Guest post by Kevin O’Brien, retired Charted Accountant and former consultant to the Government of (then Western) Samoa. (Reposted from 18 Feb 2013 with tags.)
The living wage claim imbroglio has done us good in having to examine wages and living costs: I am not so sure it has done us right. It took a bit of looking to find the paper setting out the claims to a “living wage” of $18.40/hr; they were not on the Anglican Church Family Centre web site , in whose name they were, but on the Living Wage NZ site who commissioned them. 
The claim then is political – a creature of the unions and the ultra left greens with the churches donning social-justice robes and blessing all, other than those who ultimately have to pay. The politics of envy are writ large: bosses and others must be richer, so they can pay, to match our spending aspirations. If the boss class hasn’t got it, then the Government must have. Someone needs to pony up to satisfy our unrequited hunger for more.
I suspect there is sin somewhere in the midst of this. Is it right to heavy employers, a.k.a. bosses, to pay more when no more is going to come their way to meet the extra demand? Is it right to set demands for pay in excess of minimum reasonable needs? Is it right to pay a single 18 year old straight from year 13 at high school the same hourly rate as an experienced single worker, or one a few years further on who has a spouse, and the population replacement minimum 2 children, the same hourly rate also? If justice is about balance where is it here? Are ability and contribution of a worker to producing residual income to be ignored?
The Bible mentions that the “poor are always with you” . Can we remove them without impoverishing others? Who are the poor anyway? Scripture refers to those “poor in spirit”  – they don’t necessarily come out of physical poverty by coming to know God, but they can have a greater gain which far exceeds material wealth. Is an increase in material wealth a release from poverty? – ask a large lottery winner that question after their family splits up and they return to their original or frequently even lesser state. Does “throwing money” at a family defined as “poor” increase happiness, satisfaction of life, material wealth or just feed the gimmes? Can the gimmes ever be satisfied and what is the material level at which people are poor? Surely my ‘poor’ is different to your ‘poor’ and if I don’t feel poor, but you call me poor, who are you to define my state- particularly if you are going to pressure others to pay me more. I may gain no extra satisfaction at the expense of another losing some of theirs. The transactions while equal in monetary terms may be personally unequal materially and spiritually.
There is ignorance out there about elementary economics. In a closed economic system one unit’s gain is another’s loss; in an open system, if we have an excess of demand over what is internally available that is taken up in the nation’s accounts with the outside world. We look at our dollar and say it is high but the price of a Big Mac in NZ and the USA is presently within 1% of each other . The high external spending by the USA shows in the price of their dollar: we are not high, they are low . What a country does internally affects its external finances and hence its ability to pay for the everyday needs from overseas. It also affects those it trades with; our now high dollar makes it difficult for us to sell. To import we must export and if we create demand internally by Government spending more or workers being paid more we have to balance that ultimately by either exporting or overseas borrowing. See the problem: we have a high dollar imposed on us because of another country’s massive spending   and we have to keep demand manageable as our exporters’ ability to provide for us has been impacted. Sorry greenies there is no free money: someone has to produce and sell for someone to be paid. If money is created by local bank lending that too increases demand, along with a multiplier affect as the newly created money is passed from bank to bank. Creating demand is easy, living with an excess of it is not. “Too much money chasing too few goods” is a recipe for an increase in local prices to balance it out. If the prices don’t go up those with more money can gain at the expense of those providing the goods and services, so the suppliers’ instincts will make sure they don’t lose. This inflation can cause massive unfairness. If house prices rise excessively because low interest rate loans fuel a buying spree, rents will rise too. Inflation erodes the stored buying power of savings, and cuts the relative buying power of pensioners and others on fixed incomes. It also fuels wage demands as wage rates based on previous price and productivity levels have a natural lag before employers effect long term changes in their price and cost structures.
Being a Government and having to manage demand is an awful job. Too much demand and the overseas accounts and reserves are in jeopardy, which can include food imports: too little, and workers are laid off as sales fall off! Now add the Christchurch $20-$30 billion dollars of rebuild  thrust upon the country to accommodate as well. I am amazed at how well the Government has managed the nation’s accounts in these circumstances. Over the last few years prices have been reasonably stable except for housing. I am buying as much for my dollar at the supermarket as I did a year or so ago. Prices are competitive but I could easily pay another $50 a week (20%) by choosing to shop at the sole local supermarket. The living wage claim if forced has the ability to promote inflation when we have had stable times. The present low interest rates must cease in time and we will then have to adjust our budgets accordingly. Nowhere in scripture does it say we are not to feel hard up, and substantial future increases in interest rates will be hard to accommodate, but I know that we will manage, and pay our bank loan as a standing priority. Real poverty must be the state of not being able to adjust, not that of being unable to satisfy aspirations as embedded in defined arbitrary household expenditure feel-good models.
Poverty is ultimately attitude to managing with what we have; defining it as 60% of the median household income level  is excessively generous. That also does not take into account the 9 elements which make up each individual’s capacity to earn; one size cannot fit all. In my view these are:
- Cultural environment
- Educational attainment
- Life experience
- Life events
Not a sociologist’s set, but I believe they explain individual capacity and ultimate achievement well.
Intelligence is usually ignored or even denigrated, as we are not allowed to classify people by such differences, as they might feel bad. But people are self-classifying, – they do not enroll morons (those with an IQ 51-70) in PhD programmes, nor are they employed as nuclear physicists. I had my eyes opened as a junior school teacher trainee when I found that in the class of about 25 there were 6 with a measured IQ of 150 or more. That should not have been surprising as the school was the neighborhood one of the leading Wellington professionals. The children were only closely mirroring their parents. Innate intelligence has to be major component of earning capacity potential and is undeniably family transmitted. It may be the most important determinant, life events being neutral. If so it is only to be expected high income neighborhoods have compatible people socially and intellectually.
