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).
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.
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.
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.
Maybe they are, but I think the word “just” assumes that not being stupid is much easier than it actually is. Often the company is stupid without any individual employees/managers/executives being stupid or being empowered to fix the stupidity, in a context where no one has the convening power to bring together a sufficient set of stakeholders in some larger system to fix the problem without that costing much more than it is worth.
Some company stupidity comes from individual executives and managers not being capable (because they’re human) of absorbing all information about what’s going on in different branches of the company and finding ways to make positive-sum trades that seem obvious to outsiders (this is especially common in large conglomerates). I encounter this all the time as a consultant, and the amount of inertia that needs to be overcome to improve it can be huge.
Some comes from having to comply with all kinds of stupid and outdated and confusing laws (e.g. “The meeting is required because this is how the tax code is written because that’s how they did it before email and before we moved the factory away from the head offices, and good luck getting the government to change that), sometimes while also trying to be even-handed to employees living in different jurisdictions with different laws (e.g. “Oh, well, the meeting is mandatory in city A and we like to have a unified policy about meetings across the company, but we’re not allowed to provide or reimburse for the tuxedos in country B, and state C has a law that if we raised country B’s wages to pay for the tuxedo we’d have to do it for everyone, and we can’t afford that”).
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.
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.
Maybe they are, but I think the word “just” assumes that not being stupid is much easier than it actually is. Often the company is stupid without any individual employees/managers/executives being stupid or being empowered to fix the stupidity, in a context where no one has the convening power to bring together a sufficient set of stakeholders in some larger system to fix the problem without that costing much more than it is worth.
Some company stupidity comes from individual executives and managers not being capable (because they’re human) of absorbing all information about what’s going on in different branches of the company and finding ways to make positive-sum trades that seem obvious to outsiders (this is especially common in large conglomerates). I encounter this all the time as a consultant, and the amount of inertia that needs to be overcome to improve it can be huge.
Some comes from having to comply with all kinds of stupid and outdated and confusing laws (e.g. “The meeting is required because this is how the tax code is written because that’s how they did it before email and before we moved the factory away from the head offices, and good luck getting the government to change that), sometimes while also trying to be even-handed to employees living in different jurisdictions with different laws (e.g. “Oh, well, the meeting is mandatory in city A and we like to have a unified policy about meetings across the company, but we’re not allowed to provide or reimburse for the tuxedos in country B, and state C has a law that if we raised country B’s wages to pay for the tuxedo we’d have to do it for everyone, and we can’t afford that”).
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?