A compelling argument for scrapping the minimum wage – Andrew Kenny - Biznews

“How can I increase poverty and unemployment while at the same time posing as a moral saviour?” You can imagine politicians, academics and trade union leaders wrinkling their brows as they ponder this question. Then a light bulb moment: “Of course! The minimum wage!”

Poverty and unemployment plague South Africa. In this piece by Andrew Kenny, he argues that the minimum wage is a key factor in increasing poverty and unemployment as it restricts the ability of small businesses to start up, makes it difficult for poor people to get employed, and even forces some women into prostitution. Kenny makes a compelling argument that to reduce poverty and unemployment; governments need to remove the minimum wage, get rid of job-destroying labour laws, and allow people to accept any job they want at any conditions they choose to accept. This article first appeared on Daily Friend. – Nadya Swart

Andrew Kenny

“How can I increase poverty and unemployment while at the same time posing as a moral saviour?” You can imagine politicians, academics and trade union leaders wrinkling their brows as they ponder this question. Then a light bulb moment: “Of course! The minimum wage!”

The rising minimum wage will throw people out of jobs, prevent small businesses from starting up, make sure poor people can never become employers, increase hunger and even starvation, and force some desperate women into prostitution. The small businessman (code for South Africa: the small black businessman), facing mounting costs all around, will simply be unable to meet compulsory increased wage costs and so will have to lay off workers or close business. The damage of the minimum wage will be greatly increased by crushingly restrictive labour laws and wicked bargaining councils, whose main aim is to shut poor people out of the economy.

The Minister of Labour announced last month that from 1 March 2023, the minimum wage would increase from R23.19 to R25.42 an hour. This is an increase of 9.6% – more than the inflation rate. This will amount to a minimum wage of just over R4 400 a month (based on an eight-hour day, a five-day working week, and 365 days in the year). The announcement was greeted with approval in the ranks of the rich commentators and with angry disapproval from trade unions and employed workers, who thought it was far too little.

Part of the reason why so many rich and powerful people around the world support minimum wages and job-destroying labour laws is clear – simple self-interest – but part is much less clear and is to do with moral psychology, which I believe is ancient and universal, and harmful to human prosperity.

Trade union leaders support minimum wages because they shut out unemployed people, who can offer their labour at more competitive wages than their members’ wages. Big business supports them because they prevent small businesses from starting up in competition with them. Both the powerful trade unions and the rich business corporations just love the bargaining councils because it gives them the chance to set such high conditions of employment that poor people cannot possibly enter the formal economy.

Under the notorious Section 32 of the Labour Relations Act, the rich and the powerful in any sector of the economy can order the minister of labour to impose impossible conditions upon the poor and the weak outside the bargaining council. These are the primary reasons why South Africa has such appalling unemployment, far higher than any comparable emerging economy.

How to reduce our unemployment

StatsSA, in a report last month, says that our unemployment now stands at 42.6% (using the expanded definition, which includes those who have given up looking for a job). I can tell you exactly how to reduce our unemployment; I can tell you precisely how to reduce our poverty. Remove the minimum wage. Get rid of the dreadful bargaining councils. Get rid of all labour laws that enforce conditions of employment among adults. Allow all men and women to accept any job they want at any conditions they choose to accept. Have complete economic freedom in offering a job and accepting a job. Factories should still be subject to laws pertaining to occupational health and safety (laws regulating potentially dangerous engineering items such as boilers, motors, electrical equipment, and so on) but none pertaining to wages and other employment conditions. I can guarantee you that this would lead to a dramatic rise in formal economic activity and a dramatic fall in unemployment. I know this because I have seen it work wonders in every single country that has ever tried it, including Singapore, Taiwan, South Korea, Vietnam and, most spectacularly of all, China. The freest free market capitalism the world has ever seen happened in a brutal communist dictatorship!

Under Deng Xiaoping, beginning in the 1980s, the Chinese Communist Party, while keeping complete political control of the country, allowed complete economic freedom to the private sector and encouraged free trade with the world, especially the USA. Unburdened by labour laws or minimum wages, the Chinese economy boomed, lifting millions of people out of poverty.

Of course, Communist China had the means of crushing any vested interests that might oppose the economic reforms. South Africa does not, and our vested elite will fight like tigers to maintain their exclusive rights over the labour market. They will fight to keep the poor out of the economy. But we could still achieve economic freedom if we had the will to do so. A more important hurdle for us is the strange moral attitudes of our ruling classes, which include journalists, academics and activists.

