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Jan 23 2012

Economists and Ethics

It’s something of an inevitability that when the various heinous acts of corporations are brought to light, the Economists march out in lock-step to explain to the dissenters A) how emotional and irrational the dissenters are acting and B) sure, isn’t this the best possible thing that could be happening for ‘those people’?

This line of thinking was most recently articulated by Paul Krugman in The Slate. I want to focus on the two main points of this article: 1) the lie being presented that this is the best possible choice we could make given “the alternative”, and 2) the objection to this is being made on purely emotional grounds (i.e. there are no rational grounds to this objection)

1. Contracting Foxconn is the best possible choice

And as long as you have no realistic alternative to industrialization based on low wages, to oppose it means that you are willing to deny desperately poor people the best chance they have of progress for the sake of what amounts to an aesthetic standard–that is, the fact that you don’t like the idea of workers being paid a pittance to supply rich Westerners with fashion items.

It’s important to note that when this argument is made, only one ‘alternative’ is presented, which immediately drops the whole argument down the toilet. This is a False Dichotomy: there is more than one possible choice.

The argument, as written, paints a fairly dismal picture: life in China sucks. The life that Foxconn offers its employees (and I object to the use of this word in this circumstance, but how-and-ever) is better than the life they would have without the existence of Foxconn. Ergo, companies that support Foxconn are supporting an improvement in the living conditions for the people of China, even if that improvement only affects a small portion of the population.

So this argument isn’t false, but it is Bullshit insofar that the economist doesn’t care if this argument is Sound or not.

On a Utilitarian analysis, any action we undertake should be inspected to see if harm is being committed. Harm is a big red Stop sign for any choice we make, and that action is forbidden to us, unless all other actions also lead to harm at which point we can then choose the least-worst option.

For example, if there exists a factory within which employees are routinely beaten 10 times per day, we are not justified in opening a factory within which employees are routinely beaten 9 times per day. Yes, we’re better than the other factory, but we’re still completely unethical.

I do not deny that (for a person living in China) existing within the realm of Foxconn is less-bad than existing outside of the realm of Foxconn. That, however, is the choice of the people of China to make (akin to “would you prefer to be beaten with a stick, or a rock?”). This is not the choice that Apple (and the rest) is presented with. Unlike the people of China, Apple has a range of choices available, one of which is “don’t interact with Foxconn”, and a second which is “intereact with Foxconn under the current terms that it has with its employees”. These are not, however, Apple’s only two choices.

Apple could form a consortium with other companies that seek hardware from Foxconn, and insist on a change of standards. Apple could choose to open their contract to any and all factory owners in the world, with stipulations for minimum treatment of employees. Apple could offer the contract to an American factory, with a stipulation that the company meets European working conditions (which would likewise increase the quality of life for those American workers). There are a wide variety of choices available to Apple, several of which are without Harm.

So long as there is at least one choice on the table that is without harm, choosing to interact with Foxconn as-they-are is unEthical.

Now the counter-argument may be that this will raise the costs of the products. This is entirely irrelevant to the conversation, for several reasons.

    1. We are discussing whether an action is Ethical, or not. The fact that Economists have chosen to divorce their calculations from Ethics is an indictment of their profession, not a problem for Ethicists.
    2. As Naomi Klein explained in No Logo: it’s all about the Brand. The cost of an Apple product is already massively inflated from the large profit margin that Apple enjoys. People don’t buy Apples because they are priced competitively: they buy Apples because they are Apples. It’s an identity thing, not a cost thing. I am somewhat surprised that Economists aren’t aware of this.
    3. According to Jon Stewart (the Daily Show, Jan 16th, 2012) ), if the manufacturing took place in the US and the cost was passed directly onto the consumer, the cost of Apple products would increase by a mere 23%. An extra $20 on an iPod, an extra $120 on an iPad. While this would no doubt cost Apple some sales, it would hardly be catastrophic.

Furthermore, Krugman’s own argument undermines itself. Compare the following two paragraphs:

More importantly, however, the growth of manufacturing–and of the penumbra of other jobs that the new export sector creates–has a ripple effect throughout the economy. The pressure on the land becomes less intense, so rural wages rise; the pool of unemployed urban dwellers always anxious for work shrinks, so factories start to compete with each other for workers, and urban wages also begin to rise.

juxtaposed with

First of all, even if we could assure the workers in Third World export industries of higher wages and better working conditions, this would do nothing for the peasants, day laborers, scavengers, and so on who make up the bulk of these countries’ populations. At best, forcing developing countries to adhere to our labor standards would create a privileged labor aristocracy, leaving the poor majority no better off.

leads to a contradiction.

