Economic freedom is the road that the wealth of nations travels
by George Reisman
The recent collapse of a garment factory
building in Bangladesh, resulting in the death, at latest count, of more than
1,100 workers who were employed there, has led to international outrage not
only against the building’s owner but also against the various retailers in the
United States and Europe, many of them prominent, that have sold clothing
produced in that building. It is demanded that they assume responsibility for
working conditions in the factories that supply them and not deal with
factories that do not provide safe and humane conditions and pay fair wages.
Such demands rest on the belief that, if
left free of government interference, the profit motive of businessmen or
capitalists leads them to pay subsistence wages to workers compelled to work intolerable
hours in sub-human conditions. And, more, that the profits wrung from the
workers in this way exist in the hands of the capitalists as a kind of
disposable slush fund as it were, at least some more or less substantial
portion of which can be given back to the workers from whom they were taken, or
used on behalf of those workers, with no negative effect except to deprive the
capitalists of some of their ill-gotten gains. It is generally taken for
granted that the reason the kind of conditions that prevail in Bangladesh and
the rest of the Third World do not exist in the United States and Western
Europe is the enactment of labor and social legislation, and that what is
needed is to extend such legislation to the countries that do not yet have it.
Every aspect of this set of beliefs is
wrong and its consequences are highly destructive, above all to the masses of
workers in the Third World who already live close to starvation and who are in
danger of being driven into it by needlessly increasing the cost of employing
them either by arbitrarily raising their wages or by requiring that they be
provided with improved working conditions that must be at their expense and
which they cannot afford.
One of the most elementary propositions of
the science of economics is that the higher the price of anything, the smaller
is the quantity of it that will be purchased. This applies to labor no less
than to goods. If wage rates in Bangladesh are arbitrarily increased, fewer
workers will be employed in Bangladesh. In that case, workers who would have
earned low wages will earn no wages.
They will starve. If employers in Bangladesh are compelled to make improvements
in working conditions of a kind that do not pay for themselves, the cost of
those improvements represents the equivalent of a rise in wage rates. Again,
there will be unemployment. The unemployment could be avoided only if workers’
take-home wages could fall sufficiently to offset the cost of the improvements.
In that case, the situation would be comparable to making the workers use their
already meager wages to pay for improvements that they simply cannot afford.
These are not outcomes that the advocates
of imposing labor standards want. What they want is higher wages and better
working conditions. Their problem is that they do not realize what is actually
necessary to achieve these results.
What will achieve these results is leaving
business firms in Bangladesh and throughout the Third World alone, to be as
profitable as they can be. (It should be obvious that the loss of a factory
building and its machinery was not profitable
and that while it may be legitimate to denounce the building’s owner for
criminal recklessness and negligence, it is simply absurd to denounce him for
seeking profit, when what he actually achieved, and could only achieve through
such conduct, was total loss.)
The high profits that can be earned in a
Third World country, if not prevented by too many obstacles, will be heavily
saved and invested, mainly in that Third World country. As the experience of
Taiwan, South Korea, and now even mainland China shows, a generation or more of
such a process results in a vast accumulation of means of production in the
country—i.e., numerous new factories, with better and better equipment. This
results in an intensified competition for labor and thus rising wage rates. As
wage rates rise, workers can more and more afford to accept lesser increases
along with improved working conditions of a kind that must be at their expense.
Economic freedom, not government
interference, is the road that the wealth of nations travels.
No comments:
Post a Comment