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July 15, 2009

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Chris Clark

"Capitalism, at least in its actually existing form, is incapable of providing full employment."

...but the labour market is hardly run along capitalist lnes, is it? nothing like it, in fact.

chris

Hence that qualification "actually existing".
However, the nearest source I have to hand (Feinstein's statistics on national income) show that there were only 7 years between 1855 and 1914 when the unemployment rate fell below 2%, and unemployment averaged 6.4% between 1879 and 1888.
As late 19th C UK is as capitalist as we're likely to get, this suggests that even full-blooded capitalism doesn't provide sustained full employment.

Luis Enrique

How would a non-capitalist system achieve full employment? I mean, if you're not just allowed to wave a magic wand.

Please don't interpret this question as necessarily a defense of capitalism, and certainly not as saying we currently live in the best of possible worlds, but I think if you're going to hold this up as a criticism of capitalism, you have to at least have some idea of what the alternatives would look like. For what it's worth, I think there's plenty of scope for state-led job creation, because i think we tend to under-invest in lots of 'public good' type areas.

One avenue would be to identify labour intensive industries, protect them from import competition and then either subsidize them or put price floors in place. What are realistic candidates for industries that could absorb 4 million workers? Labour intensive forms of agriculture? Garment industry? Are there sufficient labour-intensive forms of manufacturing? You cannot hand craft a microchip.

What would the consequences of attempting the above be? What would happen to real wages, and exchange rates? How would we pay for imported raw materials and energy, by exporting our unbelievably expensive hand crafted pullovers?

This is just one idea, and perhaps displays no more than my limited imagination. If there are better ideas out there, that amount to more than "implement something called "market socialism" and then - alacazam! - full employment!" then I'd love to hear them.

Perhaps there are other industries would could expand - a few subsidies here, a few price controls there, and perhaps we could expand employment in service sectors, like social work, care of the elderly etc.?

Also, what number is the right number to look at? Do we really want to complain because the economy has failed to provide work for "the ill" and "students" (albeit, discouraged ones). What amount of frictional unemployment would we expect, if we were living in an ideal world? The optimal number of unemployed is not zero.

john b

There's a difference between 'would like a job' and 'would like a job that's available'.

The fact that there were 4m people not working who'd say they'd theoretically like to work at the height of the boom is almost irrelevant, unless they'd like to work *in call centres or on building sites for the minimum wage*.

If they'd like to work as Scarlett Johansson's body masseuse for a million quid a year, but not otherwise, then we're not seeing a failure of capitalism but rather a rational choice.

Luis Enrique

another quickie ... there are countries in the world with full employment (if you count things like hanging around outside tourist hotels to beg / carry bags) - all those countries that do not have any sort of welfare state. In those without, unless you are supported by family or friends, either you work or you starve.

The further we get from that position - the more generous (by which I mean direction of change, not generous in absolute terms) we make things like job seeker's allowance and housing benefits (which I'm not saying is a bad thing!) then the harder we make the task of providing full employment, because we keep raising the bar on the minimum return from employment that people will accept (the "reservation wage"). So perhaps the question is not what quantity of employment can capitalism provide, but what quantity of employment can it provide over the minimum standard we have chosen ... we could lower that standard and increase employment in low-wage jobs, but that would probably be regarded as a bad thing - most people think that the unemployed should be given more money, better housing etc. and isn't the consequence of that to reduce the number of viable jobs? Of course, you can say this sort of trade-off only exists within our capitalist system and and hence we can blame it on capitalism, but really if we confine ourselves to likely-to-actually-happen economic systems, that trade off is still there, I think ...

jameshigham

This suggests that Marxists are correct. Capitalism, at least in its actually existing form, is incapable of providing full employment.

It suggests nothing of the kind. Since when can aspirations be counted in stats like this? The problem is that obstacles have been placed in the way of capitalism, both through the international socialism of the central banks and through the overt socialism of Labour which seeks to stymie any possibility of free trade and free association, to say nothing of incentives to start up.

chris

I'm not at all sure that alternatives to capitalism would generate full employment. But they would, surely, treat the jobless with more respect than capitalism does, and offer higher benefits.
All I mean is that it is not possible to defend capitalism on the grounds that it offers sustained full employment, or anything like it.

