Friday, April 29, 2011

Logic and Government

The minimum wage issue is an interesting one to me because it seems that none of the parties really have a clue about what it is, what it is supposed to do and how it will affect the average working person.

I guess that the Mandarins in Central are to busy contemplating their next self-congratulatory pay raise to research the effects of a minimum wage, or if they have they've not made any kind of cogent argument against it. The other far more insidious possibility is that they do know what they are doing.

First things first

1. The minimum wage is always ZERO. It cannot be raised above that level because if people are "paid" for not working it is not called a wage but a subsidy. While this is something of a theoretical statement it is true and it should be remembered because a minimum wage has a direct influence on the cost of other government social services.

2. The price of goods and services is set by supply and demand; any attempt to control this artificially always ends in disaster

3. A minimum wage is not the wage that can comfortably feed a family of four or five. It is the lowest legal level of compensation that an employer may offer to the least qualified employee. People expecting a minimum wage to help a family of 4 are simply deluded

4. If everyone has to pay a minimum wage then stores will not have to close because everyone's labor cost will go up by the same amount. Thus, unless the minimum wage is very high there will be very little direct immediate impact on jobs. So various groups that say "I'll have to lay off X-number of people to cover the additional labor cost" are not thinking clearly

What do these three things mean?

As wages rise the cost of goods and services will rise. In other words Hong Kong can expect some inflation as a result of this law. That is important to anyone who falls into the pool of people that do not or cannot, for whatever reason, work and are not independently wealthy. Those on fixed incomes or Comprehensive Social Security (Welfare) are going to see the value of their benefits decline and will be worse off as a result of the minimum wage law. If they are retired Civil Servants with their huge pensions and special health care then the effect will probably not be that big a deal.

For those not of Hong Kong’s faux-nobility the effect could be a generalized increase in hardship. The higher general cost of things will also mean that those working poor (to use a favorite term of the US Democratic Party) will see very little actual gain in income because they will make more but the money they make will buy less.

What this means is that in two years or so the same groups clamoring for a minimum wage today will be protesting to raise that wage without seeing that they exacerbate the problem they are trying to solve.

Observe the UK. The minimum wage there is set at something like 10 pounds an hour. Do they have significantly less problems with unemployment than Hong Kong? No it is worse. Indeed they have a huge, permanent underclass who never works because as the minimum wage rose the benefits provided by the government doles rose as well. After two generations being unemployed they no longer even try to get off the dole. This group creates an enormous drain on the economy and contributes to rising crime rates. However, certain sectors of the government like this because the underclass becomes a very reliable voting block for parties that promise to give them more benefits. Before a minimum wage I'd have dealt with other labor problems. But if there is going to be one it should be set low to allow new workers to be able to enter the job market.

So what would I have done instead if I were Donald Tsang, THBT?

If I were, THBT I'd have addressed the problem of excessively long work hours. For example security guards in building typically work 12 hour shifts. They are not alone in this as many businesses in Hong Kong require very long working hours. The excuse often given by the management is "We work that long every day why shouldn't they?" does not hold water.

The owner of a business is typically as busy as they want to be where as workers are as busy as they have to be. If the business owner wants to die of a heart attack at 50 from working 16 hours a day, 7 days a week go right ahead; just don't drag your employees into the grave with you.

More than that, I've seen how the management “Works" with their 1.5 hour lunch and 40 minute coffee and tea breaks. They don't actually work that long if we remove the goofing off time they have in the day out; time which their employees do not have. If a workday was limited to 8 hours for a normal shift wages would be driven up because employers would either have to pay overtime or hire more people and there is not an endless supply of people. So in order to attract workers they'd either have to pay or offer more perks for their employees. In the case of the Security Guards it would mean an entire extra shift per day.

Before a minimum wage I address the need for anti-collusion laws. Park-n-Shop and Wellcome should actually have to compete with each other rather than engaging in price fixing. The companies that own those stores should also not be allowed to build the building and control the rents in the building which keep other chains like Carrefour, Tesco or Safeway out of Hong Kong. Monopolistic behavior insures that Hong Kong people get the lowest quality goods for the highest possible price.

