This is a serious jobs crisis and a even ‘Plan B’ doesn’t go far enough


8:50 am - October 13th 2011

by Sunny Hundal    


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I said on Monday that the IFS report was going to be brutal, and it was.

But rising child poverty and stagnating incomes (median incomes are projected to be lower in five years time than ’09/’10) are, unfortunately, only two-thirds of the problem. Mass unemployment could stick around for quite a while.

Labour’s current response to this very inadequate. The New Statesman this week unveils a new Plan B, but even that does not go far enough.

Just to explain the scale of the problem, Chris Dillow crunches the numbers on why mass unemployment is here to stay:

If we put all this together, employment growth of 12.9% over the next five years probably requires a rise in GDP of over 20%. That’s 3.7% a year.

This sort of growth has only rarely been achieved in the past – the five years to 1989 being the last time – and compares to the OBR’s estimate of trend growth of around 2.1% a year.

Labour’s short-termist response to this (unveiled by Ed Balls at Labour conference) mostly involves cutting VAT. That will boost the economy in the short term, but doesn’t explain how Britain will grow at the rate Chris Dillow points to above over the medium to long term.

The News Statesman publishes leading economists this week with their own Plan B, but most of those are short term measures too (apart from the New Green Deal by Ann Pettifor, and the National Investment bank idea by Robert Skidelsky).

It still feels something is missing from all this… going to the heart of how our economy works. Various people have pointed out how the de-regulation and neo-liberalism of the last 20-30 years has lead to lower real income growth, more inequality, more financial instability and a decimation of the real economy in favour of financial services.

Reversing this growing inequality and rebalancing the economy to favour proper jobs will take some hefty investment into infrastructure and new industries. Just turning everything into mutuals isn’t going to cut the mustard (I like mutuals btw).

Now, Dillow argues that politicians should just accept this bad state of affairs and figure out a way to deal with high unemployment and potential social tension. But no one ever got enthusiastically elected promising a depressing vision of the future. So its a political non-starter.

The wider question for the left is, what sort of bold ideas and policies would pull us out of this paralysis?

I like the Green New Deal, and a National Investment Bank. I’d say closing down Tax Havens should be a pretty key demand (more to ensure a stable economic system and proper accountability and tax revenues from corporations).

What else? What would you want to see for a faster-growing economy that is more re-balanced away from financial services (and no, getting rid of the NMW isn’t a serious idea).

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About the author
Sunny Hundal is editor of LC. Also: on Twitter, at Pickled Politics and Guardian CIF.
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Reader comments


1. ManfromClaphamOmnibus

Spot on Sunny except for closing down Tax Havens would have to be done Globally.
Think of all the folks in Dellaware for example. You would also have to change substantial parts of trust law. Personally I think the only way we can survive is nationalisation. That way the resources generated by labour will remain in the country and can be reinvested for the benifit of everybody.

“Reversing this growing inequality and rebalancing the economy to favour proper jobs will take some hefty investment into infrastructure and new industries”

I agree with you but I cant for a moment see the government making the real cuts in public sector jobs plus the required changes to encourage private job and wealth creation.;)

3. So Much For Subtlety

It still feels something is missing from all this… going to the heart of how our economy works. Various people have pointed out how the de-regulation and neo-liberalism of the last 20-30 years has lead to lower real income growth, more inequality, more financial instability and a decimation of the real economy in favour of financial services.

Who has made this claim? What has happened since the 1980s is that we have lost low-skill, low-pay manufacturing jobs in favour of high-skill, high-pay service jobs, especially in the field of finance. It is not as if British manufacturing has declined. It hasn’t. It just doesn’t employ as many blue-collar workers as it used to.

Reversing this growing inequality and rebalancing the economy to favour proper jobs will take some hefty investment into infrastructure and new industries.

Proper jobs? You mean down th’pit and steel worker jobs? If we push money into manufacturing we will be pushing people out of higher paying jobs into lower paying ones. How is that sensible?

I like the Green New Deal, and a National Investment Bank.

Because it worked so well in the 70s? I don’t see how giving politicians a massive slush fund to give their friends and marginal constituencies makes sense. Why would anyone support a National Investment Bank? As for the Green New Deal, there is a reason we do not adopt Green technologies that are not cost effective. If we push the economy over the cliff, well, it will go. It makes no sense to try to copy Haiti’s Greenhouse emissions given it will give us Haiti’s living standards.

