It is unlikely Pope Francis would be waving the flag of social justice so boldly on the world stage had Pope Leo XIII not written his famous manifesto, Rerum Novarum, On the Condition of the Working Class, 125 years ago.
Francis is expanding on what Leo called for in 1891: fair wages for working people; a more equitable distribution of wealth and ownership; support for trade unions so workers could bargain with employers with a degree of equality and power; recognition of the right to strike to defend essential rights; the State to regulate working conditions and the economy to protect workers and the common good; and establishing a system of arbitration and conciliation to mediate between employers and employees.
Leo attacked the greed of 'unchecked competition' that reduced workers to 'a yoke little better than slavery itself'. He defended the right to property, but urged the State 'to induce as many as possible of the people to become owners' so working people to have a larger share in the distribution of wealth.
Such criteria remain vital even in Australia, but much more so, as Francis insists, in countries struggling to achieve decent living standards for their people.
Popes reject neoliberalism
Francis is absolutely determined to highlight the opposition of Christian social thinking to the tenets of neoliberalism or market fundamentalism, an ideology which assumes that free markets of themselves will produce the best outcome, and which pushes aside considerations of social or distributive justice.
Francis blames neoliberalism for much of the economic trauma the world has suffered since the 1980s. As adopted by Ronald Reagan in the United States and Margaret Thatcher in Britain, neoliberalism emphasised supply-side economics, deregulation of restraints on business, liberalisation of capital controls, privatising state-owned enterprises and downsizing the role of government.
Neoliberalism also prescribed tax cuts for upper-income groups, resulting in growing inequality; and it increased pressure to reduce wages for working people, as we see in casualisation of the workforce.
Francis' attack on this virulent philosophy is not new. You can trace this resolute rejection of earlier forms of 'economic liberalism' through the writings of all the recent popes.
In his attacks on the greed, fraud and corruption in key economic sectors Pope Francis is insisting that the message of Pope Leo applies worldwide.
Social activists guided the popes
Popes do not take such strong positions on contentious social issues on mere whim. Rather, on the advice of experts, they are articulating the experience of people struggling to improve human wellbeing.
Behind Leo XIII stretched over a century of social activism throughout Europe and Britain, as well as Australia and the USA. We at times overlook how significant were leading reformers like Frederic Ozanam, a founder of the St Vincent de Paul Society, who was a leading political activist and social reformer. Such determined men and women helped the churches to take a clear moral stance and mobilise public opinion to improve economic and social conditions.
It would be a mistake to see Rerum Novarum as simply a Catholic document. Other Christian traditions helped shape it, including through the English Cardinal Manning who had been an Anglican priest and social activist, and brought the Anglican tradition of social concern into the English Catholic church.
"Rerum Novarum inspired generations of lay men and women as social activists who at times had to challenge other Catholics and clergy to engage with the social issues more robustly."
Manning was also a close friend of the Booths, founders of the Salvation Army, and admired their work so much that he raised funds for them and wanted to set up a Catholic version of the Army. The social activism of these and other churches helped form Manning's views, and influenced how he interpreted Rerum Novarum in the English-speaking world.
Rerum Novarum inspired generations of lay men and women as social activists who at times had to challenge other Catholics and clergy to engage with the social issues more robustly. Jacques and Raïssa Maritain were once regarded as dangerous radicals for denouncing the crusade mentality during the Spanish Civil War and declaring that killing in the name of God risked blasphemy. Recent popes have reiterated that message strongly.
Some fabulous women also helped develop the Catholic social tradition. The famous economist Barbara Ward worked with Pope Paul VI to push through the Vatican Council document, The Church in the Modern World, and to set up the Pontifical Commission for Justice and Peace. Recall also Australian member of international women's movement the Grail, Rosemary Goldie, working in key positions in the Vatican to help develop lay social activism.
Rerum Novarum can claim to be the fruit of historic struggles in the factories and workshops of many countries by men and women of courage and conscience from many religious traditions.
