Capital, Free Trade and U.S. Hypocrisy

Image from Kheel Center, Cornell University

Nearly 100 years after the infamous Triangle fire, on December 14, 2010, workers producing apparel for the Gap in the Hameen factory outside the capital of Bangladesh, became trapped by a 9th floor fire (Hammadi & Taylor, 2010).  The fire quickly became a conflagration and raged between the workers and the exit.  The workers fled to the fire exits and found locked doors, because management sought to prevent theft.  Left with no recourse, workers either jumped from the top of the building to the ground below or perished from the smoke or flames (Hammadi & Taylor, 2010).  This modern-day Triangle tragedy killed 29 workers and injured more than 100 (Griggs, 2011).

Image from Reuters/Andrew Biraj

The tragedy in Bangladesh serves to highlight the continued exploitation of labor that occurs in the developing world in order to drive down the costs for U.S. corporations.  The problem of exploitation is a complicated one that includes many factors, including the capitalist motives of growth and profit, relaxed or free trade agreements, the appeal of cheap labor and lack of regulatory standards in the developing world, and the need of developing world countries for capital investment to create economic stimulation.  These factors combine to create a vicious cycle that leads to worker exploitation and needless tragedies like the Hameen factory fire and other equally abhorrent labor practices that often impact woman and children the most.

Structural Problem with Capitalism

Hodsen and Sullivan (2008) describe Marx’s view of the structural problem inherent under capitalism:

“The exploitation and misery of workers results directly from the laws of capitalism in which the market system demands that every capitalist buy labor as cheaply as possible in order to produce and sell goods as cheaply as possible and still turn a profit.  If capitalists do not exploit their employees, they will be undercut by other capitalists who do.”  (pg. 8)

Lower costs allow U.S. corporations to return profit to shareholders, compete more effectively, and fund new initiatives to grow their business; in essence, the capitalist incentive system is designed to maximize growth and profit, in direct conflict with workers’ needs for living wages and safe working environments.

The Appeal of Global Labor Differences

            Labor costs vary widely across the globe based on a variety of factors, including the country economy, inflation rate, worker wages, overtime, benefits, and regulatory standards.  Economies without regulatory standards to protect workers, prevent worker exploitation, or protect the environment can be very attractive to corporations that can pass savings on to shareholders in the form of profits or to fuel new growth initiatives.

Free Trade Agreements

            Free trade agreements eliminate trade barriers like tariffs and quotas that historically prevented companies from moving work to countries with lower cost structures.  Advocates of free trade policies, like the WTO and the World Bank argue that free trade promotes economic growth for open economies and a resulting reduction in poverty and inequality.  In the World Bank report on globalization Collier and Dollar (2002) indicate that:

Globalization generally reduces poverty because more integrated economies tend to grow faster and this growth is usually widely diffused. As low-income countries break into global markets for manufactures and services, poor people can move from the vulnerability of grinding rural poverty to better jobs, often in towns or cities.  (p. 1)

Others argue the free trade creates a race to the bottom where industries are more likely to move across borders to countries that have different cost structures and regulatory standards (Hassoun, 2008).  While free trade agreements have opened markets and promoted trade, “these global institutions, however, have been much more reluctant to implement policies that provide protections for workers or for the environment” (Hodson & Sullivan, 2008, p. 203).  By way of example, the Hameen factory fire is indicative of lax safety standards and either poor or poorly enforced labor policies.

A Vicious Cycle

The availability of lower cost labor pools made assessable by free trade agreements have driven the trend by corporations to move work overseas to countries whose economies are in dire need of capital investments and who consequently have created a business-friendly environment.  The government of these countries, like Bangladesh, El Salvador, or Honduras, keep labor costs low to attract needed capital.  For example, El Salvador, a member nation of the International Labor Organization (ILO), one of 5 nations that participate in the Central American Free Trade Agreement (CAFTA),

Image from laurizza

has particularly egregious violations of international labor standards including discrimination against women, the worst forms of child labor and the “violation of the fundamental rights of freedom of association and collective bargaining” (Monterrosa, 2004, p. 46).  Countries with poor economies, high unemployment and free trade agreements make attractive targets for manufacturing investment, particularly when coupled with a pro-business environment that discourages labor unions and lacks effective enforcement of labor laws; the low labor costs are simply too attractive to pass up.  Large infusions of capital for new manufacturing investments can perpetuate pervasive labor problems like exploitation of women and children, low wages and occupational safety issues.

