It is often heard that transnational corporations are evil for 'exploiting' underdeveloped countries 'cheap labor' by opening up businesses there and if only corporations would stop their 'exploitation', the economies in those countries would improve.
Matt McIntosh, writing in Tech Central Station disagrees and in the process explains some economic principles:
Let us say that I am poor and you are wealthy. I live a harsh life of bare subsistence farming, while you make several thousand dollars per day as a business owner in the widget industry. One day you hire me to make widgets for you at a rate of $1 per widget, which you then sell to make a profit of $2 per widget. Which of us has benefited the most from this exchange?
If you answered that it must be you, this is wrong. It's true that you are still much, much better off than I am in absolute terms, and that in dollars, you have gained more than I have. But considering our relative starting points and the basic fact of diminishing marginal utility, this transaction has benefited me more than it has benefited you. Simply put, the principle of diminishing marginal utility states that each extra unit of a good provides less subjective benefit to an individual than the last one did: an extra dollar means much, much more to a pauper than to a millionaire. Thus I get much more subjective utility from the extra dollars I now have than you do from the extra dollars you have.
McIntosh continues on to explain why the word 'exploitation' only makes sense in economically ignorant majors like Chicano Studies but has practically no meaning in the actual study of poverty reduction, economics. (Originally published: 7/13/2006)
No comments:
Post a Comment