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.
As RSA Chairman Luke Johnson announced in his FT column yesterday, the Society is to hold a Jobs Summit in January at which a range of experts will offer ideas to get today’s labour market moving and to prepare the way for the jobs of tomorrow.
Some new data from the United States offers interesting food for thought ahead of the summit. As Robin Harding explains in the FT, the key figure is 58%…
‘That figure is the share of US national income that goes to workers as wages rather than to investors as profits and interest. It has fallen to its lowest level since records began after the Second World War and is part of the reason why incomes at the top – which tend to be earned from capital – have risen so much. If wages were at their post war average share of 63%, workers would earn an extra $740bn this year, about $5000 per worker.’
This is not only an issue of fairness, it also impinges directly on the economic crisis. For while many corporates are sitting on cash mountains (which they are not investing because of low demand and uncertainty about the future), were that money in the hands of workers they would presumably be out spending it.
The causes of this trend are complex but it seems reasonable to conclude that a combination of globalisation, technological change, and neo-liberal policy has led to a fundamental shift of power from workers and their agents on the one hand to owners, investors and their agents on the other.
The factors which govern the balance of power and wealth between owners and workers are all pointing to a further shift away from the latter. Tight labour markets favour workers but apart from some pockets of the economy high unemployment means the power lies with buyers – not sellers – of labour. Outside the public sector trade unions are now very weak. The Coalition is committed to less not more labour market regulation. Rising wage levels in developing countries will eventually lessen the impact of globalisation on developed world employment and wages, but only in the long run.
Perhaps one answer– and here I am well outside my comfort zone – is to provide carrot and stick incentives for companies and investors to put their money to work, especially in ways that boost wages or create jobs. One way is the idea floated in the Autumn Statement of investing pension funds in infrastructure projects, but the problem here is that this is a slow solution to an immediate crisis. Another – which could work much more quickly – would be some kind of deferred ‘use it or lose’ tax on company liquid assets.
As always, I am hoping for some enlightening comments on this post but I will also be nervously scanning my inbox. The last time I ventured into economic policy I got a polite but firm late night email from Jonathan Portes, Director of the National Institute of Economic and Social Research. I can’t recall the precise words he used but it was something like; ‘Hi Matthew, I really enjoyed your recent post about a bond to create jobs. Sadly, it was economically illiterate’.
Look, this rubbish joke thing is going to go on until you tell me to stop. I will only desist if a majority of my readers say so, which means an e-petition comprising at least five names. Until then…….
I have a friend who suffers from a compulsion to purchase large white teddy bears. His doctor thinks he might have buy polar disorder.
Last night the Great Room was packed (as always) for a lecture by Simon Baron-Cohen on the subject of his new book ‘zero degrees of empathy’. This is what I took from Simon’s argument:
(a) we should see empathy as core to human nature and behaviour
(b) it is now possible to measure people’s empathy quotient quite accurately
(c) many types of psychiatric disorder and associated pathological behaviour can be traced to a lack of empathic capacity
(d) individual empathy levels are the consequence of a combination of genes and upbringing
(e) understanding and enhancing empathy is the key to tackling many psychiatric disorders and promoting a more humane and cooperative society.
As chair of the event, I felt ambivalent. On the one hand I absolutely accept the importance of empathy as a core human capability and also one which we need to grow in the 21st century. On the other hand, I was concerned that the issue of zero empathy in those with mental illness and of the overall levels of empathy in society are very different.
As I said last night, there is no reason to believe that Germans in the 1930s or Rwandan Hutus in 1994 behaved as they did because of their genes or individual upbringings (although the critical theorist Adorno did, I think, arguethat Germans had a distinct personality type which predisposed them to Nazism). Equally the sudden decline in hostility towards gay people in the 80s and 90s wasn’t down to individual factors.
While I think assessing and treating people with zero empathy is primarilly about understanding the individual factors which shape their personalities, the task of shifting the average empathy level of people in a society – and of widening the zone of empathy to include people different to ourselves – are much more matters of social and cultural change (and I’m not just saying this to defend myself from the allegation of neurological reductionism which Ray Tallis will be directing at me here at the RSA in a couple of weeks).
I asked one other slightly flippant question. Could it be that people with lower levels of empathy are more effective in relation to certain tasks and situations. I couldn’t resist recalling the episode of Star Trek (appropriately called ‘the enmy within’) in which, in a bizarre transporter accident, Captain Kirk gets divided into a gentle, empathic Kirk who is incapable of making decisions and providing leadership, and a brutal, sex-crazed Kirk who makes everyone follow his orders (I always remember this episode because it contains the immortal line, uttered by the Captain after the two Kirks are miraculously re-merged: ‘I’ve seen a part of myself no man should ever see’).
Then, by sheer coincidence, I find this morning that RSA Chairman, Luke Johnson, has made the subject of his FT column a discussion of whether entrepreneurs are – on the whole – slightly deranged. Luke doesn’t refer to empathy but some of the very successful people he describes were clearly pretty close to zero in their allocation.
Perhaps the answer is to create working groups of people with different amounts of empathy. The low empathy ones can make decisions and drive change and the high empathy ones can be in charge of communications and making sure that change processes don’t neglect the human dimension. What a great way to start a meeting: ‘welcome everyone, now before we all get down to business,l I wonder if you’d just fill in this empathy questionnaire …’
I need to get back to regular posting. So I’m going to spend a few days exploring the contours of a new political framework….
