What will the kids do?

The hoo-ha about child labour in the manufacture of Sherrin AFL footballs strikes me as massively wrong-headed.

20120925-085547.jpg

The girl in this picture is 18, and left school for a low paid manufacturing job at 14. It is not so common these days, but this was common a generation ago in Australia. Growing up in country NSW, i knew boys who would leave school at the legal minimum age of 14yrs and 9months – taking jobs that helped support their parents and siblings. Go back another generation or two, and a significant minority of Australian kids did not go onto high school.

Now let us think about what happens to these Indian kids if Sherrin closes their factory – they will lose their employment and hence their incomes. With less demand for labour in the community, wages will fall for everyone.

Some families may have chosen an additional wage over education for some of their children – and at the margin this may send some kids back to school. However, the grim reality of development is that child labour is the norm until societies get rich. So for most families, this simply means a decline in living standards, and less probability of any of their kids being sent onto secondary school.

A common pattern in poor communities is that the most promising child is sent to secondary school, while the others work to support both the families in general and that child’s education in particular. For these families, the loss of income due to Sherrin closing their factory would mean taking that child out of secondary school.

Fifty years ago, children in Singapore and Hong Kong made shoes. Now they go to university. To deprive the families of India this proven route out of poverty because it makes us feel squeamish is selfish and short sighted.

Let us suppose that the fair-trade do gooders win and all shoes and textiles are made in the west once again. What happens?

First the price of poor Indian labour goes down by a lot, and the price of basic textiles increase (which is regressive in both producer and consumer markets). Next, the increase in price leads to an increase in the returns to research and development in textile manufacturing (plentiful cheap labour means that there has not been all that much mechanization in this area). Finally, we figure out a cheap way to get machines to stitch our shoes and textiles – and the price declines once again.

The gains from this are likely to be concentrated in a tech company (probably in California or Germany), rather than spread out across millions of poor children in the developing world.

So the price goes back down for us western consumers … But the wages never go back up for the poor children. Is this really such a good policy?

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41 Responses to What will the kids do?

  1. ssec says:

    So the rational conclusion is that kids in poorer countries have to make cheap footballs for very low pay, so that our spoiled kids can have 10 footballs each in their backyards? And executives at Sherrin can enjoy their fat profits?

    Is that the best we can do? Or should we aim higher?

    How do we make sure that we, as a society, do not take unfair advantage of them just because they do not have other alternatives at the moment?

    • Ricardo says:

      The fact is that jobs work better than any aid programme in generating REAL development – the sort that takes societies from back-breaking manual labour to university education.

      The main lesson from government sponsored aid programmes is that nothing works. Sachs is excited about mobile phones, and perhaps they are the exception …

      If you feel bad about your cheap gear, i suggest that you fly over and engage in one of the very rewarding school building initiatives.

      I think buying more footballs and helping to build a school would do more than any ‘fair trade’ initiative.

      What else can we do? Further dismantle discriminatory trade barriers

      • ssec says:

        “If you feel bad about your cheap gear, i suggest that you fly over and engage in one of the very rewarding school building initiatives”

        So you are saying everyone needs direct involvement for everything he/she feel bad about … do you do that for everything you feel bad about? Obviously impossible.

        Say I walk down the street and I see someone who is homeless, dying and has no food. I tell him “Come with me, you can be my slave. As my slave, I will feed you and give you a place to live. But you’ll be my slave.” Is that OK for me to do, if that person accepts and the alternative for that person is to die. Obviously I am taking this to the extremes to make the point.

        “I think buying more footballs and helping to build a school would do more than any ‘fair trade’ initiative.” That’s just so you feel OK and have no remorse.

        “What else can we do?” Make sure our companies apply the same standards we enforce in our country in every country.

      • ssec says:

        BTW, in the article it says:

        “The AFL’s agreement with Sherrin contains a specific provision outlawing the use of child labour. It has issued Sherrin with a “please explain” notice over its use of child labourers, most of them girls, who are pulled out of school to stitch balls.”

        So that pretty much covers it.

        • Ricardo says:

          Yeah, i know – they are stuffed. But the point i am trying to make is that the biggest thing most can do for these kids is to give them a job. Sure, sherrin can take smaller profits, etc, but there is a limit to how far anyone can rely on the generosity of strangers.

          Oxfam didn’t pull a billion Asians out of poverty over the last 20yrs. That was fat western consumers buying the cheapest gear at Wal Mart.