Luis Enrique

Ah, I see. ta.

Falco

"I'm not at all sure that alternatives to capitalism would generate full employment. But they would, surely, treat the jobless with more respect than capitalism does, and offer higher benefits."

As has been pointed out above, regardless of whether you think think higher benefits are a good idea or not, you have to accept that they will lead to higher unemployment. For instance, if you raised benefits to the level of a typical minimum wage income, then you would have very few people willing to take minimum wage jobs.

"This suggests that Marxists are correct. Capitalism, at least in its actually existing form, is incapable of providing full employment."

This is because the capitalist model will only provide employment to those whose labour value is greater than the cost of employing them. Full employment is only possible if all potential workers fulfill this condition.

You could, (and we arguably do), take money from the productive by force in order to pay for make work for the unproductive. Done on a large enough scale this would grant full employment. However, that is a stupid idea as you would be deliberately destroying value for the sake of having everyone working.

"If they'd like to work as Scarlett Johansson's body masseuse for a million quid a year, but not otherwise, then we're not seeing a failure of capitalism but rather a rational choice."

You're not saying that I've priced myself out that job are you? Damn it.

teqzilla

I'd agree that a capitalist system will not provide sustainable full employment but i'm not convinced this can be claimed as a flaw. In any system where people are free to express their preferences(whether they want to work at all, what job they want, what wage they will accept, what they will buy ect.) then a persistent though fluctuating level of unemployment is inevitable.

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For instance, if you raised benefits to the level of a typical minimum wage income, then you would have very few people willing to take minimum wage jobs.

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This blog presents much needed info at these times. It's sad to learn that there are so many people around who want to work but are unable to find suitable jobs.

Frank

Job creation in socialism is easy; the government pretends to provide jobs and the proles pretend to work. It's been tried and it works for a time.
The unemployed would find work quickly enough if they were in real economic distress.

Raedwald

Of course, full employment is quite a different thing to 0% unemployment. Employment is a stock concept; at any time there will be those on the register between jobs and there will always be those who because of physical or mental incapacity will be virtually unemployable. The latter were often employed in large numbers by municipal parks departments up until the 70s.

I recall a figure of 4% unemployed as being equivalent to full employment today; in Victorian times, when frictional inefficiencies were that much greater, who is to say that 6% unemployed was not actually full employment?

Frank Upton

There is no meaningful sense in which our society or economy is 'capitalist'.

Chas

If Marxism is such a good thing, why have all Marxist states failed? Are you going to give me some crap about how they were not really Marxist at all? Well what were they? Marx and Engels, in their Manifesto, simply wanted to forment revolution, remove private property and destroy marriage as an institution. They did not have any blueprint for a "Marxist" economy, let alone society. A command economy is what you get if you take away private property, and every one has resulted in thousands, if not millions, of people starving to death, from Vietnam to Cuba. GET OVER IT. MARXISM IS DEAD.

And I think you need to read a little bit more than Wikipedia to understand the history of the Statute of Labourers. You cannot talk about "class warfare" in the context of 14th century England. It is entirely meaningless.

Neil Craig

The coastal provinces of China which are highly capitalist are not only providing jobs for their own people but for tens of millions of immigrants from the interior provinces, most of which are run along socialist lines. China is pretty much a social science experiment in what works & they know it isn't socialism.

Does anybody doubt that if we had a 10% annual growth rate like China we would have labour shortages? Does anybody doubt that we could have a growth rate of that order if we practiced the sort of free market policies that achieved such growth in Ireland with a free market in nuclear power too? Does anybody doubt that the statists, of all parties, are the ones who oppose such freedom? If so can anybody dispute that it is big state socialism not free market capitalism that is incompatible high employment?

Jason Kennedy

The view from Guatemala (from a UK citizen). Cooking and selling food on the street, making an improvised shop of your house (requires: a door or a window), turning your pick-up into a cheap taxi and ploughing bus routes, etc, these are quite traditional means of subsisting, and possibly thriving here. And poverty (narrowly defined as a lack of $$$) is a great social glue for keeping families together.

