Huzzah, we are saved! “The International Labour Organization (ILO) and representatives of the European Union, Denmark, the Netherlands, and Sweden pledged their commitment to advancing decent work in Bangladesh,” we are now told! This is a joyous occasion, don't you think? I mean, where would we be without the Swedes helping, eh?
The only problem with such bureaucratic vacuity is that we'd all actually get more of that decent work if the signers of this and similar documents pulled out their thumbs and did something useful, like opening a denim factory. Or, possibly, a jute factory. Signing documents about how we'll all work really hard at, umm, signing documents just doesn't cut it.
Good work really isn't one of those problems that requires a public signing along with a damn good lunch afterward. It's one of those problems that requires people to actually do something. That something being just about anything that employs people and also makes a profit. That's why closing down a jute factory would aid because that makes a loss. We'll come to that again in a moment.
As Paul Krugman pointed out in Ricardo's Difficult Idea (if you are interested in trade and or economics then you simply must read this. One of those pieces which makes other, lesser writers on economics grind their teeth with jealousy. Mine are flat now, near ovine), wages in an economy are determined by the level of productivity in that economy as a whole. If all workers in Bangladesh were as productive as all in the US -- or if average productivity over the economy were at least -- then all workers in Bangladesh would be paid, on average, as much as all workers in the US.
That's just how it works.
Which is why we should be closing jute mills (I say this as someone who has met the, perhaps a, minister for jute -- nice chap, but really) because they lose money. Losing money is evidence of not just low but negative productivity. Doing things with either low or negative productivity therefore lowers the wages of everyone else in that economy.
Productivity is determined by knowledge, capital, and so on. The thing that drives those forward is competition. More firms trying to do things increases the difficulty of making a profit doing those things. So, management has to use more capital and more knowledge in order to make a profit. But those are the very things which raise labour productivity and thereby wages.
Further, the competition for the labour from which profits can be made means that those profits have to be paid out in the higher wages. That last is so obvious that even Karl Marx was able to get it right. It is competition between employers for the workers that they get to exploit that increases wages.
All of this is, to economists at least, well known and obvious.
We need add only one more piece of economic obviousness and this stems from Adam Smith, the founder of the entire subject. Your wages for doing something are not the cash you gain from it. They're the whole package. What you can buy with your cash, yes, the other things you might gain -- health care coverage, a car, cheap mortgage if you work at a bank and so on -- but most important to remember is all the other conditions of your work.
Actually, all those things that are being defined as “good work” by those bureaucrats. Time off, working hours, pressure at work, actually enjoying what you're doing, and so on. They're all part of the compensation even, if not cash wages. And, as it happens, we humans take some part of our increased compensation as better working conditions as we get richer.
Again, this is just the way it works. That compensation, that total return to our work, is going to be made up of some mixture of the conditions of work plus the things we get paid for doing the work. As we get richer the conditions improve, because that's how we naturally spend some of that higher income. Smith used the word “noisome” which in his day meant smelly. The current global exemplar of a noisome occupation is the methors of Dhaka City Corporation -- no, really. When Bangladesh is richer than the methors will have machines and gas masks and full diving suits. Their working conditions will be better, they will have “decent work.”
So, open a denim factory to increase labour productivity, close a jute one to do the same. Increase the competition for productive labour to raise total compensation, some of which will be taken in better working conditions, creating that “decent work.”
Oh, and of course, stop putting bureaucrats around a table to sign declarations about how this will happen and actually go and do it instead. Even if it is easier to get Sweden to sign on to the pious hope those methors are only going to get decent work when people actually do something rather than pontificate.
Tim Worstall is a senior fellow at the Adam Smith Institute in London.