An Example: From a Sweatshop in El Salvador to CSU

            Two years after CAFTA was signed into law, Hanes Brands, a U.S. based maker of apparel across numerous brands, including the Champion Brand, announced the acquisition of the textile manufacturing operations of Industrias Duraflex, El Salvador, in order to continue to lower global supply chain costs (HanesBrands, 2007).  Hanes Brands, has been implicated in child labor violations in Bangladesh (Kernaghan, 2006), while in the Dominican Republic, Hanes used “a range of illegal means to thwart workers’ efforts to exercise their associational rights” (Worker Rights Consortium, 2007, p. 3).  A May 2009 report from the Washington Office on Latin America (WOLA) found continued institutional weakness and pervasive impunity in the enforcement of labor rights post-CAFTA in countries like El Salvador and cited numerous labor violations by Hanes Brands (2009).  Companies like Hanes Brands are able to operate largely with impunity in free trade zones, ignoring ILO labor standards and local labor laws while being applauded by the investors for their superior business management.  Meanwhile, Colorado State University, is selling CSU-branded Hanes merchandise to students and helping to support El Salvador’s sweatshop economy.

This shirt is made in El Salvador

How are we to begin to solve the labor problems associated with globalization when we reward the worst abusers with profit?

Fair Trade versus Free Trade

Free trade agreements have done much to advance the cause of trade and little to advance the cause of workers rights.  A move towards fair trade, with a linkage between international trade and basic labor standards, would do much to level the competitive labor field while improving justice (Barry & Reddy, 2005).  Linkage may also have the effect of improving wages and decreasing poverty (Barry & Reddy, 2005).  Upcoming trade agreements with Columbia and Peru are including more provisions for improved labor standards, although still may fall short in funding for enforcement projects (Washington Office on Latin America, 2009).

Improve Educated Consumer Choice

Information on ethical choices for purchased goods should be readily available to U.S. consumers whose current purchasing decisions reward corporations that exploit workers.  While there is information available for those who choose to do the research, it appears to be fragmented and lacks an appropriate framework to make it easy for a consumer to make an ethical decision.  Perhaps, were products labeled as “ethically manufactured” in the same way organic food is labeled “organic”, consumers could make an informed decision.  That knowledge would certainly have prevented my purchase of the CSU-Global apparel.


            The U.S. government, corporations, and consumers are equally culpable in the continued exploitation of workers and specifically the most vulnerable workers, women and children.  There are many factors contributing to the ongoing exploitation of women and children in the developing world.  Major factors include capitalist motives of growth and profit, free trade agreements that do not include provisions to enforce basic labor standards, the appeal of cheap labor and lack of regulatory standards in the developing world, and the need of developing world countries for capital investment to create economic stimulation.  These factors help create a vicious cycle where U.S companies infuse large amounts of capital into developing economies to take advantage of the opportunity of free trade and cheap labor; while the governments of developing countries allow an environment hostile to labor to perpetuate continued exploitation to attract capital investment.  It is the height of hypocrisy that the U.S. government, corporations, and workers, that insist on basic labor standards inside the U.S., have systematically help deny workers in the developing world the same basic rights.


Barry, C., & Reddy, S. G. (2005). Just Linkage: International Trade and Labor Standards (pp. 122). New York: Columbia University.

Collier, P., Dollar, D., & World Bank. (2002). Globalization, growth, and poverty : building an inclusive world economy. Washington, DC New York, N.Y.: World Bank; Oxford University Press.

Griggs, A. (2011, March 24). Triangle’s Fire Still Burns. Labor Notes. Retrieved May 29, 2011, from’s-fire-still-burns

Hammadi, S., & Taylor, M. (2010, December 14).  Workers jump to their deaths as fire engulfs factory making clothes for Gap | World news | .  Latest news, comment and reviews from the Guardian | . Retrieved May 29, 2011, from

HanesBrands. (2007, September 6). Hanesbrands Inc : Hanesbrands Inc. Acquires Textile Plant in El Salvador Capping Successful First Year as an Independent Company. Stock Market Quotes and Financial News | 4-Traders. Retrieved May 30, 2011, from–411680/

Hassoun, N. (2008). Free trade, poverty and the environment. Public Affairs Quarterly, 22(4), 353 – 380.

