If all trade is voluntary, then what is “exploitation?”
Capitalism is a force that has lifted billions out of poverty, where even poor remote villagers enjoy luxuries that would have been unimaginable to medieval kings. When someone takes a job, even the worst job, it’s because both parties expect mutual gain. And yet companies routinely get accused of exploiting their workers for offering low pay and bad conditions, even if the pay and conditions are far better than the other available jobs. This sometimes results in protectionist laws that prevent those businesses from existing in the first place, making everyone worse off.
Given this, is there any meaningful concept that could be called “exploitation?”
I think there is.
In fact, I claim, it routinely happens that someone will voluntarily and rationally submit to a circumstance that should very rightfully be called “exploitation.”
An Actually-Exploitative Corporation
Consider this dialogue, taken from here:
Steve: Acme exploits its workers by paying them too little!
Liron: Can you help me paint a specific mental picture of a worker being exploited by Acme?
Steve: Ok… A single dad who works at Acme and never gets to spend time with his kids because he works so much. He’s living paycheck to paycheck and he doesn’t get any paid vacation days. The next time his car breaks down, he won’t even be able to fix it because he barely makes minimum wage. You should try living on minimum wage so you can see how hard it is!
Liron: You’re saying Acme should be blamed for this specific person’s unpleasant life circumstances, right?
Steve: Yes, because they have thousands of workers in these kinds of circumstances, and meanwhile their stock is worth $80 billion.
In this case, Steve has provided no reason to believe that this worker — let’s call him “Bob” — is being exploited, for any reasonable sense of the word.
But sometimes there are extra details that reveal that, actually, yeah, Acme really is responsible for Bob’s life circumstances.
Let’s make up some more details. Why doesn’t Bob have time to see his kids? He would on Monday evenings, except that the company requires him to drive an hour for a weekly city-wide meeting, where he raises his hand to prove that he worked the past week, and listens to some information that would be better communicated in an E-mail.
Other people in his circumstance manage to save money – why is Bob living paycheck to paycheck? Because the company required him to wear a tuxedo once a month — everyone must wear the same brand, and it costs at least $5000 – and he’s on a payment plan for it.
The company has many more ways to make him miserable. He’s not allowed to use his phone on the job, even when there are no customers around and he’s just sitting doing nothing. He wants to bring his own chair to help his back pain, but he’s not allowed. If he’s late by a minute, he loses half a day’s wages. His boss yells at him, and the higher-ups praise the boss for being tough and motivating. There’s a ritual where, every morning, any worker who made a mistake the previous day gets their mistake read out in front of everyone, and gets shamed for it.
In each of these cases, the company is inflicting massive cost on Bob, with at most a very small benefit to themselves.
And in each case, Bob takes it, because his alternative is to be fired and have no job whatsoever.
Bob is being exploited.
This motivates my working definition of exploitation:
Exploitation is using a superior negotiating position to inflict great costs on someone else, at small benefit to yourself.
More forms of Exploitation
Here are some more examples:
A parent sits down for tea, but their kid is running around. “Absolutely no noise while I’m having tea, or no Nintendo for the next month.” Every time the parent pulls this card, the kid accepts.
A factory pays $5/hour for dangerous but air-conditioned indoor work, in a region where most other jobs are $2/hour farm labor in the hot sun. There is a piece of equipment they could install that would cost $1000 but would reduce the risk of injury by 10%. They don’t install it.
A shy, nerdy programmer is dating a very attractive, nerdy woman, in an area dominated by many nerdy men seeking few nerdy women. She knows that she’ll have a far easier time finding a new partner than he would were they to break up. She begins using this position to change the relationship — telling him he doesn’t love her if he doesn’t pick her up from the airport, asking to open the relationship and hinting that him not wanting to is being controlling. Every time, he accepts, until he’s a shell of his former self.
In each of these cases, one person has the power to casually inflict severe losses on the other — punishment of a child, loss of a job, loss of a relationship. And so whenever they can gain $1 by making the other person pay $10, they do so. That’s exploitation.
This view of exploitation impacts what policies you should demand of companies. And it affects what kind of behavior you can morally request from others – and from yourself.
The Fair Trade movement seeks to pressure companies into providing their foreign laborers working conditions and pay closer to American standards. This lens suggests that neither the naive employer-provider view (“Make them treat their workers fairly!”) or the Econ 101 view (“They are providing jobs that the workers happily accept, and we should respect that”) are a complete way to evaluate what would produce the globally optimum policy. We should instead ask: are there small things the companies should be doing that would make a big difference in the workers’ lives?
