Like a Russian doll of misery the jobs crisis has layers on layers. We all know about the problems in Britain, with an estimated seven million people who would like full time employment either out of work or working part time. Then today there is a report from the ILO questioning the effectiveness of austerity strategies and predicting widespread social unrest, and showing the number of jobs across the global economy to be still fifty million below the pre credit crunch level. Then looking into the medium term Jim Clifton, head of Gallup, has shown that employment is the single factor most strongly correlated with well-being across the world but has estimated that of the three billion formal jobs for which there is demand the global economy is currently creating only 1.2 billion.
There are many factors which determine how successful an economy is at generating jobs, not least of which is its underlying strength and level of demand. But picking and mixing from countries which do relatively well – like Germany, Austria and Uruguay – a broad approach suggests itself combining three factors: tax policies which encourage investment and job creation, active industrial policy directed particularly to areas with the greatest job creating potential, and industrial partnerships through which Government, employers and employee organisations work together on a core commitment to avoiding high unemployment. Our own Government is doing some very small things in the first area, but nothing that is likely to release the huge stocks of capital sitting in corporate bank accounts; there is also some talk of industrial strategy in the second area, but again it is very limited reflecting the Conservatives’ continued scepticism. As for the third, there has been little or no evidence of high level industrial partnership in the UK for over thirty years.
Much of this is fertile territory for Labour, although it is less vocal on the problem of weak and out-dated trade union leadership. But despite the rolling omnishambles the next election won’t be for three years. Mr Cameron could do with reasserting three things right now:
He is focused on the issues which most matter to people
He can be bold
He can do what it is the interests of the country even if it makes his party uneasy
On the initiative of our Chair Luke Johnson the RSA held its own reasonably successful Jobs Summit a few weeks ago. If I was advising Mr Cameron I would suggest he take a leaf out of our book. How about a major Number Ten jobs summit involving not just the Conservatives’ usual favourite business people but a much wider range of experiences and views (including, for example the ILO and TUC). Like the RSA event the summit could have sessions looking at both the short and the long term but with strong emphasis on solutions.
There are risks. Not just in what people will say but also the acknowledgement that the Coalition hasn’t got all the answers and in the implication that Government might be willing to explore some kind of new ‘post bureaucratic’ mechanism for industrial partnership.
As I know from my own time in Government, one good aspect of a crisis is that sometimes the left field suggestions to the Prime Minister which were previously discarded get called up from the records and re-examined in a fresh light. Who knows they might even look at obscure blog suggestions too?
By the way, it may only have been a subsidiary consideration but when the RSA decided to go ahead with our House redevelopment one factor was the sense that we should make our own contribution to generating economic activity and jobs in these austere times. As an RSA fan (if you are) you can make your own small contribution to the Society’s mission and to economic recovery by sponsoring my insane bid to run a marathon up a mountain.
Today’s figures suggest we might be approaching the point at which the current cycle of rising unemployment peaks. But this shouldn’t distract from the massive national and international jobs crisis. The 2.67 million people officially unemployed are only half the problem. If the number who would like a job but aren’t registered unemployed and the number who are working part time when they would like to be full time is added the figure is probably closer to seven million.
The yawning jobs gap can also be seen in other countries and globally. As Joseph Stiglitz wrote in yesterday’s Financial Times the better news on American employment should be set against a ‘miserable’ 58.6% of working age American adults in paid work. On a global scale, Gallup Chairman Jim Clifton argues in his book ‘The Coming Jobs War’ that the world is currently generating 1.2 billion jobs out of the three billion for which there is demand. As Clifton says, this is particularly shocking given that a paid job is by far and away the single most desired social aspiration amongst the world population, and also the one most closely linked to wider wellbeing.
So, Governments, business and everyone else should be doing all that we can to boost jobs. There are many different arguments made for how best to do so. These range from boosting aggregate demand (by increasing spending or reducing taxes depending on the ideology of the proponent) to reforming the labour market to more specific interventions such as providing incentives for those in the informal economy to ‘go legit’. But one sector which could certainly be doing more is our old friend financial services.
The theory is that financial services boost the economy not simply or primarily by the jobs they create directly, but by increasing the efficiency of markets, particularly by directing saving and investment to their most productive use. Two stories today suggest the financial sector may not be doing this job very well.
First, there is the strident critique of Goldman Sachs offered by its former senior employee Greg Smith. Smith’s article reveals that what motivates Goldman Sachs advice to customers is not how best to maximise investment returns (which market theory would suggest should mean money going to the most productive sectors and firms) but what advice is best for Goldman Sachs as a firm and for each individual senior employee.
Then there is an interview in today’s Times with Lord Adair Turner head of the Financial Services Authority. Here is the first paragraph of the story:
‘ The head of the FSA has launched a broadside against innovation in the City, accusing parts of the Square Mile of developing complex products that mislead regulators and hoodwink customers’
Another of Turner’s points worth repeating in full is this:
‘ He [Turner] mentioned as an example structured products, over which the FSA has raised concern repeatedly. When presented with proposals for a hugely profitable new retail initiative he said that boards [of banks and financial services firms] should ask ‘How can it possibly be that a product with such a high profit margin could possibly be in the interest of the consumer buying it?’’
It is poignant fact that while the economy is limping along and unemployment still rising in most developed countries, the amount of money sitting unused in corporate reserves is at an unprecedented level. Presumably, a trusted, effective and genuinely innovative financial services sector would be developing ways for corporates usefully to invest some of those funds in ways which are profitable and boost the productive economy. But, apparently, this useful task is of limited interest as long as so much of the sector sees its overwhelming priority as being the short term maximisation – by any legal means possible – of its own income.
We need a concerted effort to start to address the growing global jobs gap. Sadly in relation to that task much of the financial services sector is about as much use as a chocolate teapot.