August 29, 2011

The Eminently Real Free Market (XXIX): Sketchy Stories (17): Save Money, Live Better, Just Do It, Right Here, Right Now: Non-Vulgar Thoughts on Working for Wages for Transnational Corporations

There are only three factors of production—always land and labor, sometimes also capital—and each factor earns an income. Its income is a function of its contribution to the product. The greater the contribution of a given factor, the greater the income accruing to it. Only capital can enhance the productivity, and hence the income, of the other two factors.
And so, as even common sense should suggest, what a worker can command in wages is determined by what he offers the employer. If the latter misestimates too high or too low, his enterprise becomes unprofitable or another employer bids his labor away from him. Either way he is soon out of business.
Wages, the rent-price of labor, rise with labor productivity. Labor productivity in general is not increased by workers’ working “harder” or “smarter,” but by capital investment. Wages are not, therefore, a function of either worker need or employer greed, to borrow George Reisman’s assonant couplet.
* * *
Having discussed chattel slavery, we now turn to labor conditions in the Third World—or at least to Mr. Ferrara’s description thereof in all its melodramatic bluster and irresponsibility:
Even today, in Third World countries such as China, Bangadesh and Indonesia, Wal-Mart, K-Mart, Nike and other corporate giants have been caught employing either slave labor or wage-slaves through a vast, plausibly deniable network of thousands of subcontractors and suppliers.  And, thanks to the government-sponsored creation of “free-trade zones” in Central America by the United States Agency for International Development (USAID), giant American corporations can set up shop in tax-free havens (not available to small domestic competitors) where masses of impoverished people churn out products for American retail in return for near-starvation wages. (21-22)
We observe that Mr. Ferrara uses “slave” (and its cognates), if not equivocally, then at least imprecisely enough so that it is difficult to know what corporate entity he’s charging with what offense. Are, for example, Wal-Mart’s employees like China’s prison labor? If not, what purpose does juxtaposing them serve if not a propagandistic one? (And unless “Third World” is a euphemism for “non-white,” which we doubt is Mr. Ferrara’s intended sense, it is hard to see how China may still be sensibly referred to as a “Third World country.”)
Mr. Ferrara shows no curiosity about whether those “masses of impoverished people” welcome the opportunity to avoid actual (not merely near) starvation by “churning out” those products (to be bought mostly by workers whose standard of living is as high as it is due to past capital investment). Relative to their pre-investment condition, the prospects of investment and their attendant employment opportunities are attractive to them. They demonstrate that by flocking to these factories as soon as they are opened.
As we will see later in TCATL when Mr. Ferrara explicitly defends the “just wage,”* he implicitly holds that there is a “zone of indeterminacy” for wages. If that were so, then suasion, moral or criminal, can be brought to bear on the interested parties as they settle on a point along that zone.
That is, according to Mr. Ferrara’s claim, Wal-Mart, K-Mart, Nike, etc., could pay higher wages without putting at risk their operations—and the livelihoods of the impoverished people that depend on them. But he never spells this out and certainly never justifies anything like such a claim. It’s all assertion all the time. Above the level of barter, the zone of indeterminacy is vanishingly narrow, and the hire-price of labor tends to be set already at the high end, in which case the only way to go is down.**
Mr. Ferrara’s sketchy history—excuse me, historical sketch distilled from his well-stocked library of material—is supported by equally sketchy references:
The use of slaves or virtual slaves by Wal-Mart and other transnational corporations, acting through a complex web of subcontractors and sub-sub contractors (thus permitting plausible deniability by upper management) has been documented beyond serious dispute. See, e.g., “A Wal-Mart Christmas: Brought to You from a Sweatshop in China,” National Labor Committee Report (2007). (329 n. 30)
What is beyond serious dispute is that the NGO formerly known as the National Labor Committee in Support of Human and Worker Rights, now the Institute for Global Labour and Human Rights, is a propaganda arm of the international labor union movement, whose well-documented history of tender solicitude for the rights of human impediments to its goals does not merit Mr. Ferrara’s concern. That Institute is as objective about wage determination as Greenpeace is about global warming.
Mr. Ferrara announced that TCATL will not treat economic theory (except to ridicule Austrian economics before readers who know even less about it than he does). He thus avoids, or evades, committing himself to any theory of wage determination that we can examine. Such details are beneath his notice. He is content, apparently, to give the impression that wages are a function mostly of employer bad will and employee pressure.