Bruce Duncan is a lecturer in in history and social ethics in Melbourne’s University of Divinity and director of the Yarra Institute for Religion and Social Policy.
Comments should be short, respectful and on topic. Email is requested for identification purposes only.
13 May 2016
I thank God for those who wave the flag for social justice, especially Pope Leo XIII of yesteryear and now our truly inspirational Pope Francis. Now for a challenge to all those reading this: PLEASE CONSIDER STARTING OR JOINING A SOCIAL JUSTICE GROUP AT YOUR LOCAL CHURCH, IF YOU HAVEN'T ALREADY DONE SO! I'm a member of one such group, which does great social justice work but struggles for membership. JESUS SAID, 'THE HARVEST IS GREAT BUT THE WORKERS ARE FEW'. OVER TO YOU!
13 May 2016
Fr D, what's your take on the fact that, while good Pope Leo XIII was preaching dire warnings against the dangers of "unchecked competition", thousands upon thousands of poor devout Italian peasants (inter alia), ignoring his prophecies and from under his very pulpit, were enthusiastically sailing to into the jaws of the beast - the U.S.A., the veritable Land of "unchecked competition" - yet that, exactly counter to his predictions, they were as a whole improving their lot markedly there, and even sending tranches of their newly-made wealth back to their impoverished rellies in the mother country? Or that Sweden, which had given itself over to "unchecked competition" in the latter 19th century (arguably even more radically laissez-faire than the U.S.A.), was eliminating poverty at unprecedented rates by 1900? Or that from 1960, one of the least regulated economies ever - Hong Kong - went from rags to riches inside fifty years in arguably the most spectacular turnaround in history? (Among other examples). Who was wrong, according to the verdict of history? Pope Leo and his anti-"unchecked competition" doomsdayers? or the vastly enriched Italian emigres, Swedes and Hong Kongese? I think I know what the latter might say. Conclusion: the gift of Infallibility has very clear boundaries.
13 May 2016
Firstly, congratulations on publishing your piece futuristically on May 15 (it's currently Friday 13 May in my world). Secondly, yes Pope Francis is saying nice things. But they are not socialist. His comments reflect basic human values, do they not? I'm stunned, however, that no-one ever questions the extensive untaxable wealth of the Vatican. If Francis is true about what he says, he needs to walk away from the corruption that he is now seen as the leader of.
16 May 2016
Thank you Bruce. Good to see this papal teaching in an historical and ecumenical context. We learn best without polemic
16 May 2016
BCart. Is the Vatican fabulously wealthy when its priceless artefacts are not for sale? Until offered on the market they have no tangible value even as security against a loan. How can an asset earning nothing be taxed? Could you also please explain what particular piece of corruption the Pope is leading.
16 May 2016
HH. Sadly your words will fall on deaf ears. There is little recognition of the hard work and dedication of those who strive to achieve independence and financial security in this world. Nothing but the hand ringing, heart string tugging of those who expect those who have achieved to carry those healthy and capable who for a variety of reasons think the achievers should support them and share their hard earned achievement with everyone else. Such used to be called Marxist Communism and was enforced with state sponsored murder. There are of course those poor souls not equipped to be independent and disabled physically and intellectually who as Christians we should see as our brothers and sisters and carry them with dignity and care. But not the takers of society who occupy so much of the time of Christian naivety. While Pope Francis is a great Pope he seems to be a little absorbed by his background in perhaps the most unjust continent in the world. He needs a little enculturation in the world outside the Americas to achieve a little balance. It may be too late, I fear, since I'm not sure he'll find too much improvement in the rest of the world these days with the global spread of the American cancerous malaise.
