Indignation, Inc.

by | Jul 28, 2002

A recent front-page story in The New York Times was headlined: “In Ecuador’s Banana Fields, Child Labor is Key to Profits.” This is part of an ongoing orgy of indignation by the intelligentsia at low-paid labor in the Third World. The question they never ask is: Compared to what? But people for whom indignation is […]

A recent front-page story in The New York Times was headlined: “In Ecuador’s Banana Fields, Child Labor is Key to Profits.” This is part of an ongoing orgy of indignation by the intelligentsia at low-paid labor in the Third World.

The question they never ask is: Compared to what? But people for whom indignation is a way of life seldom pause to compare the available options. Instead, they are ready to foreclose some of the options of poor people, who have painfully few options to begin with.

Buried on an inside page is the response of low-income Ecuadorians when their children were dismissed from the banana plantations, as a result of adverse publicity created by activists from wealthier countries. “They fired all the children, but the work they did helped us,” an Ecuadorian mother complained.

In other words, the poor in Ecuador are now poorer, while the activists from affluent countries are triumphant. None of this is peculiar to this particular industry or to Ecuador. Whenever there is a World Trade Organization meeting, you can depend on affluent young people to engage in riots over such things as “sweatshop labor” in the Third World.

If the problem were “exploitation,” as the critics claim — and as The New York Times headline implies — it would be hard to explain why multinational corporations invest overwhelmingly in more affluent countries that have higher wages. Less than one percent of American overseas investment goes to poverty-stricken countries in sub-Saharan Africa, for example.

The sad irony is that it is the self-righteous activists who are exploiting Third World people — politically — and the much demonized employers who hire them who are providing the poor with much-needed income.

According to The Economist magazine, multinational corporations typically pay about double the local wages in Third World countries. These wages are usually still well below what workers receive in wealthier countries. So is the productivity of Third World workers.

A study by an international consulting firm found that the average labor productivity in the modern sectors in India is 15 percent of that in the United States. In other words, if you hired an average Indian worker and paid him one-fifth of what you paid an average American worker, it would cost you more to get a given amount of work done in India than in the United States.

While economically illiterate young people in rioting mobs may have no interest in such mundane facts of life, those who run the labor unions which ally themselves with their efforts understand the economics of it all too well. It they can impose higher labor costs in the Third World, that means fewer jobs in the Third World — and therefore more jobs for union members in affluent countries.

The same economic illiteracy shown by student activists was exhibited by others when hysterical claims were made that freer international trade would mean “a giant sucking sound” as American jobs fled to low-wage countries in the wake of the North American Free Trade Agreement of 1993. In reality, the number of jobs in the United States increased so much that unemployment among Americans declined to levels not seen in years.

Higher wage levels do not just happen. Workers are paid more where their output is higher. A low-wage country like India has had to restrict the importation of automobiles from higher-wage countries like Japan and the United States, in order to protect its own automobile industry from competition that it could not meet in either price or quality.

Differences in labor productivity are not just a matter of how hard people work. Workers in more affluent countries typically have more and better machinery, training and managerial organization. To the extent that multinational corporations come in and introduce more advanced ways of producing, Third World people not only have more jobs today, but more experience in modern methods that can pay off for the country as a whole in the future. Of course, these corporations make a profit or they couldn’t stay in business, but low-wage countries have no special attraction.

What the poor in the Third World need are more multinational corporations coming in — and fewer economically illiterate activists indulging their own emotions and egos.

Thomas Sowell has published a large volume of writing. His dozen books, as well as numerous articles and essays, cover a wide range of topics, from classic economic theory to judicial activism, from civil rights to choosing the right college. Please contact your local newspaper editor if you want to read the THOMAS SOWELL column in your hometown paper.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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