A sweatshop refers to the business establishment in which the employees work under harsh and hazardous conditions that pay minimal or survival wages. The working conditions are socially unacceptable. Economists like Paul Krugman of Massachusetts Institute of Technology and Jeffrey D. Sachs of Harvard argue that sweatshops enhance new prosperity and economic growth of the developing countries (Myersonjune). The support for the sweatshops is a representation of optimism as they argue that the third world nations may advance to the first world status through the low-wage plants in the foreign markets. Economists use comparative advantage theory of David Ricardo, where a country specializes in the production of goods and services that it has lower opportunity costs to argue the case for sweatshops. Low-wage plants move to areas where they can exploit the cheap labor to manufacture products that they have a comparative advantage. They also believe that the developed world use the cheap labor from countries such as Africa, Indonesia, and China and mostly prescribed self-reliance and socialism (Spath).
According to John Miller, an economist and Professor of Economics at Wheaton College, the wages that are paid to the workers are higher than what is available in the domestic market. The primary focus was on the economic development as well as alleviating poverty in the underdeveloped nations (Wong). Hence, the low-wage labor employed by the multinational companies is beneficial to the developing countries. Other economists also argue that the demands for good working conditions and pay in world export factories can result can harm third world workers as well as hinder the process of poverty eradication.
However, they sometimes warned against foreign direct investment which may be a form of imperialism as the third world nations will develop in future and start defending their local infant industries as well as an implementation of import substitution programs. Mr. Krugman supports that the sweatshops enable the multinationals as well as the local entrepreneurs to take advantage of profit opportunities resulting from cheap labor (Powell & Skarbek). Another reason as to why economists support sweatshops is that, if the working conditions are good and decent wages in countries, then companies shall relocate their multinationals to more welcoming states. This relocation shall hurt the GDP of developing nations and the poor will have fewer employment opportunities. Sweatshops help in enhancing market efficiency and allow companies such as Wal-Mart, General Motors and Nike to relocate to most exploitable locations which economists call the comparative advantage.
Sound economics show that if multinational corporations are compelled to pay high wages in countries with weak local labor market conditions, they will have no production cost savings. Hence there will be no need to outsource such workforce or operate in such areas. Adam Smith’s classical argument supports the sweatshops as it argues that trade between nations improves productivity and prosperity of all the parties involved (Myersonjune). The employees get employment opportunities as well as higher standards of living as opposed to when the firms with low wage pay and poor working conditions had not been ventured business into their underdeveloped nations. Furthermore, sweatshops lead to the transfer of technology as well international trade integration that can help such lowly paid employees to improve their skills together with economies. The corporations that aim at minimizing production costs set up sweatshops with an aim to enhance specialization, increase product cycle time, ensure rapid expansion capacity and manufacturing flexibilities. Therefore a firm is obliged to have the least cost of production to achieve profit maximization, and it is according to the shareholders’ theory (Wong).
The economists view sweatshops from the exchange perspective view where both employers and workers gain as they enter the labor market voluntarily despite the low wages as seen by the external observers. Sweatshops is a clear indication that industrial revolution has begun to reshape the poor regions and there is need to buy more from such businesses rather than criticizing it (Powell & Skarbek). When comparing the wages of sweatshops workers to their colleagues in the local subcontractors, it is evident that their standards are better since most multinational firms tend to be high although the pay may not be proportional to the amount of work done. It means that the sweatshops’ jobs pay more as opposed to the service or agricultural employment in the developing nations. The support for sweatshops is as a result of the tensions that exist between different economic factors which include balancing the production of goods and services at the affordable retail prices and labor cost incurred by a corporation. Hence, the continued existence of the sweatshop labor which impacts individuals both emotionally and physically. People go for the cheap labor as result of poverty in their countries of origin.
Therefore, sweatshops enhance the investment in the production facilities, technology transfer, brings additional investible resources, and access to the international marketing networks that can promote economic growth and development of the developing nations as well as improve the standards of living of the citizens (Hickel). The economists argue that there is no need of focusing on the eradication of sweatshops but rather help poorest countries to promote their manufacturing by using multinationals’ techniques and strategies as it helps the poor to escape poverty. Through the application of the utilitarianism theory, most economists remain opponents of the sweatshops as firms bring the greatest amount of utility over the distress that impacts the whole nation.
Hickel, J. “Rethinking Sweatshop Economics:” Instead of giving two cheers to sweatshops, we should alter the policies that cause poverty in the first place, 2011. http://fpif.org/rethinking_sweatshop_econom Accessed May 8, 2017.
Myersonjune, R.A. “In Principle, a Case for More ‘Sweatshops’,” 1997.
Powell, B. & Skarbek, D.B. “Sweatshops and Third World Living Standards:” Are the Jobs Worth the Sweat? 2004 http://www.independent.org/publications/working_papers/article.asp?id=1369 Accessed May 8, 2017.
Spath, S. “The Virtues of Sweatshops”, 2002. https://fee.org/articles/the-virtues-of-sweatshops/ Accessed May 8, 2017.
Wong, A. “Two Faces of Economic Development”: The Ethical Controversy Surrounding U.S. Related Sweatshops in Developing Asian Countries, 2013.