Jun 9 JDN 2460471

One of the best papers I’ve ever read—one that in fact was formative in making me want to be an economist—is Wrongful Beneficence by Chris Meyers.

This paper opened my eyes to a whole new class of unethical behavior: Acts that unambiguously make everyone better off, but nevertheless are morally wrong. Hence, wrongful beneficence.

A lot of economists don’t even seem to believe in such things. They seem convinced that as long as no one is made worse off by a transaction, that transaction must be ethically defensible.

Chris Meyers convinced me that they are wrong.

The key insight here is that it’s still possible to exploit someone even if you make them better off. This happens when they are in a desperate situation and you take advantage of that to get an unfair payoff.

Here one of the cases Meyers offers to demonstrate this:

Suppose Carole is driving across the desert on a desolate road when her car breaks down. After two days and two nights without seeing a single car pass by, she runs out of water and feels rather certain that she will perish if not rescued soon. Now suppose that Jason happens to drive down this road and finds Carole. He sees that her situation is rather desperate and that she needs (or strongly desires) to get to the nearest town as soon as possible. So Jason offers her a ride but only on the condition that […] [she gives him] her entire net worth, the title to her house and car, all of her money in the bank, and half of her earnings for the next ten years.

Carole obviously is better off than she would be if Jason hadn’t shown up—she might even have died. She freely consented to this transaction—again, because if she didn’t, she might die. Yet it seems absurd to say that Jason has done nothing wrong by making such an exorbitant demand. If he had asked her to pay for gas, or even to compensate him for his time at a reasonable rate, we’d have no objection. But to ask for her life savings, all her assets, and half her earnings for ten years? Obviously unfair—and obviously unethical. Jason is making Carole (a little) better off while making himself (a lot) better off, so everyone is benefited; but what he’s doing is obviously wrong.

Once you recognize that such behavior can exist, you start to see it all over the place, particularly in markets, where corporations are quite content to gouge their customers with high prices and exploit their workers with low wages—but still, technically, we’re better off than we would be with no products and no jobs at all.

Indeed, the central message of Wrongful Beneficence is actually about sweatshop labor: It’s not that the workers are worse off than they would have been (in general, they aren’t); it’s that they are so desperate that corporations can get away with exploiting them with obviously unfair wages and working conditions.

Maybe it would be easier just to move manufacturing back to First World countries?

Right-wingers are fond of making outlandish claims that making products at First World wages would be utterly infeasible; here’s one claiming that an iPhone would need to cost $30,000 if it were made in the US. In fact, the truth is that it would only need to cost about $40 more—because hardly any of its cost is actually going to labor. Most of its price is pure monopoly profit for Apple; most of the rest is components and raw materials. (Of course, if those also had to come from the US, the price would go up more; but even so, we’re talking something like double its original price, not thirty times. Workers in the US are indeed paid a lot more than workers in China; they are also more productive.)

It’s true that actually moving manufacturing from other countries back to the US would be a substantial undertaking, requiring retooling factories, retraining engineers, and so on; but it’s not like we’ve never done that sort of thing before. I’m sure it could not be done overnight; but of course it could be done. We do this sort of thing all the time.

Ironically, this sort of right-wing nonsense actually seems to feed the far left as well, supporting their conviction that all this prosperity around us is nothing more than an illusion, that all our wealth only exists because we steal it from others. But this could scarcely be further from the truth; our wealth comes from technology, not theft. If we offered a fairer bargain to poorer countries, we’d be a bit less rich, but they would be much less poor—the overall wealth in the world would in fact probably increase.

A better argument for not moving manufacturing back to the First World is that many Third World economies would collapse if they stopped manufacturing things for other countries, and that would be disastrous for millions of people.

And free trade really does increase efficiency and prosperity for all.

So, yes; let’s keep on manufacturing goods wherever it is cheapest to do so. But when we decide what’s cheapest, let’s evaluate that based on genuinely fair wages and working conditions, not the absolute cheapest that corporations think they can get away with.

Sometimes they may even decide that it’s not really cheaper to manufacture in poorer countries, because they need advanced technology and highly-skilled workers that are easier to come by in First World countries. In that case, bringing production back here is the right thing to do.

Of course, this raises the question:

What would be fair wages and working conditions?

That’s not so easy to answer. Since workers in Third World countries are less educated than workers in First World countries, and have access to less capital and worse technology, we should in fact expect them to be less productive and therefore get paid less. That may be unfair in some cosmic sense, but it’s not anyone’s fault, and it’s not any particular corporation’s responsibility to fix it.

But when there are products for which less than 1% of the sales price of the product goes to the workers who actually made the product, something is wrong. When the profit margin is often wildly larger than the total amount spent on labor, something is wrong.

It may be that we will never have precise thresholds we can set to decide what definitely is or is not exploitative; but that doesn’t mean we can’t ever recognize it when we see it. There are various institutional mechanisms we could use to enforce better wages and working conditions without ever making such a sharp threshold.

One of the simplest, in fact, is Fair Trade.

Fair Trade is by no means a flawless system; in fact there’s a lot of research debating how effective it is at achieving its goals. But it does seem to be accomplishing something. And it’s a system that we already have in place, operating successfully in many countries; it simply needs to be scaled up (and hopefully improved along the way).

One of the clearest pieces of evidence that it’s helping, in fact, is that farmers are willing to participate in it. That shows that it is beneficent.

Of course, that doesn’t mean that it’s genuinely fair! This could just be another kind of wrongful beneficence. Perhaps Fair Trade is really just less exploitative than all the available alternatives.

If so, then we need something even better still, some new system that will reliably pass on the increased cost for customers all the way down to increased wages for workers.

Fair Trade shows us something else, too: A lot of customers clearly are willing to pay a bit more in order to see workers treated better. Even if they weren’t, maybe they should be forced to. But the fact is, they are! Even those who are most adamantly opposed to Fair Trade can’t deny that people really are willing to pay more to help other people. (Yet another example of obvious altruism that neoclassical economists somehow manage to ignore.) They simply deny that it’s actually helping, which is an empirical matter.

But if this isn’t helping enough, fine; let’s find something else that does.