In Defense of Sweatshops

I firmly believe that sweatshops are better than the alternative. Many economists agree. The Indonesian in a Nike sweatshop is there because there are no better-paying jobs. To believe otherwise you would have to accept that the Indonesian doesn't know better.

But I wonder if regulation could make things better. For example, say Nike pays an a worker $1 to make 100 shoes sold for $100. Now instead that all countries required a minimum salary of $2. (If just Indonesia adds regulations, Nike might move to another country.) Assuming a highly competitive market, Nike is making little profit on that shoe, so it has no choice but to pass the costs on to the consumer. So each shoe is now selling for $100.01. Let's assume--perhaps unrealistically--that the increase in price is so small that demand doesn't change. The new situation isn't more efficient in a traditional sense. Although the worker has $1 extra, 100 consumers have $0.01 less, which means they will spend less elsewhere. Moreover, no additional wealth is created.

However, the Indonesian is much happier, while the consumers may hardly notice the difference. So though overall wealth is not increased, overall happiness may be.* Now it's not obvious that this is fair--the consumers are paying for this increased happiness--but it seems like a good thing. I suppose it's a modest form of compulsory charity.

To summarize, I firmly believe sweatshops are better than none at all. But I do wonder if wage regulations (if they could be enforced) would produce a more optimal situation.

* By "happiness" I'm referring to the traditional concept of utility here. I firmly believe that utility is a sublinear function of wealth. That is, an extra dollar gives Bill Gates much less pleasure than our Indonesian worker. Most people agree with this notion.