The victims become the perpetrators – the neo-liberal smokescreen

I am in working in Seoul all day today and then rushing to the airport to get back to Sydney – so this blog has to be quick. When I saw the headline in the UK Telegraph (October 20, 2012) – A rude awakening for those who refuse to play by the rules – I thought it could have referred to the British government who are intent on defying the rules of responsible fiscal policy by pursuing pro-cyclical austerity and who are seeing the unfolding problems that their policies were generating. I didn’t really think that but it should have been referring to the abandonment of proper fiscal practice in the UK. Upon reading the article I learned it was about the British government – in that it was written by the Minister for Employment. The article was like deja vu for me and the message was one that Australians will be familiar with. It said that the unemployed are in that state because they game the “most generous” system of support and benefits that the UK provides to its citizens. Forget about the lack of jobs. The smokescreen descends – the victims become the perpetrators.

Here he is – the British Minister for Employment. Don’t you just love that conservative sneer – the sort of disdain that these types exude.

The article by Mr Hoban follows the typical neo-liberal reasoning when government policy deliberately creates unemployment despite the government claiming it was that their policy changes would be pro-growth and pro-jobs. They first deny the data and claim the changes will take time to bed down.

Once it is obvious that the data is delivering a consistent message of woe, the governments starts creating the scapegoats – the victims of the policy folly become the cause of the problem.

Australians are very familiar with this evolution of the despicable way in which culpable governments demonise the unemployed, who are just victims of a government macroeconomic strategy that fails to generate enough jobs.

Mr Hoban started by pointing out that:

There was welcome news in this week’s employment figures – a record number of people in work, unemployment fell again and 20,000 fewer people are claiming Jobseekers Allowance than this time last year.

Of-course, Britain’s population has never been larger so a record number of people per se in employment tells us very little. In fact, the latest labour market data from the UK Office of National Statistics A02: Summary of employment, unemployment and economic inactivity for people aged from 16 to 64 shows us that the most recent employment level for those above 16 years of age was 29,590 thousand (the record) but in the third-quarter 2008 it was 29,386 thousand – so not much has been gained since then.

But a scaled measure – such as the employment-population ratio – avoids ridiculous statements like our labour market has never been bigger (along with the population etc).

The current employment-population ratio is at 54.8 per cent. Prior to the crisis it reached a local peak of 60.1 per cent and when the Tories took office it was 58.5 per cent. So nothing has been gained under their office.

The difference amounts to some 910 thousand jobs that are not there.

Mr Hoban claims though that:

… people are getting into work, and there are opportunities out there for those with the bit between their teeth and who aspire to a better future.

But we also know there are some out there who don’t want to roll up their sleeves, and who think they can play the system. Well I’ve got news for them – they can’t.

That is why, from tomorrow, there will be tougher penalties for people on Jobseekers Allowance (JSA) who don’t play by the rules.

He then went on to outline how the unemployed will be fined (lose their benefit) “for up to three years”. Never mind about their circumstances or the opportunities they face.

It is all about “people ready to work hard” – “a life away from benefits” – “the perverse effect of trapping some people on benefits” – “pulling their weight” – “People who play by the rules will have nothing to worry about” – “from tomorrow there will be clear and escalating levels of penalties”.

And then the three strikes and your out! And “for people who can work but who refuse to play by the rules, tomorrow will be a rude awakening”.

The three strikes and your out saw the US judicial imprison petty criminals, some of which were stealing to feed their families so great was their poverty.

I will add some nomenclature to the debate – The unemployed cannot find jobs that are not there!.

This all reads like deja vu to me. The conservative Australian government adopted the same strategy when it was elected in 1996. Its privatised public employment service – the so-called Job Network – which was a refinement of the trend towards mean-spirited government that led to the abandonment of a commitment to full employment and the retrenchment of a comprehensive welfare state.

The Job Network was epitomised by the government’s pursuit of the diminished goal of full employability, which constructed mass unemployment as a supply-side problem rather than a system-level failure of the economy to provide enough jobs for those who desired to work at the current wage rates on offer.

Under full employability, the government no longer ensured that employment growth matches labour force growth but focused, instead, on getting individuals ‘work ready’, should there be jobs available.

