Getting-Rid of Unemployed Scroungers

Labour proposed today to guarantee a job or a training scheme for anyone that has been unemployed for two years or more. This seems reasonable until you consider that people will lose benefits if they turn down what is offered. To many this is still not unreasonable, however it is dangerously similar to the failing and widely discredited “Workfare” programme of the Conservatives which has been likened to slavery.

Whatever you choose to call it there is an awful lot of stick and very little carrot here, and once more we can only assume that any resulting jobs will have been heavily subsidised by the state (expected costs are £1.5bn) meaning that private companies can recruit extremely cheap employees and will therefore offer fewer jobs at ordinary wage rates. This means that once more real wages will fall and all employees will suffer in the long term.

The issue here is one of emphasis. Politicians are still placing the emphasis of their policies on beating the poor into poorly paid low skilled jobs with a large stick to make the employment market work. Perhaps Labour do not go as far as the Conservatives who by capping increases in unemployment benefit to make work look more attractive, might as well be saying they will make food look more attractive by starving people. But by not offering a genuinely different approach they strengthen the misguided and simplistic argument that the unemployed don’t have jobs because they are lazy.

In the 1980’s the Conservative government of the time wanted wages to be determined by the market. This means that wages are determined at the wage level where the number of people willing to work (S) equals the number of people that employers needed (D), and so anyone who is not attracted to the labour market at the current wage levels remains unemployed.

Thatcher and her party knew this when they championed the policy, they wanted to reduce wage rates by ending the focus on full employment as a political priority, and they were successful. It is however somewhat hypocritical to then complain about those who have looked at the market and chosen not to sell their efforts at the current rate, since this was exactly the point of the policy that they implemented.

I am not suggesting that unemployment is not a problem, quite the reverse. Not only does it lead to higher costs for the state and worse outcomes for the unemployed themselves, but it also causes a myriad of social problems for both the long term unemployed and society at large. However, the market alone will always leave some people unemployed. The government is trying to correct this by reducing everyone’s real wage rates (although they don't put it like this in interviews, they say "increase labour market flexibility") to encourage businesses to employ more people. Unfortunately with lower wages we can't buy as much and so the amount a business can sell falls and so the amount of profit a businesses can make falls. As a consequence of falling sales, employers have to cut costs to try to maintain profits and they usually do this by sacrificing employees (which incidentally the government would like to make easier), and so the policy actually results in higher unemployement.

The argument for using this approach is that if we can achieve full employment through it (we can’t), employers would be forced to compete on wage rates and so in the long term wages would be higher. Make no mistake, anyone on the right of the political spectrum not only expects some unemployment but they desire it since this keeps costs lower for the businesses that sponsor their political campaigns. If we really want to solve the problem of unemployment and the other issues that this causes then we need a different approach.

The market cannot solve the problem of unemployment on its own. All the market does is moderate the price of wages. More specifically, if there is some unemployment in the economy, the market keeps wages low. The Conservative workfare programme and Labour’s new proposals seek to solve this problem by subsidising the cost of employees and forcing people into work but this will not work since it does not encourage employers to demand more employees, they will just employ the same number but at a lower cost and make more profit as a result. The only way to solve this problem is to increase the demand for employees so that wage rates increase and therefore attract more people into the jobs market.

Since time immemorial this is the way that civilisations have solved this problem. Egypt built the Pyramids, Rome built the Colosseum and Britain built the NHS. The current approach to solving our problems in contrast, is to strip down and sell off everything we have achieved as a nation and pretend that our previous projects failed, and it will not work. What we need to do is engage in more ambitious programmes like the NHS which employ people, both to construct them and to run them.

 

By doing this more people are required to work which pushes up wage levels and makes us all better off immediately since employers now have to compete for our services by offerring higher wages. It also creates more jobs so that people can contribute to the economy. Once people are employed they spend the money they earn in the local community, in shops, bars and restaurants boosting our economy even further. This activity even creates an increase in the tax that government receives and a reduction in unemployment costs, and therefore allows us to pay for the projects by simply starting them.