Just so I’m clear here: so long as the wages within a factory are just a teeny, tiny bit better than shitty starvation wages, then the whole country experiences a ripple effect, but if you jack up the wages to a reasonable standard, then you’re creating “a privileged labor aristocracy”? The ripple effect suddenly disappears? I call bullshit.

2. All alternative arguments are based on emotion

The main answer, I think, is a sort of fastidiousness. Unlike the starving subsistence farmer, the women and children in the sneaker factory are working at slave wages for our benefit–and this makes us feel unclean. And so there are self-righteous demands for international labor standards: We should not, the opponents of globalization insist, be willing to buy those sneakers and shirts unless the people who make them receive decent wages and work under decent conditions.

I think that I’ve provided an alternative argument here that is not based on an emotional analysis, thereby demonstrating that the original strawman thesis is false. Of course, any Economist is free to assert that an analysis based on Ethics is a de facto emotional argument. But there are a great many other ignorant things they are also free to assert, as merely asserting something doesn’t demonstrate the truth of it.

In this particular case, dismissing an argument on the basis that “it’s emotional” fails to address it. Ignoring an argument is not “rational”, as an “emotional” argument passionately delivered may nevertheless be correct.

 

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13 comments

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  1. 1
    thaismcrc

    Great post! I found a little mistake, though: “any Economist is free to assert that an analysis is based on Ethics is a de facto emotional argument.” pretty sure this sentence is missing a “that”: “an analysis that is based on Ethics etc”

    We get these arguments here in Brazil every time people demand a higher minimum wage or better working conditions. The idea is that small and medium-sized business owners would not be able to afford this, so they would choose to hire people informally and any formal job (i.e., with all worker rights ensured) is better than any informal job (i.e., with no guarantees for the worker) which, yes, is true, but I’ve always felt there had to be another alternative.

  2. 2
    unbound

    Very nice article overall with only one thing I think is incorrect.

    “…the cost of Apple products would increase by a mere 23%. An extra $20 on an iPod, an extra $120 on an iPad. While this would no doubt cost Apple some sales, it would hardly be catastrophic.” I actually disagree with this. While the costs would go up, sales would not be impacted because Apple would not raise their prices (unless they use it as PR…discussed in next paragraph). Prices are set based on what people are willing to pay, not the cost of the products. People are willing to pay Apple the price premium because of the mix of anticipated quality, past experience, and perceived value. The idea of supply side economics has been largely debunked predominantly because competition is far short of what is needed to make supply side economics valid in nearly all markets. I guarantee if Apple is able to make iPods for $5 or iPads for $20, you will not see any price difference at their stores until competition starts to eat in their sales. Competition is key, and we need to keep a realistic understanding of how much competition is actually in any given market (which is usually woefully inadequate for competition-based concepts to actually apply).

    So a cost increase, for the most part, means loss in profits. This is why corporations always fight anything that increases their costs…they know it only affects their bottom lines most of the time, it doesn’t really affect consumers nearly as often as the corporations claim (and does anyone really think corporations are that interested in the consumers interests). The only way for a corporation to get back the money they most lose from an increase in costs is to use PR (Apples specialty). Basically, you help change the consumers perception of the value (hence the amount they are willing to pay) broadly by using various advertising campaigns or talking points that make it to the media to get the consumers to accept the price increases either temporarily or long term.

    The oil companies are famous for doing this on a regular basis by using the fears of instability in the middle east to jack up prices immediately when issues occur in that region of the world (despite the fact that it takes oil from there about 4 months to reach consumers) and then slowly reducing the price of gas when there is enough fussing (although with a caveat only at that point about how long it takes the oil from the middle east to get to the consumer market).

    tl:dr – Without sufficient levels of competition, you aren’t buying products based on cost at all. You are already paying max price, so increased costs on the manufacturer will most likely be a loss of their profits. Hence, the real reason they fight changes that increase costs.

  3. 3
    Alverant

    Good post. I hate it when people use the false dictomomy to justify their actions.