Hodson, R., & Sullivan, T. A. (2008). The social organization of work (4th ed.). Belmont, CA: Wadsworth.

Kernaghan, C. (2006, October 24). Child Labor Is Back: Children Again Sewing Clothing for Wal-Mart, Hanes and Other U.S. Companies. Common Dreams. Retrieved May 29, 2011, from

Mcclear, S. (2005, March 1). ZCommunications | Race to Bottom for Garment Workers by Sheila Mcclear | ZMagazine Article. Z Communications. Retrieved May 29, 2011, from

Monterrosa, A. l. E. n. C. (2004). LEGAL, POLITICAL AND PRACTICAL OBSTACLES TO THE ENFORCEMENT OF LABOR LAWS IN EL SALVADOR Fundamental Labor Rights in Central America, Latin America and the Caribbean (pp. 51). Washington DC: International Labor Rights Fund.

Washington Office on Latin America. (2009). DR-CAFTA and Worker’s Rights: Moving from Paper to Practice (pp. 28). Washington DC: WOLA.


FINDINGS AND RECOMMENDATIONS. Washington DC: Workers Rights Consortium.


Welfare Reform: Who Really Benefited?

            The first major revision of welfare reform since the Great Society programs of democratic President Lyndon B. Johnson, was enacted in 1996 under the watch of another notable democrat, President Bill Clinton.  Dubbed the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), the new welfare policy aimed to roll back the entitlement-based system in favor of a system that encouraged personal responsibility, work ethic, family values and reduced dependence on the government payments.  On the surface, PRWORA should have had enormous benefits for welfare recipients, families, and taxpayers, as former welfare recipients found new jobs, formed two-parent families, and no longer required government assistance.  Instead, in the intervening years, many former welfare recipients found themselves in marginal jobs, living in poverty and continuing to receive government entitlements, in the form of Food Stamps, the Earned Income Tax Credits, the Child Care Tax Credit and Medicaid.  PRWORA forced millions of workers without skills into the workforce and as the largest employer of workers in marginal jobs, Walmart was the single, largest, beneficiary, therefore PRWORA must be consider a failure by any reasonable standard.

Why Change Welfare?

            In the late 1970’s there was a growing conservative backlash to the liberal ideals of the Great Society (Moss & Thomas, 2010).  Conservative Republican Governor Ronald Reagan rode the conservative backlash into office and helped define how Americans thought about welfare by creating the archetype of “welfare queen”.  During his 1976 campaign, Reagan turned a news story about a Chicago welfare recipient that defrauded state welfare programs out of $8,000, into the myth of the “welfare queen” that drove a Cadillac and who collected income of more than $150,000 annually using “eighty names, thirty addresses, twelve Social Security cards and…collecting veteran’s benefits on four nonexisting deceased husbands” (Cannon, 2000, pp. 456-457).  The growing conservative backlash, coupled with significant problems with the existing system of entitlements, helped to frame the national debate on welfare.

Accordingly, in the late 1980s and early 1990s, problems with existing welfare programs came to the forefront of the deficit debate as both the number of recipients (U.S. Dept of Health and Human Services. Administration for Children and Families, 2011) and the cost of the program for each recipient (U.S. Office of Management and Budget, 2011) skyrocketed between 1980 and 1995.  While the growing financial outlays concerned policymakers, of more import to Republican legislators was the perception that the fiscal problems were caused by the growing social problem of long-term, systematic, abuse of the welfare system by unwed mothers, a perception buttressed by President Reagan’s “welfare queen” archetype.  Republicans of the 103rd U.S. Congress, developed the Contract With America, that included a draft Personal Responsibility Act outlining the Republican perspective on the problems of welfare, “Long-term users often are young, never-married, and high school dropouts; and most AFDC families begin with a birth to a teenager” (Gingrich, Armey, Gillespie, & Schellhas, 1994, p. 68).  Additionally, Republican’s believed that recipients lacked incentive to work and were often encouraged to stay at home because of childcare burdens, therefore the Contract with America included a requirement that paternity be established in order place the fiscal burden on the father (Gingrich, et al., 1994).  The conservative backlash, the myth of the “welfare queen”, the rising costs of welfare, and the election of the Republican-dominated 103rd Congress, defined the U.S. political debate on welfare reform; but how much resistance could Republicans expect from a liberal Democrat in the Oval Office?

