Economic Exploitation
The Real Exploitation is the Lack of Economic Freedom
A friend recently asked me (in the course of an argument about trade and capitalism), whether I believed there was economic exploitation in the world. I said yes, but mostly not in America. But I didn’t have the time or the inclination to expand on that, so I didn’t explain to him that I didn’t mean what he meant by ‘exploitation.’
My friend subscribes to a version of Marx’s labor theory of value, whereby the difference between the price a product is sold at and the wages paid to the laborers who manufactured it is theft by greedy capitalists. While he may admit that labor isn’t the only input in the value of a product, he doesn’t believe Silicon Valley venture capitalists deserve to make a high profit when workers in an iPhone factory in Asia are making the local market wage.
That isn’t want I meant by exploitation, because it isn’t exploitation. Marx’s labor theory of value is wrong as an empirical matter. That it seems intuitive to some people does not make it correct as a way of explaining the world.
But my purpose today is not to discuss Marx’s labor theory. Instead, I want to talk about what I meant by ‘exploitation.’ The truth is that there is a great deal of economic exploitation in the world, especially in parts of the developing world. But rather than an indictment of developed countries and American capitalism, it explains one of the important underlying factors in why the Global South stays poor.
Most human beings believe on a gut level that wealth is produced by extraction. Something in the evolutionary brain wires us to believe this, and it underlies much of the animus towards capitalism. For millennia, human beings built their economies on extraction, because they believed it was the source of wealth. Slavery, plunder, conquest, fraud, wage and price controls, guild systems, tenant farming, and all sorts of schemes were introduced whereby violence and political power allowed the few or the many to extract wealth from (exploit) others.
And this was one of the primary reasons the human race stayed poor for most of its history. Systems built on extraction are houses of cards, which inevitably collapse on themselves. Marxists are correct that exploitation can never go on forever, but must fall apart eventually.
What they are wrong about is the belief that capitalism is a form of extraction and exploitation. The truth is that the world does not work the way the human gut believes: not much wealth is produced by extraction, and this is why extractive systems are unsustainable. This is why the Soviet Union fell. It’s why barbarian hordes tended not to build lasting civilizations. It’s why so many autocratic countries today have tremendous poverty.
Capitalism – a system of free markets and the rule of law – allows for true wealth creation, in which human beings trade with one another in positive sum transactions (i.e., ones in which both parties walk away better off). Much of the Global South has never had free markets. Either they have versions of command economies, or they claim to have freedom, but have such high levels of corruption that they still have unfree, extractive economies.
But more importantly, they lack the rule of law. Without the rule of law, human beings cannot afford to trust their neighbors. Their property is not protected, and without property they cannot build wealth. Their contracts are not secure, and without strong contracts, complex business arrangements cannot exist. Their banks are unsound, and without sound banks they can’t afford to save and invest for the future. In an extractive economy, where exploitation through corruption (or even slavery) is the norm, people stay poor.
So, yes, exploitation exists. But it is always and everywhere a condition of a lack of economic freedom, not a surfeit of it. The slave lacks economic freedom, because he cannot profit off of his own labor. A merchant who is forced to sell his wares at prices he cannot afford lacks economic freedom, because he cannot make a living at his trade. A goldsmith who is forced into his trade by birth and who is forced to join a guild against his will, a guild which constrains all of his economic decision-making in the name of the good of the profession, lacks economic freedom. A farmer who is taxed at punitive rates, even when his crop fails and he has no money to pay the tax lacks economic freedom.
Labor is valuable, and free market capitalism is the system which recognizes that human beings have a God-given natural right to their labor. Exploitation occurs when tyrants and warlords infringe upon that right and take for their own what does not belong to them by right. There have been corporations in history which exploited their workers, but these did not develop independently in a free and fair system, but were rather the products of government-created monopoly or monopsony. It was the coercive power of the state which allowed them to exploit their workers, and it was the coercive power of the state which prevented those workers from seeking remedy.
One of the great problems in society today is that most people don’t understand that the world does not run on extraction. Some seek to destroy the market, in the belief that the market exploits people. And others seek to exploit people, in the belief that that is the way to get ahead. And together, they create a feedback loop whereby each points at the other as justification for their own beliefs.
Sadly, there is economic exploitation today. Just not the kind most people mean.