    The problem is that there’s not much we can do about it. Sure there are alternatives to the iPod (for example I have a Creative Labs Zen media player), but they’re hard to find. A few thousand people boycotting Apple isn’t going to change anything. Even of a boycott did get noticed by management, who really gets hurt? A loss in sales means a factory gets shut down but do those who made the decision that triggered the boycott get punished? Of course not. In a corporation, a decision isn’t made by one person, but a lot of people. It’s the “death by 1000 cuts” senerio. But when something good happens, everyone scrambles over each other to take credit for themselves.

    The whole system is broken from the inside.

  4. 4
    Crommunist

    Boycotts aren’t only designed to hurt by reducing sales (although that is the classic argument). They also damage a company’s reputation. Apple trades heavily on its reputation, as does Google. Their fans base is a captive audience who bundles ethics into their self-concept. If Apple’s image is tarnished such that they are seen as unethical, it could reverberate forward and make them more vulnerable to competition (the way that Microsoft’s reputation for being buggy and stodgy fueled Apple’s meteoric rise). It also hurts their opportunities to forge alliances with new companies, which is the whole principle by which organizations like Avaaz and Change.org work – nobody wants to be seen as associated with a notoriously unethical company, since it could hurt their bottom line as well.

    Long story short, a small boycott that is widely publicized might hurt a company like Apple far more than a large one which goes unnoticed. A sufficiently large stink simply needs to be kicked up for them to notice and make a change. I’d imagine that since nobody knew who or what Foxconn was a month ago, they’re noticing all right.

  5. 5
    Brian Lynchehaun

    Fixed! Thanks for letting me know.

    Your counter argument to that situation is that:

    Maintaining the current situation perpetuates the current situation. Maintaining the current informal-job system does nothing to improve the job system in general, meaning that this is always to the short-term advantage of the employers at a cost to the employees.

    In the long-term, it’s better for everyone to have a formal system in place as everyone benefits from the stability and predictability that contracts bring (that’s why, you’ll notice, most companies don’t have ‘informal’ agreements with one another).

    Certainly, the short-term change will be disruptive, but the long-term gain will result in a better living situation for everyone.

  6. 6
    Brian Lynchehaun

    The increase in prices is not my argument.

    Economists often warn, as if it were significant, that a change to more ethical practices will necessarily lead to an increase in prices.

    My purpose here was to illustrate that, if true, the increase is inconsequential.

  7. 7
    Brian Lynchehaun

    The alternative is not to simply buy a product from a different company. Apple isn’t the only company that Foxconn is contracted to, and Foxconn isn’t the only company that acts in this fashion.

    What’s necessary for change (and, of course, this is needed to be done by large quantities of people) is: stop buying electronics from the retailers. Send a letter to the company in question objecting to their practice. Write to your local member of government.

    If one has an iPod already, then the odds are that one doesn’t need a new mp3 player anytime soon.

    If one has an iPad, one doesn’t ‘need’ (in any meaningful sense of the word) an iPad 2.

    Should an iPad break? Head over to Craigslist and pick up a new one second hand.

    There are a multitude of ways to get what you want while choosing to deny your money to the corporation in question.

    A loss in sales means a factory gets shut down but do those who made the decision that triggered the boycott get punished?

    If this is your goal, then you are doomed to failure. This is an entirely unrealistic goal.

    I have zero interest in punishment.

    What I do care about is that companies don’t make these kinds of decisions, or reverse them should they make them in the first place. I see no benefit to ‘punishment’, much like I see no benefit to ‘punishment’ in the criminal justice system.

  8. 8
    'Tis Himself

    (and does anyone really think corporations are that interested in the consumers interests)

    Most corporations actually are interested in their consumers’ interests. If a consumer is not interested in a product then they won’t buy it.

    Plus there are some companies which act in an ethical manner. Consider what Johnson & Johnson did in the 1982 Tylenol crisis.

  9. 9
    Dave Churvis

    It’s interesting that you bring up the idea that increasing the cost of an item is not as bad an idea as many economists would have you believe. I’m currently working on the last part of a short series of articles on my own blog describing a capitalist case for equitable wages, and in my analysis I’m finding that there are potentially times when increasing costs and reducing profits are actually better for a company and industry than not:

    http://www.extraordinaryinsignificance.com/the-capitalist-case-against-bloated-ceo-pay/

    So much of the ingrained orthodoxy in mainstream economics is specifically meant to be value-free, but the problem with value-free economics is that they end up justifying a great many unethical practices in the real world.

