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’.