America Indentured, Sidebar Discussion: How might we improve foreign worker safety conditions

By now, perhaps you have had a chance to read the first two posts in my series on those issues we actively choose to pretend do not exist within the American labor force. While the two already published dealt with the conditions overseas in the Commonwealth of Northern Mariana Islands, the final two will focus primarily on labor issues within the Continental United States. Now, then, seems as good a time as any to discuss those foreign corporations, sub-contracted by U.S. companies, that continue to treat workers in a similar (or worse) fashion than those treated on Saipan.

Whenever these workers are brought up in conversation, there is usually a two-pronged consensus given by Americans. The first is a a sort of metaphysical shoulder shrug: sure it’s terrible, but what can we possibly do? They happen in foreign countries over which we have no control. Best just buy the cheaper goods they make and not worry  about it. The second is an argument that it’s really in the workers’ best interest to endure years, decades, or even generations of virtual slave labor, indentured servitude, highly dangerous working conditions for non-dangerous jobs, sexual assaults, and all of the various other attacks on their humanity, because [insert economics and free market argument here].  Further, our purchasing cheaper products made by workers placed in such conditions are a good thing, again because [insert economics and free market argument here].

My issue with those who argue nothing can or should be done — or, worse, that that we are somehow doing workers a favor by allowing them to be treated thus — is that the possible solutions they argue against have always seemed to me to be strawpeople. “Would you prefer we invade the country and force them to change their culture at gunpoint? Would you prefer if we made them shut all the factories down and forced the people to starve?” My answer to all of these kinds of questions is, obviously, of course not. Those would indeed be terrible options.

But are they really the only options? Are the sum of our choices truly “happily profit off of indentured servitude,” “forced imperialism,” and “leave them all to rot in poverty?” Are there really no other possible roads we might travel? Or is this a false choice, set up to allow us the benefit of slightly-lower-cost goods with the added convenience of proactively washing away our sins?

I would like to posit that there are real, low-cost, relatively non-invasive solutions out there that would improve worker conditions for countries that sub-contract to US corporate interests —  ones with a track record of success in other countries. Solutions that would allow U.S. corporations to continue sub-contracting in third-world countries, potentially with the very sub-contractors they currently employ. And in the spirit of the kind of social entrepreneurship I am imploring Americans to begin taking up, I’d like to pitch one of those solutions today.

This potential solution requires no military or diplomatic pressure on foreign governments, allows third-world sub-contractors to maintain their competitive edge over their industrialized brethren, and within five years would likely shore up most of the worst worker-safety abuses employed by those who make the clothes that you are literally wearing as you read this post:

Mandatory workers compensation coverage for foreign workers sub-contracting with U.S. corporations.

Before you scoff, hear me out…

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First, it’s probably best to explain what workers compensation insurance actually is. (Most people, I have found, misunderstand the entire concept — likely because the word “insurance” brings to mind non-analogous products people deal with in their own day-to-day lives, such as home or auto insurance.)

Simply put, workers comp is a legislated compromise between labor and management. This compromise stipulates that if a worker is injured on the job, their employer will step in and pay medial, pharmaceutical, physical therapy, and any other pre-determined health-care related costs associated with that injury. They will also pay a set percentage of that worker’s wages for any time lost. Additionally, there is a death benefit that pays money to surviving family members and dependents should a worker die while on the job. In exchange for these benefits, workers injured on the job agree not to sue their employer for getting injured. It is agreed upon up front that this is the case, regardless of who is mostly at fault for the injury.

Companies pay a premium that is based on three separately weighted factors: the potential danger involved with a particular industry/environment, a company’s individual track record of claims in previous years, and the safety conditions, training, and culture implemented on individual work sites. Because workers comp is a pass-through system, ¹ insurers make sure they price premiums to a sufficient degree to collect for future expected claims. What this means, in practical terms, is that in a low-margin business such as manufacturing, having too many claims can actually result in premium increases that can and do lead to bankruptcy. Workers comp forces employers out of the practice of viewing human life as a disposable commodity.

