Do sweatshops boost growth in developing countries?
1. Background
The reason that I have chosen the project title ‘Can sweatshops boost growth in developing countries’ is for a number of reasons. Firstly, I am interested in fashion but I am also mindful of some of the negative associations the industry has, particularly in relation to the use of sweatshops in the production of ‘fast fashion’. I am also looking to study economics at university and I am therefore interested in exploring the economic arguments and the benefits, particularly for developing countries. I am interested in determining whether globalisation and the use of cheap labour improves a nations prosperity and leads to a reduction in global inequality. I believe that the information and understanding gained from the research that I carry out will add depth to my knowledge and provide case study points that would be useful in my broader studies. The aim of my research is to see whether sweatshops support growth in developing countries and whether they may simply be a natural step in the development of economies. I will be looking to compare the economic growth across a number of developing countries and see whether there is any relationship between the manufacturing base that supports this growth. I will also explore whether growth should be measured purely in economic terms or whether a broader mix of measures should be used. Furthermore, I intend to apply a historical context by comparing modern day sweatshops to the factories of the industrial revolution and evaluate whether it is fair to apply the standards of the wealthier nations to limit the opportunity of growth for developing countries.
1.1 What is a sweatshop?
A sweatshop is a factory or workhouse in which workers are employed at low wages and under unhealthy or oppressive conditions. The two main sectors in which there are sweatshops are in agriculture and industry, such as the manufacturing of clothing.
The Cambridge dictionary defines a sweatshop as ‘a small factory where workers are paid very little and work many hours in very bad conditions’ (Cambridge Dictionary, n.d.). It is also defined by the US Department of labour as ‘a factory that violates two or more labour laws’ (Do Something, n.d.).
The majority of people that are employed in sweatshops tend to be women, children and illegal immigrants. ‘In developing countries, an estimated 168 million children aged 5-14 are forced to work’ in sweatshops (Dosomething.org, n.d.). One of the biggest hallmarks of sweatshop labour is that workers are simply underpaid. Minimum wage levels in developing and poorer countries are significantly lower than in the UK and whilst many developing Asian countries do have official minimum wage levels, they lack the regulation and coverage across all labour groups and industry sectors. For instance, minimum wage regulation in Cambodia only applies to the garment and shoe-sewing sector and in Sri Lanka this only applies to 35 industry trades.
In the United Kingdom, there is also a national minimum wage level; £7.50 an hour for people aged 25 and over and £4.05 an hour for people under the age of 18. Therefore, the minimum amount that a person under the age of 18 in the UK is legally allowed to earn an hour is higher than ‘77% of Bangladeshis who earn $2 a day’ (Powell, 2013).
From a business perspective, lower labour costs, particularly where they form a larger proportion of the factor costs, are extremely attractive. Many major clothing and footwear companies have been linked to sweatshops, including child labour. Brands such as Nike, GAP, Converse and Levi’s have all been guilty of numerous violations of working conditions at their production facilities. Employers get away with it because the supply chain is hugely complex using large numbers of sub-contractors. It is extremely difficult for these large corporations to control every stage of production although critics argue that it is a convenient way for these corporations to distance themselves away from the issue. In most cases it is in these sub-contractors where the sweatshops are found.
1.2 How are sweatshops globally viewed?
In most modern-day societies sweatshops are highly frowned upon, this is mainly due to the way the people in sweatshops are treated. Workers are typically lowly paid, work in poor conditions and have very few employee rights. Critics say sweatshops are a way for corporations to exploit the poverty and desperation of the third world, while allowing them to get around the living wages, regulations and rights that protect employees. Large western corporations exploit countries where there are weaker controls on working conditions in pursuit of larger profits for their shareholders. Activists against sweatshops demand that corporations pay a ‘living wage’ and improve working conditions for employees as part of their broader corporate social responsibility. As a result of this there are a number of movements and charities such as ‘War on Want’ with the purpose of eradicating sweatshops in the aim of getting rid of global poverty and promoting equality.
