A striking characteristic of the last few decades has been the way the so-called “progressive” political parties have adopted policy frameworks and thinking that were previously the exclusive domain of the conservatives. Nothing could be more obvious than the way in which all the major parties around the world now speak neo-liberal economics as if it was the only way of thinking about the economy and economic policy. Slowly but surely the options that parties are willing to consider have been narrowed down and policy is now conducted in a straitjacket which cannot deliver prosperity for all as well as advancing environmental objectives. It is understandable that during recessions expectations become downgraded by workers about the types of jobs they will except, by consumers about the level of spending they can sustain, and by firms about what investment projects will be viable in the period ahead, etc. But it is strange that when the prevailing economic paradigm not only caused the great recession but is prolonging it at great cost, that the major parties remain locked down in the neo-liberal mire – blinded to other options. It is clearly time to think outside of this box and that is what I try to promote in this blog. But we also have to be careful that when we go wandering we are still on solid macroeconomic ground.
An example of how restricted the mainstream political thinking has become was provided in the UK Guardian article (January 9, 2012) – Responsible capitalism is Labour’s agenda – which was written by one Stewart Wood, who is a shadow cabinet minister in the British Opposition Labour party. He was an advisor to Gordon Brown at the Treasury from 2001 to 2010.
So a Labour party insider for sure.
Stewart Wood says that:
In Europe, economic crisis has thrown up a political paradox: in the wake of the most spectacular failure of global markets since the 1930s, electorates have turned to the right rather than the left. They have done so in part because of a concern that in straitened times the policies of social democracy come with a price tag that is unaffordable.
And in no small way, was his own party responsible for perpetuating that myth. First, they allowed the financial sector to run riot.
Remember the classic 2005 – Speech – by the Gordon Brown to the Confederation of British Industry (CBI):
The better, and in my opinion the correct, modern model of regulation – the risk based approach – is based on trust in the responsible company, the engaged employee and the educated consumer, leading government to focus its attention where it should: no inspection without justification, no form filling without justification, and no information requirements without justification, not just a light touch but a limited touch.
The new model of regulation can be applied not just to regulation of environment, health and safety and social standards but is being applied to other areas vital to the success of British business: to the regulation of financial services and indeed to the administration of tax. And more than that, we should not only apply the concept of risk to the enforcement of regulation, but also to the design and indeed to the decision as to whether to regulate at all.
The risk-based approach badly failed and was always going to fail.
Who was Gordon Brown’s “light touch” champions? Answer: the former City Minister Ed Balls who also pushed for increased financial deregulation while working in the British Treasury. And Stewart Wood was, presumably, in the thick of this at the time as well.
You might need a reminder of some of this – Gordon Brown admits banks needed more regulation – which reports on an interview with Gordon Brown who “admits he had been influenced by bankers’ lobbying”.
Second, when the crisis hit they became obsessed with public debt ratios and ratings agencies and began the fiscal austerity push as a way of shoring up votes in the last national election. The Labour Party began what the Tories are now aiming to finish. The damages that both parties have or are inflicting on the British economy are substantial.
Not to be worried by some history, Stewart Wood claims that Labour is seeking to understand “what does it mean to be on the left in tough economic times”.
He sees the answer in the current mantra outlined by the Labour leader – responsible capitalism – which aims to rewrite:
… the rules of our economy to reward responsibility, produce a more sustainable prosperity and ensure that it works for the many rather than just the wealthy few … [this] … must become the platform for social democratic politics after the crisis.
Last week I considered how Labour was casting its responsible capitalism agenda in terms of welfare cuts to “reward responsibility” etc. Please read my blog – Back to William Beveridge requires a commitment to true full employment – for more discussion on this point.
But today I want to focus on the perceived constraints that Labour is advancing.
Stewart Wood said that this new Labour agenda is:
… the right choice for Labour in an age of fiscal constraint, and the right choice for Britain’s economic interests.
Who defines this was an age of fiscal constraint? What defines “an age”? Politics is the art of getting the attention (and support) of the public and providing leadership in the battle of ideas.
It is not the act of meekly lying down and accepting the main agenda of the opposite side of politics and then nuancing within that framework to try to provide some differentiation.
The dominance of “fiscal constraint” is a fabricated neo-liberal agenda without any basis in an understanding of how the monetary system actually works. It is an agenda that is part of a theoretical framework that extolled the virtues of the so-called “self-regulating” market and put pressure on governments to deregulate and relax the official oversight. The very pressure that Gordon Brown admitted he caved in to.
