Wednesday, 23 November 2011

Fiddling at the fringes

According to this story yesterday, job losses in the Welsh public sector could be up to 26,000, and each job loss in the public sector could be matched by a job loss in the private sector, pushing the total cost to the Welsh economy up to around £3.65 billion.  I assume that to be an annual figure, although it wasn’t stated as such, and nor was there much by way of clear justification of any of the other figures.  I’m not sure how confident we can be, as a result, in the precise figures, but there are some key general points that do emerge.
The first is that cutting spending in the public sector is not neutral in its effect on private sector employment.  There is a direct knock-on effect as the public sector places fewer contracts and buys fewer goods and services.  It’s a relationship which should be obvious, really, and I don’t understand why those who are so keen to cut the public sector quickly and deeply don’t understand that relationship. 
The result is that, even if we assume that the private sector is going to create jobs to take up the pool of labour created by public sector cuts, the total number of jobs needed is much higher than simply those cut from the public sector.  And that’s just to stand still, without doing anything about the high levels of unemployment which were there to start with.
The second thing that struck me about the report was the quote from the IoD representative, who claimed that “the private sector was doing its best to create jobs to compensate for public sector cuts”.  I’m not convinced about that.  For how many organisations in the private sector does the question of ‘creating jobs’ feature in the mission statement, strategy, or objectives?  Not many, I suspect. 
Private companies exist to make money for shareholders, not to employ staff, and part of the reason that the economic system is badly broken is that there has been an obsession with ‘efficiency’ as companies try to produce more goods and services more cheaply – generally for less effort using fewer employees.  Whilst it’s true that the expansion of private companies can create jobs, that’s a side-effect – it’s not the aim.  Suggesting otherwise is mere spin.
The third point is the repetition of the canard that the problem with the Welsh economy is that we are “over-reliant on the public sector”.  That’s an ideological belief rather than a statement of fact.  There is no magic number for the percentage of the economy which belongs in one sector or the other, and it really doesn’t matter, in terms of GVA, whether a particular activity is carried out by the private sector, by the public sector, or by the private sector as a contractor to the public sector. 
(I’d accept that there are questions about whether the public sector has historically been as ‘efficient’ as the private sector.  That’s a subject for another day, but the point is that there really is no inherent reason why the public sector should be any less productive or effective than the private sector.  And there have been, in the past, plenty of examples of profitable businesses in the public sector – until they were sold off.) 
Who owns enterprises is irrelevant from a GVA perspective, but we’re stuck in the Thatcherite mode of believing that only private profit can drive an economy, and that the state should only concern itself with the provision of a limited range of services.  It’s a paradigm which patently isn’t working, yet governments and oppositions alike only offer us more of the same.
On the same page as that story was the report about Cameron stating that “getting debt under control is harder than envisaged…”.  The only thing that surprises me is that he or anyone else would be in any way surprised at that.  Increasing the numbers of unemployed people reduces tax revenue and increases benefit expenditure, leading to the government needing to borrow just as much as if they had stuck to Labour’s plans.  They’re effectively just spending a similar amount of money in a different way.
Labour seem to take some satisfaction from that, but they really shouldn’t.  The difference between the two parties' approaches is little more than fiddling at the fringes.  £6billion may sound like a lot of money, but it’s really neither here nor there in the grand scheme of things.  But within the current paradigm, fiddling at the fringes is the best we’re likely to be offered by conventional political parties.  None of them is offering a real alternative.


Britnot said...

Hardly surprising John, given that both Blair and Brown were openly admiring of Thatcher. Hardly a promising sign given they were supposed to be "Socialists". Is it still allowed to describe any of Labours leaders by the "S" word other than in a pejorative way?

Both different sides of the same coin sadly. Fatally flawed by their slavish acceptance of the Thatcherite doctrine of trickle down economics. Letting the people at the top run riot because as they make themselves ever richer so too will the people below them. One only had to look at the world economy of 1929 to see how that would end!

Spirit of BME said...

I think we can apply the Mandy Rice Davies defence to the UNISON article as it ticks their current agenda and there are qualifications all over the place with “could” and “estimate”.
Under English Rule ,Wales is a slave economy and if the host gets a bug ,Wales gets the black death, it always has been as long as I have known it and this time will be no different( perhaps with bells on).
You are correct that decreasing public sector employment will (as I would put it ) reduce the velocity of money in those societies ,but money paid to people with other peoples taxes might produce services but does not create new wealth and Little “Spliff” Cameron sees the reduction of this outlay as a priority.
“companies are there to produce profits to their shareholders” – I hold shares in a company where their value has decrease and has not paid out a dividend in 12 years - can you give them a ring and tell them they have got it all wrong.

John Dixon said...


"money paid to people with other peoples taxes might produce services but does not create new wealth"

That really rather depends on what definition of 'wealth' you are using. It may not make individuals 'wealthy', but it adds to GVA in exactly the same way as it would if the same activities were performed on a chargeable basis in the private sector. And when people say that Wales is poor, GVA is the measure most usually being referred to.

Simply taking a service paid for out of taxes and providing it as a chargeable service paid for by users has, per se, zero impact on GVA (unless the total costs or price change in the process, of course; but that isn't a necessary concomitant). Moving activity from public to private (or the other way around) is about who gets the benefit of the 'wealth', not about whether the activity creates wealth.

"I hold shares in a company where their value has decrease and has not paid out a dividend in 12 years - can you give them a ring and tell them they have got it all wrong"

Oh dear; perhaps you should consider investing elsewhere. But the fact that they're not very good at achieving their objective doesn't mean that it isn't their objective.

Boncath said...

Excellent blog
The pursuit of ideology ie that somehow the worship of the private sector at the expense of the public sector will solve all our economic ills must rank with the belief that the world is flat.
It is all to reminiscent of the two party hegemony that is destroying England.
In times of severe crisis we need a strong leader and or a united political focus clearly we have neither. This is also true of Wales

Strangely enough it is probably the public sector that is the most capable of rapid economic revival in the short term
but again we are in the two option scenario when we should be looking at the wider picture where other options exist
I have sympathy with Spirit of B M

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Credit interest rates up to and over 50K 0.10% yes it is true
Debit interest rates EAR variable 19.90% on a par with Uncle Scooge at his best