I am in the final stages of moving office and it has been a time…
Today is my last day in London and I am tied up all day with meetings and activities and then later I am travelling back to Australia. So I invoked the guest blogger facility and asked Victor Quirk to share his views on employment guarantees. Victor has just finished a doctoral dissertation and has produced one of the most compelling research efforts I have had the pleasure to supervise. He chose a very challenging topic overall – the political constraints on full employment – and compiled a very rich argument based on a substantial interrogation of an extensive array of primary documents which he sourced from various national archives in Australia, Britain and the US. Now that Victor has finished his work I hope he will share more of it as a guest blogger. So … over to Victor.
Full employment and price stability
For those who have come in late, what the instigator of this blog, Professor of Economics at the University of Newcastle, Australia, Bill Mitchell, and his numerous colleagues around the world, have consistently and convincingly argued and demonstrated for more than a decade, is that full employment and price stability are completely feasible. Not by calling six or eight per cent unemployment ‘full employment’, but by actually eliminating all but frictional unemployment (two percent).
According to their ‘Modern Monetary Theory’ (MMT) – governments which have sovereignty over their currencies and floating exchange rates have no fiscal constraint, i.e., no shortage of money, nothing to prevent them from mobilising their nation’s unutilised productive resources, such as unemployed people, and giving them socially beneficial work to perform.
They argue that this means that governments such as the USA, Australia, Canada, India, … in fact most independent nations except members of the European Monetary Union, have the capacity to finance an expanding / contracting buffer stock of jobs to augment the contracting and expanding demand for labour in the existing labour market. This would provide paid employment to anyone who at anytime wanted a job.
Bill and his colleagues propose that these jobs be designed to entail useful work that meets a social or environmental need that is currently unmet by the public or private sectors.
The issue of wage inflation would be avoided in three ways.
Firstly, by paying only the minimum wage, which in Australia is sufficient to maintain a modest dignified existence, people in these jobs would retain an economic incentive to work in the conventional labour market when an opportunity arose. Employers would need pay little more than they presently offer to poach workers from the buffer stock employment pool, since the ‘Job Guarantee’ system would make no counter-bid to retain them. By ensuring easy re-entry to the Job Guarantee, there would also be no risk in taking short term temporary work. By keeping the JG system as flexible as possible, patchy mainstream employment opportunities could be accommodated without impairing the economic security of the workers involved.
Secondly, while in this pool, workers could be kept in a more productive condition than they would if left unemployed. With useful work to do, preserving their mental and physical stamina, preserving their social and communication skills, and with ample opportunities for developing their vocational skills, the potential productivity of these workers could even be extended.
Thirdly, by enabling them to pay their bills, maintain their families and preserve their social supports and social integration, the otherwise unemployed (and otherwise socially isolated) would preserve their word-of-mouth connection to the job market. By integrating the public employment service with the Job Guarantee system they could also be kept informed of job vacancies as they arose (in real time), on the job. Employers could even meet prospective workers on the job to gain a clearer sense of their skills. The Job Guarantee (the buffer stock of jobs) would effectively be an employer that encourages the poaching of its skilled workers.
Through a well-designed system, that integrated a flexible pool of public sector minimum wage jobs with vocational training and rehabilitation institutions, and regional labour market analysis and strategic planning, the productive capacity of the workforce could be constantly developed, maximising national competitive advantage in a race to the top, not the bottom. By thus enhancing the efficiency of the labour market, the enhanced economic security of workers (that would tend to empower them to make greater demands in the lower levels of the labour market) would be offset (from the employers’ point of view) by an increased supply (both quantitatively and qualitatively) of available productive workers.
As for the social benefits of using all willing labour, these hardly need explaining. People routinely excluded from employment because of disability, or other forms of entrenched discrimination, can be accommodated with tailor-made jobs, if need be, that can be progressively modified as a rehabilitation program, while providing the worker with the dignity and economic security of steady, paid employment. The same system could also provide vocational experience opportunities for higher education and technical college students. To the extent that people would require attendant carers and other supports to participate in the workforce, these otherwise non-existent jobs could be filled by other Job Guarantee workers.
