The revolving door – how social policy is co-opted

I mentioned yesterday that I would reflect on the ACTU Jobs Summit, which was held in Sydney on Monday. I was one of the invited speakers. You can download notes of my talk HERE. The revolving door idea has been on my mind a lot over the last decade or even earlier. The revolving door idea – that open door between key institutions such as unions, welfare agencies and the like and government – relates to how political struggle manifests. The revolving door is a process which increasingly sees organisations and institutions that started out to defend the rights of the poor and the workers become co-opted into the discourse of the day to the detriment of their own charters. That is what this blog is about.

There are many examples of the way the revolving door co-opts those who go through it. I have done a lot of research in the past on the Wages Accord which defined the Hawke years and distorted the way unions functioned by created a cosy relationship between unions bosses and government. Meanwhile real wages fell continuously over this period and there was a massive redistribution of national income from wages to profits. Further labour underutilisation remained high throughout the operation of the Accord.

I have also done a lot of research on the development of the unemployment industry which was exemplified in the creation of the privatised Job Network as the way in which the supply-side agenda was delivered to the disadvantaged. These organisations were in and out the revolving door continuously – negotiating with government etc. But the process increasingly led to those organisations and institutions becoming co-opted into the discourse and agenda that didn’t serve their constituencies well. A handy profit could be made by “managing” the unemployed within the brutal regime that was set out by the Government. The unemployment industry has been very profitable so why rock the boat and tell the Government that its system is cruel and a failure? Muted criticisms were sometimes made but never the truth was told by those who went through the door!

Under the Job Network, we saw the churches who took out contracts to deliver labour market services reduce their charity work and embrace for profit the brutal system of breaching. For overseas readers, this involved the providers dobbing the most disadvantaged workers into the government who then fined them for minor breaches of their pernicious activity tests. Cases such as schizophrenics who were unable to attend an interview as a result of their illness were breached (significant loss of benefits). The churches became schizoid themselves – how could they say they were providing charitable and pastoral care when they were the front-line soldiers in the neo-liberal attack on the unemployed?

On the way home from Sydney on Monday, I thought about the famous quote attributed to Lyndon B. Johnson who was asked about his position on the then FBI Director J. Edgar Hoover. LBJ had tried to shaft him but realised evidently that it would be more trouble than it was worth getting rid of him. A NYT journalist wrote on October 31, 1971 that LBJ’s reaction to retaining Hoover was:

Well, it’s probably better to have him inside the tent pissing out, than outside the tent pissing in.

I have often constructed the revolving door idea in this way and several key players (unnamed) have told me in the past that they didn’t like dealing with government on the terms that were offered to them but that it was the only show in town and it was “better to be inside the government’s tent pissing out” than locked outside the policy process as a critic (pissing in). These progressives considered it was a matter of staying in close dialogue with the government just in case they listened to better options. The corollary of their behaviour is that they consider no change in ideas is possible by staying outside the tent and constantly scrutinising it as an independent thinker.

My view is that the revolving door serves to co-opt otherwise decent agendas (and people) until they are rendered in the image of that which the government is seeking to promote for its political purposes. The longer a particular ideology remains in power the closer the “progressive agendas” get to mirroring those ideologies. The language might be a little different; the public posturing in front of TV cameras might suggest that these agendas remain independent but the reality is different.

The process of co-option also means that “new ideas” are rarely entertained – rarely even thought about. The paradigm police are forever vigilant and let it be known via those that come and go through the revolving door what the parameters of any discussion will be.

Evidence is also tampered with to fit the dominant paradigm and the narrative that comes out of the revolving door is tailored to reinforce rather than to challenge. Even when some progressive inside the tent is shouting that the policy is unacceptable you know that in fact they are arguing about a clause or a word or a phrase rather than the substantive direction of say, social policy.

So on Monday, the Jobs Summit was called to find an urgent solution to the rising unemployment given that the stimulus packages have not done much at all to help the unemployed. It was declared unacceptable that we sit by and watch the labour underutilisation rate rise upwards of 15 or 16 per cent over the next 12 months.

