Sweatshops: Misunderstood Paths Out of Poverty

The collapse of a garment factory in Bangladesh’s Rana Plaza last year killed more than 1,100 workers and reignited an international movement calling for the regulation of so-called sweatshops in the developing world. Unfortunately, the activists often try to promote better working conditions the wrong way because they overlook the harm that boycotts and costly regulations impose on factory workers. They also fail to recognize the positive role that low-wage factory jobs played in the West’s rise from poverty.“Poor countries today would be better served if anti-sweatshop scholars and activists had a better understanding of how the historical process played out in wealthy countries,” Independent Institute Senior Fellow Benjamin Powell writes in the Summer 2014 issue of The Independent Review.Before workplace safety regulations were enacted, textile and apparel factories with poor working conditions were economic springboards to prosperity in what is now the developed world, Powell explains. Sweatshops contributed to economic development for about 100 years in the United States (and 30 to 60 years longer in Great Britain), but they eventually closed down largely because the progress they helped foster made them obsolete: by contributing to capital accumulation in the West, the sweatshops helped shift the demand for labor toward higher-productivity jobs. In addition, the rising prosperity meant that fewer and fewer workers were willing to take lower-wage jobs with less-desirable workplace conditions.Other countries, particularly in East Asia, followed the path out of poverty pioneered by the West—a trail paved with low-wage factory jobs, property-rights enforcement, a market price system, and economic freedom. One difference, however, is that they often attained in only two generations the same general living standards that it took the United States and Great Britain several generations to reach. Sadly, activists who fail to heed this history lesson inadvertently act to hold down workers in the developing world struggling to make ends meet.

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Meet the Old Sweatshops: Same as the New, by Benjamin Powell (The Independent Review, Summer 2014)Out of Poverty: Sweatshops in the Global Economy, by Benjamin PowellMaking Poor Nations Rich: Entrepreneurship and the Process of Economic Development, edited by Benjamin W. PowellThe Independent Review: Please be sure to take advantage of our special offer of your choice of a FREE book when you renew or order a new subscription online.[This post first appeared in the July 29, 2014, issue of The Lighthouse. For a free subscription to this weekly newsletter of current affairs, public-policy analysis, and event announcements, enter your email address here.]