The anti-sweatshop movement started in the 20th century with the aim to improve working conditions and wages for those in the less developed countries. The movement has greatest support in more developed countries such as the UK and the United States. In a few areas campus groups persuaded university administrators to stop buying university clothing from companies that use sweatshop labour. They then demanded that the companies pay a ‘living wage’ to their workers. The incentive to the corporations to meet the demand is that college licensing has the sum of around $2.5 billion to certain companies such as Nike and Reebok (Balko, n.d.).
However, there are also many people who believe that the economic benefits of sweatshops outweigh the social costs. Force corporations to pay artificially high wages in those countries, and there is no incentive for the company to pay higher shipping costs, construction or take the risk in capital investment. If these corporations did not invest, then there are fewer opportunities for these countries and their workers; lower wage costs are one of the key competitive advantages that they have. It is better for these countries to endure a period of pain if this leads to longer term growth and prosperity. In fact, most modern-day power economies such as UK, China and the US all experienced a time period in which they went through periods of hardship and poor working conditions on the road to growth.
1.3 The history of sweatshops
The word ‘sweater’, originated from England from around 1850, where is was used to describe an employer who worked for very low wages, performing the same repetitive work, where women and children were worked so hard that they sweated excessively. ‘Sweating’ became widespread in the 1880s, when immigrants from eastern and southern Europe immigrated to US and central Europe, where they were willing to provide cheap labour, which producers were quick to take advantage of (Encyclopedia, 2009).
An increase in industrialisation in the last century saw sweatshops emerge in Asia as a result of increased demand for consumer goods in the West and a lowering of international trade barriers. More recently, sweatshops have been linked to the textile industry and in particular, the production of ‘Fast Fashion’ (Encyclopaedia Britannica, n.d.). From 1850-1900 in the UK and the US, sweatshops grew as more people moved from the rural areas, where the majority of the populations worked in agriculture, to the cities such as London and Birmingham to work in factories, where they would earn a higher wage.
The first significant Act against sweatshops was the ‘Factory Act’ of 1833 which was passed in the UK, a series of other factory acts followed. The first of the factory acts were aimed at protecting children working in factors and includes laws such as ‘no child workers under nine years of age’ and a requirement for a minimum of ‘two hours schooling each day for children’ (The national archives, n.d.). There were a number of professional factory inspectors whose job it was to monitor and enforce the law of the Factory Act. The first act which regulated working hours of women wasn’t introduced until later on in 1944.
The rise of the modern-day sweatshops is as a result of improved transportation and communication globally, allowing large businesses in developed countries to globally outsource. As a result, de-industrialisation occurred in countries such as the UK, causing many workers to be laid off. A lot of the manufacturing moved to the ‘Asian Tigers’ which were newly industrialising countries. The Asian Tigers consisted of four countries which were, Singapore, Hong Kong, Taiwan and South Korea. These four countries all experienced very high rates of economic growth for a sustained period of time from the 1950s to the 1990s. They used this new-found finance to invest in infrastructure and educational sectors to give themselves an educated population for future generations, developing a skilled workforce for the future. Consequently, the Asian tigers are now high-income industrialised developed countries.
1.4 What is meant by growth?
There are a number of meanings for growth. In economics, it is the expansion of the productive potential of a country in the long run. The main measurement of growth is Gross Domestic Product (GDP). GDP measures the total value of goods and services produced in a period and is typically used to determine the economic performance of a country or region, and to make comparisons.
However, there can be a number of problems of using GDP to show growth in a country. Firstly, GDP doesn't take into account how the growth of a country is achieved. For example, if a country's growth is largely as a result of the exportation of natural resources such as oil, then it won't take into account the negative effects of this, particularly the consequences of exchange rates and the impact on the competitiveness of other sectors of the economy. Strong economic growth can mask the underlying weakness in the economy largely as a result of a single product or resource dependency. This is often referred to as the ‘Dutch Disease’.
There are also alternative measurements, such as Green GDP which takes the effect of environmental consequences into account within the conventional GDP. This is particularly important in developing countries where economic growth may be achieved at the expense of factors such as natural resources, health and pollution. Another useful measure of growth is the Human Development Index (HDI and may be considered better than GDP because it takes three different factors into consideration. These three factors are; education, health, and income.
