Stephen Beer, Blog, Stephen Beer

Stephen Beer (www.stephenbeer.com)

Friday, January 16, 2009

Tackling inequality - my idea for the Fabians

The Fabian Society is holding its New Year conference this weekend. It has asked contributors to suggest ideas for how to 'make the recession fairer'. My idea was as follows:

We are fooling ourselves if we believe government policy amidst this financial crisis means that there will be a new wave of funding for the projects and goals we want to promote. Recessions mean we do not just talk about hard choices; we actually have to make them. The main political challenge facing us looks likely to be high unemployment. With rising unemployment comes job insecurity, higher probability of family breakdown, risks to social cohesion and implications for equality. We have very little time to get this right.

Moreover, much unemployment will be in financial services and high skilled manufacturing. The new unemployed will have high expectations of the help and service they receive from our job centres. We must meet those expectations.

In the last two recessions, unemployment reached three million. It may well double this time around and so reach the same level. If one of the worst case scenarios occurs, it could rise further. This is because at present businesses are being starved of credit as a result of the worldwide collapse in financial confidence and overall demand is also affected.

We are taking action in government to address this issue and more radical action is likely in the months to come. The forecasts for government borrowing will rise further. The government is trying to both help get credit markets working again and stimulate the economy. However, as tackling unemployment becomes our main political goal, we may find that trying to boost overall demand in the economy is no guarantee that more jobs will be created. The last recession was different, but for a time there was talk of a ‘jobless recovery’. That could happen again.

Increasing government borrowing to boost overall demand (eg via tax cuts or more government spending) is probably not what Keynes would have focused on except in a depression. As Pavlina Tcherneva, of the Levy Economics Institute, has shown, a genuine Keynesian solution would focus on raising demand for jobs.

Government should become ‘employer of last resort’, just as the Bank of England is lender of last resort. Government could employ people directly through dedicated agencies, working for start-ups or voluntary sector projects. Incentive schemes to encourage employers could also be considered. As the economy picks up, it will become worthwhile for people to leave government employment for higher paid work.

In this way, people keep their skills fresh and add to their experience. New businesses that need usually expensive labour can afford it. The voluntary sector will receive help at a time when giving is under pressure. And the economy will receive a growth boost.

1 comment:

Ralph said...

Having read and written a lot about “government as employer of last resort” (ELR), I can promise all and sundry that it is a difficult subject. It’s a waste of time devoting any ink or paper to the subject, as Stephen Beer does, unless one has spent a full week reading everything you can lay your hands on the subject.

Needless to say I recommend my own thoughts on the subject, at http://employerlastresort.blogspot.com/2009/03/employer-of-last-resort.html

But obviously there is a vast amount of material obtainable by Googling “employer of last resort”.

My reaction to Stephen Beer’s suggestion in his final para is that ELR is an idea with great potential. Whether we set it up or not has nothing to do with recessions. That is, the main arguments for ELR are justified during booms as much as in recessions. So ELR is not a cure for recessions (though it can help a bit).

As to Stephen Beer’s ideas in his final para about “maintaining skills”, my reaction is “complete nonsense” (for reasons which are too complicated to address here).

I know more about ELR than Stephen Beer, and I am sure he makes a much better M.P. than I ever would.