Sweat Equity for Sweatshop Workers?

Lincoln Douglas debaters have economic freedom versus equity as a national topic. It’s value debate rather than a policy debate, but if freedom should be valued above equity, or equity above freedom, these value preferences have policy implications.

As England, Germany, and the U.S. industrialized through the 1800s, critics insisted the private property “capitalist system” was inherently exploiting workers. Those who owned capital, the machinery in factories, it was argued, could, would, and did mistreat workers and keep pay low. (I put quotes around “capitalist system” because capitalism was a term Karl Marx used to claim inherent contradictions would make life worse for workers.)

If this claim sounds familiar, it’s because it’s the same one critics of globalization and sweatshops have been making over the last decade. Here is a John Stossel segment on globalization from ten years ago. June Arunga, a student from Kenya who has spoken at many Economic Thinking workshops, is featuring in this video. Here is the transcript for this segment from ABC News site.

Advocates for higher minimum wages in Seattle, San Francisco and other wealthy western cities also claim that economic freedom makes life more uncertain and unfair for workers. (My notes and videos on the minimum wage debate are here.) They call for higher minimum wages as a matter of fairness or equity. Here is a quote from Wisconsin:

“I think it’s a matter of fairness. It’s a matter of equity,” Madigan said. “I think you’ll find the opposition to raising the minimum wage comes from people who have done pretty well in America. For some strange reason, they don’t want others in America to participate in prosperity.”

A Century of Debate over Economic Planning
In the ongoing debate over economic freedom and government regulations, advocates of more state control long argued that government management of the “Commanding Heights” of the economy would boost productivity and increase prosperity.

Confidence in government control shouldn’t be so hard to understand. Government officials and departments could be charged with achieving particular goals, like, say, safe food and drugs, building ports, lighthouses, canals and railroads, protecting national forests and parks, putting a men on the moon, and reducing illiteracy, poverty, and inequality. All worthy goals, so why not put smart people in charge of achieving them?

Each of these goals could be (and probably have been) debate resolutions, and policy debaters could build affirmative cases around legislation empowering federal agency plans. Listing all the policy goals the federal government is currently empowered to pursue would likely expand the previous paragraph to fill a 500-page book.

But most legislative projects failed to achieve their stated goals, and many failed spectacularly through the 20th Century. It turned out economic planning was more complicated than expected. Bureaucrats thought they could better manage the mature industrial economies of the west and also rapidly industrialize the still backward economies of Russia, Ukraine, China, and India. Hundreds then thousands of economists were hired to advise government agencies and to draft plans for industry after industry in country after country. (This essay, The Pen is Mightier Than the Plan, was written years ago and surveys the damage caused by politicians and economic planners since the 1950s in Latin America).

The costs of government planning were high in Russia, Ukraine, Eastern Europe, and Asia. Tens of millions died as government planners tried to force industrial reforms forward. Hundreds of millions stayed poor through decades of failed Soviet-lite five-year plans in India, Africa, and Latin America.

Consider that in 1960s, people in Ghana, Kenya and India had about the same incomes as people in Hong Kong, South Korea, Taiwan and Singapore. Had these first countries allowed similar market reforms as the “Asian Tigers” over the last fifty years, people would be freer and much more prosperous today. It is almost impossible to imagine what life in Kenya, Ghana, and India would look like now if they had enjoyed fifty years of economic freedom instead of authoritarian planning and regulation.

Here is a segment from a 1980s documentary, The New Enlightenment,  discussing the connections between socialism, fascism, and national economic planning of British socialists in the UK and the New Deal policies in the U.S.:

Until communism in Eastern Europe and the USSR collapsed in 1989 and the early 1990s, many in the media and academia thought and taught that these socialist experiments were at least partial successes. After all, people would say, the USSR, Eastern Europe, and Cuba, had women doctors and health care was free.

Through the 1980s Paul Samuelson’s popular college economics textbook continued to instruct students that the Soviet economy was better managed and growing more rapidly than western market or mixed economies. The textbooks for my college “Social Economics” course both claimed capitalist economies harmed people and the environment, causing poverty and inequality and slowing the prosperity that socialism and communism promised. (One of the texts was Herman Daly’s Toward a Steady-State Economy. Daly’s ideas influenced Al Gore.)

A more recent documentary, The Commanding Heights, starts with an amazing two-hour segment, The Battle of Ideas (this link to PBS site with text of all 19 Chapters, this link to small PBS video segments). Here is link to YouTube video of The Battle of Ideas. Remarkably, the whole six-hour documentary was shown nationwide in PBS (though I read that Oregon Public Broadcasting refused to show it after the first episode).

It is hard for older people (like me) to remember that for today’s students, events of the 1980s and early 1990s happened before they were born. For the rest of us raised during the Cold War, and for our parents who lived through the Korean War and World War II, all these pre-Internet events are etched in memory from the evening news and daily newspapers.

But the causes of the world wars and Cold War that followed were never clear. For most people today the disasters of the 20th Century are still a mystery. Interestingly, for Lincoln Douglas debaters, the battle of ideas behind the cataclysms of the Twentieth Century are woven into the coming year’s debate topic: Resolved: In the realm of economics, freedom ought to be valued above equity. John Locke, Adam Smith, Thomas Jefferson, James Madison and other classical liberals of the Seventeenth and Eighteenth Centuries, believed that freedom or liberty ought to be valued more highly. They believed all men were created equal and so should be assured equality before the law. But they also knew that legal equality would not lead to equality of character, effort, fortune or wealth.

In economic life, some people start out with significant advantages and seem naturally gifted. However, natural skills rarely if ever substitute for time and effort invested in research and skill development. Lazy or bored debaters may excel early in the debate season but usually stall later. No matter what one’s initial skill set, it is practice, practice, practice that enables people to build on their strengths and discover and work on their weaknesses.

It should be no surprise then that these same realities apply in the realm of economics. Some are naturally gifted in sales, manufacturing, management, design, service, programming, and other valued tasks in the economic world. But whatever one’s initial advantages, it is time actually working that allows us to improve our knowledge and skills, and to discover what we enjoy and where our work is most highly valued.

Any system that in trying to reduce economic inequality reduces participation in the labor force, reduces the opportunity for people to discover and improve their skills and to learn what tasks are rewarded most highly.

In the realm of economics, redistribution efforts to reduce inequality are often proposed, and often expensively put in place. Past failures often lead reformers to try again and again with new programs and policies.

French economist Thomas Piketty authored the recent break-out economics book, Capital in the Twenty-First Century, which calls for higher tax rates plus taxes on wealth, to counter what his research claims is growing inequality.

Dozens of newspaper and magazine opinion columns have been published since with journalists, economists, political scientists, and others weighing in on one side or the other of the debate. (Phillip Magness has written extensively on the Piketty debate.)

In a MarketWatch post, Diana Furchtgott-Roth reports on a research paper by Allan Meltzer and Scott Richard which argues that redistribution policies make inequality worse because these policies discourage work. (Direct link Richard’s site and paper: A Rational Theory of the Growth of Government and the Distribution of Income).

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