The face of the exploited

This is a good post over at the Pretense of Knowledge blog about 13-year-olds building iPhones for cheap.  It reminded me of a trip I made to a non-tourist city in Mexico once.

Even as a poor college student, I could afford to take a taxi where I wanted.  The first fare for getting us across town was $0.25.  I gave him a dollar.  He seemed genuinely happy.

My girlfriend and I hired the cab (he always seemed to be close to us) for the day to drive us to the next town –about 20 minutes away — so we could visit a museum.  He waited for us and drove us back.   We paid him $10.

The iPhone post reminded me of my Mexico-taxi experience because a third-party could accuse me of “exploiting” that cab driver, since I paid him much less than what a cab driver in the U.S. would charge for the same trips.

I feel confident that the driver didn’t feel exploited.  He appeared grateful (and always nearby) to have the opportunity to cart around a couple of poor U.S. college kids.  I’m certain it was well worth his time.

Had a third-party intervened to impose U.S. rates on that transaction, both the cab driver and I would have lost out.  We wouldn’t have taken the taxi.  The driver would not have many, if any, fares.

It think it’s easy, even for the economically challenged, to see what would happen in this case when a minimum is set above the market rate.  It kills opportunity for both the buyer (me) and seller (driver).   Unfortunately, folks don’t see this as clearly with other minimum prices, like the minimum wage, which also kills win-win opportunities for buyers (business owners) and sellers (job hunters).

Whenever the “exploitation sweatshop” discussion comes up, the look on that taxi driver’s face comes to mind.  It told me he was extremely thankful and even my meager payments more than covered his opportunity cost.

If you click-through to the iPhone article, you’ll see a photo presumably of an iPhone maker, who doesn’t seem as thrilled.  But, as we all know, work isn’t always joyful and photos aren’t always honest.  I’ve snapped my share of family photos during happy moments that somehow ended up looking tragic on the photo as the camera managed to catch a microsecond of facial expression that is undetectable to the naked eye.

We do

A family member told me that he recently spoke to a friend of his from Mexico.  His friend works in an auto plant and said that he makes a fraction of what autoworkers make in the U.S., though he still makes more than he would make at most other jobs in Mexico.

My family member asked me, who keeps the difference from the lower wages car companies pay to Mexican workers and the higher wages they pay to workers in the U.S.?  The companies?  Management?

I said, believe it or not, we do.  The cost savings means we pay less for our cars than we would have otherwise, which leaves us with more to spend on other things, which in turn keeps the people who make those things busy.

He wasn’t so sure how that worked.

I said that the auto company managers would love to keep the cost savings, but they have competitors doing the same thing — building cars in Mexico to save on wages — and who will decide to pass the cost savings to the consumers in the form of lower prices to sell more cars.   So, the managers will match that. Which means we pay less.

He seemed to understand that.