Surprisingly, President Clinton also sought to reform welfare and end the dependence of needy parents on government programs.  While Clinton sought to end dependence on government benefits, he also believed strongly in personal responsibility and sought to mimic the workfare programs adopted by Arkansas during his tenure as governor (Clinton & Gore, 1992).  Clinton and Gore outlined their views on welfare reform as they described “an America where we end welfare as we know it.  We will say to those on welfare: you will have and you deserve, the opportunity through training and education, through child care and medical coverage, to liberate yourself” (Clinton & Gore, 1992, p. 228).  Clinton believed the existing system trapped welfare recipients and sought to break the cycle by encouraging work and providing the means for welfare recipients to improve themselves.  The final legislation however, had a decidedly different emphasis.

Goals of PRWORA

            To illustrate, Clinton worked with Republicans to draft the eventual PRWORA legislation, but the new bill had abandoned critical training, education and medical coverage requirements outlined during Clinton’s campaign.  Rather, the major goals of the final PRWORA legislation was to end the dependence of welfare recipients on government benefits, increase the flexibility of states to administer welfare programs, and prevent and reduce the incidence of out-of-wedlock pregnancies and encourage the formation of two-parent families and finally, to reduce the welfare spend by $55B annually (United States. Congress. House. Committee on Ways and Means., 1996).  Ultimately, Clinton largely adopted the Republican’s Contract With America, and signed PRWORA into law, but to what result?  The benefit of ten years passing allowed an introspective Clinton to opine on the results of PRWORA in a New York Times op-ed piece to help answer the question, did welfare reform achieve its intended result?  According to Clinton, because Democrats and Republicans compromised and passed PRWORA, the number of welfare recipients dropped from 12.2 million down to 4.5 million, caseloads declined by 54%, 60% of mothers who left welfare found work and “100 times as many people moved out of poverty and into the middle class during our eight years as in the previous 12” (Clinton, 2006, p. 1).  Apparently, the law had not only reduced the caseload, but had put a significant dent into poverty as well.  Would an objective view of the results tell the same story?

Results of PRWORA

            To date, PRWORA has been in place for fifteen years, providing ample time to reflect on whether the legislation met its stated goals.  The primary goal of the legislation was to end dependence of welfare recipients on government benefits.  Indeed, as Clinton indicated, because of PRWORA policy limitations on how long welfare recipients may remain on welfare, the number of recipients dropped from over 12 million in 1996 to 4.5 million in 2010 with a 57% decrease in corresponding caseload (U.S. Dept of Health and Human Services. Administration for Children and Families, 2011).    Unfortunately, total entitlement payments had increased substantially from the $277B annual spend in 1996, ballooning by more than $450B a year to a whopping $720B, a far cry from the $50B in annual savings projected by lawmakers (U.S. Office of Management and Budget, 2011).  Much of the current spend can be found in entitlements related to issues not addressed in PRWORA, including Medicaid, Earned Income Tax Credit, housing programs, substance abuse and mental health programs, child nutrition, and a slew of others (U.S. Office of Management and Budget, 2011).  Additionally, the number of families living in poverty has remained at roughly 14% for the last thirty years (U.S. Bureau of the Census, 2010), while the number of out-of-wedlock pregnancies and single parent families are still on the rise (Temporary Assistance for Needy Families Program, 2007).  While the number of cases and recipients decreased, the ballooning entitlement spend would suggest that many welfare recipients are obtaining benefits through other means.  Conversely, the only tangible result of PRWORA appears to be the creation of a new generation of working poor.

The Working Poor

            To explain, between 1996 and 2000, 1.5 million people in the ranks of the unemployed joined the workforce as unemployment dropped from 5.4% to 4% (U.S. Department of Labor, 2011), when former welfare recipients, many of them single mothers, joined the ranks of the employed.  In fact, between 1996 and 2000, employment for single mothers rose nearly 25% (Wolf, 2006).  It could be argued that greater employment for single mothers was a positive development, unfortunately, most were likely employed in marginal jobs.  “Ron Haskins of the Brookings Institution, who helped write the new law when he worked for Congress, worries that too many women on welfare have turned into the working poor” (Wolf, 2006, p. 1).  The Institute for Women’s Policy Research (2003) also found that “Following welfare reform, poor single parent families not receiving TANF were more likely to live in dire poverty” (p. 1).  Given so many former welfare recipients moved into marginal jobs, the use of other entitlement programs expanded as the working poor sought the means to survive on minimum wage.  According to Wolf (2006):

While welfare was trimmed, other parts of the nation’s social safety net were expanding. The number of people receiving Medicaid and food stamps has soared by 50% since 2000. Medicaid is now the nation’s largest entitlement program, with 53 million recipients; 25 million people get food stamps. (p. 1)

In essence, PRWORA had the effect of driving millions of welfare recipients into marginal jobs and other entitlement programs, while doing little to break the cycle of dependency or help welfare recipients earn enough to avoid living in poverty.