Let’s build more schools, more hospitals, more housing. Let’s expand our science and space programmes and fund university research into projects like developing clean energy that both serve us as a community but just as importantly provide jobs and prospects. Let’s stop vilifying the unemployed as we sell the jobs that they could have done to cheaper countries and then criticise people for not working. Yes there are other issues, inflation for one and the cost of the projects for another. However, the nation's debt situation was far worse when we built the NHS than it is today, and although inflation can be a huge problem, as long as we ensure wages keep up with prices then we will find that the real cost of living falls as our mortgages and other daily costs become more affordable.

Our problems are not insurmountable, they aren’t even new and nor are the answers. Keynes suggested this approach in the 1930’s and we used it to build the welfare state. The answers are older than that even, they have been used by great civilisations for thousands of years by building better states for the benefit of everyone. China is following this model as we speak and they will soon become the largest economy in the world due to the continued economic growth that they have experienced as a result.

Let’s stop playing this hypocritical and self-defeating blame game and start doing the things that will benefit our economy by benefitting us all. That's how we get rid of the "Unemployed Scroungers"!

Back Wealth Creators... Back!

David Cameron suggests, in fact he demands that the balance of our economy is changed so that the private sector is larger and the public sector smaller. His rationale for this is that only the private sector contains wealth creators, whereas the public sector only recycles taxes. To understate the point somewhat, this is both overly-simplistic and fatuous. In short, it is just plain wrong!

Speaking on the closing day of the Conservative Party Conference the PM said that Britain must get behind its wealth creators as he announced further cuts to the public sector. Let’s explore that, for example what do we mean by wealth creators? Is this a collection of people who generate money for its own sake or are we talking about real value added to the economy? These are very different things, the former includes investment banking traders who simply speculate on markets without producing anything, the latter are those that actually produce physical products and services that increase the quality of our lives.

John Fallon a recent appointment by Cameron as Vince Cable’s number two cites private equity bosses as an example of wealth creators. Therefore we can see that this government’s emphasis is purely on people looking to make a profit from their use of money rather than actually contributing something solid and worthwhile. This also explains the Government’s reluctance to interfere in a financial sector which caused the 2008 financial crash and ensuing recessions through irresponsible trading. This is certainly the kind of activity that this government favours, it is after all where the Cameron family fortune was earned – Cameron’s farther ran off-shore tax havens for the wealthy.

If we really did want to increase wealth by increasing the value that our economy adds then our politicians would perhaps have a closer look at how money actually travels around our economy. 

As you can see from the diagrams above both private and public sectors are simply ways in which we organise money flows around our economy. If we wish to increase that flow then we have to develop the efficiency of the areas we currently have and/or invent new areas. It is a common misconception that the private sector does this better than the public sector. Think about hospitals, schools, roads, trains, the postal system and many more. Only the public sector can generate the vast sums of money required to finance such ambitious projects, since the private sector relies on sales to survive and therefore cannot take such large scale decisions without the potential of immediate sales. Only the Public sector can make the initial outlay which is why we see these industries beginning as public sector entities before being privatised once they are stable enough to produce a profit for those lucky enough to be in a position to buy them on the cheap.

As was shown in my previous post "Does Privatisation Work?", neither is the private sector more efficient than the public sector. Indeed, any efficiency gains that are made benefit only the shareholders and senior managers of the organisation in question. There will be those who tell us that the public sector does not generate wealth and at the moment this may be true to some extent, but only because all of the wealth generating industries have been stripped from it and given to those who exploit assets purchased by the tax-payer to generate their own wealth. This means that the added value that is being generated from these divested industries is not reinvested to improve conditions in the UK.

Examples of this are easy to find, according to the Telegraph profits of the FTSE 100 companies doubled to £73Bn per year between 2003 and 2007, and again to £150Bn between 2007 and 2010 despite the economic conditions. The Guardian reports that the tax they pay as a percentage of profits had fallen to 26% from over 35% by 2011. The Telegraph goes on to develop this point explaining that 37% of FTSE companies paid no corporation tax whatsoever, while the others employed various means to significantly reduce their tax bills. Meanwhile UK unemployment was increasing, real wages were falling and the Government has used lack of money to justify an austerity push which has reduced all of our standards of living and decimated the public sector. Still being the socially responsible entities that they are the FTSE companies responded by setting up new ventures in tax havens so that they could avoid their tax obligations to an even greater extent – all but two of them have done this. And this money does not find its way back into our economy through spending as so many of the shareholders are based in other countries or are actually other organisations.

