Western societies are affected by a paradox which is that as these societies become richer and richer they are less and less able to ensure that their peoples enjoy a reasonable standard of living. This is in large part due to the malaise that affects the political classes. They know something is wrong, they are disturbed by their inability to help the neediest, yet they believe it is impossible to help their peoples. All they can do is repeat the failed policies of the past and hope than eventually these policies will deliver better outcomes.
Their problem stems from the fact that work within a very narrow set of guidelines which are known as free market economics or Neo-liberal economics. Their policy mindset can be summed up in the following phrase, if the problem cannot be resolved by the actions of the free market that their is nothing they can do. When it comes to the unfairness of zero hour contracts they are unwilling to act for fearing to upset the market equilibrium and that their misinformed actions can only make the situation worse. They for instance fear that by putting restrictions on the use of zero hour contracts that they will by increasing the costs of labour will increase unemployment.
What our political leaders lack is a sense of ‘can do’, a political philosophy that validates their taking action to end the abuses in society. Although I cannot draft that philosophy, I can put forward a theory of economics that justifies an activist economic policy, and that is MODIFIED MARKET THEORY. One of the greatest problems afflicting society is gross inequality which impoverishes many people which in turn prevents them experiencing any of the benefits that should accrue to people living in one of the world’s richest societies. Rather than the free market functioning well, the market has become a dysfunctional mechanism which enriches the few that possess market power and impoverishes the many that lack any real market power. What is needed is a recognition that the market does fail and state intervention is needed to correct those failures.
The market fails when the market mechanism rather than creating wealth impoverishes people. Market economies such as Britain have created a system of social and economic equality that is dysfunctional. Rather than being a wealth creating economy ours is a wealth taking economy, which only benefits a small high status group.
Critics such as our Neo Liberal politicians will criticise those such as myself for naivety. The core criticism is that we are being unrealistic as we fail to recognise the realities of a world in which people have unequal talents and skill. Life is a competition and its wrong to expect the losers in the occupational race to have the same income as the winners. There is even a theory of inequality propounded by Davies and Moore which explains the benefits of social inequality. They explain that inequality is an economic sorting mechanism which distributes the right people to the right jobs. Society needs the best people as doctors, so the best should be encouraged to become doctors by paying them the most. It is the competition that is training to be a doctor that weeds out the incompetent and leaves as the winners the best educated and most skilled practitioners of medicine. There is no society that would benefit if it paid road sweepers received the same salary as doctors, as that would result in a shortage of skilled doctors and many unnecessary deaths.
This is as an unfair criticism as we too are realists. We recognise that society is unfair and unequal and believe that inequality must be one of the principles on which society is organised. What I and others want is a narrowing of the range of inequality, we don’t see why being in a low status and low income occupation should deprive people of their rights to a reasonable standard of living. Social Democrats such as myself accept that the rich as with the poor will always be with us, what we cannot accept is that there should be a large number of people who are impoverished in a market society which deprives of many of the decencies of a civilised life.
David Ricardo clearly understood this problem when he wrote about the price of labour. There were for him two prices for labour, the natural and the exchange price. Their former was the price which gave the worker an income sufficient to pay for the necessities of life and the latter is the price which the worker gets when he sells his labour in the market. Problems occur when the exchange price of labour falls below that of the natural price, as is happening in contemporary Britain. Many workers are on zero hour contracts or work split shifts both of which pay a price for labour way below that of its natural price. These people are poorly fed, housed, face constant insecurity of income and employment, suffer disproportionate ill health, living a life coming to resemble that of the slum dwellers of Victorian England. (Having worked as a social worker on some the poorest housing estates, I can state that this is an unfortunate truth, not an hyperbole.)
One of the major evils that afflicts British society would be removed if all who wanted it could receive the natural price for their labour. This would enable them to participate in society and enjoy the benefits of a rich consumer society.