A different approach could be to apply models to show different stages of economic development across countries. One example is Rostows Model, which categorises economic growth into five distinct stages and shows the evolution of economic growth and how developed countries have reached their current state. The stages in order are; Traditional Society, Pre-conditions for Take-Off, Take-Off, Drive to Maturity and finally Age of Mass Consumption (Riley, n.d.). Sweatshops are associated with the Take-Off and Drive to Maturity stages of the model where there is an increase in the size of the manufacturing industry as industrialisation occurs, higher capital investment and regional growth.
2. Discussion:
2.1 Sweatshops boost growth in developing countries
There are various contrasting views of whether or not sweatshops are good for a country and whether the ethical and social issues are outweighed by the economic benefits created by sweatshops to a country. Many people question what opportunities would be available to the poor in Less Economically Developed Countries (LEDCs) if it wasn’t for sweatshops. As despite the workers receiving very low wage for the long hours and hard work, it is argued that without the sweatshops there would be no opportunities at all, leaving millions unemployed, or in a job with an even lower pay. Benjamin Powell, a specialist in sweatshops says, ‘all too often the fact that we have better alternatives leads first world activists to conclude that there must be better alternatives for third work workers too’ (Powell, 2008).
A table to show labour costs in manufacturing in selected countries, 2000
Country
Labour force (million)
Labour cost per worker in manufacturing (US$ per year)
Rank of labour cost per worker in manufacturing (US$ per year)
China
756.8
729
14
India
450.8
1192
13
USA
144.7
28,907
4
Indonesia
101.8
3054
10
Brazil
79.7
14,134
6
Bangladesh
69.2
671
15
Japan
68.3
31,687
3
Germany
40.9
33,226
2
Mexico
40.4
7607
8
Thailand
36.8
3868
9
Philippines
31.9
2450
11
Turkey
31.3
7958
7
UK
29.9
23,843
5
Ethiopia
27.6
1596
12
Italy
25.7
34,859
1
(Open Learn, n.d.) based on World Bank data.
The data in the table above shows the different labour costs for manufacturing in different countries. It shows a clear difference between the costs in developed countries such as Germany whose is $33,226 per worker per year, compared to developing countries like Bangladesh where it is only $671 per worker per year. This clearly shows the incentive for firms to invest and build manufacturing factories in countries like Bangladesh rather than countries similar to Germany, as the costs of production will be significantly less. If other companies are employing cheap labour in countries similar to Bangladesh, in order to be able to compete with these firms then companies will either have to follow their example or risk going out of business. Increased competition as a result in a decrease in transport costs and a relative fall in trade barriers has increased the size of the global market, meaning that there is even greater competition. This increased competition has focused companies to drive down costs and where this is most prevalent is where labour costs form a large proportion of production costs. It is no surprise that we see this most in the clothing and textile industries.
Globalisation proponents go further and argue that by multinational companies outsourcing production in developing countries, this will boost local economies. Applying the basic economic principle of labour supply in a free market, to attract the growing workforce wages are likely to be higher than the average wages in the area. Consequently, this means that the local living standards are likely to improve as they have more income to spend. Furthermore, as more firms decide to make to move to countries with relative low wages, ‘the factories start to compete with one another for workers and wages are bid up as the pool of labour is absorbed’ (Open Learn, n.d.). The is process is described as a ‘ripple effect’, it results in a steady rise of wages for locals and helps move a country from poverty (Krungman, 1997).
However, critics challenge whether the choice being made by workers’ demonstrates that sweatshops were the best alternative available to them. Free markets assume certain fixed conditions; that is that people are making rational decisions based on the free flow of information. (Arnold and Hartman, 2005). This is supported by a recent randomised study in Ethiopia where workers at 5 industries were compared against those who remained in agriculture. The study highlighted that turnover was highest in these industries, despite higher wage levels. Only a third of workers remained in industry after the first year and whilst there was the expectation of earning higher salaries, this was at the expense of long working days and poor conditions. Once people understood these limitations, they were able to make more rational decisions. Those workers that typically stayed in employment, typically had fewer alternatives (Ethiopian Development Research Institute).
