Higher Minimum Wages in the Developing World

Higher Minimum Wages in the developing world will increase prosperity everywhere.

G20 & WTO should lead

The G20 and the WTO have dropped the ball on trade. They should be taking the lead in “forcing” downtrodden nations go for higher minimum wages. But they don’t – the G20 and WTO just hand all such matters over to the leaders of global industries, aka “the market.”

While increased trade has resulted in some improvement in living standards in some developing nations, in general the gap between the developing world and the rest has not narrowed very much, especially if you leave China, Taiwan and South Korea out of the picture. The difference in those places is that the leaders of these nations didn’t believe the more trade would be enough: they also decided to control the situation more tightly.

These two “organizations” congratulate themselves on having done a good job in increasing the standard of living in the developing world.

They congratulate themselves too much. China has been the biggest beneficiary from free trade with the West. They have done this by keeping much of their own protective regime in place, and closely managing their own economy vis-à-vis the rest of the world. They call this “communism with Chinese characteristics.” There is no way that the Chinese will put themselves in the hands of global capital, but this exactly what the G20 and the WTO are advocating. At the same time they take much of the credit for the improvement in China’s economic situation. Well, good for them! I hope it keep them happy at night, as their own constituents lose their own standard of living at the same time.

Mexico needs a higher Minimum Wages

Take Mexico as an example. Many commentators believe that Mexico has benefited from NAFTA. Certainly the Mexican government believes this to be the case. However, Mexican workers receive $15 day, whereas their wage competitors in the USA receive $15 hour. This is not because Mexican workers are only one eighth as productive as US domiciled workers, as someone has ridiculously suggested.

Don’t expect global corporations to encourage developing nations to introduce higher minimum wages. They love low wages. They won’t fix them, and indeed, they can’t. To pay more for labor than the market requires would be a breach of their governance standards.

WTO could support Higher Minimum Wages

A real fix would be for the G20 and the WTO to introduce a rule that says something like this: “Country based tariffs can be introduced where the effective minimum wage built into the goods being imported is less than half the effective minimum wage in the importing country.”

Taking Mexico as an example, if higher minimum wages were introduced the Mexican government would be compelled to introduce a minimum wage that was equal to half the effective minimum wage in the USA. Such an action would see real benefits being achieved from that nation’s increased export activity.

Nevertheless, while the G20 will have to backtrack on its impotent rage against Trump’s trade rhetoric following his election, it will do nothing of any use in fixing the trade problems of the world. Apparently, the G20 leaders do not understand that crushing the wages of ordinary workers actually reduces national wealth. They do not understand how global corporations work, and that they are not a force for improving the wages of ordinary workers. Perhaps they should read George Cooper’s Money, Blood & Revolution.

Author: Graham Lovell

Ancient history historian, software developer, one-time accountant, husband, father and doting grandfather.

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