Under the 'safety' argument in the UK, there are a lot of fields of low-level commerce, startable without enormous seed money, that the poor in the UK can't resort to, due to entrenched interests in catering, transport, retail, and so on. So in the UK, the best worst option is often claiming the dole and working cash jobs. Somebody should pick up the baton and show what the minimum amount of money a business can be started with in the UK, and council and national regulations etc be satisfied, across sectors, and show just where the bar is. In the developing world, you can start with a basket and a bunch of bananas (basket optional)

In one way, the notion of the dole can be seen as pacification of two sections of society, 1) the direct recipients, and 2)the businesses that would not wish for any grass-roots individual/family businesses to emerge and flourish as they do in the developing world.

People scrapping hard for survival is actually not such a bad scene to be a part of, the fact that in Guatemala every bus stop has a person stationed there selling fags, candy, cold drinks, or every traffic jam sees vendors materialise, you can buy your newspapers and top-up phone credit in the same way.

Of course, it also means that there is one whole section of society, the larger part, that rarely if ever eats in a restaurant, takes a taxi, shops in a supermarket (or any shops, it's all counterfeit cds and clothes off the markets), but it appears more like nature intended, to be enterprising, to have full responsibility for filling your belly, than to have people doing "nothing" (engaging only in consumption), selling their signature every 2 weeks, and applying for a pool of jobs that are not sufficient to provide employment for everybody who wants it.

nick

SO, after 10 years of non capitalistic control by Brown and Blair why are you surprised that its a disaster, and why are you trying to pin the blame on capitaism?

You can't make things better by taking from the productive to bail out the incompetent like Northern Rock.

The real issue is how any sane tax payer is going to find the cash to pay their 300K share of government debts and liabilities, plus the interest.

That's Labour legacy.

Jason Kennedy

@Nick

That's too simplistic. For one, show an easy way of dividing government actions, any action, into capitalistic and non-capitalistic? Go ahead, cite an example.

The Brown government has been very wasteful, but again, what is waste? It appears that much of the Brown "waste" has ended up in the private sector, and has often undergone a descriptive change along its course - from waste to profit.

The point about Northern Rock is part of something wider, that expanding the amount of credit available makes everybody poorer (or everything more expensive, take your pick). For example, here in Guatemala, there are very few mortgages available, people save and pay cash for a home (or self-build). Now, in the UK, why did house prices expand so much in recent decades? It seems to me that the expansion of easily available credit created this bubble - my question is - how much would the average house in the UK cost if credit was limited to the levels seen 30 years ago?

The above is linked to Northern Rock, of course, because it was a victim of mortgage selling that was locked in a cycle of ever-expanding lines of credit, where the ability to repay was inconsequential to the front-line sellers, as they were immediately repackaging the debt and moving it on. The whole thing was a horrible game of pass-the-parcel, with the banks, when the music stopped, coming up with the bright idea of handing everything over to the govt. (Or, if you are more cynical, realising this a lot earlier on, and happily swamping themselves in debt to the point where they made damn sure they were going to collapse, thereby taking the govt hostage.)

I don't really think a Tory govt could have done anything too different to this one. Politicians of every stripe have to face the electorate, and calling the bluff of the banks and presiding over a situation of massive financial chaos would perhaps satisfy your wish for a principled stand, but would ensure annihilation at the polls.

On the bright side, the 300k will actually be a lot less because this fiasco is devaluing sterling, perhaps if things go according to plan each person's share will amount to little more than the cost of a few bags of chips, courtesy of a huge spike in inflation.

john b

Neil Craig, are you seriously citing the Irish economy as an example of success? What's up next, Iceland or Ukraine...?

Nick, if you think NuLab was a non-capitalist project, you're either ignorant or crazy. Also, where the flaming hell does gbp300k per head come from? National debt on the most negative predictions coming from non-loonies will be a bit over 100% of GDP, which is about gbp22k. Unless you think only 10% of the population are taxpayers, I suppose...

Lola

Lets just get the numbers straight. There are not 5.4m unemployed, there are probably about 8.4m unemployed -if you add in the 50% of State 'workers' doing nothing productive.

So, the really astonishing thing is how capitalism, well properly freedom and markets, is able to create so much surplus wealth it is able to sustain this deadweight overhead.