There is also evidence (Pollin et al, 2001) to suggest that improving labour conditions can improve productivity. Malnourished workers are less productive, so employers should want to pay them enough to ensure productivity. Pollin goes on to argue that because the wages are a small fraction of the total product cost, wage increases can easily be absorbed by charging higher consumer prices. A 100% increase in wages would only equate to a 2-6% increase in the retail price of the garments. Arnold and Hartman (2005, 2006) also claim “A second economic model emphasises the gift-exchange nature of employment relations”. Where employees are compensated at rates higher than the market demands, there is evidence to suggest that workers reciprocate this with greater productivity and loyalty.
There are ways that countries can protect workers from exploitation. These include governments introducing laws and regulations for factors such as health and safety standards in factories and the work place, maximum working hours and minimum wage. There are also laws adopted by wealthier countries that use trade regulation to limit or prohibit products made in countries that do not conform to particular wage or working condition standards.
However, businesses employ labour up until the last marginal worker no longer generates profit. Any additional costs associated with improved conditions will therefore have a direct impact on the level of people being employed. How big this effect is depends entirely on how far the law pushes wages and conditions beyond what the market would have produced on its own.
At a macro level, increases to wage costs may impact the key competitive advantage these developing countries may offer. Primarily this could detract foreign direct investment into the given country or result in a withdrawal of existing investment. As a result, this can have a number of negative effects on a country including increases in structural unemployment, fall in export revenue, reduction in investment on infrastructure and a less skilled workforce. This can also have another knock-on effect leading to an increase in inequality within the county. One of the main reasons for multinational companies taking advantage of the cheap and willing labour in these developing countries is because labour is usually the most expensive factor of production.
However, reforms at the level of voluntary company codes can be an effective means of improving wages and working conditions, particularly where they believe this increases consumer demand. For this to work, consumers have to place a higher value on these ‘ethically’ produced goods.
There have also been various movements to fight against sweatshops, with the biggest company going under fire from activists being Nike, along with other fashion giants Levi Strauss and GAP. It was first exposed that Nike were using sweatshops in the early 1970s, which when discovered went under massive scrutiny. The anti-sweatshop movement aimed to improve the working conditions for workers and increase the workers’ wages, usually to achieve a ‘living wage’ for the workers. They tried to achieve their aims through a number of ways including ‘direct pressure to change legislation in developing countries, pressure on firms, newspaper campaigns and grassroots organizing (Harrison & Scorse, 2004).
Another strategy that later followed was to improve consumer awareness, with the aim that it will prevent consumers from purchasing products from companies such as Nike in the hope that it will result in these companies taking action. The danger with these strategies is that they can result in unintended consequences, where workers may end up worse off. Typically, rather than companies improving the working conditions and wages, they usually respond to public pressure by closing down the factories all together. An example of this can be seen following the public campaigns against sweatshops in Pakistan. In 1995, a number of anti-sweatshop groups fought against sweatshops in Pakistan where they carried out the stitching for footballs and where large amounts of children were employed. The aim was to encourage consumers to boycott the purchase of these footballs in the run up to 1998 world cup, with the aim of putting pressure on Nike and Reebok to improve the working conditions of employees and withdraw from using child labour. However, Nike and Reebok responded to the public pressure by completely closing down their factories in Pakistan. Consequently, according to UPI, the mean income for Pakistani families fell by over 20%. Also, a large amount of the children who lost their jobs were found to end up either be begging or in prostitution (Balko, n.d.).
2.2 Bangladesh – A Case Study
Bangladesh is situated in Asia, to the east of India. It is a poor country, with little prosperity, receiving a HDI score of only 0.579 in 2015, ranking it 139th out of 188 countries, (Human Development Report, 2016) and a GDP of 195.079 Billion US$. Bangladesh’s job creation is largely dominated by sweatshops, especially in the manufacturing of textiles with ‘3,5 million workers in 4,825 garment factories’ (War On Want, n.d.). This is also reflected in the Bangladeshi economy, of which the garment industry ‘generates 80% of the country’s total export revenue’. Although the workers in the sweatshops earn a very low wage, it is higher than they would at other jobs, with sweatshop workers earning on average more than $2 a day, whereas 77% of the population of Bangladesh earn less than $2 a day.
