How the West Garrotes itself

The politically convenient myth is that western wages are undermined by cheap eastern labour. It’s a notion that governments foster, to avoid the reality: their policies are garrotting their economies.

True, Asian goods flooded the markets in Europe and North America over the past 30 years. That helped to maintain the buying power of wages that failed to rise, in cash terms, along the historic trend.

True, some sections of Europe’s workforce have been challenged by the influx of migrants over the past decade. But is the threat to people’s prosperity really from other people who want to raise their living standard? It appears to be so. But appearances can be deceptive. Consider the issue in terms of Immigrant v Indigenous workers.

I commissioned construction work on my home last month. Two Polish builders spent three days working 8 a.m.-4 p.m. Total cost: £1,300, including materials. They did a beautiful job. An indigenous builder wanted £3,300. I can’t afford to throw away £2,000, so I chose the Polish workers.

Eastern living standards need to rise. Western wages may decline, in nominal terms, but if we view people’s prospects in terms of (a) purchasing power, and (b) existing material living standards, there is no reason why Indigenous people should suffer just because Immigrants want to improve their lives. Everybody can gain. And yet…

It’s true that millions of families in the West are suffering. They can’t “make ends meet” – and so, the blame is placed on wages that are deemed to be too low.

Really?

Dig deeper. And what we find is that a disproportionate share of wages and salaries is devoted to the cost of accommodation.

Immigrants are raising rents at the lower end of the property market. And eastern investors are raising property prices at the top end of the market. But what’s stopping the industrialised countries from building enough dwellings to equate supply with demand? The problem is not with the cost of building materials. Affordability is not determined by constraints in the supply of bricks and mortar. The problem relates exclusively to property rights in land (the supply of land is fixed by nature, for practical purposes, in places where people want to live and work), and with the way governments distort income distribution through their fiscal policies.

If Indigenous wages are under pressure, it’s not because of Immigrants. It’s because of home-grown policies that are shaped to enrich the rent-seekers, at the expense of people who work for their wages.

One Response to How the West Garrotes itself

  1. Jake 24 July 2014 at 11:29 am #

    Whilst all this is true,a land value tax would increase the supply of land and it’s affordability.Indegenous labour would also benefit from a reduction in income taxes and vat,possible if displaced by lvt. However,Indigenous labor would still benefit from a reuduction in competition from immigrant labour and the wage suppression it creates.The Politcal system inherently protects the value of land (and other assets) yet is reluctant to protect the value of labour and the living standards of working people.
    By all means lets lower the cost of living,renting,employing(NI) and consuming(vat) but why not apply a protectionist restrictive approach to labour to support higher wages for working people.In order to end rentierism, policy should be designed to make working for a living an attractive and sustainable prospect.
    Shortages of highly qualified workers should prompt government investment in higher education and an extensive Research and development sector to support a high level skilled base of local workers.And a return to full subsidies for Universities and Students.

    Adam smith supported high wages for working people.Policy should create a high wage low cost, low rent economy to support high living standards.

    Your proposed rent dividend (which I broadly support) raises some questions about labour participation and immigration, at what point should immigrants be eligible for the rent dividend?

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