Sometimes, of course, a U.S. corporation will sub-contract with a domestic employer that is “running naked.” ² In fact, since sub-contractors are usually hired because they promise to be able to do things cheaper and thus are more likely to fly by the seat of their pants, this is more common than you might imagine. In those instances, the ultimate responsibility for that sub-contractor’s workers comp — in term of both premiums and claims cost — goes to the lowest-level general contractor or contracting buyer that does have workers comp. In other words, if you hire a subcontractor that has no comp insurance, at audit time your carrier will retroactively charge you premium for that company’s workers, and it will attach any injuries the sub-contractor’s employees endured to your record, to be paid for over time on your dime. The system forces U.S. corporations to take very seriously the safety practices of those companies with whom they subcontract, because no one wants to absorb an unexpected (and potentially very large) insurance expense a year after a contract is finished.

Just as important as how workers comp works on paper, however, is how it works in practice.

Since workers comp has been implemented, workplace injuries and deaths have plummeted in the United States. Indeed, despite what you might have heard, the number-one factor in decreased injuries and increased job-set safety standards was not the pain of OSHA fines. It was the pain of increased workers comp premiums. Prior to workers comp, employees in unsafe U.S. industries were largely considered a disposable good; employees of sub-contractors even more so. But once faced with potential hits to the wallet, corporate America very quickly discovered that running safer operations wasn’t actually as impossible and astronomically expensive as they had previously assumed. Rather, it turned out to be almost embarrassingly easy and inexpensive to achieve. Indeed, companies actually found — much to their surprise — that having safe work environments actually ended up being more profitable in the long run than unsafe environments, even when factoring out comp costs. Having a stable, healthy, experienced, and trained workforce proved to be more productive than one where you would just bring someone off the street and shove them in the slot where the previous workers lost a limb, developed pneumoconiosis, or were killed.

The difference between a domestic sub-contractor and a foreign sub-contractor in regards to workers compensation, obviously, is that a U.S. corporation is required to pay comp-associated costs with naked domestics but has zero responsibility in regards to job site injuries that occur on foreign soil. But that distinction is entirely arbitrary, and has nothing to do with U.S. treaties. There’s no real reason that couldn’t be changed this year. And, I would argue, making this change is something worth considering.

Consider, if you will, the likely outcome of such a tweak to U.S. labor code.

U.S. companies would instantly have skin in the game in terms of what happened to their sub-contracted foreign workers. At first, U.S. companies would likely have to simply absorb the cost of workers comp insurance for foreign sub-contractors into their own already-existing premiums. Because of this, contracts will more likely be awarded to Chinese Company ABC that has adequate safety standards than they will to Chinese Company XYZ, whose worksites are potential death traps. SInce workers comp premiums are affected by occurrences that happened 2-4 years ago, premium increases could be structured to be incremental for half a decade, after which they would be… well, somewhat slightly less incremental for those that hadn’t cared much about improving onsite safety standards. Foreign sub-contractors would be incentivized to implement low-investment, cost-effective safety standards, just as domestic companies were a century ago. After all, what’s the cost of installing $20 worth of working fire alarms in your building, as well as swapping out the batteries once a year, when compared with the cost of losing most or all of your U.S. retailer contracts?

Further, we would be putting the task of monitoring and assessing actual foreign worker conditions not in the hands of corporations (who are certainly biased) or government regulators (who can be biased and/or corrupt), but of the insurance companies’ safety inspectors — who, having to bear the ultimate cost of any claims, will absolutely take those inspections seriously. If they treat foreign companies the way they do domestic companies, it’s likely they’ll even absorb more than a few of those safety-improvement costs. Trust me when I say that workers comp underwriters don’t give a rat’s ass if your employer donated money to HRC, Jeb, or Ted Cruz, nor do they care about how many golf junkets your employer heaped upon the insurer’s sales team. All they care about is still being solvent tomorrow.

