Thursday 13 October 2011

Wants and needs

To listen to the voice of the ‘business community’, one might think that one key element on the road to full employment and economic growth is as simple as freeing business from ‘regulation’ – and in particular, allowing them to pay lower wages, have staff work longer hours, and limit employees’ rights as much as possible.  I can see how any individual business would see all of those things as enabling it to produce more for less and thus increase profits. 
At first sight, it’s no surprise therefore that the collective voice of business expresses this sort of view to government.  It should be though, because what individual businesses want, in order to compete against each other, isn’t necessarily what the economy as a whole – and all the businesses in it – really need.
The approach is grounded in looking only at the cost side of the equation, and only from the narrow, micro, point of view.  It’s a natural tendency, because costs are easier to control, but it isn’t the whole picture.
On the income side, businesses actually need customers with money to spend and time to spend it.  I sometimes wonder if every individual business trying to reduce its own labour costs to gain competitive advantage isn’t making the implicit assumption that the consumers of their products and services will be the ‘overpaid and unproductive’ staff of their competitors.  In effect, attacking pay and hours to compete only works as long as everyone else doesn’t do the same thing.
There is another implicit assumption being made as well, which is that as some businesses become more ‘productive’ and thus free up labour, then other businesses will expand, or be started, to take up the slack.  That’s an assumption which underlies the whole economic policy of both government and opposition.  And, albeit with a greater or lesser degree of success at different times, it’s proved a valid assumption, to an extent, over the long term. 
The fact that it doesn’t currently seem to be happening doesn’t necessarily mean that it won’t happen in due course, but it is at least possible that, this time, it won’t.  What happens then?  What’s Plan B?
The government and opposition alike would have us believe that the lack of investment at present is down to a failure of banks to lend.  And I'm no fan of banks, but there's a danger that they're just a soft target.  There is plenty of evidence that a lot of businesses, particularly the larger ones, are sitting on enormous pots of cash.  That would mean that it’s not a lack of cash which is holding back investment, but a lack of opportunities to invest profitably.
The political assumption is that any Plan B would essentially revolve around either public authorities investing in infrastructure, or else cutting taxes to put more money in people’s pockets so that they can go out and spend.  The evidence suggests that, of the two approaches, the former would be more effective, even though any jobs created are likely to be of temporary duration, partly because putting more money in people’s pockets at present is more likely to lead to a paying down of debt than an increase in spending.
However, if we assume for a moment that putting more money in people’s pockets would actually work, why the assumption that the only way to do that is to reduce this tax or that tax?  Paying higher wages by sharing the rewards more equally could potentially have the same effect, as could employing more people to reduce all the unpaid overtime worked by an increasingly stressed labour force.  (That would also give people more leisure time to spend the extra money as well.)
Reducing productivity and paying higher wages is counter-intuitive, of course.  We’ve been brainwashed into thinking that ever increasing productivity and cost reduction are inherently good things, just because they seem to make sense at the micro level.  But at the macro level, they only make sense as long as the assumption that something else will take up the slack remains valid.  Otherwise, those increases in productivity have to pay for the unproductive slack.
In that case, a real and radical Plan B involves a fundamental re-think about the basis on which the economy is run, and a move towards a more co-operative rather than competitive approach.  An economy, in short, which is built around the needs of the whole of society rather than around the wants of the minority.
They used to say that ‘What’s good for General Motors is good for America’, but it seems to me that, in economic terms, ‘What’s good for the whole is good for the parts’ is much more likely to be true in the long run than ‘What’s good for this part is good for the whole’.


Glyndo said...

"On the income side, businesses actually need customers with money to spend and time to spend it."

I seem to remember Henry Ford thought along these lines.

Spirit of BME said...

“The needs of the whole of society”, does not feed through to the market place, as the market is made up of several segments with their different wants and needs, consumers are also fickle and will change and demand different things of the market.
There will always be consumers with money, albeit there is a shrinking disposable income right now and to prosper companies have to meet the market expectation or demand or go under.
The current growth plan pumped out by the English government is total tosh and in no way will off balance the loss of jobs in the bloated public sector, so we are all going to get poorer as the velocity of money slows down.
To create jobs ,business will have to be set free on a much more radical scale , but the uber controllers in HM Treasury are far too risk averse.
Quoting GM is not a good model, it went bust a few years ago due in part to unrealistic wage settlement with the Unions and the current US administration had to put tax payers money into it to keep it going. They really believed whatever they did was good for America, forgetting the words of the Blessed Adam Smith that competition and the market place decides that question.