It is the framework that created the dynamics that manifested as the crisis and is now causing the crisis to endure at great cost to various segments in the population.
It is the framework of financial market hegemony. It is hardly an appropriate framework for “the left” to be meekly accepting as the rules of the game.
The “age of fiscal constraint” is temporary and ultimately governments will have to return to fiscal stimulus as their economies weaken. Otherwise, it will be a very grim future. Again, hardly the basis for a “left” party to be embracing.
Amazingly, Stewart Wood followed that statement with this:
Britain’s deficit is now 8.4% of GDP. When Labour was elected in 1997 it was 3.4%. In that same year debt was 43% of GDP. It is now 68%, and will peak in 2014-15 at 78% of GDP. Combine that with flatlining growth under this government’s failing policies, and continuing weak demand across the west and the implication is clear: we will be living in straitened times for years to come.
He didn’t care to provide any context for that data. He didn’t explain that these ratios are largely meaningless for a nation such as Britain that issues its own currency and can set whatever interest rates (and therefore bond yields) that it likes.
He didn’t care to say that Japan has public debt ratios over 200 per cent of GDP and can still use fiscal stimulus to keep its unemployment down around 1/2 of the British unemployment rate.
The only reason that Britain “will be living in straitened times for years to come” is because all parties have accepted it is an “age of fiscal constraint”.
Stewart Wood should have admitted that this emphasis on financial ratios is misguided and a part of a deliberate campaign to mislead the public and make them apprehensive. The fear of the unknown. The Labour Party would be better off educating the public about what these ratios actually mean and how they provide no real constraints at all on net public spending in Britain.
The “straitened times” are the result of a public that has been lied to by its politicians – on all sides of politics.
He then said that the:
The 1980s supply-side revolution from the right has run its course: what Britain needs is a supply-side revolution from the left, to build a stronger and fairer economy. We will need different kinds of banks and stronger competition in the banking industry; corporate governance reforms to incentivise good ownership models and longer-term business strategies; ensuring that companies see the continuing upskilling of their workers as an obligation and not simply a luxury; and the courage to challenge vested interests in the economy that charge excessive prices for energy or train fares and squeeze families’ living standards.
There are two sides to an economy. The supply and demand sides. What Britain desperately needs is for the demand side to ensure that growth is occuring and that needs more spending – and in the current environment that means more public spending is required.
Then the supply side has to be invigorated to ensure that the potential of all people in Britain can participate and contribute to the growth.
That means massive boosts to public education, public housing and other infrastructures that will improve the opportunity sets available to the disadvantaged and the youth. It will definitely require large-scale public sector job creation with training ladders in-built to the jobs to advance the skill development of those that have been left behind.
It needs a major overhaul and renewed regulation of the financial sector – eliminating all the unproductive speculative activities and forcing banks to be banks rather than gamblers.
You can see how far my vision is from his.
The British Labour Party, like the Australian Labour Party, like the US Democrats and like so-called social democratic parties in most other nations have to abandon the neo-liberal strait-jacket before they will be able to craft a new agenda for themselves. Otherwise they will always appear to be “conservative-lite” versions of the real thing and will increasingly lose electoral support.
That should be the first step in their recovery. To understand how the monetary system actually operates and the opportunities that these operations provide a sovereign government to advance domestic policy targets – such as full employment and equity within an overall goal of environmentally-sustainable growth.
They will never achieve those goals while assuming fiscal policy should be pro-cyclical (the “age of fiscal constraint”).
We can juxtapose that flawed vision with a proposal from the UK-based New Economics Foundation for radical changes in the way the labour market is organised.
The New Economics Foundation says it is:
… an independent think-and-do tank that inspires and demonstrates real economic well-being.
We aim to improve quality of life by promoting innovative solutions that challenge mainstream thinking on economic, environment and social issues. We work in partnership and put people and the planet first.
So they are aims that I can relate to clearly.
In February 2010, they released their public policy proposal – 21 hours – which they summarise as:
A ‘normal’ working week of 21 hours could help to address a range of urgent, interlinked problems: overwork, unemployment, over-consumption, high carbon emissions, low well-being, entrenched inequalities, and the lack of time to live sustainably, to care for each other, and simply to enjoy life.
Most recently, the proposal is getting a run in the media presumably because NEF are promoting it via a public lecture – Examining the case for a shorter working week – in London tomorrow.
The UK Guardian article (January 8, 2012) – Cut the working week to a maximum of 20 hours, urge top economists – chose to advance the NEF cause.
The Guardian said that the NEF proposal would ensure that “there would be more jobs to go round, employees could spend more time with their families and energy-hungry excess consumption would be curbed” if a 20-hour working week was formalised.
