The nonsense and (hate to say it) sense of Rodney Hide

While I’m not a typical reader of Rodney Hide, nor do I agree with much of what he has to say – most the time – but on occasion I find myself in agreement with some of his ideas/opinions.  I encourage you to read on, even if you hate the pants off Hide.

I want to focus on 3 of Hide’s articles that interested me. Note, interested does not mean I unequivocally agree with him. But for reference the articles are embedded as links below.

    Mainzeal and the mad men who drive our economy

    Hide states:

    The business failure is reported as an economic calamity. And a sign that all is not well within the wider New Zealand economy…It’s all nonsense, of course. The business collapse shows we have an economy that is working. We would be better off with more…It is traumatic and upsetting for those involved. But so, too, is life…It’s simply a part, and a very necessary part, of living….Business collapse is part and parcel of a successful economy.

    At first glance, I interpreted this article as saying that the free market wants business to fail. So, I thought I’d ask the biggest defender of the free market I know of (@MarkHubbard33) how he interpreted Hide’s piece. His response was in summary, that “business failure is the natural, necessary way for the market to fix malinvestment: that aids innovation and the big problem with bailouts were they kept alive zombie business concepts/models, and hindered innovation”. In comparing this response and reading Hide’s piece again, I suspect Hide’s view is identical.  

    What I understand from Hide’s comments is that business collapse is natural and indicative of a healthy economy. My problem with his theory is that in a later article he implies that providing a living wage to employees is bad for business.

    My question is, if you are for the free market and accept that businesses collapse is natural and necessary, why then is a living wage considered as something that would cause a business to fail?  

    For instance, if the labour market demands a living wage and the business is not in a position to pay it, then surely it is a zombie business and therefore deserves to collapse under the free market doctrine.

    I suspect a response to that claim might be that government legislating what employers must pay (at minimum) is intervention and not the natural course of the market. In my view, this is weak. The government are enacting what the labour market are demanding – the right to be remunerated for the value they provide to the business. Of course, the particular framing of this claim may suggest that if a business cannot afford to pay a living wage then the employee is arguably not providing the business with the value they seek in return for their labour. Although I don’t buy that argument either, since without the employee’s labour, that is, the skill used to produce the good or service, the business would not be able to turn its resources into a revenue stream. The business does not fail because of the labour provided – it fails because the business relies on an ineffective business model that ‘hinders innovation’.

    Bravo: The real business class

    So lets look at what Hide has to say when it comes to paying a ‘living wage’ to employees:

    …many businesspeople don’t make the minimum wage, let alone the “living wage”. They work all hours. They sweat about making the wage bill each week. The income they generate pays all our wages, either directly or indirectly...Business would survive without government. But government wouldn’t survive without business… business success is the social success that matters most. It’s the success of providing what people actually want at a price they are prepared to pay.

    I’m not compelled by this argument for he reasons set out above and additionally, I find Henry George’s argument more persuasive: 

    wages are the product of the labor for which they are paid

    George uses the example of an egg company that hires a group of workers to collect eggs and in return they receive a fixed wage. The fixed wage is paid in money that represents the eggs because the sale of eggs produces the cash to pay the wages.  This may in fact be what Hide meant. But in my view Hide overlooked that without labour the business would not generate the income to pay wages. So the importance is not the business, it is in fact the labour.  

    I’m amused that Hide on one hand says its natural and in fact a sign of a healthy economy where businesses collapse since innovation derives from these failures.  And on the other hand businesses that are struggling should be assisted by the government twofold – firstly, by not legislating a minimum wage thereby privileging the business over the labour, and secondly, by leaving it to the government to provide social security for the workers whose employers cannot afford to pay them a living wage. Has Hide forgotten that the government represents the people and not business? Well, not according to his latest piece in the NBR that I will discuss below.

    Problems solved

    I enjoyed this piece while at times I seethed much of what he said was palatable and some of it even sensible. Lets look at his idea for Christchurch first. Hide says:

    The government should butt out of Christchurch…Property rights should be recognised and reaffirmed rather than endlessly pinched, the region should be declared tax-free and oppressive laws such as the Resource Management Act, OSH and the Employment Relations Act deemed inappropriate.