If he believes that market forces have anything to do with wage determination, he doesn’t say. It would be interesting to see where he lines up on the spectrum between pure market determination of wages as held by Austrians and pure exploitation theory as held by orthodox Marxists.
Every good, whether consisting of land, labor (human energy), or capital, has a rent or per-unit price. Since slavery is intrinsically inconsistent with free markets (because inconsistent with the self-ownership of laborers), labor cannot be bought on such markets, as is land or capital goods, but rather only rented.  
A wage is the rent or unit-price of labor. You may buy a plot of land from Smith, its owner, or rent its use from Smith. Smith himself, however, you may only hire; you may not buy Smith.
And no textile firm in El Salvador bought Rosa Martinez! She is the Salvadoran sewing machine operator exploited in Mr. Ferrara’s second-hand propaganda, who works for thirty-three cents an hour (down, we’re told, from fifty-seven cents). She is not a slave of any company operating in El Salvador, and it is offensive to the world’s actual slaves to suggest that she is.
Mr. Ferrara copped his emotionally charged example—which comes from an ad in a textile industry journal—from John Médaille’s The Vocation of Business: Social Justice in the Marketplace (Continuum, 2007), p. 252. Mr. Ferrara then reproduces his Foreword writer’s analysis:
[Rosa] lives in absolute poverty; her meager earnings provide little excess over subsistence to support the local economy, and the plant contributes nothing either to taxes or to import replacing abilities. (22)
Continuing his gloss on Mr. Médaille’s putative textbook example of global corporatist slavery, Mr. Ferrara notes that at “one ‘free-trade’ zone’ garment factory the daily output was valued at $30,000, while the labor cost came to $180. (22)
Ignoring Mr. Ferrara’s tiresome, smarmy reference to “free trade” in scare-quotes, we ask for the meaning of his implicit comparison between output valuation and cost about which he writes with such confidence. Where does he get his data?
And, more importantly, who is Rosa Martinez? What were her circumstances before that international textile company invested in her country? Did they not improve them? Does Mr. Ferrara even regard that as a relevant question?
Would it be better if the managed-trade agencies of various governments (e.g., USAID) were not involved, yea, never existed? Absolutely. But under these actual circumstances, which are beyond the control of either her employer or Sra. Martinez, did these two parties not make a deal that benefited both of them?
Mr. Ferrara insinuates that wages could be, say, doubled to $360 with no perceptible degradation of the lifestyles of the alleged fat-cats who own the factory, whose greed is alleged to be the only impediment to that modicum of improvement in their workers’ lives.
Such nice workerist propaganda. But where is the analysis? What are the margins that must be assiduously observed if there is to be a factory for Rosa Martinez to work in?
Silence. You’re supposed to feel where Mr. Ferrara is coming from.
Ah, but we’ve been taken for a ride. Mr. Ferrara quotes Mr. Médaille, but what is his source? A case study from, say, the Harvard Business School or anything else equally authoritative?
No. So sorry.
Courtesy of Mr. Médaille’s own propaganda (The Vocation of Business), Mr. Ferrara’s borrowed the material for his “historical sketch” from a 1995 video, Zoned for Slavery: The Child behind the Label. Who produced this agitprop?
Why, the National Labor Committee, now Institute, of whose propaganda output Mr. Ferrara already made us aware. It’s right there in Mr. Médaille’s 18th reference note on page 343. You can even watch it here.
More exposure of Mr. Ferrara's splendid sources presently.

To Be Continued

* By a “just wage” Mr. Ferrara does not mean the rate of hire that the hirer and the prospective hired non-coercively agree to, regardless of whether the latter has no other opportunity for employment unless he relocates. (For Mr. Ferrara, having no such opportunity disqualifies the agreement as free.) Mr. Ferrara means a wage that in justice he must be paid—and then he will add this odd proviso—if the employer can afford to. We have never heard of a requirement of justice, whether pertaining to positive or negative rights, being subject to such a condition, e.g., “I will repay my debt to you . . . if I can afford to” or, “I will not mug you . . . unless I cannot afford not to.” To offer wiggle-room is the prerogative of mercy, not of justice. What Mr. Ferrara fails to see is that if any employer is now paying what Mr. Ferrara deems a “just” or “living” wage, it is because he cannot afford not to if he wishes to stay in business.
** “It is curious that many writers move smoothly through rigorous price analysis until they come to wage rates, when suddenly they lay heavy stress on indeterminacy, the huge zones within which price makes no difference,” allegedly, to the employment of a given factor of production. Murray N. Rothbard, Man, Economy & State with Power & Market, Chapter 10, “Monopoly and Competition,” Section 4, B, 1.