It was the exemplar of the OECD’s Jobs Study approach which focused on supply-side activation – a fancy word for blaming the victims of a demand failure and threatening them with starvation should they not agree to submit to the pernicious management regime (relentless dole diaries, meetings with case managers etc) which included working for free.

The Job Network was introduced at at time when it the macroeconomic constraints on its effectiveness were substantial. First, the Australian economy had failed to generate sufficient employment since 1975 to match the preferences of the labour force. Second, gross flows data revealed large inertia in all labour force categories and average unemployment duration rising to around 52 weeks and inversely related to the demand side of the labour market.

These development were accompanied by a policy of deliberate fiscal drag (pursuit of budget surpluses) which created the demand failure. The situation in Britain at present is very similar.

The most salient and empirically robust fact about the performance of the Australian economy at the time the Job Network was introduced was that actual GDP growth was not been strong enough to achieve and sustain full employment. As a consequence, the low point unemployment rate had ratcheted upwards over successive economic cycles.

The same situation exists in Britain now.

The Australian government’s response was to the rising long-term unemployment was to introduce a privatised management scheme. They created a parasitic private sector fringe – the Job Network – in effect, a new industry, whose product was unemployment.

The conservatives who took office in 1996 were not the founders of the scheme however. The neo-liberal ideology had been infused in the so-called workers’ party – the Labor Party – which is also in government at present.

The creation of a competitive market for the provision of employment assistance began with the “Working Nation’ White Paper of 1994, which was a belated response to the massive 1991 recession – that was caused by failed government policy.

Under the Keating Labor Government, one third of the public assistance effort for the long-term unemployed was given to contractors in both private and not-for-profit agencies. This quasi-market was subject to oversight by an independent government regulator and agencies were paid on a ‘fee-for-success’ basis.

This was the basis for the “new industry” – profiting from unemployment.

The Government argued that a competitive model would improve the quality and flexibility of services provided to the most disadvantaged job seekers.

Agencies provided individual case management and were able to refer the long-term unemployed to a range of jobs and subsidised work and training programs provided under the government’s Jobs Compact.

The election of the Coalition Government in March 1996 saw the abolition of the Jobs Compact programs and thoroughgoing reforms to labour market assistance.

The Working Nation strategy was derided as an expensive policy failure unduly concerned with process, and the continuing role of the central bureaucracy (the CES) was seen as antithetic to innovation and the tailoring of interventions to meet the needs of heterogeneous job seekers.

The Government identified cost cutting and the tighter targeting of support as explicit objectives of reform implying an ability to deliver both better and cheaper assistance.

Appropriations for Labour Market and Training Assistance were cut from $2.16 billion in 1995-96 to $1.2 billion in 1997-98. However, the principle goal of reform was defined as delivering better and more sustainable employment outcomes for job seekers underwritten by a more competitive, flexible and performance-based approach to the delivery of employment assistance.

In 1998, the focus on outcomes and the use of competition to drive greater efficiency and choice underlay the dismantling of the CES and its replacement by Centrelink and the Job Network.

A 2002 report by the federal Productivity Commission described the Job Network as a ‘managed’ or ‘quasi’ market for the provision of subsidised employment services, which aims to mimic the activities of competitive markets by allowing scope for competition, flexibility in service delivery, rewards based on outcomes and some degree of choice for the unemployed.

First, the Job Network comprises multiple independent agencies, each having a share of a common system of public service provision. Second, the agencies will be a mix of profit and not-for-profit organisations; and third, job seekers do not purchase services but have services purchased on their behalf by government.

Under the Job Network, the government was a purchaser and regulator of employment services, not a direct provider. The role of government was to award contracts through a competitive tender process, regulate providers, determine standards, and to collect and disseminate performance information.

However, this perverse “quasi market” soon revealed it was not immune from market failure.

There was policy schizophrenia in expecting an outcome-based funding model for employment services to deliver ‘better and more sustainable employment outcomes’ in the absence of concomitant policies to alleviate the macroeconomic constraint and create real employment opportunities.

In a highly demand-constrained labour market, characterised by persistent unemployment and marked regional disparities, it was always unclear how the supply-side focus of the Job Network could be effective.

It was also the case that a system centred on outcome payments in which providers had discretion with respect to the level and nature of assistance afforded to job seekers created incentives for ‘creaming’ and ‘parking’.

