Sweatshops: Boycotts Aren’t Necessarily The Answer

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Working conditions in sweatshops have been a cause for controversy and rightly so. Workers are usually paid extremely low wages and work extremely long hours in hazardous conditions. It’s no myth that working in a sweatshop is not anybody’s preferred vocation. However, simply boycotting company’s in the apparel industry (the industry that makes the most use of them) is a massive oversimplification that reduces a complex problem that requires a multi-faceted solution to this seemingly simple problem with a seemingly simple solution. Here’s why:

Laborers employed in sweatshops do so because the alternative of refusing such a horrific employment opportunity is actually worse than the very shitty job itself: unemployment and even lower poverty levels. Such a situation where the alternative is actually worse than the abhorrent conditions laborers find themselves in is best articulated by the Nobel winner in economics, Paul Krugman:

“… as long as you have no realistic alternative to industrialization based on low wages, to oppose it means that you are willing to deny desperately poor people the best chance they have of progress for the sake of what amounts to an aesthetic standard–that is, the fact that you don’t like the idea of workers being paid a pittance to supply rich Westerners with fashion items.”

Krugman was obviously met with outrage. Whilst such reactions are understandable considering the reputation of sweatshops, they’re superficial and show a lack of critical understanding of the issue at hand. Here’s what will happen if large swathes of consumers suddenly decide to say, boycott Nike: Nike will lose money, and will cut their losses by closing down factories in third world countries. The now-unemployed labor force participants will actually be worse off than what they were before thanks to understandable yet shallow moral outrage.

But let’s entertain another possibility. Say Nike becomes so desperate not to lose money that they do, in fact, start investing more money into their factory workers’ wages and in bettering their working conditions. This will obviously drive up production costs causing Nike to cover this increase in costs by increasing their already sky-high prices. In an industry where they have to compete with other powerful substitute brands such as Adidas, Puma, Asics, and New Balance, the price elasticity of demand is relatively elastic, meaning consumers tend to respond quite well to changes in prices.

So even a slight increase in Nike’s prices will cause consumers to either purchase far less Nike products and/or completely substitute them with products of their competitors (save for the brand loyalists). Nike will again lose money and start closing down factories as a result. Sure, one can argue the point that we should boycott all apparel companies making use of sweatshops, but this would be impossible if you cannot provide consumers with an alternative product that will provide them with equal value of the product they just gave up (consumers are willing to pay more for certain products because of the perceived, relatively higher utility gained from those products).

Nike also can’t keep prices constant when costs rise because to do so would require them to lower their profit margin which will translate into lower dividends for shareholders, causing them to sell their shares and rather invest their money somewhere else as the opportunity cost of not doing so relative to the money gained from Nike shares have increased.

Of course, all this being considered, we are not stuck in a situation where we can do nothing to help struggling sweatshop workers. Again, Paul Krugman rises to the occasion and explains how:

According to Krugman, rather than lobbying selectively for specific countries to increase their labor standards one by one, we should instead lobby for global initiatives for higher standards that all developing nations so dependent on apparel exports adopt. His reasoning is quite simple and he illustrates it with an apt example: Bangladesh’s productivity level in their apparel industry is 77% that of China’s. So, if we, for example, require only Bangladesh to improve the lot of their workers, companies will simply shift production to China where they get higher productivity levels at lower costs. However, a global initiative can circumvent this problem by requiring both Bangladesh and China to increase their respective labor standards simultaneously, causing millions of workers to see an improvement in their lives.

The problem of substitutes I pointed out earlier will also be circumvented because all apparel companies will likely have to pay higher wages and charge higher prices. Note that, as Krugman points out, the demanded global improvements in working conditions should be modest as, if it is not, the apparel companies will in all likelihood shift production back to developed countries and effectively kill the apparel export industries of developing nations and plummet them back to square one. Why will this happen? Because demanding the same wages for less productive laborers in developing nations as for more productive laborers in developed nations means that keeping your factory in the developing nations gives you less worth for your money (workers in developed nations are, on average, more productive than their counterparts in developing nations).

I completely understand the instinctive reasoning behind advocating for total boycotts of companies that exploit the poor in developing nations for the material gain of citizens in the West. However, as the age-old quip goes: being exploited is better than not being exploited at all and being left without a job and forced to beg on the streets. There exists no doubt in my mind that we can and indeed should advocate for an improvement of the working conditions of sweatshops on a uniform and global scale. So, go out and buy those sweatpants or those new sneakers you’ve been saving up for, for if you don’t you might just be contributing to the downfall of those already in dire straits.

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Jacques Jonker

Jacques Jonker is a scholar of economics. He holds a Baccalaureus Commercii in Law. Jacques is a strong proponent of the principles of voluntarism and ethical altruism. He aspires to become a philanthropist. Disclaimer: Views expressed are his own.

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