16 May 2016
Pope Francis, like Saint Francis, does have a preferential option for the poor. This is obvious from his ministry to the poor in Argentina, the fact that he still goes out regularly to be with homeless people, his action in having showers built for homeless people at the Vatican, the way he recently brought some refugees back with him to live at the Vatican, and the prominence he gives to concern for the poor in his encyclicals. Pope Francis says, 'I prefer a church which is bruised, hurting and dirty because it has been out on the streets rather than a church which is unhealthy from being confined and from clinging to its own security'. As for the Vatican finances, Pope Francis has Cardinal Pell sorting this out. I expect the Pope needs to know the condition of the Vatican finances before making any big financial decisions. So I think it would be prudent and just to see what Pope Francis does when he knows the true financial state of the Vatican.
16 May 2016
Thanks Fr Bruce for writing this good article. As someone who has experienced first hand, the neo-liberal policies brought in to Victoria during the Kennett era, it truly is a brutalising policy agenda - extremely destructive indeed. As a person who has spent many years studying and trying to influence fair and just social policies for working carers and carers returning to work, being a member of VECCI for a while was extremely illuminating ... and downright depressing. Ultimately, in a world first, I was one of 4 women who were able to influence Small Business Victoria to develop free online resources to support employers when there were ill employers/employees and/or employer/employed carers. Sadly, the health professions chose not to even acknowledge this work and refused to share the fruits of this work into the health care sector ... including into palliative care. When such fruits are allowed to lie fallow it can be soul-destroying for the people trying to improve the lot of all who encounter life-threatening & carer issues at work. In the business world,the general consensus is to just "fall off your perch" and get out of the way of progress ... there but for the grace of God go I! When will we ever learn wisdom ...
16 May 2016
"Unchecked competition" can work well, when and IF (1), there is a seemingly inexhaustible supply of commodities, and (2), everyone is starting off on a level playing field. But when supplies are limited and those with unfair advantages acquire power, they can and DO manipulate markets, and they become corrupt and they corrupt others, leading to the mess we are in.
Just look at the human body. When some cells get out of hand and feed on others, they are called 'cancer', and must be eradicated, or the whole body perishes.
16 May 2016
Thank you Dr Duncan.
Giving the background, the social context and the present relevance of the encyclicals is of great interest to those of us with a lay interest in history and the present state of our world. I hope you find time to write more for Eureka Street.
16 May 2016
Thanks J.F. - I agree with your substantive remarks, though I have serious reservations about the greatness of Pope Francis, and even about his orthodoxy - though my judgement on the latter is somewhat restricted by the fact that a lot of the time I haven't a clue as to what he's talking about. Except that he seems to be relentlessly accusing me and my ilk of "sitting in the seat of judgement" and "throwing stones" - odd words for the "Who am I to judge?" Pope. A classic example of a big-hearted person with ideas that have hurt the poor is Barbara Ward, mentioned by Fr D. above. She was an ardent supporter of large scale coercive redistribution in the form of foreign aid for underdeveloped countries. This has proven a disaster - Lord Peter Bauer (Dissent on Development, etc) pointed this out from the 1960's. He was derided and ignored at the time, but now his ideas are at last being accorded due respect. Even someone like Bono now recognizes the virtue of "neo-liberalism" - if by that is meant the free market: “Aid is just a stopgap,” he now says. “Commerce [and] entrepreneurial capitalism take more people out of poverty than aid. We need Africa to become an economic powerhouse.” It's good to see the release of the film "Poverty Inc." which shows the way foreign aid has locked communities the world over into dire poverty. (http://www.povertyinc.org/) Unfortunately, Ward and her fashionable social justice clique, despite their noble intentions, have a lot to answer for. And thank God those pious Italian peasants back in 1891 were canny enough to respectfully set aside the dire economic warnings of their beloved Il Papa about "unchecked competition" (ie "neo-liberalism"). No doubt the Eureka Streets of the day would have urged them to remain on their impoverished farmlets, wave "Rerum Novarum" about, rail against "unchecked competition" and demand huge coercive wealth transfers. Great.
16 May 2016
Thank you Bruce for this excellent concise summary of Rerum Novarum and the work of Manning and others in relation to it. Equally your observations about Francis and your succinct outline of neoliberalism and its fruits provide a valuable format to present to its supporters.
