Versión Español
EspañolThere is an old saying that opposites attract.
Bruce Yandle refashioned this idea into an economic theory that explains why special interest groups with seemingly antagonistic missions so often find common cause in regulatory crusades.
Yandle uses the analogy of “bootleggers and Baptists” to describe how one group’s demand for regulation on public interest grounds provides political cover for another group that seeks to profit from the regulation while simultaneously undermining its intent.
Bootleggers, as the story goes, will lobby politicians in favor of a Baptist demand to prohibit Sunday alcohol sales, since such regulation decreases the competition bootleggers face. By facilitating the passage of such legislation, politicians generate kickbacks for promoting the interests of the bootlegger lobby while posturing as the guardians of public welfare.
Among the clues that bootleggers and Baptists are at work, Yandle says, are “technology and specification standards and differential requirements for new and old sources.”
Take, for example, the recent announcement that the Ontario government is poised to introduce a new ethical sourcing policy for companies bidding on provincial clothing contracts.
The move, which has implications for garment workers across the Americas and around the world, brings Ontario in line with 20 Canadian municipalities — along with a host of jurisdictions in the United States that have introduced similar procurement policies.
Labor unions, faith groups, and anti-sweatshop activists urged Canadian officials to adopt an ethical sourcing protocol as early as 2005. But the Ontario government remained largely unresponsive to these demands until the collapse of a sweatshop in Bangladesh earlier this year thrust garment sourcing protocols back into the media spotlight.
The Market for Regulation
The April collapse of the Rana Plaza factory in Bangladesh killed more than 1,100 workers and injured thousands of others. It’s difficult to imagine that anyone could remain unmoved by media coverage of the tragedy: families grieving the loss of loved ones, survivors mourning deceased co-workers, a city and a nation in shock, and around the world a sense of outrage that a factory supplying such well known outlets as Benetton, El Corte Inglés, JC Penney, and Walmart was a “poorly regulated” death trap.
In the aftermath of the Rana Plaza disaster, calls for more regulation seemed to offer a cathartic salve. So much so — to the apparent surprise of the Toronto Star reporter who broke the story on Ontario’s new ethical sourcing proposal — that “even” some of the province’s biggest garment suppliers have joined the crusade.
Before celebrating the uptake of regulatory demands by industry, however, it is worth recalling George Stigler’s observation that “as a rule, regulation is acquired by . . . industry and is designed and operated primarily for its benefit.”
Well-positioned companies often throw their support behind new industry standards since economies of scale allow them to absorb the costs of regulation more easily than smaller competitors and new entrants.
Therefore, it should come as no surprise that Uniform Group, the top private contractor supplying garments to the Ontario government, has come out in favor of the province’s new ethical sourcing protocol — precisely at a time when owner Joe Vaccari admits that his competition is turning to sweatshop labor overseas. Among the garments Vaccari sells to the province are Canadian-manufactured tunics, at a cost of CAN$200 each, or about three times the monthly wage of a garment worker in Bangladesh.
Vaccari and other incumbent suppliers say the new standards are necessary to “expose” the exploitative wages of sweatshop labor abroad. According to scholars, however, “most sweatshop jobs provide an above-average standard of living for their workers.” In Costa Rica, the Dominican Republic, El Salvador, Haiti, Honduras, and Nicaragua, a 50-hour work week earns apparel industry employees more than the average national income — in some countries as much as seven times more.
While pro-regulation incumbents repeatedly condemn the use of child labor in overseas sweatshops, even anti-sweatshop activists admit that any outright ban on child labor threatens to throw children and their families into even more precarious situations.
In fact, that’s precisely what happened in Bangladesh in the 1990s, when US Senator Tom Harkin (D-IA) proposed an ethical sourcing protocol that banned imports from countries employing child labor. This move received heavy criticism from UNICEF, which said the ban privileged trade protectionism over poverty reduction. Textile factories dumped children back onto the streets, where many were forced into prostitution.
The Politics of Misinformation
There is a common perception, long promoted in film and song, that sweatshops are located where there are “no regulations.”
However, it is a mistake to assume that the Rana Plaza tragedy is a result of regulatory weakness. The owner of the plaza reportedly acquired the property through an illegal land-grab and constructed the multi-tenant factory without the required permits. Tellingly, he appears to have been left alone to do so because he was politically well-connected.
It is also a mistake to assume that external oversight was missing in Bangladesh. The Wall Street Journal reports that “at least two [of five] garment factories at Rana Plaza had passed international labor and safety standard audits.”
In reality, the regulatory environment in the countries where sweatshops proliferate tends to be highly restrictive. Bangladesh, for example, ranks 130 among 189 countries for ease of doing business in the World Bank’s Doing Business index.
And the more difficult it is to start a business, the greater the incentive to operate illegally. In the Rana Plaza case, sources say the permit system was circumvented because it is “too slow.”
Brazil, where an illegal sweatshop was recently connected to fashion giant Zara, is ranked 123 among 189 countries for the ease of starting a business. Haiti ranks 187 of 189 on the same measure; Honduras, 162; El Salvador, 148; Dominican Republic, 144; Nicaragua, 123; and Costa Rica, 102.
If the market for regulation is a mechanism for deciding the distribution of political favors, as Stigler and Yandle suggest, then we should expect to see a correlation between regulation and corruption — and we do: Bangladesh ranks 136 among 177 countries in Transparency International’s Corruption Perceptions index. Haiti ranks 163; Honduras, 140; Nicaragua, 127; Dominican Republic, 123; and so on.
Against this backdrop comes the news from anti-sweatshop activists — who, like the Toronto Star reporter cited above, seem surprised — that even suppliers now recognize the need for “better government regulation” of the industry, although they disagree on the form of regulation.
Yet this is exactly what Yandle’s theory predicts: bootleggers do best when they can free-ride on the public interest claim of a moral crusade while offloading the costs of monitoring the anti-competitive regulation from which they benefit. You might even say that in the clamor for more regulation, anti-sweatshop activists and crony capitalists are cut from the same cloth.
The real tragedy of the anti-sweatshop lobby is that no one is calling for less regulation — that is, less political favor-seeking — and more attention to the ways in which special interests manipulate the moral crusade for public welfare.