I agree and so I accepted the invitation from the ACTU President to speak at the Summit. Here are my thoughts. I started my talk off with four basic propositions:

Proposition 1:

  • The Federal Government chooses the unemployment rate.
  • It can always generate enough jobs.
  • There are always enough productive jobs to that can be done.

This is self-explanatory. The problem is that even though there are millions of jobs that can be done there is an unwillingness on behalf of the federal government to fund them. They claim it is a financial constraint but for a sovereign government that issues its own currency there can never be a financial constraint.

There can be real resource constraints on government spending but when you have huge pools of idle labour resources and things for them to do then it is hard to argue you are up against that sort of capacity barrier.

Mass unemployment (and increasingly underemployment) occurs when net government spending is too low. As a matter of accounting, for aggregate output to be sold, total spending must equal total income (whether actual income generated in production is fully spent or not each period). Involuntary unemployment is idle labour unable to find a buyer at the current money wage.

In the absence of government spending, unemployment arises when the private sector, in aggregate, desires to spend less of the monetary unit of account than it earns. Nominal (or real) wage cuts per se do not clear the labour market, unless they somehow eliminate the private sector desire to net save and increase spending. Thus, unemployment occurs when net government spending is too low to accommodate the need to pay taxes and the desire to net save.

So in that macroeconomic sense, the sovereign government always chooses the unemployment rate. The fact that we have idle labour is down to them making political decisions not to fill the spending gap.

Proposition 2:

  • When you hear that “there is not much fiscal room left” – reject that neo-liberal logic immediately.
  • The only constraint on the Federal Government are the real resources available – 13.5 per cent of labour is idle!
  • All other constraints are ideologically-imposed on the Government by those who have a vested interest in abandoning full employment.
  • All the budget constraints are voluntary!

The analogy neo-liberals draw between private household budgets and the government budget is false. Households, the users of the currency, must finance their spending prior to the fact. However, government, as the issuer of the currency, must spend first (credit private bank accounts) before it can subsequently tax (debit private accounts). Government spending is the source of the funds the private sector requires to pay its taxes and to net save and is not inherently revenue constrained.

Any arrangements they have in place which seek to replicate the constraints that were borne by a government in a convertible, fixed exchange rate monetary regime are voluntary. They choose to tie themselves up and restrict their capacity to generate full employment for political reasons. There are no economic (financial) reasons why they have to adopt these constraints.

The fact is that there has been a consistent neo-liberal lobby that has promoted the idea that full employment as we used to know it (less than 2 per cent unemployment; zero underemployment and zero hidden unemployment) is now no longer attainable because it is inflationary. What they really mean but don’t say is that persistent unemployment and rising underemployment disciplines the wage aspirations of the workforce and allows capital to access a greater share of national income via profits.

Since the advent of high unemployment this has been the norm. There has been a massive redistribution of income from wages to profits in Australia since the mid-1980s. Here is a graph that shows this redistribution. The dramatic redistribution of national income towards capital gathered pace as the revolving door progressively refined its level of sophistication! .

The Federal government’s policy agenda (aided and abetted by the state governments and the rising neo-liberal sentiment) helped this process in a number of ways: privatisation; outsourcing; pernicious welfare-to-work and industrial relations legislation; the National Competition Policy to name just a few of the ways. But they were partnered by those who went through the revolving door. The workers’ own representatives; the welfare lobby and various academics who chose to “do research” for the government under the increasingly directed consultancies.

wage_share

Proposition 3:

  • The supply-side agenda – full employability rather than full employment – has failed.
  • It is a punishment regime aimed at imposing pernicious rules on the victims of the policy failure.

The Post World War 2 economic and social settlement in most Western countries was based on three main pillars. First, the Economic Pillar was defined by an unambiguous commitment to full employment, although this commitment became blurred in the debate about the trade-off between inflation and unemployment in the 1960s.

Second, the Redistributive Pillar was designed to ameliorate market outcomes and defined much of the equity intervention by government. It recognised that the free market was amoral and intervention in the form of income support and wage setting norms was a necessary part of a sophisticated society.