The article also mentions the “forthcoming book” by Robert Skidelsky, who wrote the biography of Keynes, and his son which argues that “rapid technological change means that even when the downturn is over there will be fewer jobs to go around in the years ahead”.
Skildesky is quoted as saying:
The civilised answer should be work-sharing. The government should legislate a maximum working week … The real question for welfare today is not the GDP growth rate, but how income is divided.
So the argument here is that we should “think less about the pursuit of growth” and more about distributing the benefits of (presumably) lower growth.
There are thus two broad themes here. First, we should spread the work to reduce unemployment. Second, we need to have lower growth for environmental reasons.
The NEF seem clear on their motivation:
A move towards 21 hours is, in our view, essential if we are to achieve three vitally important goals: 1) a decarbonised economy not dependent on infinite growth; 2) social justice and well-being for all and 3) a sustainable environment.
I agree with these aims.
But digging a bit further you start to appreciate that the NEF is operating in a neo-liberal macroeconomic paradigm which I consider distort the options that they might see as being consistent with their legitimate aims.
In the context of the opportunity set they perceive, they say:
Since we cannot grow the market economy, we cannot expect much expansion of tax revenues to invest in health, education, social care, and other essential services. The only real potential for growth lies in the human resources of the ‘core’ economy. As we explain later, distributing paid and unpaid time more equally across the adult population makes it possible to supplement scarce public funds with abundant and uncommodified human assets. That way we can increase the resources we deploy collectively for helping each other and meeting our respective needs.
The problem is that the real resource that the public sector can make available to citizens (in “health, education, social care, and other essential services”) really has nothing to do with the “expansion of tax revenues”. The real resources are either available or not. The public sector can purchase anything that is available for sale in its own currency.
Adopting the idea that the government is budget constrained like a household is a neo-liberal conception.
Public funds are never “scarce”. How can they be scarce when the government is the monopoly issuer of the currency?
Where does the 21 hours proposal come from? Well the answer is from a tricky bit of arithmetic.
The NEF use Time Use Survey which covers:
… everyone within the ‘working age’ band – employed, unemployed and those described as ‘economically inactive’, which means they are not employed or looking for a job. On average, they spend 19.6 hours a week in paid work – 24.5 hours for men and 15.4 hours for women. So these averages are close to our suggestion for a ‘normal’ working week.
In the real world (as they acknowledge) these “averages mask the way paid and unpaid hours of work are unevenly distributed, especially between women and men but also between rich and poor”.
They think is it a sound policy “address these inequalities by redistributing working hours”.
An alternative source of data comes from the UK Office of National Statistics – Labour Force data. The latest edition is December 2011.
That data shows that the 913.7 million hours were worked each week in the September quarter by 29,069 thousand workers. The average weekly hours were 31.5. For full-time workers the average weekly hours was 37 and for part-time it was 15.5 hours. This is in the paid-work sector.
Some simple analysis confirms that employment peaked in Britain in June-quarter 2008 (29,536 thousand) and since then 467 thousand odd jobs have been lost in net terms.
948,819 extra workers are now unemployed than at the June-quarter 2008. The difference between the jobs lost (net) and the rise in unemployment is due to the growth in the population (1.2 million) which despite the fact that labour force participation has fallen by 0.5 percentage points (hidden unemployment has risen), the labour force has still grown by 481,766.
The actual hours worked peaked a quarter earlier (March-quarter 2008) at 949.3 million hours and so from peak to the present there have been 35 million hours have been lost overall.
The reason that total actual hours worked peaked a quarter before total employment peaked is that the firms started to adjust to the declining economy by adjusting the full-time/part-time mix. That is a common strategy early on in a downturn.
Most of the labour market underutilisation is being borne by the unemployed and to a lesser extent the hidden unemployed.
According to the OECD involuntary part-time work data about 7 per cent of part-time workers desire to work more hours.
While long-term goals which see the average working week fall may be sensible, the immediate answer to reducing the hardship in Great Britain imposed on it by the crisis is to restore the lost hours of work.
That should be done by increasing the number of people employed in proportion with the desires of the workforce for hours of work.
The obvious question is what happens to a person’s income when they go from working on average 31.5 hours to 21 hours per week?
The NEF consider this issue as the “most obvious transitional challenge”.
… a shorter working week would reduce the amount of money people can earn. Those on low rates of pay would be hardest hit. So moving towards 21 hours could be seen as adding to the burden of people who are already poor and powerless. Many now have to work very long hours just to make ends meet.