Against a broader set of measures on performance, Bangladesh lags near the bottom of the Global Green Economy Index (73/80 countries monitored). It highlights that Bangladesh’s environmental performance requires urgent focus. The country’s performance around air quality, water treatment and biodiversity are near the bottom. (GGEI 2016, Measuring National Performance in a Green Economy).
Therefore, you wonder where Bangladesh would be if it wasn’t for the sweatshops. In the last 20 years, Bangladesh has moved from an economy dominated by agriculture (66.38% in 1991), however since then and the presence of the garment industry, it has fallen to 47.48% in 2010 as more workers move to work in the cities (World Bank Group, 2011).
Bangladesh has also been in focus following the recent disaster at a garment factory in Rana Plaza, Dhaka, where the roof collapsed leading to at least 1,100 deaths of workers and leaving around 2,500 injured, (BBC News, 2013). The day before the collapse, cracks had been found in the building walls. However, no action was taken to solve the problem and the factory continued to run as normal. As a result of the disaster there were a number of arrests for the negligence of the factory and the workers within. This gained global attention as it asked the question of how many other cases are there workers employed in similar conditions, not only in Bangladesh, but across the world. Quick action followed the disaster with 18 Bangladeshi factories being closed for health and safety reasons in the month that followed.
3. Investigation
Understandably, there is little information or data available on the number or contribution sweatshops make to a country’s economy and GDP. Therefore, in order to statistically test if there is a correlation between sweatshops in a particular country and growth, I am having to find alternative measures which I feel are an appropriate proxy for sweatshops. From these I will compare them and see if there is a consistent trend between the tests.
3.1 Employment in industry (% of total employment)
My reading has highlighted that low wages and poor working conditions associated with sweatshops is associated with industrialisation followed by rapid growth of the economy. As such, I thought that it would be interesting to investigate whether there was any correlation between the numbers employment in industry as % of total employment and economic growth of that country, measured by GDP. The assumption is that many of the workers employed within industry in developing countries will be in sweatshops, where there are likely to be regulation and controls on working practices. Clearly this is not the case in more developed countries where these controls exist.
We can see from the analysis that there is a clear positive correlation between economic growth and industry in a country. To conform these result’s, I also did a spearman’s rank of the two pieces of data. Spearman’s rank is used to see if there is a correlation between two sets of data. If the result is positive, then it means that there is a positive relationship and if there is a negative answer then there is a negative relationship between the data. It also shows how strong the correlation is, if it is +/-1 then there is a perfect correlation, and then if there is a result of zero then there is no correlation between the two sets of data. The higher the number, the stronger the correlation.
The value of spearman’s rank, between ‘employment in industry (% of total employment) and economic growth of the 12 different countries was 0.67. This means that there is a relatively strong, positive correlation between the two sets of data. This suggests that there is a relationship between % employment in industry and economic growth, and therefore provides some evidence that sweatshops do cause economic growth.
Country
GDP growth (annual %), (2010) *
Employment in industry (% of total employment ) (2010) *
Bangladesh
5.572
17.71
China
10.636
28.7
Brazil
7.528
24.11
Thailand
7.514
20.65
India
10.26
22.38
Singapore
15.24
30.38
Japan
4.192
25.42
United Kingdom
1.915
19.07
United States
2.532
18.08
Turkey
8.487
26.22
Egypt
5.145
25.34
Switzerland
2.954
21.12
Country
GDP Growth
Rank
Employment
in industry
Rank
Difference
d²
Bangladesh
5.572
7
17.71
12
5
25
China
10.636
2
28.7
2
0
0
Brazil
7.528
5
24.11
6
1
1
Thailand
7.514
6
20.65
9
3
9
India
10.26
3
22.38
7
4
16
Singapore
15.24
1
30.38
1
0
0
Japan
4.192
9
25.42
4
5
25
United Kingdom
1.915
12
19.07
10
2
4
United States
2.532
11
18.08
11
0
0
Turkey
8.487
4
26.22
3
1
1
Egypt
5.145
8
25.34
5
3
9
Switzerland
2.954
10
21.12
8
2
4
∑d²
94
n=12
3.2 Vulnerable employment
‘Vulnerable employment is often characterized by inadequate earnings, low productivity and difficult conditions of work that undermine workers’ fundamental rights’ (Johnson, 2010). These are very similar to the characteristics which makes a factory a sweatshop.
