Saturday, May 14, 2011

Free Markets in a Petri Dish: Saipan

Tom Delay was a small business owner. He did pest control. When the government required he stop using DDT he was outraged, and went to Congress on an anti-regulation crusade. Damn these government beurocrats stifling innovation and inhibiting economic growth. Here he is cutting that damn red tape off Lady Liberty.

He and others that think likewise got to try that theory on the small Pacific Island of Saipan, also known as the Commonswealth of Northerm Mariana Islands. Delay says that prior to instituting pro market policies the island was totally dependent on the government. An awful society with high alcoholism, high drug use, high divorce rates. He would tell the Washington Post that the low wage, non-union conditions were a "perfect petri dish of capitalism."

The garment industry set up shop. They imported laborers. There were rumors of 18 hour days and 7 day work weeks. Workers fleeing because of abuse and beatings. Pregnant women being informed that their jobs would be at risk if they didn't have abortions. You know, the kinds of things you might expect in an unregulated, free market environment where the balance of power is heavily skewed towards the owners.

Congressman George Miller proposed legislation that would bring Saipan under the umbrella of US labor laws. Garment store owners didn't like that idea. And they knew that Tom Delay supported free markets when it came to election contributions. He had said “If you support the free market in everything else, why wouldn’t you, above all, support the free market principles in election campaigns?” So they funneled money to Delay to block the measures. Jack Abrahmoff collected about $200K/month.

Part of the campaign included bringing conservatives out to tour the island. These included John Doolittle (R-CA), Dana Rohrbacher (R-CA), Ralph Hall (D-TX), Tom Feeney (R-FL), Ken Calvert (R-CA), Robert Underwood (D-Guam), Phil English (R-PA), John Sweeney (R-NY), John Duncan (R-TN), Brian Bilbray (R-CA), Bob Schaffer (R-CO), of course Tom Delay (R-TX), and also others. The charges were all lies of course coming from liberals and "big union."

Congressman George Miller though did something the others didn't do. He talked to the workers. One weeping worker begged him to buy his kindeys so he could pay off his debts and return to China.

Grover Norquist and his think tank "Americans for Tax Reform" were enlisted to demonize big labor and liberalism in exchange for sweat shop money. The efforts to releive the suffering continued to be stymied.

Ultimately though the reality could not be suppressed by the rhetoric of freedom and lobbying efforts in this case. The allegations, all denied by Congressmen that were wined and dined at Saipan, in fact were true. New rules were instituted and most of the garment industry fled looking for a new source of exploitable labor. In the wake is an island reeling from envioronmental destruction, prostitution, and crime. Delay saw it as a test case for a world without onerous government regulations and for free markets. On that he was right.

I learned of this via a documentary about Jack Abrahmoff. It's worth watching.


HispanicPundit said...

I was about to post a defense of sweatshops, but then I read further, and realized you have already made the case:

New rules were instituted and most of the garment industry fled looking for a new source of exploitable labor. In the wake is an island reeling from envioronmental destruction, prostitution, and crime. Delay saw it as a test case for a world without onerous government regulations and for free markets. On that he was right.

In other words, sweatshops are an improvement to workers alternative choices. That is why ALL economists support them, whether Paul Krugman or Milton Friedman. There is simply no way out of poverty - every country went through that stage.

But of course, those who oppose them can feel morally superior while those they "helped" suffer worse outcomes.

Read Paul Krugman on sweatshops here.

Angelo Villagomez said...

And now the clothes are being maid in Cambodia, the last factory having closed in 2009. Check out the blog Unheard No More for the new controversy, what to do with the thousands of workers.

Jon said...

Help me out here, HP. Do you think the owners should have the legal ability to demand 18 hour work days, 7 days per week? How about chaining workers to their desks? How about threatening them regarding abortions?

Or let's go further. Suppose the owners demand sexual favors. Should that be legal?

Do all economists support that behavior?

I don't disagree with the points from Krugman. But that's not what this is about. This is about people being hoodwinked. They were misled and arrived with a mountain of debt. So they work those 18 hour days for months just to repay that debt. That's why these people want to sell organs to return to China. Their alternatives were better in China. They just didn't know it when they were tricked by these business men.