      • ssec says:

        We are talking about *child* labour here. I have nothing against Sherrin or other companies making footballs in China or India or wherever they wish to. But just because it is India it does not mean they can do whatever they want. It’s quite obvious. And there are international rights even western companies should adhere too, even in India. You can never be careful enough when children are involved.
        Here you go:
        http://human-rights.unglobalcompact.org/dilemmas/child-labour/

        • Ricardo says:

          It is great that they got those kids off to school (the first UN dilemma) – a key problem is that school is not free, and a grim reality is that often three kids work so that one can go to school.

          But that’s the rub – take away the work and no one goes to school.

      • ssec says:

        Yes, they won’t build schools with Sherrin paying them 12¢ a ball, that’s for sure.
        Maybe Sherrin should pay them 12¢ a ball AND build a school for them too.
        Maybe they should also include study subsidies for every child that is working for them. Half day working and half day studying. The solutions are multiple. Companies only understand money, so these reports are good to keep them alerted.
        Here are some examples of what can be done responsibly:
        http://human-rights.unglobalcompact.org/case_studies/child-labour/
        Who knows, hopefully Sherrin will end up on this list.

      • Andrew says:

        “The weak is to be defended. We must help them becoming strong. We must not take “The weak is to be defended. We must help them becoming strong. We must not take advantage of them just because they are weak. These are basic principles that must be respected.”

        Don’t get me wrong, I 100% agree that it is a tragedy that we do not care enough about the poor. I wish Sherrin did pay $1 a ball, and international companies paid higher wages to workers, but I fail to see how banning child labour will result in this outcome. I am saying that given this reality, if the 12c an hour is the best the child can do (they weren’t forced to pick this employer, I have no doubt other employers are just as shabby), then having this job taken away does them no favour. They will only move to the next-worst employer, who must be paying a lower wage or offering worse conditions (otherwise they would have already been working for them) .

        And on the kidneys, so long as nobody is forcing this exchange, and they are willingly choosing the option of selling their kidney for this price, under no coercion and no threat of force, then of course this should be allowed. Of course it would also be better if the next individual was willing to pay more for the kidney. But if there is an individual who so desperately needs $50 more than a kidney, how can preventing this exchange (for any price) be a positive outcome? If we disallow it, we are implying they do not know what is best for themselves. First we need to prove that is indeed the case. We already have failed to provide support in our negligence – let’s not actively do so by restricting their ability to decide how to fix their own poverty.

        Note: the following article (seems to be down) reported that the families of the children were complaining that the factory had been forced to shut down, as it was a primary source of income, and they have now found themselves with insufficient funds to support their familiies: http://www.smh.com.au/national/sherrins-child-labourers-abandoned-20120927-26mr3.html?skin=text-only

    • Andrew says:

      ssec – The question is not so much, “is this okay to do” as it is, “should we ban this behaviour, given that the extent of society”s pure altruism has been insufficient to solve the problem?” After all, if there is nobody feeding the homeless person, and they are choosing this option over certain death, would a policy that bans their choosing of this life sustaining option of their own free will be better than one which strips them of the ability to choose in the face of certain death? Will they be glad for its initiation, given the reality of their predicament?

      The sad fact is that not enough of the western world are willing to send unsolicited funds that replace market wages on the condition the child attends school (world vision, compassion etc), so child labour is the reality. Banning it only improves the situation if labour demand is inelastic enough that it increases parent wages to a sufficiently high level to afford sending more children to school. (See “Child labor: cause, consequence and cure (Basu, 1999), incidentally the new world bank chief economist)

      The united nations design policy on principle, rather than outcomes. This is a western dogma. You will notice the world bank does not support policies to prevent child labor, as they focus on the best outcome given that altruism hasn’t worked. Parents in developing countries do not relish the notion of sending their children to work, but words do not feed the poor.

      (I agree that companies should not hide their labour sources, and those who are willing to institute such programs should publicize this in the hope of consumer demand solving the issue. The problem is this hasn’t worked thus far.)

      • Ricardo says:

        Exactly the point i was trying to make … thanks for helping me with the academic reference :)

      • ssec says:

        “After all, if there is nobody feeding the homeless person, and they are choosing this option over certain death, would a policy that bans their choosing of this life sustaining option of their own free will be better than one which strips them of the ability to choose in the face of certain death? Will they be glad for its initiation, given the reality of their predicament?”

        Yes, it would be better. The weak is to be defended. We must help them becoming strong. We must not take advantage of them just because they are weak. These are basic principles that must be respected.