    It was all going well until he spouted the bit about deeming laws that address fundamental rights of individuals inappropriate [in bold – emphasis added]. 

    What I like about this suggestion is that he is right about the government butting out – CERA is an impediment to the direct democracy of the people of Christchurch. CERA is an installed regime intended to ignore the plight of the people for the benefit of some crony government agenda. 

    I’m also impressed by his tax free zone, although in my opinion, this should be limited to personal income tax and GST because I’d be suspicious about some (external) businesses finding loopholes and using the tax free status of the region to create profits that didn’t feed back into the community. And this would undermine the whole point of declaring Christchurch a tax free zone. The advantage of a tax free zone is that individuals would have their full wage to assist them in rebuilding their lives which would go some way to providing the necessary relief in the wider community. It would also benefit the local businesses because people would have more money to spend and would be more likely to spend thereby circulating more money in the region without having to artificially create more money (banking) or printing more money (QE). I’m not entirely sure how such a scheme could be implemented, but on the face of it, I think Hide’s idea has merit. I suspect his reasons are because such a scheme would be more favourable to businesses, while I prefer the idea for the benefit of the community as a whole. 

    Another idea I liked of Hide’s was in relation to the Ministry of Business, Innovation and Employment. Hide says:

    Get rid of the Ministry of Business, Innovation and Employment. That alone would signal that government understands that business, innovation and employment aren’t things that flow out of the Beehive.

    In my view, he’s right. Government is about governance and not dictating what the economy should be doing. While I see a role for government in facilitating the employment relationship, its not the role of government to determine what is innovative for the private sector. I appreciate that some people believe that some ‘public-private partnerships’ have been successful, but I don’t think this justifies the relationship since success is almost always measured in profitability. We elect the government to represent us as a people and when governments are in partnership with business there is a clear conflict of interest and conflicts of interest are deemed highly inappropriate in most professions.  

    To conclude, for all the BS that Rodney spouts and his deliberate trolling of the left, he does happen to have some good ideas and opinions. What I am finding is that despite the differences in opinions or how our opinions and ideas are formed, where there is common ground we should probably work from there. Surely, its far more productive than slinging mud back and forth. 
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    4 comments

    1. I am happy to agree that their should be a ‘living wage’ (but who in the good Lords name decides what that is?) if those who are pro for it are willing to realize that the cost of everyday goods will rise as a result. It is simple economics, if businesses sell their products for some kind of profit then surely if their costs go up then the products they sell will follow – or else they won’t exist anymore (and the jobs they create with it). If basic cost of goods go up – who is the most affected? Generally the poor – I am not saying this I not a reason to do it but lets be realistic – if the simplest things go up which are usually the things that require the simplest labor e.g. Milk, Bread etc then shouldn’t be the context that this discussion continues? The living wage is not a magic bullet, it has adverse effects so if we are going to debate it then lets do so wit all cards on the table – raise the minimum wage by $2 an hour and watch what happens to the cost of the goods that the labor creates

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    2. Colin

      A couple of thoughts:

      “So the importance is not the business, it is in fact the labour”

      What comes first, the business or employment opportunity? Most would agree that entrepreneurs who risk their capital and start businesses are the ones who create employment opportunity for those people who do not have either the skills or the inclination or the capital or the desire to start businesses of their own. In other words, the business comes first. If there is no business there is no employment opportunity.

      “While I see a role for government in facilitating the employment relationship, its not the role of government to determine what is innovative for the private sector.”

      Your statement implies that you consider the Government to be smarter than markets, else why would you have them interfering in employment relationships? This might surprise you but employers (and I am one) don't set wages or salaries, the market does. It does so in two ways. First my customers place a value on my services, and that revenue has to cover the cost of delivery plus a return on my capital investment (else why bother?). Second, my competitors are also fishing in the same employment pool as I am. I compete with them for the people who have the skills my business needs to deliver services to my customers.

      These two competitive environments ensure that (a) people with skills are rewarded appropriately in my company and in my competitors company and (b) the price I charge for my services is fair and reasonable. Scarcity and perceived value determine the price paid for the services and the salaries in both instances.

