Article published in the Financial Post, October 3, 2003, p. FP-11.
The international labour establishment wants to harmonize labour standards across the globe. This week, the issue entered the U.S. democratic presidential campaign, with Democratic candidate Dick Gephardt, the former leader of the House of Representatives, advocating an "international minimum wage." In the past, Gephardt has argued for "international standards, both for workers and the environment, in our trading relationships."
His stance buttresses the goals of the International Labour Organization (ILO), a United Nations agency, which earlier this year proposed worldwide social security coverage. The Canadian Labour Congress agrees. International labour is on a roll.
How much would it cost to give all poor people in the world the level of social security (income security programs and health insurance) of poor Canadians? After fiscal churning (i.e., after the redistribution to the very people who have paid the taxes), social security expenditures in Canada amount to about $29,000 for each poor Canadian. Of the 6.1 billion people in the world, 2.5 billion live in very poor countries, like Ethiopia, Haiti or Afghanistan, with average per capita incomes of less than $2,000 per year. Guaranteeing all these poor people the level of Canadian social security would cost more than $27,000 per person helped, for a total cost of about $70-trillion.
Now, $70-trillion is 64 times the total Canadian GDP, but it would presumably be shared by all 957 million inhabitants of high-income countries, including Mr. Gephardt's voters. This amounts to $73,000 per inhabitant of high-income countries, which is 24% more than their average incomes. The problem is that there are few wealthy people in the world, and a lot of poor ones.
An easy, but false, objection is that subsidizing Canadian-style social security in countries with per capita incomes lower than $2,000 would cost close to nothing: Everything costs so little in these countries that a few dollars per year would buy hospitals, apartments, TV sets and all the amenities enjoyed by the Canadian subsidized poor. But this is a money illusion. Transferring $70-trillion in resources to poor countries would bring up their exchange rates or their domestic prices to the Canadian level. Another way to see this: Local prices are low in poor countries because they are poor, and there is no way the poor can become rich and still live on $2,000 a year.
Perhaps this is why ILO is focusing on a more modest, and less flashy, proposal: a "Global Social Net" that would "provide some social security to about 100,000,000 people who are excluded from all forms of it today." This still does not make sense. If only this tiny fraction of the billions of world's poor were offered half the level of Canadian social security, it would still cost $1.4-trillion. Shared among all non-poor taxpayers in all rich countries, this small worldwide security net would cost $1,700 per capita. This means, for example, that the average two-income Quebec family with two children, which earns $70,000 per year, would see its annual income tax jump 45%, from $14,800 to about $21,500.
Third World poverty and insecurity are a pressing problem, but it cannot be solved by throwing money in the mouths of banana-republic Leviathans. Two World Bank economists, David Dollar and Aart Kraay, have demonstrated that increased public expenditures in poor countries bring about a reduction in the incomes of their poor. The main problem of poor countries is the state-privileged minority that exploits the people.
ILO's director general said grandiloquently, "We have the will, and now must find the way..." Very simple: have the will, find the way -- whoever is "we." The way is simply to "expend social security systems through a process of experimentation and social dialogue." Nice fantasy land, until one realizes that the so-called "social dialogue" requires the cops to stand ready to collect $6,700 dollars more in taxes from each Canadian family.
In a way, Gephardt's proposal is very different from ILO's. Imposing minimum wages to the Third World would prevent the poorest workers to compete with Mr. Gephardt's Big Union clientele, that is, it would redistribute income from the poorest to the richest. At least theoretically, redistribution of cash can work for the poor. Anti-competitive standards invariably penalize them.