The Minimum Wage and the Extractive Economy

Principles over privilege

There is a question that political economists used to ask, “What sort of society do we want to live in?

That question was a central core of the wider study of political economy, the study of our real economic experience. It covered poverty, power, value creation and multiplication, distribution and equity, extractive colonial relative to creative economies, people-centred versus resource-centred development, the importance or otherwise of a strong society and strong environment, the difference between small and medium enterprises and the impacts of unleashing the hyenas of mega-corporation and international finance, etc.

The rise thirty-five years ago of the quaint religionRigor Mortis in economics.jpeg of neoliberal economics put an end to all those classical economic thinkers – from Smith to Marx to Veblen to Keynes to Galbraith to Kohr to Schumacher. All that stuff about the complexity of human behaviour, equity and power differentials and what it is that makes a strong economy (a strong society and environment as it happens) was reduced to assumptions that by unleashing the hyenas of commerce, we would all be better off. It would trickle down. Yeah, right.

Ruth Mother of all BudgetsAnd so, in the best tradition of neoliberal thinkers from Roger Douglas and Ruth Richardson on, a few years ago we heard a local MP and a few other ‘business leaders’ promoting Hawke’s Bay because of our “low wages.” That is effectively advocating our competing with Bangladesh. It would make us a third world country, with most living on low wages, a few living in mansions on a hill, and a shriveled middle.

Today we hear that an extra 50 cents per hour, $4 per day, will be the death of jobs and profits, with extremist statements like “body blow” given large headlines.

Contrast the negative reaction regarding an incredibly minor rise in the minimum wage – to well under the living wage of $19.80 per hour – with the actual consequences of Ruth Richardson’s Mother of All Budgets in 1991. Benefits were cut by a $1 billion, and all that spend was lost to small and medium retailers and tradesmen. The economy went into a tailspin as those smaller enterprises cut staff, resulting in even less money spent, leading to a vicious cycle. Of course, the quaint narrow religion of Treasury neoliberal economics predicted the opposite because they look at false computer models rather than the real world beyond their office blocks.

Now, we are told that increasing Sanders on minimum wages2wages will also  lose jobs. There is only one thing in common with this contradictory cant, and that is the narrow self-interest of those who are unwilling or unable to see the big picture, even to their own benefit.

The trouble with a Bangladeshi-style third-world economy is that low wages mean low demand; less ability for a family to buy a blanket, so the people who make the blanket, distribute the blanket and sell the blanket lose their jobs, and the small firm may go out of business. It is very much in the interests of a ‘creative economy’ of local small and medium enterprises to have high local wages not just because of improving demand, but also because they benefit from a thinking culture. In contrast, an ‘extractive economy’ of mega-corporations benefits from lower third world standards because they create commodities requiring obedient brawn.

WalmartIs this where we want to be? As the famous cartoon states, “Wal-Mart put my store out of business so I had to get a job at Wal-Mart. Thanks to Wal-Mart I can only afford to shop at Wal-Mart. Enjoy shopping at Wal-Mart.”

The level people are paid matters a great deal. The ideal economy is what John Kenneth Galbraith referred to as a ‘thick economy’ in The Big Crash and The Affluent Society. If the economy is ‘thin’ with only those at the top with money, then it is highly vulnerable. It collapsed in 1929. Austerity didn’t work, and it took Keynes’ demand thinking and a World War to dig us out of the mire. It almost happened again in 2008. It will probably happen again in the next ten years because political economics has still not reestablished itself and replaced the corporate-sponsored economic zealots with their nonsense models.

Contrast those vulnerable ‘thin’ economies with the ‘thick’ economies we grew up with until the 1970s. They were excellent for small and medium enterprises.

The perfect world for the company accountant is for costs to be nil, and market demand from consumers to be infinite. Add to that Workplace culture 2perfect world these qualitative things; zero absenteeism, low staff turnover, a sense of fairness, high morale and spirit, a can-do ‘go-the-extra-mile’ cooperative attitude, commitment, performance, quality focus, the free expression of new ideas and innovation. As with business, so in society: we do well as a community and an economy when there is a sense of belonging, trust, opportunity, aspiration, inspiration and the encouragement to try something new.

The thinking that ‘low wages are good’ kills those key social underpinnings of life and economics. You will not find one of them in a neoliberal economics input:output model. Not one.

Henry Ford raised his workers wages – and was accused of being a traitor by other industrialists – not just because he recognised the positive effect on demand for his own goods. He also got many of these cultural benefits to his bottom line.

We need to shift from the clichéd reactions of the chambers of commerce to any increase in wage costs, to seeing the world in a deeper, broader and longer way. Relying upon narrow views of an economy is like ‘drain thinking’: viewing the complex river with all its ecology, beauty, swimming children and fishers fishing as some number on a drain spreadsheet; the consequences being that all the beauty and functionality they cannot measure is lost in pursuit and creation of that drain.

Is this the sort of society we want?

Chris Perley

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