This pattern - the focus we have had on private sector wealth creators over the past thirty years - is the very reason why we have growing inequality in our country. The Private sector has one legally enshrined goal – to maximise value to shareholders. This means that they have no incentive to improve the quality of life for employees, no incentive to reduce pollution, no incentive maximise value to customers and no incentive to improve the outcomes for their local community.

There is little evidence to suggest that public sector organisations cannot provide the same added value as the private sector beyond the spin of politicians who have become blinded by their own dogma. In actual fact the public sector is better placed to maximise added value since less money is leaking from the system in the form of the exorbitant profits that large private businesses accrue. Imagine a situation where some of those profits had been reinvested into the UK economy. Not only would this have served to improve the services that we all share, but there would have been indirect effects such as reduced unemployment and the consequent increase in consumer spending which would actually have benefitted private businesses as well in the form of increased sales.

More than this though, public sector organisations have far less incentive to cheat in the way that we have seen the banks manipulate the Libor rate, or in the way that we see huge multinational companies avoiding tax – that is avoiding contributing to the society where they generate their vast profits. But if we try to explain this to a politician - or indeed try to explain this to anyone who has done well from the private sector – they point ruefully to the 1970’s and tell us that the public sector doesn’t work.

Let’s be honest, the public sector was not hugely efficient in the 1970’s. There, I said it! But this does not mean it can’t be. Let’s remember the fact that the post-war move toward a more collective society happened because the traditional private sector alternative was not able to produce the required outcomes for everyone. Instead of persevering and working to improve the functioning of the public sector, Margaret Thatcher and Keith Joseph decided instead to research how they could make free markets more palatable so that we could return to a system that was better for them. The result is what we have now: A divided, unequal and self obsessed society where people are treated as commodities to be used to maximise value to shareholders. A society where people are reduced to [human] resources whose only real purpose is to increase profits for an organisation, not to improve the society that they are a part of.

Cameron’s view builds on Thatcher’s ideas in that it asks us to sacrifice those in the public sector, and below the top of the private sector so that we can further the pursuit of riches for a few. For example he wants to relax employment rights to make it cheaper and quicker for businesses to sack you if they are not making a profit. He wants to reduce you to a serf who can be bought and sold on a whim. His vision will see more jobs lost with the consequence of ruined lives as he seeks to make what is already the most flexible labour market in Europe even more flexible for the benefit of the large multinational companies and rich captains of industry who sponsor his political career.  His vision will lead to an intensification of the process that has led to triple digit increases in wages for the top 1% while the rest of us have seen wages increase by an average of just 47% between 1986 and 2011 (Guardian). This is growing inequality in action with frightening results such as the fact that the richest 10% of Londoners are 273 times more wealthy than the poorest 10% (Guardian) - this is why the queues are so long at food banks.

Nonetheless, we must take a leaf from Thatcher’s memoirs and rethink our public sector as she re-branded the private. We must hold on to the ideals of equality of opportunity and collective endeavour but design ways for national organisations to be more efficient. The public sector is more difficult to manage than the private sector precisely because it seeks far more than the one-dimensional aspiration of increasing the wealth for a few. This does not mean however that it is impossible and anyone with even the most rudimentary conception of our society’s problems must conclude that change is not only desirable but that the need for it is urgent.

In response to the growing private sector assualt, we must develop an alternative that provides the best outcomes for the masses, for the 99%, for all of the people within our society and for those beyond it. An alternative that is more ambitious than the private sector aims of wealth creation. An alternative that not only provides better outcomes in terms of adding value, but which goes beyond it to improve the quality of life for everyone. This is not change for changes sake. We urgently need to stop “wealth creators” gorging themselves on our rights, our lives and the fabric of our society. We cannot continue to turn a blind eye to the destruction of lives, and we cannot continue to accept growing poverty and inequality as the collateral damage of an inefficient, immoral and unfair system.

The Sale of The West

For the first time in its long history, Great Britain is no longer self-sufficient. For example, we now import over 40% of our food, and according to ‘Food Matters’ this figure is rising.  Indeed, comparatively speaking we no longer actually produce much of anything at all. We have sold the future of our children and our grandchildren for the benefit of a few cheap consumer goods and an annual holiday abroad.
 
