It may not seem like it but the considerations associated
with the setting of the minimum wage for an industrial nation are closely
related to those associated with the setting of the credit rating for any
nation. The way things are done now is that both the minimum wage and the
credit rating are determined by glorified accountants called economists who
employ methods that were devised decades ago when the economies of nations were
different, and so was the international setup in which they operated.
What we need now to make a more meaningful determination of
those matters are economic scientists who will employ methods that take into
account realities heretofore neglected by the economic accountants. What the
economic scientists will recognize is that a national economy is not the static
picture which is reflected by a balance sheet but a living entity that is
continually evolving in lockstep with the demography of the nation.
The difference between what the accountants see and what the
scientists will see arises from the fact that scientists have a greater
appreciation for the concept of time. Whereas the accountants normally decide
on something that will probably not be there when the time will come to
implement their decision, the scientists will tend to see the moving parts of
the economy, and work to determine their position at the time when, for
example, a debt will come due.
In the old days when a handful of nations were
industrialized and the rest of the world was not – thus considered backward –
an accounting economist would look at the balance sheet of a few representative
enterprises and determine from them what the minimum wage ought to be. As
well, he would look at the balance sheet of a national economy and determine a
credit level for it. As to the backward countries, they lived and perished by
the volatile value of the commodities they sold, and they existed at the mercy
of the industrial nations which sought to acquire their commodities by hook or by
crook. No minimum wage was determined for these countries and no credit rating
was applied to them.
But the world has changed in that the new industrial
revolutions – which are happening all the time and everywhere on the planet –
are moving ten times as fast as the original Industrial Revolution. This is
true in the sense that what took the first industrial nations ten generations
to accomplish is now being accomplished in a single generation by the emerging
industrial economies. Of course, science and technology are still evolving, and
so are the industries of the first industrial nations. However, the newly
industrializing ones are catching up not only to what they missed in the past,
but are keeping abreast of the new developments, and in some cases leapfrogging
ahead of the old industrial nations.
Even if we miss all the details pertaining to this subject,
what comes out clearly is that every method employed in the past to assess an
economic condition or to measure its impact, must have been voided by the
realities of the world in which we now live. The one thing we can be certain
about is that a ton of tomatoes produced in a highly industrialized farm will
have to command a price that is different from a ton of similar tomatoes
produced by a farming family laboring in an economy that may now be
industrializing but is still backward. And this is the reality that both
farmers will have to face when trying to access the same international market.
In time, a new dynamic will have been created and will fundamentally
alter the relationship between the industrial economy and the one that is
emerging. For one thing, if the farming family in the backward economy can
produce enough tomatoes to satisfy the needs of its own community and that of
the industrial economy, the mechanized farms of the latter will stand a good
chance to go bankrupt. This will happen if and when the industrialized farmer
will lose the ability to pay for the equipment, the fuel and the fertilizer he
needs to continue farming. This reality will ripple through the rest of the
economy with dire consequences which is the reason why the industrial nations
subsidize their farmers.
But how can this happen if it takes 5 farmers or more in the
backward economy to produce as much as one farmer in the industrial economy?
The answer is that the person on the mechanized farm would have as many as 4 or
5 other people working away from the farm to produce the equipment, the fuel
and the fertilizer that the person on the farm uses to be able to farm. And because
he must pay for all that, he has to charge more for his tomatoes than the
backward farmer.
When those two show up in the same marketplace to sell their
products, a new situation will begin to unfold. The industrialized farmer will
find himself selling less and less of his, while the other farmer will sell
more and more of his. As long as the backward farmer has enough land, water and
people to increase his production, he will supply his market in full and take
an increasingly bigger share of the other market. But if he runs out of any of
those, and he is compelled to resort to the methods of his industrialized
counterpart, he will have to raise the price of his products. He will continue
to do so till he matches the price of the other farmer who, if lucky, may still
be in business. If unlucky, he would have gone out of business ceding the
entire market to his counterpart.
It may take a generation or two for that scenario to fully
unfold. In the meantime, several upheavals will have beset both economies on
their way to that finale. To see how this may happen, we must broaden our view
from thinking in terms of two competing farms to thinking in terms of two
competing nations. One will be fully industrialized; the other will be at the
start of its industrial journey, and still relying on farming, mining, some
local crafts and perhaps tourism as well.
