The Free Market 18, no. 5 (May 2000)
University students are going berserk again. No, they are not swallowing goldfish, going on panty raids or stuffing themselves into phone booths, the excesses of a bygone day (the first two are now politically incorrect, and what with modern technology there is nary a phone booth to be found). Nor are they taking over deans’ offices and entire college campuses in the name of stopping their institutions from buying real estate in surrounding poor communities. Nor, yet, at the moment, are they protesting in favor of the environment, or bashing free trade, other favorite activities of theirs. What, then, you may ask, are they up to nowadays? They are insisting that the university logo t-shirts and baseball caps sold in campus stores not be manufactured under sweatshop conditions, nor with contributions from child labor.
At first glance, it looks as if the younger generation has finally woken up and gotten some common sense. Who, after all, favors child labor or sweatshops? But a moment’s reflection suggests that the students are still pompous adolescents, entirely innocent of even the most basic elements of rudimentary economics. Take sweatshops first. Other things equal, it would be preferable to work in a place with air conditioning, rugs, the ambiance that fine art and good furniture can bring to a job setting. But other things are not always equal. Poor people, in particular, would far more prefer that more of their salary be given to them in the form of money wages, and less in terms of better working conditions. As for the employer, the way in which he pays out salaries is a matter of total indifference to him. To the firm, “a buck is a buck is a buck.” That is, if the workers want a very high proportion of their total earnings in money, and very little in the form of working conditions, then the business has every incentive to accommodate them.
So there is nothing wrong with sweatshops, per se. The difficulty, rather, is poverty. The total wages are so low that the employees want to economize on the accoutrements of the factory, rather than take-home pay. And why, in turn, are wages so low? This is because in many third-world countries, worker productivity is very small.
But this sets a ceiling on wages. The employer who pays more to workers than they produce for him is set directly on a path to bankruptcy. (Nor can wages fall much below productivity levels, or there will be a high quit rate, as other firms raid these workers. For example, if a worker’s productivity is $3 per hour, paying him $5 per hour will entail a loss to the owner of $2 per hour. If the wage is only $1 per hour, profits of $2 can be earned, but some other employer will entice this worker away from his original employer with an offer of, say, $1.25, and then another at $1.30, and yet another at $1.35, until, at equilibrium, the wage will tend to reach $2 per hour.)
And why is the third world riven with low productivity and poverty? This is because these countries follow policies of dirigisme, where the government heavily involves itself in the economy, precisely the policy urged by these intellectually out-of-control students.
Let us consider a case in point. If there is any poster girl for what sends these students into paroxysms of revulsion, it is Kathie Lee Gifford. Her line of clothing is linked to sweatshops and child labor. Suppose Kathie goes to a poor country, such as Peru or Bangladesh. The people there, say, are earning $3 per day, which is approximately their productivity level.
Kathie Lee has three choices. She can offer these workers less than $3 per day, exactly $3 per day, or more than $3 per day. If she tries to recruit a labor force at, for example, $2 daily, the workers will spurn her. They may be poor, but they are not stupid. Even at $3 per day in total wages (including take-home pay plus the amount that goes into working conditions) this task will be difficult. Why should the employee leave his present position for an upstart, who will not at all improve his financial situation?
No, the only way Kathie can attract workers is by offering them better terms of employment than they now enjoy. If the students in the US who are so bitterly protesting poor Kathie’s economic initiatives really had the best interest of the poor workers in the third world at heart (and a modicum of brains which they sorely lack), instead of opposing her, they would carry her around on their shoulders in a ticker-tape parade, the way they treat winning athletes.
What of child labor? Why does child labor exist in the Perus and Bangladeshes of the world? Why did it occur in the good old US of A in a bygone era (during the seventeenth, eighteenth, and even nineteenth centuries)? Why did Western Europe allow child labor during medieval days? It is easy to understand, even for those now in the process of attaining a college education. Societies that allow these practices are simply too poor to afford to prohibit them. To deny children the right to work in fifteenth-century England or in twenty-first-century Chad is to consign them to death. Not very “progressive.” Students, are you paying attention?
It is all well and good to outlaw child labor in the US in this year of our Lord 2000. But this was not true hundreds of years ago in this country, nor is it true, now, in several benighted corners of the globe. To enforce this rule then, or there, would be to invite highly negative repercussions.
If children are to work, they might as well be paid as much as possible. Enter Kathie Lee Gifford, heroine. (She has since recanted her position under pressure from these abysmally ignorant students.) As in the case of the sweatshops, good old Kathie pays the kids more than they were earning from their domestic employers. Hip, hip, hooray for Kathie, from all men of good will.
According to socialist economists (e.g., the academic mainstream), education is a public good, or an external economy. The knowledge attained by the students, although it indubitably helps them attain higher paying and more rewarding jobs, also spills over onto the rest of us in a positive way. With the information and reasoning skills they supposedly attain in school, they become better citizens, better neighbors, more informed voters, etc., and this helps those of us who are intellectually less fortunate.
It is high time that we rethink these pink-cloud musings. If anything, a case can be made that a college education-particularly of the liberal-arts variety-is a positive detriment to society, and ought to be discouraged.
Walter Block, a senior fellow of the Ludwig von Mises Institute, teaches economics at the University of Central Arkansas (wblock@mail.uca.edu).