Third, the Collective Pillar provided the philosophical underpinning for the Full Employment framework and was based on the intrinsic rights of citizenship. We accept that our depiction is a stylisation and that there were many individual nuances in particular countries over the period considered.

The Great Depression taught us that, without government intervention, capitalist economies are prone to lengthy periods of unemployment. The emphasis of macroeconomic policy in the period immediately following the Second World War was to promote full employment. Inflation control was not considered a major issue even though it was one of the stated policy targets of most governments. In this period, the memories of the Great Depression still exerted an influence on the constituencies that elected the politicians. The experience of the Second World War showed governments that full employment could be maintained with appropriate use of budget deficits. The employment growth following the Great Depression was in direct response to the spending needs that accompanied the onset of the War rather than the failed Neoclassical remedies that had been tried during the 1930s. The problem that had to be addressed by governments at War’s end was to find a way to translate the fully employed War economy with extensive civil controls and loss of liberty into a fully employed peacetime model.

From 1945 until 1975, governments manipulated fiscal and monetary policy to maintain levels of overall spending sufficient to generate employment growth in line with labour force growth. This was consistent with the view that mass unemployment reflected deficient aggregate demand which could be resolved through positive net government spending (budget deficits). Governments used a range of fiscal and monetary measures to stabilise the economy in the face of fluctuations in private sector spending and were typically in deficit.

As a consequence, in the period between 1945 through to the mid 1970s, most advanced Western nations maintained very low levels of unemployment, typically below 2 per cent. Here is a graph that charts the history of the unemployment rate since 1861. The red segment is the “full employment period” and it stands out in stark contrast to the periods before it and since.

Historical_UR

While both private and public employment growth was relatively strong during the Post War period up until the mid 1970s, the major reason that the economy was able to sustain full employment was that it maintained a buffer of jobs that were always available, and which provided easy employment access to the least skilled workers in the labour force. Some of these jobs, such as process work in factories, were available in the private sector. However, the public sector also offered many buffer jobs that sustained workers with a range of skills through hard times. In some cases, these jobs provided permanent work for the low skilled and otherwise disadvantaged workers.

The full employment commitment (the Economic Pillar) was buttressed by the development of the Welfare State, which defined the state’s obligation to provide security to all citizens. Citizenship embraced the notion that society adopted a collective responsibility for welfare and abandoned the failed dichotomy that had been constructed between the deserving and undeserving poor. The Redistributive Pillar recognised that the mixed economy (with a large market-component) would deliver poor outcomes to some citizen, principally via unemployment. Extensive transfer payments programs were designed to provide income support to disadvantaged individuals and groups.

Underpinning the Welfare State and the economic commitment to full employment was a sophisticated concept of citizenship (the Collective Pillar). The rights of citizenship meant that individuals had access to the distribution system (via transfer payments) independent of market outcomes. Furthermore, a professional public sector provided standardised services at an equivalent level to all citizens as a right of citizenship. These included the public sector employment services, public health and education systems, legal aid and a range of other services.

It was clear that the stability of this Post-War framework with the Government maintaining continuous full employment via policy interventions was always a source of dissatisfaction for the capitalist class.

Following the first OPEC oil price hike in 1974, which led to accelerating inflation in most countries, there was a resurgence of pre-Keynesian thinking. The Keynesian notion of full employment was abandoned as policy makers progressively adopted the natural rate of unemployment approach or the more recent terminology of the Non-Accelerating Inflation Rate of Unemployment (NAIRU) approach. This approach redefines full employment in terms of a unique unemployment rate (the NAIRU) where inflation is stable, and which is determined by supply forces and is invariant to Keynesian demand-side policies. It reintroduces the discredited Say’s Law by alleging that free markets guarantee full employment and Keynesian attempts to drive unemployment below the NAIRU will ultimately be self-defeating and inflationary.

The Keynesian notion that unemployment represents a macroeconomic failure that can be addressed by expansionary fiscal and/or monetary policy is rejected. Instead, unemployment reflects failures on the supply side failures such as individual disincentive effects arising from welfare provision, skill mismatches, and excessive government regulations. Extreme versions of the natural rate hypothesis consider unemployment to be voluntary and the outcome of optimising choices by individuals between work (bad) and leisure (good).