        Western companies paying a child 12 cents a ball is simply taking advantage of them. Why 12 cents and not 1 dollar, or two dollars a ball? The children do NOT have a choice, they can’t defend themselves or argue, they are *children*. And their parents are often in a very difficult situation. Sherrin can’t afford to pay 1 dollar a ball?

        If child labour is really helping them, it should be controlled, checked for conditions and their rights defended as we do for people in our country. For instance, implementing a child labour certification program, where working conditions are monitored and salaries too.

        Your conclusion is perfect: let’s mark all Sherrin balls with “produced with cheap child labor (12 cents a ball)” and see how many they sell. They won’t sell at all because people do care.

        Lastly… what’s next? These children could be selling a kidney for $50: we need them and their parents need our $50. Would that be OK too? The list of what we could get from them for cheap would grow and grow and grow…

        You are entering dangerous territory by removing the “is this okay to do” ….

        • Ricardo says:

          Good intentions mean profits can be crimped for a while, but pretty soon we run into downward sloping demand curves and competition for capital, and then the good natured company goes broke … I stand by my original argument that 12c a ball is probably a good deal for Indian poor, and a lot better than they will be doing after the jobs leave due to ‘good natured’ westerners.

          I agree that the best policy to deal with this is information for consumers … But we should not blindly assume that even information would lead to better outcomes. Fair trade coffee can be anything but fair for competitor producers – it creates insiders and outsiders, which breeds problem of its own.

          The reality is that there are few ‘free kicks’ in development economics.

      • ssec says:

        However you did not address the question: can we buy their kidneys for $50 too? If not, why not?

        And also: why do you think 12 cents is “probably” a good deal for them? What process was used to agree on that “fair” price? I am sure the children were not in the best position for bargaining, were they? These are all questions Sherrin should answer, but won’t be able too. Reality is they just paying money to a “supplier” and have no idea what happens on the other side.

        • Ricardo says:

          I am staying out of the organ trade. Those decisions are harder to reverse, so bargaining fairness matters a lot more. I realise that this is somewhat arbitrary …

          What i am fairly sure of is that the ‘supplier, would have paid the market wage, and that i would guess that 12c and a ball would equal around 15 bucks a day. That is a pretty good wage in rural india. Not great for us, but that’s a path out of poverty.

      • ssec says:

        OK, I guess we agree to disagree then. More details emerging:

        “The Age revealed Sherrins were being hand-stitched by children as young as 10, for as little as 12 cents a ball. The children, almost all of them girls, were being pulled out of school to stitch balls for up to 10 hours a day, seven days a week.”
        “Balls are stitched using two heavy needles and wax-coated string. Child stitchers end up with chronic back injuries, septic wounds in their hands, weakened eyesight, depression and other psychological disorders.”

        If you haven’t realized yet…. this is not child labour.. it is child slavery.

        Well done Sherrins! Auskick will be pride! NAB AFL Auskick gives boys and girls a fun and safe place to play Australian football while introducing them to a lifetime of involvement with the sport. But do not ask how the footballs you kick are made or the fun will be spoiled!

    • Andrew says:

      “The weak is to be defended. We must help them becoming strong. We must not take advantage of them just because they are weak. These are basic principles that must be respected.”

      Don’t get me wrong, I 100% agree that it is a tragedy that we do not care enough about the poor. I wish Sherrin did pay $1 a ball, and international companies paid higher wages to workers, but I fail to see how banning child labour will result in this outcome. I am saying that given this reality, if the 12c an hour is the best the child can do (they weren’t forced to pick this employer, I have no doubt other employers are just as shabby), then having this job taken away does them no favour. They will only move to the next-worst employer, who must be paying a lower wage or offering worse conditions (otherwise they would have already been working for them) .

      And on the kidneys, so long as nobody is forcing this exchange, and they are willingly choosing the option of selling their kidney for this price, under no coercion and no threat of force, then of course this should be allowed. Of course it would also be better if the next individual was willing to pay more for the kidney. But if there is an individual who so desperately needs $50 more than a kidney, how can preventing this exchange (for any price) be a positive outcome? If we disallow it, we are implying they do not know what is best for themselves. First we need to prove that is indeed the case. We already have failed to provide support in our negligence – let’s not actively do so by restricting their ability to decide how to fix their own poverty.

