Market provided about 1.8m jobs for immigrants over the last 13 years…..

what was it Brown kept harping on about? British jobs for….?

This is a very detailed response to a vague strawman, which seems a rather curious use of the author’s time.

The government’s general approach, which is confused and ad hoc – but deserves a better airing than the confused picture presented above – is to rebalance the economy towards the private sector and have less reliance on the public sector. You may or may not agree with this idea, but you might as well tackle it.

You know (and kind of say) that the previous government’s employment schemes have had very ‘mixed’ record, let’s say. They worked in some places when the economy was growing but most of that trumpeted jobs growth was merely due to macroeconomic effects or were taken by immigrants willing to work cheaply.

The question is can and will the private sector step up (if we ignore largely irrelevant crowding out arguments). The little evidence so far this year suggests that it will, but in patterns that reinforce inequalities between north and south.

Unity,

The first thing I take from your figures regarding the self-employed is the fact that within Middlesborough there is only half the national average of people in the self-employed category. Which means that in all likelihood, there is the potential for a something like a doubling of this number under the right conditions (after all, the national average is similiar to the figures in Wokingham and Calderdale, which suggests this is the normal capacity of the local economy for self-employment).

Clearly, the right conditions may not be a period of government cuts. But it is worth noting that the right conditions have even more clearly not been a period of high government spending and interference such as the one we have just had – we can show this by looking at your figures above.

And I would challenge your assertion that there needs to be “relatively wealthy neighbours… spending their money in the local economy”, as the point for small businesses is that they have to be appropriate to their market, so if they are selling to the local economy in Middlesborough they will have to offer different services from Wokingham or Calderdale. To give a clear example, a successful newsagent in Wokingham will not only carry different magazines and papers from one in Middlesborough (or, more accurately, display and order different numbers of magazines and papers), but will have entirely different ranges of material on offer, say books as opposed to (and unfortunately this is true) extra cigarettes on the gantry. So long as the local economy has some money to spend, there are opportunities there.

The key question is perhaps is there any opportunities left in Middlesborough not taken by the corporations or occupied by government? There may be a case here that there is a structural problem, but it needs to be proven.

Hey Tyler,
take a look at what sort of jobs “the immigrants” took?

Can you see the correlation between incredibly low pay and immigration?

Why is it it that the loonie righties want freedom to pay people as little as possible but then resent those immigrant workers who fill that gap?

“This, if you unquestioningly swallow government rhetoric, is the sector that will play the crucial role both in generating much needed economic growth and in creating jobs for all the people currently languishing on benefits and yet, in Middlesbrough, where there is the greatest need for both growth and job, this sector is half the size of that in either Wokingham or Calderdale.”

Quite, Watchman has it. If the small bus/self employed sector on Middlesbrough were the same size as it is elsewhere, we’d have the problem licked, no?

So the question becomes, why isn’t it?

My answer would be national pay scales in the public sector. In poor places (ie, low wage places) the rational will go off and work in those public sector jobs instead of setting sail on the seas of small business and self employment. The reverse in high wage areas.

Abolish national pay scales and have local ones: what is necessary in each town/city to fill the jobs that need to be done. We’ll then see a lot less of this bunfight for getting a State job and a lot more entrepreneurialism.

I’m reading the white paper at the present time. But I had to post this classic from page 8:

“This would involve an IT development of moderate scale, which the Department
for Work and Pensions and its suppliers are confident of handling within budget
and timescale”

LOL IDS

“Abolish national pay scales and have local ones: what is necessary in each town/city to fill the jobs that need to be done. We’ll then see a lot less of this bunfight for getting a State job and a lot more entrepreneurialism.”

No it won’t – it will make regional conditions worse. Those with the ability to do so will leave and the spiral will continue. You’ve made the mistake of assuming populations remain static. We’ve got exactly this problem in Wales, people from the valleys who get degrees and skills leave, with many going to cardiff. So the valleys consistently remain areas of fail when it comes to economic stats.

Planeshift,

I would suggest that the problem there is that only Cardiff offers the opportunities, which may be something to do with the concentration of government services there as much as anything?

The valleys have potential, but at the moment something is stopping that developing. Is it worth considering that the current large state could be that thing?