As, what is now referred to as, neo-liberalism took hold in the policy making domains of government, advocacy for the use of discretionary fiscal and monetary policy to stabilise the economy diminished, and then vanished. In the mid-1970s the opposition to the use of budget deficits to maintain full employment became visible for the first time and the inflation-first rhetoric emerged as the dominant discourse in macroeconomic policy debates. The rhetoric was not new and had previously driven the failed policy initiatives during the Great Depression.

However, history is conveniently forgotten and Friedman’s natural rate hypothesis seemed to provide economists with an explanation for high inflation and alleged three main and highly visible culprits – the use of government deficits to stimulate the economy; the widespread income support mechanisms operating under the guise of the Welfare State; and the excessive power of the trade unions which had supposedly been nurtured by the years of full employment.

All were considered to be linked and anathema to the conditions that would deliver optimal outcomes as prescribed in the Neoclassical economic (textbook) model. With support from business and an uncritical media, the paradigm shift in the academy permeated the policy circles and as a consequence governments relinquished the first major pillar of the Post-War framework – the commitment to full employment. It was during this era that unemployment accelerated and has never returned to the low levels that were the hallmark of the Keynesian period.

The NAIRU approach extolled, as a matter of religious faith, that government could only achieve better outcomes (higher productivity, lower unemployment) through microeconomic reforms. In accordance with the so-called supply-side economics, governments began to redefine the Economic Pillar in terms of creating a greater reliance on market-based economic outcomes with a diminished public sector involvement. In many countries successive governments began cutting expenditures on public sector employment and social programs; culled the public capacity to offer apprenticeships and training programs, and set about dismantling what they claimed to be supply impediments (such as labour regulations, minimum wages, social security payments and the like).

Within this logic, governments adopted the goal of full employability, significantly diminishing their responsibility for the optimum use of the nation’s labour resources. Accordingly, the aim of labour market policy was limited to ensuring that individuals are employable. This new ambition became exemplified in the 1994 OECD Jobs Study.

As a result, successive governments in many countries began the relentless imposition of active labour market programs. These were designed to churn the unemployed through training programs and/or force participation in workfare compliance programs. The absurdity of requiring people to relentlessly search for work, and to engage in on-going training divorced of a paid-work context, seemed lost on government and their policy advisors. That the NAIRU approach seduced them at all is more difficult to understand given stark evidence that since 1975 there have never been enough jobs available to match the willing labour supply.

This graph demonstrated the failure of the economy to generate enough jobs since the mid-1970s. The proposition is simply undeniable.

LF_total_employment

The difference between the red line (labour force) and the blue line (total employment) is official unemployment. However, that gap, bad enough as it is, significantly understates the rising labour underutilisation that the neo-liberal era imposed on the economy. The next graph compares the evolution of the official unemployment rate (red line) with the CofFEE CLMI measure of broad labour underutilisation which includes underemployment and hidden unemployment. At present total labour being wasted is around 13.5 per cent. Even at the top of the boom (February 2008) it was around 9 per cent.

Total_underutilisation

These facts speak for themselves. If the supply-side agenda was working and was effective then you would not have the volume of idle labour persisting for decades. The response was of-course to redefine full employment. At some stages in the last few decades some idiot commentators (researchers) – many of whom were regulars through the revolving door – claimed full employment occurred when official unemployment was at 8 per cent. You can do some searches yourself if you want to “name names”.

I repeat: full employment arises when you have less than 2 per cent unemployment; zero underemployment and zero hidden unemployment.

Proposition 4:

  • The way to judge public policy is not how wealthy it makes the rich but how wealthy it makes the poor.
  • If public policy fails to do that then we live in a failed state.
  • Even at the top of the boom 9 per cent of labour resources were still underutilised.
  • Recession will redistribute massive real resources via unemployment and wage restraint to the rich.