Lucy van Kessel
16 May 2016
An enlightening article, well worth thinking about - would that governments would act on it.
16 May 2016
The cartoon that accompanies this article conveys a commonly held myth about the rich and the workers. It portrays the rich as nothing more than money-loving parasites. They have nothing better to do than nurse their money as they hitch a ride on the backs of the workers, who struggle under the burden of their haughty overlords. What nonsense! For a start, most of the captains of industry reinvest their money to expand, maintain or improve capital works. They look to expand their business to meet the demands of the consumers. This means employment for workers. As the old saying goes, "No one ever had a poor man write him out his work cheque." In addition the workers not only have jobs, the cheaper that goods become the more that workers can afford to buy themselves. During the industrial revolution in England, ordinary workers had more food and clothing than they ever had before. With the increased demand for labour they could negotiate better wages and conditions as the various employers competed for their labour. Mass production meant that where once only the rich could enjoy luxuries such as coaches and the poor walked. Now the rich drive Mercedes and the less well off drive Holdens. Thanks to unchecked competition the people of the world have enjoyed a marked improvement in the quality of their lives.
17 May 2016
Abstract notions like “social justice” are meaningless, often chosen precisely because nothing can actually embody them. Philosopher Roger Scruton says that Marxist academic Slavoj Zizek espouses, “Principles so abstract and arcane that no empirical proof could possibly dislodge them”. At his trial for genocide, Khieu Samphan, former head of the Khmer Rouge which murdered a quarter of its population stated, “I have never wanted anything other than social justice for my country.”
George Orwell always placed facts before abstract theories. Fact: Communism and socialism have failed. It was only after China and Vietnam adopted market economies in the 1980s that they became economically successful. The “Christian” socialism of Hugo Chevez has now bankrupted Venezuela, a country with more oil that Saudi Arabia.
In the USA, the Great Society sought to eliminate poverty by expanding the welfare state; spent $22 trillion; and succeeded only in entrenching a permanent underclass. Black economist Walter Williams stated, “The welfare state has done to black Americans what slavery couldn’t do…And that is to destroy the black family.” Same thing in Australia which now has third generation families living on welfare.
By embracing a Culture of Death (Evangelium Vitae), Western nations have entrenched their own demise.
18 May 2016
Excellent comments, JF, LR and RH. You'd think if there were an open and shut, peer-reviewed historical case against "unchecked competition" there would be a chorus of replies to your comments. Crickets.
20 May 2016
HH, I reckon the reason there is no peer reviewed etc case against "unchecked competition" is that, like "pure Marxism" (another nice phrase and I don't mean the Soviet and Chinese versions of it), there has never actually been a genuine and successful effort to put it into practice. Hong Kong and Singapore might point in that direction but even they are not historically "unchecked". No government would be that reckless. If I'm wrong, please give me some real world examples. in the meantime... more crickets.
22 May 2016
Thanks, Brett. According to Pope Leo (Rerum Novarum Para. 3) and Fr Duncan (as above), unchecked competition has caused hardship among working men. According to you, unchecked competition has never existed. Ergo, according to you, unchecked competition (since it never existed) can’t have been a cause of hardship to working men. I agree with you (and respectfully differ with Pope Leo and Fr. D): unchecked competition has not caused hardship to working men. Which nicely accounts for what we both observe: the lack of peer-reviewed academic evidence that it has. By slightly different routes, we have arrived at the same conclusion.
23 May 2016
The same conclusion HH? It might just be if you agreed there has never been a genuine and successful effort to put “unchecked competition” into practice. But I reckon you don’t agree with that thought, otherwise your lament on the lack of an open and shut, peer-reviewed historical cases against “unchecked competition” is a bit like the Christian who demands of the atheist “prove to me there is no God”, or the reverse for that matter, a pointless request. What I was hoping for from you were a couple of examples of “unchecked competition” to make your point because, watching the way the two big supermarket or fast food chains operate where we have “checked competition”, having them “unchecked” would add to the hardship of working men. Do we still agree?
