Friday, January 27, 2012

Exploitation (?)

[Guest post by Don Geddis.  Third in a series (0, 1, 2).]

Ron,

You said:
it's a lot easier to make money if you do exploit the poor, so in the absence of some countervailing force, those who choose to exploit the poor will win, at least in the short term.
 I asked what you mean by "exploit" the poor.  The example I gave was:
But at the end of the day, what you have is people who are living in desperate situations, and someone offers them an optional job. Whatever it is, that is one more option than they had before the job came along.
 First you tried to answer with a dictionary definition:
exploit (verb): 1) to take unfair advantage of 2) to control or take advantage of by artful, unfair, or insidious means
But this doesn't really clarify anything.  You've basically just changed the confusing word "exploit" for the equally confusing word "unfair".  When I go to a peasant farmer in China, and offer him a factory job, am I exploiting him, or not?  Is my job offer unfair, or not?  In the abstract, objectively, how am I supposed to distinguish the "unfair, exploitative" job offers from the "fair, non-exploiting" job offers?

You helped more with an example:
If we're engaged in a negotiation and I'm rich and you're poor then I might choose to proceed on the assumption that you need my money more than I need your labor
But this seems roughly true of any negotiation.  That's the whole point of negotiation.  People have different values, and different needs.  If one party is unable to walk away from the deal, but the other party is willing to walk away, that flexibility has a huge consequence for the final price.  This applies whether you're buying a used car, or trying to get a factory job in China.

It may be a sad state of affairs, that one party has so few other options, that they are actually willing to volunteer to take a job that would horrify you.  But the problem is not the job offer itself.  The problem is their lack of options.  And their current, pre-job offer state -- which is even worse than the horrible job offer you are complaining about!

Your example continues:
So even though the incremental value of your labor to me might be X I might decide to offer you Y<<X instead knowing that you have a strong incentive to accept this offer even though I would actually be willing to pay you more if you had any leverage.
Is this not the situation in every negotiation throughout history?  Each of us has a private value for the voluntary transaction, and our aim is to get as good a deal as we can for ourselves.  And that depends on the other party's flexibility, and has little to do with the internal value we would receive from the transaction.

There is no objectively "correct" value for any transaction.  That was the great insight of capitalism, over failed economic concepts like Marx's Labor Theory of Value.  The great insight was that there is no proper value.  The "correct price" of something depends on what someone is willing to pay for it.  Period.
This is the fundamental problem: labor is unlike other commodities. If we have a surplus of wheat that causes the bottom to fall out of the wheat market and excess wheat to rot in silos, the wheat doesn't care. But labor does care
You're right that labor cares and wheat doesn't care, but you're wrong about just about everything else:
  • Labor is exactly like other commodities
  • A surplus of wheat does not cause wheat to rot in silos.  This is the whole point of free markets: free markets allow prices to float in order to bring quantity demanded in equilibrium with quantity supplied.  If there is a surplus of wheat, then the price of wheat plummets ... but all the wheat gets used.
In all of this, it seems to me that you're making a gut reaction between your current life, and what it would be like to live one of those factory lives.  And you would hate it, given what you know now.  And you would like those factory people to live happier lives.

But you aren't paying a whole lot of attention to the millions of additional lives, back on the rural farms in China.  Their lives are even worse than the factory workers.  Those people volunteer to leave the farms and work in the factories.

Your "do good" approach to Chinese factory workers, is very similar to raising the minimum wage.  Of course, the easy-to-find people who already have jobs, will have better lives if you force the companies to bear additional costs, that the voluntary negotiations have not already yielded.  But you don't seem to understand that the reason the conditions appear so "bad", is because they are able to fill all the positions, at that level of compensation.  Which means that there's a whole pool of willing people out there -- who you are ignoring -- with lives even worse.

The net effect of interfering in this labor market, is not that global happiness goes up.  Instead, it is that a fewer lucky workers will have better lives, and the marginal worker who would have been hired in the past, and would have been happy to take that job, now is no longer offered the job, and must stay on the rural farm.  You have basically transferred happiness and wealth, from the very poorest people, and given it to those who are already (slightly) better off.  You've increased wealth and happiness inequality.

You have not at all convinced me that this so-called "exploitation" is a "bad" thing, until you've fully accounted for the missing employees who will no longer be offered any job at all in your brave new world.

6 comments:

Anonymous said...

This dialog is very interesting. Indeed, it is so difficult to define "exploitation" and "fairness". Since everything reduces to a negotiation, it may seem that anything goes.

The same resource for some is a question of survival, while for others is a question of increasing once more an already disproportionate amount of power. Think what it means a loaf of bread for someone who hasn't eaten in days, as compared to someone who has access to virtually unlimited supplies of food.

So, if in a negotiation, one of the parts has nothing to loose, while the other has everything to loose, this makes it unfair.

If a political regime denies the resources to people, one can consider that exploiting them is charity. But it is a common practice to make sure that the poor stays poor, just to be able to exploit them and in the same time pose as their savior.

To the poor, the question arises: "what makes some people so special, than they are given the right to control resources more beyond their needs, and to forbid them to those who really need them. Especially since those resources are created by nature, or by the contribution of other exploited people".

One standard answer is "those are wealthier because they deserve, because they create". The ugly truth is that it happens that those having more resources, are able to earn even more, simply because they are in a better position to negotiate. So, it is not a matter of skills, as it is a matter of power: power gives you resources, which give you even more power.

Don Geddis said...

"So, if in a negotiation, one of the parts has nothing to lose, while the other has everything to lose, this makes it unfair."

