Adventure Capitalist

I got stuck in a little discussion in the comment thread on Beyond Growths hilarious and humorous post “17 Steps to Instant Success as a Lifestyle Designer”.
The particular discussion I got involved in centered around the ethics of geoarbitrage and whether or not rich people from the first world exploit poor people in the third world when they hire them to do work such as being Virtual Assistants, programmers, factory workers, etc.
My answer to the question is an emphatic NO. Let me explain why.

“Neo-Colonialism” Is Just An Excuse For Years of Political Mismanagement
The term “neo-colonialism” is often bandied about when it comes to the magic of “structural exploitation” of the poor third world by the rich western world, though it is rarely defined nor elaborated on. I think it basically boils down to “white mans guilt”: just because our ancestors did unspeakable oppressive things a long time ago, they somehow still affect the structure of society.
This is greatly underestimating the human ability to change, adapt and improve, and merely making excuses for decades of political mismanagement in many third world countries.
Lets use an example: In 1955-60, countries like Singapore, Hong Kong and South Korea where approximately on the same level of poverty as most African backwaters, like Mozambique, Kenya and others. Today, Hong Kong, South Korea and Singapore enjoy western living standards, and at least Singapore has already surpassed most western nations in terms of wealth. What’s the difference? Not natural resources, both Hong Kong and Singapore where little more than small fishing harbours 50 years ago. I’d say minimal corruption (relatively speaking), openness to trade and a good business environment has done all the difference for these countries, all the while cleptocratic dictators have taken turns looting the public coffers and keeping the people down in many poverty stricken African nations.

Holding Poverty Against the Poor
But surely paying a poor Vietnamese $4/hour for the same work an American does for $40/hour is exploitation, right? Wrong. There are three sides to this:
Firstly, will the Vietnamese be better of worse off if he gets $40 at the end of the day? Would he be materially better off if he got nothing and an American got $400 instead? Of course not. Refusing to do trade with someone because they are “too poor” is simply a way of perpetuating the poverty and victimizing the poor for being just that.
Secondly, does it materially effect the welfare of the Vietnamese man whether he gets the $40 from his neighbour or a Westerner or Western corporation that supposedly “exploits” him? Of course not, $40 is $40, he’ll be better off with it than without it. In fact, if the money is coming from foreign sources, it is arguably more positive for his society as whole, as it means that they are attracting capital from outside sources, thus positively impacting the trade balance.
Thirdly, the American making $400/day for the same work the Vietnamese does for $40/day has no God given right to make an excessive wage in comparison - but rest assured, time will correct this: American living standards will go down as the debt fueled free ride comes to an end, while Vietnamese will go up and meet somewhere in the middle, though how and why is a different discussion altogether.

Free Choice, Necessity & Coercion
Free markets are based on the free choice of individuals: two parties doing business would not make an exchange unless both saw it as mutually beneficial, it’s really that simple (of course assymetries of information may create opportunities for unethical and fraudulent behavior, but lets put that aside for now).
Let’s revisit our Vietnamese friend: if he is so poor, then surely he has no choice in the matter, having to take the job to feed his family? Well, uhm, yes, sort of. But is this really so different from why millions of Americans go to work every day? They do it to feed their families, pay for mortgages and college and generally improve the life of their families. They have different starting points, that is all, but the underlying motivators are the same. Unless you believe in the proverbial Free Lunch(tm), necessity will always play a role, unless you are one of the lucky few who where born to rich parents, won the lottery or struck gold with a business venture.
Necessity and coercion are not one and the same: coercion is being forced to do something under duress against your will with no personal benefit, real or perceived, like having a gun pointed to your head being forced to do something which you gain nothing from. Necessity might make you take an underpaid job, but you still gain from it (money to get food), and you still have the choice of taking the risk of turning it down, being hungry for a while in hope of finding a better offer.
Many mix up consequence free living with free choice, however consequence free living is something very few will ever enjoy (if it is at all possible), though most of us will be free to chose in life in the absence of actual coercion. However those choices will almost always come with consequences, sometimes adverse ones.

Pricing Risk: Extracting The Value of Your Labour Through Work or Entrepreneurship
Lets look at the last of the arguments I often come across in debating this issue: If the Vietnamese man works for $40/day, but the western corporation manages to extract $500 worth of value from that work, surely he is being exploited?
Well, no again. Selling your labour by the hour or wanting to extract the full value of it is as much a choice as any. If you chose employment, you chose the perceived “safe” route: you don’t have the chance of getting the full upside to your work, but at the same time, your risk is limited - if you work for six months for a company, you’ll get six months worth of wages.
Let’s look at offshoring programming: an entrepreneur hires someone in India to build him a webapp he thinks will be a massive hit. Say it costs him $2000 to have it built in two months. If the web app is indeed a big hit, the programmer will only get $2000, whereas the entrepreneur will net the difference as profit on any amount exceeding that. However, if the webapp bombs and fails miserably, the entrepreneur is out of pocket by $2000, while the programmer still gets his $2000.
The point of this is, if you want to extract the full value of your labour, the flipside of that is that you will also have to carry the full risk of failure. You can’t have your cake and eat it too. The choice of employment is the choice of limiting BOTH your potential upside AND downside for a reward that is known up front to be within a narrow band agreed. In market parlour, it’s an exercise in pricing risk.

I do not dispute that poverty exists, or that people are born with different levels of natural opportunities depending on where in the world they are born and to which parents, but that’s just life unfortunately. Nor do I dispute that there are shady and unethical business practices used around the world.
But the ethics of international trade and geoarbitrage are a separate subject from the subject of general business practice ethics. Unethical business practices such as lying, misleading and defrauding are unethical regardless of whether your employees are American or Vietnamese. However, assuming the absence of coercion and fraud, the free exchange of products, services and labor for mutual benefit agreed through free choice can be nothing but an unequivocally positive thing that improves the well being and prosperity of all those involved. To paraphrase Frederic Bastiat: where goods do not cross borders, soldiers will.