Paul Krugman did some excellent columns in the 1990s on the need for sweatshops in third world countries. He still believes they are necessary, but has effectively reversed his position by calling for tougher standards on working conditions in developing countries. These regulations would hurt the poorest of the poor by moving factories from places like Bangladesh to places like China, which have better (less bad) working conditions.
Krugman justifies this position by pointing to the following data:
At this point, however, there really isn’t any competition between apparel production in poor countries and rich countries; the whole industry has moved to the third world. The relevant competition is instead among poor countries — Bangladesh versus China, in particular. And here the differences aren’t as dramatic: McKinsey (pdf) estimates Bangladeshi productivity in apparel at 77 percent of China’s level
I’m no expert on this subject, but the study seems fishy. Obviously Bangladeshi wages are nowhere near 77 percent of Chinese wages. Why not? I’d guess that while factory productivity in Bangladeshi textile mills is 77 percent of Chinese levels, total productivity’s less than a third of Chinese levels, as infrastructure like roads, ports and electrical power in Bangladesh is far below Chinese levels.
I suspect that Krugman wants to believe that government regulation can improve the appalling working conditions in Bengali factories. So would I. But wanting to believe something doesn’t make it true.
PS. Here’s a policy that would enrich both Bengalis and Americans. Have 747s fly over Bangladesh and dump $100,000,000,000 out of the cargo bay. QE will boost US RGDP, and foreign aid will help the Bangladeshis.