The same is true of the property developers. This would lower the cost because in order to stay in business the various companies would have to shave own their margins and become more efficient. I read several years ago that a property developer in Hong Kong has something like 7 to 11 subcontractors for any job while the world average is three. Most of the subcontractors here do nothing except take a cut of the profit and hire another subcontractor. How much would property prices fall if Sun-Hung-Kai actually hired workers directly rather than hiring a subcontractor who hires his brother-in-law, who hires his cousin, who hires his uncle, who hires his friends father, who hires his stepson, who hires his school buddy, who hires his mother's sister’s husband, who hires a relative from the mainland, who hires the husband of his mistress who hires his cousin, who hires the triad enforcer he owes gambling debts to, who hires himself under another name, who hires the guys that pour concrete who then skips out to China after not paying the workers? This kind gross inefficiency can only occur because the companies collude with each other rather than compete with each other. What is sad is that if they were run more efficiently they'd still make as much profit but the customers would get a lower price. Because all many of the intermediate subcontractors do is hire another subcontractor there would be very few jobs lost.

Before a minimum wage law I would take over control of the utility companies including the MTR, Hong Kong Electric and the cross harbor tunnels. The electric companies here do a pretty good job except that they have coal powered plants with no pollution control. Simply freezing the stock of the companies and demanding that they bring their pollution control standards up to international standards with no rate increases would help to improve the air-quality in Hong Kong. They have had decades to do this and have chosen not to because the could get away with poisoning us because the government didn't care since the Mandarins all had stock in the companies and wanted their 30% annual returns to further pad their overly generous retirement packages. They've made huge profits at the cost asthma and watery eyes for most of the kids here.

The MTR is the only transportation to and from work for millions of people everyday. It should not be a for profit company. I am not normally a supporter of government ownership but roads and public services are an exception. The MTR is for all intents and purposes a road in Hong Kong and most of the population uses it at least twice a day. It should not pay dividends to share holders or sell stock publicly. Run the MTR at cost. Run the cross harbor tunnels at cost. The owners of the Eastern and Western Tunnel are particularly heinous and should simply have the tunnels confiscated. If they want to make 20% profits at the expense of the poor they should get a high level job with HSBC.

Before a minimum wage Hong Kong needs to reform its Civil Service. The wages and benefits are simply unsustainable and the attitude of the workers that they are higher, mightier, and holier than the average peon is grating. The percentage of the GDP taken up by the HK government is huge. I'd hold out for mass executions of the government employees but that would be illegal. So simply fire their overpaid, underworked, arrogant arses and let them get honest jobs.

Hong Kong does not have an army, an Air Force or a Navy. Hong Kong has no diplomatic corps or consulates to support. There is no reason EXCEPT bad governance that the cost of government in Hong Kong should be at 25% of the GDP. That number needs to come down to less than 20%; 15% would be a good number.

Lastly, before a minimum wage I'd take 1/2 the currency reserves in Hong Kong and distribute them to the population I'd give a larger share to anyone who actually paid income tax but the amount would still give substantial immediate relieve to the poor here and make the rest of the population feel the government had actually heard them.

After these things Hong Kong might find out it doesn't need a minimum wage

Until Next Time
Fai Mao


ashahid said...

i'm having trouble figuring out how to send you an email rather than a public comment. Please get in touch when you have a minute--

G-fan said...

8 hour day, maybe the workers don't want it either. I use to manage a small chemical plant in Taipo, owned by Australians who wanted workers to do only 8 hours. Problem was our guys, paid very well at the time because of the limited skill pool in HK, would then still work another job. We had walking zombies who were doing 16 hours, not 10 or 12. Its not as if returning to a 600' flat crammed with an amah, kid (who is constantly being pressured by your) wife and maybe the mother-in-law, etc is an exciting prospect. What else is there to do for Chinese in this town: shop, play the ponies,...? I'm surprised more retirements don't end in suicide in this town. By the way, the whole point of public housing is to take the poor out of the market, so housing prices can shoot sky high but industry and the rich can have their cheap help. Remove this distortion, make job movement over the boarder easier by allowing medical schemes to work at designated hospitals in China, and Hong Kong would see a rapid, massive de-population. Then with worker mobility we can get rid of any minimum wage scheme. This is whats is happening across the boarder.

As for letting the government run the utilities, etc; I wonder if you are reading any of your other posts about high pay, feather bedding, empire building, etc. When the current scheme of control lapses, if our dear leader has not gotten his chain choked by Beijing, then expect some dramatic drops in power costs. Until that day a certain Baroness from Hong Kong is living high on hog for pulling of this deal. By the way, while not native stock, I did spend 10 years down in good old Mobile - and now hang out in Taipo - Daimeiduk.