What about the Workers? A Libertarian Answer

What about the Workers? A Libertarian Answer
by Sean Gabb
(22nd July 2016)

I was called this morning by the BBC. It wanted me to comment on the claims that Sports direct, a chain of sports clothing shops, mistreats its workers – keeping them on zero-hours contracts, sometimes not paying them even the minimum wage, scaring them out of going sick, generally treating them like dirt. Would I care to go on air to defend the right of employers to behave in this way? I am increasingly turning down invitations to go on radio and television, and this was an invitation I declined. I suggested the researcher should call the Adam Smith Institute. This would almost certainly provide a young man to rhapsodise about the wonders of the free market. My own answer would be too complex for the average BBC presenter to understand, and I might be cut off in mid-sentence.

Here is the answer I would have taken had I been invited to speak on a conservative or libertarian radio station on the Internet.

First, it is a bad idea to interfere in market arrangements. Sports Direct is in competition with other firms. Making it pay more to its workers, or to give them greater security of employment, would require it to raise prices and make it less competitive. A general campaign against zero-hour contracts and low pay would raise unemployment. In even a reasonably open market, factors of production are paid the value of their marginal product. Establish a minimum price for labour above its clearing price, and those workers whose employment contributes less than this to total revenue will be laid off. If I felt more inclined than I do, I could produce a cross diagram to show this. The downward sloping curve would show diminishing marginal productivity, the upward the supply of labour at any given price. The point of intersection would show the clearing price. Draw a horizontal line above this clearing price to show the minimum allowed price, and you can two further lines from where this intersects the curves to create a box showing the unemployment that would result. I leave that to your imagination.

Second, intervention of this sort tends to benefit larger firms at the expense of smaller. Sports Direct might be able cope with the resulting increase in labour costs by replacing labour with capital, or by squeezing its suppliers. The result would be increased market concentration, and this may not be to the benefit of workers.

Third, let us suppose that intervention for the alleged sake of the workers was actually to their benefit. It would still be undesirable, so far as it made the State the arbiter of fair practice and raised the prestige of the State still higher – thereby justifying still more interventions. I do not believe that any state intervention for the alleged benefit of ordinary people has been other than to enrich or empower some special interest group. But every state has its tame intellectuals to cry up whatever it does as steeped in the public good.

So far, I could pass – age and appearance always excepted – as one of Madsen Pirie’s young men. The difference is that I do not see the present state of the British labour market as the best of all possible worlds. I repeat – it is a bad idea to interfere in market arrangements. But we should look beyond the cross diagram I have described. Market arrangements do not emerge in a vacuum. Their forms are determined by legal and institutional arrangements that can be judged in terms of how they contribute the national wellbeing, and that, where they fail this test, ought to be changed. Here are my further comments.

First, the bottom end of the labour market is distorted in ways that force workers to present themselves to firms like Sports Direct. Many years ago, when I was a student, I was in want of money, and so I worked in London as a mini-cab driver. All I needed was a car and driving licence and a certificate of hire and reward insurance. I paid a weekly rent to the cabbing company, and worked what hours I found convenient. I found myself working beside a milkman who wanted money for his daughter’s wedding, and a bus driver who was saving up for a deposit on a house, and men who were unable to find work anywhere else. When I no longer wanted the work, I stopped paying my rent and walked away. The market is nowadays regulated and licensed. Costs of entry can be as high as £60,000. Once in the market, these costs are handed on to the passengers, but initial entry has costs that deter most ordinary people.

I could go through dozens of other occupations that are effectively closed. But the point I am making is that, for most people, there is no alternative to paid employment, at whatever rates of pay.

Second, mass-immigration imposes terrible costs on the working classes. Think again of my cross diagram. Flatten the supply curve until it is almost perfectly elastic, and you have something like most labour markets at the bottom end. When the clearing price of labour is less than the minimum wage, that is what will be paid. If there is some enforcement of the minimum wage, then overall wage costs will be lowered by denying customary benefits like tea breaks and sick leave.

Third, there has been a consistent bias, as least since 1979, against any kind of enterprise that may give comfort and dignity to the working classes. In part, patterns of comparative advantage have shifted against mass-manufacturing in this country. In part, the behaviour of the trade unions after 1945 made much manufacturing unviable. But it is also a fact that policy since 1979 has been to promote the service sectors of the British economy. This has been greatly to the advantage of anyone who can get into the financial sector. For those at the bottom, it means semi-casual labour in places like Sports Direct. Indeed, I am not convinced that the patterns of comparative advantage I mention are as impersonal as changes in the weather. Globalisation is not free trade in the sense conceived by the early liberals, but is managed trade – regulated at almost every point in the supply chain to produce a determined outcome.