The sorts of institutional arrangements to do all this, and develop the nation’s skills base along the way, while building a fairer, healthier, more cohesive and sustainable society (using all the labour power we otherwise fail to utilise), have been proposed in detail and can be found in free downloadable publications from the CofFEE website.
And while we here in Newcastle have focused on Australia as the context for our designs of such systems, people in other countries with a grasp of the underlying economics can develop plans better adapted to their own existing institutional arrangements.
So is this possible?
The obvious question for me in all this is: if this is so possible, and so obviously worth serious consideration at the very least, why isn’t it being widely discussed on national television, or in the major newspapers? Why have so few public policy makers taken a close interest in it?
This question has been at the heart of a Phd I have been working on for six years.
The simple answer is that the people who run our societies, the people who provide the campaign donations, who control the editorial policy of television networks, who fund the think-tanks, who bankroll the ‘economic education’ campaigns, who run banks and other corporations, who transfer back and forth between the upper echelons of government and the corporations, etc., do not see the elimination of poverty and unemployment as desirable at all. Labour underutilisation preserves the social domination of employers over workers.
Although this accusation is generally denounced and denied, since admitting to it would be likely to provoke an electoral backlash and thereby make it difficult to maintain, there have been times and places when it was openly discussed in many countries. A particular case in point was during and immediately after the Second World War in countries like Britain and Australia. The Times expressed it this way in 1943, when post war full employment was being contemplated:
Unemployment is not a mere accidental blemish in a private enterprise economy. On the contrary, it is part of the essential mechanism of the system, and has a definite function to fulfil. The first function of unemployment (which has always existed in open or disguised form) is that it maintains the authority of master over man. The master has normally been in a position to say: ‘If you do not want the job, there are plenty of others who do’. When the man can say: ‘If you do not want to employ me, there are plenty of others who will,’ the situation is radically altered.’
The great Michal Kalecki had a more nuanced view. In his excellent paper on the ‘Political Aspects of Full Employment’ of 1943, he argued that there was no economic impediment, as such, to establishing full employment. The problem was political. Employers would sense their loss of power and would seek to restore unemployment. As well as the sort of labour market power-balance issues reflected by the Times, he argued that governments are more careful to preserve ‘business confidence’ when a downturn in investment can cause electorally damaging unemployment. If a government could automatically top up aggregate demand whenever private sector activity fell, it would be less responsive to business demands for tax concessions, ‘structural reform’, and so forth. He concluded his paper of 1943 reflecting on the possibility of employers turning to more authoritarian methods to bring workers to heel if unemployment were permanently abolished.
Why was there this candour and open discussion of this during and after World War II? Because the public spending required to mobilise these countries for war produced the full employment that employers and their mouthpieces had for decades declared to be impossible, particularly during the depression. H.V. Evatt, Labor Attorney General of Australia, told the 1942 Constitutional Convention, the first since Federation:
With the lesson that it took a war to teach us, we can no longer assert that the problem of unemployment is insoluble, that men are out of work only because they are unfit for work or unwilling to work, that financial policy prevents their employment, that the task of maintaining full employment is not a responsibility of the national Government.
Despite the best efforts of the conservative Opposition lead by Robert Menzies to stop them, Prime Minister John Curtin and Treasurer Ben Chifley maintained full employment after the war. By the final year of the war, the Financial Editor of the conservative Melbourne broadsheet ‘The Argus’ had to explicitly concede the point:
The experience of the war years has shown the Australian people that full employment can be attained. They are not likely to accept as inevitable the waste and soul-destroying bitterness of the large-scale unemployment of the depression years. ‘Full Employment Must not Fail’ (The Argus, 31/5/ 1945).
Full employment was achieved by having a large program of prepared public sector employment on standby to soak up unemployment wherever it occurred. An example of how it worked was provided in 1949 when a deep recession then underway in the United States, and a National Coal Strike that Chifley controversially broke by sending in the army to shift the surface coal, threatened to cause unemployment in Australia. To ensure this disruption did not induce a local recession, in August a ‘National Works Council’ announced a massive program of £743,357,061 of public works for the Commonwealth and States, declaring ‘that this should be sufficient to cushion effectively any recession which might be experienced in Australia in the near future’ (Canberra Times, 19/8/1949:4).
