to producers is the cheapness of the labor.  So with the cost that producers must pay for labor held below what it would be if the workforce were one of free men and women, producers will use relatively labor-intensive means of production.  But because modern manufactured goods generally have countless dimensions of quality, very few of which are cost-effectively observable by factory owners producing large quantities, the opportunities are great for slave workers to shirk in ways that reduce the quality of their output.

One way to reduce the magnitude of this problem is to substitute capital for labor — to substitute machine power and skill for human power and skill.  With more tasks being done by machine, fewer opportunities exist for slave workers to degrade the outputs’ quality through their shirking (or, even, through their intentional sabotage).  But the higher the capital-labor ratio,

(1) the greater is the opportunity for slave workers to sabotage expensive and complex factory machinery, and

(2) the lesser are the benefits to producers of slavery because these producers are using less labor than they would use if monitoring costs weren’t so high (and, therefore, producers are buying and using much of the machinery that they would buy and use had they had to pay market wages for their workers).

These theoretical observations, of course, don’t prove that Wal-Mart’s suppliers aren’t using slave labor.  But I find these observations sufficiently compelling so that, when combined with a recognition of how easy and tempting it is for Wal-Mart’s enemies to make allegations unsupported by facts, I’m quite confident that Wal-Mart sells no goods produced by slave labor.

And recollecting credible reports of workers from China’s countryside, and rural India, streaming into manufacturing centers for the sole purpose of seeking jobs in factories, my confidence that Wal-Mart sells no slave-made goods increases further.


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