Every two years or so, British newspapers awaken to the awful reality of low-wage work in India: long working hours, appalling conditions at the workplace and downright thuggish bosses. That may well be the case, but while it spawns moral outrage, it doesn’t end the economic rationale behind sweatshops.
A month ago, The Observer found that Indian suppliers to some top retailers such as Gap, Next and Marks and Spencer paid pitifully low wages of 25 pence (approximately Rs 18) per hour. Workers were made to work for as long as 16 hours in some cases. Managers of the brands involved proffered the usual responses. Ethical practices would be reinforced; suppliers reprimanded and warned that they would be discontinued if they did not behave. After that, it was back to business as usual.
It has to be. In any manufacturing unit, there is a minimum wage, also known as the reservation wage, which an owner has to pay, otherwise he would find no one to work. In that case, the worker may, for example, prefer to work at home or in his/her village. In almost all developing countries, the reservation wage for manufacturing units is quite low compared with industrial wages in developed countries, but is still significantly higher than the wages that workers can earn in agriculture or by manual labour elsewhere. That is the reason why “sweatshops” continue to attract workers even if wages are as low as Rs 18 per hour.
The other option, often advocated as being more humane, is to rigidly enforce the minimum wage as prescribed by law. There is no way to enforce these wages except perhaps by policing all manufacturing units. Even if this is done, all that will happen will be to create a privileged class of workers out of the millions who look for work. Few manufacturers, if any, will set up shop with high-wage workers when they have to export their products. Any wage cost rise can potentially kill their business as brands will simply move their business to even more low-cost wage countries: Even the small wages that workers eke out will be taken away from them. That is surely more cruel than not earning anything at all.
As India exploits its low-wage advantage, especially in those sectors where unskilled labour is a key factor of production, wages will certainly rise. This has happened in every country where manufacturing has taken root since the Industrial Revolution. India will not be an exception.
Sweatshops: immoral or beneficial to the poor? Tell us at firstname.lastname@example.org