This lens also suggests a personal code of conduct. Whenever you make a request from someone you have power over, ask yourself just how hard it would be for them compared to the benefit you get. And when you want to evaluate someone for ethics, ask them about when they took a small sacrifice in order to make a big difference for someone else.
Related: Eliezer’s Parable of Anoxistan
I think the word exploitation as it’s generally used, is about one party getting a benefit at the expense of another party. It’s not about one party getting nothing/pays a small cost while the other party suffers a lot.
Promoting an alternative definition of what it means to exploit is likely going to make reasoning harder. Google suggests as definition for exploit “make use of (a situation) in a way considered unfair or underhand”.
Wage theft is a clear example of exploitation. For many jobs, there’s information asymmetry where the person seeking the job does not get informed fully about how his job will be before they accept the job, that’s also clearly exploitation. Multiple-level marketing companies like Amway are exploitative because they mislead people about the likely results of working for them.
In general, there’s value created through trade. If one party captures nearly all of the surplus value of the trade, many people consider that unfair and thus exploitative.
A key aspect of your examples is further that total utility might not be maximized and because one party has little power, utility maximizing trades don’t happen. That’s a different issue from how the trade surplus is distributed.
If people complain about Amazon, to my knowledge most of the people complain that while Amazon runs very efficient and is run to maximize total utility, they capture most of the generated value and don´t pay their employees very much.
Maybe, economists do have a term for the case where one party being powerless leads to utility not being maximized?
It seems to me that by Econ 101 standards the problem still remains. Let’s say a company demands that a worker buy a suit worth $10, and gains $1 from it. Then the worker could offer to work for $1.05 less, but without the suit, and that would be more profitable for both the company and the worker. Same for your other example with the sweatshop refusing to install the safety equipment: if workers’ loss is truly greater than the company’s gain, then the sweatshop could “split the difference” by offering lower wages and installing the safety equipment, making everyone better off. (Or another sweatshop down the road could do it and the workers would flock to it.) So it seems like negative-sum demands are only possible if bargaining isn’t free (e.g. there’s a minimum wage) or entry and exit aren’t free (e.g. the child can’t leave the parents).
And the company could simply say no, knowing that the worker has more to lose, relatively, and therefore will be likely to give up and accept the original deal.
Seems to me that at least a part of the intuition behind “exploitation” is that the person with greater negotiation power can precommit to reject even the win/win deals if they are not unbalanced enough in their favor.
To use the metaphor of a growing pie, imagine that there is a button that will magically summon a pie for both of us to share, but only if we both press the button simultaneously. Problem is, you are starving but I am not. So I say that unless you give me 90% of the pie, I refuse to press the button. I will lose some good pie, but I can live with that, and you can’t.
Furthermore, this is an iterated game. If you accept to take 10% of the pie and let me take 90%, what happens when we find a similar button tomorrow? Yeah, you will be starving again, and I will be not.
(And this can get even more unfair, when the stronger party can use their advantage to lobby for making the environment even worse for the weaker party. Not sure what would be the proper metaphor here. Making it illegal to eat things other than pies? Making it illegal for two people to press the magical button unless one of them is me?)
Then the company is just being stupid, and the previous definition of exploitation doesn’t apply. The company is imposing large costs for a large cost to itself. If the company does refuse the deal, its likely because it doesn’t have the right kinds of internal communication channels to do negotiations like this, and so this is indeed a kind of stupidity.
Why the distinction between exploitation and stupidity? Well they require different solutions. Maybe we solve exploitation (if indeed it is a problem) via collective action outside of the company. But we would have to solve stupidity via better information channels & flexibility inside the company. There is also a competitive pressure to solve such stupidity problems where there may not be in an exploitation problem. Eg if a different company or a different department allowed that sort of deal, then the problem would be solved.
Sometimes what seems like stupidity locally, can be a part of a greater strategy. Other examples: Newcomb’s paradox, strategic ignorance.
In the example of a magical pie, if we agree to share the pie fairly, I can get 0.5 pie. But if I insist on getting 90% of the pie, and based on my previous experience with exploiting starving people I can predict that there is let’s say a 70% chance of you accepting the unfair deal, then I can get 0.63 pie on average. Getting 0.63 pie instead of 0.5 pie seems like a smart thing to do for an economical agent.
It is not a problem to lose some value, if more value is gained in turn. This is true even if things work probabilistically. Let’s say that today was one of those 30% unlucky days when a starving stranger refused my offer to split the pie 90:10. From the short-term perspective, I have gambled and lost a half of the pie; stupid me! From the long-term perspective, I am still getting more pies than if I kept offering 50:50 deals instead.