Tim:

If the small bus/self employed sector on Middlesbrough were the same size as it is elsewhere, we’d have the problem licked, no?

If we treat the size the small bus/self employed sector as an indicator of the general health of the local economy, then it would like improve matters considerably.

The big virtue of SMEs is that they tend to recycle more of the wealth they generate back into the local economy than large corporations.

How we get that to that position in an area like Middlesbrough is more complex issue entirely and, I think, likely to require far more than pulling back from national payscales.

I’m rather pre-empting the next stage in the debate, but if national payscales are bad for local economies then can’t the same also be said of the existing, grossly over-centralised system of business rates and, indeed, of some aspects of national taxation, particularly Employers NI.

Permitting local variations to applied to both, in areas where the local economy is particularly weak, would at least give councils a couple of levers to work with and a the scope to create incentives from new start-ups and inward investment.

“concentration of government services there as much as anything?”

Not really. There is a new WAG office in Merthyr, and in terms of percentage of workforce employed in the public sector – it’s roughly similar in Cardiff as it is in Merthyr or Blaenae Gwent.

Look, even the CBI in wales does not accept the public sector is too large. Their argument (and that of pretty much everyone in the know) is simply that the private sector in wales is too small. Which is kind of the point identified in the OP.

No it won’t – it will make regional conditions worse.

On its own and under current conditions, it likely would exacerbate the problem of hollowing out.

The trick here is try and create a balance of incentives and disincentives which stimulate growth in some areas and dampen it down in others. If nothing else, we can’t all move to London and the South East for the sake of better paycheck.

“The valleys have potential, but at the moment something is stopping that developing. ”

I also want to take issue with this – things have improved in the valleys over the last 10 years, so it is developing. What is currently putting the breaks on this is the recession…but they are now areas with a future – which nobody sane was saying in 1997.

Now have a think why that might be the case….

Unity,

I’m shocked – you are basically suggesting exactly what I would put forward (with the exception of simply abolishing employer NI). This normally takes at least 50 comments for us to agree on anything major.

My only problem with this where say Middlesborough is concerned is that there is a tendency for councils is deprived (or indeed, very well off) areas to be normally the plaything of one party, and therefore less interested in competition and more interested in pleasing clients and vanity projects. Business rates and the like are not really interesting enough to cause much effect at local elections – if councils are taxing business out of the area, will the tribal voters care? I would suggest that to make this an effective proposition, and councils fully answerable, that there is also a need for councils to have far greater authority over personal taxation (allowing that national government has to do some redistribution of course).

Also, there is the issue of planning, which is related. A supermarket can be disadvantgeous to the local community and to local business, so councils should have the right to reject them (if the population want them, they can elect new councillors…) without a distant unconnected politician overruling them.

The big virtue of SMEs is that they tend to recycle more of the wealth they generate back into the local economy than large corporations.

I wonder what you were thinking when you wrote that. What do you mean by “recycling wealth”? Are you talking about the destination of 1. wages 2. spending on materials and other intermediate goods 3. where profits are re-invested.

1. is clearly rubbish
2. is not a virtue. If your sole interest in the level of economic activity in region X, how do you know ‘exporting’ intermediate goods to large corporations outside of X isn’t better for X than having lots of small companies all using intermediate goods produced in X. If there are some regions populated by large corporations from suppliers in other regions, the flip is that some regions most be populated by suppliers exporting to other regions. If you’re not just interested in specific regions then clearly geographic location of suppliers is irrelevant.
3. if X is Sunderland, who has invested more in that area, local tradesman or Nissan? Who re-invests (recycles) more of their profit in Sunderland? How do you know local tradesman don’t invest their profits in a BMW, villa in the Algarve and an equity portfolio? Please provide any sort of evidence that shows the level of investment in an area is increasing in the concentration of small firms in that area. Why is investment by a local preferable to investment by a corporation with headquarters elsewhere?

“I’m rather pre-empting the next stage in the debate, but if national payscales are bad for local economies then can’t the same also be said of the existing, grossly over-centralised system of business rates and, indeed, of some aspects of national taxation, particularly Employers NI.”