This sounds like a principle of some kind, but I wonder if you really believe it.

For example, does it matter that the one who has "everything to lose" also be poor? And the other one rich? I'm sure that's the scenario that you're usually thinking of, but it isn't necessary. Do you still believe your principle if the rich/poor labels don't apply?

The truth is, that in pretty much any negotiation, it's highly unlikely that the two parties are completely symmetric. (In fact, part of the magic of the gains from trade, is that people are different, and value different things differently. So both can win, via a trade!)

Do you actually think that in most every contract, every negotiation, there is exploitation?

Or is it important to you, to overlay rich-vs-poor class warfare, on top of the negotiation story?

coby said...

Don, you are asking some nice rhetorical questions, like what is fair? I would like to hear what your answer to your own question is. My impression so far is that you might say any transaction is, as a manner of definition, fair if it is entered into willingly. Correct me if you would not agree with that.

If you go this way, I submit we are only kicking the can down the road because now we have to think carefully about what it means to be "willing." If the choice is starvation and death or near slavery, and I "choose" slavery, was this transaction entered into willingly in any meangful sense?

We can save time and advance the discussion faster if you let us know if you think life in a Chinese factory may be hard and sound miserable to us, but it is not a symptom of something wrong with an economic system.

Does the existence of hungry, sick and desparately poor people mean something needs fixing in a society?

Anonymous said...

> does it matter that the one who has "everything to lose" also be poor? And the other one rich? I'm sure that's the scenario that you're usually thinking of, but it isn't necessary.

If you don't provide an example, I'll give it. Suppose one person is hurt in the middle of nowhere, and needs medical attention. A traveler helps him by giving first aid, and then transporting him to a hospital. The person in need may very well be rich, and the other one offering his help may be poor, but now the rich has the vital needs, and the poor the resources. This situation is independent on the rich/poor pattern, but let's take it to be reversed, to make my point clear. The point is that one has a vital need, and the other can help. It is not a point of poor vs rich in general, but of having a vital need vs having the possibility to satisfy them without renouncing to the satisfaction of your own vital needs.

Of course, it would be very wrong for the traveler to ask money to the person he saves, as a condition for saving his life, isn't it? We expect that we help one another, and it is wrong to exploit the person's physical condition for some gain. At least this is what I believe. So, to your question

> Do you still believe your principle if the rich/poor labels don't apply?

the answer is obviously yes. I consider that a negotiation when one part is forced to accept for vital needs, and the other has very little to loose, is unfair, and it is exploitation. And it is not because I think in terms rich vs. poor. This labeling you attached to my comment is misguided.

I must confess that, in the example I gave, I believe even more in the principle of not exploiting others' vital needs in exchange to our help. I believe that the traveler, even poor, should offer unconditioned help to save the life or health of his peer, even if this one is much richer. By contrast, I don't believe or claim that the rich guy should give away his food supplies to the poor. I presume that I believe this because I am biased by the way we think society: everything costs money, and everything can be bought, including the time, health and life of a person.

> Do you actually think that in most every contract, every negotiation, there is exploitation?

I did not say this. What I believe is that people should try to avoid situations in which they ar "at hand" of others, and if they can't avoid them, we should make laws to protect them. As there are laws to protect the property of a person, no matter how rich that person is, guaranteeing even that he can use guns to defend its property.

> Or is it important to you, to overlay rich-vs-poor class warfare, on top of the negotiation story?

I did not do this. In fact, on this blog, the discussion started from exploitation of the poor, and it is you who tried to remove this. You made it about negotiation, and I tried to explain why in some situations the negotiation can be perceived as being exploitation or unfair, within the negotiation context you introduced.

As it happens, most of the time this is related to being poor vs being rich, and this is how the things are, it is not a bias of the poor against the rich. This happens usually, that the vital resources needed by all of us, including the poor, are in the hands of the rich. The rich seldom falls in the position of needing something vital from the poor, because the vital needs are commercialized, and the rich could be able to buy what he needed. But we can conceive situations in which the needs are reversed, as I exemplified. These situations reveal a demand, and usually some entrepreneurs already thought at them and provided commercial solutions.

Unknown said...

Don,

When someone says: "So, if in a negotiation, one of the parts has nothing to lose, while the other has everything to lose, this makes it unfair."

And you answer: "The truth is, that in pretty much any negotiation, it's highly unlikely that the two parties are completely symmetric."

You are not really addressing the original point. The original point wasn't that all negotiations should be symmetric, it was that at a certain point the asymmetry becomes too great and causes unfairness/exploitation. He is saying there are some negotiations where one side stands to lose a vast amount while the other stands to lose a small amount. You are saying that since both sides always stand to lose something bringing up big or small amounts doesn't matter. Why doesn't it matter?

I am not agreeing or disagreeing with your overall points. I just felt that this argument was not made well and wanted to point that out to see if you could improve it.

Don Geddis said...

Coby: I loved your questions. I attempted to address them in two additional posts.

Anonymous: I like your medical emergency example. You're right, I'm the one who was trying to take the rich/poor out of the discussion.

Unknown: You say "at a certain point the asymmetry becomes too great". I wonder where that line is. My main point was that it is a spectrum, and I don't see a strong reason for drawing a sharp line somewhere and saying "on this side of the line, it is exploitation, but over there it is not". Also, "both sides always stand to lose something", but my point was really that, in general, one side has more options than the other, so usually one person "stands to lose" more, and the other is in the stronger negotiating position. That's true for almost any negotiation. Are they all exploitative?