Let's also be clear that freedom and markets has never ever 'created' jobs. What freedom and markets do is provide opportunity for everyone to make a living. And some of these people will need other people to work with them, that is 'jobs' will be created.

What stops the well lubricated efficiency of freedom and markets providing opportunity to make a living is the abrasive sand of socialism. This credo has spent its entire time destroying capital and opportunity by mostly seeking to deny innovation and efficiency and the working of the price signal. Policies like the minimum wage are huge spanners jamming the exploitation of opportunity.

Many of those not trying to make a living have been sustained by benefits in 'communities' that no longer have any economic reason to be. Of the factors of production - land labour and capital - it is the key feature of labour and capital that they are mobile. If the opportunity to make a living where you curently live goes, you move to where the opportunity is. Socialist policies spend wealth doing all it can to prevent this. It takes wealth away from places where opportunity can be exploited and wealth created and gives it to places where this is not possible. Taking this wealth away prevents enterprises in the areas where opportunity exists from offering the opportunity to make a living. These transfer create the very unemployment you blame on freedom and markets.

Socialism wherever it's been experimented with has created full employment by what is effectively slavery. And in these socialist slave systems individuals of enterprise and energy have always sought ways to create wealth. Which was such a threat in exposing the massive inefficiency and wealth destruction policies of socialism they were hounded as criminals.

You want to cure unemployment? Scrap all forms of socialism and use the transfer payments to encourage people to seek opportunity to make a living where their labour and enterprise can be rewarded. Do not sustain them on benefits in redundant settlements or 'employ' them in the State.

Tim Worstall

"This is equivalent to 17.3% - more than one-in-six - of the labour force*. "

Sounds like a pretty good advertisement for capitalism really. The system is so damned productive that we can all live higher on the hog than any previous generation has done (and well higher than perhaps 5/6ths of currently extant humanity) while still only using 5/6ths of the available labour.....

The North Briton

@Jason Kennedy

There is no action by government that can be described as capitalist, it government action is the definition of the opposite of capitalism.

A point that I think has been overlooked: a lot of people who 'would like' to work are finiancially supported in some other way, they may be housewives, trustafarians, benefit recipients, 20-somethings living with parents, and thus don't need to take jobs that that, in their current situations, are below them. This is not a failure of capitalism, in fact most of those reasons would indeed be successes of it. If we had it, of course.

The North Briton

Pardon the poor spelling control. Some good discussion at this blog by the way. Nothing like a silly position to start conversation.

Bastiat made all the socialists look stupid 150 years ago

umm, capitalism, not marxism or socialism is solely responsible for the phenomenal rise in global living standards across the last 2 centuries. Capitalism treats people like people not like cripples perpetually needing government assistance and supervision. when you say 'discouraged workers' does that mean layabouts or parasites because that is what the majority, not all but definitely more than half, of the unemployed are. Have you ever been to a job centre? lol asking a marxist economist (contradiction in terms maybe?) if he's been to the job centre! anyway, have you ever been to a job centre and they've had NO JOBS available at all? no you haven't. The words 'jobs that are beneath them' are fair enough if you're qualified as a brain surgeon and now looking at starting as a cleaner but if you're longterm unemployed then no job is beneath you. if not working meant starving and being homeless people would seriously reassess the 'beneath me' attitude and there would be a lot less unemployment. most (not all) people who don't work choose the parasite lifestyle because it is now so easy to not work and not starve. capitalism at least insists that if you want to spend money you must earn it first (or be able to pay it back over an agreed timeframe).

marxism and socialism are critically flawed in their understanding of human nature and the rhetoric (pity the poor, equality can be imposed from above by our betters (ironic eh?) etc etc) they use appeals to well meaning, naive simpletons. Useful idiots aint ya?

Bastiat made all the socialists look stupid 150 years ago

if i sound cold and indifferent to self induced suffering thats cos i am. i don't want anyone to be homeless or starve but the threat of that possibility would get at least half the unemployed off their asses (i live with 3 of them (2 obvious benefits cheats 1 i think is legit) who'd benefit from having to take responsibility for their own lives). if you had the option of sponging and were a less than decent human being you would take it. if you knew that if you didn't work and pay your own way you might end up homeless and starving and yet you choose to be the sort of person who can not hold a job then it is no loss to lose a person like that. sorry, sad but true.