The Productivity Commission’s Independent Review of the Job Network in 2002 found that the payments structure to Job Network providers has led to a substantial proportion of Intensive Assistance recipients being ‘parked’ – that is, taken onto the private agency books to get the first incentive payment but then ignored because the prospects of getting any further payments (for successful job placement) were bleak.

Job seekers with the greater chance of achieving a payable outcome were targeted while those in greatest need of assistance (with low employment probabilities) were left unsupported.

The lack of correspondence between needs and services reflected the difficulties associated with specifying objective outcomes and performance indicators that will allocate resources according to an ordering of societal needs; and relate to both the quality of assistance provided and the quality and sustainability of jobs attained.

The prices attached to employment outcomes also did not adequately reflect all the costs of unemployment which include not only income and output loss, but the deleterious effects on self confidence, competence, social integration and harmony, and the appreciation and use of individual freedom and responsibility.

Subsequent evaluations of the effectiveness of the Job Network showed it failed to provide sustained employment prospects for the vast majority of the case load.

One of the features of the system that was most repugnant was known as “breaching”. The Government of the day (in 2002-03) reacted to the early criticisms of its failed program by reinforcing what it called the Active Participation Model – aimed at reducing the outlays that were rising as unemployment continued to increase in the face of the on-going failure to stimulate aggregate demand.

The Government argued that the Active Participation Model would ensure the case loads carried by the Job Network agencies would decline.

Underlying the new approach to “mutual obligation” was the view that improving the effectiveness of the employment services system depended on changes to the system itself, and not on the expansion of employment opportunities.

The enhanced ‘effectiveness’ of the system was sought by a reconfiguration of the payment structure and greater integration between Job Network services and mutual obligation activities.

As a result, the ‘Job Search Training’ and ‘Intensive Assistance’ programs were recast as ‘Intensive Support’ and ‘Customised Assistance’. A job seeker who remained unemployed after 12 months would receive Customised Assistance (CA) for a further six-month period.

After that if the individual had not found work they would be required to undertake another Mutual Obligation activity, which included Work for the Dole programs.

The extant data at the time showed the Work for Dole programs to be a categorical failure in providing a bridge to paid-work in the open labour market.

Data on labour market assistance outcomes for the year to March 2002 showed that three months after completing Work for the Dole just 11.6 per cent of participants were in full-time work. Half of the participants remained unemployed or had withdrawn from the labour force while one-quarter were in receipt of further assistance.

Further, the Government introduced penalties that would be imposed on the long-term unemployed people found to be – in the Government’s assessment – not genuinely seeking work.

The Government gave the Job Network providers the power to identify and punish unemployed people that the Government believes are deliberately avoiding work.

Once identified, the Job Agencies were also able to force these workers to complete double the hours in work-for-the-dole programs and issue on-the-spot suspensions of payments for unemployed people who failed to attend interviews.

This penalty system was called breaching. The data that emerged was shocking. There was an escalation in the number of people subjected to the loss of benefits.

The evidence was that Job Network providers acted capriciously and had no specific procedural guidelines for making decisions about breach recommendations leading to inconsistent treatment of the unemployed within a single organisation.

We learned that unemployed workers who failed to attend a first interview were more consistently and readily breached than others. Rules of natural justice were not being correctly applied in all instances (some unemployed were subjected to unjust decision-making processes).

Job Network agencies used strategic breaching to remove potentially “non productive” unemployed from the books – which meant – workers who they felt they were unable to secure any further placement funding for.

Moreover, those that were being breached include schizophrenics who were prone to episodic illness and unable to attend interviews on days when they were suffering the most; homeless people who were unable to access mail at old addresses informing them of an activity test interview and other disadvantaged citizens.

The reality is that the new compliance regime that the Australian Government introduced did not address the substantive cause of the mass unemployment – the failure of the economy to provide enough jobs.

It established a new industry – with private parasites pursuing a profit motive by meeting perverse performance targets specified in their contracts. These agencies were meant to support the unemployed but quickly assumed a police-type role imposing fines and disciplining the unemployed.

The system failed to achieve any of its stated purposes which were, of-course, not the real roles that the government was interested in pursuing anyway.

The current British government is following Australia down this very sorry path.

I will finish with this graph taken from the latest ONS data – VACS01: Vacancies and unemployment.

Please read this blog – 5.4 into 1 does not equal 5.4 – for more discussion on this point.


