Lead paint and child labor

The discovery of lead paint in a wide range of Chinese goods exported to the U.S. (from toys to jewelry) raises difficult public policy questions.  But it also allows us to scrutinize some unexamined assumptions about globalization. It is an opportunity to think about some other issues which seem quite distinct, but are actually quite analogous in many respects.  One analogy, which I discussed earlier, is the parallel with the export of "damaged" U.S. financial assets, which lies at the source of the global subprime mortgage crisis. Another has to do with labor standards in international trade.

Consider the similarities. 

• In both cases, we deal with exporting countries that have domestic regulations and standards which on paper are even stronger than those in the U.S. (As this story explains, Chinese lead standards are more stringent than those in the U.S.  In the labor standards arena, most countries have ratified more ILO conventions than the U.S. has.)
• Enforcement of these domestic regulations is weak and problematic.
• Producing goods that are sub-standard is cheaper and provides a competitive advantage.
• The relevant attribute of the exported good is not directly observable to the final consumer in the U.S. (A consumer cannot tell whether the toy contains lead paint or has been manufactured using, say, child labor under exploitative conditions.) 
• Final consumers have preferences over this "hidden" attribute.  (We are less likely to buy the good, ceteris paribus, if it contains lead paint or has been made by children.)
• Consumers' preferences are heterogeneous. That is, each one of us is likely to have a different evaluation of the tradeoff between the "hidden" attribute and other aspects of the good, such as its price. (Put differently, the price discount at which we are likely to prefer buying the leaded or child-manufactured good  differs across consumers.)

Now in view of these parallels, we might think that the policy response to the problems in these two areas would be similar.  Not quite.

In the area of consumer safety and lead paint, the general tendency has been to push for more regulation and better enforcement of existing standards.  The U.S. toy industry itself has gone so far as to ask the federal government to impose mandatory safety-testing standards for all toys sold in the U.S.  Free-trade economists would find it perfectly appropriate for the U.S. to pressure the Chinese government to enforce its own lead standards, and if not, to impose testing and other restrictions at the border.  As far as I know, not even libertarian economists have proposed that the best way to deal with the problem is to simply label Chinese-made toys as having uncertain lead content and letting U.S. consumers sort themselves out according to their own preferences and health-hazard/price trade-offs. 

But in labor standards, we have a totally different approach.  Most of my economics colleagues think it is inappropriate for the U.S. to ask foreign governments to enforce standards that they have already signed into law or ratified in international agreements.  They would be horrified at the thought that the U.S. should impose restrictions at the border for goods that do not satisfy core international labor standards. And they would generally favor so-called market-based solutions, and labeling in particular, so that consumers who really care about labor standards can channel their buying power appropriately.

So what gives? Why do we accept regulation in one sphere so easily, yet reject it in the other so fiercely?    

UPDATE: I should have added that there is by now a growing literature that shows that consumers (or major segments thereof) are willing to pay substantial premia for goods made under fair labor standards.  See here and here.  So it is not correct to say that consumers care about the (tiny) probability that their children will be harmed by lead paint, but not about labor practices abroad.   

Comments

[RWB]

I think the answer is simple. Unsafe imported products (such as toys with lead paint) have the potential to harm us, whereas products made with child labor or slave labor or in terrible conditions, but otherwise safe, cannot hurt us. We have a vested interest in protecting our own health, but only a moral (thus weaker) interest in protect other people in other countries.

[Rich C]

RWB,

Well, that depends on who "us" includes. Clearly, the competitive edge (at least in the short run) that child labor provides comes at the expense of adult workers whose wages either must fall or they lose their jobs. And such workers are not only located in China, but also in both other developing, middle-income, and rich countries. In principle, if China enforced its labor laws, it would presumably reduce somewhat the competitive edge of Chinese produced goods in global markets, and some of the producer surplus Chinese employers obtain would instead be distributed elsewhere (I think a lot of other things would be different too, so I'm not suggesting that China would be worse off here). But clearly, there is a profound political discomfort with compelling capitalists to obey the law when the law requires that they allow workers to freely organize, or to bargain collectively, or prohibits child labor, forced labor, or discrimination.

[hari]

Dani-

China has now banned export of lead paint toys altogether!