“Of this sum, nearly half is for work which could go ahead at short notice,” said Mr. Chifley. “The works involved are mainly for the building, construction and engineering industries. If these industries can be kept busy, and, if necessary, expanded, serious unemployment should not occur in other trades and occupations. The works in the reserve are so arranged that they will give employment in virtually all the cities and areas of the country,” he added.
“If Australia is again hit by a slump, the National Works Council is determined that Governments should not again add to the tragic waste of our greatest, national assets – the daily work of our citizens. If private employers cannot offer sufficient jobs, then the Governments will, but not make useless work. All the plans in the reserve are for genuine developmental projects which will add to the strength and efficiency of Australia’s economic machine” (Canberra Times, 22/8/1949:2).
It is almost surreal for those of us who never knew full employment (it was abandoned in Australia when I was 16) to see what the consequence of a government with this sort of attitude had on the lives of their people. By the time of this announcement unemployment had been kept at one per cent for five years. The public were by then so habituated to full employment, so conversant in the Keynesian principles that underpinned it, that this was the entire announcement of the state of the labour market on page five of the 16 September edition of the Melbourne Argus:
On Wednesday, 2,705 people in Australia were entitled to unemployment benefits. This was 1,055 less than on the previous Wednesday. – Mr Holloway, Minister for Labour and National Service.
The population was around eight million at the time, and the unemployment benefit was a non-contributory, non-time restricted benefit system for which one only had to be unemployed and seeking work to qualify. The Commonwealth Employment Service had tens of thousands of unfilled job vacancies.
What would be the size of the headline of such an announcement today?
In this environment Kalecki’s prediction was fully confirmed. All through the 50’s and 60’s employer groups and their conservative mouthpieces, such as the Sydney Morning Herald (it has mellowed somewhat in the intervening years), all commiserated the loss of unemployment as a productivity driver.
The plain truth is that in a labour market which favours the seller of services, workers have become less inclined to exert themselves. They have lost fear of unemployment, and, generally speaking, no other adequate stimulus to steady, conscientious effort has replaced that economic spur (SMH, 7/5/1949).
Having been forced to swear their commitment to preserving full employment in order to win the 1949 election, the Menzies cabinet were deeply unhappy about having to preserve it (for fear of the electoral consequences of not doing so). In one 1951 cabinet meeting the Prime Minister (Menzies) and Deputy Country Party Leader (John McEwan) discussed the 1951 inflation spike (caused by the wool boom of the Korean War):
McEwan: Inflation results from two things: too much money and too little work. The circumstances of full employment are the greatest single cause of inflation.
Menzies: If we can reduce public spending and private investment we will be attacking that problem.
McEwan: It is a terrible thing to think that the fear of unemployment is the only way that men can be made to work harder (Cabinet Notebook, 1951a).
We also see Menzies frustration at not having unemployment to attack the trade union movement when he observed the diminished impact of a threat to de-register a maritime union:
De-registration was a strong weapon but now in full employment it is not so useful (Cabinet Notebook, 1951b).
In July 1951, industrialist G.H. Grimwade, as Chairman of the editorial committee of the Institute of Public affairs was reported to have told the Junior Chamber of Commerce in Melbourne that :
Unemployment “was a promoter of energetic endeavour and respect for authority, whether benign or malign,” he said. Mr Grimwade emphasised that in the past, minds had become warped by this fear of unemployment, “and heaven forbid that I, or anyone else, should call for its reintroduction.” He said that the world was living in the shadow of Socialism, which was “now being sold under the latest brand ‘the Welfare State.’ (Argus, 28/7/1951)
…. and so the story went until the early 1970s when BHP Chairman Sir Colin Syme made his public call for more unemployment, a policy soon implemented by unelected Treasury officials behind the back of the Whitlam Government, consolidated by the Fraser-Lynch-Howard administration of 1975 – 1982, and institutionally embedded by the Hawke, Keating, Howard, Rudd and Gillard governments thereafter.
