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Inclusive growth means poverty reduction and declining income inequality

I am doing some work on the way technology can be chosen to maximise employment in the pursuit of advancing general well-being. This is in the context of some work I am doing on advancing what is known as ‘relative pro-poor growth’ strategies in Africa via employment creation programs and draws on my earlier work in South Africa on the Expanded Public Works Program. In the current work, I have been assessing ways in which the Labour Intensive Public Works program in Ghana has been deployed to serve this purpose. The problem one confronts when working as a development economist in less well-off nations is that the institutional bias promoted by the IMF and the World Bank is towards advancing, at best, what we term ‘absolute pro-poor growth’. But that sort of agenda typically fails to strengthen other aspects of a strong civil society because it is almost always accompanied by rising inequality which continues to concentrate power and influence at the top and leads to resources being disproportionately expropriated by the wealthy (and usually foreign) classes. Institutions such as democracy, justice, law and order and causes such as environmental sustainability are then compromised.

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The World Bank should be defunded

Australia is currently being shocked on a daily basis with the revelations in our Royal Commission on Banking, which show that our financial services sector (banks, insurance companies, financial planning, etc) is deeply corrupt, with criminal behaviour clearly rife. Hopefully, many of the top executives and board members of these firms will be prosecuted and do time. Another ‘bank’ that has totally lost any sense of moral compass, not to mention effectiveness, is the World Bank. Its behaviour over the years has been scandalous. Earlier this year we learned that its so-called ‘Doing Business’ strategy deliberately manipulated its reporting to undermine a democratically elected government (Chile). And, last week (April 26, 2018), the World Bank released the Working Draft of its upcoming – World Development Report 2019: The Changing Nature of Work – where it attempted to pressure governments into widespread labour market deregulation, which if carried through would further disadvantage workers and further redistribute national income towards profits. The World Bank has outlived its purpose. It is now a seriously dangerous international institution and progressive governments should set about defunding it.

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Welcome to the ‘homeless’ working poor – a new neoliberal KPI

In advanced nations, poverty used to be a thing of old age, once income had stopped due to retirement and savings depleted. Old-aged pension systems were intended as Welfare States emerged to prevent that fall into poverty. The pension systems reduced the incidence of extreme poverty and the full employment era that followed the Second World War, where governments committed to using their fiscal capacities (spending and taxation) to ensure there were sufficient jobs for all, allowed workers to improve incomes and saving. Research in the early 1970s (particularly from the US, where the pension systems were less generous and working conditions less regulated) started to disclose the incidence of the ‘working poor’. In more recent times, the concept of the working poor has spread from the US to most advanced nations. In this modern era of renewed real wage repression, rising energy costs and housing costs, workers are not only facing increased risk of poverty but also of homelessness. Welcome to Australia – the nation with the second highest median wealth per adult in the world. Yesterday (February 21, 2018), the Australian Bureau of Statistics (ABS) released the – Wage Price Index, Australia – for the December-quarter 2017. Private sector wages growth was 1.9 per cent in the December-quarter continuing the seven consecutive quarters of record low growth. However, with the annual inflation rate running at 1.9 per cent, real wages growth was static. And with real wages growth lagging badly behind productivity growth, the wage share in national income is now around record low levels. This represents a major rip-off for workers. The flat wages trend is also intensifying the pre-crisis dynamics, which saw private sector credit rather than real wages drive growth in consumption spending. And now, the latest data shows that workers are experiencing increased homeless. It is not just a problem of the ‘working poor’ now. Welcome to the ‘homeless’ working poor – a new neoliberal KPI.

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US labour market reality debunks mainstream view about structural impediments

An enduring myth among mainstream economists is that so-called ‘structural’ impediments in the labour market prevent aggregate spending initiatives from government being an effective solution to mass unemployment. According to this view, if the government attempts to reduce the unemployment rate below some ‘natural rate’ then accelerating inflation will be the only outcome. The ‘natural rate’ can, in turn, only be reduced by structural policies – attacks on trade unions, welfare state retrenchment, cutting the minimum wage, and the rest of the litany of neoliberal policies. And, in this view, the unemployed are to blame for their own state – a lack of effort on their part to adequately present themselves to the labour market. The prior view that mass unemployment is a systemic failure to create enough jobs is rejected. A piece of this fiction is that one of long-term unemployed (and other disadvantaged workers) are not capable of being absorbed into employment without extensive re-training and other personal rehabilitation and this also prevents the unemployment rate from falling quickly. The problem with all of these related propositions is that reality interferes and generates outcomes that contradict the assertions. It is quite obvious that if the economy is run at high pressure then firms are forced to scrap prejudice for disadvantaged groups and offer on-the-job training to them to ensure they can maintain market share. In other words, the long-term unemployed do not present an impediment to growth. Events in the US labour market at present are demonstrating this reality.

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The path out of the low wage trap is limited by fiscal austerity

During my postgraduate study years I read a 1954 article by American economist Clark Kerr entitled – The Balkanization of Labor Markets – which attacked the mainstream labour market views that there was mobility within labour markets such that poverty arising from low-pay was a function of workers’ preferences for low education and more leisure (that is, unemployment). As such, there was no reason for the government to intervene to improve wages or job security. Kerr’s thesis was that there was not a ‘single’ labour market accessible to all, where individual mobility would result from personal investment in education and skill development. Instead, he argued that the US labour market was “segmented” by institutional arrangements, which trapped some demographic cohorts into low-pay and insecure jobs. Poverty could arise from these traps. The idea morphed into the segmented labour market literature of the late 1960s and early 1970s. The applications were mostly Anglo because in non-Anglo countries there appeared to be more resistance to institutional arrangements that undermined the chance for workers to enjoy job security with decent pay. However, in recent years (decade) the trend towards precarious work where certain groups (women, youth, migrants) are trapped in low pay and frequent spells of unemployment has spread, with devastating consequences. The largest European economies – Germany and France – are now bedevilled with this issue and with a bias towards fiscal austerity, the path for workers out of the trap is limited.