My answer, then, to the BBC’s question is not to lean on Sports Direct or other firms of its kind, nor to celebrate the glories of our alleged free market. It is instead to insist on non-intervention in market arrangements, while taking a strongly critical look at the wider arrangements within which market activity takes place. I trust you will agree that this would not have been the sort of answer appropriate to the average BBC discussion, and that I was right to decline that invitation.


  1. I like that you’ve included that line from John Ball’s speech – my favourite William Morris quote. And surely, John Ball was a libertarian (of sorts)? Of course, John Ball would favour a wage-less economy and would most likely scoff at the very idea of market intervention, since he would want to do away with markets per se.

    Lest we forget, a statutory minimum wage was not always an objective of the social-democratic Left. I think this was a policy Labour adopted only under the Thatcher government and probably in response to the dismantling of voluntary and statutory wage controls.

    • The wage system would probably continue to exist in a natural economy, so long as there were people who wanted the produce of their labour before the sale of what they had produced. But it would be of smaller extent.

  2. An excellent answer – and yes, you were quite right to give the BBC a miss. This answer would have been well outside their comfort zone and you would have been talked over, hectored and eventually cut off without completing your points.

    Perhaps I could just add that something that politicians and the media tend to miss when this kind of issue is raised is that the public could easily stop companies like Sports Direct in their tracks if they wanted to.

    But of couse after duly clucking their tongues and shaking their heads, they will head off to their nearest branch to buy some cheap trainers or a football outfit for their kid. And if they can find the same thing for 50p less, then they will go to an even cheaper shop.

  3. What’s most unfair, is that the people who don’t get any privileges in the workplace (paid holidays, pension, regular hours, sick pay etc.) are still forced to support those in privileged sectors; through council tax, VAT, NI and taxes on their productivity etc.. Privileging and insulating certain groups from economic reality also raises the cost of living which is devastating for those furthest away from political or financial power. As Sean rightly indicates in the last paragraph, there is very little that is open and free in our alleged ‘free market’ system. The free movement of Labour across borders is heavily subsidised by taxpayers; yet the costs and availability of many commodities is heavily controlled and restricted (farmers being paid not to grow food etc.) making them expensive for people on low income.

    Despite all the rhetoric of social progress and the generosity of the welfare state, it is still those who provide the real commercial labour (upon which all prosperity is based) who are more likely to get less back from the system than they’ve put into it. He is usually male, and as most males don’t father or live with their children today, he won’t be getting many (if any) state subsidies. Society has always taken male resilience for granted, and that’s pretty much why male exploitation is largely ignored. Healthy women always have the option of getting pregnant to minimise exploitative situations, and also their quality of life is rarely dented by low pay or status.

    • You’re right, Nick; it’s the sole traders and the small business people who are hit the hardest. I think this is political policy, not coincidence.

      • And freelancers, which the government is keen to turn into employees for tax purposes but still ensure do not gain any of the legal “protections” and “benefits” entailed by employment.

      • It’s really basically anyone who doesn’t have political or monetary power (or belong to a politically-favoured group). The system is geared towards the well-connected and already advantaged.

        I’ve worked in several of these modern Victorian workhouses known as ‘jobs’. You need superhuman endurance and dexterity to survive – but the pay, status and rewards nowhere near reflect the effort. Low skill is no excuse for low pay and appalling treatment. Politicians, journalists, educators and civil servants etc. aren’t really competing with foreign competition at the same level. Corporate products and services are often protected from foreign competition (with levies and restrictions), but low-skilled labour isn’t (unless you’re a privileged state worker).

        Mark Zuckerberg’s Facebook and others, censure people critical of migration and open borders; whilst simultaneously erecting huge borders around their own properties (plus employing a string of personal bodyguards). If you’re going to have principles, then they have to be applied universally, and not just to the plebs. Otherwise, it’s nothing more than neo feudalism.

  4. Excellent summary. I shake my head every time I hear Dennis Skinner speak on this subject. He has tirelessly campaigned to subsidise companies moving to Bosolver District. The area is covered in business parks with banners proclaiming EU, Coalfields Regeneration Fund, and East Midlands Regeneration Agency funding (mostly vacant). M1 Junction 29a was built to make the area more attractive to industry (with its adjacent industrial park – mostly vacant.) The council gives huge tax breaks and rent discounts to business that move to occupy the already-subsidised business parks.

    Bolsover Council and Dennis Skinner are constantly unsatisfied with the businesses their efforts actually attract. Sports Direct is one of them. They don’t seem to understand they they are attracting zombie companies that can only survive on their subsidies and very low wages.

    • I suspect the local people know that. And maybe that’s why Bolsover came in at number 8 on the list of boroughs in England and Wales with the highest percentage of votes for Leave.

      • Yep, and I was one of them! 🙂

        I’m just mystified why Skinner and his ilk think ‘tight regulation’ of these bottom feeders is all that required to make a workers paradise! As soon as the cheap land and wages disappear, so will they (either by bankruptcy or to the far east). And as you said, everyone knows it!

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