Ha-Joon Chang will be familiar to some readers as author of 23 Things They Don't Tell You About Capitalism. Today he is on the Graun's op-ed pages supporting Ed Miliband's idea of getting companies to pay their staff more. Chang's thesis is that companies could afford to pay their staff higher wages, but choose not to. "Many companies do in fact have significant influence over what they charge . . . it may be (they have market power) because they face little competition, like the railway companies . . . So at least companies with market power are perfectly capable of paying their workers more by charging customers more, if they so wanted - except that they don't".
Let's examine what might happen if a company facing "little competition" decided to put its prices up to pay its workers more. I happen to know a bit about this because I am trying to get a new landline put in at the moment, and there is only one provider of landlines, BT (anti-plug for BT - they have been totally rubbish).
If BT put its prices up the cost will, as Chang says, be passed on to consumers. So ordinary people who have a landline will be made poorer merely to pay BT staff more. Moreover, some people who don't like BT's price increase might decide to get rid of a landline altogether and rely on a cable connection or mobile phone instead. BT's market share would decline, as would its profits. As its business shrank it would lay off workers.
As I wrote yesterday this looks suspiciously like a Tory policy, taking money from the many to give to the few. Yet it was Ed Miliband's idea, and Mr Chang, who teaches economics at Cambridge, supports it. The expression "ivory tower" springs to mind.
In the face of such madness it is reassuring to turn to the Torygraph, which has enough fruitcakes of its own, but also the reassuringly sensible Jeremy Warner, who writes today that our problems are "not going to be solved by Labour's economically illiterate mix of price controls on energy and tax incentives to create higher wages. This will only succeed in raising unemployment . . . In truth there are no easy fixes for falling real incomes, since the underlying cause is endemically poor productivity . . . You cannot spend what you don't earn unless you borrow the difference".
Amen.
One last point about Ha-Joon Chang. I can think of a number of companies which face "little competition" and which could pay their workers more by raising prices. The big six energy companies for example. I wonder what Ed Miliband would think of that?