There is a criticism that can be levelled at the understanding that labour can have a natural price, and that its extremely hard to determine what would be a natural price. Already those advocates of a living wage accept that the living wage will be different for those in London and the regions. The real criticism is that the list of items that the person earning the minimum wage be able to purchase can be limitless. What are the necessities of life? How many of today’s consumer goods are one of life’s necessities, is for example a smart phone a necessity? Yes if an individual needs it for their work. When I fell and cut my forehead badly the surgeon took several pictures of the gash on her iPhone, including before and after surgery, to guide the surgery and my after care, so for her a smart phone was a necessity. The real problem is that what is a necessity is both relative to the individual, the society in which they live and the time in which they live. I have a silly example as an illustration. I heard on the radio a rich women saying that the rich have greater needs than the poor so they need a greater income as their lifestyle has more wants and needs. She needs to go the Opera and theatre, which is a want a poor person lacks. However despite these criticisms there is an answer.
The answer can be formulated in in terms of what a natural price is not. A person is not paid the natural price for their labour, if they are unable to feed and clothe themselves adequately, lack the income to purchase reasonable living accommodation and lack the income for those simple luxuries that make life pleasant. Why should not the poor buy a packet of cigarettes is it gives them a sense of relief from a life of hard labour and pain? If any of these is lacking they are not receiving the natural price for their labour. While it is impossible to give an exact monetary value to the natural price for labour, it can be used to identify those incomes that fail in to come near what is the natural price for labour. A pizzeria in London that pays only the minimum wage to its staff and gives them only the minimum hours of work is not meeting this criteria.
Similarly for coffee addicts such as myself paying perhaps 10 pence more for a price of coffee is not a great hardship. Even if it increased it by 20 pence a cup that would be little compared to the future price rises that are in the pipeline. Climate change is adversely affecting the coffee crop both in terms of quantity and price and this will result in huge rises in the price of coffee. At present my small cappuccino in Starbucks costs £2.15 a price which could conceivably rise to £3 in the near future.
What I don’t want to do with this essay is describe in any great detail how the government can ensure that all who want can earn the natural price for their labour. Intervention can be justified because the labour market is broken, its dysfunctional, by its very nature it prevents millions earning the natural price for their labour. Our politicians who claim that any state intervention would have a malign effect on the labour market are those who have not recognised this fact.
There would need to be further interventions in the market other than legislating for the introduction of the living wage. If the example of London is considered it can be seen how inadequate is the concept of a living wage. Prices for accommodation are exorbitant, high rental prices deny the majority the option of having decent living accommodation. If the living wage was increased to take account this fact the average London income would have to rise in excess of £50,000. Obviously such a large increase in incomes would be inflationary and would have a negative impact on the London economy. The only practical solution are rent controls, controls that reduce rents to an affordable level. If the cuts were large enough it could reduce the need for a large increase in the living wage. Yet again there is every reason for the state to intervene when it is obvious that there is a failing market. There is only one beneficiary from the housing market being organised as it is and that is the 2% of the population that are landlords. A figure that rises to 33.3% when the question is asked what proportion of MP’s are landlords. This is a group who aggressively promotes their self interest over that of the nation.
The defenders of the current private rental market claim that rent controls would harm tenants as many landlords would withdraw from the market and cease to rent out property. This is extremely unlikely, as many have borrowed heavily to buy their properties and would not want to risk personal bankruptcy. A timely rise in the bank rate would make it even less likely to happen. There is no reason why a system of fair rents would not allow landlords to earn a reasonable income; all that’s preventing it is the current extortionate high prices in the property market. Landlords have for a long time been the beneficiaries of an unfair housing market being indirectly subsidised in their life style by the state paying housing benefit to finance their accommodation of their tenants.
To conclude I want to return to Victorian Britain and its writers. When studying this period at university I was made acutely aware of the fear of destitution in the middle classes. Dickens demonstrated this in his character Wilkins Micawber who is best known for his phrase “Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.” At the end of ‘David Copperfield’ a destitute Wilkins Micawker is fleeing England for hope of a better life in the colonies. Britain in the immediate post war period and up to the 1980’s had freed from the minds of the people the fear of destitution, now that fear has returned to the minds of the people.
To conclude I want to return to Victorian Britain and its writers. When studying this period at university I was made acutely aware of the fear of destitution in the middle classes. Dickens demonstrated this in his character Wilkins Micawber who is best known for his phrase “Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.” At the end of ‘David Copperfield’ a destitute Wilkins Micawker is fleeing England for hope of a better life in the colonies. Britain in the immediate post war period and up to the 1980’s had freed from the minds of the people the fear of destitution, now that fear has returned as is to real.