23 May 2016
Brett, it was Pope Leo who said that unchecked competition had proven disastrous for workers. The burden is on him and his supporters on this point like Fr D to furnish evidence for that statement, thereby overturning the null hypothesis. That's usually the way it goes in debate and in science. Thus, say a scientist announces "Bacteria X causes Disease Y." The burden is on him to supply the evidence for the hypothesis. If it's not forthcoming and I say "You've supplied no evidence!", it's no answer for him to say to me "Aha, but you haven't provided evidence that X doesn't cause Y!" Even in the case that I never provide any evidence that X doesn't cause Y, as long as no evidence is forthcoming from his side, the null hypothesis stands. Of course, your critique is even more devastating than mine, as you're saying, in effect, that Bacteria X doesn't even exist, so logically it can't cause Disease Y. BTW, I don't know what you're referring to re. Coles and Woolies - but whatever it is, it's pretty much established now that big businesses benefit from heavy regulation because it has the effect of creating barriers to entry against smaller players. As Goldman-Sachs' CEO Blankfein admitted a few years back: "It’s very hard for outside entrants to come in and disrupt our business simply because we’re so regulated." For these and similar anti-competitive, anti-free market reasons, established big businesses may be even more opposed to genuine "unchecked competition" than Pope Leo.
24 May 2016
Please forgive the oversight. I should have said "working men and women".
24 May 2016
Well HH, maybe big business is anti-free market for competitors but very pro-free market for itself. Self-interest often overcomes logic. I was only responding to your regret at the absence of an open and shut, peer-reviewed historical case against “unchecked competition” by asking for a couple of examples of real world “unchecked competition” that would be suitable for analysis. If your short answer is you don’t have any or it is not in your interests to provide any, then fair enough, we will leave it at that with no examples of unchecked competition creating workers’ paradises. Kind of supports my view after all. Maybe one day I’ll discuss it with Pope Leo but I’m in no hurry to get the conversation started.
24 May 2016
Brett, thanks – yes please stick around a bit longer down here, otherwise I’ll have no-one to chew the fat with. The only Australian business tycoon I know of who is consistently free-market is Gina Rinehart. The rest of them support “checking competition” one way or another, and I’ll bet it’s not for reasons of altruism. Hong Kong had no competition law regime till 2015 (except for telcoms, introduced in 2000). It also had no minimum wage law till May 2011. I don't know how more "unchecked" you can get than that. Also noteworthy is that from 1950 till the 1990s, hundreds of thousands of refugees arrived penniless from socialist China and Vietnam and joined the Hong Kong economy, which made labour relatively cheaper as a factor of production and thereby made wage rises less than they would otherwise have been. Yet it is undisputed that Hong Kong employees’ wages rose constantly and substantially over the decades till the end of the century. If anyone wants to say “But it wasn’t pure unchecked competition because there were some laws in some parts of the economy”, then it’s up to them to specify those laws which allegedly improved the lot of the workers by restricting competition (even though they weren’t competition laws as such) and demonstrate how that worked.
27 May 2016
I reckon most entrepreneurs, given the choice, would opt for as free a market as they could get. Hardly rocket surgery! Looking at how the supermarket chains treat their supplier and employees, how the fast food chains and convenience stores treat their staff and the hoops workers have to go through with Fair Work Australia to make a case against unethical bosses (I speak from experience here), I can only imagine how much harder their lives would be in an unchecked market economy.