My take is that because of transfer price mechanism available to US toy manufacturers, they've simply overlooked demand for quality control - even if it means millions of toys!

The name of the game is price to the US consumer...

[Paolo]

How to spend so many words to define a very simple concept such as hypocrisy?

[random african]

"We have a vested interest in protecting our own health, but only a moral (thus weaker) interest in protect other people in other countries."

is it that simple ?

if people's conditions in other countries can lead to revolutions, wars, immigration, terrorism, international crime, fascism, religious fundamentalism, communism.. don't you have a vested interest in their living conditions ?

[tt]

Thought-provoking post, as usual.

I think economists defend standards for goods as a relatively efficient way to mitigate the asymmetry of information in the market.

They oppose standards on labor because they don't see serious market failures in the labor markets abroad. They also think in terms of revealed preferences, differently from most of persons: see Krugman in "In the praise of cheap labor".

I guess that most of the economists mentioned by Dani would favor having standards for good produced
at home but oppose many labor standards for the home labor market. If so, they can't be blamed for inconsistency or hypocrisy for that matter.

[Andrzej]

Whatever anybody have said so far, I think the first comment from RWB is the simplest explanation. I think that the general public and most of the economists have much stronger feelings about possibility of the poisoning of their own or their friends' children then about the plight of some unknown children or some future revolutions or some possible job losses or any other theoretical and future problems.

[Marcos Ancelovici]

Following up on RWB and Andrzej, I think that each regulation addresses a different issue: safety-testing standards address the quality of the product regardless of how it was produced whereas labor standards address the conditions under which the product was produced. The quality of the product necessarily concerns consumers, but not necessarily the conditions of its production.

[Dani Rodrik]

Marcos --

You are violating one of the most important tenets of economics, which is that consumers themselves are better judges of what they value than outsiders. And as I mention in my update, consumers obviously do value higher labor standards abroad.

[AK]

There are fewer negative externalities from child labor vs. using lead paint. Lead paint causes permanent physical harm to producers and consumers. Can also lead to a market failure. Child labor causes harm only to long-run income growth of the child and the nation by limiting education at a key juncture (albeit a big "only").

Because of the asymmetrical nature of deceptive lead paint usage, there is a probability of rent capture by the unscrupulous factory manager -- labor might not capture any benefits of lead usage. With child labor, at least the child (or his family) are receiving a wage with a revealed preference to not working. Unless you combine your child labor standards with a requirement that your developing country also invest in education, I don't see how you make the child better off by banning the choice of working.

[Joe]

Labor Standards: Would US producers be happy to declare on their product labels whether or not their goods were produced with "unionized" labor? I am sure many consumers, both here and around the world, would count that as a major factor in their decision to buy a good. The talk about poor labor standards in developing countries never seizes to amaze me.

[Great Zamfir]

If we turn RWB's argument (paint hurts us, child labour not) around, there is a bit less hypocrisy ( on the import side, at least): lead paint in exported goods doesn't hurt the Chinese, while child labour does. So without restrictions, we can expect China to keep exporting lead paint while supposedly they will stop with child labour once ‘they’ think its benefits no longer outwheigh the downsides. Of course, who ‘they’ are matters a lot.

This means that for lead paint, the actions required are entirely up to us. If we as importing country decide we don’t want lead paint, we test for it, China stops producing it, we pay a bit more, everyone is happy.
For child labour we have to look inside China and decide from the outside what is best for Chinese children, for the country as a whole, and that we support the children as opposed to, for example, factory owners or the children’s parents. These are all value judgements based on little more than the idea that what is good for us will be good for them.

This doesn’t mean our judgements will be wrong. It is however much more complicated than the product safety questions. The problem repeats itself in enforcement of the standards: you can test products at home, but labor regulations require control in China itself, either by forcing its government or by outside organizations. Both are definite breaches of sovereignity and politically sensitive.

Another way to look at it is this: if we put ‘leaded’ and ‘lead-free’ stickers on products and demand for leaded products declines, Chinese factories might continue using the paint for the internal market, and we can reasonably say that that is there own fight to fight.
On the other hand, suppose we make ‘child-labor-free’ labels, then factories will move their children to the internal market production lines and total amount of child labor stays probably the same.Then we can buy child-labor-free products and have a nice warm feeling inside, but that was not really the goal we wanted to achieve, is it?

