The Other School of Economics

It might not be as bad, but @chrisberg did a mini Mike Daisey in his last Age piece.

On Sunday 1/4/2012 the Age published a column from Chris Berg of the Australian ‘free market think-tank’ the Institute of Public Affairs (‘the IPA’). He followed up on the revelations that American ‘monologist and actor’ Mike Daisey had fabricated and sensationalised a story exposing appalling working conditions at the Foxconn factory in China, which makes Apple products. The spectacular retraction of Daisey’s story by the same respected radio program “This American Life” that had initially made it famous, prompted Berg to argue that “westerners consumed by tech toys wallow in misplaced guilt“.

The point of this post is not to replay the debate between the pro and anti campaigners, who clearly see each others as the embodiment of cynicism. On one hand, the free-marketers will keep smirking at those activists who obviously don’t get that it’s the likes of Foxconn that will ultimately lift Chinese workers out of poverty, even if it comes a temporary unfortunate human cost. On the other hand, the bleeding hearts will keep petitioning their disgust for a system fuelled by the collective denial of basic decency. …. And both camps will keep broadcasting their views from their macs, iPhones or iPads. (Did anyone say cynicism?)

Notwithstanding those clearly marked positions, 2 points made by Berg in his column must be called out because they are serious distortions of the historical record.

The first claim is that “It’s not the developed world’s fault that some countries are poor.”

That is simply not true.

Consider India, which was a major exporter of textiles in the early 18th century, but by the middle of the 19th century had lost all of its export market and much of its domestic market. The country underwent a dramatic deindustrialisation as a consequence. While India produced about 25% of world industrial output in 1750, this figure had fallen to only 2% by 1900. How did such major producer of textile ended up actually importing cloth from Britain from the 1850s?

This happened as a direct consequence of the European Industrial revolution: the mechanisation of British factories resulted in increasingly large volumes of textile that needed to be exported in order to be sold: the British isles could not absorb this alone. This is why the East Indian Company orchestrated a takeover of the Indian market. Military “protection” was imposed on the Mughal empire, which enabled the British to ship their goods without paying any tariff: therefore to sell them cheaper than the locally made products, sending Indian workers broke. This economic and social cost was augmented by the draconian tax regime imposed by the British.

Historical revisionism: seek advice, you are not alone.

A similar story happened in China, where the East India Company encountered more resistance. The Qing dynasty refused similar terms of trade, which frustrated the British immensely. They needed extra revenue to pay for all the Chinese products wanted in Europe (when so few European goods were in demand in China). So the British organised the illegal importation of Indian opium into China to raise this money. The growing revenues the East India Company extracted from Indian taxation was not enough so the sale of opium in China became the principal source of revenue for the British Empire.

The negative impact on Chinese society was evident both in human suffering and growing corruption produced by the smuggling. In the late 1830s the Chinese government tried to end the illicit opium trade but was defeated by the British in the First Opium War (1839–42). China was forced, at the Treaty of Nanjing in 1842, to pay a heavy indemnity and to cede the island of Hong Kong, along with five other ports where foreigners could trade without being subject to Chinese law. This resulted in even more opium imports which stunned China for the decades to come (pun intended).

So if going back to the history books is too tedious to immunise ourselves against outbursts of revisionism, maybe this simple chart published by the Economist (not really a socialist journal?) tells the story quite strikingly: see the drop of GDP for India and China as they were being sucked dry by the European colonial powers?

The second claim is more contemporary: “They (the Chinese workers) know if they are being exploited. They know better than us their employment alternatives.”

What “alternatives” are we talking about? This turn of phrase is extraordinary because it shows how seeing the world as ‘a free market’ really obscures the mode of thinking.

You would almost picture “Mrs. Wang and Mr. Shu’s whose life consists of exactly 29 possessions, including four chopsticks and a mobile phone“(1) weighing-up and arbitraging their “employment alternatives” like Goldman Sachs traders.

Such a way of presenting things is frankly disingenuous.

As Canadian reporter Doug Saunders explains in his book Arrival City – in which the extract on Mrs. Wang and Mr. Shu can be found - there is indeed a willing migration taking place across the world, that sees millions of peasants knocking on the doors of cities to join the urban middle class. Between 2007 and 2050, the world’s cities will absorb an additional 3.1 billion of them. These people are doing it more or less willingly, that is true.

However, what Chris Berg misses is that whilst those migrants do know the magnitude and significance of a sacrifice that will take 2 or 3 generations to deliver a better life to their grandchildren, they have far less control – if any – on the daily circumstances that put them at the mercy of unscrupulous exploiters. It is the same universal and timeless story, from the landless peasants of the Dickens era to the Chinese factory workers of 2012, who have been embarking on journeys they do understand, without being able to control their stopovers. Whether you are from the Right of from the Left, you can debate globalisation until it outlasts religion, but Doug Saunders’ testimonies are absolutely unequivocal about one point: while the long term benefits of globalisation are clear for those who come out of it alive, the ongoing sacrifices for those who take the first steps are absolutely horrendous, and no column should sugar-coat them.

“despite their dreams of marrying and having a family someday, cohabitation is beyond even considering. Despite the length and commitment of their relationship, they can both name the number of times they have been alone in a room together. They both enjoy the lively bustle and high wages of Shenzhen, and would love to find a way to move here permanently, but they’ve realized it is almost impossible to put down roots in any lasting way. (2)

“They sent all of their income back to Shi Long, and went years without seeing their daughter. They joined China’s “floating population” of between 150 million and 200 million people. Under the country’s rigid household-registration (hukou) system, people living in the city but holding village registration papers are not entitled to urban housing, welfare, medical care or access to schooling for their children in the city. After reforms to the hukou system at the beginning of the twenty-first century, it became possible for migrants to apply for urban hukou—but this is in practice virtually impossible, and means giving up their village homes. Very few peasants are able to do this in the first generation, because China’s primary-education, child-care, welfare and unemployment insurance systems are not even remotely sufficient to support the precarious life of a new city-dweller. (3)

I could go on in copying extracts but you get the gist….

So to conclude on a semi-lighter note, there you go: it might not be as bad, but Chris Berg did a mini Mike Daisey in his last Age piece and finds himself in the position of L’Arroseur Arrosé (The Sprinkler Sprinkled). May those two examples be an opportunity to invite the IPA and the editors who publish them to apply a bit more intellectual rigour when exposing their views. It is the least they can do to be grateful to an environment that is giving them more than a substantial and generous air time in print, online, on TV and on radio.

{ leLaissezFaire – Sydney – 2 April 2012 }

L’Arroseur Arrosé (The Sprinkler Sprinkled): Louis Lumière original (1895) and revisited by Hergé

1: Saunders, Doug. Arrival City (p. 14). Allen and Unwin.
2: Arrival City (p. 59).
3:Arrival City (pp. 15-16).

Addendum

This post was re-run (without the Tintin illustrations) by Business Spectator with the title “Who’s right about Foxconn?“. Business Spectator also published on their Technology Spectator site this telling survey commissioned by the Fair Labour Association. “The survey came back to bite Apple” and brings another layer of evidence to clear the air around “the spin factory that is surrounding Foxconn’s working conditions.” (flagged by twitterer @jonathonio)