It is very informative to follow the British and Australian debates over full employment during the Nineteenth and Twentieth Centuries. We see the call for the State to supplement the deficient labour demand of the private sector was a central demand of the early labour movement (1890’s – 1910’s), it became a core goal of the Australian Labour Party during the 1930s, was implemented during WWII and maintained for thirty years (1944-1974).
It was then abandoned during the corporate mobilisation against the Whitlam Government, erased from the public memory by a massive corporate-funded economic education propaganda campaign maintained since 1976, leaving Bill and his colleagues arguing on platforms such as this blog that full employment is possible to a public that is largely oblivious that they once had it for thirty years.
Even worse, they are told by credible media outlets, such as the ABC, that the 12 per cent labour underutilisation rate they experienced during the later Howard years was full employment.
The political constraints on full employment
The broad church of Keynesian economic supporters don’t all support the Job Guarantee model largely because they don’t (in my opinion) appreciate the explicit price stability mechanisms incorporated in its design.In the 1980s, Gosta Rehn, the great Swedish co-architect of Sweden’s 1950s reformulation of a full employment economy, criticised the Anglo versions of full employment for their lack of an explicit inflation control mechanism, arguing that the increased bargaining power of Labour under conditions of full employment has to be taken into account in its design.
Where the old model definitely achieved full employment it did so through fairly cumbersome methods of estimating the amount of aggregate demand that needed to be added to the economy in order to bring it to full capacity. Over estimations produced inflationary pressures. The reliance on the mainstream public sector was more prone to expansion than contraction.
Fixed exchange rates required manipulating the economy (stop-go) to resolve exchange imbalances. Regional and local pockets of unemployment required the whole of the economy to be kept on the verge of over-heating. And when the OPEC inflation shock hit, no effective mechanism existed for negotiating the fall in national income between labour and capital, and unemployment was unleashed to force labour to bear the brunt.
By contrast, the Job Guarantee delivers a packet of aggregate demand precisely when and where it is required, since it is triggered by an individual reporting their unemployment. As a third sector to augment both the existing private and public sectors, its jobs can be designed to supply what the mainstream labour market requires in terms of a better equipped workforce, rather than compete with either for labour.
While providing better economic security to working people, and a constant improvement in the equity and public amenity for rich and poor alike, for the able and disabled, it will produce a better and more sustainable society. This is not nirvana. This is simply a mechanism for a more civilised and equitable method of organising market-based societies than currently obtains anywhere in the world.
But have no doubt on one point. The reason why this idea will be a long time gaining ground is not that it is in some way outlandishly utopian, because it is not, or that the numbers don’t add up, but because the neurotic wielders of global power in 2010 do not wish to lose the position of domination that other people’s poverty and unemployment gives to them. Personally, I believe these socio-paths need our understanding and support.
But even before we start them on their therapy, there are sufficient numbers of good, well intentioned, positive progressive thinkers who advocate for social democracy, that, in my opinion, need to get their heads around what the MMT community are reporting. The Ted Wheelwright lecture. by Professor Fred Block this year is a case in point.
Professor Block believes social democracy is possible using guaranteed minimum incomes, and proposes Government fiscal constraints should be overcome by requiring multinational corporations to invest their profits in socially and environmentally beneficial activities.
I don’t doubt the good professor’s intentions, but I don’t see his proposals leading to a more equitable distribution of social power. Disengaging a large segment of the population from all economic activity except consumption, making them dependent on the willingness of others to provide for them, is surely more likely to disempower them than empower them.
Making the civilising progress of society dependent on the profitability and good will of multinational capital is surely more likely to empower them than disempower them.
Clearly, the elimination of social domination as an organising principle of society will entail all of us acquiring many skills and forms of knowledge we do not already possess, but I believe Modern Monetary Theory and the potentialities of the Job Guarantee are fundamental concepts for advocates of social equity to take the time to consider.
The Saturday Quiz will be back again tomorrow sometime with a tricky premium question to test all those smarties who think it is getting too easy. For us common folk … the other four questions will hopefully remain a (bit of a) challenge.
Time for me (Bill) to get to work today.
That is enough for today!