My Primark Answer, and More Questions

I’ve just finished reading Tom’s excellent The Primark Question over on the Business Studies blog and it has inspired me to write an entry on the so-called “sweatshop economics”.

Despite all the good intentions, there is a common misconception that buying cheap equals funding poverty. In actual fact, we are doing the exact opposite – we’re lifting them out of poverty by trading our money for their goods. The presence of the multi-national corporations means that they can at least work for some money rather than starving. What you may regard to be criminally low remuneration for their efforts may be what keeps them alive. Who would be so pristine as to let people die to protect their delicate moral sensibilities?

Now how do we go about increasing wages so that these workers can have access to a greater standard of living? Well, since wages is only the price of labour and therefore subject to the laws of supply and demand, the way we increase them is by increasing demand for such labour. And since labour is a derived demand, we have to demand the goods they produce. If more firms go into these countries and compete with each other, the workers will have greater bargaining power over their wages since they will hold greater relative scarcity. On the other hand, by boycotting these firms, you are stemming the demand and reducing employment potential. So the answer is not to have less multi-national corporations, but more.

Now for a tougher question: should the government intervene? The proposal often made is that these countries should enforce a national minimum wage, and the argument made against this (by the firms themselves and some free-market economists) is that such a thing would distort the free market forces and lead to unemployment. Here is something that I’m not so sure myself, but the degree of unemployment “created” depends on the wage elasticity of supply and demand (of labour). There is plenty of evidence suggesting that both of these are fairly inelastic since the firms’ profit margins are large enough that they can either sustain a cost increase (or pass it onto consumers, since cheap goods are price inelastic too) and the workers have little choice over what wage to accept. This means that the s/d diagrams will look more like Fig. 1 rather than Fig. 2 and the unemployment created will be minimal, if any (when accounting for the dynamic benefits of a minimum wage). Thanks to my Artistic Director Amy Robinson for the diagrams.

Finally, the most debatable question that Tom picked up on: the ethical issue of child labour. I’ve always held a solid stance against the usage of child labour but one question in this survey about Primark really made me think:

23. Which statements about Primark’s reaction do you agree with (select as many as apply)? I believe that Primark’s action to remedy the situation was…

A. Good for Primark’s business
B. Bad for Primark’s business
C. Good for the children involved
D. Bad for the children involved

Now given that the general consensus on child labour is that it’s A Bad Thing™, I had no trouble in ticking A. But following on from my original premise that some money is better than no money, surely there is some inconsistency in my objection to child labour? My subjective stance is that children benefit the most from going to school but if they choose to work instead (possibly because they cannot afford school) then it must be the best possible option available to them, and a law (yes I am now contesting the utility of Child Labour Legislation, how heartless of me) depriving them of that opportunity surely cannot be a good thing? So I’m still in inner conflict over what is morally acceptable to me but I did tick D over C in the above question because I think denying them the chance of working their way out of poverty doesn’t help them at all.