Yet more debate with Mr. Powell.

This is my most recent respond previous to the one I am composing now. This is about where we stop debating the same old point and try to go deeper into the discussion.

Before I put I up though, I've received a request for and explanation of the debate. So, here it goes. In Chine, which we know is responsible for most of the manufactured goods which we now enjoy here in America, the average factory laborer receives less for his labor than the average American in an equivalent job even after the cost of living is factored in to the equation. In some cases, this situation is even worse and the living and working conditions the people live in are deplorable and are something that hasn't existed in America since the 19th century.

This is because of China's substantially weaker economy and and disastrously misguided economic laws. This leads to the situation that these people have no real choice but to take up these poor jobs and live in squaller. They are in fact better off with our business because the other options are substantially poorer. I believe that Mr. Powell and I agree on all this up to the point.

Mr. Powell holds that because of these poor conditions, American businesses that do business with the Chinese and buy Chinese goods should be held accountable for the wellbeing of the factory workers. He believes that laws should be passed that prevent us from buying any Chinese goods made by people in under a certain standard of working and payment. He maintains that we should pay more than the supply and demand price simply for the sake of the Chinese laborer.

I, on the other hand, believe that so long as we do not cause the poor conditions of the Chinese laborers by doing business with them, we are no more culpable for their condition than we would be if we just stayed home. Furthermore, because our business is beneficial, though not benevolent, their is no way that refusing business could be a moral imperative. More importantly, I believe that the demands of charity should not be conflated with the rigors of business and that doing so detracts from either. I believe we are obliged to show charity to the Chinese (among others) but artificially high wages does not constitute this.

I may be being unfair to Mr. Powell's position as I am more wedded to my beliefs than his (well duh...) but you can email him to ask him personally if you really feel like it.

Anyway, without further ado, here's my response:

Hello, again Mr. Powell, Nice to hear from you. I'm sorry for the delay but it took me a while to get my argument together. You'll have to excuse any mistyping in this letter. I don't have my glasses and I frankly cannot see the screen in front of me.

In my previous letter you divided my argument into three points and proceeded to argue each of those points. I'll follow those same three points in this reply.

1) You present my opinion as such:

While poor working conditions and/or human rights abuses are always
regrettable, they are the business of the government overseeing the
location, not corporations on the other side of the world, far less
consumers. Home Depot does not mandate insane workweeks or weekly
finger loss; they pay Chinese businessmen to perform a service. How
the businessmen perform this service is their responsibility, and that
of their government, not ours.

This is not quite correct. In fact, I don't consider a factory with poor working conditions to be an abuse of human rights so long as the people who choose to work there do so of their own free will and without coercion, force or deception. My point is, that Home Depot, Walmart etc, could pay people to taste test poison, but so long as they did not coerce people into it they are not at fault, or rather, they did not abuse them. They are not responsible for inflicting any harm on these people. Any responsibility that said businesses my have would be that they did not explicitly go out of their way to provide charity for said people. But in this, they would be no more responsible than the rest of society.

With the example of you're horrid factory, again I see nothing wrong necessarily of a factory with poor working conditions. People choose whether or not they work there. You attempted to make the point that something like that would cause outrage in modern society; but i pointed out that outrage would never occur because nobody would work there. This is not a non-answer. The only reason such a factory would be considered so horrid and outrageous by modern society is because society is used to and has access to much better. The same conditions that would make such a factory seem wrong would also prevent it from being relevant. In a world where worse conditions were the norm, nobody would say anything.

So my position is this: Unless American companies take an active role in harming the Chinese people, (and owning and managing factories whose employment is not coerced does not count,) they not at fault for anything. Any further responsibility comes from the mandate of charity, which applies to everybody not just buisiness owners and which this new bill does not help.