In companies, it is not unusual that some kind of internal inflexibility imposes “stupid” losses in short term, but generates profits in long term as everyone accepts the fact that the company is “stupid” and inflexible, and gives up trying to negotiate a better deal. (It is truly stupid only if it also generates losses in long term. Which is difficult to estimate, and I have seen many companies doing seemingly stupid things and staying profitable in long term, so I became skeptical of my feelings when they tell me that something is obviously stupid.)
Can you show how a repeated version of this game results in overall better deals for the company? I agree this can happen, but I disagree for this particular circumstance.
In the pie example, the obvious answer is that giving the other person only 10% of the pie prevents them from gaining the security to walk away next time I present the same offer.
I admit I don’t have a good answer for that.
(I suspect there may be something important in real life that is missing from this model.)
In this case, the starving person presumably has to press the button or else starve to death, and thus has no bargaining power. The other person only has to offer the bare minimum beyond what the starving person needs to survive, and the starving person must take the deal. In Econ 101 (assuming away monopolies, information asymmetry, etc.), exploited workers do have bargaining power by being able to work for other companies, hence why companies can’t just do stupid, spiteful actions in the long term.
Agree with Garrett Baker’s reply—if the company prefers the original deal to a better deal, it’s being stupid and giving an opening to competitors.
Maybe another reason why people talk about exploitation a lot is because they expect markets to reward the deserving, but markets don’t do that. Like, the boyfriend in the dating example from the post isn’t getting much out of the relationship, but that’s just due to the market—there isn’t enough demand for what he’s offering. Even if he’s spending a lot of effort, but the demand isn’t there, his effort is irrelevant. And that feels bad, and makes him want to talk about exploitation.
What would this look like for the example of the parent, the girlfriend, or the yelling boss?
Note this requires market failure by definition—otherwise if an action provides me a a small gain for a huge loss to you, you would be willing to pay me some amount of money not to take that action, benefiting us both.
As a concrete example of how this plays out in practice. If you require Bob to wear a tuxedo costing 5000 dollars, and other similar companies don’t, in a perfect market for labour you would need to pay Bob 5000 dollars more than other companies to cover the tuxedo or he’d just work for them himself.
The fact that he doesn’t suggests that other things are going on—for example finding an alternative job might haven take more than the amount of time it takes to earn 5000 dollars, or he didn’t know when he signed the contract that a tuxedo was required, and the contract makes it difficult for him to switch.
Seems to me that there is always some friction, some lack of information, etc., so “this requires market failure by definition” basically means “this happens in the real world”.
I’d point out that the magnitude of the “exploitation” is the magnitude of the incentive for market players to find the better solution. If Bob is the one guy for whom making him wear a tuxedo isn’t worthwhile, and if it’s close to worthwhile—e.g. him wearing it produces $4000 of value to the company over the time he wears it—then that’s $1000 being left on the table. If there are 100 employees being “exploited” like Bob, for whom making them wear tuxedos is extremely wasteful—say it produces only $100 of value for them to wear tuxedos—then there is $490,000 being left on the table, which may be enough to justify making a new company if the existing one is for some reason stubborn about the issue. (Also, the more employees there are in that situation, the more likely it is that someone will complain and someone else will notice the opportunity.)
The problem with words like “better” and “left on the table” is that better globally is not necessarily better for me, and leaving value on the table is not a problem for me if it all comes from your part.
Option A: I get 5 units of utility, you get 5 units of utility.
Option B: I get 6 units of utility, you get 3 units of utility, 1 unit of utility gets burned.
Option A is clearly better for me out of these two.
It seems like there should be an option C: 6.5 units of utility for me, 3.5 units of utility for you. But maybe there isn’t . Maybe it actually costs me 1 unit of utility to keep a gun pointing at your head. And without the gun, you might turn the table and demand 5 units of utility or bust.
In theory, if you were a robot, you could commit to act as if the gun is pointed at your head, even if there is none, and then we could split the money I saved by not having to buy the gun. In practice, humans don’t seem to work that way sufficiently reliably.
Exploitation is when one rational economic agent violates the validity of another rational economic agent’s abstraction layer, using non-economic side-channels to make the latter accept an economically unfair division of gains from trade. Examples:
Violence.
Psychological manipulations. (Exerting psychological pressure that leads to bad, emotion-driven choices; gaslighting someone into thinking their work is less valuable than it is.)
“Frogboiling” is a subset of this to which many of your examples apply, where an agent inflicts costs on another agent that are dramatically smaller than terminating the economic relationship, but which add up. (Exploits e. g. hyperbolic discounting.)
Deception. (Lying about the meaning of the terms of the contract until the counterparty already commits to it; reneging on the contract; misrepresenting or concealing the actual state of the economy.)
