The slavery incentive

Hundreds of rescued foreign fishermen kept in slavery mostly from Myanmar and Thailand are gathered by Indonesia's illegal fishing task force during an operation. (Ugeng Nugroho / Ministry of Fishery / AFP Photo)

Have you ever wondered why business schools do not teach the proper way to whip a worker to obtain maximum effort without damaging the asset? Had business schools existed before the American Civil War, one can conceive of at least a lecture, if not a full course, on the subject. Instead, business schools teach about corporate culture and values, on the assumption that maximum effort can be obtained from workers if they identify with the firm’s mission and goals.

So why have slavery and other forms of bonded labour declined so dramatically in so many places around the world, and what can be done to abolish them completely? It might be tempting to assume that the decline of slavery is the consequence of human moral progress. But in his masterful book “The Other Slavery”, Andrés Reséndez shows how inadequate this assumption is. The book addresses the history of slavery and other forms of bondage of indigenous peoples in the Americas, a topic that has received much less attention than African-American enslavement.

As the book shows, Indian slavery in the Americas was outlawed by Charles I of Spain in 1542 and abolished in Peninsular Spain even earlier. The legislation against Indian slavery was further strengthened during the regency of Mariana of Austria (1665-1675), the mother of Charles II.

The laws were based on Catholic values and pushed by an activist group that included Bartolomé de las Casas, who championed the rights of indigenous peoples as children of God and subjects of the King. But, despite legal prohibitions, slavery proved remarkably resilient, with colonists using subterfuges such as debt peonage, “just wars” (which sanctioned enslavement of captured enemies as a more moral outcome than justified slaughter), and other tricks.

The reason for this resilience is probably best understood not as the consequence of poor law enforcement but of the profitability of slavery, which generated incentives too strong for laws to contain. The implication is that the dwindling of slavery today and its potential further reduction may depend on market rather than legal incentives.

Slavery was widespread, including in Europe, when it developed in the Americas, where – from the perspective of the Spanish settlers – acute labour shortages prevailed. Mining and plantation agriculture were labour-intensive, but the population had collapsed precipitously upon contact with Europe, owing to some combination of war, disease, oppression, and the disruption of livelihoods. Moreover, those jobs were dirty, dangerous, and demeaning. Gold mining in particular was almost a death sentence: workers seldom survived more than three years before succumbing to mercury poisoning or accidents.

Slavery did not succeed in keeping labour costs down because the slaves themselves were expensive. In the 16th century, slavers invaded other Caribbean islands to abduct workers and sell them to gold miners on the island of Hispaniola (today’s Dominican Republic and Haiti). In the 17th century, slavery was used in Bolivia to operate the silver mines in Potosí.

In the 18th century, Comanches would hunt Apaches to sell to Mexican silver miners. Even after the United States (US) Civil War, the Fourteenth Amendment did not protect Native Americans: in the 1880s, the Supreme Court ruled that it did not cover them, and they gained citizenship rights only in 1924.

After the end of the international slave trade in the 1830s, what developed in the Caribbean was not free labour but indentured labour, with East Asians making the journey in exchange for what could be thought of as fixed-term slavery, similar to debt bondage. In the US, after the end of the post-Civil War period known as Reconstruction, southern states enacted vagrancy laws, which permitted the authorities to imprison displaced former slaves and condemn them to forced labour if it could be argued that they were idle.

How is bondage different from free labour, and why did the latter displace the former? Part of the answer may be technological: technologies that require effort that is hard to observe, or that use expensive and fragile equipment, may be inappropriate for slavery. For example, entrusting valuable assets to disgruntled slaves may be unwise. But this logic should not be exaggerated. After all, Nazis enslaved millions of gentiles from occupied countries, transported them to labour camps, mostly in Germany, and forced them to produce, inter alia, war materiel.

One fundamental difference between free labour and slavery is that slaves must be bought, meaning that the gains from exploitation do not necessarily accrue to the current slave owner, but are anticipated in the purchase price of the slave. This also means that capital would have to be expended in owning the slave, an expense not required of free labour. In a world of less-than-perfect capital markets, this expense may have had a serious opportunity cost in terms of the forgone investments in equipment and other inputs.

The fundamental difference between the two institutions is the range of options given to the worker. Bondage means that the worker cannot leave if he finds the conditions disagreeable. If the alternative to slavery is starvation or death, people may well choose slavery.

Today, migrants often face limited options. If they are undocumented, as millions are in the US, they cannot turn to the authorities to protect their labour rights, making them vulnerable to exploitation and abuse. If they are legal, they often get a visa that allows them to work only for the sponsoring firm. If they find the conditions disagreeable, they cannot just change employers: they must leave the country.

By restricting the workers’ outside options, employers may get them to accept terms that freer individuals would reject. That may be a reason why there is so little urgency in solving the problem of undocumented immigrants in the US, and why many countries protect citizens differently than foreigners. It may also be the reason why countries have refused to empower refugees, whether Syrians or Venezuelans, with rights. So long as the incentives to enslave persist, the effort to end slavery – by whatever name – will have to continue.

Ricardo Hausmann, a former minister of planning of Venezuela and former Chief Economist of the Inter-American Development Bank, is Director of the Center for International Development at Harvard University and a professor of economics at the Harvard Kennedy School.