LETTERS TO THE EDITOR:

Unsuitable wages comparison 95% match;

Financial Times ; 05-May-2000

From Dr Eileen Appelbaum.�

Sir, Professor Jagdish Bhagwati ("Nike wrongfoots the student critics", May 2) disputes students' claims that Nike and other companies that produce clothing in developing countries fail to pay workers fairly. He cites evidence that the low wages multinationals pay are 10 per cent higher than domestic company wages. Pushing wages any higher, he argues, would mean unemployment for these workers.�

Prof Bhagwati's argument might merit consideration if Nike and other US clothing companies intended to sell their footwear and clothing in Honduras, Vietnam, Indonesia or China. But the market for their products is the US. Consumer Reports, the US consumer magazine, cites evidence that women in one factory earn 84 cents to sew a Liz Claiborne jacket retailing in the US for Dollars 194. Doubling the wages of the women sewing these jackets would account for less than 0.5 per cent of the selling price. No one believes this pay increase would bring clothing jobs back to the US.�

Workers around the globe and their allies have something else entirely in mind, and are only now finding their voice. They have been promised that globalisation will raise workers' status everywhere. They are now demanding that companies, and nations be accountable for making that promise a reality.

Eileen Appelbaum, Research Director, Economic Policy Institute, 1660 L Street NW, Washington, DC 20036, USA�

Copyright � The Financial Times Limited
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LETTERS TO THE EDITOR:

Mistaken presumption of labour exploitation

Financial Times, May 11, 2000

From Prof Jagdish Bhagwati.�

Sir, Dr Eileen Applebaum (Letters, May 5) is earnest but in error when disputing my argument that multinationals are not "exploiting" poor-country workers when they pay them more than the going wage in the host country. She would shift the criterion from where and at what wage you buy labour to where and at what price you sell the output. This makes neither economic nor ethical sense.�

Thus, in reporting an estimate that "women in one factory earn 84 cents to sew a Liz Claiborne jacket retailing in the US for Dollars 194", she presumes that exploitation is obvious. But this is an elementary fallacy. The price of unit output and the wage of labour could be altogether different. A worker may get Dollars 10 an hour and Dollars 1,000 polishing a diamond, while the polished diamond may be worth Dollars 10m.�

Again, I have heard people who share Dr Applebaum's sentiments argue that wages in Jakarta or Phnom Penh are a pittance compared with Michael Jordan's multi-million dollar advertising remuneration by Nike. But it is nothing short of nonsense to compare a company's advertising budget with the wage rate or even the wage bill: it proves nothing.�

Perhaps Dr Applebaum thinks that her comparisons of apples and oranges show that multinationals like Nike are making huge monopoly profits while paying their workers only a competitive wage (admittedly with a premium) and that they should share their "excess" profits with their workers? But, as it happens, nearly all multinationals such as Nike and Liz Claiborne are in fiercely competitive environments. The recent Templeton College, Oxford, study of the profits performance of 214 companies in the 1999 Fortune Global 500 list shows a rather sorry performance, about 8.3 per cent on foreign assets, and even a decline to 6.6 per cent in 1998. Where is the beef that we might demand be shared with workers?�

In short, it is a mistake to assume exploitation of poor workers by our multinationals on the basis of the specious arguments of Dr Applebaum and others. It is equally a mistake to demand, and for our universities to accept, a "social responsibility" code that castigates companies for paying the (premium) wages that they do abroad.�

Jagdish Bhagwati, Arthur Lehman Professor of Economics, Columbia University, 1022 International Affairs Building, 420 West 118th Street, New York, NY 10027, US