  10. 10
    Robert B.

    Utilitarianism, as I understand it, doesn’t necessarily require you to prevent harm – harm is bad, of course, but if harming some people can provide a greater benefit to more people, then the ends can justify the means. (That’s one of the major objections to Utilitarianism, actually – certainly one of my major objections.) I agree with your ethics here, but they’re not particularly Utilitarian.

    That quibble aside, I’m not sure where economists (or this one, at least) get off in implying that their discipline is immune to ethics. “Fastidiousness” indeed. As if not giving money to people who injure their own poverty-stricken workforce was akin to mincing around the edges of a puddle lest one dirty one’s shoes. You’re damn right I don’t care to benefit from the suffering of others. How dare he describe these workers’ pay as “slave wages” and in the same sentence mock me for not wanting to support this factory? Why exactly does he think that the United States and other countries have minimum wage laws and worker safety laws? Were these laws mistakes? Just fastidious sentiment?

    Callous. Callous and privileged and cruel.

  11. 11
    Brian Lynchehaun

    Utilitarianism, as I understand it, doesn’t necessarily require you to prevent harm – harm is bad, of course, but if harming some people can provide a greater benefit to more people, then the ends can justify the means. (That’s one of the major objections to Utilitarianism, actually – certainly one of my major objections.) I agree with your ethics here, but they’re not particularly Utilitarian.

    I agree that’s how Utilitarianism is typically taught. It’s how it was taught to me. And I disagree with this reading.

    At the risk of getting all biblical, I’m going to quote some select passages from Utilitarianism.

    Starting in Chapter 2, Mill takes great pains to point out the differences in Happiness, that there are different qualities of happiness, such that they differ in kind, not merely in degree. It seems reasonable to me to make an analogous claim about different kinds of Harm, and Mill seems to generally hint at this analogous claim throughout Utilitarianism.

    For example:

    Utilitarianism, Chapter 4:

    To have a right, then, is, I conceive, to have something which society ought to defend me in the possession of. If the objector goes on to ask why it ought, I can give him no other reason than general utility. If that expression does not seem to convey a sufficient feeling of the strength of the obligation, nor to account for the peculiar energy of the feeling, it is because there goes to the composition of the sentiment, not a rational only but also an animal element, the thirst for retaliation; and this thirst derives its intensity, as well as its moral justification, from the extraordinarily important and impressive kind of utility which is concerned. The interest involved is that of security, to every one’s feelings the most vital of all interests. Nearly all other earthly benefits are needed by one person, not needed by another; and many of them can, if necessary, be cheerfully foregone, or replaced by something else; but security no human being can possibly do without; on it we depend for all our immunity from evil, and for the whole value of all and every good, beyond the passing moment; since nothing but the gratification of the instant could be of any worth to us, if we could be deprived of everything the next instant by whoever was momentarily stronger than ourselves. Now this most indispensable of all necessaries, after physical nutriment, cannot be had, unless the machinery for providing it is kept unintermittedly in active play. Our notion, therefore, of the claim we have on our fellow creatures to join in making safe for us the very groundwork of our existence, gathers feelings round it so much more intense than those concerned in any of the more common cases of utility, that the difference in degree (as is often the case in psychology) becomes a real difference in kind. The claim assumes that character of absoluteness, that apparent infinity, and incommensurability with all other considerations, which constitute the distinction between the feeling of right and wrong and that of ordinary expediency and inexpediency. The feelings concerned are so powerful, and we count so positively on finding a responsive feeling in others (all being alike interested), that ought and should grow into must, and recognized indispensability becomes a moral necessity, analogous to physical, and often not inferior to it in binding force.

