Such demands rest on the belief that, if left free of
government interference, the profit motive of businessmen or capitalists leads
them to pay subsistence wages to workers compelled to work intolerable hours in
sub-human conditions. And, more, that the profits allegedly wrung from the workers in
this way exist in the hands of the capitalists as a kind of disposable slush
fund as it were, at least some more or less substantial portion of which can be
given back to the workers from whom they were taken, or used on behalf of those
workers, with no negative effect except to deprive the capitalists of some of
their ill-gotten gains. It is generally taken for granted that the reason the
kind of conditions that prevail in Bangladesh and the rest of the Third World do
not exist in the United States and Western Europe is the enactment of labor and
social legislation, and that what is needed is to extend such legislation to the
countries that do not yet have it.
Every aspect of this set of beliefs is wrong and its
consequences are highly destructive, above all to the masses of workers in the
Third World who already live close to starvation and who are in danger of being
driven into it by needlessly increasing the cost of employing them either by
arbitrarily raising their wages or by requiring that they be provided with
improved working conditions that must be at their expense and which they cannot
afford.
One of the most elementary propositions of the science of economics
is that the higher the price of anything, the smaller is the quantity of it
that will be purchased. This applies to labor no less than to goods. If wage
rates in Bangladesh are arbitrarily increased, fewer workers will be employed
in Bangladesh. In that case, workers who would have earned low wages will earn no wages. They will starve. If employers
in Bangladesh are compelled to make improvements in working conditions of a
kind that do not pay for themselves, the cost of those improvements represents
the equivalent of a rise in wage rates. Again, there will be unemployment. The
unemployment could be avoided only if workers’ take-home wages could fall
sufficiently to offset the cost of the improvements. In that case, the
situation would be comparable to making the workers use their already meager
wages to pay for improvements that they simply cannot afford.
These are not outcomes that the advocates of imposing labor
standards want. What they want is higher wages and better working conditions.
Their problem is that they do not realize what is actually necessary to achieve
these results.
What will achieve these results is leaving business firms in
Bangladesh and throughout the Third World alone, to be as profitable as they
can be. (It should be obvious that the loss of a factory building and its
machinery was not profitable and that
while it may be legitimate to denounce the building’s owner for criminal
recklessness and negligence, it is simply absurd to denounce him for seeking
profit, when what he actually achieved, and could only achieve through such
conduct, was total loss.)
The high profits that can be earned in a Third World country,
if not prevented by too many obstacles, will be heavily saved and invested,
mainly in that Third World country. As the experience of Taiwan, South Korea,
and now even mainland China shows, a
generation or more of such a process results in a vast accumulation of means of
production in the country—i.e., numerous new factories, with better and better
equipment. This results in an intensified competition for labor and thus rising
wage rates. As wage rates rise, workers can more and more afford to accept
lesser increases along with improved working conditions of a kind that must be
at their expense.
Economic freedom, not government interference, is the road
that the wealth of nations travels.
Copyright ©
2013 by George Reisman. This
article may be reproduced electronically provided this note is included. George Reisman , Ph.D., is Pepperdine University
Professor Emeritus of Economics and the author of Capitalism: A Treatise on Economics (Ottawa,
Illinois: Jameson Books, 1996; Amazon
Kindle Edition, 2012). His website is www.capitalism.net. His blog is www.georgereismansblog.blogspot.com.
