The Matthew Memo

We watch again as plainly avoidable disaster strikes Bangladesh. And long after this tragic event we will hear those nauseating remarks that growth isn’t “good” or “sustainable” from the educated Asian elite. We will be told that American imperialists from Walmart are hurting the poor, and that GDP isn’t important. Matt Yglesias seems to have earned the ire of some anti-market anarchists (or something) on Twitter for his response to the accident:

Bangladesh may or may not need tougher workplace safety rules, but it’s entirely appropriate for Bangladesh to have different—and, indeed, lower—workplace safety standards than the United States.

The reason is that while having a safe job is good, money is also good. Jobs that are unusually dangerous—in the contemporary United States that’s primarily fishing, logging, and trucking—pay a premium over other working-class occupations precisely because people are reluctant to risk death or maiming at work. And in a free society it’s good that different people are able to make different choices on the risk–reward spectrum. There are also some good reasons to want to avoid a world of unlimited choice and see this as a sphere in which collective action is appropriate […], but that still leaves us with the question of “which collective” should make the collective choice.

Bangladesh is a lot poorer than the United States, and there are very good reasons for Bangladeshi people to make different choices in this regard than Americans. That’s true whether you’re talking about an individual calculus or a collective calculus. Safety rules that are appropriate for the United States would be unnecessarily immiserating in much poorer Bangladesh. Rules that are appropriate in Bangladesh would be far too flimsy for the richer and more risk-averse United States. Split the difference and you’ll get rules that are appropriate for nobody. The current system of letting different countries have different rules is working fine.American jobs have gotten much safer over the past 20 years, and Bangladesh has gotten a lot richer.

My first reaction is complete, unqualified agreement. The perennial critics of American trade policy always loose sight of how much our spending benefits poorer corners of the world. There’s the occasional fire or accident, and it is sad. But for Bangladesh, a country where two kids die every hour from malnutrition, this isn’t a big deal. It’s tragic that it’s not. But this doesn’t change the fact that it’s not.

As much as the leftists who berated Yglesias want to believe money doesn’t matter, the only thing Bangladesh needs is more money, and more consumption. Only the blind rich elite could possibly claim that growth is not good, and anyone who advices you so is either deluded or misinformed (and no doubt a good concoction of both).

But Yglesias is wrong, at least in his framing. The tradeoff between safety and income is a false dichotomy.  In The Logic of Collective Action, Mancur Olson popularized the idea of “dispersed costs and concentrated benefits”. This is usually used to explain why farmers lobby for protectionist sugar policy – which costs the average American cents, but increases farmer earnings on corn by thousands: the idea that small change from many becomes a powerful force for action when directed to a few. And this is really bad, because our Coke is crappier and most people loose money. But since we’re each giving up so little, collective bargaining just isn’t worth it.

Now imagine if, instead of financing the humanitarian-industrial complex through badly designed aid schemes, America required all imports be sourced from countries with a basic level of safety: decent lighting, water, eye protection, sanitation, and maybe even short breaks. Nothing like what we enjoy in the rich world, but what might be considered “humane”. And we’d hardly have to pay for this. Because America imports so much stuff from basically everywhere, we have huge market power. As long as we make small and sensible demands, it’s highly unlikely that small and poor countries like Bangladesh will protest.

Provided the regulations are not onerous, it’s highly doubtful Bangladesh (or any given poor country) would experience any disemployment effects. We know that all firms operating outside of perfect competition earn rents, and cheap, fixed costs like safety goggles and sprinklers are unlikely to be high enough to necessitate the profit-maximizing firm to reallocate its factors of production.

Of course, as the marginal supply shifts slightly to the left, prices would rise, and export costs would increase. This is where Olson’s theory comes into place. American consumers would have to pay slightly more for their imported clothes, but the most basic regulations would be a fraction of the Bangladeshi cost of production, let alone American retail price. Millions of Americans would, on a day to day basis, be financing safer conditions in Bangladesh. And more importantly, this redistribution will be orders of magnitude more important than farm subsidies. Because a dollar to a rancher is basically the same as a dollar to a Bostonian. But a dollar to a Bangladeshi is, relatively, far more valuable to a poor laborer than it is to you and me.

And this regime could continue gradually through the process of development. Until wages converge significantly, this would be of little cost to each individual agent. This is a little bit like a carbon taxation system. A simple, dumb, tax on domestic production would simply encourage offshoring of industry to freer countries. The quick fix is a tariff that internalizes carbon output globally, thereby reducing the incentive to offshore.

In principle (though wage differences are too high in practice) this would prevent American companies for moving production overseas solely for the purpose of badly-treated labor. Whatever the case, this solution is better in a number of ways: it can replace a lot of the work done by foreign aid. It is incredibly difficult to corrupt, as the funds aren’t direct transfers. It is far cheaper, and guarantees a better standard for the worker. Best of all, it doesn’t imperil Bangladeshi growth.

I would rather we redirect USAID’s budget towards domestic problems and use our infinitely more valuable international market power to solve problems abroad. And I’d be surprised if Yglesias disagrees!