Poverty of Ethics without Economics: Bangladesh

December 13, 2013

by Mario Rizzo

In a world where people’s ethical goals are intrinsic values we could easily argue, as did David Hume, that the values themselves are not subject to scientific analysis.  But, as things turn out, many of what people believe to be intrinsic values, and therefore ultimate goals, are not. They are intermediate ends to which the attainment of some more nearly ultimate goal is imputed. For example, if I believe that my happiness is an intrinsic moral good, and I think that the connection between my happiness and making more money is completely unproblematic, then I may legitimately believe that additional money-making is an ultimate moral goal. (How one intrinsic good should trade off against another is a separate issue.)

Some people think that policies that mandate good wages and safe working conditions are ultimate goals. Or at least they seem to believe that. Much of the discussion about the recent Bangladesh factory fire has this air about it. Much to my disadvantage in polite company, I argued that the advocates of “justice for the poor” were ignoring important factors.

Even if you do believe that better working conditions and higher wages for Bangladeshi garment makers are intrinsic values, what kinds of policies will achieve these values? Does it matter whether the policies will result in some workers improving their wages and working conditions, while other will see a decline in their wages and working conditions?

The nineteenth-century philosopher Herbert Spencer argued at length in his Principles of Ethics that people often mistake the proximate ends of an activity for its ultimate end(s). Ethical thinking is rife with this error.

So now a news report in the Wall Street Journal is entitled “Higher Wages Spur Worry At Bangladesh Clothes Firms.” The government has now mandated a new minimum wage of $68.00 per month for millions of garment workers. This is a 77% increase over the previous minimum which itself was not always enforced.

It is also the case that a consortium on European and American garment manufacturers has agreed to new factory safety rules that will be costly to implement. The Bangladesh government will also mandate higher standards. How exactly all this will be financed is unclear. There will be a fund created by Western garment companies with contributions determined on the basis of their share in garment production in Bangladesh. They will offer grants but mostly it will be in the form of low-interest loans. Of course, we shall see if these grants or loans are forthcoming when the publicity has died down.

To the extent that the financing from Western companies is in proportion to their production, it is a variable cost and increases the companies’ cost of producing garments. To the extent that it is simply mandated on local produces it will directly affect the profitability of these low-margin local companies.

What Bangladesh had going for it in the market for clothing was extremely low costs of production. Their workers are unskilled and many in the garment industry are women who have few opportunities for employment in Bangladesh. What most people in the West fail to realize is: (1) How desperate these workers lives are – their alternative opportunities are pitiful and (2) Increasing costs of production and lowering local profit margins is a recipe for disaster.

Some commentators argue: The cost increase will not be great and, anyway, Westerns should be willing to pay the extra cost. With regard to costs, in the Wall Street Journal article linked above, it is suggested that the new minimum alone will raise the cost of production by 20—30 percent per garment. (Obviously, this is just a guess.) But when added to increased safety costs, it is hard not to agree with:

“Sirajul Islam Rony, a workers’ representative on the wage board, said some factories had shed workers.

‘It’s almost impossible for the industry to sustain this level of staffing at the new wage level,’ said Khurrum Siddique, director of Simco Dresses Ltd., a manufacturer in a Dhaka suburb.”

With regard to the point that Westerns should be willing to pay the extra cost, I believe that some people would. But, by and large, when people are shopping for clothes – especially the relatively low income people in the US who buy these inexpensive clothes – they are simply looking for the best quality-price combination.  Most people keep their charitable contributions separate from their consumer decisions. They are more likely to put a dollar in the Salvation Army box (which will benefit relatively-rich poor Americans) than pay more for clothing — which they perceive as increasing the store’s profits.

Therefore, consumers will, in effect, put pressure on the manufacturers to shift to other sources of supply, and so forth.  Workers in Bangladesh will be shifted into unemployment, malnutrition, and even less safe environments. Some workers who remain still employed will reap the benefits but it will be at the expense of others – most probably the poorest and least productive.

This is where ethics without economics gets you.

Postscript:

As I was writing the post above I received the periodic faculty newsletter from NYU.

University Senate Endorses Bangladesh Safe Workplace Accord

The University Senate voted unanimously on Dec. 5 to endorse a garment industry agreement aimed at making Bangladesh factories safe workplaces. The Senate approved a resolution recommending that the University require its apparel licensees to sign the Accord on Fire and Building Safety in Bangladesh. NYU’s administration is proceeding to implement the requirement immediately.”

I happen to know that economists rarely go to these meetings (opportunity cost of time). What it shows, however, is that even intelligent people are swayed by mere sentiment, especially during the holiday season. Mere sentiment masquerading as ethics, I am afraid. Ethics is more than good intentions. Consequences matter. Economics matters. It is too bad that “Merry Christmas” in Bangladesh may really mean “You are fired.”

8 Responses to “Poverty of Ethics without Economics: Bangladesh”

  1. Chris L. Says:

    I see some holes in this argument

    1.You talk about the profit margins of manufacturers (which, unsurprisingly, are low), but ignore the profit margins of wholesalers, retailers, and everyone else in the supply chain, even though their profit margins are much higher. Through this omission, you make it seem as if there’s no room to raise wages without passing the costs to Western consumers (particularly low-income Western consumers. And we wouldn’t want to harm low-income people, would we?) even though this isn’t necessarily the case.

