Matthew Hancock is the Member of Parliament for West Suffolk and Minister for Skills in the Departments of Business and of Education. Follow Matt on Twitter.
I used to be an economist. Worse, for a while I was an economic forecaster. My only defense was that I was young and naïve. But while forecasters may have been invented to make astrologers look good, there’s another aspect of the economists’ trade which makes me cringe: the idea that low pay is a necessary evil of globalised competition.
There are some on the right who argue, rightly, that Britain needs to be more competitive but then argue, wrongly, that lower labour unit costs are the way to get there. This argument makes the fundamental mistake of treating labour unit costs as a means to an end rather than an end in itself. After all, one person’s labour unit costs are another’s wages, so low labour costs are just a euphemism for low pay. But pay means prosperity - which is the whole point of becoming more competitive in the first place. Higher pay does not make a country less competitive, it makes it more prosperous.
Then there are those on the left who make the opposite mistake, they accept the importance of higher pay, but they reject competitiveness as the route to get to it. They argue that higher taxes or more borrowing are the route to higher pay. But this ignores the crucial question of where the pay – the prosperity comes from. We have no God-given right to pay and prosperity higher than most of the rest of the world. We have to earn it, not borrow it from our children.