Socio-Economics: Voluntary Slavery and the Limits of the Market

Voluntary Slavery and the Limits of the Market
-by Daniel Satz (2009) – article #5 in ‘Law & Ethics of Human Rights‘, vol. 3, issue 1

“Most anyone ought to know that a man is better off free than as a slave, even if he did not have anything. I would rather be free and have my liberty. I fared just as well as any white child could have fared when I was a slave, and yet I would not give up my freedom.“

|-E. P. Holmes, 1883.

One of the most momentous achievements of modern capitalism was the transition from a system of bonded labor, indentured servitude and forced work to a system of formally free contractual labor. Fifty years ago, it might have been assumed that just as indenture and bondage declined in the industrial world, it would eventually disappear everywhere with capitalism’s globalization. But bondage has not faded away.

In parts of the world today, labor bondage and similar practices persist under other names (e.g., debt peonage, attached labor, serfdom, and debt slavery). In a bonded labor arrangement, “a person is tied to a particular creditor as a laborer for an indefinite period until some loan in the past is repaid.” In practice, this indefinite period can last a lifetime.

Bonded workers are often completely servile, forced to exhibit deference and subordination to their employers both on and off the job. Even those who have defended the economic rationality of such relationships have noted the “ugly power relations” involved in the phenomena. The ILO has estimated that some 12.3 million people, many of them children, are held as bonded laborers around the globe.

Although bonded labor is considered by many to be a paradigm of un-free labor and is often analogized to slavery, it is sometimes chosen voluntarily. Indeed, while slavery itself is usually rooted in an initial act of coercion, it is not even necessary for slavery to originate in violence and force. Slavery has been reported to be voluntary in a number of important historical instances “unconscionable.” Paretianism and libertarianism do not adequately account for these restrictions. Moreover, their failures to do so are interesting, because they point out the limits of using overly abstract concepts of freedom, equality, and externality to evaluate market exchanges.

In considering the adequacy of these theories to account for our objections to bonded labor, I distinguish between two important dimensions of bonded labor: the background circumstances in which bonded labor arises (ideal versus non-ideal markets) and the nature of the agent whose labor is bonded (adult laborer versus child laborer). With respect to the first dimension, bonded labor arrangements tend to arise in desperate circumstances where they exploit the vulnerabilities of the most vulnerable, and make some people utterly dependent upon the will and whims of other people.

While, libertarianism cannot even condemn these instances of bonded labor, Paretianism can show why labor bondage under these circumstances might be objectionable. But we can imagine more ideal circumstances in which these conditions do not obtain, circumstances where such Paretian accounts offer no criticism. But even in more ideal circumstances—where there are no market failures and no dire poverty—I argue that we still have reasons not to enforce labor bondage agreements. Beginning with the case of children, I argue that bondage of children’s labor can stunt the development of the capacities needed for people to stand as social equals. I then suggest that this argument provides a lever to mount a principled objection to binding the labor of adults: just as capacities can be stunted by certain labor arrangements, so they can be lost. I draw on some empirical evidence to suggest that the capacity for autonomy is, as Mill put it:

…in most natures a very tender plant, easily killed, not only by hostile influences, but by mere want of sustenance; and in the majority of young persons it speedily dies away if the occupations to which their position in life has devoted them, and the society into which it has thrown them, are not favorable to keeping that higher capacity in exercise…

Reflecting on contractual bonded labor arrangements in ideal and non-ideal circumstances and with children and adult agents helps us to see that markets not only allocate resources and distribute income, but also shape our culture, foster or thwart desirable forms of human development and enable or hinder egalitarian social relationships between persons. The central idea I defend here is that where competitive markets support relationships of extreme domination and subordination, there is a case for market regulation, even when such markets are otherwise efficient or arise on the basis of individual rational choice.

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The two dominant schools of liberal economics—Paretian welfarism and libertarian public choice—are committed in theory to an ideal market without limits. The normative properties of the neoclassical general equilibrium system depend on there being markets in everything (including futures, uncertainty and the like.) The very different contributions of the libertarian Chicago school are derived from assuming that commodity-like relationships determine outcomes in arenas not customarily thought of as economic, including voting and family life. Neither theory would condemn bondage contracts—nor indeed, voluntary slavery contracts—in principle. Instead, such arrangements are condemned insofar as they generate externalities, reflect imperfect information, are the effects of incomplete markets, or are based on physical force or theft.

