Dani Rodrik's Weblog: Sweatshops, Sweatshops Everywhere
Rodrik is reacting to an article in the New York Times about Con Edison discovering their manhole covers are being made in a sweatshop in India.
An embarrassed Con Edison says that it is now rewriting its international contracts to include safety requirements.
Fine, but what if these requirements now raise the cost sufficiently for the utility to want to switch its supplies to another source? And what if these West Bengali workers now find themselves out of a job, or earning less in even worse working environments? Would we have we done them any favors by becoming outraged at their condition?
This is one of the trickiest issues in international trade, and one for which there is no straightforward answer that I can think of.
Libertarians and fair-traders, which make an odd couple, do have a solution: they would say let consumers have information about the full hedonics--all the characteristics of a good, including the manner in which they are manufactured--and then let markets take care of it. So if Con Edison believes its customers value the welfare of West Bengali workers, it ought to be willing to pay for the extra costs its suppliers incur for running safe factories. No regulation is required; just better information.
But if you believe information and markets can address this problem, you must also believe that consumers have a good idea about the costs of improving workplace conditions and can solve complicated general-equilibrium models each time they decide how much to pay for toys from China or towels from Pakistan. For what is at issue is not just "do you care for workers over there?" but also "do you understand the full general-equilibrium consequences of what would happen to the workers concerned?" Market intermediaries can help, but we need to ask in turn who will keep them straight and honest.
Bingo! A great case study in discerning economic justice.