Philip Davies MP is a good friend and an excellent chap. He’s a prominent member of the Freedom Association. But he seems to have got himself into a spot of bother with the media recently over comments on disability. True to form, the Conservative Party has rushed to “distance itself” from his views — something I have sometimes experienced myself.
He seems to have said that people should have the right to price themselves into the labour market, and that the minimum wage poses particular problems for the most disadvantaged in society. These views seem to me be self-evident, yet he’s been greeted with a storm of criticism from well-funded lobby groups and the progressive media, who accuse him of “calling for the disabled to be treated as second-class citizens”. I am sure that he said, and intended, no such thing.
There are several Red Rag issues which politicians approach at their peril, and these include disability, homosexuality and (as I found recently, to my cost) rape. No matter how measured the comment, the press will sensationalise, paraphrase, and pour vituperation on the politician concerned. So let’s try to take the emotive issue of disability out of the equation, and think instead about the economics of the minimum wage. The general classical liberal economic view is that a minimum wage, if set high enough to make a real difference to incomes, will reduce employment. It will especially impact those who appear to be, for whatever reason, the least employable in society.
If an employer is looking at two candidates, both qualifying for the minimum wage, he will choose the one who ticks the most boxes for the particular job. The rejected candidate has not been helped by the minimum wage. He has been shut out by it. We recognise this plain fact when we set a lower minimum wage for young people. By lowering the barrier for them, we give them a better chance of taking that vital first step into the labour market, which may dramatically enhance what are these days called “their life chances”. Young people, almost by definition, have less experience of work and the working environment than older workers, and a lower minimum wage helps to compensate for this disadvantage. By woe betide the politician who suggests similar help for other disadvantaged groups.
The minimum wage also reduces employment overall. I well remember in my previous career, looking at a cost/benefit and pay-back analysis on a packing machine that could have replaced four workers. The decision went marginally against the machine. But put up the hourly wage by 10%, and the machine would have won. A wage rise would not have benefited those four workers — it would have made them redundant.
The analysis which applies within the UK applies more widely internationally. We have the left-leaning International Labour Organisation (ILO) calling for higher wages and better employment conditions in the third world. Who could argue with that? But scratch the surface and their altruism looks more like protectionism. They are concerned less for the benefits of workers in poor countries; more with maintaining the wages, conditions and Spanish practices of workers in developed countries.
Developing countries need to price themselves into markets. That is the first step on the road to prosperity. I was in Malaysia in the late eighties, running a textile business. I saw agricultural workers on very low wages move to textile factories on slightly more money, then on to electronics assembly plants on better money again. Today, Malaysia is a thriving economy rapidly catching up on Western standards. If we’d insisted on Western terms and conditions in those textile factories, we’d have blocked development in Malaysia, and denied opportunity to the workers.
In the same decade I was involved in setting up a joint venture textile factory in Saigon, Vietnam. I remember being shocked by the obvious poverty in the city, and asking myself what could be done about it. Then I reflected that I was already doing the best possible thing — setting up a factory which would employ local people. But of course if I’d been obliged to pay Western wages, the project would not have been viable, and the opportunity would have been denied to those workers.
What applies to employment applies equally to national economies. Greece today desperately needs to price itself back into international markets. That is at the heart of the Greek crisis. Yet locked in the euro, it cannot do so. It cannot devalue, and the alternative of internal deflation is not politically deliverable. To use William Hague’s colourful phrase, it finds itself in a burning building with the doors locked.
Those who, in the name of human rights, deny individuals or countries the right to price themselves into markets, do them a great disservice.