So what's the solution? What's going to resolve that? Government intervention. Under free market conditions you get indentured servitude. DeLay and Abramoff wanted to let the free market go. Also free markets with regards to campaign contributions. This is the result.

The owners were making enough to send millions to DeLay, Abramoff, and various other Congressmen. But not enough to pay people decent or alleive their suffering to where they didn't have to enter the world of prostitution just to get by? Or sell organs?

I could go out to the streets tonight and tell various homeless people to lick my boots and I'll give them $2. Should that be legal? I have enough money and for them it's better than the alternative.

Chad said...

I let my wife just read your articles and she just laughed, shook her head and then gave me a 10 minute, detailed dissertation about the subject. See my wife has a Masters Degree from The Ohio State University in Clothing and Textiles, she has a BA from Bowling Green in Business. She works for one of the top clothing companies in the world in product sourcing, was a Six Sigma Black Belt before that, and before that was the Quality Assurance Manager for 5 years. She has worked for Abercrombie, Eddie Bauer and Spiegel - she is the Tom Brady of the clothing world so when she speaks I listen and I suggest you do the same.

Her first comment was like hitting a nail on the head with a bull dozer - Jon is a researcher, but knows zero about the clothing and textile world - bing!

She has been to these countrires, she has been to these plants and she has also talked with line workers to management to owners who beg for her business. The waiting list to work these 18 hour days is enormous, since there is very little capitalism around to earn a living working in a mill like this is a privilege. The conditions are absolutely unbearable and to us lazy azz Americans the thought of doing whatever it takes to have a better life is beyond us - we want to work 6.5 hours a day with 4 breaks, we want to earn the maximum amount of money for the absolutely smallest amount of effort. Americans over price their labor especially at the base levels, taking clothes and placing them in a box is not skilled labor, but Americans want to be paid $15/hr to do that when a worker in other countries will GLADY take $3/hr and those workers are willing to work 10, 15 or 18 hours a day.

Enter the labor movement and guys like Jon telling those folks that they are being taken advantag of, that they need to speak up and organize for rights - rah rah ree let's kick them it the knee - go team go so the cost of labor goes up and guess what the cost of thier goods does? Anyone, anyone - Bueler? Their PRICES go up and suddenly they are not so competitive and sourcing looks somewhere else. So what happens Jon when your #1 customer reduces orders by 50% or cancels the orders period? People are fired, plants close and jobs disappear.

My wife hates this part of her job, she is not as evil as I am, but she also sees what happens to entire companies and people when labor dictates the cost of goods that is already established. Another words the cost to produce a garment is x and that is what her company is wiling to pay or they will move the business. Her company looks for social compliant companies so they are not buying from true sweat shops, but her competitors are and they continue to capture more of the market share every year.

Chad said...

Year over year the pricing off shore continues to rise which begins to bring more business back to the US - it is happening in my line of work as well. No longer is pricing for steel tube off shore a major driver to order - in fact I am capturing orders off shore (Korea, China, India and Japan) because of lead times only. Once the domestic mills open up capacity and lead times push back in our off shore order book will dry up to nothing. So here is the problem - I believe that more and more business / industry and manufacturing will come back to the US - especially when we get a new conservative prez. But Jon and guys who think like Jon are going to once again push the cost of labor bar here up, up and up to force sourcing to return back of shore unfortunately. That to me is what sucks the most - instead of doing what is necesary be more competitive in America we have groups that want to dictate the cost of labor that is not there. My father made $26 hr by the time he retired from Ford Motor. Without pause I can tell you that 95% of the population could have done his job - his labor was artificially expanded because of Unions. His job is a $8-$10 hr job all day everyday for all time. If labor was appropriately held in check what would a new Fusion cost? $9,000 - maybe $10,000 fully loaded. Instead they cost $22,000 base. At $10K I would buy one tomorrow and so would a lot of people which would do what my friends? Create more jobs!

Jon said...

Your wife sounds smart. But let her know this. I don't disagree with her one bit. Her claims are not claims I am disputing.

Did I deny that people are lining up to work in sweatshops? No. I'll go even further. They'll line up to provide sexual favors to the owners. They'll line up to lick your boots. These are desperately poor people. They'll sell you their organs. Who's denying any of that?

This is a product of the system we have. If the one company has employees working 18 hours the next will try to eeck out 19. And if he's paying $1 an hour the competition will try to get 90 cents. And when they've accomplished that because of the imbalance of power is that where it will stop? No. Profits need to increase next quarter. Give them 80 cents. Barely enough to survive, or maybe not quite enough to survive to a normal age, but long enough to be a useful employee.

What should you do when they try and organize so that they can bring balance to the present power disparity and get improved working conditions or pay? Beat them up if you can get away with it. And if you weaken the regulatory apparatus and generally starve government, as in Haiti, you'll be able to do it. The investors will see gains in the share price. They'll be happy. They won't know how you did it and they won't care.

And it doesn't matter if the owners have 10 homes, or 100. Increasing profits and pleasing Wall St is a never ending proposition.

This is what you get when you have Tom DeLay's fantasy free market solution. You talk about how we give you a free market island and give me an island with beurocracy and red tape. There's your island. Saipan. A dream world in the eyes of conservatives. They cheered it on, calling it success. All the while 90% of the prostitutes were garment workers, and all the workers wanted to do was sell a kidney or two to be able to escape the prison.

It doesn't have to be like that. That world was not unlike the US in many ways in the 20's and 30's. Major changes happened. Unions achieved key victories and growing membership. We had social welfare programs, like Social Security. Boom. The economy exploded. The golden age of the American economic history. Very much unlike what DeLay, Abramoff, and you would suggest. And it worked wonderfully.

Chad said...

Thanks for the compliment about my wife, she is brilliant. Interestingly enough she does not have a political bone in her body so what I like doing is to bounce situations off her and to get her opinions. She roots her thoughts in common sense and often it is tough to break her position without exposing a weakness to my thinking so she is a great sounding board for me.

So with that said here is the question she just left me with after reading your re-post. Who decides, if not by competition, what wages should be? Any attempt to have one person or group decide what an appropriate wage might be for non skilled labor is not only dangerous it should not be allowed to happen. Competition must be allowed in order to maintain appropriate checks in the system especially today. In her opinion Unions are far more dangerous and destructive to business than any other organization second only to government. With that said, she believes to her core that there needs to be an organization dedicated to protecting labor and competition. A non profit, non political organization with pure intentions to protect workers and workers rights for all. An organization that has a clear direction, internal rules that regulate their own and to truthfully help the labor force. Her company is non union, they tried to organize a couple times, but it was squashed quickly. The focus of the union today - in her experience and opinion - is money and power only and they have over stepped their bounds which is why they are dying. She has the opinion that the internet and 24 hr media today do more for the workers than any union. If a business enters into questionable practices and that news gets out into the public when sales/profits take a hit that business fixes that problem and their image ASAP or they die. Fair market competition and today's real time media world effectively eliminates the need for the Unions of old and you know what I think she is right on all counts. We know that the Wisconsin teachers made more than the national average and private sector teachers in the same state - they could not escape that and that is why they buckled so easily when they needed to give so much back, that happened so so easily and with little fight because the facts.

Chad said...

The collective bargaining issue ended up bieng the catalyst for the stupidity that took place, but lost was just how easily the teachers gave away their money. It wasn't the politicians, it wasn't the great job done by the politicians why they gave in - it was because they knew that if they held out the public would have made them the punching bag because of the facts.

It seems to me that she might have something and I may start carrying that flag some. Wages should be dictated by the market place and labor should have protection, but today's system is not working. Like I said previously, I love my dad, but he should never seen the type of pay he saw for what he did and some of the stories of Union abuse should never happen either.

HispanicPundit said...

I would be against any type of entrapment, slavery, or any stipulations that restrict the free flow of labor.

So of course, forced 18 hour work days should be illegal. So should, for example, laws that say "if you work for us, you could never work for a competitor".

The workers should always and at any time be freely allowed to quit. No threats. No punishment, no nothing.

Then under those circumstances, I would argue that everything else is ipso facto a better alternative for these workers than their current options. And is therefore an improvement.

Paul said...

PBS's "Frontline" also did a crazy good show on the scandalous wizardry behind Abramoff/DeLay worth checking out.

I'll look into the documentary you mentioned.

Paul Pearson
Porter, TX

Jon said...

Competition doesn't determine wages in any industry, Chad. Your wife is not paid a free market salary. The garment industry is heavily subsidized by a military industrial complex that keeps oil prices within a fixed range. It's subsidized by a shipping industry completely developed at public expense for war. It's subsidized by accounting practices reliant on computers, developed at public expense.

So it's subsidy all the way until we reach the poor peasants. At that point we say "Competition, free markets, no government regulation." Now that we've reached the summit we kick the ladder out from under ourselves. Let them work 18 hour days chained to their desks and variously beaten. We, with our good eductation and privilidged upbringing, get to go home and stuff our bellies. There are no free markets, Chad. That's the fundamental point you need to recognize.

So given that we are living in a world where public funding and regulation is immense and influences the salary of all of us privildged people, why not use that same apparatus to serve not just the rich, but also the poor and suffering?

In some cases offering $2 for a homeless guy to lick my boots may be better than the alternative for him. But that doesn't mean we should stand for that. We can do better. Here's what you say to Abercrombie and Eddie Bauer. I don't care if your sweatshop is better than a rural alternative. You chain people to desks, give them starvation wages, and or force 18 hour work days you don't sell a single thing in our country. And I'm sending in regulators to make sure you don't. No running off to the next country to exploit.

And yeah, if my socks costs more I'll live with it. That would probably be true temporarily. But what happens is as you invest in those poor people they pull themselves out of poverty and ultimately the whole world is better. Suddenly they can educate their children. Suddenly they can go to the doctor. Those things build on each other. It's not a short term profit making solution. It's long term.

I'm not here to blame the sweat shop owners. The system we have demands the punishment they inflict on the poor. But as a society we can impose on them that they don't do this. It could hurt short term, but helps long term. That's what we've learned with the key labor victories of the 20's and 30's.

Actually I think a lot of these CEO's want these kinds of things. As a CEO they are forced to do what is necessary to improve profits. Their hands are tied. So yeah, they move to the country with no funding for education or health care, because lower taxes means improved profits. They have to. But if we impose on all of them that they pay some taxes to help the public, and the requirement is across the board, they know the competition is similarly constrained so they don't have anything to fear in terms of the way they are evaluated by Wall St. Everyone has to. And they can then embrace their humanity instead of trying to rationalize all the harm and misery they impose.

Jon said...

HP, prostitution for 8 year old girls in Thailand is an improvement for them, right? Or maybe boot licking for the homeless guy. We should keep government out of it. Let the free market go, like DeLay and Abramoff say, right? You agree with that?

I've talked before about Bum Fights. This kid whenever he'd get a few bucks he'd go find a couple of homeless people and have them fight until the other is unconscious for $10. It seems they think it's worth it. Should that be legal? For the victor it's an improvement. Or at least he thinks it is. Not so for the loser, but I guess he thought the risk was worth it. Meanwhile the kid makes tons of money on the internet. Should we leave that situation alone?

HispanicPundit said...

Prostitution for 8 year olds is different, cuz they are minors. But as long as were talking about consenting adults, yes, I am for that.

Couple of points to keep in mind: many peoples only other viable option is precisely prostitution, or picking through trash, or starvation ((as the Paul Krugman article pointed out) when you moralize their current choices, keep in mind what their alternatives are. Its hardly ever "great middle class USA standard of living", by which you are viewing them from.

Second, implicit in your moralizing is the belief that you know more about these peoples trade-offs then they do. Maybe bum fighting is a better option (I mean, we allow it in boxing, UFC, etc why not Bums?)? Maybe its not?
But who is in the best place to know? Where would the margin of error be minimized(not eliminated,minimized)...I propose that the person most directly involved should make that decision. Not the government, or some outside entity.

In other words, treat the people like rational intelligent beings. Revolutionary idea, I know.

Jon said...

OK, so you are for legalized bum fights. How about boot licking?

Paul said...

HP - you do realize you are a moral subjectivist (or at best relativist), right?

In other words, treat the people like rational intelligent beings. Revolutionary idea, I know.

And also not true. People are not rational. :-p

Jon said...