    The pressure to lower manufacturing costs comes more from wholesalers and retailers than from consumers. The problem is not so much that consumers don’t want to pay more, the problem is that other companies in the supply chain aren’t willing to accept lower profit margins.

    2. Lets say that you’re right, and the garment industry moves jobs from Bangladesh to a country that has even lower wages (say, Myanmar). Is this really a bad thing? After all, if sweatshops are beneficial to Bangladesh, wouldn’t they be at least as beneficial other countries that are even poorer? Or are Bangladeshi jobs somehow intrinsically worth more than Burmese jobs in your ethical calculus? It seems odd to me to focus so much on the plight of poor, desperate Bangladeshis but ignore the plight of even poorer, more desperate Burmese.

    Futhermore, your argument is transparently based on sentiment (those poor, unskilled Bangladeshi workers will end up unemployed and malnourished!) without a whiff of irony or self-awareness. Just like the “justice for the poor” types that you complain about, you have ignored important factors.

    I agree that when talking about ethics, consequences matter. Economics matters. And that means paying attention to the details. It means taking the wider context into account.

    If you’re going to argue that raising the minimum wage is “a recipe for disaster” you’re going to have to do better than this.

  2. Jeremy Sapienza Says:

    There are, as an economist knows, many other factors at play. For example, while the new law may raise the minimum wage a shockingly high percentage, it’s still BELOW India and Sri Lanka, which an industry expert I know says is the only real competition Bangladesh’s factories have in the textile industry. He also says that the wages will come to parity eventually anyhow, whether through state or market means as Bangladeshis become higher skilled; the only question is when. He says there may be a slight “rubber-band effect,” where companies shift to India for a minute because they get spooked, but then return for the value Bangladesh still offers. And frankly, there is currently nowhere “down” the wage ladder to go anymore. China is a fortune.

    In fact, now that the world is beginning to reach higher labor standards and pay rates, work is coming back to places previously fled in the “race to the bottom.” Mexico’s maquilas are being reinvigorated — for domestic as well as foreign markets, even though (or maybe because in part?) Mexican wages are much higher than most other developing-country manufacturing markets. Of course, Mexico is still a good deal because shipping to the US is so easy and cheap. The point is, wages aren’t all.

    There is also the danger of worker resistance in the form of strikes or sabotage. A Bangladeshi company recently lost a factory to employee-set fire and claims they will be out $100 million. Even with insurance, Gap et al will not wait for them to rebuild their facilities; they’ll move on to other companies who by then will have raised wages to placate on-edge workers. Isn’t worker rage an economic factor?

    There may also be opportunity costs to current employment or trends, meaning if half of Bangladesh is working in sweatshops for chump change, there’s no time or opportunity for them to seek/develop/attract any other kinds of jobs and skills.

    Innnn conclusion, I find it hard to worry from a Bangladesh-centric economic pov about a law that 1) may be ignored by the worst offenders anyhow and 2) will hardly put a dent into the comparative advantage the country still holds even with the rise in standards and wages. Ultimately very few of us really benefit from the millions of people working in near-slave conditions around the world. Those people aren’t inventing things, curing stuff, adding to the culture, buying the frivolous crap *we* make, etc. Even someone else’s higher living standards are better for us, and while this law probably won’t actually even be the thing that brings it to Bangladesh, it will get the credit. Which yeah is annoying.

  3. Mario Rizzo Says:

    Wishful thinking abounds.

  4. OH Anarcho-capitalist Says:

    Inciteful and provocative post (judging by the 1st two comments).

    I find similar reactions when discussing the baby steps of evolving economies with those who assume 21st century western living standards can be enjoyed by all peoples simply by mandating that they be so immediately. Same argument applies to the minimum wage debate; you cannot mandate people’s productivity be worth more than employers are willing to pay for it.

    Public policy must be evaluated by its results, not the good intentions of its authors. That’s a lesson interventionists never seem to learn.

  5. ray Says:

    Of course all of this analysis presumes that global markets are the be all and end all of modern economic thought. No place for heterodox thought within this author’s writing. Strange that they don’t question why this is the best/only choice for those workers. Strange that they don’t question why the Bangladeshi workers are unskilled ( horrible term). It’s all just billionaires and markets. No questioning of why are clothes are made in bangladesh in an age of climate change and resource constraints.

  6. Jim Rose Says:

    Please use the correct country which is People’s Republic of Bangladesh 

  7. TheAsifKhanBlog Says:

    Your writeup looks surprisingly similar to one that I wrote in a Bangladeshi newspaper (and later re-posted on my blog). However you wrote yours before me.

    Check out my writeup if you have time. (http://asifkhan.info/2014/02/12/minimum-wage-good-intentions-bad-outcomes-tim-harford-comment-included/)

    I am a Bangladeshi person by the way


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 1,733 other followers

%d bloggers like this: