Economics 101 & Public Square

Do Market Economies Exploit or Liberate?

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Recently, IFWE produced and released a new video titled “I, Smartphone.” The video is based on the short essay, “I, Pencil” , which was written by Leonard H. Reed and published by the Foundation for Economic Education.

These two stories are about how the market works. The market brings together dispersed individuals, who, by pursuing their own self-interest, bring products to the whole world. Even products as deceptively simple as pencils, or as sophisticated as smartphones.

The lesson here is that no one person, no matter how smart or how wealthy, possesses the knowledge required to make these things.

Even the brilliant and successful Steve Jobs did not have the knowledge to make an iPhone from beginning to end. He had the revolutionary idea for the iPhone and other Apple products, but he couldn’t execute that idea by himself. And no one directed him in this pursuit. There was no government comptroller of innovation who presupposed the idea and commanded it to be so.

In spite of the obvious benefits of the market process, we might have some concerns about how the market bestows benefits on its participants.

  • How are the workers in the factories overseas treated?
  • Is the market exploiting them to save a few bucks?
  • How are Christians to feel about all of this?

Economic thinking can help us cast discernment on these issues. The first question an economist asks is, “what are the alternatives?” Sometimes unintended consequences provide a less acceptable alternative.

We should be conscious of the unintended consequences of legislation which attempts to help raise living standards in poor countries. Paul Krugman illustrates unintended consequences perfectly in one of his op-eds. He writes:

In one famous 1993 case U.S. senator Tom Harkin proposed banning imports from countries that employed children in sweatshops. In response a factory in Bangladesh laid off 50,000 children. What was their next best alternative? According to the British charity Oxfam a large number of them became prostitutes.

It is important to also ask yourself:

  • Are the people working in these conditions doing so voluntarily?
  • Or are they being coerced?

If the employment is voluntary, then we can assume that the choice to work in a manufacturing plant in China, for those choosing it, is better than the alternatives those people have.

If the employment is a better alternative, then it might be a good thing that U.S. companies choose to locate in depressed economies.

Another unintended consequence is that sometimes we take away an opportunity for people in that country to make their lives better:

  • As they work in these conditions, they gain skills.
  • As they gain skills, their productivity increases.
  • As their productivity increases, so do their wages.

Think about it this way: the United States economy prior to the Industrial Revolution was very similar to what we see in developing countries today. Cotton farming, coal mining, factory work all were characterized by low wages, long work hours, and often dangerous conditions. Child labor was the norm and children often worked 12-14 hour days, six days a week.

This mirrors what we see currently in developing countries that have not experienced an Industrial Revolution. Because the U.S. embraced economic freedom, it experienced economic growth, and has largely overcome these conditions.

I would argue that the high levels of wealth and growth in the U.S. are what have and continue to provide hope and actual opportunity for those in the poorest countries. We should want as many U.S. companies to enter developing countries as possible.

Competition for employment will only benefit workers in developing countries. The market motivates business owners to make these decisions through the competitive process. What it really does is provide real poverty alleviation for the world. 

What do you think? Do market economies exploit or liberate? Leave your comments here

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