Sure, let’s move to the Danish income tax system. 3.76 % national income tax, 15% the top national rate.

All other tax is collected at the commune level: which can be as small as 10,000 people.

I think people would actually be willing to pay higher taxes overall under such a system: nothing like knowing where the man who spends all the money has his pint on a Friday night to encourage vibrant discussion within the local community as to the value of public services now, is there?

Much as I hate to admit it, Tim’s point has some resonance with me. I live in the north east and work in the private sector. My wife worked in local government. I know a bit about it.

The fact is that the relative wages between public and private sector workers north and south are very different.

Tim’s suggestion is essentially to reduce public sector wages in the north (I assume he does not mean increase them in the south!), but I am not sure if this will merely reduce the amount of money available to spend in the north thus maybe actually reducing the SME sector.

Why the hell do any decent teachers stay in the south anyway? They can only afford a cardboard box for a home down there!

Planeshift,

In 1997 the Valleys were still seeing themselves as mining communities. Now they have finally got over it (Watchman loses sympathy of most readers of this blog…)?

There is more than one narrative available remember – and remember I was educated in another ex-mining community (twenty years ahead of the Valleys in closing down), so this is not an outsider speaking. For areas so strongly attached to an identity, it takes time for that sense of purpose to fade and for other challenges to be risen up and dealt with, new opportunities made. I have seen the past become history and landscape and not a ghost hanging over everything – and I see places where the ghost of a lost industry blights people’s thinking and ambition still.

For all Unity and Tim coming up with solutions, sometimes it takes the people of an area to turn a corner before things improve. And that is as much about personal choice as anyone else.

large firms pay higher wages for doing the same job: true fact completely ignored by many. There are dozens of papers confirming and trying to explain this fact.

Totally agree tim, political decentralisation is essential.

Now remind me which political party opposes devolution in Wales and Scotland, and has opposed regional devolution in England?

“so this is not an outsider speaking.”

With respect watchman, unless you are welsh/live in wales – then you are.

Both the Tories and UKIP: UKIP because it wants true localisation, not regional governance on the EU Parliament constituencies.

We don’t want another layer. We simply want to strip the vast majority of powers out of central hands and put them in local. Heck, we’d go with parish councils.

Luis @18,

By the logic of Tim’s local negotiations for pay, would the fact large firms suggest that the presence of large employers and government in a local community makes life even more difficult for the self-employed then? If so, there is another arrow in my bow against the corporations (this is becoming rather an obsession I fear).

Watchman

I’m not sure I follow Tim’s logic. I think having highly paid jobs in an area is a good thing. High pay raises demand for local goods and services. Clearly if public sector wages were cut in a region, the allocation of workers would change. Other employers in the region would be able to cut wages, now not competing with the public sector. Quite who this benefits is beyond me. If you want to tell some story about inefficiency rooted in a too-large public sector, that’s another story, a story about the nature of public sector output.

“UKIP because it wants true localisation, not regional governance on the EU Parliament constituencies.”

Yes Tim, I’m familiar with UKIP’s views on devolution – one of your welsh members (actually you may have kicked him out by now) has for years been ranting on the internet that the welsh assembly is part of the illuminati’s plot to destroy england.

But more seriously you’ve opposed every attempt at decentralisation in the UK since your inception. Now there may be merit in simply transfering powers to local councils. Personally I’d rather have a regional government with it’s own skilled staff and professionalism in its politics as opposed to the little hittlers and party activists too thick to turn their interest in politics into a career that currently constitute many local councillors (apologies to Rupert Read).

But either way, is a constant negative ‘no’ to any process of de-centralisation really a tactic likely to achieve any kind of decentralisation? It is a bit like opposing the EU because you want a global government instead.

Isn’t it more the case that a great deal of UKIP are motivated by british nationalism and a fear of the split up of the UK rather than any meaninful sense of advocating a different kind of de-centralisation.

What you really mean by “We simply want to strip the vast majority of powers out of central hands and put them in local.” is simply ” we want to strip the vast majority of powers out of central hands”, so you get you get your minarchist state. What really pisses you off about the Scottish Parliament and the Welsh Assmbly is that politically such minarchist ideas achieve such low levels of support in these regions that advocates of them couldn’t even obtain a single seat under a proportional system.