Again self-explanatory. In my presentation, I argued that the thrust of social and economic policy – supported by all the negotiations that occurred by those who went in and out the revolving door – had produced the circumstances I have outlined above. Those circumstances could hardly be construed as advancing the interests of the disadvantaged.

Even during the growth period, the redistribution of wealth and income that occurred and the entrenched social disadvantage arising from labour underutilisation had damaged the propects of the poor. The current economic downturn will accelerate that disadvantage.

If you want to do something about unemployment then …

“The best thing that we can do for the unemployed is to provide training to make them prepared to get jobs” … Yes, I heard that on Monday.

“You need to subsidise corporate profits so that they cut wages less when they impose shorter working weeks imposed on workers” … Yes, I heard that on Monday.

“We need a new procurement policy so that Australian companies under Government contracts buy Australian and pay fair wages” … Yes, I heard that on Monday.

“We need a climate action industry policy” … Yes, I heard that on Monday.

I heard a lot of other things about debt ratios and need to expand exports and …

But what we need most … some jobs … about a million of them … was hardly on the agenda. I am not saying that the delegates don’t think jobs are necessary. My personal conversations clearly indicated they do think that.

The point is that the years of the revolving door has shaped the debate so significantly along the full employability agenda that the key participants in the debate over the last 20 years that stayed “inside the tent” even though they objected to much of what was going on … have been channelled by that agenda.

The capacity to conceive of large-scale public sector job creation as a solution to the persistent problem of labour underutilisation has been lost. Even progressive voices immediately chant “inflation”; “incentive” and “how can we afford it?” and the rest of the neo-liberal defence strategies which have been wheeled out to justify the catastrophic policy failure that has wasted the human capacity and potential of hundreds of thousands of our fellow citizens.

How will training help anyone? That was the myth of the full employability agenda. They are unemployed because they lack skills! Train them and that will fix it. After years of churning unemployed workers through training programs divorced from the paid work context we still have 100 dogs chasing 94 bones. Training does not equal jobs.

The literature points to the fact that job-specific skills are most effectively imparted within a paid-work context. Not divorced from paid work. When will we learn that lesson and stop advocating training without jobs?

Mass unemployment arises because of a lack of aggregate demand. That can only be resolved by public spending that is sufficient to fund the desired saving by the non-government sector.

Procurement and climate change strategies are excellent. But they don’t solve today’s problem – a lack of effective demand. To solve unemployment more spending is required and the most effective way of ensuring that spending creates jobs that are targeted to those in need is to engage in direct public sector job creation.

So I proposed at the Job Summit the following three-fold strategy – as if I was some alien martian force – but then I haven’t been in and out of that revolving door.

1. The Federal Government has to gear the current fiscal strategy towards direct job creation. The current Jobs Plan is inadequate. There should be an unconditional and universal employment guarantee introduced at the federal minimum wage to any workers who want a job but cannot get one – that is the Job Guarantee. An immediate announcement – immediate pay – immediate work.

2. A renewed investment in human skill development is the most durable investment that a government can make. The Federal Government in partnership with other levels of government should take responsibility to develop a coherent and integrated national skills development framework within the context of an employment guarantee. Noting that this would be done within a paid-work context.

3. National infrastructure development with a focus on fostering green industry initiatives and the skills that will be required to sustain the new activities and be accessible to the most disadvantaged workers. The green jobs agenda is mostly currently focused on skilled workers. But it is a perfect vehicle for creation of low-wage, low-skilled jobs with mechanisms for skills development.

Conclusion

I sense that the degree of co-option is high out there among the big players in the social and industrial policy debate. I find that even the most progressive types do not want to engage with modern monetary theory but are instead content to continue to foster the neo-liberal macroeconomic fallacies. The other tactic I confront is that they say macroeconomics is irrelevant to the problem.

I sense that progressives who stay inside the tent in this era where a consensus vision has been abandoned and instead neo-liberal bullying rules the day are increasingly being compromised. The policy trajectory that emerges is not even remotely satisfactory to the aspirations that the progressive agenda would have started out with.

The language and the bearing of the debate on Monday oozed compromise – the neo-liberal directed version of the same. It oozed full employability and fiscal constraints.