2) on our role
I asserted that low wages are the result of market forces and that we could not artificially lower the wage without a monopoly. You had this to say:

'MUST' be due? Every time? I still don't see why you can't have
an economy where all the major employers simply choose to underpay. If
they all choose to pay such low wages, there may as well be a
monopoly. Maybe a Henry Ford will come along who'll pay higher
wages and change the economic landscape...but maybe not. If not,
people aren't forced to work by government law; only by that physical
law about having to eat.

You, seem to attribute low wages in China to a conspiracy among the American companies that own factories there. Given that hundreds of American companies own factories in China and there are thousands of factories besides, this seems very far fetched to me. Generally, the need for secrecy would be preeminent and all it would take is one to break ranks and the entire conspiracy would break apart. All it would take is one employee to break silence, and the American public would hear about it (Think Watergate.) A conspiracy of this sort is untenable.

Also, it is easy to prove that the low wages aren't due to a conspiracy but to market forces. In this case, surplus. There is a greater supply of labor than demand and this drives the price for labor down. Hence, the low wage and poor working conditions. With the decrees in labor due to the improvement in the Chinese economy (due in turn to influx of American capital), prices for labor are going up and working conditions are improving. Clearly there is no conspiracy to keep the Chinese poor because if there was, this would not happen.

In response to my criticism of your island example:

Of course, the example's extreme for the sake of clarity. Perhaps it's
not worth defending the specifics; my point was that you can have a
rising GNP while average wages are static or even sinking. It wasn't
exactly a business plan.

Your example isn't extreme, it's simplistic to the point of speciousness. The example creates a situation which simply does not exist in the real world and does not accurately represent the situation of our discussion. It's simply not relevant.

Not if the employers had lunch together and agreed it was more
advantageous to them both to keep wages low. There wouldn't be laws
against this sort of collusion if it had never happened. (And in real
life, too, not just on desert islands.)

Yes, this happens, but not in the case we are describing so it is irrelevant.

I'm afraid I cannot accept that wages always magically rise to the
productivity level of the employees. I see where it works in theory,
but I don't see where it always works inexorably in practice. There
seem to be too many variables. For instance, there is no way an
employee who produces a shirt that sells for $15 or so in J. C.
Penney's hasn't produced more than 25 cents or so worth of wage. (Not
exact figures here, but the real figures are something like this for
many a factory overseas.)

Factor in cost of capital (factories), shipping, marketing, distribution, management (not just management wages, but also expenses), legal fees(you don't have to do anything wrong to incur these), accounting, investments (needed to keep any company afloat) and that $15 dollars 25 cent gap narrows pretty rapidly. The CEO's earnings in an average business is just chicken scraps compared to the total expenses that the company faces on a yearly basis. It's not simply corporate glut as some people imagine.

How wages are determined generally in the same way in all markets. Wages are an investment. Each increase in wages increases the supply of workers (Better wages, benefits, conditions make jobs more attractive.) (See attachment "labor supply") Each added worker increases productivity. The increase in productivity is call Marginal Worker Productivity. The more workers there are, the smaller this gets. The reason is that productivity is a function of labor supply and capital. f(k,l)=a(l^b)(k^c) where f(k,l) is productivity, l is labor, k is capital, a,b and c are constants where b+c=1. The ratio of b/c determines whether it is a capital or labor intensive enterprise. What this function shows is that productivity is increased when both labor and capital is increased, but when one is increased without the other the return on investment reduces sharply. (It's hard for seemstresses to produce if there aren't enough needles to go around and more needles aren't any good if there aren't enough seemstresses to use them.) So, in a system where capital is constant, increase in labor yeilds increasingly small returns on investment. (See attachment "Productivity") The derivative of this is the Marginal Productivity of labor increase. (See Attachment "Marginal Productivity"). Now, an enterprise cannot spend more than it produces or else it would operate at a loss. Now let us overlay the Labor Supply over the Marginal Productivity (See attachment) The higher the wage is set, the more workers there are but also the less each worker producess. Wage is set at equlibrium when marginal worker productivity is equal to the wage. This is also where companies are at there most productive. To increase wages and employment one must increase capital, thus changing the Marginal Productivity and increasing the equilibrium wage. If one forcibly increases the wage (ie, through minumum wage or something similar to the new bill) employers are forced to artificially reduce the number of employees in order to increase the marginal worker productivity and keep it above or euqal to the wage. The new difference between labor supply and actual employment is now unemployment.

