The Poverty of Ethics Without Economics: Bangladesh

Mario Rizzo*

In a world where people’s ethical goals are intrinsic values we could easily argue, as did David Hume, that the values themselves are not subject to scientific analysis.  But, as things turn out, many of what people believe to be intrinsic values, and therefore ultimate goals, are not. They are intermediate ends to which the attainment of some more nearly ultimate goal is imputed. For example, if I believe that my happiness is an intrinsic moral good, and I think that the connection between my happiness and making more money is completely unproblematic, I may legitimately believe that additional money-making is an ultimate moral goal. (How one intrinsic good should trade off against another is a separate issue.)

Some people think that policies that mandate good wages and safe working conditions are ultimate goals. Or at least they seem to believe that. Much of the discussion about the recent Bangladesh factory fire has this air about it. Much to my disadvantage in polite company, I argued that the advocates of “justice for the poor” were ignoring important factors.

Even if you do believe that better working conditions and higher wages for Bangladeshi garment makers are intrinsic values, what kinds of policies will achieve these values? Does it matter whether the policies will result in some workers improving their wages and working conditions, while other will see a decline in their wages and working conditions?

The nineteenth-century philosopher Herbert Spencer argued at length in his Principles of Ethics that people often mistake the proximate ends of an activity for its ultimate end(s). Ethical thinking is rife with this error.

So now a news report in the Wall Street Journal is entitled “Higher Wages Spur Worry At Bangladesh Clothes Firms.”  The government has now mandated a new minimum wage of $68.00 per month for millions of garment workers. This is a 77% increase over the previous minimum which itself was not always enforced.

It is also the case that a consortium on European and American garment manufacturers has agreed to new factory safety rules that will be costly to implement.  The Bangladesh government will also mandate higher standards. How exactly all this will be financed is unclear. There will be a fund created by Western garment companies with contributions determined on the basis of their share in garment production in Bangladesh. They will offer grants but mostly it will be in the form of low-interest loans. Of course, we shall see if these grants or loans are forthcoming when the publicity has died down.

To the extent that the financing from Western companies is in proportion to their production, it is a variable cost and increases the companies’ cost of producing garments. To the extent that it is simply mandated on local produces it will directly affect the profitability of these low-margin local companies.

What Bangladesh had going for it in the market for clothing was extremely low costs of production. Their workers are unskilled and many in the garment industry are women who have few opportunities for employment in Bangladesh. What most people in the West fail to realize is: (1) How desperate these workers lives are – their alternative opportunities are pitiful and (2) Increasing costs of production and lowering local profit margins is a recipe for disaster.

Some commentators argue: The cost increase will not be great and, anyway, Westerns should be willing to pay the extra cost. With regard to costs, in the Wall Street Journal article linked above, it is suggested that the new minimum alone will raise the cost of production by 20—30 percent per garment. (Obviously, this is just a guess.) But when added to increased safety costs, it is hard not to agree with:

Sirajul Islam Rony, a workers' representative on the wage board, said some factories had shed workers.

"It's almost impossible for the industry to sustain this level of staffing at the new wage level," said Khurrum Siddique, director of Simco Dresses Ltd., a manufacturer in a Dhaka suburb.

With regard to the point that Westerns should be willing to pay the extra cost, I believe that some people would. But, by and large, when people are shopping for clothes – especially the relatively low income people in the US who buy these inexpensive clothes – they are simply looking for the best quality-price combination.  Most people keep their charitable contributions separate from their consumer decisions. They are more likely to put a dollar in the Salvation Army box (which will benefit relatively-rich poor Americans) than pay more for clothing -- which they perceive as increasing the store’s profits.

Therefore, consumers will, in effect, put pressure on the manufacturers to shift to other sources of supply, and so forth.  Workers in Bangladesh will be shifted into unemployment, malnutrition, and even less safe environments. Some workers who remain still employed will reap the benefits but it will be at the expense of others – most probably the poorest and least productive.

This is where ethics without economics gets you.

Postscript:

As I was writing the post above I received the periodic faculty newsletter from NYU. 

University Senate Endorses Bangladesh
Safe Workplace Accord

The University Senate voted unanimously on Dec. 5 to endorse a garment industry agreement aimed at making Bangladesh factories safe workplaces. The Senate approved a resolution recommending that the University require its apparel licensees to sign the Accord on Fire and Building Safety in Bangladesh. NYU's administration is proceeding to implement the requirement immediately.

I happen to know that economists rarely go to these meetings (opportunity cost of time). What it shows, however, is that even intelligent people are swayed by mere sentiment, especially during the holiday season. Mere sentiment masquerading as ethics, I am afraid. Ethics is more than good intentions. Consequences matter. Economics matters. It is too bad that “Merry Christmas” in Bangladesh may really mean “You are fired.” 

 

*Dr. Mario J. Rizzo is associate professor of economics and co-director of the Austrian Economics Program at New York University.  He received his BA from Fordham University, and his MA and PhD from the University of Chicago.  He was also a fellow in law and economics at the University of Chicago and at Yale University.  He currently lectures for the Institute for Humane Studies and is an adjunct scholar of the Cato Institute. Professor Rizzo is also a member of the NYU Journal of Law & Liberty's Board of Advisors.