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Sunday, March 17, 2013

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.