The median weekly full-time pay in Britain is £489 and which is about £15 per hour (based on average weekly hours worked). So if the median-wage full-time worker worked the average week (31.5 hours) they would being paid about £15 per hour.
If that same work was restricted to working 21 hours per week their wage would fall to £326.
The NEF say that at the lower end with the “current minimum wage of £5.80 an hour”:
… a 21-hour week would bring in £121.80 a week …
So we are talking about huge reductions in weekly income and in the former case would place them only just above the “Joseph Rowntree Foundation’s Minimum Income Standard for Britain” (of £13,900 a year before tax in 2009) and in the latter case it would place them well below the “acceptable standard of living”.
It gets worse when there are children involved.
They claim that the lost income problem “is not insuperable – for at least two reasons”:
First, these figures assume spending in line with current patterns of consumption. The shift towards 21 hours is part of a wider transition that includes decarbonising the economy, promoting prosperity without growth, and changing assumptions about how much consumption is ‘enough’. The criteria for deciding how much income is ‘enough’ may be adjusted accordingly. Secondly, the shift is intended to be incremental, with gradual reductions in working hours over a decade or more. This gives people time to adapt expectations and lifestyles. It gives policy-makers time to design and implement supportive measures. And it gives employers the chance to raise hourly rates gradually as incentives improve and hour-for-hour productivity increases.
Note “may be adjusted accordingly”.
There would have to be massive redistributions of income required to make this vision coherent.
Some general points about proposals that want to reduce the working week.
First, proponents argue that in the short-term it allows the burden of recession to be shared instead of a small relative percentage of workers bearing the costs in the form of unemployment. However, given that recession does not impact evenly on sales and across firms (that is, some industries and therefore firms are more vulnerable) this “sharing” is not possible. Some firms cannot survive even with shorter hours while others do not need to cut hours at all.
The French have experimented with shorter-working weeks for a long time as a strategy to reduce their terrible unemployment record. The problem is that while it has improved the lives of many of those in employment it did virtually nothing for the unemployed. The research evidence suggests that many people in say Paris took advantage of the four day week to take “long weekends” in properties that they purchased within 100 kms or so of the city. New sports grew – golf, gymnasium activities etc and the housing market on the periphery of Paris boomed. But the unemployment rate hardly changed.
Second, unemployment requires some workers to lose all their pay whereas sharing hours would proportionately reduce pay for all workers. While there is some merit to this argument, it doesn’t help those workers who are on the margin of solvency with respect to their nominal contractual commitments (for example, mortgage payments).
Given property prices in Britain it is inconceivable that nominal incomes would be able to sustain private housing if all workers were restricted to 21 hours a week.
Further, given that wage income is a significant component of final demand – a widespread cut in pay (via less hours) would see aggregate demand fall and unemployment worsen. Some proponents of short working weeks argue that the pay issue can be overcome if the government pays workers a portion (might be 100 per cent) of the difference they earn from the firm and what they would have earned by working a full week.
This is of-course the solution that is followed, to some extent, in countries such as Germany. The solidaristic nature of German society (and European societies in general) leads firms to prefer to shorten hours of work rather than sack their workers. This strategy is, in part, helped along by generous government payments to workers to prevent them losing too much of their wage income. The firms benefit by maintaining a close bond to their workers and avoid having to train new workers when production levels rise again.
However, it is problematic if there is significant casualisation in the workforce. What is the standard working week that the subsidy would be based on?
More generally, others might respond and say that the Government can provide income guarantees to overcome this problem. Then we enter the discussion about the virtues of Basic Income versus Employment Guarantees which I addressed in these blogs – Income or employment guarantees? and Would the Job Guarantee be coercive?.
As an aside, in the recent discussions about the Job Guarantee, I doubt whether many of the critics have read these blogs contrasting income and employment guarantees.
Other suggestions to the pay dilemma include the provision of tax credits to firms to cover paid time off. So a government subsidy in another guise. Whether this is the best use of government spending is moot given the opportunity that it provides private firms to abuse the system.
Third, some argue that sharing hours is good because it frees up more time for leisure and families. This is definitely at the forefront of the NEF proposal.
We all need time to spend on everyday activities, beyond basic personal maintenance, that we choose. These are the things we do for ourselves and for or with people close to us – seeing friends and neighbours, walking, cycling and other kinds of exercise, playing games, making and listening to music, inventing and creating, watching movies and TV, cooking, reading, studying, reflecting, hanging out, doing ‘nothing’… however described, our ‘free time’ is not strictly part of any productive or reproductive regime, but important nonetheless. It gives texture, space, and individuality to human experience, and underpins our sense of autonomy.
