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iFoxconn: The Corporation’s Role and the “Harder Problem” of Wages – Part II

This is Part II of a two part series. Part I was published on Wednesday. This is a cross post with the Fordham Corporate Law Forum.

Questions arise as to whether to use all American laws, such as Fair Labor Standards Act of 1938, which includes rules about the minimum wage and guaranteed overtime, as standards to judge U.S. corporations that use suppliers in Asia for cheaper labor. Bringing these laws into the calculus may be going too far. Jagdish Bhagwati, a professor at Columbia Law, argued that “full Western-style protections are not affordable in poor countries which generally lack many of the protections that have come gradually with development.” Bhagwati qualified “that there are many low-cost protections which are well within reach and which every society today owes to its workers and citizens.”

International Justice Should Play a Part in a Corporation’s Role

There are at least three compelling reasons to think that it would not go too far, however, to say that concerns for international justice should play a part in the role of prosperous corporations that do business in the developing world.

First, these corporations have an ability to substantially improve the economic prospects of individuals in the developing world, as Apple’s recent efforts demonstrate. Corporations such as Microsoft and Nestle have also engaged in profit maximizing business practices that honor the duty to shareholders, as expressed in Dodge, and that concurrently provide substantial means to improve the societies the corporations work with and depend on. Second, many states in the developing world are unwilling or unequipped for the job of providing social or economic justice. Third, to philosopher Iris Young and her Social Connection Theory Model of Justice, in the contemporary globalized economic system, retailers and even consumers of products purchased in one country are often connected to workers in other countries who make those products. “These connections bring obligations of justice.” says Young in Responsibility for Justice. To Young, we all depend on these connections no matter how diffuse or mediating they may be, to carry out our daily lives. Because these connections sometimes produce injustice, a collective responsibility exists to rectify it.

Therefore, when we make moral judgments about American corporations that do business abroad, we should look at American law and how well corporations promote social and economic justice in the societies they depend on in the developing world. It may be argued that duties include not only negative duties, i.e. the duty to refrain from basic human rights violations, but also positive duties to make sure that third parties do not violate basic rights.

Working Conditions and Wages

Even if a corporation’s role should include duties of justice, it’s admittedly not clear what such duties should be. Bhagwati would bifurcate Foxconn labor problems into two separate issues: working conditions and wages. The moral problem of unsafe or arduous working conditions is the least controversial. Dangerous and/or unhealthy conditions that predictably produce injuries, or amount to a human rights violation are never justifiable. Such conditions should be eradicated to the fullest extent possible at Foxconn and elsewhere. (Note that sources have found that working conditions at other Chinese factories supplying Western brands are considerably inferior to those at Foxconn.)

However, the question of Foxconn’s wages is somewhat more controversial. Bhagwati points out that “poor countries naturally have low wages” and “empirical studies show that multinational corporations pay what economists call an average premium” to their lowest-skill workers of about 10% compared to what they can earn in alternative occupations. Labor advocates in the developing world call for a “living wage.” Bhagwati discusses the problematic nature of calculating a “living wage.” Making assumptions about family size in the developing world is difficult, and assumptions about what a necessary consumption basket for such families should look like is inherently subjective.

Aaron James, a philosopher at UC Irvine, discusses commonly made arguments for keeping developing world wages at the levels they are in his [unfinished] paper called How to Defend Sweatshop Labor: Fairness in the Global Economy. Lower wages raise standards of living over time and developing countries can reduce or eliminate poverty across large numbers of people, while mitigating the worst health and safety threats. Still, James asserts that a worker would only accept this argument depending on how quickly and how high wages may rise. “You can’t tell a worker that her wage is not exploitative because, although she will never see more than modest benefit, her child will have a substantially better life.”

The efforts by Apple and Foxconn might “spillover” to the other factories, raising the overall Chinese standard of working and living and mitigating the worst health and safety threats. Indeed, worker advocates are hopeful that the changes that have occurred will lead to lasting improvements in the manufacturing of electronics products in the developing world. “They have an opportunity to become the new face of sustainable production in the electronics sector,” said Meg Roggensack, senior adviser, business and human rights at nongovernmental organization Human Rights First. “They’re smart enough. They’re well capitalized enough.”

However, Aaron James points out that the economic or utilitarian arguments regarding wages omit the basic moral problem of fairness:

“What is peculiar about this general kind of reply is that it can seem to misunderstand the kind of moral concern being addressed: in general, to say someone has been made better off isn’t to say that he or she hasn’t been wrongfully exploited.  For example, when you are stranded along a seldom traveled road, imperiled by the impending nighttime cold, I could save your life by selling you my spare tire.   I could wrongfully exploit you if my price is, say, $10,000, which you happen to have and pay.  Yet, no longer facing death, you may still be far better off.  Similarly, the sweatshop laborer can be made better off that he would otherwise be and yet wrongfully exploited because his or her work is not safe enough, or because he or she isn’t better paid.”

This spare tire hypothetical makes it clear that even though sweatshop workers get some benefit from working, the deal as a whole is too one-sided; it takes advantage, and makes a muck of one’s self-respect and autonomy. Because agents and agencies (consumers and corporations) between nations that are connected produce this sort of wrong, it becomes a matter of international justice.

It may be an exaggeration to argue that Foxconn’s current wages are low enough to be comparable to Aaron James’s spare tire hypothetical. The real value of a wage is relative to buying-power and comparable wages. Fully answering this question, therefore, would require surveying economic data about the areas around the factories. Some facts are in Foxconn’s favor. Workers earn much less in Chinese factories not run by Foxconn, particularly in the garment manufacturing industry. Also, of course, the fact that Foxconn workers are not happy about their wages isn’t conclusive support of exploitation. Even in the U.S., workers at all levels of society seek higher wages.

Now that everyone is watching, Apple and Foxconn’s efforts to improve working conditions have taken some momentum. American consumers and their spending habits can push other American companies to recognize that profit maximization may be the primary goal, but not the sole goal, of a corporation. Consumers understand that there should be a baseline for conditions that create a safe, non-threatening work environment that may also boost productivity and brand image. Western corporations and consumers, and even shareholders, through the help of investigative journalists, should make an effort to see that overseas suppliers meet that baseline. But for wages, as discussed, it’s a more complicated issue. Impeding the significant progress of living standards of developing countries should not be the result of western interference with local wage standards. However, workers who receive a non-living wage are deserving of consumer scrutiny and industry protection.

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