If you saw a starving man at the side of the street begging for a job, and you walked past him, nobody would say a word against you. But if you gave this man a job for R4,000 a month and allowed him to feed his family and gave him the dignity of work, there would be howls of moral outrage against you. Exploiter! Racist! (If you were white and he was black.) 

Investigative journalists would come rushing around to your workplace to denounce your terrible working conditions. “It is literally obscene that in the world’s most unequal country, where some CEOs earn over R10 million a month, this man only pays his worker R4 000 a month!” Anyway, you’d be arrested for breaking the law. Would he be arrested for accepting an illegally low wage? I’m not sure.

The moral elite thinks it is perfectly acceptable for a poor woman to accept a child grant of R510 a month (as announced in the latest budget) but not acceptable for her to accept a job of R4 000 a month. Is it easier to bring up a child on R510 a month than on R4 000 a month? Obviously not. Obviously, the moral elite is less interested in the welfare of the mother and child than they are in the motives of those making these two offers. This is the fundamental point: those who want to keep the minimum wage are far more interested in hating the employer than they are in helping the employed.

A maximum wage

This was spelt out clearly on Radio SAFM last Friday morning when the presenter, Oliver Dickson, discussed the minimum wage. (I am not singling him out; I am merely using him as a good representative of a widespread opinion.) He thoroughly approved of the 9.6% increase but then went on to say that he would like to see a maximum wage, a wage above which it would be illegal to pay. He hated seeing executives getting paid so much; he thought it was immoral. A caller suggested there should be a law regulating the maximum differential between the highest and lowest paid in any business; the CEO should not be allowed to earn more than five times as much as the floor sweeper. Dickson agreed.

Another caller suggested that you would not be able to attract the most able executives with such policies; he said that a very highly paid executive might greatly expand and improve the business, making the poorest workers much richer. Dickson said that all executives should be prepared to work well for much lower wages for moral reasons. Better for the poor to remain poor than be lifted out of poverty by a greedy and immoral but highly successful businessman. (Better for whom?)

Here are my standard questions on this matter, questions that have never been answered. Consider Mr Tambo and Mr Tshezi. Both are poor black men living in a township. Mr Tambo is trying to run a little factory making cheap blankets and jerseys and sanitary towels for women. Mr Tshezi is unemployed. Mr Tambo offers Mr Tshezi R4,000 a month to work for him. It will help both men. Mr Tambo’s factory will benefit from Mr Tshezi’s work. Mr Tshezi will be able to feed his children. He is delighted and accepts – but then Mr Tambo is arrested for breaking the law, and his factory has to shut down, throwing his workers onto the scrap heap. Why is it so morally wrong for Mr Tambo to make this offer? Why is it better that Mr Tshezi and his family go hungry than that he should work for R4,000 a month? What right does anybody else have to stop these two adults from making a voluntary contract between themselves?

Illogical arguments

Here are some other illogical arguments. “You must have a minimum wage because every poor wage-earner supports at least four other people.” This is why you should not have a minimum wage because it will reduce the number of people earning any wage at all. “Eliminating the minimum wages would be a race to the bottom.” On the contrary, the higher the minimum wage, the faster the economy sinks to the bottom. If the minimum wage were R1 million a year, the economy would come to a standstill, and there would be widespread starvation. “How can anyone survive on R4,400 a year?” Much better than on R0 a year.

Employers are a threatened species in South Africa. The ruling elite, black and white, hates them. I believe the hatred comes from ancient psychology inherent in Homo sapiens. You can see it in all the great religions, cursing the money lender, making interest (usury) sinful, despising the trader and the businessman, and praising the priest, the king, and the soldier. Marxists give an eloquent expression for this hatred. For interesting reasons, to do with class and hierarchy, the little businessman is more hated by the South African elite than the big businessman. The big businessman will simply pass on the cost of the minimum wage to his customers, which the little businessman cannot do.

In country after country that has allowed a free labour market, the happy result is always the same. It becomes easy to start up a little business, so little businesses proliferate. Workers can be easily hired because they can be easily fired. Workers work hard to keep their jobs. They learn on the job and develop skills, which makes them more productive and valuable. The companies begin to compete for their labour. Salaries rise. Because the companies are competing freely with each other, they become more productive, too, making better and better goods and providing better and better services. The whole country becomes more prosperous. Poverty is eliminated. There is no reason why the same should not happen in South Africa if the authorities would allow it to happen.

*Andrew Kenny is a writer, an engineer and a classical liberal.


This article was first published on the Daily Friend.