Robert Reich Supports Sanctions on Sweden

Via Ezra: Robert Reich suggests not trading with any country without a minimum wage at least twice half as high as the median wage, and manages to come off as a lot less knowledgable than I’d expect of a former Secretary of Labor.

Sweden and Norway have no statutory minimum wages. Neither did Britain until 1998. Minimum wages are the most capitalistic of all social regulations: they say that everyone who already has work needs to be paid a wage that puts him in poverty but not deep poverty. Unions tend to support high minimum wages for solidarity reasons, but their members make far more than the minimum wage. That’s why Sweden and Norway have no minimum wages: they have Soviet levels of unionization, so workers get paid living wages thanks to their unions rather than thanks to a statute.

Reich manages to peddle the pervasive myth of the social democratic United States. When he says, “For many decades, America’s minimum wage was roughly half the nation’s median wage; only since the late 1970s has it fallen much lower than that,” he ignores the fact that at its most equal, the USA had a more unequal income distribution than Blair’s Britain. The US Gini index bottomed in 1968, when it was .388, higher than this of virtually every developed country in 2007 as well as several key developing countries, most notably India (~.32).

Now, there are reasons other than blind attachment to a mythical golden age why American leftists believe that the US used to be a social democratic heaven. Before 1973, the US economy grew very quickly, so even though its income distribution was very unequal, the lower class’s income rose.

More importantly, the sustained fast growth between 1945 and 1973 was achieved with minimal changes in inequality. Norway has grown very fast in the last 10 years, but its Gini index has skyrocketed; by 2002, it was .37 by the same method the US Census Bureau uses to calculate the US Gini index. What’s likeliest is not that the US in the 1950s and 1960s was a miracle case of growth without increase in inequality, but that the natural increase in inequality was balanced out by a reduction in inequality stemming from civil rights activism. Black poverty crashed in the 1960s, as the civil rights movement gave black people additional opportunities. It wasn’t economic policy that reduced the Gini index; the beginning of the War on Poverty more or less coincided with the end of the precipitous drop in poverty in the US. Rather, it was Martin Luther King.

This is significant enough on its own, because it underscores a point Amartya Sen is making over and over again, only to be ignored by people like Reich who are no more anti-neoliberal than he is. The most important thing in development is democratic governance. Democracies can screw things up, as India did when it took decades to abandon the idea of a planned economy, but more often than not they ensure development goes to the people who need it. Most notably, China managed to have a mega-famine in the late 1950s even though it was better developed than India, which had and still has malnourishment but never since independence a real famine.

I’m not sure why Reich thinks third-worlders need American dragooning to engage in sound economic policy. In practice what he’s promoting is not supposed to benefit anyone living US borders, but that’s not how he thinks about it or justifies it. So it makes sense to ask: why not trust the people of each country to choose the economic policy they think is most beneficial, and forego the opportunity to be sanctimonious and impose sanctions on any excessively capitalist country?

Of course, more often than not it’s not the people who make that choice. Singapore isn’t a corporate fief because its people want it to be one, but because its authoritarian government squashes any political alternative. In contrast, in India and Brazil, where the people do have a choice, they chose moderately leftist governments as the best path to development.

But it’s impossible for economic leftists in the West to tweak their claims to be about democracy without saying things they don’t want to say. First, the idea of imposing sanctions on countries with the wrong political system is too neoconservative. The leftist who has no trouble forcing countries to be more socialistic is far more squeamish about making countries more democratic, even when given a non-violent method that is far more effective than the neoconservative ideal of invasion.

And second, third-world social democrats and first-world social democrats don’t have the same agenda. Third-worlders almost uniformly oppose first-world agricultural subsidies, and so do development economists, such as those who write the UN development reports. Lula is in fact leading the charge against the first world’s dumping of agricultural goods in the third world. In contrast, first-world leftists tend to never meet a non-military government subsidy they don’t like.