Labor is Not a Commodity

Policy Contrast: Lead Paint vs. Child Labor

By Robert Senser (reposted from Human Rights for Workers blog)

"The discovery of lead paint in a wide range of Chinese goods exported to the U.S. (from toys to jewelry) raises difficult public policy questions," Economist Dani Rodrik writes in the September 11 entry on his blog.  He goes on to think about the policy positions taken toward two different issues: unsafe imports vs. imports made in sweatshops --"issues which seem quite distinct, but are actually quite analogous in many respects."  Among the similarities in characteristics shared by the two kinds of imports:

• In both cases, exporting countries have domestic regulations and standards which on paper are sometimes stronger than those in the U.S., but enforcement is weak. 
• Both types of substandard production make goods cheaper and create a competitive advantage.
  
• The final consumer in the U.S. cannot tell whether the toy contains lead paint or has been manufactured using, say, child labor under exploitative conditions.
  
• We are less likely to buy the product, all else being equal, if we know it contains lead paint or has been made by children.

In view of such parallels, "we might think that the policy response to the problems in these two areas would be similar," Rodrik speculates. But it is not.

Why the Different Responses to the Two Issues?  

"In the area of consumer safety and lead paint, the general tendency has been to push for more regulation and better enforcement of existing standards.  The U.S. toy industry itself has gone so far as to ask the federal government to impose mandatory safety-testing standards for all toys sold in the U.S.  Free-trade economists would find it perfectly appropriate for the U.S. to pressure the Chinese government to enforce its own lead standards, and if not, to impose testing and other restrictions at the [U.S.] border.  As far as I know, not even libertarian economists have proposed that the best way to deal with the problem is to simply label Chinese-made toys as having uncertain lead content and letting U.S. consumers sort themselves out according to their own preferences and health-hazard/price trade-offs.

"But in labor standards, we have a totally different approach.  Most of my economics colleagues think it is inappropriate for the U.S. to ask foreign governments to enforce standards that they have already signed into law or ratified in international agreements.  They would be horrified at the thought that the U.S. should impose restrictions at the border for goods that do not satisfy core international labor standards. And they would generally favor so-called market-based solutions, and labeling in particular, so that consumers who really care about labor standards can channel their buying power appropriately.

"So what gives? Why do we accept regulation in one sphere so easily, yet reject it in the other so fiercely?"      

In an update, Rodrik adds: "There is by now a growing literature that shows that consumers (or major segments thereof) are willing to pay substantial premiums for goods made under fair labor standards.  See here and here.  So it is not correct to say that consumers care about the (tiny) probability that their children will be harmed by lead paint, but not about labor practices abroad."

A Basic Tenet of Economics: Consumer Primacy

One of the comments that followed came from Marcos Ancelovici: 

"I think that each regulation addresses a different issue: safety-testing standards address the quality of the product regardless of how it was produced whereas labor standards address the conditions under which the product was produced. The quality of the product necessarily concerns consumers, but not necessarily the conditions of its production."

To which Rodrik promptly responded as follows:          

"Marcos --You are violating one of the most important tenets of economics, which is that consumers themselves are better judges of what they value than outsiders. And as I mention in my update, consumers obviously do value higher labor standards abroad." 

"But in labor standards, we have a totally different approach.  Most of my economics colleagues think it is inappropriate for the U.S. to ask foreign governments to enforce standards that they have already signed into law or ratified in international agreements.  They would be horrified at the thought that the U.S. should impose restrictions at the border for goods that do not satisfy core international labor standards. And they would generally favor so-called market-based solutions, and labeling in particular, so that consumers who really care about labor standards can channel their buying power appropriately.

"So what gives? Why do we accept regulation in one sphere so easily, yet reject it in the other so fiercely?"      

In an update, Rodrik adds: "There is by now a growing literature that shows that consumers (or major segments thereof) are willing to pay substantial premiums for goods made under fair labor standards.  See here and here.  So it is not correct to say that consumers care about the (tiny) probability that their children will be harmed by lead paint, but not about labor practices abroad."

A Basic Tenet of Economics: Consumer Primacy

One of the comments that followed came from Marcos Ancelovici: 

"I think that each regulation addresses a different issue: safety-testing standards address the quality of the product regardless of how it was produced whereas labor standards address the conditions under which the product was produced. The quality of the product necessarily concerns consumers, but not necessarily the conditions of its production."

To which Rodrik promptly responded as follows:          

"Marcos --You are violating one of the most important tenets of economics, which is that consumers themselves are better judges of what they value than outsiders. And as I mention in my update, consumers obviously do value higher labor standards abroad." 

"But in labor standards, we have a totally different approach.  Most of my economics colleagues think it is inappropriate for the U.S. to ask foreign governments to enforce standards that they have already signed into law or ratified in international agreements.  They would be horrified at the thought that the U.S. should impose restrictions at the border for goods that do not satisfy core international labor standards. And they would generally favor so-called market-based solutions, and labeling in particular, so that consumers who really care about labor standards can channel their buying power appropriately.

"So what gives? Why do we accept regulation in one sphere so easily, yet reject it in the other so fiercely?"      

In an update, Rodrik adds: "There is by now a growing literature that shows that consumers (or major segments thereof) are willing to pay substantial premiums for goods made under fair labor standards.  See here and here.  So it is not correct to say that consumers care about the (tiny) probability that their children will be harmed by lead paint, but not about labor practices abroad."

A Basic Tenet of Economics: Consumer Primacy

One of the comments that followed came from Marcos Ancelovici: 

"I think that each regulation addresses a different issue: safety-testing standards address the quality of the product regardless of how it was produced whereas labor standards address the conditions under which the product was produced. The quality of the product necessarily concerns consumers, but not necessarily the conditions of its production."

To which Rodrik promptly responded as follows:          

"Marcos --You are violating one of the most important tenets of economics, which is that consumers themselves are better judges of what they value than outsiders. And as I mention in my update, consumers obviously do value higher labor standards abroad."