Err, UKIP does actually have one of the four MEP seats for Wales…..

As a UKIP vote, rather than a minarchist one. i.e. support based purely on euro-scepticism, and likely to be from accross the spectrum.

You have correctly identified that the problem is the level of new startup firms. If that lags the national average in any particular area economic growth in that region will be lower and unemployment higher. Without even looking at the data I know that any particular region with a concentration of traditional industry will be suffering from high unemployment if their new startup level is depressed. Take all the firms who existed in a particular region over any reasonably useful timescale like 20-30 years ago. Aggregate their workforce then and compare with now. Without looking at the data I would guess that they are net destroyers of jobs. Sure some of the firms will have grown and employ more people than they did twenty years ago. However, it is the net figure that we are interested in The new firms will be net creators of jobs.

Now most of the time we should welcome this job destruction from existing firms. Existing firms are not interested in creating jobs per se. They want to be more productive and that often means less jobs. That is how growth takes place as the old are superseded by the new. Therefore, the level of new startup firms is key to avoiding unemployment.

Private sector firms having to compete with the public sector for labour is one factor. However, it is not the only factor. Absolutely vital to the level of new startup firms are the demographics of that region. A region with an ageing demographic will have a low startup level no matter what the government do. Anecdotes about 50-year-olds who suddenly choose to become entrepreneurs are rare. You need a younger demographic for the new statup rate to be healthy. That applies to countries and regions within countries.

What is not always clear is what is correlation and what is causation. Are younger people moving away from the area making the demographic bad/worse or are they moving away because it was already bad. Probably a bit of both and the primary driver will vary depending on the dynamics of the region. I don’t know if any government can do anything about that. Maybe some areas just grew organically because certain types of industry agglomerated in that area. When the agglomeration declines the natural thing is for people to move to other areas. I appreciate people’s sense of space and community. However, I am far from convinced that there is anything we can do about some areas growing slower than others and having the consequent higher unemployment.

some relevant research:

Those who argue that “small businesses create the most jobs” have it partly right, but they also destroy the most jobs so that the net contribution of small firms isn’t so clear. – I think they agree with Richard that firm age is more important.

There is also a cyclical dimension. Small firms tend to grow employment more early in recoveries from recessions, but once the recovery is underway large firms add more workers and dominate job creation. Won’t bother linking to paper.

I’m not sure I follow Tim’s logic. I think having highly paid jobs in an area is a good thing. High pay raises demand for local goods and services. Clearly if public sector wages were cut in a region, the allocation of workers would change. Other employers in the region would be able to cut wages, now not competing with the public sector. Quite who this benefits is beyond me.

Well you would imagine it will benefit the Conservatives and their friends in the business community. Cutting so many public sector jobs will increase the labour pool and therefore force down wages and increase profits. That’s the whole point isn’t it?

You may be correct about the whether large corporations funnel more money back into the local community that SMEs but you don’t consider other factors. One is the vulnerability of having one very large dominant employer rather than a cluster of smaller businesses. If that one employer goes under it can take the entire local area with it.

Secondly and this is a related point lots of SMEs are more rooted in a locality in the way that a foreign multinationals are not. Multinationals can up sticks more easily and relocate to somewhere with cheaper labour. Many Maquiladoras have shut and seen production moved to Vietnam.

http://www.businessweek.com/magazine/content/02_17/b3780078.htm

Recently with the recession Siemans has been looking at closing factories. It has been reported that it will close its overseas factories before it closes those in Germany. If you go down the route of hollowing out your own national industrial base and rely on foreign companies to provide your employment then you are more exposed.

bubby I think you’re right on all counts, although whilst things like the vulnerability of relying on large employer add some costs to the cost/benefit balance, I’m not sure on net they mean large employers are worse than small. I’d like to see more Nissans up North, not fewer.

nb – I’ve seen research on whether multinationals are quicker to shut up shop that local firms, from memory if anything data showed the opposite.

@ Claude

*sigh*

The point Unity is trying to make is that the private sector can’t create enough jobs. By the Labour government’s own boasts, it created 1.8m jobs going to immigrants alone…..so clearly the private sector CAN create enough employement.

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