How Free Markets Help the Poor

(To watch a video animation of the following, click here.)

Do you know what’s by far the most powerful force in lifting the poor out of poverty and raising the incomes of everyone else? Free markets. The government getting out of the way and letting businesses flourish results in jobs and rising wages.

No, it’s not labor unions that make wages rise. They only help a relatively small segment of workers at the expense of everyone else. If anything, they impede business creation. And that’s a tragedy, because the more businesses there are, the more competition there is for labor.

In order to attract the best workers and prevent them from working somewhere else, business owners are forced to raise wages and benefits. The result is an overall rise in the general wage rate and standard of living.

Let me illustrate. Start with a poor country. There are lots of people either unemployed or working in the agricultural or low-wage informal sector. But then the government opens the area to foreign or domestic investment. A shoe factory moves in, and people get jobs. Because it’s low-skilled labor, the jobs aren’t high-paying but they pay a lot better than what the people were earning before.

More factories move in and more people get jobs. And then, another factory moves in and finds that it’s having a hard time hiring good labor. So how does it attract workers? You guessed it: it’s forced to raise wages.

But it doesn’t stop there. In order to prevent their workers from going to the other factory and to hire new workers, all of the other businesses have to raise their wages as well. The average income and standard of living of the population go up.

In addition to enjoying higher wages, the people are learning new skills. There are more semi-skilled and even high-skilled people around. That attracts the attention of industries that require higher-skilled labor, like assembly plants and parts manufacturers. They pay even higher wages in order to attract top talent. Pretty soon more of them move in, and the low-skilled manufactures can’t compete so they move out, to other areas of the country where low-skilled and low-wage labor is still abundant. Then the virtuous cycle begins there, too.

This is happening in places like China and India. Just a few of decades ago southern China was poverty-stricken. Now it’s becoming a bustling and prosperous high-tech metropolis, thanks to this process of businesses competing for labor, and ultimately thanks to the government’s decision to let the free market flourish.

A similar thing happened in America as well. To once again get low unemployment and rising wages for the poor, the government has got to get out of the way.

*** Update – May 6, 2013 ***

The above is by no means just a theory. It’s what’s happening in practice. All of the above is reflected in this news article.

Following are excerpts:

“Ms. Cui is contributing to China’s tightest labor market in years, putting upward pressure on wages that already are rising in the double digits annually.”

“The average monthly income for migrant workers rose 12.1% from a year earlier.”

“Creating jobs in hair salons and insurance companies, instead of in steel mills and soccer-ball factories, helps fuel growth in the world’s second-largest economy.”

“When the bra maker set up a factory in southeastern China’s Jiangxi province more than a decade ago, hundreds of people lined up outside looking for work. Today, the manufacturer for Wonderbra and Elle Macpherson Intimates struggles to find enough workers to operate its production lines at full capacity.”

“For years Top Form competed for labor with factories moving inland to take advantage of lower costs.”


Another One Becomes Part of the Solution

Things can get so bad as a result of the liberal/left agenda that sometimes even liberals/leftists recognize the folly of their ways.

That’s what happened to Gina Raimondo, the Rhode Island state treasurer who was mortified to see the union-driven state pension system turn into a black hole, sucking in money and resources at the expense of everyday public services. The leftist-dominated state has resulted in there being more public pensioners than workers paying into that system.

Ms. Raimondo read “an article in the paper about libraries closing and public bus service being cut nights, weekends and holidays, and I just thought it doesn’t have to be this way.”

Of course for most liberals, the solution would be simple: raise taxes. But the now-bankrupt town of Central Falls provides a good example of what happens when you do that. When it raised property taxes to finance worker pensions, “many residents fled, sending the city into a tailspin.”

So Raimondo helped push through pension reforms in order to help stem the state’s deteriorating situation.

Hey all you Wisconsinites who want to throw out Governor Walker: can’t you see that Walker has been doing almost exactly what Raimondo has been doing? He’s trying to prevent your state pension system from turning into a black hole that gobbles up everything in sight like libraries and roads and schools and parks. Quit being part of the problem and be part of the solution for a change.

Of course the only difference is the label – Raimondo calls herself a Democrat while Walker calls himself a Republican. Walker is having a tougher go of it because the term Republican has been so demagogued by the left, even though he, like Raimondo, is only trying to save the state from the ravages of union-created black holes.

Sometimes They Get Through the Gates

Yep, VP Biden said it best the other day when he told a union crowd, “You are the only folks keeping the barbarians from the gates.”

As pointed out in an earlier post, by that he apparently meant: You are the only folks keeping yourselves from the gates.

But sometimes they let them through. Like today, when hundreds of unionistas stormed a port in Washington state, holding security guards hostage, damaging property, and dumping grain.



Barbarians At the Gates

Gotta love the irony. Labor union leader Jimmie Hoffa, to a cheering crowd, declares “war” on Republicans and the Tea Party, telling President Obama, “this is your army. We are ready to march. Let’s take these son of bitches out…”

Barbarian, eh?

And then Vice-President Biden, at another rally, tells a labor union crowd that “You are only folks keeping the barbarians from the gates.”

So I guess by that he means, You are the only folks keeping yourselves from the gates.

Even more alarming is that President Obama was only steps away from Hoffa during the latter’s invectives. He didn’t attempt to temper Hoffa’s words, and didn’t even condemn or express disapproval at the remarks afterwards. In fact he said after the remarks that he’s “proud” of Hoffa.

I’m sure in his heart of hearts Obama feels the same way as Hoffa, based on his hard-left roots. But as president one should do the grown-up thing, abandon one’s extreme impulses, and act as a peacemaker once in a while.

Pocketing the Members’ Dues

Washington Post columnist E.J. Dionne had a Nov. 9 column attributing the failure of Taxpayer Bill of Rights measures in Washington state and Maine to opponents’ ability to convince enough voters that many of the things government does are necessary and good – i.e. that they’re getting their tax money’s worth.

Contrast that with an article just a week earlier in the Los Angeles Times by William Voegeli, who eloquently lays out what’s wrong these days with the high-tax model in California. Its tax revenue is no longer buying the quality of government services that the taxpayers deserve. Government services there are generally no better than those of much lower-tax states like Texas.

Why? Because the members’ dues are increasingly being funneled to the staff, and away from member programs. Members = taxpayers, and staff = government workers’ salaries, benefits and pensions.

That’s certainly not necessary, and not good. The only people it’s good for are the staff, not the members.