Friday, January 27, 2012


Our beloved smartphones and iPads hide a dirty little secret. Low labor costs combined with an efficient supplier infrastructure make particular Asian factories the economic choice for electronics manufacturers.  Many smartphones, most Apple products, and many other technology products are manufactured at Foxconn, headquartered in Taiwan. Unfortunately labor conditions at Foxconn are oppressive, almost barbaric by Western standards. Pitiful wages, long hours, tedious work, bans on organized labor, abusive management, and even suicides are prevalent at the massive plant. While American-designed iPhones are manufactured in oppressive Asian factories, Americans face high unemployment and a troubling decline in manufacturing jobs at home. What can be done?

Perhaps working conditions will improve if we begin to tax oppression. It might work like this. A panel including human rights experts, labor representatives, manufacturing executives, economists, and government trade analysts would begin by creating a reference standard and index for quantifying oppressive working conditions. Let’s call it the sweatshop index. The most worker-friendly factories would score zero; the worst factories would have high scores. Next a team of independent auditors and examiners would visit factories around the world and score individual factories on this index. If examiners were barred from visiting the factory or hindered in their examination, they would assume the worst and assign a high score. No doubt the Foxconn factory would receive a high sweatshop index score, unless of course it was reformed. Finally, the United States would impose an import tariff on products based on the weighted sweatshop index of the factories used in their manufacture, regardless of the host country. Smartphones and other products manufactured at worker-friendly plants are subject to little or no tariff.  Products manufactured in sweatshops pay a high tariff. This would provide a direct financial incentive for factories around the world to improve working conditions. Work would begin to flow out of sweatshops into the worker-friendly factories, including American factories, because they now have an economic advantage. Workers around the world would all benefit. 

While a traditional import tariff diverts money away from workers, this sweatshop tariff would shift money toward the benefit of the workers. Factory managers would have a clear financial incentive to improve working conditions because the better working conditions would decrease the final cost of their product to the American market. For a smooth transition to this system, the tariff could increase gradually over time. It might begin at zero while the index is being created and factories are being assessed. This will give adequate time for factory managers to plan reforms before any financial penalty is assessed. The tariff can then be systematically increased to drive reform at a managed rate.

Perhaps this concept could be extended to include oil imports. Here an import tariff based on human rights violations in the supplying country is added to each barrel of oil imported. This would provide a financial incentive for the exporting country to eliminate these violations and improve life for its people. 

Choosing to internalize these externalities—transaction costs not fully reflected in the product price—can leverage free market mechanisms to improve human wellbeing.

1 comment:

  1. excellent if you can free the americans who buy the products and our politicians of their ambivolence. Tbat is the hard part.