From the data, it is clear to see that there is a strong positive correlation between both GDP growth and vulnerable employment. This is also supported by the fact that the Spearman’s Rank score between these two sets of data is 0.794. Another interesting piece of information the diagram shows, roughly where in the world there is higher vulnerable employment, with 5 of the highest 6 countries being in Asia, marked in yellow on the diagram. The continent with the lowest level of vulnerable employment is Europe with both countries have the lowest number. With the remaining continents with the exception of Australasia and Antarctica which weren’t used in the data, they are pretty much randomly mixed in between. However, this isn’t fully representative of which continents have the highest vulnerable unemployment as only 12 countries were used., with most continents having only a few countries. But it gives a general idea of the distribution.
Country
GDP Growth (Annual %)
Vulnerable Employment (% of Total Population)
Bangladesh
5.572
62.51
Colombia
3.972
48.52
Indonesia
6.224
61.56
France
1.966
7.03
United Kingdom
1.915
11.34
Egypt
5.145
23.05
Iran
6.577
40.46
India
10.26
80.8
Philippines
7.632
41.67
Mexico
5.11
28.9
Canada
3.084
10.79
Ghana
7.9
71.72
3.3 The Industrial Revolution and sweatshops
Prior to the Industrial Revolution, textile production was decentralized to the homes of many rural families and output was limited to what could be produced on the spinning wheel at home. During the industrial revolution manufacturing changed from in people’s homes using hand tool or basic machines to specialised factories using large machines, employing a large work force creating a mass production of goods such as textiles (History, n.d.). With mechanisation and steam power later, large-scale textile factories that are similar to today’s sweatshops emerged (Benjamin Powell, Meet the Old Sweatshops – Same as the New, 2014). Economist Joel Mokyr reports that workers earned a wage premium of 15 to 30 percent by working in the factories compared with other alternatives (2009, 457). The transformation of Great Britain during this time was dramatic. As economist and historian Donald McCloskey describes it, “In the 80 years or so after 1780 the population of Britain nearly tripled, the towns of Liverpool and Manchester became gigantic cities, the average income of the population more than doubled, the share of farming fell from just under half to just under one-fifth of the nation’s output, and the making of textiles and iron moved into steam-driven factories” (1985, 53).
The conditions in these early sweatshops were worse than those in many Third World sweatshops today. In some factories, workers toiled for sixteen hours a day, six days per week. The working conditions were unhealthy and dangerous. Dust from textile fibers was inhaled in poorly ventilated rooms, and workers were maimed by fast-moving machinery (Stearns 2007, 35). Child labor was common. In the UK from 1900 on, incomes continued to rise, hours were reduced, and working conditions improved.
We can also see the success of Asian countries such as South Korea, Taiwan, Hong Kong, and Singapore. In 1950, these four East Asian countries were at roughly pre–Industrial Revolution income levels, and, like the UK and US more than a century earlier, they went through a sweatshop stage of economic development. But in these East Asian countries the process of moving from sweatshops to a wealthy developed nation took less than two generations rather than the one hundred years in the UK.
It is perhaps not surprising that some of the world’s leading economics therefore state that sweatshops are a necessary step in modernization and development. Jeffery D Sachs of Harvard and Paul Krugman of MIT have asserted that sweatshop manufacturing, especially in the production of goods like clothing and shoes for foreign markets, are an essential move toward economic prosperity in developing countries (globalethicsnetwork.org Two Faces of Economic Development: The Ethical Controversy Surrounding US-Related Sweatshops in Developing Nations).
3.4 Subject specialist views
As part of my study, I also wanted to gain some insight on views from teachers who were likely to have contrasting views on the topic of sweatshops. This would enable me to get two different perspectives on which I could compare. The geographer I chose to ask was Rachel Wright, a teacher at Ballard School, whereas the economist is Nicholas Penfold, who used to be an economics examiner for AQA at A level standard.
