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.