Special to L. Neil Smith’s The Libertarian Enterprise

There is in the United Kingdom a shortage of lorry drivers. This means a dislocation of much economic activity. Because it cannot be delivered, there is no petrol in the filling stations. Because there are not enough drivers, and a shortage of fuel, we may soon have shortages of food in the shops. Christmas this year may not involve its usual material abundance.

These difficulties are wholly an effect of the new political economy that has emerged in England and in many other Western countries since about 1980. An army of managers, of agents, of administrators, of consultants and advisers and trainers, and of other middle class parasites has appropriated a growing share of the national income. This has happened with at least the connivance of the rich and the powerful. Since, in the short term, the distribution of the national income is a zero-sum game, the necessary result is low and falling real wages for those who actually produce. So long as the productive classes can be kept up by immigration from countries where even lower wages are on offer, the system will remain stable. Because leaving the European Union has reduced the supply of cheap labour, the system is no longer stable in England.

There are two obvious solutions. The first is to rearrange the distribution of income, to make the productive classes more able and more willing to produce. Since this would mean reducing the numbers or incomes or both of the parasite classes, the second is the solution we mostly read about in the newspapers. This is to restore the flow of cheap foreign labour.

In summary, that is my explanation of what is happening. For those who are interested, I will now explain at greater length. According to the mainstream theory of wages, labour is a commodity. Though workers are human beings, the labour they supply to employers is of the same general nature as machine tools and copper wire and cash registers and whatever else is bought and sold in the markets for producer goods. A wage therefore is a price, and we can illustrate the formation of wage rates with the same supply and demand diagrams as we use for illustrating the formation of prices:

The supply curve slopes upwards because most work is a nuisance. Every hour of labour supplied is an hour that cannot be spent doing something more enjoyable. Beyond a certain level, workers can only be persuaded to supply more labour if more money is offered for each additional hour of labour. As with other producer goods, the shape of the demand curve is determined both by the price of what labour can be used to produce and by the law of diminishing returns.

To show this, let us make the following assumptions:

First, that all labour employed or employable by a firm is of the same quality;

Second, that all other factors of production are fixed in quantity;

Third, that the price of whatever is produced by a firm is £10, and that its demand curve is perfectly elastic.

Suppose that the employment of one extra worker will increase output by ten units a day. This will increase revenue by £100 a day. The maximum daily wage paid to that worker will be £100. If the wage is somehow fixed above that level, it will not be worth employing him. If, however, we make the secondary assumptions that all other firms in that market are in exactly the same circumstances, and that all workers are employed on daily contracts, firms will compete for workers and workers will compete with other workers until that is the daily wage of all workers.

Let us now suppose that another worker appears from nowhere and offers his labour, and let us suppose that, because of diminishing returns, his employment will increase our firm’s output not by ten but by nine units a day. This being so, the daily wage rate will fall to £90. If, on the other hand, a new worker does not appear, but an existing worker disappears, and increasing returns now mean that the last worker employed before him has added eleven units per day to total output, the daily wage will rise to £110.

This is a grossly unrealistic illustration. But this does not in itself falsify the theory. Economic theory works by looking beneath the multitude of transient circumstances we find on the surface of things, to see the underlying reality. No basic economic theory explains how a market does or should work at any one time. What it shows instead are the underlying forces that shift markets in the long term towards an equilibrium that is itself constantly shifting. This being so, the marginal productivity theory of wages is part of an overall theory of distribution that roughly explains the earnings of each factor and subdivided factor in a country with reasonably free markets. It is not very good at explaining wages in the service sector, and may apply at best indirectly to wages in the state sector. But it is a true theory, and it only ceases to operate when some forcible rigging of markets prevents it from operating.

Our problem in England is that large areas of economic activity have been rigged. There is an immensely large state sector, paid for by taxes on the productive. Most formally private activity is engrossed by large organisations that are able to be so large either because of limited liability laws or by regulations that only large organisations can obey. The result is that wages are often determined less by market forces than by administrative choice. In this kind of rigged market, we cannot explain the distribution of income as a matter of continual choice between marginal increments of competing inputs until the whole has been distributed. It may be better to look at a modified wages fund theory. A large organisation has a pot of money left over from the sale of whatever its product may be, minus payments to outside suppliers, and minus whatever the directors choose to classify as profit. This is then distributed according to the free choice of the directors, or how hard they can be pushed. Or we can keep the mainstream cross-diagrams, but accept that the demand curve is determined less by marginal productivity than by the overall prejudices of those in charge.

Therefore the growth of a large and unproductive middle class, and the screwing down of all other wages to pay for this. This is not inevitable in rigged markets, but is possible. It has come about since the 1980s for three reasons:

First, the otherwise unemployable products of an expanded higher education sector have used all possible means to get nice jobs for themselves and their friends;

Second the rich and the powerful have accommodated this because higher wages and greater security for the productive might encourage them to become as assertive as they were before the 1980s;

Third, that these rich and powerful see the parasite classes as a useful transmitter of their own political and moral prejudices.

Where the lorry drivers are concerned, a friend showed this yesterday in a brief e-mail:

This is something due to the lack of HGV drivers due the outsourcing to agencies for driving. The agencies grab the most of the money and the drivers get paid pants for a long, difficult job with terrible conditions. No wonder no one wants the job. I know a couple of drivers who tell me qualified drivers are stacking shelves rather than drive since the pay and conditions are better

I know nothing of that particular market. But I do know the education market. I used to work now and again as a supply teacher. From every £10 an agency charged a school, about £5 went to the teacher it supplied. Many teachers, I might agree, are worthless at any wage. Also, I do appreciate that middlemen are often useful for creating markets that would not otherwise exist. But you see these agencies in almost every sector, even in those where customary employment markets already exist. It is a reasonable inference that they are a means of diverting income from those who work to those who live by skimming-off.

And this is the cause of our present difficulties. It explains why there are so many calls for the flow of cheap foreign labour to be restored. It may be that many businesses in this country are run with so little enterprise and investment that they survive only with cheap foreign labour. Much more than this, the parasite classes have realised that the growing labour shortage faced since we left the Single Market is forcing up wages for the productive, and that is not a short term response, but part of a more general readjustment, and that this will be bad for them unless they can make those labour supply curves more elastic at lower wages.

An almost obligatory end to anything written by a libertarian is a call for an end of regulations and cuts to government spending. I think these would help. But we have a class war in which no side seems to want a free market. So, for what it may be worth, I choose the workers. They did themselves no favour when they last had a seat at the table in the 1970s. So it may be again. I choose them even so. As for the parasite classes, I can shut my eyes and see them them at pavement cafes in the King’s Road, twittering into their i-Phones over skinny lattes served by Bulgarian waiters. Watching them unplugged from their host would, all other considerations aside, be enjoyable.

 

© 2021, seangabb, who writes:

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