Q ‘Do you believe that sweatshops bring economic benefits to a country?’ The response to this question was very similar from both the geographer and economist.
Geographer:‘They certainly bring economic benefits to the manufacturers, though many of these are large multi-nationals. In turn, the countrys’ economy will benefit due to increased tax revenues. The fact that workers are employed also brings economic benefits, as many citizens will send money home to families who live in rural areas. However, the benefits may be greater if their pay and working conditions were fair’.
Economist: ‘It is important to realise that without these factories the workers would be forced into even lower paid work or have no work at all. They create investment and a positive multiplier effect in the economy. For example, for a country like Bangladesh sweatshops have been vital for growth. Bangladesh has no natural resources, 70% of the country is 10 feet or less above sea level and is prone to severe flooding.’
Both responses appreciate the benefits that this could bring to a developing country and interestingly Mrs Wright also suggests that these benefits may be even higher where workers are paid more.
On the other hand, there were also questions where they gave contrastings answers. One of these cases was:
Q ‘Do you think the economic benefits of sweatshops outweigh the ethical issues.?’
Interestingly, the geographical view was more weighted towards the ethical issues, particularly where the main beneficiaries were both the consumers and producers in developed countries, the consumers benefiting from cheaper products and the manufacturers maximising profits through lower production costs.
Geographer: ‘the main beneficiaries of goods produced in sweatshops are the western economies’. Interestingly the ethical issues raised were more from an environmental position and reflects some of the questions raised earlier on how we measure growth and is economic growth too simplistic. ‘This in turn leads to environmental issues these countries struggle to dispose of their waste’.
Economist: This view is very different, mainly focussing on the economic argument ‘The firm’s main incentive is profit maximisation. Therefore, to achieve maximum profits, firms have to minimise their costs’. To achieve these lower costs, cheap labour in sweatshops is used. Whilst working conditions are mentioned, the concern was more directed at the possible consequences to the worker should the ethical concerns, particularly in the West, impact the local economy. ‘Economists would still advise consumers to still buy clothing from sweatshops as poverty would be worse’.
4. Conclusion
It is clear to see that there’s variety of evidence suggesting that sweatshops do help boost growth in developing countries. History has shown us that sweatshops were at the very heart of the growth of industrialisation and are a part of the process of development. We have also seen this supported by more recent developments in the Asian economies where foreign investment has supported growth. Low labour costs bring capital and technology to developing countries and thereby raise productivity over time. This brings greater competition for labour, thereby increasing workers’ opportunity cost. The competitive forces between firms cause them to improve compensation as productivity increases. As a result, countries develop beyond the level of sweatshop employment, the local economy develops. It is this increased prosperity that then drives improvements to working conditions.
Not surprisingly, data on sweatshops and working conditions within developing countries is difficult to obtain and fragmented. However, by using more readily available data on economic growth, industrialisation and vulnerable customers, there is further evidence to suggest that there is a strong correlation between growth in developing countries and the structure of the workforce.
However, this focuses growth in an economic context. There are other measures that look to evaluate the overall prosperity of a country. In the case study on Bangladesh, whilst we have seen strong economic growth fuelled by low labour costs, broader measures on prosperity and wellbeing such as the Human Development Index and Global Green Economy Index show a different picture. Now it might be that, as illustrated in some of the financial models such as Rostow’s, this simply reflects a point in time on the development journey with improvements to standards of living coming later as a consequence of increased prosperity.
Whilst the focus of this paper has been on evaluating the impact sweatshops have on growth, ethical considerations cannot be ignored. High profile examples such as the collapse of Rana Plaza in Bangladesh illustrate the dangers workers face in poorly regulated countries where the balance is too much in favour of the company. However, history has also shown us that working conditions improve in time as market forces drive this change. Whilst boycotts or bans may help raise awareness of these ethical concerns, they can also have unintended consequences, particularly against those they are looking to protect. Poorer countries may be better served by these activists having a better understanding of how the historical context of sweatshops played out in wealthy countries.