As an academic I have always stayed outside the tent – even though I quite like camping!

That is the only way I can offer truly independent critical advice. The role of academics was originally construed as being the watchdogs of public interest. To defend the public against chicanery and poorly constructed policy. Once you sign consulting contracts with government (which is squeezing research budgets and forcing researchers to seek our alternative funds) that allow the government to fabricate or alter or manipulate or edit your research findings then you have given up that watchdog capacity. The last 20 years have seen that process occuring although obviously I won’t spell out examples here.

While I should remain outside the tent as an academic, I also think that the unions and bodies like ACOSS and others should also stay outside the tent and leave the revolving door firmly closed. Their alternative strategy would then be better served by starving the political process of funds (stop funding the Labor Party) and engaging with their natural constituencies – workers, unemployed, disadvantaged etc – in a political way to force the politicians to come to them on their own terms.

We all should make the outside walls of the tent so wet that the government has to come to us. As it stands not a lot will be done for the unemployed over the course of the next 2 years – but that revolving door will be busy on a daily basis.

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    3 Responses to The revolving door – how social policy is co-opted

    1. Andos says:

      Excellent post, Bill.

      That graph showing full employment post-war, and the rise in unemployment since the mid ’70s, is startling. (Is that graph Australian unemployment?)

      From your explanation, it seems like the ’70s oil shock was the beginning of the end of full employment as it raised inflation concerns. Can you explain for me how the Job Guarentee would deal with inflation caused by spikes in the prices of commodities (like the ’70s oil shock)?

      For me, the inflation line seems like the most difficult aspect of the anti full employment lobby to counter.

    2. bill says:

      Dear Andos

      Thanks. The graph is Australia. I suspect similar graphs could be assembled for most advanced countries which would tell the same story. It is also clear that the countries that resisted the rise in unemployment during the OPEC oil shock retained buffer stock capacity somewhere in the economy – mostly the public sector. They also did not abandon their collective will.

      Unemployment rose in the second half of the 1970s in Australia as the public sector contracted as an employer in the face of the neo-liberal onslaught to reduce the size of government.

      How would a Job Guarentee would deal with inflation caused by spikes in commodity prices? Remember, the Job Guarantee is not a panacea for everything. In a crude sense, if there was inflation generated via supply factors then tightening fiscal (and perhaps monetary policy) would reduce employment in the private sector and increase the JG pool. At some point the transfer of workers from an inflating sector to a fixed price sector has to condition the inflation process. So instead of using unemployment to reduce the inflationary pressures you use a buffer stock of jobs. The government cannot be adding to inflationary pressures by buying labour at a fixed wage (minimum wage) which the private sector does not want to deploy.

      But we could aslo approach this situation with a multi-pronged strategy, which was missing in the mid-1970s. First, we have to understand that the inflation that emerges from a external supply-shock is largely driven by workers and firms being unable to accommodate the real loss of income that is implied when a foreign resource (input) demands a greater share of nominal domestic output. Second, in that regard, collective arrangements which allow the real loss to be equitably shared between capital and labour, whole the economy adjusts to the rising raw material price (via substitution, new technology etc) would stop the wage-price spiral that drives the inflation process. Someone has to have lower real income when an exogenous price shock occurs!

      In this sense, the Job Guarantee still provides the nominal anchor but the employment transfers via fiscal policy contraction would be attenuated.

      best wishes
      bill

    3. Terrorised Employment Pus Client says:

      Thanks Bill for telling it like it is, I’ve never heard it put so spot on before – if only someone like Adele Horin from SMH newspaper would take note. I can attest that our family has been terrorised by so called job training and “help” from the Salvation Army’s Employment Plus job service. Give Generously to our Winter Appeal for Equality – Make Charity History is what we say. No newspaper wants to print letters to the editor from the unemployed because we have tried many times so we are silenced victims. Finally there’s a political party calling for full employment in Australia’s first Communist TV commmercial shown on SBS during the election and can be seen here on youtube link at http://www.youtube.com/user/brendakellaway

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