I’d say closing down Tax Havens should be a pretty key demand (more to ensure a stable economic system and proper accountability and tax revenues from corporations).

Kind of hard to do. And of course morally wrong. Membership of a country ought to be voluntary. This is just the first step to ending the freedom of St George’s Day.

“It is not as if British manufacturing has declined”

*blinks*

I think you need to go and look at the figures again.

…Although I should clarify I’m talking perhaps about the less time than the 20-30 year that you were probably referencing in Sunny’s post. 😉 Manufacturing is in a state of decline in real terms as well as relative right now, and that is what matters when assessing the sector.

” what sort of bold ideas and policies would pull us out of this paralysis?”

Break up the United Kingdom.

Our problems come from a longer term trend of orientating economic policy around what is good for the south east, and the main oppositiion to financial reform also comes from there.

Break the UK up and those regions that never benefited from the boom can specialise and develop comparative advantage in whatever they end up doing. The south east can then get back to being a financial centre without having to subsidise the rest of the UK, or paralysing development elsewhere. The poor regions will take an initial hit from this loss of income, but will also gain the benefits from being more adaptable and independant rapidly.

Various people have pointed out how the de-regulation and neo-liberalism of the last 20-30 years has lead to lower real income growth, more inequality, more financial instability and a decimation of the real economy in favour of financial services.

That’s a joke, right?

You must know that the last 20 years has seen a massive deluge of regulation from every state orifice and that the dead hand of bureaucracy has all but killed off enterprise.

Successive governments have worked hand in glove with the big corporations to ensure barriers to entry have become so high that the big players are untouchable and can fleece both their customers and their suppliers.

As Tim Worstall pointed out to you on another thread this week, neo-liberal policies have not been tried and it is disconcerting that you wilfully refuse to understand that.

I do share some of the liberal right’s concerns about the government seeking to ‘pick winners’ when it comes to sectors of the economy, though I’d be a lot less dogmatic about it than, say, our friend Tim W. e.g I’ve no problem with the research money being pumped directly into the clever graphene science.

I thik therefore that asking what bits of the economy the government should (directly or indirectly) support in order to move away from financial services reliance is the wrong question from Sunny.

I think the more fundamental question the left needs to start to come up with answers on is how it would deal with the whole ‘thing that is money’. People like David Graeber, Randall Wray and even Ann Pettifor (though Mary Mellor is better) are questioning long-held assumptions about the nature of money and debt, following in the wake of JK Galbraith’s wake up call about bank’s right to invent money by clicking on a computer, and I think the party political left ought to be grappling with how some of these ideas – from MMT on – might be actually put into practice, without getting sucked into the usual stuff about Weimar inflation etc etc. All such fundamental rethinks would have massive issues around implementation in an international economy, but it seems to me that if even Sunny (and perhaps a tad more importantly Krugman) is talking the need to go beyond Plan B, then the time is right to start thinking bigger than economic sectors.

3
What has happened since the 1980s – well we’ve just about sold off all state-owned assets (paid for by the taxpayer) so there’s nothing we can learn from that economic policy.
Ah yes, it created a booming financial industry together with de-regulation of existing financial institutions, can’t remember what happened there other than it created high paid service jobs for certain individuals.
Most pit jobs paid far more than the average work, I suspect steel-workers also were paid well, a wage that was able to keep an average family. Instead, we now have low paid, low skill service jobs, which the taxpayer subsidizes through family credits and other benefits.
6
Lol, do you really believe that there are no poor areas in the south-east or that no families claim tax credits?

“Lol, do you really believe that there are no poor areas in the south-east or that no families claim tax credits?”

Of course not, just as there are millionnaires in rural wales.

It’s about overall economic stats that conclusively demonstrate large regional variations in the UK.

11. gastro george

@7 You and Tim remind me of the Trots – the problem is not the policies, just that the policies need to be implemented with even more fervour.

Can MoveAnyMountain/SoMuchForSubtlety make just ONE post without sub-par fisking? Come on you rascal, I dare you.

@ George

@7 You and Tim remind me of the Trots – the problem is not the policies, just that the policies need to be implemented with even more fervour.

From TW’s comment the other day.

Land Value Tax
Citizens Basic Income
Abolishing Corporation Tax

So which of these have we tried then?

14. DisgustedOfTunbridgeWells

In the past 70 years?

All of the above.

@3: Membership of a country ought to be voluntary.