Cultivating irrationality. (E. g., propagandizing CDT over FDT, so that other agents accept blackmail.)
Cultural influences. (Creating a culture in which e. g. working for Company A is seen as its own reward.)
Destroying the interfaces other economic agents can use to coordinate against you. (E. g., destroying communications, making agents (/employees) distrust each other, etc.)
Roughly speaking, exploitation can target one of the following:
Algorithms. (Make an economic agent behave not as an economic agent, but as some entirely different type of system; make a set of rational economic agents unable to act as a set of rational economic agents.)
Values. (Modify a self-interested agent into an agent that wants to pursue something other than its interests.)
Rationality. (Warp the target agent’s world-model into an incorrect but beneficial-to-you state, making it unable to make correctly-informed choices.)
After reading your and FlorianH’s comments, it seems to me that Econ 101 leaves it underspecified what it means to be an economical agent, and that those parts missing from the specification are the ones that matter here.
Naively, an economical agent is someone who accepts deals that increase the value they get. There seems to be nothing wrong with that; if we all become economical agents, our values will increase, which is a good thing.
But this is not the entire story. No agent accepts all hypothetical deals that would increase their value. Our attention and time are limited. We pick the seemingly best deals we are aware of. And there are probably other heuristics that successful agents follow, such as increasing their power, even if it does not increase the value in short term, because it will allow them to take more value in future.
People who insist on taking the Econ 101 perspective of “if the deal is not good for you, then simply don’t take it, duh” seem willfully blind to how the power is strategically gained and used.
This reminds me of Ayn Rand’s novels. Both the heroes and the villains could be called “economical agents” from certain perspective, but clearly they used different strategies. There is a difference between someone trying to get good deals without simultaneously crippling their trade partners, and someone for whom crippling their trade partners is an important component of how they get the good deals. Both of them are agents participating in the economy.
I think exploitation is an important thing and should be understood better. (At least by us; maybe it’s well understood academically.)
I think this is way too broad. Elements of a more narrow definition:
The exploited is in a satisficing-hole; they’d need more slack to get out (e.g. to find / train for another job).
The exploited is in a reference class that can’t easily cohere for negotiation purposes, the exploiter isn’t. (E.g. workers vs. large corporations; workers unions are supposed to address this.)
The exploiter might specifically harm the exploited, in order to keep zer in the satisficing-hole. (E.g. abusive partner insults the abused to keep zer pessimistic about prospects outside the relationship. E.g. union busting.)
The exploiter sets trade conditions to be near the minimum satisficing amount for the exploited.
The exploiter is much further from zer minimum satisficing amount, compared to the exploited, in absolute terms. (E.g. an employer can eat deficit long enough to train a new worker; the worker can’t eat deficit long enough to find a new job.)
Can you give some examplse of something contained by my definition which you think shouldn’t be considered exploitation?
Actually, it isn’t strictly too broad; it also excludes things that should be included. E.g. it doesn’t have to be a negotiation. I would say that something that tries to trap your attention in short, high-intensity, unfulfilling activity is exploitative. E.g. casinos, social media. Or, simple fraud would be exploitative.
A way it’s too broad is that it doesn’t mention the motive, or the benefit to the exploiter. (Well actually I’m not exactly sure what you meant by “at small cost to yourself”.) Some examples you gave are like “why didn’t the employer do this thing that would have been nice for the employee, that wouldn’t have cost too much”. But like, they might just suck, or they might rationally not view it as worthwhile.
Your example
doesn’t seem to me like exploitation.
We have different intuitons about this term then.
I was very surprised after posting this then some commenters considered things like wage theft and outright fraud to be exploitation, whereas I consider such illegal behavior to be in a different category.
I think the simple throughline is something like:
An interesting proposal that I’ll have to think about. I’m still uneasy with throwing lying in with uses of power.
Also, this one clearly does include the parenting example I gave, and is strictly broader than my proposed definition.
A normal and/or healthy parent-child relationship doesn’t have the parent extracting as much value as possible from the child regardless of ethics or harm!
Therefore not.
I’d just define exploitation to be precisely the opposite of shapley bargaining, situations where a person is not being compensated in proportion to their bargaining power.
This definition encompasses any situation where a person has grievances and it makes sense for them to complain about them and take a stand, or, where striking could reasonably be expected to lead to a stable bargaining equilibrium with higher net utility (not all strikes fall into this category).
This definition also doesn’t fully capture the common sense meaning of exploitation, but I don’t think a useful concept can.
We could back-define “ploitation” as “getting shapley-paid”.
