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.