30 May 2016
Well, I’ve provided an example where, historically, wages in a capitalist economy with no competition law or minimum wage rose substantially over decades. I can also give many historical examples of businessmen supporting laws against unchecked competition – precisely for the reason that private interests can use competition laws to coercively protect their patch from more efficient upstart firms. Thus the complaints in the Microsoft case were not from consumers, but from its disgruntled competitors – IBM and so on, who were threatened by its success. The distinguished New Left historian Gabriel Kolko showed that in the famous "trustbusting" era in the U.S., firms attempting mergers to eliminate competition failed against the free market forces, and it was then that they requested the government to intervene – in the name of the “public interest”, of course – to maintain their monopolistic positions. Sometimes I don’t think you’re cynical enough about businessmen, Brett. The adage "capitalize the profits, socialize the loss" is sadly too true of many of them – and classically demonstrated in the massive bailouts of financial houses in the GFC at taxpayers’ expense. But these government bailouts “to save the capitalist system” are of course crony capitalism, the very opposite of “unfettered competition”, or true free market capitalism. See Kolko "Railroads and Regulation" and a video which explains the position thoroughly here by Anti-trust historian Dominic Armentano: https://mises.org/blog/fortieth-anniversary-myths-antitrust.
31 May 2016
I asked Fr Duncan to account for the fact that thousands of Italian emigrants had been sailing into the land of "unchecked competition", yet, contra to Pope Leo's seemingly dire analysis, did fine. This massively goes against his thesis. Fr Duncan, the expert, hasn't deigned to offer a data-rich refutation to us confused about the situation, so as to dispel all reasonable doubt. Is this a rational debate we have here, or a controlled polemic?
Roy Chen Yee
03 June 2016
HH, if the price system is as moral as it is efficient, there would be no need for religion. But people will choose to buy cheaper supermarket brand milk than a branded product even if it costs farmers money. To the moral point of view of a farmer, people should be ethical and ignore the lower bribe price set by supermarkets for its own milk and opt for the higher price set by the supermarket for what is a competing brand (even if both brands are sold by the one supermarket). If everyone opted for the farm brand milk, we would still have a competitive market in milk except that the market would always clear at a higher price and farmers would benefit. But if our instinct always to go for the lower price is unchecked, the market will only clear at the lower price and the farmers will suffer. In a free market, therefore, the price at which a market clears is the product of a moral decision. It’s the same as choosing between cage and free-range eggs. If we all chose cage eggs, we would get our eggs cheaper than if we all chose free-range eggs. The market in a free enterprise system will always clear at whatever price the consumers are willing to pay, but the price that the consumers choose to pay is a result of their moral beliefs. Leo XIII was only saying as much about the price of labour in a market where employers had the power to drive down the market clearing price because workers, in 1891 anyway, were in no position to pick and choose their employers, where the labour market was for various reasons competitive for employers but not competitive for workers.
03 June 2016
I'm not sure about rational debate when we have primary "capitalist" theory against anecdotal, real life stuff. I know from first hand experience the great difficulty getting justice from an unscrupulous employer who underpaid staff and dismissed pope only who complained. You might say Fair Work Australia can handle it but they couldn't. The next step was the Small Claims Court but this was hard when he refused to turn up, had numerous identities and basically knew how to rort the system. We ended up coming away with nothing but court costs while he basically laughed at us. This happened in a "fettered" economy. Get rid of the "fetters" and we would not even be able to get him to court. If anything, workers' protection needs to be stronger.
06 June 2016
Brett, obviously I'm not privy to the case you speak of, but when you say the employer "underpaid" staff, do you mean that he/she paid them less than the legally prescribed award, or that he/she paid them less than their actual level of productivity? Unless one thinks that Fair Work Australia is some sort of infallible magisterium, there could be a significant disparity between the two rates.
07 June 2016
1. Dairy farming is a business. If a businessman can’t make a living-wage profit, that’s a signal he should get out of that business and find another way to create wealth. Every other businessman faces that reality. Ditto wage earners. Paying dairy farmers more for their milk just so they can survive in their accustomed trade is perfectly acceptable as an individual act of charity. But if we'd followed that line consistently down the years, we’d still be travelling in horse and buggies so as to preserve the livelihood of farriers and coachmakers. To suppose that just because Australia has had a dairy industry in the past (albeit with massive support from the hapless consumer/taxpayer) it should have one in the future is the kind of static "snapshot" approach to the economy that ultimately results in a Venezuela-style debacle.
