Fallacy of growing economy by increasing minimum wages and allowances

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Human beings work to get food, which the human body transforms into blood for running the body mechanism. If the human body cannot produce blood from ingested food, the body remains sick and dependent on external blood transfusion. The sick person cannot work or produce food, and will thus resort to begging and selling off valuable assets to get blood transfusion. A society that does not produce what its members consume is like a sick person depending on daily blood transfusion. Societies do not grow by injecting more money into consumption and increasing minimum wages and allowances. Instead, they grow by developing the ability to use science and technology for producing what they consume and trade profitably.

 

During election campaigns in Nigeria, candidates promise 500% minimum-wage increase for civil servants and monthly allowance to unemployed beggars. Labour unions insist that minimum wages must go higher and that allowances must also increase for their members. Hence, they mobilize their members to massively vote for people who promise to revive economy by increasing their wages. Lee Kwan Yew insists that “a soft people will vote for those who promised a soft way out.”[1] Yet, there is an ever-changing nature of technology, industry and markets… and our new philosophy should be to provide goods and services cheaper and better than anyone else or we perish.[2]

 

 

From the 14th century, European contact with Africa led to Africa’s supply of slave-labour and raw materials.[3] From 19th century, Europe preferred that Africans provide cotton, rubber, cocoa, copper, gold, crude and palm oil for European industries. In return, Africans are expected to depend on expensive European consumer products. Hence, Africans who formerly sought industrial capacity to develop their economies, were incorporated and empowered as middlemen for disproportionately exchanging African raw materials for European consumer goods. This form of trade has kept Africa poor and unproductive, always searching for raw materials to export cheaply for European finished goods. Instead of learning to process mineral resources for producing goods, Africans learn to export raw materials and import finished goods.

 

Hence, the salaries paid for Nigerian civil service are mainly for facilitating exportation of raw materials and importing finished goods.

 

Increment of salaries could be wonderful if there is a correspondent increase in local productivity for goods and services. However, given the unproductive social structure colonially imposed on Nigeria, increment of salaries becomes increment of dependency on importation. This is because colonialists formed Nigeria by brutally yoking hundreds of communities under a militarized federal government. This militarized government confiscates all the communities’ mineral resources[4][5][6] for foreign industries, then imports and distributes finished goods as dividends.

 

It may be argued that increasing minimum wage and allowances are good for the economy:

  • It enables families to take care of their members adequately, without depending on government welfare.
  • By providing capital for businesses, it increases economic activities and spurs job growth.[7]
  • It reduces extreme income inequality, especially compared with Nigerian politicians’ income.
  • It motivates and increases worker commitment and job stability.
  • It reduces crimes and temptation to engage in corrupt practices.

 

However, since Nigerian economy is structured for an uneven trade[8], increasing minimum wages and allowances without increasing enablement for local productivity may not yield desired effects.

  • When minimum wage is increased without local productivity, there is more pressure on importation, leading to inflation.
  • There will be a rise in the price of consumer goods, because employers will add their increased labour cost to the price of goods.[9] Hence, the price of goods will rise for the poor.
  • Government will be under pressure to sell off more mineral resources to obtain salary funds as recurrent expenditure.
  • The rise in recurrent expenditure will choke the prospects of developing productivity.
  • Government and private employers who are unable to pay the minimum wage will sack many people, thereby increasing unemployment.
  • There will be increased work load and sack pressure for employed workers who are retained.
  • Low-skill workers whose works may not be considered vital will be laid off.
  • Companies will prefer to use more robots, instead of paying humans for the services.

 

Though it sounds interesting, increasing minimum wages, salaries and allowances may not be Nigeria’s first priority for economic revival. The first priority is to activate Nigerians’ capacity to collaborate and use their natural resources for production. The second is to liberate the militarily confiscated mineral resources to their respective ethnic owners. When productivity is improved, there may not be much need to increase salaries, since commodities will become more affordable. Then people can use what they produce instead of depending totally on what they can buy.

[1] Lee Kwan Yew, From first world to third world, P53

[2] Ibid

[3] Cf. Walter Rodney, How Europe underdeveloped Africa, second edition (Abuja: Panaf publishing, 2009). p.92-102

[4] Nigerian minerals and mining act 2007 act no. 20, chapter 1, Part 1, Section 1, paragraph 2

[5] Nigerian minerals and mining act 2007 act no. 20, chapter 1, Part 1, Section 2, paragraph 1

[6] Nigerian minerals and mining act 2007 act no. 20, chapter 1, Part 1, Section 1, paragraph 3

[7] https://minimum-wage.procon.org/

[8] Exporting crude resources and importing finished goods.

[9] Cf. Henry Hazlitt, Economy in one lesson