Which are all interesting and beneficial ways to spend our time.
So cutting the working week, by definition, provides more time for other things. But while that might benefit some it may also disadvantage others, especially lower paid workers. Leisure and income tend to be complementary in this consumer age and a loss of pay may reduce the capacity to enjoy leisure.
The NEF will argue that we have to break the link between leisure and the consumption of material goods. To some extent that can be done but probably not to the scale that would allow all of us to have much lower incomes and abandon the required material consumption and still enjoy our leisure time.
They don’t provide a convincing modelling environment (at this time) to answer those concerns.
Fourth, proponents say that there would be less congestion on roads and public transport means which would make for higher standards of living.
Sure enough. Flexible hours would spread the traffic usage across a broader spectrum of available hours. But why not just petition for better public transport and improved bicycle paths? We don’t need schemes that cut workers pay to improve transport systems.
What we need is a commitment by the Government to build high quality public infrastructure. If they saw the recession as an opportunity to accelerate the construction of public spaces (including bike paths and better transport) then a lot of the need to cut hours would disappear as the net government spending underwrote aggregate demand and jobs.
I agree that we need solutions based on “collective will” which allow for redistributions of income and more equitable access to real resources.
But the starting point of this for me is that we empower the sovereign government to use net spending (deficits) to ensure there are enough jobs available for all those who want to work.
Governments have an obligation to create work if the private market fails to create enough. To me that is the starting point of any progressive agenda – demand that the Government use its fiscal capacity to generate enough jobs! I conclude that a lot of the progressive rhetoric misses the market badly in this respect.
Where I think the NEF vision fails is that they want to significantly reduce paid work and enhance leisure. But there is a prior debate that should in my view be had – and I am referring to the future of paid work is clearly an important debate.
The traditional moral views about the virtues of work – which are exploited by the capitalist class – need to be recast. Clearly, social policy can play a part in engendering this debate and help establish transition dynamics. However, it is likely that a non-capitalist system of work and income generation is needed before the yoke of the work ethic and the stigmatisation of non-work is fully expunged.
The question is how to make this transition in light of the constraints that capital places on the working class and the State.
Advocates of Basic Income Guarantees think that their approach provides this dynamic. The NEF presumably also think that.
Clearly, there is a need to embrace a broader concept of work in the first phase of decoupling work and income. However, to impose this new culture of non-work on to society as it currently exists is unlikely to be a constructive approach. The patent resentment of the unemployed will only be transferred to the “surfers on Malibu” (using Van Parijs’ conception of life on the Basic Income Guarantee)!
I consider public employment schemes can more effectively make that transition in society.
The Job Guarantee provides a vehicle to establish a new employment paradigm where community development jobs become valued. Over time and within this new Job Guarantee employment paradigm, public debate and education can help broaden the concept of valuable work until activities which we might construe today as being “leisure” would become considered to be “gainful” employment.
So I would allow struggling musicians, artists, surfers, Thespians, etc to be working within the Job Guarantee. In return for the income security, the surfer might be required to conduct water safety awareness for school children; and musicians might be required to rehearse some days a week in school and thus impart knowledge about band dynamics and increase the appreciation of music etc.
Further, relating to my earlier remarks – community activism could become a Job Guarantee job. For example, organising and managing a community garden to provide food for the poor could be a paid job. We would see more of that activity if it was rewarded in this way.
In this way, we can re-define the concept of productive work well beyond the realms of “gainful work” which specifically related to activities that generated private profits for firms. My conception of productivity is social, shared, public … and only limited by one’s imagination.
In this way, the Job Guarantee becomes an evolutionary force – providing income security to those who want it but also the platform for wider definitions of what we mean by work!
I have a lot of sympathy for the NEF proposal although it should be recast in a more coherent macroeconomic framework.
I would not accept that the working hours are constrained. Clearly there are real limits but the constraints are being maintained by poor macroeconomic policy stances reflecting the neo-liberal biases that dominate government.
The NEF might reflect on the fact that they seem to perpetuate those biases.
That is not to say that a major redistribution of working hours away from environmentally-damaging production towards “green” activities is not required. There are various ways to achieve that over time and an increase in public employment biased towards the production of personal care and community development activities would be very effective.
But the overriding problem right now is rising poverty as a result of unemployment and that should be the first thing progressives target as part of a longer-range plan to alter society in the way the NEF envisions.
To reduce unemployment we need more hours of work overall not job sharing.
That is enough for today!