A familiar tale. The neo-liberal smokescreen. The elites take us to be fools and they get away with it. We are fools. We believe the array of lies and false constructions they present us because we are too busy trying to get our consumption of gadget and gizmo patterns back on track even with the huge personal debts that remain as the overhang from the last credit binge.

We have been so inculcated with the lie that there are plenty of jobs around and they are there for the taking if only the indolent unemployed would pull their sleeves up and do some looking.

We have been led to believe that the benefits provided to the unemployed are those that you would expect on a Caribbean holiday island – replete with all the luxury trimmings. Prisoners in jails and the unemployed – they are provided with a life of luxury by the state and will opt for either lifestyle unless the state gets tough and makes it harder to take these “easy” ways out. That is the sort of narrative we are bombarded with on a daily basis.

We believe it and let the government get away with it because we have lost our sense of solidarity. Eventually, as this crisis is proving in many nations – the poor economic policy starts to – slowly – eat into the fortunes of the middle class. University graduates – the scions of the middle class families – are increasingly finding it hard to get work. And the rest of it.

That is it for me today. A full day of work ahead and before that, a run through the Namsan Park in Seoul to see the sites.

That is enough for today!

(c) Copyright 2012 Bill Mitchell. All Rights Reserved.

This Post Has 15 Comments

  1. Bill, many thanks again for maintaining your blog – the educational highlight of my day! I’m glad you are getting your exercise and I do hope you get enough sleep! Your output is amazing!

    Of possible interest, letter in a Canadian newspaper:

    Re: “There’s not enough money to pay for baby boomers’ health care needs: researchers,” Oct. 17.

    This study conventionally assumes that the federal government needs tax revenues to fund programs such as health care transfers to the provinces. This may have been the case when our country was on the gold standard, but it is not the case now that we have a non-convertible, free floating fiat currency.

    For example, when Ben Bernanke, chairman of the U.S. Federal Reserve, was asked where the trillions of dollars came from that were used to support the banking system during the 2008 financial crisis, he replied, “It’s not tax money … So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed.”

    If a country can create immense amounts of money to bail out banks, it can also always afford to pay for health care. The real issue is whether we will have enough of the real resources – doctors and hospitals, equipment and medical supplies – to do so. It also requires a political decision on what percentage of real resources we want to devote to caring for Canadians’ health, and what percentage should go to other claimants, such as big corporations and financial institutions that get themselves into trouble and expect to be first in line.

    Larry Kazdan, Vancouver
    © Copyright (c) The Calgary Herald

  2. @Larry Kazdan

    Technically speaking the Central Banks can always finance any amounts of government spending. However, in a lot of countries (I’m not sure about Canada) such as Australia, US and EU, there are agreements between the Central Bank and the government and/or legislations preventing Central bank direct outright purchase of government bonds. Unless the agreement or the legislations are altered repealed; by law, Central Banks can not monetarise government debt by crediting the government’s account.

  3. @SteveK9

    Is there any legislations or agreements you can point to that prohibits Central Bank (say RBA in Australia or the Fed in the US) in using QE? I hope you realise that I’m pointing to the current legal framework (which I do think it is absurd).

  4. “I will finish with this graph taken from the latest ONS data – VACS01: Vacancies and unemployment.”

    And even that calculates short.

    There are 2.5 million unemployed, 2.3 million ‘inactive wants a job’ and 1.4 million ‘part time wants full time’.

    Which I make a demand for 6.2 million full time jobs.

    The number of vacancies is 475,000.

    So I make that a supply of jobs shortage by about 13:1

    Why is it that ‘supply side problems’ doesn’t apply to the provision of jobs at a living wage?

  5. “We believe it and let the government get away with it because we have lost our sense of solidarity”. [Bill]

    What does it take to be conscious is this world?

    Sometimes I really wonder about the level of phantasy extant! From little kids being fed ‘fairy tales’, to teenage ‘alternia’, to the formulas people chase because some idiot defined ‘success’. To TV and entertainment that certainly has naught to do with any sort of reality, to the neoliberal ‘smokesceen’ that conditions the lie of our political and economic society. To the ‘experts’ who quote us theory while nothing changes. To the people on the street who lose the plot and destroy everything in sight, to the hallucinations that bring war; to the destruction wrought on the planet and our own kind, because of base greed.

    The world can look like a steaming loony bin from one angle.