Your post introduces a thoughtful definition of exploitation, but I don’t think narrowing the definition is necessary. The common understanding — say “gaining disproportionate benefit from someone’s work because their alternatives are poor” or so — is already clear and widely accepted. The real confusion lies in how exploitation can coexist with voluntary, mutually beneficial trade. This coexistence is entirely natural and doesn’t require resolution — they are simply two different questions. Yet neither Econ 101 nor its critics seem to recognize this.
Econ 101 focuses entirely on the mutual benefit of trade, treating it as a clear win-win, and dismisses concerns about exploitation as irrelevant. Critics, by contrast, are so appalled by the exploitative aspect of such relationships that they often deny the mutual benefit altogether. Both sides fail to see that trade can improve lives while still being exploitative. These are not contradictions; they are two truths operating simultaneously.
For (stylized) example, when rich countries (or thus their companies) offshore to places like Bangladesh or earlier South Korea, they often offer wages that are slightly better than local alternatives — a clear improvement for workers. However, those same companies leverage their stronger bargaining position to offer the bare minimum necessary to secure labor, stopping far short of providing what might be considered fair compensation. This is both a win-win in economic terms and exploitative in a moral sense. Recognizing this duality doesn’t require redefining exploitation — it simply requires acknowledging it.
This misunderstanding leads to counterproductive responses. Economists too quickly dismiss concerns about exploitation, while critics focus on measures like boycotts or buying expensive domestic products, which may (net) harm poor offshore workers. I think also Will MacAskill noted in Doing Good Better this issue, and that the elephant in the room is that the rich should help the poor independently of the question of the labor exchange itself, i.e. that the overwhelming moral point is that, if we care, we should simply donate some of our resources.
Exploitation isn’t about minor adjustments to working conditions or wages. It’s about recognizing how voluntary trade, while beneficial, can still be exploitative if the party with the excessively limited outside options has to put in unjustifiably much while gaining unjustifiably little. This applies to sweatshop factories just as much as to surrogate mother-ship or mineral resource mining—and maybe to Bob in your example, independently of they phone call details.
“Should” is a red flag word, which serves to hide the facets of reality that generate sense of obligation. It helps to taboo it, and find out what’s left.
If a rich person wants to help the poor, it will be more effective so simply help the poor—i.e. with some of their own resources. Trying to distort the market leads to smaller gains from trade which could be used to help the poor. So far so good.
If someone else want’s the rich person to help the poor with the rich person’s resources, then with what will this rich person be motivated? If the goodness of their own hearts is enough, then this “someone else” is irrelevant, and not in the picture. If the rich person is to be motivated by gains from trade with someone else, then great. However, this is equivalent to the trade partners demanding more of the surplus and then donating it themselves, so again we’re out of luck.
If we’re talking about obligating the rich person to spend their resources on poor people, then they’re de facto not the rich person’s resources anymore, and we’re distorting the market by force in order to get there. Now we have to deal with unfree trade and the lack of gains from trade that we could have had.
We can’t just say “they coexist, no problem!”, because to the extent that they’re different frameworks we can’t have both. You can have free trade and acknowledge exploitation only if you accept that exploitation is totally fine and fair—at which point you’re redefining the word “exploitation”. The moment you try to stop someone from a kind of exploitation that can coexist with free trade, you’re trying to stop free trade, with all the consequences of that.
That’s not to say we have to give up on caring about all exploitation and just do free trade, but it does mean that if we want to have both we have to figure out how to update our understanding of exploitation/economics until the two fit.
If someone is inflicting any cost on me for their own benefit, that is not a mutually beneficial trade, so your definition doesn’t solve the problem. You cannot just look at subtrades either—after all, you can always break up every trade into two transactions where you first only pay a cost, and then only get a benefit at someone else’s expense.
My definition is closer to this:
When people are paid less, they are less able to invest in the future. This includes upskilling, finding more promising ventures, starting their own business, or raising children. Some people are better at this than others, and an efficient market would give them control of more money to show this (roughly exponential). For example, if you are twice as good at wealth-creating than me, you should have about seven times as many dollars. If I make a trade with you, I should keep about 12% of the wealth created. Of course, this has to be after costs are taken into account.
The cost of subsistence is pretty negligible—maybe a few thousand dollars per year in the rural United States. Any other costs a company imposes on you should be paid before you distribute the pie you created. So, if they ask you to live in San Francisco and drive a car, that is easily $50,000/yr in before-earnings costs. Now, suppose your work as a developer nets them $500,000/yr. You should be making about $100,000/yr after taxes, which would be around $200,000/yr before taxes. If you are making less, there are three scenarios:
Your company is more than twice as good as you at wealth generation.
You are creating less than $500,000/yr of value.
You are being exploited!