I read an article in the Financial Times earlier this week (September 23, 2023) -…
This is Part 5 of an on-going series I am writing about the issues facing societies dealing with climate change and other elements which come together as a poly crisis. The series will unfold as I research and think about the topic more through my Modern Monetary Theory (MMT) lens. Today, I am concluding the analysis of the questions relating to the ageing society and the resulting skill shortages, that the mainstream narrative identifies as key ‘problems’ facing governments across the Western world. Like any issue, the way the ‘problem’ is constructed or framed influences the conclusions we come up with. Further, the tools use to operationalise that construction also influence the scope and quality of the analysis and the resulting conclusions. As I explained in Monday’s blog post – Degrowth, deep adaptation, and skills shortages – Part 4 (October 31, 2022) – the use of mainstream macroeconomics fails to deliver appropriate policy advice on these questions. But further, when we introduce multi-dimensional complexity – such as degrowth to the ageing society issue – the mainstream approach becomes catastrophic. MMT is a much better analytical framework for drilling down to see what the essential problem is and what are non-problems and thus creating the questions and answers that lead to sound policy. Today, I show why the existence of skills shortages really provides us with the space to pursue a degrowth strategy while not causing material standards of living to collapse. They are better seen as indicator of what is possible rather than a macro problem.
This blog post is part of a series I am writing on degrowth and adaption. The current series consists of:
1. Deep Adaptation – Part 1 (August 22, 2022).
2. Deep adaptation, degrowth and MMT – Part 2 (September 8, 2022).
3. Degrowth, Deep adaptation and MMT – Part 3 (October 3, 2022).
4. Degrowth, deep adaptation, and skills shortages – Part 4 (October 31, 2022).
5. Degrowth, deep adaptation, and skills shortages – Part 5 (November 3, 2022).
The need for further context
In my previous blog post in this series I considered the typical arguments that are used to impose fiscal austerity to deal with the ageing society projections.
By cutting government spending in education and training etc and increasing unemployment, in a mindless effort to ‘save’ up money to deal with the projected rising costs of the ageing population, the government actually undermines the future.
The challenge of an ageing society is to enhance the productivity of the smaller number of productive workers that are remaining in the population and that requires investment now in education, training, R&D and creating mass unemployment and degrading the skills development institutions merely works against that imperative.
Modern Monetary Theory (MMT) helps us understand that there are no financial constraints on the government in their quest for first class education and health systems, both which are essential to ensure a highly productive workforce.
An MMT understanding helps us recognise that the constraints on government spending are real resource availability rather than financial capacity and debunks the emphasis by the mainstream narrative on the latter.
The mainstream emphasis leads to policy proposals that work against the solution to the actual problem.
In that sense, the ‘productivity’ challenge rather than the ‘financial’ challenge narrative is more sound and will allow us to appreciate a wider policy scope and better interventions.
However, clearly, we also have to have a broader focus when appraising policy challenges.
When mainstream economists talk about productivity, they take a narrow view focused on reducing costs relative to output to enhance profitability.
After all, the so-called ‘gainful work’ concept was about jobs that make profits in a market setting, which is where the resistance to government created work comes from – the latter jobs being dismissed as ‘boondoggles’, ‘make work’, ‘leaf raking’ efforts.
Which means that the typical conception of productivity improvements is associated with adding more energy to the production process (capital etc) and less labour for the same output.
I have a much broader concept of productivity which goes beyond a private cost and benefit calculus to include social costs and benefits.
That might be harder to ‘calculate’ because it involves judgements about contributions to society that are not ‘sold’ in the market.
So when I talk about the ‘productivity challenge’, I am conceptualising the problem in this broader context with a bias that says we need to seek ways to do things better that reduce carbon transformation.
As I further develop my research and thinking on the challenges facing the globe – which I have termed a poly crisis – I have further assessed this analysis.
And this is where the climate crisis intersects with the ageing society and skill shortage issues.
There is nothing wrong with thinking about the ageing and skills issues in terms of a productivity challenge.
But we have to embed that analysis within the other dimensions of the poly crisis so that we extend our thinking beyond the meagre material.
And as I work more on the conjunction of MMT and the Degrowth concept, my thinking on the question of skill shortages arising from ageing societies has evolved quite significantly.
In the rest of this blog post, I summarise where this thinking is going.
Skill shortages and Degrowth
Usually, the skill shortage cries are coincident with the existence of mass unemployment – which has been the case for some decades.
Since the pandemic, with many workers now unable to work because of long Covid and other constraints arising from border closures (for example, Australia during 2020-21), the unemployment rates have most fallen to lower than usual levels.
That is something to celebrate.
In this context, the skills shortage claims have more credence because there are less idle workers.
But that doesn’t mean that the ‘shortage’ is a problem once we widen the scope of the analysis to consider all dimensions of the poly crisis.