Hijacked Economy
To appreciate the problem, you have to see what the economy really is, and what it’s for. In statistical terms it is the total value of the goods and services produced by all of the people in the country. But it’s more than that; it is a collection of all of our jobs taken together, all of our work taken together. Our economy is the collective value of our efforts as a people, a nation. The outcomes are supposed to feed us and clothe us, to provide healthcare and many other things. But our economy is also supposed to allow us to contribute to a collective effort to develop and improve living standards for everyone. It is supposed to be “Our” economy!

Not only do we not produce as a country the things that we need to survive. We also do not give our people the opportunity to contribute to their own existence.  The government tell us that UK unemployment stands at 2.6m people a dubiously low figure. The TUC’s alternative count is over 6m people and rising, meaning that over 16% of UK people of working age are not able to contribute to their own standard of living. Unfortunately however, wherever the true figure lies, that isn’t even half the story. According to the UK government’s own figures over 13m working people exist on less that 60% of the average income, and more than 7m people (again in work) in 3.6m households live in extreme financial stress unable to feed themselves and their families at the end of each month.

 The Political Lies

The political right, and the right wing press would no doubt tell us that this is because the unemployed are lazy, they won’t work hard enough. Lest we forget however that France have a maximum 35 hour working week and the average real income over the channel is still a third higher than ours. In Holland people work among the shortest working week in Europe and yet their average income is 50% higher than in the UK. This is not about effort unless everyone in The West is lazy, this is about the way we allow our economy to operate.

The UK economy is now service based (services account for 74% of GDP and rising) with virtually no primary industries such as farming (7%) or manufacturing industries which together now account for only 11% of UK GDP having steadily fallen from 22% in 1990 and considerably over 30% in the 1970’s. We have all noticed and much has been written about corporations outsourcing jobs to cheaper countries, and the vacuum has been filled with low skilled, low paying service sector jobs.  Perversely we even have an industry which specialises in outsourcing UK jobs and employs directly or indirectly 3.1m people to do it. 10% of the UK workforce are dedicated to taking away jobs from British people.

 
Outsourcing
Through the media we are constantly told that economic growth is the only way to improve standards of living, and yet we choose to send our work elsewhere. In contrast, let’s look at current successful economies. The undisputed engine room of the world’s economy is now China, and they will shortly become the largest economy in the world too. The secret of their success has been export led growth, a reliance on improving skills and maximising output as opposed to paying people in other countries to do it for them. For evidence of this witness the fact that China produces 20% of the world’s manufactured goods already. Despite this, and while the west continues to languish in austerity-fuelled recessions, the Chinese government have recently announced £800bn of further government spending in an economy experiencing over 7% growth.

This is an even more serious threat than it sounds and not just for Britain. The western world relies on China for its manufactured goods, just as it does on Africa and South America for cheap agricultural produce. As these economies grow (and they are growing at astounding rates) their currencies will increase in value and our imported goods will cost much more money as a result. The Chinese Yuan has increased in value by 40% over the last ten years meaning that goods from China now cost 40% more. Very soon this means an end to cheap consumer goods and food. Of even more concern than this is the fact that we do not have the skills to produce these things ourselves anymore and so we will have to pay higher prices or go without. We have relied on other people to produce things for us for so long, that we couldn’t do it now if we wanted to - or even if we had to…

The Mortgage on Our Futures
What this means then is that over the last 40 years we have profited from the fact that people in developing countries have a very low standard of living and have been prepared to provide both our luxuries and our necessities at extremely low prices. We have profited from the poverty and the misery of others, and sold our souls to do so. But it is not only us that will have to pay the price when the tide turns, it is our children and our children’s children. We are leaving the next generation with an economy they cannot contribute to beyond low paid, low skilled service sector jobs - regardless of how they perform in education. Just as worryingly though, we are leaving them without the skills or the infrastructure that they will need to provide for themselves. Instead they will be doing anything from tracking the stock market to serving drinks, as we slowly forget how to grow food, catch fish, mine for minerals, make things or generally satisfy our basic survival needs.

The ‘Sale of The West’ is real in that we have sold our infrastructure and our independence for a few cheap distractions and the illusion of progress. But with these we have also sold the aspirations of our children and their very ability to provide for their own needs. We have mortgaged the future of our countries and it’s almost time to start the repayments!