By the way, UFC is a bit different. It's regulated to ensure fighters have some protections. States wouldn't let them fight unless they proved things like that and other things. Like they ban the use of steroids. The reason is because they believe they are harmful to fighters. Do you object to those regulations?

HispanicPundit said...

I probably would be for bum fights. My only problem with that is that the person paying for the fights does not internalize all of the costs. In other words, the bums would then go to emergency rooms and have the tax-payers pay the costs. But if the healthcare costs (along with say, accidental death costs etc) were all internalized, then yes, I would be for it.

And of course, I would be for allowing bums to lick boots for money. Would you really be for outlawing that? Wow.

And yes, I would be for allowing steroids and even legalizing drugs in general. Along with prostitution and other moral issues. In fact, I am even for legalizing gay marriage and polygamy. Crazy ideas, I know. They take some getting used to for all you moral zealots out there, but thats what freedom is about. :-)

HispanicPundit said...


Actually, my main point in my response is not that I personally like or even would do such an act, but that I think it should be legal. It should be allowed. The person under consideration is the person who should make the decision, not the government.

Subtle but fundamental distinction.

Chad said...

Jon when you argue your points you go to the worst case scenario that happens 1% of the time - it really underminds your otherwise decent arguements. Chained to their desk for 18 hours and beaten - good gravy your a little off your rocker my friend. Do I think that happens in this world somewhere and probably - yes I do, but it is not the norm and should not be talked as if it is.

Paul said...

HP -

And yes, I would be for allowing steroids and even legalizing drugs in general. Along with prostitution and other moral issues. In fact, I am even for legalizing gay marriage and polygamy. Crazy ideas

I missed this earlier. On the issues you mention above, we are in agreement.

Jon said...

What?? Paul, you side with HP? I'm crushed.

I really disagree with both of you on this point. I can understand permitting something like steroids for personal use. Supposing you just want to look good or whatever. But if you allow them for performance enhancement in sports you effectively mandate that everyone HAS to take them if they want to be involved in sports. If you're a UFC fighter you can't enter the ring against an opponent that has the option to use them because you know he will. And let's suppose the drugs are dangerous and harmful. You will definitely harm a lot of people.

It's like the sweatshop owner. If the competition is permitted to work people 18 hour days, then what will every other owner have to do? Same thing. Because if they don't then they'll just go out of business. They may not want to do it, but what choice do they have? They can stick with their principles and work them 8 hour days and go out of business. Then the workers have to get a job with the competition working 18 hour days. Or they can work them 18 hour days as well.

But if there's a law passed saying 8 hour days max then I can offer the 8 hour days and not be worried about going out of business because the competition must do the same. Now I'm offering these workers something much better and I can feel good about it.

I'm sure it's not easy for sweat shop owners. Most people don't like being oppressive (except the psycopaths of course). In the unregulated free market though they have no choice.

Chad said...

Jon - what I am struggling with here a little bit is hypocrisy. You speak often about the US being war thugs - invading other countries to impose our belief systems by force yet you feel it would be right for us to impose our thoughts when it comes to labor? Do they have to have indoor plumbing as well?

On the opposite side of the coin you want labor to have all these rights, but believe that central government should be in charge of industry? Isn't that why these sweat shops exist now?

On one hand you want people to be free from the US war machine, but on the other you want these countries to adhere to your labor laws otherwise US companies should be forced or fined if they do business over there.

Once again the 18 hour work per day flag your waving around here - how many companies are like this in the world - probably less than half of one percent so again stop hurting your argument with fringe expamples like that. So if a tribe - looking for food and building a home works more than 18 hours a day to survive then your going to come in and shut them down?

This is getting boring - I am an International Trader and Mill Rep and my wife works with countless companies across the world - we do not work with any nor do we know of any business that work their employees 18 hours per day. The floors are dirty, the conditions suck, the environments are not very safe, but they are not bound to desks, they do not work more than 12 hours per day, they actually get days off and they are allowed to pee a couple times if needed. That is the norm - that is the baseline that needs to be used Jon. Your falling into the left wing trap - make everything sound the worst that it possibly could be for a reaction. Problem is that people are smart, they research and find out that your stance is only for the extreme 1% then your argument gets pushed away like a fly. Don't get swept up in that - stay in the real and talk about the 75% of businesses that run similar to what I just talked about to make your point. No one person would say that it is ok to work someone 18 hours a day, to have them chained to a desk and beaten so stop that nonsense.

