Marketing ethics 2.1 human trafficking: the worst kind of factor mobility

Criminals make money in the worst way – even at the expense of exploiting their fellow human beings. Women and children are particularly vulnerable. In some societies, parents sell their children. In Asia and Eastern Europe, women have been abducted and forced into prostitution. At the Mexican–American border, Mexican police still have not solved the murders of many women who worked in the area or who tried to go across the border into the USA.

In Taiwan, most of its nearly 300,000 foreign con- tract laborers are from Thailand and the Philippines. Licensed job brokers in Taiwan charge each worker as much as $6000, about the minimum wage for a year’s work. A worker on a three-year contract needs two years to pay this fee, leaving only one year for the actual pay.

In the case of Thailand, it is interesting to note

that laborers pay brokers to try to secure jobs in

Singapore, Taiwan, and wealthy Arab nations. At the same time, labor costs in Thailand have gone up, and many employers have now turned to illegal Burmese aliens instead. While some 200,000 women and chil- dren from neighboring countries have been smuggled into Thailand for the sex trade, Thai prostitutes have been sent by gangsters to other Asian and European countries.

The US Trafficking Act ranks countries in terms of their efforts to stamp out human trafficking. Thailand is a Tier 2 country, meaning that it has not met the minimum standards in fighting human trafficking. If it is demoted to Tier 3, Thailand could face economic measures taken by the USA.

Sources: “Taiwan’s Invisible Workforce,” San José Mercury News, September 6, 2000; “US Says Thais Doing Too Little to Stamp Out Human Trafficking,” Bangkok Post, March

17, 2003.

theory, as a country exports its abundant factor, that factor becomes more scarce at home and its price rises. In contrast, as a country imports a scarce fac- tor, it increases the abundance of that factor and its price declines. Therefore, a nation is usually inter- ested in attracting what it lacks, and this practice will affect the distribution of production factors.

Since a country’s factors of production can change owing to factor mobility, it is reasonable to expect a shift in the kinds of goods a country imports and exports. Japan, once a capital-poor country, has grown to become a major lender/sup- plier of money for international trade. Its trade pattern seems to reflect this change.

When considering the factors of production, another item that is very significant involves the level of quality of the production factors. It is import- ant to understand that the quality of each factor should not be assumed to be homogeneous world- wide. Some countries have relatively better-trained personnel, better equipment, better-quality land, and better climate.

Although a country should normally export products that use its abundant factors as the product’s major input, a country can substitute one production factor for another to a certain extent. Cut-up chicken fryers are a good example. Japan imports chicken fryers because a scarcity of land forces it to use valuable land for products of rela- tively greater economic opportunity. Both the USA and Thailand sell cut-up chicken fryers to Japan. The two countries’ production strategies, however, differ markedly. The USA, due to its high labor costs, depends more on automation (i.e., capital) to keep production costs down. Thailand, on the other hand, has plentiful and inexpensive labor and thus produces its fryers through a labor-intensive process. Therefore, the proportion of factor inputs for a particular product is not necessarily fixed, and the identical product may be produced with alter- native methods or factors.

Like Joseph Schumpeter before them, some economists argue that innovation (knowledge and its application to real business problems) counts for

more than capital and labor, the traditional factors of production. Entrepreneurs, industrial research, and knowledge are what matters.

The discussion so far has dealt with an emphasis of trade theories on the supply side, but demand is just as critical, and demand reversal (when it occurs) may serve to explain why the empirical evi- dence is mixed. Tastes should not be assumed to be the same among various countries. A country may have a scarcity of certain products, and yet its citizens may have no desire for those products. Frequently, less developed countries’ products may not be of sufficient quality to satisfy the tastes of industrial nations’ consumers. Yugo, for example, tried in vain to convince American consumers that its automobiles, despite their very low prices, were not bad value or of poor quality. Even Renault, in spite of being from a developed country (France), could not win over American consumers.

In some market situations, it is possible for product quality to be too high. Companies in devel- oped countries, for example, sometimes manufac- ture products with too many refinements, which make the products too costly for consumers elsewhere. German machinery, for instance, has a worldwide reputation for quality. Nonetheless, many less developed countries opt for less reliable machinery products from Taiwan because Taiwan’s products are less costly. Such circumstances explain why nations with similar levels of economic devel- opment tend to trade with one another, since they have similar tastes and incomes.

Perhaps the most serious shortcoming of classi- cal trade theories is that they ignore the marketing aspect of trade. These theories are concerned pri- marily with commodities rather than with manu- factured goods or value-added products. It is assumed that all suppliers have identical products with similar physical attributes and quality. This habit of assuming product homogeneity is not likely to occur among those familiar with marketing.

More often than not, products are endowed with psychological attributes. Brand-name products are often promoted as having additional value based on psychological nuance. Tobacco products of

Marlboro and Winston sell well worldwide because of the images of those brands. In addition, firms in two countries can produce virtually identical products in physical terms, but one product has dif- ferent symbolic meaning than the other. Less devel- oped countries are just as capable as the USA or France in making good cosmetic products, but many consumers are willing to pay significantly more for the prestige of using brands such as Estée Lauder and Dior. Trade analysis, therefore, is not complete without taking into consideration the reasons for product differentiation.

A further shortcoming of classical trade theories is that the trade patterns as described in the theories are in reality frequently affected by trade restrictions. The direction of the flow of trade, according to some critics of free trade, is no longer determined by a country’s natural comparative advantage. Rather, a country can create a relative advantage by relying on outsourcing and other trade barriers, such as tariffs and quotas. Protectionism can thus alter the trade patterns as described by trade theories.

The new trade theory states that trade is based on increasing returns to scale, historical accidents, and government policies. Japan’s targeted industry strat- egy, for example, does not adhere to free-market principles. Therefore, a moderate degree of protec- tion may promote domestic output and welfare. However, as pointed out by Jagdish Bhagwati, it is not easy to differentiate fair trade based on com- parative advantage from what may be considered unfair trade. Are trade practices based on work habits, on infrastructure, and on differential saving behavior to be considered unfair? If so, all trade could possible be considered unfair.¹⁶