Wal-Mart: Alleviating Poverty Abroad, Lowering Prices at Home

Thom Lambert —  17 October 2006

Those of us who defend the right to outsource are frequently criticized for lacking compassion and for being concerned only with the bottom line. I’ll admit that profitability concerns generally motivate decisions to outsource (and most other business decisions), but I won’t concede that outsourcing imposes a net harm on the economically disadvantaged. If we’re really concerned with alleviating the worst instances of poverty and are not focused only on protecting our own kind, we should support the right to outsource.

John Tierney makes this point in today’s NYT. Echoing comments of Michael Strong, the head of “a nonprofit group promoting entrepreneurship abroad,” Tierney observes that the evilest outsourcer of them all — Wal-Mart — can rightly claim to have done more than just about anyone else to alleviate the suffering of the poor:

Making toys or shoes for Wal-Mart in a Chinese or Latin American factory may sound like hell to American college students — and some factories should treat their workers much better, as Strong readily concedes. But there are good reasons that villagers will move hundreds of miles for a job.

Most “sweatshop� jobs — even ones paying just $2 per day — provide enough to lift a worker above the poverty level, and often far above it, according to a study of 10 Asian and Latin American countries by Benjamin Powell and David Skarbek. In Honduras, the economists note, the average apparel worker makes $13 a day, while nearly half the population makes less than $2 a day.

[NOTE: Powell and Skarbek discuss their study here.]

This is not to say, of course, that there are no “victims” of outsourcing. Some Americans lose their jobs. Others find they can’t command as much for their services because of cheap foreign labor.

Yet, that cheap foreign labor produces benefits at home — lower prices. Moreover, Wal-Mart’s job offerings are routinely oversubscribed (there are typically around ten applicants per open position — sometimes many more), suggesting that lots of workers think the jobs aren’t that bad.

This is not enough for many Wal-Mart critics, who maintain that consumer savings don’t justify the economic dislocation caused by Wal-Mart’s cost-cutting and, as Tierney explains, would “rather see Wal-Mart and other retailers paying higher wages to their employees, and selling more products made by Americans instead of foreigners.”

That position, though, is ethically suspect. In Tierney’s words:

[T]his argument makes moral sense only if your overriding concern is saving the jobs and protecting the salaries of American workers who are already far better off than most of the planet’s population. If you’re committed to Bono’s vision of “making poverty history,� shouldn’t you take a less parochial view? Shouldn’t you be more worried about villagers overseas subsisting on a dollar a day?

Indeed.

Thom Lambert

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I am a law professor at the University of Missouri Law School. I teach antitrust law, business organizations, and contracts. My scholarship focuses on regulatory theory, with a particular emphasis on antitrust.

4 responses to Wal-Mart: Alleviating Poverty Abroad, Lowering Prices at Home

  1. 

    The Wal-Mart headquarters are in Bentonville, Arkansas. According to the 1999 US census, Arkansas has the 7th highest per-capita poverty rate in the United States. Infoplease.com shows Arkansas as having the 2nd highest per-capita average poverty rate between the years 2002-2004.
    Surely, this poverty is bad enough to be addressed by an in-state corportation like Wal-Mart.

    I do not think Wal Mart is a good leader in the “business ethics” category.

    Further, I find it hard to believe that anywhere near a majority of workers in foreign countries feel “empowered” by their Wal-Mart given positions.

    Finally, I am reluctant to believe that if the labor forces in these impoverished foreign places could actually make free consumer choices they would be interested in producing or buying Wal-Mart products.

  2. 

    John–

    The Financial Times piece you mention in no way suggests that globalization does not aid “the poor in poor countries.” On the contrary, the article states:

    [T]he gains [from globalization] have been split between capitalists, who have enjoyed higher returns; executives, whose emoluments go up with profits; and poor workers in the developing world, who have gained from the growth in jobs and rising wages that would once have gone to the west.

    And later:

    On the other hand, the gains are also flowing to the people who most need them: the poor workers of the developing world. While wages in the advanced countries are stagnant, wages in the developing world are rising rapidly, albeit from a small base. Freeman estimates that if Chinese wages double every decade, as they did in the 1990s, they will reach the levels found in the advanced countries today in about 30 years. Absorbing the labour forces of other countries could take a little longer but the transition could be complete in 40 to 50 years – at which point, presumably, western wages will start rising again and the balance between capital and labour will be restored.

    The article claims that there are lots of middle class losers (a point I’d dispute), but it concedes that globalization is a boon to the poorest of the poor.

    As for your second point — “If globalization creates wealth, that wealth should be taxed and sent to the world’s poor” — I’d offer two responses. First, globalization cannot create wealth absent exploitation of comparative advantage. You simply can’t “globalize” domestically and thereby create any wealth to redistribute (via taxes) to the foreign poor. Second, even if this taxing and redistribution scheme were possible, it would be less desirable. Sending folks food and medical aid comforts them but keeps them poor and powerless. Providing them with economic opportunities — jobs — can pull them out of poverty permanently. Isn’t the ethically superior thing to empower the poor, not just to comfort them in their distress?

  3. 
    John L Davidson 18 October 2006 at 1:17 am

    What is ethically suspect is that—as documented by an excellent piece in the Financial Times early this week—only the wealthy benefit from globalization, which aids neither the poor in poor countries nor any but the super wealthly in rich ones.

    It is simple supply and demand economics. Vastly increasing the labor supply drives down the price everywhere.

    Second, an economic system that “taxes” [in the form of lower wages as a result of the decline n income as a result of government policy] the poorest in our society to transfer wealth to the poor elsewhere—your argument for globalization—is not the road to stable politics or a healthy community.

    If globalization creates wealth, that wealth should be taxed and sent to the world’s poor, if you are so concerned about the ethics of all this.

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  1. TRUTH ON THE MARKET » Isn’t Competition Grand?: Wal-Mart, Drugs, and Antitrust - October 25, 2006

    […] Wal-Mart has been a popular issue for legal scholars, see e.g., this symposium at UConn, Thom’s post on outsourcing, and this post from Gordon Smith which mentions in passing that a JLR search of Wal-Mart produces 5799 documents!  While I realize that Wal-Mart “the phenomenon” provides fodder for legal discussion across many areas of substantive law, the antitrust issue seems to be picking up traction. The above-mentioned symposium, for instance, includes a panel entitled “Breaking Up the Big Box: Trade Regulation and Wal-Mart.” […]