Jon said...

I oppose bombing other people. But I do support treating them well. That's hypocrisy?

I don't think central government should be in charge of industry.

The 18 hour work claim is directly from the movie about Jack Abramoff. Same with the claim about being chaned to desks. These were the allegations. Generally right wing denials about the conditions were directly contradicted by human rights agencies. It's an allegation. But let me ask you this. Should it be allowed? Because if you think these owners should be permitted to treat people this way since it is better for them than the alternative, then why object to me framing it this way?

Chad said...

Frame it how you want Jon, but when your whole argument is based on 1/2 of 1/2 of 1% of all businesses in the world it is a yawn'er.

I find it far more interesting to discuss how you think forcing our labor values in another country is ok. Are your values above God and another countries? What if China forced the USA to observe their holiday's or they shut off the cash cow? The hypocrisy is that you think your way is the only way for all. My great grand father worked 18 hours a day to make a better life for him and his family. When I went through my divorce I worked about 110 hours and 5 jobs a week to make ends meet instead of taking money that was not mine. Shoveling shit and cleaning sewers it is not pretty, clean or safe, but it pays.

Jon said...

How do you work 110 hours in a week with 5 jobs? There's no time to drive between work sites.

As much as we disagree I'm impressed.

Paul said...

What?? Paul, you side with HP? I'm crushed.

It pains me to agree with HP too :-)

I do think prostitution should be legal and well regulated. If a woman or a man want to sell their body for money - I am quite ok with that. To repeat myself, I am also quite ok with regulating - for safety, etc. I don't see a contradiction here.

I do think gay marriage should be legal.

I think the drug war is a waste of time and money and even if I am wrong in thinking so I am pro-legalization. This one is not a strong a view as the other mentioned above. And the "lesser" a drug is the more pro legalization I am. For the synthetic and harmful drugs I can be persuaded.

If someone wants to work crazy hours per week for a job that is fine. I don't think it is fine for these kinds of things to be a condition of employment; however. I am being brief but I hope the essence of what I am saying is clear.

One last thing - and this was not directed at me but Chad said "Are your values above God and another countries?"

And I feel compelled to answer. Above God.? To which mythological one is this referring too? :-) The answer is yes. To the latter the answer may still be yes.

Paul said...

Jon - one more thing. I didn't respond to the following

But if you allow them for performance enhancement in sports you effectively mandate that everyone HAS to take them if they want to be involved in sports. If you're a UFC fighter you can't enter the ring against an opponent that has the option to use them because you know he will. And let's suppose the drugs are dangerous and harmful. You will definitely harm a lot of people

I am sympathetic to what you are saying. And the concerns you mention are something I struggle with (i.e. I haven't resolve them philosophically - in some cases). For example - at the moment I do support legalization of steroids. And the possible effects to pro-sports may just be as you describe. Though the pro-leagues could self-impose their own regulations. Would they, if the law didn't (In some sense) require it? I don't know. Possibly not.

Generally my inclination is to allow an individual to self-abuse as they wish. As I also am against allowing one person legally abuse another - particular when the person abusing the other is in a position of power. Does this make sense? I could go into detail if not. Or if you were interested.

Jon said...

Yeah, go ahead and elaborate. I agree to legalize drugs generally. The industry might ban steroids on their own. Great if they do, but if they don't I think the law should do it.

So if I'm a potential fighter I have to consider that if I want to be in the UFC I have to be on steroids. So I can either skip fighting, which is not ideal, or I can harm myself with drugs. Maybe the drug use will be worth it if I make it big. But if I don't (like most) I'll have nothing to show for the damage I inflicted. A better solution for the fighters generally is you ban them.

Paul said...

I had begun writing an entirely different response but then thought the following may simpler.

Assume that I support legalization of steroids for personal use.

Also assume I have no qualms with government regulating UFC to ensure fairness and safety accordingly.

Does this make sense?

Jon said...

Makes perfect sense to me. Now I think you're back in my camp though and away from HP. So that's cool. That's precisely my view.