Basically what this shows is that any attempt to artificially increase the wage will cause unemployment and increase the labor supply, thus undoing all the good of before. How this relates to the real world:

Domineos Pizza guys don't get paid much more than they would if Dominoes were a much smaller corporation, partly because of the high employee turnover rate (which increases the Marginal Cost of Labor (the amount that it costs to employe another person which is factored into wages from the employer point of view)) and partly because the capital in the pizza delivery buisiness is only so efficient (one guy can only deliver so much pizza,) but Dominoes provided many low level, temporary jobs and employs hundreds of thousands of people nationwide, helping many, many, students pay their way though school.

Thomas Monaghan makes so much money, not because he cheats pizza delivery guys of their just desserts but because his company employs hundreds of thousands of workers a year and supplies them with the necessary capital to produce and deliver. His salary takes a miniscule amount off the top of each pizza. Mr. Monaghan's employees make many times more per pizza sold than he does.

(To do the math, suppose every pizza Dominoes sold was $10 and that Mr Monaghan made exatly 500 times more than the average employee. Whatsay there are exactly 100,000 employees and each sold one Pizza. Lets discount capital, investments and all expeditures save salaries. So Dominoes thus has $1,000,000 to spend on employees so Tom's salary plus 100,000 times the salary salary of the average worker equals $1,000,000 so T +100,000W=1,000,000 but T = 500W so 100,500W=1,000,000 so the average workers salary is $9.95 and Tom's is $4975.12. That might seem like a lot, but it's only 5 cents a pizza, 5% of the entire enterprise. Now assume that every employee sells twenty pizza's, a far more likely number. The company budget is $20,000,000, T+100,000W=20,000,000 T=500W 100,500W=20,000,000 W=$199.00 and T=$99502.49 he is still only making 5% of the earnings increase the number of employees now to 500,000 T+500,000=100,000,000 T=500W 500,500W=100,000,000 W=$199.80 T=$99900.10 only 1% of the final product, one cent per pizza. So, the larger and more a company produces, the less a huge CEO salary 'sucks' from the little guy and the greater a percentage of the money that can be invested in the 'little guy.' After a point, CEO greed maxes out. Company management is more a way of life than a job, they do it because they enjoy it. They don't increase the salary because they simply have no personal use for the money and the money is reinvested in the company. So it is rediculous to target CEOs in this way. Mr. Monaghan is as necessary for the selling of each pizza as is the employees but they collectively actually garner a larger percent of the profit than he.)

This also means that any attempt to increase the minimum investment in employees in China will also create unemployment. A similar situation happens with American unions. Unions regularly demand increases in wages and benefits.In order to do this, they have to stop non-union workers from taking the union jobs while the unions go on strike. The greatest conflicts in the union conflicts in previous half of the century were not between workers and companies but between workers and workers. Unions had to enforce their strikes through intimidation. After the unions got their payraises and benefits, the companies could afford to employ fewer people and so unemployment increased. If you've ever seen the movie "On the Waterfront" you have an idea how it looked. Just a year ago, GM had to lay off thousands of employees because it could no longer afford to employ them. American unions forced wages up and GM (and Ford but not so badly) had to compensate. GM used to be the crux of the American economy and the largest producer of automobiles in the world. Now it's second fiddle to Toyota, a Japanese company (A country with the opposite problem of the States) and well known for it's crappy cars. GM tried to compensate for a while by cutting costs and reducing automotive quality (it's in GM's interests to remain large and employ as many people as possible so as to produce as much as possible) but it could only hold out for so long and ultimately succumbed to economic pressure. A similar thing is happening to Airbus right now. When wages are artificially jacked up, unemployment increases, productivity decreases, overall pay decreases, and wages have a much more difficult time rising naturally. The same will hold true in China.