Each nation will have its own currency. To make matters
simple, let us say that the industrial nation uses the Dollar which will buy a
pound of local tomatoes. And let us say that the backward nation uses the
Kwaillar which will also buy a pound of local tomatoes. At the start of their
interaction, the inhabitants of both nations will realize that the industrial
economy has a great deal of goods and services that the other does not have.
For example, it has the car which sells for 10,000 Dollars as well as
appliances and a variety of other gadgets; and it has the facelift which sells
for 100 Dollars as well as a few other services.
At first, the people of the industrial nation will buy from
the other a few pounds of tomatoes, other produce, some natural resources and
the local crafts; and they will travel there as tourists. To pay for this, they
will convert their Dollars into Kwaillars at the rate of one Dollar for one
Kwaillar. In the meantime, the people of the backward nation will want to buy a
few small things from the advanced nation, and will use the Dollars they earned
to pay for them. They will not as yet buy a facelift or a car because they
could not sell enough of what they produce to pay for such luxuries. And
depending on the supply-demand situation for both currencies, the exchange rate
between them will fluctuate in a narrow band because the two-way trade will at
first be more or less balanced.
In time, a handful of people in the backward economy will
have accumulated enough Kwaillars to want to buy big items such as appliances,
cars, facelifts even medical care from the advanced economy. To do this, they
will convert the Kwaillars they hold into Dollars. They will buy the Dollar in
large quantities and send it soaring which will devalue the Kwaillar. This will
make the goods and services they produce sell cheaply in the advanced nation.
In turn, this very idea will make the business people in the advanced nation
decide to move their plants and other facilities to the developing one so as to
produce cheaply and sell at a high price in their home country.
This new condition will continue to prevail till the
backward nation becomes as advanced as the other. In the meantime, the
upheavals that the two nations will experience will seem unsolvable. The
politicians will adopt small solutions to solve small problems but will throw
their hands up in the air when it comes to solving the big problems because the
politicians will have realized that the real solutions lie somewhere else.
The most destructive upheaval affecting the emerging
economies is the gap that opens between the rich and the poor; a gap that
happens because a lucky few will find themselves interacting with the advanced
economies, and paid wages and salaries of that level. At the same time, the
remaining masses of the population will find themselves toiling as hard as
ever, and paid at the level of the backward economy. The inequity will create a
great deal of pain among the masses, and the government will want to alleviate
it. To do so, it will subsidize the poor through one program or another.
After a while, the government will find itself crafting a
budgetary deficit that will keep increasing year after year. This will prompt
the accounting economists at the credit rating agencies to lower the rating on
that nation. This will compound the problem because it will make borrowing even
costlier for the government. And while this is happening in the backward
economies, the advanced economies will have developed a problem of their own.
They will have created in their midst a permanent underclass of young citizens
who cannot land a first job because they cannot produce enough each hour to
cover for the minimum wage that the antiquated law forces the employer to pay
them.
So then, what solution is there to the problem of the credit
rating? And what solution is there to the problem of the minimum wage? The
answer to the first question is simple: it is for everyone to get together in a
world forum and decide to ignore the credit rating agencies. The argument for
this is easy to make: The emerging economies have young populations that will
be in a position to pay back the money borrowed now, especially if some of it
is used to build the infrastructure they will use when they take over the
nation. The static balance sheet that the accounting economists look at may not
shine, but the economic scientists who look into the future will see that the
economy will be in a different place when payment on the borrowed money will
come due.
As to the second question, we answer it by first defining
the term regular job. This done, we say that anyone doing a regular job must be
paid at least the minimum wage especially if the job requires that a certain
level of physical exertion be expended such as it is with material handlers and
construction workers.
There can also be a category called apprentice where the
minimum wage will be lower but cannot be maintained for more than a year. After
that, the employee will graduate to receive the minimum wage.
And there can be a category to encourage the employment of
those who would otherwise be unemployable not because of a physical disability
but for another reason – having gone to jail, for example. It will be possible
to pay these people at the apprentice level for more than a year if they do not
show progress.
The government may also contribute to what the employer will
pay these people. This will give it the right to send an inspector once in a
while to make sure that things are done correctly, and that no one is abusing
the system.
Thus, the problem facing the advanced economies, and the one
facing the emerging economies – both of which exist as a result of their
interaction – do have solutions that can be implemented with some ease. But the
will to solve them must be there which is not always the case.