      Note: the following article (seems to be down) reported that the families of the children were complaining that the factory had been forced to shut down, as it was a primary source of income, and they have now found themselves with insufficient funds to support their familiies: http://www.smh.com.au/national/sherrins-child-labourers-abandoned-20120927-26mr3.html?skin=text-only

      • ssec says:

        Soooo, was this child labour or child slavery????? Are you OK with child slavery too?

        “The children, almost all of them girls, were being pulled out of school to stitch balls for up to 10 hours a day, seven days a week”. To make footballs for Auskick…. Considering the rest of the time they spend sleeping, I hope this is not true and a journalistic exaggeration.

        Does Sherrins care about kids at all or only about Australian kids (who must be very special kids with special rights). Ah, yes, they did not know about it, and now they pull out, otherwise they lose their contract, adding insult to injury. Completely, 100% irresponsible.

        • Ricardo says:

          What an achievement — do-gooder Aussies impoverish the rural indian poor. No one wants to work for 15 bucks a day, but it sure beats not working where there is no welfare!

      • ssec says:

        You seem to think there’s no alternative between them not working, or working in slavery conditions for our benefit. How about offering them a job with better conditions and a better pay and at the same time we pay a bit more for our footballs. Is that really that hard to achieve?

        Now Sherrin is moving production to different suppliers. So will they pay more or less? What are the conditions for the new workers? Will Sherrin go bankrupt now (do not think so).

        Your argument of just approving what goes on there, without questioning, with the excuse that there’s no alternative anyway, does not stand. Certain basic human rights we believe in are universal and do not stop at our nation’s boundaries. Sherrin is selling products in Australia and we have the right to know how those products that WE buy are made. All the details.

        Your believe of self-adjusting free markets and economies does not work where even basic human rights are not respected.

        • Ricardo says:

          What is your alternate development model?

          Hopefulness and charity?

          My model works. It worked in Manchester, it worked in New York, it worked in Tokyo, Hong Kong, Singapore, Beijing … It is working in India.

          It isn’t pretty, but it is all that i have got. Nothing else works. That’s the main bottom line from development assistance – nothing works.

          Free trade and giving poor folks jobs works

      • ssec says:

        Your model would not have worked ANYWHERE if people did not strive to make things better, fairer and thought “there’s no alternative anyway”.

        • Ricardo says:

          Agreed. We need both a desire to make things better and good economic policy — surely you can see that closing these factories in india is the first dominating the second in a destructive way?

          Child labour at low income levels is a route out of poverty. This is not infant slavery – kids graduating primary school for low paying work was common in the west three generations back.

      • ssec says:

        Here is a way it can be done properly (and it does not look it impact IKEA profits either, does it):

        “In addition to having KPMG conduct unannounced site visits of all suppliers and subcontractors in South Asia, IKEA, a large retailer, has hired a Children’s Ombudsmen to oversee all aspects of its work with children. IKEA holds workshops for suppliers on a wide range of issues, including child labour. According to its code of conduct, ‘The IKEA Way of Preventing Child Labour’, IKEA requires all suppliers to maintain a registry of all workers and to include their date of birth. IKEA is also partnering with UNICEF to combat child labour in the carpet-producing area of India, Uttar Pradesh. The IKEA-UNICEF partnership seeks to address the root causes of child labour, including poverty and indebtedness. IKEA has helped to establish 1,600 women’s self help groups, reaching 22,000 women. In these groups, women learn about the rights of children, health and nutrition, saving money and starting up small businesses in order to eliminate debts. As a result of the project, more than 80,000 children have enrolled in schools in 500 villages.”

        A children working 10 hours a day and 7 days a week, stiching a ball is slavery, not labour. Don’t be afraid to call it with the proper name.

        • Ricardo says:

          I think that is a wonderful programme. It makes me want to buy IKEA stuff. and i don’t think it is cynical to observe that it is probably good for their sales. I agree, it would be great if there was more of this.

      • ssec says:

        Yes, that’s the proper way to do it: It helps sales and it’s very good marketing. You do not go against your customer believes, you make them important. You have to be 100% committed when manufacturing in Asia, invest time and money in it for the long term. Sherrin just paid whatever supplier cheap money, they lacked and still lack vision (changing supplier and abandon the previous slaves to their destiny).

  2. b_b says:

    Yes – makes so much sense.

    The world was much better when we had kids working in the coal mines from the age of 5 – after all, they earned income to support their familiy. Child labour laws were truely a miguided policy.

    Oh for the good old gilded age….

