Nike, Trade, and the Left’s “Race to the Bottom” Canard

To capitalism’s detractors, Nike symbolizes the Dickensian horrors of trade and globalization – a world ripened for mass exploitation of workers and the environment for the impious purpose of padding the bottom line. They are offended by President Obama’s selection of Nike headquarters as the setting for his speech, last week, in which he touted the benefits of the emerging Trans-Pacific Partnership agreement. But Nike exemplifies the redeeming virtues of globalization and illustrates how self-interested capitalism satisfies popular demands – including, even, the demands of its detractors.

Fealty to the reviled bottom line incentivizes companies like Nike to deliver, in a sustainable manner, what those genuinely concerned about development claim to want. U.S. and other Western investments in developing-country manufacturing and assembly operations tend to raise local labor, environmental, and product safety standards. Western companies usually offer higher wages than the local average to attract the best workers, which can reduce the total cost of labor through higher productivity and lower employee turnover. Western companies often use production technologies and techniques that meet higher standards and bring best practices that are emulated by local firms, leading to improvements in working conditions, environmental outcomes, and product safety.

Perhaps most significantly, companies like Nike are understandably protective of their brands, which are usually their most valuable assets. In an age when people increasingly demand social accountability as an attribute of the products and services they consume, mere allegations – let alone confirmed instances – of labor abuses, safety violations, tainted products, environmental degradation, and other objectionable practices can quickly degrade or destroy a brand. Western brands have every incentive to find scrupulous supply chain partners and even to submit to third party verifications of the veracity of all sorts of practices in developing countries because the verdict of the marketplace can be swift and unambiguous.

Nike remembers the boycotts and the profit losses it endured on account of global reactions to its association with “sweatshop” working conditions in the past. Mattel’s bottom line took a beating when some of its toys manufactured in certain Chinese factories were found to contain dangerous levels of lead paint. There have been numerous examples of lax oversight and wanting conditions, but increasingly they are becoming the exception and not the rule.

Obviously, most Americans would find developing country factory conditions and practices to be, on average, inferior to those in the United States. But the proper comparison is not between wages and conditions in a factory in Ho Chi Minh City and Akron, Ohio or between Akron in 2015 and Akron in 1915. Trade and globalization scolds who would hamper investment flows to developing countries by demanding that poor countries price themselves out of global supply chain networks by adopting rich-country standards should stop and ponder the conditions that would prevail in those locations without Western investment because that’s where their demands ultimately lead.

Even New York Times columnist Nicholas Kristof – an icon of the Left – has argued that factory work offers a step up the ladder for billions of impoverished people around the world.  His stories about the limited options for subsisting among Cambodian women before the arrival of apparel factories, which included picking through garbage dumps, backbreaking agricultural work, and prostitution, remind us that development is a process and not one that is prone to use of magic wands. What employment options would exist in the absence of Western investment? How much accountability would there be if locally-owned factories were the only choices? Without Western investment, there would be much less opportunity and much less scrutiny of labor and environmental practices.

Globalization has brought greater accountability by assigning globally recognizable brand names to otherwise anonymous, small-scale, production and assembly operations. Brands have the most to lose from the discovery of any unscrupulous practices, so the incentives are aligned with the goals of development. An important lesson of capitalism and markets is that even corporate behavior that meets the disapproval of consumers gets punished and corrected.

Unfortunately, a lesson that too many on the Left fail to heed is that capitalism and trade are making life much better for people around the world. Calling globalization a “race to the bottom” may make for a hip bumper sticker, but it has no bearing in reality.