2. In 1891, workers in the “unfettered competition” U.S. economy were far better off than they had been a century before. In an unfettered market, even with greedy employers, the wage will be governed by the productive capacity of the worker. Wages rose in the 19th US, not because of charity, or coercive legislation, but simply because innovation in products and processes made workers’ labour more productive. “Rerum Novarum” seems oblivious to this trend. Poor Italian emigrants weren’t.
Roy Chen Yee
08 June 2016
“Wages rose in the 19th US, not because of charity, or coercive legislation, but simply because innovation in products and processes made workers’ labour more productive. “Rerum Novarum” seems oblivious to this trend.”
It’s an irony that any free market economist who says the above has temporarily morphed into a Marxian. Workers do not become more productive. Their hands don’t become larger, their backs stronger. They don’t grow bigger brains and can swivel 360 degrees around their hips. They, as such, don’t become more productive. The machines their employers have purchased have allowed them to produce more per unit of time. The extra productivity actually belongs to the employer. In many cases, the machines make life on the job easier and more pleasant for the worker. Might the employer be able to make a case for paying them less in return for this employee benefit? Wages rose in the 19th century because employers made more money from technology and could afford to pass some of the profits to the worker. The theoretical question, however, remains: what is the justification for paying workers more if, contrary to Marx’s labour theory of value, the value of output comes more from the employer’s investment in equipment than the employee himself? Free market economic theory doesn’t have an answer. From where would a compassionate but not spendthrift employer get some guidelines? From a moral source. Genesis tells us that humans were ordained to be stewards of the earth. The requirements of human dignity decide what to take out of the earth to give to the steward. The market can only tell you whether it can afford a number, not how to calculate it.
08 June 2016
first the typo - it should have said he dismissed people who complained. My fault for not proofreading. HH, productivity did not come into it. This man underpaid his staff, was tardy in providing payslips, often did not take out tax or super deductions. I thought it would be a clear case for FWA but for reasons I don't know they could not act. This man had multiple identities and his businesses was structured in ways to avoid his obligations. He is a clever operator. It is a small business and his workers are mostly migrants and students, most of whom do not have the knowledge or ability to take it further. My point is that if he can get away with it in a fettered economy, who knows what he would be like without the fetters. It is all very well to talk about free markets in theory but when you look at it on a personal level, there will be victims. You may say that the present system is also failing those victims and you would be right. But loosening the law further is not the answer. I just wish I knew an effective answer.
09 June 2016
Thanks, Brett for that. So this chap is breaching a contract with his employees. I should clarify that even in an entirely unfettered economy, laws protecting private property and life would still be in force - including, therefore, law enforcing contracts. In fact, they would be the *only* genre of laws. (So there would be no law, for example, setting a compulsory minimum wage, as I've said before.) "Unfettered" doesn't mean people would be free to run round murdering, raping and pillaging, thieving, swindling, etc. with impunity. [Murray Rothbard's "For A New Liberty" (available online at mises.org) gives a picture as to how it would operate.] And obviously I couldn't predict how this chap might fare under that system. But he's certainly infringing on the property rights of his employees, and thus running foul of the basic principle of an unfettered, free market economy. The question is: would a private court/arbitration system be more efficient at settling labour disputes and identifying dodgy dealers? Certainly the huge International Court of Arbitration, an entirely private system run by the International Chamber of Commerce for settling international business disputes, has a reputation for speedier and *much* cheaper settlement of cases than government-run court systems.