Nous must be a type of intelligence: it is exhibited by the non-intellectual high school drop-out who has the entrepreneurial flair to create a substantial scrap metal and industrial waste pickup and recycling business.
Cultural environment and background is supposed to be neutral, but it isn’t. My 7 years in Samoa showed me that. Children of higher ranking chiefs were expected to do well in school and other pupils subtly deferred, so it was not necessarily the most able pupils who were the apparent high achievers. The overall level of class attainment was reduced to allow higher status children to shine. I believe this is at work in NZ schools too, possibly in a more complex or disguised form and it may not be that the education system in NZ is failing Polynesian pupils but many do not have an implicit self permission to succeed, and therefore limit their ambition.
Educational attainment is measured in trade and professionally useful qualifications and is rewarded accordingly. Some intellectuals can’t make it past becoming a postman; a PhD in medieval monastic clericalism does not bode well for employment to repay the student loan or maintain a family.
Life experience adds to the complex riches an employee brings to any job which can translate into dollars.
Life events can both give and take away opportunities to prosper. These may be random such as health accidents which reduce earning ability or inheritances providing capital. An inheritance may be squandered as easily as it came. Random misfortune may simply present itself. However useful personal connections can enhance earning ability.
Age at all levels influences earning capacity. Most people are not born with assured capital or income and have to live and age to acquire skills to earn. Old age may prevent employment but may have given opportunity for the wise to acquire income producing capital.
Motivation is a leveler – without it, earning capacity can drop to zero. I have seen cannabis render primary school children vegetative drifters, and a high school potential dux rendered a drop-out. Many on sickness or invalids’ benefits are unemployable because of drug taking. From experience I know that drug damaged people are not, or barely, employable. We can tut tut but we have to accept these people need our love and support. They may have rendered themselves helpless but punishing them is wrong.
Opportunity deals with place and provision of work. High unemployment reduces that, career choices, voluntary or involuntary, create paths which can be hard to change from. I joined Inland Revenue as a young person because I was placed there then by the Government personnel machine which led directly in time to my 7 years in Samoa. I had to make a deliberate choice to return to NZ and not take up a certainly higher paying job at the Asian Development Bank or to decline another offer to reside and implement a national savings scheme in Kiribati. A great deal of our employment opportunities and hence earning potential result from random forces external to us.
The provision of a living wage as defined is not a right and the amounts that different people need are not the same either. The blanket amount of $18.40/hr being promoted seems overly generous. In a time of economic stringency, particularly with the Christchurch earthquake bill to be paid, the country cannot afford to lift minimum pay rates so. It is improper union pressure to seek to have local authorities pay the higher rate sought: certainly they could pay as they can tax to do so, but that will flow on through the community. The flow from there will be into higher rates – where else is the matching output coming from to provide this sought largesse? Do we want price inflation on top of the Christchurch event? Are we prepared to revisit a wage price spiral which we struggled through in the 70’s and 80’s of which I remember mortgage rates of 15% and term deposits of 18.75%?
The claims of poverty in NZ seem to be driven particularly by the Polynesian communities; certainly their faces  are used to promote the claims. The Focus Group survey,  shows $400/week for food and a total of $2503/week for the Porirua respondents. In Kingsland (Auckland) it is a lot less at $1504/week (which is still 1.67 times our weekly overall spend, for a household of seven in a suburb neighbouring Porirua.) There are cultural pressures at work in these communities that are absent in others and they will spend, borrowing at high interest if necessary, to meet their fa’alavelave calls or other commitments like unveilings. This does not mean they are poor but their lifestyle is not well provided for in NZ. Fa’alavelave spreads the burdens of their distress throughout the extended network but the calls to support those overseas are really hard. It may be another two generations before this problem is solved. It is not proper though to use the real hardship of this minority group to attempt to force up the national wage rates. People are needy for different reasons but all cannot be treated equally without someone paying. It is going to take some wise work at the community level to put in place a local help network. It may be that we Pakeha, Palangi or other ethnic groups are going to have to accept temporarily increased financial and social remedial support to these communities to meet their cultural dues while working with them to enable them to be more self reliant in NZ. In my view this group may be largest group in NZ whose needs have not been specially provided for. We accepted them over time as migrants so we have acquired a responsibility to see that their culture does not beggar them. I have spoken about the economic pressure extra spending will cause, but I would like this concern to go on our NZ to-do list.
We should be careful what we ask for and those who promote change based on ideology not knowledge may not do the justice they claim to be the face of. The Social Justice Commission of the Anglican Church of Aotearoa & Polynesia is out of its depth and like the Salvation Army has become a political tool of a union which has failed to account for tax deducted from its own employees’ pay . The Gospel drives us to compassion for the poor: Christ restored the widow’s son to life so the son could do what was customary to care for her as a widow. There is no suggestion that the son was not to be himself to be reduced in means as he shared his support with his mother. We are all equal in the eyes of God but not all equal here in our natural fallen state in this sojourn on earth. Any ideology that tries to make us equal is based on the premise that something should be forcibly taken from one to give to another. The Kingdom of God would have it that we give to the other out of love.
References (all current as at 18 February 2013):
 Matthew 26:11
 Matthew 5:3
 http://www.businessinsider.com/10-lottery-winners-who-lost-it-all-2010-5?op=1 This is just one example among many.
 Have a look at the five year historical cross rates of the UDS/EUR on: http://www.oanda.com/currency/historical-rates/
 http://www.livingwagenz.org.nz/files/embargo%20file/Living%20Wage%20Investigation%20Report.pdf (Executive Summary page 1.)
 Ibid Living Wage Investigation Report p.8.