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Stop addressing minimum wage issue from narrow neoliberal mindset

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It would be disastrous if neoliberalism is given a free hand under the pretext that raising the minimum wage would result in a loss of competitiveness, writes Ronald Benjamin.

The Pakatan Harapan government’s decision to merely raise the minimum wage from RM1,000 to RM1,050 clearly reveals a plain truth about the nature of our economic system and the politicians who are managing it.

They are basically soaked in dualistic thinking and neoliberalism that promotes cheap labour and the maximization of profits.

In 2015, according to the 11th Malaysia Plan, it was stated that labour’s share of national income had increased to 33.6% in 2013. In contrast, labour’s average share of national income for Africa was 37.8%, the Americas 49.3%, Asia 42.3%, Europe 63.2% and Oceania 57.2%. This means labour’s share of national income in Malaysia is among the lowest in the world.

In America and Europe, an increase in productivity has been driven by technological progress, as manifested in a decline in the relative price of investment (that is, the price of investment relative to the price of consumption). As the relative price of investment decreases, the cost of capital goes down, and firms have an incentive to substitute capital for labour. In this context, productivity seems to outpace wage increases.

This is the reason that Prime Minister Dr Mahathir Mohamad’s simplistic reason that wage increases should commensurate with productivity does not address the entire context of what brings down the wages of workers – especially if we strategically analyse the future through the lens of advances in technology.

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It is obvious that labour’s share of the economy would continue to decline if it is not balanced by a reasonable minimum wage. It would be disastrous if neoliberalism is given a free hand under the pretext that raising the minimum wage would result in a loss of competitiveness.

The experience of other nations that have embraced a similar neoliberal economic ideology shows that it has social electoral consequences. When workers are paid lower wages that overlook the cost of living, it reinforces the conditions of poverty.

This gives rise to a growing sense of insecurity among citizens, which in turn translates into tribal ethnocentric phobia: fellow citizens, foreigners and immigrants are blamed for a deterioration in the standards of living. This is the result of low paying jobs and structural unemployment (related to technological advancement) while companies leaving their country of origin seeking cheaper labour elsewhere.

Donald Trump’s ascendancy to the US presidency was due to the impact of his campaign of creating a victimised socio-economic terrain of American white workers, who were told they were being paid low wages and their jobs were being taken over by migrants who were willing to be paid even lower wages.

In Europe, far right parties have gradually spread their influence though their popularity owes its roots to structural unemployment: a significant percentage of the people there are jobless.

Would Umno play on such tribal grievances in the future and come back to power in the next general election? It is something the Pakatan Harapan leaders should reflect on. To resolve the underlying issue effecting wage growth in Malaysia, it is vital not to address issues through the lens of neoliberalism and the dualism of win-lose situations.

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It is obvious that the minimum wage issue has been viewed from a narrow dualistic approach that fails to consider the high cost of living caused by, for example, suppliers’ monopoly of essential goods and the high cost of healthcare and education. It fails to consider that the lucrative pay cheques for top executives have resulted in a concentration of wealth among the few. This narrow approach also doesn’t consider technological advancement, which would allow productivity to outpace wage growth.

Unless the minimum wage issue is from a broader perspective, the normal tired dualistic arguments – such as we will lose our competitiveness if minimum wages are higher – would continue to undermine the nation’s progress.

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