Morals in the Market, Part I

Here's a comparison of two markets, one where morals are emerging in the system (to the surprise and consternation of some) and one where they have failed to emerge. Interestingly, they are both markets where government has a heavy regulatory influence---and both made the cover of the Times yesterday.

In China, a proposed labor law aims to end abuse associated with sweatshops by giving labor unions real power (as opposed to an ironic gesture by the people's republic). The source of this sudden bureaucratic concern is growing unrest over income disparity. Human rights advocates have encouraged these changes for nearly two decades, since China's simultaneous population explosion and increased openness to cost-cutting, regulation-eluding foreign companies took root in the 1980s (part of the larger wave of, what is termed, globalization).

While at first glance nominally good (abuse is bad, after all, right?---see previous post), the overall effects well-enforced labor protections would have on the Chinese workers is controversial. For many years, so-called the foreign capitalists (multinational corporations, MNCs) would plunk factories and new jobs down amidst the buzz of China's urbanized industrial revolution, offering a mechanism (an opportunity) for productive wealth while taking advantage of the existant wealth of raw materials at a bargain (a flood of low-cost workers).

Economically, the question comes down to whether the nation and its people derive greater economic gain or pain. Human rights advocates are not necessarily absolutists in opposition to sweatshops (thought many are). HR interests, increasingly, take into account the economic benefit of having a job (as opposed to no job at all) along side a traditional concern with worker's rights and conditions.

All that is from a western perspective, but culture still remains an important question.

In the context of Chinese history, aside from a well-journaled tradition of community efforts, more importantly a law empowering labor unions actually carries a tinge of revitalizing communist institutions --as opposed to developing capitalist markets, which has been so hard to cultivate. Or so say the foreign companies, now fighting to defend their special interests in a hybrid market that now unevenly handles freedom---yes for corporations with deep-pocket ties to the PRC establishment, and 'no' to millions lost at sea in the labor market.

In fact, though this law may not go through, this is a long awaited positive sign for both free-markets and human rights.

When the PRC began to "globalize" in the late 80s and early 90s, capitalists ('greedy thugs') and human rights ('hippies') were almost immediately at logger-heads. It was "obvious" (!) to many, that a choice had to be made: people or money. A more difficult but reality-based question emerged in the late 1990s, as more evidence of the effects became available, and that is:
Will the economic stimulus of the MNCs that abuse labors (by western standards) be sufficient to produce a riptide of macroeconomic growth that can leverage social well-being, political development, and (ultimately) create a new sensibility about human rights?
Now, looking back, the survivalist decisions of many million Chinese workers---to submit to sub-standard working conditions in exchange for some income (however unfair to western eyes)--may finally be paying-off.

In a trend similar to the English industrial revolution, we see "civilized standards" emerge after mere survival, virtue follows wealth (to a degree). And, if the law is successfully adopted and enforced, while it's true some foreign companies will choose (as they have already threatened) "not to open more factories" (gasp*), ever many more will find China's labor market irresistible.

It's a comparable effect of the way companies flock to the SF Bay Area, and other urban areas. Here, although taxes and regulation are higher than anywhere, the concentration of educated workers and the way those taxes and regulations indirectly feedback to increase the productivity of said workers is so great, company after company finds a way to settle here. In China, companies that abhor the idea of limiting working hours to daylight hours will stir (actually, they're funding an expensive campaign to block the law), but the draw of that incessant pool of workers hasn't evaporated.

Then the question becomes whether of not the supply is uniquely valuable enough. (Hello, India). But a comparison of India and China's relative attractiveness to foreign companies is beyond the scope of this post (!). And in the short term, it doesn't matter. The proposed law is not rehabilitation of communist protections (those are already in place, and worse, in both counties). Instead, it is just a humble request that China's most valuable commodity be sustained as one. Don't make me make 'the goose that laid the golden egg' comparisons (though better economists seem to love them). Instead, just think of the economic havoc (i.e. waste) and derailment of progressive growth a wave of labor protests would ignite.

The Chinese government certainly has. And that is the beauty of economic growth's positive effect on worker's rights.

If the political climate is ripe for it, now is the time to capitalize (on the many millions of labor hours logged) that forged this chance to create labor protections. If nothing else, it's true that opportunity for cultural, political and institutional change (improvement) is rare than the relatively flexible market. As China's sweatshop workers have demonstrated by practice, oportunity for improvement has its costs and trade-offs. Now it's time to apply that logic to the other head of the dragon, just as fierce. To not do so would be to waste an opportunity just as great as globalization brought for a rise in overall wealth. If profit continues to accrue only to foreign owners and the government, it will be not only a loss for the laborers, it may unravel the entire dearly-earned system which brought this opportunity to fruition.


Part II, of Morals in the Market, will discuss labor prices in Iraq.