[Per Kurowski]

In terms of regulations we have made such a tangle of it all that perhaps we need to reboot the whole system. For instance, when I read on a stroller a warning label that tells you to make sure you have removed your baby before folding it, is this an officially mandated warning or just a too concerned manufacturer?

We impose regulations without giving much considerations to how they should be enforced and how we should pay the costs of the enforcement. For instance in my country and that had signed any international agreement that had been put in front of it, the total yearly budget of the antitrust agency in charge of all IPR issues was a couple of years ago when I looked at it less than 500.000 dollars. In such a case, if a country signs an agreement to abide by some set of rules and the counterparty believes (perhaps because he just wishes to believe) that it will have the capability to enforce it… who is the real fool?

Labor standards, should they be purchase power parity adjusted? What do we do with special cases such as doctors where only the cost of their liability insurance is much more than a good decent doctor salary in a poor country?

And this is also forgetting that each time we impose a regulation we give a new growth opportunity to those who deal in the illicit… be too stringent on those lead painted dolls and we will see a new underground market opening up… and perhaps even selling specially priced toys on Lexington Avenue in front of Bloomingdale.

Until all new regulation introduced has to carry its cost tag I guess we won’t be able to put much order in the house. This will take some time though… knowing how politicians hate cost tags since these sort of take away some of the shine from the promises of a better tomorrow.

And I could keep on for hours… but then Dani Rodrik might impose some special standards that could regulate me out of his blog.

[Rich C]

Joe,

US products typically do carry a label declaring that they have been made with unionized labor: its called a "bug" and you can see them on beer labels (Miller, Bud, Busch). They're not especially big, but they're there. Also, many union supermarkets have signs on the front door testifying that their workers are represented by a union. These practices have been around a very long time, and the fact that you don't know about them is indicative of how few products are currently made by union workers (well, that and that the labels aren't really all that big).

[Joe]

Rich,
Good to hear that. I am sure that those developing country producers who do maintain high labor standards too would be very happy to declare that their workers enjoy great working conditions. The question I have is really in regard to "negative labeling". For example, would Walmart ever show on the front door of their stores that "our workers are not represented by a union"?

[Ali Sohail (pakistan)]

if people's conditions in other countries can lead to revolutions, wars, immigration, terrorism, international crime, fascism, religious fundamentalism, communism.. don't you have a vested interest in their living conditions ? >>
for sure, If only it backfires on the former's vested interest directly or indirectly.

Given the fast global integration of our lives, the commonality of over laping interests and global interference will increase alot sooner than later and that even at an exponential rate.
Such a phenomenon is evident by the rise in third party and second party global interference over the last decade!

[Ali Sohail (pakistan)]

Joe and Rich
I get the impression ure giving an all out thumbs up to Unionisation!

Unionisation itself is not always the best of things our race has developed. Not to businesses, seldom to the broader community and rarely ever smoothly to the wider cause, specifically in the developing world where lack of education hinders rationally and conditioned thought and negotitation b/w the interplay parties!

So really to advertise it as an unprecendented unquestioned widely claimed positive attribute bedazzles me!

[expát]

"As far as I know, not even libertarian economists have proposed that the best way to deal with the problem is to simply label Chinese-made toys as having uncertain lead content and letting U.S. consumers sort themselves out according to their own preferences and health-hazard/price trade-offs."

Since only a fool would expect full enforcement(or anything close to it) of health and safety standards in both China and the US, this may be the best solution. And add a death's head to the label.

In Mexico and China, and increasingly the US, there are fine laws on the books(like there were in the former Soviet Union) but the financial incentive to not enforce them is too great.

[James Hanley]

China has too much lead paint. Thank god for Canada immigration that has lead to the cleansing of society . www.jobandvisa.com talks all about this

[contaminated soil]

I think that each regulation addresses a different issue: safety-testing standards address the quality of the product regardless of how it was produced whereas labor standards address the conditions under which the product was produced. The quality of the product necessarily concerns consumers, but not necessarily the conditions of its production.

[x-ray fluorescence]

Hi,
I think that those developing country producers who do maintain high labor standards too would be very happy to declare that their workers enjoy great working conditions.

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