Michael Gove is wrong. Laissez-faire Singapore is richer than statist Britain
That’s the question Michael Gove asked in his Times column on Friday. One thing she is unlikely to do, according to Mr Gove, is turn Britain into “a Singapore-style small state sweatshop economy”.
We might quibble about whether or not Singapore has a small state. The Singaporean government compels citizens to save 35% of their incomes to pay for healthcare and pensions. Since the money still belongs to the citizens, the state stays fiscally small. But it is big in bossiness.
Otherwise, however, Singapore is indeed laissez faire – at least, by comparison with the UK and most other Western nations. Employment law allows near complete freedom of contract between employers and employees, and there is no minimum wage or much social welfare. But the result is not, as Mr Gove claims, a “sweatshop economy”.
In 1965, when Singapore gained independence from Malaysia, its GDP per person was US$4,000 (in today’s money), only a quarter of Britain’s US$16,000. Today it is US$53,000, 25% more than Britain’s US$42,000. In the 10 years from 2006 to 2016, the median (real) income in Singapore increased by 30%. If Singapore is a sweatshop economy, what is Britain? A dirt farming economy?
By associating “small state” with “sweatshop economy”, Mr Gove peddles the old, leftist idea that free-market capitalism turns workers into wage slaves, that employers will pay them only enough to subsist. A big state is needed to make sure that workers share in the gains of economic growth.
Simple observation should be enough to refute this idea. Indeed, simple observation of the very country Mr Gove bemoans is enough to refute it!
And, for those who do not care for observation, there is theory. Economic growth increases the opportunities to put labour to profitable uses: that is, it increases demand for labour. Labour is scarce. When demand for something scarce increases, its price increases. Wages are the price of labour.
A big state is no more required to make wages rise in a growing economy than it is to make water flow downhill. It is a shame that Conservative politicians need to be reminded of this.
Further IEA reading: Taxation, Spending, and Economic Growth