A fire at a Bangladeshi garment factory, which killed eight, has revived calls to boycott firms which take advantage of Bangladesh’s — and other countries with similar conditions — relatively low labor and safety standards. Matt Zwolinski, at Bleeding Heart Libertarians, has a few links you can follow. It’s becoming more acceptable to combat calls for boycotts, because more people are becoming aware of the fact that in poorer societies people will choose to work more dangerous jobs for a lesser wage, and that this state of affairs is better than having no wage at all. Despite the benefits of foreign direct investment, even where there are low labor standards, I’m not so sure we should discourage boycotts against firms that we perceive to be doing wrong.
There’s a common perception that the developing world is in a “race to the bottom.” The idea is that emerging markets, desperate to attract foreign direct investment and foreign capital, will undercut each other’s labor, environmental, and safety standards. The claim has been shown to be wrong. But, it’s not out of the benevolence of firms and foreign governments. Instead, firms often avoid countries with the lowest standards, because if it leads to bad publicity the loss in profit is greater than whatever gain in lower costs. In other words, public relations and the threat of consumer retaliation is one important factor which maintains a floor to global regulatory standards.
Universal labor standards are usually discouraged, because people are afraid that such standards will put relatively poorer emerging markets at a disadvantage. The concern is well founded. These countries tend to suffer from low capital accumulation, extractive institutions, a lack of local finance and the rule of law, which discourages local investment, et cetera. The value of these markets’ labor is comparably low. Any additional costs which effectively make for a price floor, above the optimal wage, will leave workers within shifting margins out of work. Thus, while Bengladeshi laborers may suffer from a high risk of injury and/or death at the factories they work at, this is undoubtedly better than the alternative of no work at all. It’s also worth mentioning that foreign direct investment also implies greater competition for labor, which leads to capital accumulation (to increase the productivity of labor) and, therefore, an increase in wages.
But, we can advocate consumer awareness and boycotts without, at the same time, advocating for universal standards. There has to be some means by which workers can bargain with their employers, whether directly or indirectly. Unionization, in these countries, is rarely an option, and free-market oriented economists typically dislike unionization anyways (well, as long as the unions are protected by government — which is the only way I see that they’ll actually be effective). The answer is to pressure firms to bargain with laborers, by threatening their profits. Firms will raise their costs if it means that by doing so they can maximize their profits. We shouldn’t be afraid of using the tools that come with public relations and consumer awareness.
What I have in mind is bargaining of time and place, where labor standards can change in the context of local conditions. A country with higher unemployment and less productive wages will be one where laborers have less room to bargain in, because the firm can minimally raise standards to appease consumers elsewhere and force laborers to accept them (or they’ll replace them with workers willing to accept whatever standards the firm has settled on). But, as productivity rises and competition for labor grows, the bargaining room expands with it. And, this type of process is pretty much what we want to see. We want laborers to be able to bargain for wage changes, even when these wages are put in terms of safety standards, healthcare, et cetera. Consumer awareness is an ally of labor movements, because they can help add pressure on the firm, where employees may not be able to.
The check on firms that good public relations creates is a good alternative, especially, when the nations in question are governed by extractive and broken political institutions. The connection between consumer awareness and firms’ relations with their employees is a good alternative to the political process. That is, it’s a private solution to what’s usually considered a public problem. I think that it forms part of the microeconomic dimension of spontaneous order, especially since all actions and decisions are based on local knowledge — there is no rational planning involved. It helps build the institutions — the rules of the game — which lead to what we today consider modern, advanced society. I think this is the best way to look at it. Instead of seeing it as a knee-jerk reaction to what we perceive as immoral corporate behavior, economists should accept it as part of the process of spontaneous order. Ultimately, these are the type of things which would exist in a hypothetical stateless environment, where the market process has to substitute for a lack of analogous political processes that aim for the same ends.
Keep in mind that this is just a thought I had, and I haven’t put in a lot of time to rigorously think about it. But, it’s something worth considering.