The forced cost-of-goods increase would be negligible, allowing third-world subcontractors to maintain their competitive edge over manufacturers in fully-industrialized countries. This is because workers compensation premiums are calculated as a small percentage of employee wages, and the benefits go to pay medical costs and a percentage of lost wages. In third-word countries, the cost of both are next to nothing; the cost of premium, therefore, would likely be a small percentage of next to nothing. Additionally, since cost-of-labor is such a small percentage of the cost of these manufactured goods, the increased cost to consumers would also be negligible. And all of this would have no effect on U.S. corporations doing business with foreign sub-contractors in first-world nations such as Germany, France, or Japan, because companies in those countries already have coverage systems in place; there would be no need for U.S. companies to purchase coverage for them.

Within a half-decade, ³ U.S. retailers that chose to contract with safer third-world foreign worksites would have products that were more competitively priced than those retailers who didn’t. Foreign sub-contractors would have the option to continue to compete in the global economy’s Shangri-La — the American consumer marketplace — without having to rationalize virtual slave labor, death-trap factories, and sanctioned sexual abuse and trafficking. For sub-contractor workers in those third world countries, an on-job injury wouldn’t translate to being permanently destitute. All of those things “the market” promises to do if we just keep buying from sub-contractors who treat human beings as cheap disposable things? The increased money to the economy, the domino effect of the better workers wanting to work for U.S. subcontractors, the road to a Better Potential Tomorrow? Those things still all happen — but they happen much faster, and they happen in a way that allows us to say, “Americans have no truck with slave labor and indentured servitude.”

Added bonus: As factory conditions improve, workers comp insurers will eventually likely reach out to the best foreign performers and offer them their own insurance policies. ⁴ And this will make those companies infinitely more attractive to U.S. retailers, who will be thrilled not to have to cover locations over which they have minimal control. And that will become yet another economic incentive to those foreign sub-contractors who are lagging behind on worksite safety issues to recalculate the cost of a human being.

And, yeah, as a result we might have to pay $25.50 or $26 for that t-shirt that currently costs us $25. Oh well, I guess. I’m sure there will be people who will say that this difference will mean the collapse of the U.S. garment industry, which, really, is exactly what they said 100 years ago when we made workers comp mandatory for domestic companies. And what they said when we decided to set mandatory safety standards for U.S. companies. And what they said when we decided to fine U.S. companies that kept killing off their employees out of negligence. And what they said when… well, you know the drill. Just because they were wrong about the all the doomsday scenarios before, doesn’t mean something something.

Will this magically eliminate horrific practices by employers throughout the globe? Of course not. It’s hard to imagine that companies that have zero interest in employee safety won’t be able to find a market elsewhere, albeit a less profitable one. (Other third-world nations seem like the most obvious market for them.) But it would make a significant dent in the system, would potentially speed up individual countries’ evolution out of workers’ -rights barbarism, and — on a more existential level — would allow us to better be the people we currently just pretend we are. And remember, this is just one possible solution that hinges neither on imperialism nor abandonment. There are surely countless others.

All of which is to say: This whole business about virtual slave labor, indentured servitude, death-trap working conditions, sexual abuse and forced sex work, and the myriad other ways we allow the people who make the clothing we wear to be treated as sub-humans being good for those workers? How we’d love to help, but there really is no way to help them, so best just be content to be comforted being able to buy 11 shirts this next year instead of 10?

I’m not buying it.

Of course there are ways to make things better. We just have to care enough to try them.

1. In insurance, a pass-through system is one where premiums collected today are largely meant to pay claims expected tomorrow. Unlike, say, home insurance, where insurers sit on mountains of cash for decades hoping to avoid ever paying, the vast majority of every dollar collected in workers comp is likely to be paid out in claims within year or two.
2. “Running naked” is the term used when an employer is continuing to operate despite being uninsured.
3. Because of the way workers comp experience modifiers are promulgated, five years is the amount of time a new system would truly begin to reflect the good or poor safety choices made by retailers and their subcontractors.
4. Indeed, it might well mean an entirely new free-market insurance industry within those countries, adding potentially even more economic benefit.