As noted above, the mainstream view is that when genuine skill shortages exist the solution is to increase labour supply through a range of measures such as encouraging a higher birth rate, extending the retirement age, subsidising child care, and increasing migration rates, to name a few.
But why are skill shortages a supply problem?
Why not think of them as a demand-side problem?
Why isn’t the emphasis on there being too many entrepreneurs seeking to establish too many firms that cannot be viable given the available labour supply?
In other words, if we turn the analysis on its head we might ask the question:
If there are not enough workers to do the work, why don’t we just accept that we will produce less?
Why don’t we consider skill shortages as signalling that there are too many firms trying to produce too many products in too larger quantities?
Once you think in those terms, the incidence of skill shortages becomes an indicator of the space that is currently available to maintain the material level of prosperity by scaling back economic aspirations to match the available labour supply.
Clearly, with labour supply constraints, the current level of production defines the available material goods and services, which we consider articulates our material standard of living.
There are obviously distributional anomalies (indecencies) where some people in society have little while others have too much and that needs to be address through appropriate fiscal policy interventions.
But even if the current available output was equally distributed the argument would hold.
The available labour supply defines the maximum scale of production when it interacts with the available capital.
If we are truly seeking to transition to a system of production that uses less fossil fuel energy and places less demands on our natural environment, then the first place to start is to call a halt on expansion.
Note the caveat from Monday’s post that I am abstracting here from the requirements of poorer countries that must expand production to ensure food and housing security and better health and educational outcomes.
That necessity means that production has to be more evenly spread across the globe as we enter a period of reducing energy consumption overall.
I will write more about those global distributional issues another day.
So the argument here is really about the advanced nations.
Do we really need as many hospitality venues serving food?
Do we really need as many ‘tour guides’ and ‘tourist experience’ firms to cater for people wanting a holiday break? Won’t they just Google ‘Kyoto’ and learn how to navigate themselves around on their own steam?
Do we really need as many firms producing plastic junk that breaks quickly and then presents an environmental challenge?
Do we really need as many clothing firms to produce ‘fashion’ that we throw out because we look stupid in it the following season?
Do we really need the plethora of gadgets and junk that we fill our homes up with?
Do we need all those ‘Dollar’ or ‘2 Dollar’ Shops that are filled with poorly designed products that do little to enhance our well-being.
There are so many ways that we can still live enjoyable lives with adequate material comforts and gadgetary while eliminating a massive number of consumption items.
The future demands of the natural environment will require us to resist obsolescence and return to a state where the products we make and buy can be repaired easily with new components.
That way the ‘energy’ embodied in the products will be utilised for decades rather than a few years or even months in some cases.
Why should we accept mobile phone products that have batteries glued, which necessitate throwing the whole functional unit away once the battery dies, which in the current era means replacing phones regularly?
I had a faulty component on a pump that distributes water from our tank to the vegetable garden at my home in Newcastle recently.
A simple plastic component that should cost a few dollars and be easy to replace in a relatively new pump. It had cracked because it was not up to handling the pressure.
But design fault aside, when I went to the plumbing shop I was told I have to purchase a whole new sensor and timing unit worth around $1,000.
The cost was one thing but the wastage of materials and the stored up energy in those materials was the real issue.
Thus, we can scale back production dramatically if we resist the call from corporations to continually be consuming ‘new’ stuff.
Allow for natural attrition of business
Clearly, skill shortages may get to the point where a business is not viable.
That should be a sign that the business just closes.
One way that this process can accelerate is if businesses simply close their doors once the owner reaches what he/she considers an acceptable retirement age.
As I noted previously, in Japan the average age of owners of SMEs is rising fast and the “peak age of business owners moved from 47 to 69 in 23 years” from 1995 to 2018 (Source).
The same data source (from the Japanese Small and Medium Enterprise Agency) shows that in 2013, 34,800 businesses just closed or dissolved.
By 2018, this number had risen to 46,724 and was will continue to rise as the owners get older.
The Japanese government is trying to resist this process and are implementing “succession (transfer) of management resources” plans, which include tax incentives etc. to “further promote business successions outside family and relatives”.
I would take a different approach and see the closures as providing space to degrowth which causes less immediate material harm.
If that natural attrition was allowed to continue, the skill shortages that are associated with the SME sector would also fall.
People like me have spent a career arguing that we need to ensure total spending in the economy is sufficient to scale production at levels consistent with providing work for all those who want it.
I don’t resile from that aspiration.
But with the likelihood that skill shortages will increase in certain countries rather significantly, we can exploit that situation to maintain low unemployment rates (as in the case of Japan) while significantly scaling back production and reducing the energy component of GDP.
Degrowth is about reducing the energy we use.
Production requires energy. Both the level and composition of production must change significantly.
In a later blog post I will consider the problem of the poorer nations that have very high child dependency ratios and a need to expand employment opportunities and increase material standards of living.
That feeds into the immigration debate as well.
This series is on-going.
That is enough for today!
(c) Copyright 2022 William Mitchell. All Rights Reserved.