It is: if you don’t like living here, you can leave. Same for corporations: if the don’t like paying UK tax, they don’t have to do business here.

The entire premise that the economy became dependent.on financial services is wrong. The Treasury became dependent on FS for revenue, which is not the same thing as the economy. Check out the numbers for FS services contribution to GDP and FS contribution to tax revenue and you will see the mismatch. No sane person could look at the UK economy and conclude that all we do is financial services.

” If we put all this together, employment growth of 12.9% over the next five years probably requires a rise in GDP of over 20%. That’s 3.7% a year. ”

The problem with Chris numbers are they seem too deterministic and reliant on Okun’s Law. We are already massively contravening Okun’s Law. http://en.wikipedia.org/wiki/Okun%27s_law
The major surprise over the last three years in this downturn is why unemployment is not even higher in the UK. The decline in real GDP really should see employment lower and unemployment higher. Firms really are retaining and paying workers who are not producing very much. I think the answer to the puzzle is that the UK has maintained reasonable nominal GDP growth. This is highly unpopular becomes it means inflation. The alternative is higher unemployment. I would not be as dogmatic as Chris about what levels of RGDP will be required for employment growth. On the other hand, (there always is) the apparent underemployment of labour may mean employment growth very much disappoints to the upside.

We may be waiting some time if we are waiting on the left coming up with a coherent economic policy that has the potential to actually improve the economy. I’ve been reading lefties on and off for the last thirty years and have yet to read one. Oh don’t get me wrong there have been numerous accurate critiques of the current system and sniping from the sidelines. Unfortunately no sensible solutions that had even a remote chance of achieving desired outcomes. Just employing more public sector workers is not a coherent policy.

This government or no other government can grow the economy. The BoE can keep NGDP on a steady growth path. However, they can’t direct real GDP that will lead to the desired jobs. They can’t bring the coal industry back to Scotland that employed 1 million in 1914, and now employs a few thousand. They can’t bring back shipyards with no one to sell to. They can’t resurrect the steel industry when there is already massive overcapacity for steel in Europe. They can only influence the economy by following policies that encourages private sector firms to grow and employ more workers. The public sector has a role to play. However, it is just repeating the mistakes of the past to think that it is the solution.

17. Leon Wolfson

Plan E for “emergency”. Been saying it for some time.

Homeless shelters and soup kitchens, at this point.

@6 – Is that what you call having unstable, poor counties on your border? I see.
Also, unemployment is London is RAPIDLY rising.

I refer the honourable gentlement to the reply @10.

I can’t grasp why there should be work available for every person. How can the amount of things which need doing constantly grow, unless you believe in unfettered consumerism? In the 60’s we were assured that there would be so little need for human operatives that by the year 2000 no-one would work more than three hours a week. When I left school and became a hot metal compositor in 1963, it took about eight men to do what a man and a computer can do now. Agricultural work, which even then needed quite a few people now needs a miniscule number in comparison. The Japanese are developing robots which can carry out and attend to many of the physical needs of old people. There is obviously less and less need for human workers. The job for society is to share the work out fairly. Society simply has to be gradually and massively restructured. There is no other way.
You’re talking about yesterday’s solutions to yesterday’s problems here.


Reactions: Twitter, blogs
  1. Liberal Conspiracy

    This is a serious jobs crisis and a even 'Plan B' doesn't go far enough http://t.co/AnNSZsJZ

  2. tracy e

    This is a serious jobs crisis and a even ‘Plan B’ doesn’t go far enough | Liberal Conspiracy http://t.co/62bpWCSi via @libcon

  3. sunny hundal

    Even a 'Plan B' by Labour or this week's New Statesman doesn't go far enough… we are in deep trouble http://t.co/gJR7qjCI

  4. tom jamieson

    Even a 'Plan B' by Labour or this week's New Statesman doesn't go far enough… we are in deep trouble http://t.co/gJR7qjCI

  5. Scott Macdonald

    MT @sunny_hundal Even a 'Plan B' by Labour or this week's New Statesman doesn't go far enough… http://t.co/jItpscwI >> comments quite good

  6. PutneyDebates

    Even a 'Plan B' by Labour or this week's New Statesman doesn't go far enough… we are in deep trouble http://t.co/gJR7qjCI

  7. Clive Burgess

    Even a 'Plan B' by Labour or this week's New Statesman doesn't go far enough… we are in deep trouble http://t.co/gJR7qjCI





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