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Unemployment is miserable and doesn’t spawn an upsurge in personal creativity

Here is a summary of another interesting study I read last week (published March 30, 2017) – Happiness at Work – from academic researchers Jan‐Emmanuel De Neve and George Ward. It explores the relationship between happiness and labour force status, including whether an individual is employed or not and the types of jobs they are doing. The results reinforce a long literature, which emphatically concludes that people are devastated when they lose their jobs and do not adapt to unemployment as its duration increases. The unemployed are miserable and remain so even as they become entrenched in long-term unemployment. Further, they do not seem to sense (or exploit) a freedom to release some inner sense of creativity and purpose. The overwhelming proportion continually seek work – and relate their social status and life happiness to gaining a job, rather than living without a job on income support. The overwhelming conclusion is that “work makes up such an important part of our lives” and that result is robust across different countries and cultures. Being employed leads to much higher evaluations of the quality of life relative to being unemployed. And, nothing much has changed in this regard over the last 80 or so years. These results were well-known in the 1930s, for example. They have a strong bearing on the debate between income guarantees versus employment guarantees. The UBI proponents have produced no robust literature to refute these long-held findings.

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Countering the march of the robots narrative

I read a very interesting Report last week – False Alarmism: Technological Disruption and the U.S. Labor Market, 1850–2015 – published on May 8, 2017 by the Information Technology and Innovation Foundation (ITIF) and written by Robert Atkinson and John Wu. The title is indicative of the message. Somehow, contemporary commentators including many on the so-called progressive Left are stuck in the ‘robots are coming for your jobs’ narrative, which then somehow morphs into a resignation that there will never be enough jobs for all those who desire them, and then surrender, we need a basic income to keep people eating. Apparently, then human creativity will spring forth from the despair of unemployment because the pittance received from the basic income will allow people to engage their inner entrepreneurial spirit with businesses popping up all over the place, great works of art and music being pumped out and all the rest of the basic income camp’s vision of blithe happiness. Pigs might fly! Of course, if this was happening at the pace that some would have us believe then productivity growth would be booming and investment to GDP ratios high. The robots camp then say – well it is only a matter of time – business needs time to adapt to the new technologies available (for example, Artificial Intelligence and the Modern Productivity Paradox: A Clash of Expectations and Statistics). Technological change is on-going and there have been great leaps in techniques in history. But the ITIF research suggests that the current era does not signal it is one of these great leaps, and, in fact, the “US labor market is experiencing unprecedented calm” right now.

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Automation and full employment – back to the 1960s

On August 19, 1964, the then US President Lyndon B. Johnson established the – National Commission on Technology, Automation, and Economic Progress. He established the Commission in response to growing concern during the deep 1960-61 recession that the unemployment had been created by the pace of technological change. Ring a bell! He wanted to an inquiry to explore this issue and come up with recommendations on how to deal with the possibility that automation was wiping out jobs and the future would be bleak. Before the Commission had reported, the Federal government had reversed its fiscal austerity and the resulting stimulus had driven the unemployment back down to relatively low levels. The Commission noted that unemployment was largely the result of inadequate total spending and that the Government had the tools at its disposal to eliminate it. They considered that there would be workers (low-skill etc) who would suffer more displacement from technology than those with more skill etc, but that ultimately even those workers would be able to get jobs if the public deficit was large enough. In this regard, they eschewed pointless training programs that did not provide immediate access to jobs. Instead, they recommended (among other things) the introduction of a Job Guarantee (Public Service Employment) financed by the Federal government but administered at all levels of government. It would pay the Federal minimum wage and be available on demand. This is the preferred Modern Monetary Theory (MMT) approach and rejects solutions that rely on the provision of a basic income guarantee to resolve the problems created by unemployment.

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The conservative opposition to full employment legislation in the US

In 1946, with the Second World War at an end, the world governments turned to the question of how to maintain the full employment that the prosecution of the War had brought in the peace. It was clear that governments could choose whatever unemployment level they wanted through the manipulation of fiscal and industry policies and so the only question was the political will to maintain the full employment state. In the US, the political debate led to the Employment Act 1946, which demonstrated that the parameters of the conflict between conservative and the more liberal forces over what constituted full employment and what responsibility the currency-issuing government had for maintaining high levels of employment. We can see through successive attempts in the US to legislate for full employment how the economic profession has influenced the political process and how we have reached the point today where governments pay lip service to fulfulling their responsibilities as the fiscal agency to maintain sufficient jobs for those who desire to work.

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The rise of the “private government”

I have always found it odd (read totally inconsistent) that people rail against government intervention as if it is a blight on our freedom, but ignore the ‘governance’ of workplaces by capital, who seek every way possible to destroy our freedom and initiative unless it is serving to advance their bottom line. We ignore the benefits of collective goods and laws that protect us, but turn a blind eye to the on-going, minute-by-minute, repression in the workplace. I was reminded of this again as I was reading a new book that came out in May 2017 – Private Government: How Employers Rule Our Lives (and Why We Don’t Talk About It) – by American philosopher Elizabeth Anderson. She studies that way in which corporate America serves in effect as a “private government” minutely and vicariously controlling our daily working lives yet many of us still accept the construction that this is the ‘free market’ operating. It is when the word ‘free’ loses all meaning. I especially like her use of the term “private government” to reinforce the hypocrisy of the elites and the inconsistency of those (workers included) who call for small ‘government’ as if that is the exemplar of freedom.

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