    and

    The moral rules which forbid mankind to hurt one another (in which we must never forget to include wrongful interference with each other’s freedom) are more vital to human well-being than any maxims, however important, which only point out the best mode of managing some department of human affairs. They have also the peculiarity, that they are the main element in determining the whole of the social feelings of mankind. It is their observance which alone preserves peace among human beings: if obedience to them were not the rule, and disobedience the exception, every one would see in every one else a probable enemy, against whom he must be perpetually guarding himself. What is hardly less important, these are the precepts which mankind have the strongest and the most direct inducements for impressing upon one another. By merely giving to each other prudential instruction or exhortation, they may gain, or think they gain, nothing: in inculcating on each other the duty of positive beneficence they have an unmistakeable interest, but far less in degree: a person may possibly not need the benefits of others; but he always needs that they should not do him hurt. Thus the moralities which protect every individual from being harmed by others, either directly or by being hindered in his freedom of pursuing his own good, are at once those which he himself has most at heart, and those which he has the strongest interest in publishing and enforcing by word and deed. It is by a person’s observance of these, that his fitness to exist as one of the fellowship of human beings, is tested and decided; for on that depends his being a nuisance or not to those with whom he is in contact. Now it is these moralities primarily, which compose the obligations of justice. The most marked cases of injustice, and those which give the tone to the feeling of repugnance which characterizes the sentiment, are acts of wrongful aggression, or wrongful exercise of power over some one; the next are those which consist in wrongfully withholding from him something which is his due; in both cases, inflicting on him a positive hurt, either in the form of direct suffering, or of the privation of some good which he had reasonable ground, either of a physical or of a social kind, for counting upon.

    In short, enslaving 5% of the population of the world to make 95% happy is off the table, even if it would allow some form of calculus to demonstrate that the world is net happier this way: this is a violation of Justice.

    If we pull in On Liberty (and I see no reason not too), Mill also takes great pains to make it clear that the only grounds for harm is to prevent another greater harm. Not merely to make someone else happy, but solely to prevent harm.

    I would guess that the reason that people who teach Utilitarianism gloss over these points is because most Philosophers are not Ethicists, most Ethicists are enamoured with Hume’s (ridiculous) view of Morality (and are thus not Utilitarians), and most Utilitarians are not Millian Utilitarians, meaning that the vast majority of folk teaching 1st through 3rd year Ethics courses are doing so because their department has assigned the course to them, not because it’s their primary area of study.

  12. 12
    Broggly

    What happened to Krugman the hero of Keynesianism? Surely if a factory paid decent wages (I’m not saying western wages, as developing countries are forced to compete on the basis of lower wages as their poor infrastructure makes them less productive) the workers would not only pull up wages but also increase aggregate demand in their area as they can spend more money.
    I do agree that some anti-globalisation arguments are essentially selfish rentseeking or xenophobic fears about foreigners taking our jobs, but we have just as much a responsibility to improve foreign worker’s conditions as our ancestors did to improve worker’s conditions in the 19th and 20th centuries.

  13. 13
    David

    Just read an article which webbed a lot of thoughts together in my head and made me think of this post. Here: http://www.nytimes.com/2012/01/22/business/apple-america-and-a-squeezed-middle-class.html?_r=2&pagewanted=all
    The cost difference is negligible these days with parts coming from all over the world. The reason most things are manufactured in China is because China has perfected manufacturing. It’s all about flexibility. If you discover a sudden problem in manufacturing, call up your factory and they will bring their workers in after midnight for a 12 or 18 hour shift and solve that problem. You wouldn’t be able to do that here in North America, the culture is completely different. You need 10’000 parts by the weekend, they hire an entirely new team and have them trained within hours so the factory can run nonstop and get you the parts. Next week you don’t need so many, they lay off everyone, who then go to work at another factory that needs a suddenly huge order. There are a lot of reasons for manufacture in China. Even if the cost was the exact same as manufacturing in the USA, I am quite confident that Apple would stay in China simply because of all the other things that they do that factories in the USA just can’t compete with. At least that’s how it is for electronic and mechanical manufacturing, things like iPhones and door locks. Not entirely sure how it would differ for clothing but I imagine it’s not entirely dissimilar.
    Now, none of this addresses the ethics debate directly. What it does is to emphasize that cost isn’t the factor that people think it is. Those jobs are lost, they belong to China now not because China is cheap but because China does those jobs better than the US ever did.
    So if cost is not a competing factor, then there is no reason NOT to try and improve the lives of the workers. Anyone who says raising wages would increase costs and drive away business has obviously never tried to get anything manufactured, or watched someone else trying to get something manufactured, and realized just how good China is at this. The only reason I can think of that they don’t is because they don’t have to. Laziness trumps all.

    Not sure if I’ve explained well enough, so here’s the tl;dr; version:
    Manufacturing overseas doesn’t happen *just* because of cost, it happens because they are actually better equipped than North America to manufacture most stuff, and arguments of ethics vs cost ignores these factors. They should get paid more because they do their job well enough.

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