10 June 2016
Roy: “Wages rose in the 19th century because employers made more money from technology and could afford to pass some of the profits to the worker.” Roy, that’s a charming view, but not in fact the case, at least according to all the standard economic principles. Wages are a price: the price for labour. The higher the value of a good in the eyes of the consumer (in this case the employer, the consumer of labour), all other things being equal, the more the consumer will be prepared to pay for that good. Wages generally rose in the 19th century industrialized world because the value (in this case productivity) of labour generally rose, due to innovations in technology, etc. So, contrary to your assertion, wage rates have no intrinsic relation to a firm’s profitability. Even a firm making a loss will raise a given worker’s wage if it perceives that he/she has become more productive – however that may come about – and will thereby improve the bottom line. Even a firm making a huge profit will tend to lower a given worker’s wage if it perceives his/her productivity has declined. Finding the right price point – not too high, not too low – on all factors is one of the key challenges in running a profitable enterprise.
Roy Chen Yee
10 June 2016
"So, contrary to your assertion, wage rates have no intrinsic relation to a firm’s profitability." The two principles in Australian wage fixing are 'needs' (used by employee advocates and discussed by Rerum Novarum) and 'capacity to pay' (used by employer advocates). Businesses see wage rates as intrinsically related to profitability. That's why coffee shop employers are dubious about Sunday payments. "Even a firm making a loss will raise a given worker’s wage if it perceives that he/she has become more productive – however that may come about – and will thereby improve the bottom line." Yes, because the employer is prepared to bet on a future capacity to pay when the results of productivity start coming in. But "however that may come about" needs analysis. There are two contributors to productivity: workers and machines. Workers become redundant when the machine becomes self-sufficient. You said, "Even a firm making a huge profit will tend to lower a given worker’s wage if it perceives his/her productivity has declined." Or fire him. The owner consumes productivity. The more he himself contributes by purchasing technology, the less is contributed by the worker. Why pay the worker more still remains as a theoretical question.
14 June 2016
Roy: “Businesses see wage rates as intrinsically related to profitability. That's why coffee shop employers are dubious about Sunday payments.” Nope—you’ve still got the wage rate tail wagging the profitability dog, Roy, because you’ve again left out the dog’s body: employee productivity. Coffee shop employers worry because they judge that the current compulsory Sunday awards dictate that employees be paid wages above their level of productivity. Regardless of the Sunday award rate itself – one cent an hour or a million bucks an hour – a coffee shop owner will consider remaining open on Sundays if the employee’s productivity rate is significantly higher than her wage rate. And they’ll shut up shop if it’s lower. It’s that simple. Go and ask them.
Roy Chen Yee
15 June 2016
You're still overlooking the point that the dog's body has two parts to it, and what you see as one point - 'employee productivity' - is actually two. In any case, productivity is not the same as profitability. You can't bank whatever the productivity percentage is worked out to be because a 10% rise in productivity does not necessarily mean a 10% rise in profits. Employers deduct their expenses, including their and their employees' wage rates, from what they think they're going to make and the rest is profit. How this relates to Rerum Novarum is that quantifying how much an employee should be paid at the cost of reducing profits is not a decision you can derive automatically from how the market works. It's a moral decision, the 'needs' that the employee as an image of Christ deserves versus the employer's own needs as an image of Christ, viz. his 'capacity to pay' which takes into account some moral decision on what kind of mark-up constitutes a fair profit. If everybody is agreed on what is morally decided to be fair wages and fair profits, the market will clear at that point. Encyclicals on economic matters exist because all economic decisions are also moral decisions.
20 June 2016
"In any case, productivity is not the same as profitability." Well, I never said it was the same. But it's essentially linked in the sense that if you have overall productivity, you'll have profitability. This or that factor unit may be overpriced, but if the successful underpricing of other factors more than compensates for the overpricing, then the you have a profit. "Employers deduct their expenses, including their and their employees' wage rates, from what they think they're going to make and the rest is profit." I would put it this way, Roy. Employers decide to hire a worker if they think they'll profit - specifically, if they think they'll earn more from what he/she produces than what they have to pay him/her. (And they certainly don't calculate a worker's wage from their profit as you said above, June 8 Profit is, as you later say, what's left over after payments to factors are deducted). They pay him/her out of existing capital. Then at the end of the year they work out if they've made a profit or loss, by calculating payments to factors and subtracting from revenue from same.