You Say:

Nor do I mean to ignore all the other good folks, such as
shareholders, bankers, politicians receiving campaign donations, and
so on, who all too often take a grotesquely high share of other
people's work. The CEO's just an easy fellow to start with.

Not to mention lawyers! Actually, these people aren't taking advantage of other peoples labor. Shareholding and banking are both either not as profitable as some people think (I've actually looked into them with a practical mindset), very risky, or laden with fraud which is illegal. Corrupt politicians and lawyers are able to make so much money through deception which is wrong. Neither implies a weakness in the ability of the market to set a just wage. They just demonstrate the nearly universally held fact that the market can only exist with the absence of fraud, theft and coercion.

You say:

Economies are not pure mathematics; in real life, humans can be greedy
and can figure out ways to make employees work for a pittance while
pocketing more than their fair share of the profits. It may be that a
truly free market is the best mechanism for minimizing this
phenomenon, or it may not, but the general tone of your conversation
so far is that the iron laws of economics almost always prevent this
from happening in real life. CEOs are just magically worth millions a
year, and this is proved to be so simply because shareholders are
stupid enough to pay them this.

Economics is based on sociology and used mathematics to quantify and describe human behavoir. You seem to be under the impression that economics teaches, using abstract math that may or may not apply to a particular situation, that the market always functions in a certain way regardless of human action. This is not the case. no serious economist will claim that the market prevents fraud. In fact, most economists will claim that the market can only function in the absence of fraud, theft, and other crimes. The math and theories I present so far will only function with the absence of these. However, high margins are bad for buisiness. The specific kind of fraud that you describe is unlikely on such a grand scale. Buisiness prospers more when its members are honest. When a CEO consumes more than he produces (more than his own Marginal Productivity) the company loses. In general, owners of new enterprises in the United States must take no profit in the first five years if they have any hope of success. Even large companies have this problem. Corporate pork is one of the worst things that can happen to a company. Enron went out of business and collapsed internally long before anybody suspected that the owners were crooks. Successful company's CEOs are usually only paid a very small fraction of the total annual budget. (Some are even more than modest, there is a growing trend towards dollar CEOs. Steve Jobs of Apple Computers makes only a dollar a year he pays for his living through savings and continues to work primarily for the sake of the company.) Business management, if it wants to keep afloat, does not have as much power as you seem to think it does. Also, even though fraud and conspiracy do exist, you generally have to prove it's existence before you can morally do anything about it. It's not right to counter crimes that you only suspect exist. Also, the proper way to counter this kind of wrong is through laws and law enforcement, not economic incentives.

Maybe it'd help me understand your position better if you gave an
example of what you consider to be economic injustice. Some crime,
present or past, that was perfectly legal at the time, but still
unjust.

OK, I'll bite. Imminant domain in my home state (VA). Large companies including but not limited to Coca-Cola co. are capable of get local and state imminant domain empowered entities to disposses private citizens of their land for the sake of the large companies. The reason being that the larger companies pay far more in taxes. Disposessing private citizens of their property is an eggregious injustice. I, however, simply cannot accept the notion that wages people accept voluntarily can in any way be unjust.

Also I believe that jacking up wages so some people can earn more money while the rest have to remain unemployed and the consumer suffers (not drastically in this case) is also unjust. So this boycott is unjust.

3) Directly dealing with the topic in question: The Boycott bill.

You say:

But let's focus on the anti-sweatshop bill. Were such a
bill enforced, we clearly would have efficacious action!

You'll need to prove this.