      The Government is an unnecessary and unwanted third party in those relationships.

      Finally…

      We live in a global economy. If you have few or no skills to offer an employer, then you are competing with someone in India or China who does have skills and is prepared to work for much less than you feel entitled to. The only thing that stands between you and poverty is our welfare system, and a redistributive taxation system. That works while the numbers of unskilled and socially dysfunctional are relatively few. At some point it becomes unsustainable. The irony is that welfare has created the growing and permanent underclass in New Zealand that carries with it a sense of aggrieved entitlement. In an attempt to create a 'fairer society' Government intervention has created a problem for which there is now no easy solution, and is a growing fiscal and social burden on our nation.

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    3. In relation to the ‘living wage’ I can completely understand your reservations regarding ‘who decides what that is’. I don’t really have the answer to that, but my gut tells me either Parliament or local council. Let me explain. I say possibly Parliament because the representative base is wider than government. Alternatively, I say local council because those living in the community are better placed to know what the needs of the community are. This may create subjective living wages that are responsive to the needs of particular communities, but maybe that’s a fairer way for businesses and employee’s rather than imposing a universal living wage. Although this may have other implications such as those who perceive say an Auckland living wage as higher even though cost of living is relative to the living wage paid.

      The Greens suggest that “the minimum wage should be increased to 66% of the average wage, with an immediate increase to $15/hour – closer to a living wage” which is compatible to what you suggest and perhaps costs will rise but this is not necessarily so. While some businesses will increase their costs, others won’t. According to the Green’s, “In the post war period the minimum wage used to be close to 80% of the average wage. Since the 80s this figure has dropped to around 50% of the average wage making NZ one of the most unequal societies in the OECD”.

      I still think that removing personal income and company tax and replacing with a single value land tax is a better way to overcome the wage disparity/poverty issue but I don’t see any government taking such a bold step.

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    4. I’m not sure who Colin is, but anyhow, thanks for taking the time to read and comment! Much appreciated.

      “Most would agree that entrepreneurs who risk their capital and start businesses are the ones who create employment opportunity”

      Yes, agreed. Business creates employment opportunity, but you overlook that you cannot have a business without first exerting labour. The entrepreneur has an idea and through his or her own labour develops that idea into a business. Yes, the business creates an opportunity for individuals to supply their labour, but the businesses require labour to operate. Perhaps, it would have been better if I had said that business and labour are mutually important.

      “Your statement implies that you consider the Government to be smarter than markets, else why would you have them interfering in employment relationships”

      Its a bit misleading to trade my use of the word ‘facilitate’ to be synonymous with your use of the word ‘interfere’.
      Oxford dictionary: Facilitate – make (an action or process) easy or easier
      Oxford dictionary: Interfere – prevent (a process or activity) from continuing or being carried out properly
      I think you’ve misunderstood what I expressly stated – i.e ‘its not the role of government to determine what is innovative for the private sector’, which was intended to express the opinion that governments should not interfere with private sector business development. So I was never implying that government were smarter than markets – quite the opposite. Although, I think it a bit artificial to talk of governments and markets as having some intelligence since neither possess that quality.

      Additionally, that particular statement on the facilitatory role of government in the employment relationship was not about wage setting, it was intended to explain that in my view the role of government was to protect both parties from harm and ensuring there were no fundamental abuses of human rights as well as protections for the employers from criminal or fraudulent actions of employees. If the government has rules regulating certain aspects of the employment relationship then the business can focus on the innovative aspect knowing there are protection mechanisms in place.

      “Scarcity and perceived value determine the price paid for the services and the salaries in both instances”

      This is what I dislike about the market since the market as an unintelligent entity that can effectively decide a workers worth despite the value the worker provides to the business. It uses artificial measurements that typically dehumanise minorities – the low skilled, the poor, the uneducated and so on. I appreciate the competition aspect but I do think that business owners should take more responsibility to ensure that the pay for the work they offer provides the chance for workers to provide for themselves since there is a great deal of reciprocity in that relationship.

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