ARCHIVE - December, 2001

We Need More Sweatshops
Barry Poulson, Department of Economics

There is growing evidence that we have begun to experience an epochal shift over the last two decades as globalization has resulted in convergence of income per capita between nations. This greater equality in income per capita is clearly linked to the rapid growth in world trade and the integration of third world economies into the global economy.

Nowhere is this egalitarian effect more evident than in the sleeping giants of the third world, China, India, and Indonesia. As these countries have opened their economies to world trade and capital flows they have experienced some of the most rapid rates of industrialization and export growth in the world. Rapid economic growth has been accompanied by significant advances in incomes and standards of living in these countries. Much of the convergence in income per capita between third world nations and industrialized nations is accounted for by these sleeping giants.

The ability of China, India, and Indonesia to exploit opportunities in world markets is due in part to lower costs of production, particularly in labor intensive industries such as textiles, shoes, electronic assembly etc.. Ironically these low cost labor intensive industries are often the targets of the critics of globalization and the World Trade Organization. The critics convey an image of these industries as so called ‘sweatshops’ in which women and children are exploited by multinational firms working long hours at low pay to produce Kathie Lee clothes and Nike shoes for the U.S. market.

The question that critics fail to ask is what would happen to these women and children if we banned their manufacturing exports and shut down these industries. It is clear what would happen to these workers in China, India, and Indonesia, they would end up back in the agricultural sector where they would work even longer hours at even lower pay. In the agricultural sector of these countries children tend to work the most and attend school the least.

Globalization and the integration of these economies into world trade has in fact reduced the incidence of work and non schooling for children. In China over the past two decades the rate of decline in child labor has been faster than in any other third world economy, and much faster than the decline experienced under Mao. The manufacturing export sector in China has rates of child employment well below the national average. Multinational firms in China tend to hire more educated and skilled labor than the national average; and these firms are less likely to violate ILO fair labor standards regarding the exploitation of adults as well as children.

Inequality in income in China today is due primarily to the growing gap between the coastal regions that have become integrated into the world economy, and the poorer interior regions that have been left behind. This regional divergence of income per capita in China can be traced to vicious internal policies that have precluded the participation of poorer regions in the world economy. Disparate regional policies regarding migration, capital investment, privatization and deregulation of markets have had perverse in-egalitarian impacts in China. Only gradually have the Chinese begun to reverse these policies to permit poorer regions to participate in the global economy. As these poorer regions have become integrated into world trade and capital flows they have welcomed the so called ‘sweatshops’ that have been the vehicles for progress in the richer regions of China.

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