You say:

Ah, but why would there be less *potential?* There's all the potential
in the world if they're willing to treat workers as human beings. The
report I cited pointed out that the factory in question had been
willing to make all kinds of changes to accomodate its U. S.
client--in how they *packaged.*

If you force people to raise wages you'll have the same effect that I mentioned earlier.The changes in packaging also hurt and set the company back and didn't help (but hurt) the employees.

These changes must have cost something, but the factory was willing to
do it to keep the client. Now, if the *entire U. S. clientele*
suddenly threatens to pull out unless minimum working conditions are
met--will all these entrepreneurs, managers, etc., simply throw up
their hands and refuse to cooperate? Some might, maybe, but *all* of
them? Most of them?

No, they'll raise wages, lower employment and production,and reduce their total benefit to both the Chinese and US economies.

The bill isn't saying, "No more Chinese goods." It is saying, "What
you do with your workers is your responsibility, but if you want us to
buy from you, you not only have to package the product properly, you
have to treat your workers with a minmum of respect. We have those
laws in our own country, and we don't deal with businesses who treat
their people like slaves."

The said laws in the US don't help much over here either. They are mostly feel good laws and we can afford them largely because our economy is so good that conditions wouldn't be so much different if they didn't exist. (It's also interesting to note that black urban people used to be much better off before the factory jobs they used to depend on were outsourced in the 70s and 80s so that companies could avoid said labor laws. Communities like Harlem which were once extremely prosperous are now ghettos infested with crime and crack dealers. A crappy factory job is better than no job at all.)

You say:

But this bill isn't just for China; it would apply everywhere.

Still won't help.

You say:

Again, with this bill, we'll purchase plenty of goods--that aren't
produced in horrific conditions.

.
No we won't. Either price will increase and thus demand will decrease, or supply will decrease. Either way, we'll purchase less. Unless you count 'any large amount' to be plenty but the more we purchase, the better off they will be so I don't buy this.

You say:

Since they would also be worse for the management, perhaps the
management would avoid this scenario by complying with demands for
minimum humane working conditions.

No, less total wealth will be given to the Chinese. Some select few will be better off but the rest will be unemployed.

In order to increase the worker wage, one must increase the Marginal Productivity. To do this, one must either cut back on employment or increase amount and quality of capital. To increase capital, one must increase production and to increase the production one must increase the number of employees. To increase the number of employees, one must raise wages but to equilibrium . Equilibrium is the point where wage equals Marginal Productivity. It is the point of maximum employment and maximum productivity, both of which are good for companies, employees, consumers, and employers. This is not to say private greed won't cause fraud or coercion or theft and disrupt this, but it is very unlikely to happen in the manner you describe, and short of that, the bill you propose can only hurt matters.

You say:

But if the price was lower in Vietnam, you'd take your business
there. Which might very well close the factory in China. Right? That'd be
business.

If the reason the price in Vietnam was lower than in China was because the Chinese economy improved (as is the case now), it is because the Chinese no longer need the jobs as much as the Vietnamese. They can now be barbers and software engineers or whatever new job that drives wages up.

You Say:

So it seems our only responsibility here is to never stop buying from a
particular factory on moral grounds. But we can do it to save money.

It depends one what you mean by moral grounds. I don't see Chinese wages as a moral issue in this situation. At least not as a case of injustice. (There may be a good case made for charity here, where the American consumer, who is the real beneficiary of the lower wage, not so much the company which serves the consumer's interests, could give out of his excess wealth to impoverished Chinese and others who are in dire need.But I don't believe this is a case for economic sanctions.)

You say:

But by now I've put way too many words into your mouth. Thanks again
for writing.

Just a few! You're welcome, I enjoy the debate though I think I'm spending too much of my time on it.

Andrew Stine.

I have to apologize, but the attached graphs aren't going to be shown here. They are however, only visualizations and really only make sense if you understand the equations behind them. I'll see if I can let my explanation stand by itself.