Monday, 27 May 2013

A Deadlier Disaster for the Third World: Unemployment

Photo of George    ReismanGuest post by George Reisman

The recent collapse of a garment factory building in Bangladesh, resulting in the death, at latest count, of more than 1,100 workers who were employed there, has led to international outrage not only against the building’s owner but also against the various retailers in the United States and Europe, many of them prominent, that have sold clothing produced in that building. It is demanded that they assume responsibility for working conditions in the factories that supply them and not deal with factories that do not provide safe and humane conditions and pay fair wages.

Such demands rest on the belief that, if left free of government interference, the profit motive of businessmen or capitalists leads them to pay subsistence wages to workers compelled to work intolerable hours in sub-human conditions. And, more, that the profits wrung from the workers in this way exist in the hands of the capitalists as a kind of disposable slush fund as it were, at least some more or less substantial portion of which can be given back to the workers from whom they were taken, or used on behalf of those workers, with no negative effect except to deprive the capitalists of some of their ill-gotten gains.

imageIt is generally taken for granted that the reason the kind of conditions that prevail in Bangladesh and the rest of the Third World do not exist in the United States and Western Europe is the enactment of labour and social legislation, and that what is needed is to extend such legislation to the countries that do not yet have it.

Every aspect of this set of beliefs is wrong and its consequences are highly destructive, above all to the masses of workers in the Third World who already live close to starvation and who are in danger of being driven into it by needlessly increasing the cost of employing them either by arbitrarily raising their wages or by requiring that they be provided with improved working conditions that must be at their expense and which they cannot afford.

imageOne of the most elementary propositions of the science of economics is that the higher the price of anything, the smaller is the quantity of it that will be purchased. This applies to labour no less than to goods. If wage rates in Bangladesh are arbitrarily increased, fewer workers will be employed in Bangladesh. In that case, workers who would have earned low wages will earn no wages. They will starve. If employers in Bangladesh are compelled to make improvements in working conditions of a kind that do not pay for themselves, the cost of those improvements represents the equivalent of a rise in wage rates. Again, there will be unemployment. The unemployment could be avoided only if workers’ take-home wages could fall sufficiently to offset the cost of the improvements. In that case, the situation would be comparable to making the workers use their already meagre wages to pay for improvements that they simply cannot afford.

These are not outcomes that the advocates of imposing labour standards want. What they want is higher wages and better working conditions. Their problem is that they do not realize what is actually necessary to achieve these results.

imageWhat will achieve these results is leaving business firms in Bangladesh and throughout the Third World alone, to be as profitable as they can be. (It should be obvious that the loss of a factory building and its machinery was not profitable and that while it may be legitimate to denounce this building’s owner for criminal recklessness and negligence, it is simply absurd to denounce him for seeking profit, when what he actually achieved, and could only achieve through such conduct, was total loss.)

The high profits that can be earned in a Third World country, if not prevented by too many obstacles, will be heavily saved and invested, mainly in that Third World country. As the experience of Taiwan, South Korea, and now even mainland China shows [see for example the recent TED talk on this subject by Leslie Chang – Ed.], a generation or more of such a process results in a vast accumulation of means of production in the country—i.e., numerous new factories, with better and better equipment. This results in an intensified competition for labour and thus rising wage rates. As wage rates rise, workers can more and more afford to accept lesser increases along with improved working conditions of a kind that must be at their expense.

Economic freedom, not government interference, is the road that the wealth of nations travels.

* * * *

George Reisman, Ph.D., is Pepperdine University Professor Emeritus of Economics and the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996; Kindle Edition, 2012). See his author's central page  for additional titles by him. His website is and his blog
This post first appeared at the Mises Daily.


  1. That's true. The author is correct. It is how it happens. That is what I have seen.


  2. Reisman presents a typical bullshit false dichotomy.

    There is another scenario besides the status quo and unemployment that any rational person will notice: The owners making hefty profit margins could stop being such greedy cunts and provide better working conditions for their staff.

    Apple's manufacturer in China was so stingy (wouldn't even provide a staff room) that it had to spend some of its capital on suicide nets at the bottom of the building.

    The last thing people in 3rd world countries need is smug twats in developed countries arguing that their working conditions can't be made any better.

  3. Rex wrote:

    "Apple's manufacturer in China was so stingy (wouldn't even provide a staff room) that it had to spend some of its capital on suicide nets at the bottom of the building."

    The reality: the suicide rate at Apple's manufacturer Foxconn (which is also the manufacturer for Dell, HP, Motorola, Nintendo, Nokia, and Sony) remained lower during the suicide spate in 2010 than that of the general Chinese population as well as all 50 states in the United States.

    So what does THAT suggest?


  4. @Terry

    "So what does THAT suggest?"

    It suggests you aren't comparing apples with apples.

    How many American companies make your family sign a disclaimer so they can't sue if you kill yourself at work? The statistics showing workplace suicides would be relevant.

  5. Rex

    Terry asks, "So what does THAT suggest?"

    It suggests that your position is completely wrong. Your argument has been measured and found wanting. It is completely refuted.

    And look how you reacted after Terry demonstrated the falsity of your emotive outburst regarding suicide. Rather than argue the facts you rave on about contracts.

    A well known saying in the lawyering business is this. "If the facts are on your side, argue the facts. If they are not, argue the law." YOU argued the law. Fool!

    Last point, Rex- you failed to read Reisman's article. Had you done so you'd have realised he'd anticipated your position and already refuted it.


  6. @Amit

    "Rather than argue the facts you rave on about contracts"

    I thought my point was very clear but obviously you were in the remedial class at school so I will break it down even further.

    Comparing the suicide rates at a workplace to the overall suicide rate of a country is not a valid statistical comparison.

    What was the suicide rate for people on the job in the USA vs Foxconn? That would be a valid comparison.

    Reisman's assertion that workers in places like Bangladesh cannot be treated any better by their employers for economic reasons is total bullshit. But you sound like the kind of tool who gets told what to think by various ideologues, so I'm not surprised you don't get it.

  7. Rex

    You are spending an awful lot of effort making excuses, trying to explain your errors away and rationalising up a crock of stale pooh. The mental mastubation you are committing upon yourself may feel good to you but what the rest of the world sees is a banal perv having an intellectual wank.

    Get over yourself. Your position has already been addressed and refuted. Reisman anticipated it in his essay and dealt with it. Then Terry demonstrated your foolishness explicitly. You loser.


  8. Amit

    Instead of arguing with any substance you are resorting to childish personal attacks. I can only assume you are 12 years old.

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