As far as routes to national economic prosperity are concerned the idea that the majority in society must suffer real hardship to achieve such prosperity would seem harsh and unjust. But that is the way that some policy debate in Britain and elsewhere has come to be framed. The idea that the poor must be subject to direct hardship to get them to work and to contribute to wealth creation underlies some welfare reform policy. And the idea that lower wages for the majority will help reduce the budget deficit as well as improve national competitiveness is part of some macroeconomic policy discourse.
Here I want to trace the historical origins of the idea that the poor must remain poor for the nation to grow rich by considering the contribution of mercantilism that dominated economic debates between the 16th and mid-18th centuries. Mercantilism was recently covered in an Economist article though without attention to its darker side in terms of its support for poverty as a basis for a wealthy economy. I want to remedy that neglect here. As I will show below, mercantilism set the basis for the vilification of the “lazy and undeserving poor” that still finds favour today (my more details thoughts on mercantilist labour doctrine can be found here). I want to show how such vilification is built on a crude mythology and has no basis in reality. Its persistence six centuries on from the beginning of mercantilism remains a barrier to the formulation of better policy and the creation of a better society.
Mercantilism states that a country will grow richer by increasing its net exports. To achieve this goal, the original mercantilist writers recommended that wages be kept at the subsistence level, not just to minimise the direct cost of labour, but also to maximise the pressure on workers to work. They believed that workers were lazy and had to be coerced to work. Daniel Defoe wrote scathingly in 1704 about the “taint of slothfulness” that was possessed by the labouring class in England, a viewpoint shared by other mercantilist writers. It was observed that as wages increased above the subsistence level workers tended to reduce their work hours and to lower their productivity. This was used by the mercantilists to argue for the maintenance of wages at the subsistence level. Subsistence wages not only helped to make the workforce more productive but also helped to maintain peace and order in society. Thomas Mun’s view, written in 1664, that “penury and want do make a people wise and industrious” summed up the prevailing attitude of his day.
Those who echo mercantilists today may not be quite so shameless in their use of language but the essence of their argument remains the same anti-worker prejudice that is nakedly revealed in earlier mercantilist doctrine.
The original mercantilists were advocates of the “utility of poverty” thesis. They believed that there was a positive side to poverty and that the State should create and maintain poverty as a way to increase the volume of exportable output. Workers were to accept enforced poverty as a necessary foundation for national prosperity. The nation needed a diligent and hard-working workforce but the nation had no duty to pay workers well – on the contrary it was the duty of workers to accept subsistence wages for the sake of the nation.
These views on poverty betrayed the prejudices and lack of
sympathy of mercantilist writers. They failed to see how workers’ resistance to
work (to the extent that it existed) was linked to the arduousness of work,
rather than to any innate character defects in workers themselves. They also
missed how workers were unused to a regular pattern of work; forcing workers to
work longer hours on a consistent basis went against the traditional pattern of
irregular working. Workers resisted work again not out of natural laziness, but
out of concern to cling on to older, established patterns of working (see E.P. Thompson,
1967). The mercantilists represented the views of a privileged minority in
society and their views distracted attention from the real hardships faced by
workers in their lives.
Echoes of mercantilist thinking can be seen in two areas
of modern debate. The first is in the area of welfare reform. There is a persistent
stigmatising of those on benefits who are seen as “scroungers” living a good
life at the expense of tax payers. This mythology fuels a hatred of welfare
claimants. Yet, it
fails to get to the heart of the life situation of those on benefits which
involves genuine struggle and adversity. Looking for work on benefits is
hard work and time consuming – it is no paradise state. The myth of the “lazy
poor” also distracts from the structural causes of poverty and worklessness and
justifies draconian policies that only lead to demoralisation and despair among
the poor.
There is also the related argument that higher budget deficits
have been caused by excessive welfare spending. Tougher times for the poor via
reduced benefits are then seen as key to paying down deficits and getting the unemployed
back to work. Apparently, a return to growth requires austerity for the masses.
The austerity agenda, however, detracts from the actual causes of the crisis
and the associated rise in budget deficits – in particular, the
financialisation of the economy that ironically has been associated with the
rising income of the very rich. If any group in society should shoulder the burden
of responsibility for the crisis and its resolution, it is the reckless rich
not the downtrodden poor.
The second area where mercantilist doctrine resonates is in
the area of foreign trade. At present, the archetypal mercantilist state is
Germany. It has relied on a policy of low wages to increase exports at the expense
of other trading nations and the trading surplus that Germany has enjoyed has
allowed it to sustain economic growth when other economies have suffered periods
of negative or zero growth. Note here that German “success” has been built on the
rise of low-paid work. In a modern-day version of mercantilist labour
doctrine, workers have been asked to sacrifice income in order to grow the
German economy. But Germany now has an unbalanced economy with restrained domestic
consumption. Rebalancing towards domestic consumption by the raising of wages
has been viewed by critics as vital if Germany is to achieve sustainable
growth. But that goes against the spirit of mercantilism as applied in Germany where
the achievement and maintenance of low wages has been used to secure a growing
economy. Changing economy policy in Germany requires the adoption of a new perspective
that does not see low wages as a prerequisite for growth.
Six centuries on from mercantilism, depressingly, we still observe
in the media and in politics the routine condemning of the alleged laziness of
the poor. We also observe a lack of concern about and acceptance
of low wages as a way to restore and increase economic growth. The harsh and unsympathetic
attitude towards the poor is not just inhuman but also constitutive of bad
economic policy. It is about time we learned different lessons from history.