    At the end of a life, you see the look on really old faces, tired and worn – wondering what in the hell all of that was about; knowing it could have been a whole lot better. Look at the joy and innocence of a newly born baby and wonder ‘what happened’?

    The web that ties this dark psychosis together is greed and ‘CONCEPTS’. What else would make a species turn upon each other? The water supply is fresh and clean from the clouds each day, the planet quite capable of producing an abundance of food.

    The cure is to see a human being as a human being; and the true value, true potential of all human life. People have lost respect, and have no knowledge of what existence is. After 200,000 years on the road for homo sapiens, we desperately need dignity, peace and true prosperity. Above all else. Above all else. That to me is our true strength, and our solidarity.

    But where are the world leaders, the ‘warriors for peace’. It has to come from people, one by one …. In the life of our species, we have tried everything else.

    Or for those diehards: some kind of aerial spray, if really you believe in technology!

  6. Right, Bill, we are treated like fools and we act like fools, believing the bullshit that comes from official sources every week if not every day. And even so-called competent journos seem unable to penetrate the mist of bullshit. In fact, they are worse offenders than the average Jane/Joe, as they have virtually no excuse, except perhaps that they are so bombarded with it that they lose their sense of intellectual direction, but for some reason can never seem to find their way back. There should be an evolutionary explanation for this phenomenon, one that would explain how it comes about that people are so easily brainwashed in situations contrary to their most fundamental interests, but I am unable to come up with a good one. The usual social psychological explanations also seem to come up short. For instance, even cognitive dissonance theory, so beloved by some economists (and a great theory), fails to explain why someone experiencing dissonance would tend to constantly pick the “explanatory” option that shows them, and others in their same situation, in the worst light.

    When dogs exhibit this sort of behavior (non-cognitively), it is because they have been beaten into submission. Could something similar be taking place here over the cognitively formative years? Perhaps the remarkable thing is that anyone rebels. Unfortunately, taking note of this isn’t going to solve our current political economic problem. As others have mentioned and as Marx noted long ago, economics cannot be divorced from political considerations. It could be argued that even such seemingly simple things as accounting rules possess a political dimension; it is just that such rules are usually invisible, perhaps especially to accountants themselves.

  7. Addendum:

    When most of us say “we” or “they”, we don’t usually mean everyone. We generally mean to be referring to too many for comfort. So, when someone like Bill Black says, “they” get it, he isn’t referring necessarily to a lot of people. He could be intending “more than one might initially think, given one’s experience and predispositions”. Sometimes, we are all foolish, but as Lincoln noted, not everyone is fooled all of the time. Sometimes it is obvious whey we allow ourselves to be fooled. It is the other times that require explanation.

  8. Neoclassical nonsense enshrined by the ONS – quote from article in Guardian today

    “One more controversial aspect of the ONS work is the inclusion of national debt as a measure of happiness. At the end of 2011 this was in excess of one trillion pounds, the first time on record, and equivalent to 65.7% of GDP. The Stiglitz-Sen-Fitoussi report does not mention this measure but only says that some countries lack decent “balance sheets” – timely and complete sets of wealth accounts. This, most economists agree, does not apply to Britain.

    However, sources at the ONS say the figure was included because in surveys people’s awareness of the “sustainability” of Britain’s finances had been heightened by the current political debate. “People understand that it is a transfer across generations … that taxpayers in the future pay for what was incurred now,” said the source.”

    It makes one weep with frustration.

  9. …. Oh – completing my comment above – should have linked to the student organised Nordic Peace Conference: Prem Rawat address [14min.] for those who see merit in the efficacy of peace (hint – young people do)!

    Practice peace

  10. Bill, I see you as a person going through life turning over the rocks of misunderstandings/lies/self-interest and shining the light of truth on the squirming little creatures beneath them. You are a jewel and an example to all of us.

  11. “The unemployed cannot find jobs that are not there!.” Bill Mitchell

    Because the population is paying down their debt to the government backed/enforced counterfeiting cartel, the banks? Because the population’s stolen purchasing power has been used to automate and outsource their jobs away?

  12. I find your argument regarding unemployed not being able to get jobs that are not there rather convincing. When, however, as the German participant in your panel in Brussels did, the claim is made that there are “latent” jobs that simply don’t manifest because the jobseekers are not qualified enough – how do you refute this?

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