After a difficult period it was a treat last night to settle back in the Great Room and watch The Flaw, a film about the credit crunch which numbers amongst its executive producers the RSA Chairman, Luke Johnson. It is a terrific film, intelligent and persuasive, but also entertaining, witty and at times moving. Most fascinating to me was its core thesis; that the biggest driver of the crisis was wage and asset inequality.
The period between the late 1970s and 2007 saw accelerating income inequality. This reflected, on the one hand, globalisation and de-industrialisation in the West, and, on the other, deliberate policies to weaken trade unions, liberalise labour laws and lower taxes on wealth. In essence, growing income disparity in the USA saw an extra trillion and half dollars flow up to the richest one percent.
But, while the rich and their banks were unwilling to allow middle and poorer workers to be paid more (over the last three decades wages for all but the rich have stagnated in the US), they were more than happy to encourage the poor to borrow money. Of the 1.5 trillion dollars that flowed up in wealth, a trillion then flowed down in borrowing, much of it, from the point of view of the borrower, very ill-advised. This was the cause of the bubble and the bust.
(By the way, here in the UK we are far from out of the woods. The fall in house prices reported last month by Halifax and yesterday’s confirmation of disappointing retail sales both reinforce the worries of those who think we are in for a Japan-style long stagnation, or worse. As Paul Krugman and Robin Wells argue in the latest New York Review of Books, the problem is how to kick start an economy when deficits are already high and interest rates are close to zero.)
As I have written before (and at the risk of sounding self serving), I think one of the strengths of the RSA in comparison to other, more predictable think tanks is that we have a Chief Executive from a left of centre background and a Chairman who is an enthusiastic champion of competitive markets and private enterprise. It was fascinating that Luke should have been involved in a film which reached a conclusion so comforting to social democrats. In part, I suspect, this reflects Luke’s commitment not to interfere with the film’s creative team, but might it also be a sign of the changing contours of political debate?
I see a new political space opening up which combines three positions which have not traditionally cohered:
- Opposition to extreme, unmerited and destructive levels of inequality: ‘fairness does matter’
- Scepticism about the central state as a direct agent of social change and a preference for models which are driven bottom up by citizen initiative and community action; ‘a big society not a big state’
- Recognition of the importance to human functioning both of values such as respect, virtue, thrift, moderation and of the norms and institutions which embody these values: ‘enlightened social conservatism’.
Fairness matters, big society not big state, enlightened social conservatism: do these ideas make sense and can we agree broadly what they mean? Are they philosophically compatible and is it possible to imagine a political and policy programme emerging from them?
This new framework doesn’t dissolve ideological differences. Someone from a right of centre background might agree that inequality is excessive now but would be willing to go much less far towards egalitarianism than someone from the left. But practical politics starts from where we find ourselves now. It is the world after the credit crunch and facing such challenges as the relative decline of the West, population ageing and climate change, and that provides the basis for unusual alliances and innovative ways of thinking.
I would be thrilled if people could give me their thoughts so we could get this debate going for a few days.
We held two great events here yesterday. In the evening RSA Chairman, Luke Johnson, hosted a speech by Sir John Rose, CEO of Rolls-Royce, on the topic of creating a high value economy. The Great Room was also full to bursting at lunchtime for a conversation with Steven D. Levitt and Stephen J. Dubner about their book ‘Superfreakonomics‘.
Having read the book it was obvious to me that among the most controversial issues was the authors’ critique of ‘evidence’ about inherent human altruism. Levitt and Dubnar were fascinated, as it turned out this point had hardly been raised with them amidst all the arguments they had had about issues like climate change and prostitution. Nevertheless they set about making their case with great gusto.
You need to read Chapter 3 of the book to get the whole argument but in essence, and relying heavily on the work of economist John List, the two Stev(ph)ens refute often cited evidence from the ultimatum and dictator games which purports to show that people do not simply maximise gains but instead put a price on an innate sense of fairness. This may work in the artificial setting of the research project where students want to show how great they are but the evidence disappears when you construct a similar experiment in the real world.
What is more, we are only as fair as we think we have to be to avoid looking mean. So when people are asked to divide a $10 gift between them and an anonymous other they might choose to give away $3 or $4. But if their options include being able to take money off the other person (so the range of options are from giving away the whole $10 to keeping the $10 and taking $5 dollars off the stranger) the subjects adjust their offer to zero. In other words if simply not stealing is made to feel like it is a benign choice, people use that to legitimise keeping 100% of their windfall gain.
For me the interesting question is what does this more traditional self interested account of what drives us mean for our policy inclinations. At the beginning of my recent Prospect piece I wrote:
“As a schoolboy socialist in a 1970s grammar school, the first political arguments I had were about human nature. My idea of the good society rested on a view of people as collaborative and benign, qualities hidden by the depredations of ‘the system’. Working-class Tory mates mocked my naivety. To them we were self interested. Some succeeded by their efforts, others failed or cheated and would change only if incentivised or compelled “.
But it turns out the link between our view of man’s innate characteristics and our view of what government should and should not do are not as simple as this. Even if we think human beings are, in their interactions with strangers, overwhelmingly self interested this doesn’t mean we should be champions of laissez faire economics and a minimal state. The reverse could be true.
If we think pro-social behaviour is vital to the well-being of society but that people only behave in this way when incentivised, we might think it is more important to attend to the fabric of society (which generates the social norms that incentivise pro-sociality) and to how the state can encourage people to do the right thing.