Timmy in Bangladesh

The Bangladeshi garment industry gives us an elegant example of the collective action problem. This is where it is generally rational for everyone to act together but individually rational for everyone, acting individually, to do their best to undermine that general action. An obvious example of this is taxation – sure, we’d all like better government services.

But we’d also rather prefer not to be having to pay for them ourselves. It might even be rational for us to vote for higher taxes but then we’ll all cheat (OK, “manage our tax bill”) so as to reduce the effect upon ourselves of what we’ve just voted for.

Equally, people in a cartel (when people cooperate to try to control prices) will find that perhaps they can indeed make an agreement to limit output, or to raise prices. But there will always be the incentive for the individual to cheat, to offer more than their quota, very slightly lower prices, so as to profit from the engineered solution.
Here we’ve something a little different. The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) is arguing that the minimum wage for garment workers should rise.
This sounds like a slightly odd thing, that a producer should be insisting that one of their major costs should rise. However, I’ve met Mr Rahman who is arguing for this and he’s a smart chap, knows what he’s doing. The problem the BGMEA has to face is that there’s significant consumer pressure for wages in Bangladesh to rise.

5 comments on “Timmy in Bangladesh

  1. vonMises argues that it is in the interests of the entrepreneur to pay the worker enough so the the worker can buy his product. Maybe Mr. Rahman has read widely?

  2. Large producers and cartels tend to like higher wages, especially legally-mandated ones, don’t they?

  3. Kevin Lohse:

    Can you direct me to anything in which Mises expresses anything which suggests such mode of payment?

    I’ve been a follower of von Mises for 50 years (tho’ haven’t read him for at least 20) and cannot remember anything suggesting such belief. Would the same thought suggest a man working on Chevvies (for GM) earn enough to afford a Chevvy, while his friend, doing the same job on Cadillacs, be able to afford the higher-priced vehicle? I believe it’s true that Henry Ford had some (poorly-thought-out) idea that paying substantially more (than workers paid elsewhere) would enable them to become customers for the vehicles they built. That didn’t help when the Dodges sued him for mismanaging their company (courts up to the Supreme upheld the verdict against him).

    Treatment of wages and determinants can be found in von Mises’ HUMAN ACTION in a chapter of about 40 pages (“Work and Wages”).

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