    • Ricardo says:

      Well, it was a great support in much poorer times – but thankfully we are now richer and can afford to invest in our children’s education (and the popularity of private education suggests we would do so without compulsion).

      The billion or so that have marched from absolute poverty in the last decade owe their gains to western consumer’s preference for the cheapest product. If we stop buying what they produce their living standards will decline.

      • b_b says:

        Wrong wrong wrong. The billion or so that have marched from absolute poverty in the last decade owe their gains to education, and access information and associated improved freedoms and human rights. You keep telling me money does not = wealth. I agree.

        If we stop buying what the produce it will free up real resources in their economy to improve local infrastructure, health, education – Real factors which drive the standard of living.. Instead they are making us cheep footballs. What a disgrace.

        Remember, a trade surplus is a cost to an economy.

        • Ricardo says:

          Most of the development models have been trade surplus / net export models. I take your point that they ought to be importing capital, but in most cases they do not – at least not since the Asian run in the late 90s. You will be pleased to know that india runs a chronic trade deficit — however that does not seem to have been an advantage.

  3. mazhanshi says:

    ssec touched on a good point RE: “Australian kids”. It’s beyond economics, but the nation-state means we tend to care for our fellow Aussie citizens’ rights, but not those of foreigners. Just utilise a foreigner as best we can (e.g. by child slavery/labour) and if there are loopholes in foreign laws that help us do so then by all means use them. What a shame! A flaw of the nation-state system.

    • Ricardo says:

      That is a very interesting question — why we give welfare to social insiders and not to the most deserving. It sure suggests that welfare is not altruistic – perhaps it is an investment in stabilizing our social and economic environments. The sea saves us from the instability caused by the masses of the most deserving poor.

      • ssec says:

        “It sure suggests that welfare is not altruistic – perhaps it is an investment in stabilizing our social and economic environments.”

        Feelings of compassion, sympathy, empathy and commiseration are strangers to you? When you help someone is because you think that person may become a threat to you?

      • ssec says:

        There’s a limit to what can be done or we would be God. No see no care. We help the closest to us.

  4. BK says:

    One of your most commented on articles Ricardo…

    Not sure where I stand on this one. Definitely agree with you on the economics of it all. Ethically and morally, these large multinationals operating in the region should be treating their workers better.

  5. mazhanshi says:

    Could someone who gets economics better than me pls clarify the following?
    So, theoretically, when Sherrin moved to India, it started paying ppl $15 a day. In the future, as more multi-national companiese move manufacturing plants from developed countries to developing ones, the daily wage in the developing countries will creep up to $20 a day (higher labour demand pushing up price of labour), then, after several years, $60 a day, and then, years later to even $100 a day. It’s no longer slave labour. In the mean time, the daily minimum wage in the developed country that shifted jobs to developing countries will also slightly fall (say, from the current $150 per day, eventually to $100 a day via less labour demand meaning a lower wage), at which point companies have no more incentive to shift jobs abroad to save on labour costs(obviously). Is this what the theory suggests will happen? What practicalities are getting in the way of this theory (unionism different across countries, transport costs, tariffs, enterprise bargaining agreements, etc., I suppose)?

    • Rajat says:

      The main thing preventing wages falling in the developed countries is that many goods and most services are not internationally tradeable. For example, if I want someone to clean my house or mind my kids or cut my hair or dig potholes, I need to hire someone locally. This means that even unskilled wages in developed countries tend to rise in real terms over time. If all goods and services were completely tradeable and transport costs and tariffs were nil – or if we had completely free immigration – then yes, wages would converge.

    • ssec says:

      mazhanshi, I do not get economics, but I know it’s not just a simple economic equation, but a political / moral / cultural question too.
      For instance, a lot of the money that is paid for oil, is going in the pockets of a few, while the rest is not getting any benefit out of it and the people are not improving their living standards at all, in some cases they are going backwards. This can take centuries to change without political will and a constant “push” and aim for equality and fairness.
      Nigeria is an example:
      http://en.wikipedia.org/wiki/Conflict_in_the_Niger_Delta

  6. Rajat says:

    When I first saw this post, I thought it would be fairly uncontroversial for your readership. Alas not – how little progress economists have made in the last 200 years.

    • ssec says:

      What’s uncontroversial is that a company, whose brand is supposed to be about joy, happiness and freedom to Australian kids, should NOT, at the same time, secretly use poor Indian kids as slaves and take advantage of them. Yes, that is uncontroversial.

      It’s also uncontroversial that someone at Sherrin should get fired asap.

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