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Wednesday, 19 September 2012

Wealth transfer and market distortion

The call by a group of economists for an end to national pay rates for the public sector is entirely understandable. A young GP on £100k hanging his shingle in a market town in the gorgeous north-east countryside has the prospect of cheap houses, a lower cost of living, decent schools and a far better life quality than if he practised in Haringay, even with a couple of grand London weighting. An acquaintance who formed part of the move of the NHS HQ from London to Leeds swapped an 'artisans cottage' (a two up two down to the rest of you) in Muswell Hill for an elegant five bed Edwardian villa. When other costs and prices vary considerably across the country, there is little reason for public sector wages not to do so.

But if you apply the argument to the public sector, it must also apply to the minimum wage. Why should a struggling pub in Middlesbrough have to pay the same hourly rate as one in Sevenoaks? And once you've removed these market distortions from the labour market, what about specific duty rates? (ad valorem taxes already reflecting price variability). 

The suggestion has not been made by Cameron's government, you will note. In fact they will be opposed to any such move - to anything that removes powers from the metropolitan centre and devolves it - but since Labour and the LibDems have already signalled their opposition, all Cameron has to do is mutter anodyne and neutral platitudes and ignore the recommendation. Once the genie of tax-and-spend decisions is let loose from its Whitehall bottle, there's no telling what other functions may follow. 

There is a cogent argument for some form of wealth transfer from the wealthiest regions of the realm to the poorest; its morally proper, it strengthens the Union and it prevents large movements of people. But distorting factor markets isn't the way to do it. Bradford's new city centre streetscape, paid for by the City of London, is the sort of thing that's needed; it increases local business confidence and investment decisions, increases local GDP as people find the area more pleasant to be in and fosters proper civic pride. And if the lucky locals can enjoy a pint for half the price of one in Covent Garden as they enjoy the autumn sun, all the better.


Anonymous said...

I don't think wealth redistribution is a particularly good idea Raedwald...

One has to recall how great cities like Bradford came to be great cities in the first place...

It was by finding something that could be dug up, farmed or manufactured best in a given area.

It was national government, with their controlling addiction, which created the decay of the north in the first place. For instance, if they hadn't skewed the market, and hated the politics (not the product) of some of the people there, they would still be digging up coal.

I do think that the redistribution of politicians is a good idea though...

...Don't talk to me about lame ducks.

G. Tingey said...

And ... the minimum Wage is quite low enough, already, thank you very much.
If you can't pay your employees at least the minimum wage, no matter where you are in the UK, then to quote my wife (A Charterd tax accountant) "Your business model is not viable"
[ Or you are a grasping crook, as appropriate ]

Note: I did not say that it wasn't a tricky and true problem...

Anonymous said...

Tax Accountant...?

And you believe her?

Anonymous said...

You can still get a pint in Bradford?? Does the Imam know?

Umbongo said...

"There is a cogent argument for some form of wealth transfer from the wealthiest regions of the realm to the poorest"

What do you think "Regional Development Agencies" claim to do? What has, at least, 3 generations of "regional policy" comprised? There is certainly an argument for wealth transfer but it is neither cogent nor - on the available evidence - sound. The argument is generally put forward by those who agree with Douglas Jay that the "man in Whitehall really does know better". He doesn't.

JuliaM said...

Umbongo: "What do you think "Regional Development Agencies" claim to do? "

What they claim to do is one thing. What they ACTUALLY do is transfer that wealth into the pockets of the civil servants who run them!

Dave_G said...

Don't suppose they'd also adjust the taxation in a similar manner?

Anonymous said...

The problem with this article is that it doesn't reject redistribution and price setting, it just asks for a bit less in some places or a different (localist) type of redistribution. This is a failed argument before it even starts. All price fixing is economic nonsense so the sensible conclusion is to reject all minimum wages, wage boards and so on. It isn't more justifiable when done by local rather than central government busybodies.

Anonymous said...

"But if you apply the argument to the public sector, it must also apply to the minimum wage. Why should a struggling pub in Middlesbrough have to pay the same hourly rate as one in Sevenoaks? "

Apply it just a bit further and ask why a pub (or any other business) anywhere should be forced to pay anyone any fixed price for their labour when the labour of every person is worth infinitely variable amounts to every other person. Simply leave it up to the people involved. Local price fixing is just as bad as national price fixing.

G. Tingey said...

right writes
YES, she is telling the truth.

Johnm said...

The entire "market" has been distorted for decades, long before the banks received their massive amount of market "distortion".
The struggling pub in Middlesborough won't struggle any less if it pays lower wages. Along with all the other businesses it will struggle more when people have less to spend.
I have worked for a "struggling" business that had a meeting with its employees to discuss its poor financial state (due to a high wage bill they said).
At the meeting I acquainted them with the facts of their high wage bill: the six office staff salaries were three times more costly than their 21 shop-floor employees.
Not helped by the three directors being paid two salaries each, plus another as self employed directors.
Those were the days. You could get the complete company accounts for a quid.
Businesses struggle for a host of reasons. The main one being a product nobody buys, another being poor management.

James Higham said...

There is a cogent argument for some form of wealth transfer from the wealthiest regions of the realm to the poorest; its morally proper

But not by decree and this lot would muck it up anyway.

Anonymous said...

This whole argument fell to pieces on R4 last week when some astute person stated that once distortion had been allowed to enter the public sector, then any government of the day with half a brain would use the allowable distortion as a method of lowering the PS wage bill. Personally, I think that the PS is a bloated leviathan and it needs setting to with an machete, but I would not want to give any government the "distortion tool" as they would be bound to use it unwisely. That particular Pandoras box would certainly leave a trail of wreckage.

Coney Island

Anonymous said...

I'm not so sure ...... it seems to me that the extra money earned in 'the south' goes straight into incrfeased property prices.

But the main reason for posting was to say thatdifferential payment has existed for a long time.
I used to work in Local Govt. in Nth London (well Borehamwood) and on the NE.
In Borehamwood I earned Outer London Weighting - which was 30 years ago nearly to the best of my memory about £1000. In addition to that similar jobs were rated at a higher grade (this was in IT) and in additional to that there was a performance related element (which I would think has probably gone now).

When I moved up to the NE I took a major drop in salary for the same level of job, from memory I went from £17k to £15k. This was 25 years ago now.

I will say not all PS organisations are the same, GP's are self employed and payments from the NHS have risen enormously in the past few years.

G. Tingey said...

Paid £2.85 for a pint in Kidderminster, yeaterday!