Ironically, neither theory has the resources to fully appreciate capitalism’s advance over its feudal predecessor. Capitalist labor markets are not facts of nature, but are shaped by social preconditions, including underlying entitlements and social norms. In order to transform feudal relations, capitalism had to limit property rights and transform the ways that people related to one another, conceived of one another and, indeed, conceived of themselves.

Currently, millions of people in the developing world have no rights against employer violence, little political voice or civil rights, and are routinely exploited, sexually abused, traded to others, or simply disposed of. Bonded labor thrives in societies without compulsory education (either in law or, more typically, in practice), with weak rule of law, weak formal credit or labor markets, weak rights of exit, and where caste-like social divisions and conflicts are common. That’s not capitalism, that’s feudalism.

Banning bonded labor—or at least failing to enforce its terms—may be an important step in creating the capacities and norms that people need for egalitarian social relationships with one another. Even then, banning such markets is unlikely to do that alone: creating genuinely free capitalist labor markets requires also developing the formal credit sector of the economy, enforcing restrictions on monopoly and monopsony, strengthening education systems, combating caste and gender subordination, and perhaps having the state serve as an additional source of credit for poor families.

How might labor bondage arise voluntarily? Since poor peasants have no assets, they have no formal collateral. Furthermore, the wages they receive tend to vary with the agricultural seasons: wages are lower during the lean seasons when unemployment is high and higher during the peak growing seasons when unemployment is low. In many cases, their survival from one harvest season to the next will depend on borrowing for consumption during the lean seasons—they simply do not earn enough during peak seasons to save.

Consider the case of a landlord who offers credit in exchange for a laborer’s agreement to pledge his future services as collateral for the loan. In so doing, the landlord increases his power to enforce the agreement since he can directly deduct the amount due from the worker’s wages during peak season. Furthermore, the laborer now has access to credit that might not otherwise have been available to him. From the perspective of contract theory, it is not evident that there should be any legally imposed limits on competent adult landlords and laborers who seek to enter such contracts.

For, if agents are rational and can foresee the future consequences of their contractual provisions, then there is no reason not to allow borrowers the freedom to commit to providing indentured services to lenders should they lack the resources to repay their loans.

In this Article, we examine the ways that two different frameworks with different underlying normative assumptions view the phenomenon of bonded labor: libertarian laissez faire theory and Paretian welfare economics. Libertarians believe that agreements between competent adults should be respected. Paretians endorse exchanges that leave both parties better off in terms of their preferences.

Each theory gives us reasons for endorsing many if not most instances of the practice of bonded labor, reasons that are intuitively plausible. But each theory also ignores or dismisses other considerations that might lead us to view these very same instances of labor bondage more critically. I argue that neither theory fully accounts for our objections to bonded labor, objections that are codified in the laws of most developed capitalist countries.

In the United States, for example, there are important restrictions on labor contracts: The state does not enforce voluntary slavery contracts, debt slavery, specific performance as a remedy for breach, or contracts that are considered gender subordination, and perhaps having the state serve as an additional source of credit for poor families.

In my view, our evaluation of labor bondage contracts needs to take into account a number of parameters missing from the standard libertarian and welfarist economic theories of markets: the extent to which bondage depends on exploitation of the vulnerabilities of the most vulnerable; the extent to which bondage places one person wholly under the power of another, the unlimited duration of contemporary labor bondage, and finally the effect of bondage on the capabilities people need to operate in society as equals. We also need to attend to the nature of and relation between the contracting agents, especially when one of the agents is a child.

Both Paretianism and libertarianism operate with a very abstract idea of what a market is. Yet, if different markets have different effects on our capabilities—effects that differ in kind from those produced by other markets—then it is a mistake to treat all markets in the same way. In particular, a democratic society has a strong interest in supporting institutions that cultivate egalitarian motivations and capacities and withholding support from institutions that cultivate subordination and servitude, even if these institutions are not strictly illegal.

A certain level of income is undoubtedly needed to function as an equal in society, but we should not focus only on income. To the extent that we endorse the idea that members of society should interact as equals, we will have strong and principled reasons to limit the scope of markets in labor.

Full texts of this article is available on Google Scholar.

See also…