Who Benefited?

            While neither former welfare recipients, nor taxpayers, appear to have benefited from PRWORA; perhaps there were other parties that did?  It appears that the single, largest, beneficiary of PRWORA was Walmart Corporation, as its growth was dependent on a large labor pool on unskilled workers willing to work for minimum wage.  In 1996, Walmart had reached nearly $100B in annual sales, had net income of 2.9% of sales and had hired over 50,000 additional workers, employing 675,000 people (Walmart Inc., 2011).  By 2010, only 14 years later, Walmart had quadrupled sales to over $400B annually, had net income of 3.5% and employed more than 2.1 million people (Walmart Inc., 2011).   Walmart’s phenomenal growth was achieved by significantly growing the number of stores and hiring 1.5 million workers to staff the stores, many of whom were likely former welfare recipients.

Furthermore, Walmart workers are notoriously among the lowest paid workers in the retail industry.  A University of California, Berkeley study found that Walmart has had a significant effect on the retail labor market by putting downward pressure on both wages and healthcare benefits, estimating real wage reductions of nearly 14% across the entire retail sector in regional markets with significant Walmart presence (Dube, Lester, & Eidlin, 2007).   Additionally, a similar study found that many low-wage, Walmart workers relied on the public programs like Medicaid, food stamps, and subsidized housing in order to survive on Walmart wages; in effect, Walmart employee’s reliance on public assistance, “has become a form of indirect public subsidy to the company” (Dube & Jacobs, 2004, p. 8).  Employment by Walmart has the impact of keeping many workers living below poverty level, while growing the public’s financial burden for Walmart’s workers.   Walmart’s need for millions of low-wage workers and their ability to externalize their labor costs to U.S. taxpayers have combined to make Walmart the single, largest, beneficiary of PRWORA.

Rethinking PRWORA

            Indeed, PRWORA’s emphasis on personal responsibility and goal of ending dependency on government benefits are both noble and ambitious.  As citizens, labor unions, government officials, and social scientists consider what has been learned in the 15 years since PRWORA was signed into law, some key considerations come to mind.  First, it is not enough to simply force workers into the labor pool without assuring that the minimum wage is actually a living wage.  Setting the minimum wage standard to allow marginal workers a survivable wage would help to decrease the overall costs associated with government programs not associated with PRWORA, like food stamps and housing subsidies.  Second, holding corporations accountable to workers and taxpayers, by putting policy into place to prevent them from externalizing costs, while privatizing profits, should be a primary consideration of future efforts to reform welfare.  Critics might argue that such regulation could be bad for business and inhibit growth of corporations like Walmart.  Rather, those corporations that successfully externalize their costs to the public would be placed on an even footing with their socially responsible competitors.  Lastly, welfare reform needs to invest to break the cycle of dependency on public programs.  It is not enough to simply make benefits conditional upon work and set time limits.  In order for welfare recipients to truly end their dependency on the government, they must be educated or trained for higher-skilled jobs.


             In short, government and business, whether by happenstance or collusion, have created a situation whereby poor, mostly un-educated, welfare recipients were forced into wage slavery, in order to receive the entitlements they had come to depend on.  Time limits built into the legislation forced recipients out of the system and into marginal jobs.  Walmart, the largest employer of low-wage workers, enjoyed the benefit of a made-to-order labor pool to staff the growth of its stores.  Because Walmart does not provide a livable wage and externalizes a portion of labor cost, Walmart also accrues to itself an additional benefit of higher earnings performance.  As a result, Walmart must be considered the largest beneficiary of the PRWORA legislation and therefore PRWORA must subsequently be considered a failure.  Further inquiry should explore the relationship, if any, between the Clintons and the Waltons to determine whether the circumstances surrounding PRWORA legislation was, in fact, the result of more than the good fortune or business acumen of the Walmart corporation.


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