JUST PUBLISHED: In defence of a consumer-led economy

Let’s start with the obvious: every worker is a consumer, but not every consumer is a worker. This distinction matters, because politicians frequently boast about “protecting workers” even when doing so comes at a cost to the people who buy the goods and services the economy produces.

A consumer-oriented economy pursues low prices, encourages competition, welcomes automation, and embraces global trade. It rewards productivity: producing more with less labour and more capital. The conflict, of course, is that the more we favour consumers, the more likely it is that certain workers become redundant. The theory is that redundancy should be temporary, eased by decent support, transition funds, and retraining so that displaced workers can re-enter the economy in more productive roles than before.

A labour-oriented economy pushes in the opposite direction: higher wages and job security, typically at a cost to consumers. You often see strong labour unions in these systems. Swedish unions are a good example of how that can be beneficial. By demanding equal pay for equal work, and by accepting the need for retraining rather than preserving unproductive jobs, they helped phase out low-productivity businesses. Workers were pushed — sometimes unwillingly — into retraining, but ultimately into roles that contributed more to the nation’s overall productivity.

Tariffs are another tool used to “protect workers”. But they come with a simple contradiction: if tariffs are good for us, why do we complain when other countries use the same protections against our exports?

Here is an exaggerated example, which is often the best way to illustrate a point.

Imagine there are only two countries in the world. They share the same currency. One produces bread, the other shoes. The terms of trade are 20 loaves of bread for one pair of shoes. Now imagine the bread-producing country imposes a 20% tariff to spark internal shoe production. Immediately, its consumers become poorer. Should the shoe-producing country retaliate with a 20% bread tariff? That simply makes their consumers poorer too.

If tariffs are as wonderful as their political champions claim, why has free trade created more global prosperity than any alternative? Why haven’t all nations banned imports or slapped 200% tariffs on everything?

When I studied at the University of Lund, the Swedish government proposed allowing banks to compete with the post office in handling public payments — pensions, sick leave payouts, and unemployment benefits. The post office union erupted, claiming 6,000 jobs would be lost. Journalists dutifully amplified the panic. I remember thinking: Are there really 6,000 people too many employed in something as mundane as transferring money?

Producers, of course, try to gain an edge in the marketplace. Michael Porter famously identified three main competitive advantages:

Cost advantage where you can sell at lower cost than other producers. Walmart, because of its gigantic size and efficiency.

Differentiation where your customers believe your product is unique and fork up more for it. Apple could be an example.

Going for a niche where you concentrate on a segment of the marketplace. Rolex is not there for the mass market.

The cost advantage is the one that benefits consumers most directly.

But if protecting workers is truly the priority, we should ask: why didn’t we protect bank clerks who once recorded every transaction with goose-quill pens? Should we have frozen the economy at that moment in history? Computers replaced them because the alternative was inefficiency, delay, and higher consumer cost. The same tension exists today. Amazon anticipates that around 14,000 jobs will disappear due to AI. Profits will rise, yes — but so will consumer benefit, through faster, cheaper, more efficient delivery.

The fact is unavoidable: not all jobs can or should be saved. And if one country clamps down on innovation and trade to shield workers, while others continue pushing forward, the restrictive country simply becomes poorer and less competitive.

There are exceptions. Most of us would agree that goods produced by child labour or slaves should not enter our markets. But outside those ethical boundaries, “protecting workers” often becomes a way to resist inevitable economic evolution.

Consider video rental store with Blockbuster being the most prominent example. Should governments have protected them too? Consumers adapted. Workers retrained. The world moved on.

When countries trade with each other, they do so based on comparative advantage. It seems counterintuitive, but let’s unpack. That advantage comes from producing at a lower opportunity cost, which is what is given up to produce something else. Even if country B is more efficient at producing everything, it can still benefit from trade. If country A had to give up producing 10 tidgets for 10 widgets, and country B had to give up producing 4 tidgets for 2 widgets, it would benefit country B to import widgets from country A and concentrate on producing tidgets. The fact that country B has an absolute advantage in producing both tidgets and widgets doesn’t impede a good trading relationship benefiting consumers in both countries.

In an evolving economy — shaped by innovation, automation, and global competition — the essential question is not whether we can preserve every job. We cannot.

The real question is whether we invest seriously in retraining people so they are ready for the jobs the future will always create.

Is it not the case that the best we can do in an evolving economy where new technology makes work more efficient or workers redundant is to retrain workers to be ready to confidently embrace the future?