F0ul

Very interesting article!

However, is capitalism meant to create full employment? I never saw that on the small print!

In a true free market, we would have the majority of people working, but there will always be uneconomic ways of earning a living its the way the business cycle works - for them, they will have to find ways of creating wealth, and that takes time.

mdc

"Capitalism... in its actually existing form..."

So that would be third way socialism, then?

Pretty easy to fix, just restore a real free market:

- Abolish min. wage.
- Abolish NI contributions.
- Lower tax.
- Repeal regulations and dismantle quangos; anything that frustrates existing businesses and start-ups.

Not quite the party line though is it, Comrade?

Jason Kennedy

"There is no action by government that can be described as capitalist, it government action is the definition of the opposite of capitalism."

@The North Briton

That is, with respect, a quite ridiculous assertion. It can only work as a definition if you chop out everything that the government engages in with respect to its effect on the private sector. In that respect, it is clear that there can be governments that are more or less supportive of free enterprise, via low corporate tax, subsidies for private sector, and so on. However, feel free to cite the source of your definition, presuming it didn't arise simply inside your own head.

Jason Kennedy

"This is not a failure of capitalism, in fact most of those reasons would indeed be successes of it. If we had it, of course."

This is the same trick played by "Conservatives" in the US, so that every failure of Conservatism is actually a failure of implementation, never the ideology.

Nice one.

Dave

Oh sure, lets wave our socialist magic wand and give jobs to all those who want them. Of course, come pay day and there ain't no money to pay them, there might be a problem, but hey, we have this magic wand so whats the problem! Lets wave it some more and create a strong economy that can generate the wealth to employ all these people. Or we could increase the tax of everyone who earns actual real money, and use that to pay for these extra jobs, like a giant Ponzi scheme.
Of course, if you don't _have_ a magic wand...

Egg

I think in a market economy, which is pragmatically the only system that will be in place for the forseeable future. Aspects of 'barriers' to enter the marketplace should be given a lot more credence. These barriers can be political, legal, and also economic. The fact is, only a limited amount of sectors really allow freedom for individuals to enter the marketplace (I mean, if I sold grapefruits on the side of the road, who would pay enough for my subsistence?). Many sectors are simply saturated, and the costs/risks of entering can be far too high. In that sense, I somewhat agree with Jason Kennedy, but I feel in the case of Guatemala - you are facing massive human catastrophe, and some in society simply do not live the life you describe so idealistically.

To go round to an alternative economic structure would be somewhat experimental, and would be permissable in the face of catastrophe. I mean, I believe in socialism, I believe it would potentially be a better economic system. But, I am not sure it is pragmatic to discuss it, unless you put yourself up for an election, and get elected on that mandate. The fact is, not even socialist parties really expect socialism to spring up tommorrow or 10 years from now, and most simply seek increasing subsidy for the poorest (which, I think, is probably a good thing).

My main point, is that huge numbers of people think they deserve more than others. I do not believe that is the case, regardless of qualifications, experience. Everyone needs to make a living some way, and society needs to accept that.

James

I have come late to this article, but I read the figures differently. 5.4 million frustrated workers? Or perhaps there's 5.4 million too many people in this country? In among all of the other issues we face as a nation, we also have to face up to the fact that we are overcrowded. Less is better. A good start would be to stop letting in more. A better continuation would be to require non-productive past immigrants to leave - those non-producers leaving first being the last to arrive. And a solid future policy would be to ensure that not-working for anything other than rigorously defined and enforced health grounds is financially penalised.

Laurent GUERBY

Here is a long term graph for employment, unemployment and inactivy for USA men 1948-2008 :

http://fatknowledge.blogspot.com/2009/01/misleading-nature-of-unemployment.html

Now there's no explanation for the continuous rise of inactivity from 3% to 9% over 60 years.

If Chris has any hints as how to solve this puzzle, I'm a taker :)

DAVID VINTER

Well it is a fact that we could have millions of unemployed hoeing cabbages [if they would], but what would cabbages cost! But were the devil are you going to house them all? Sorry NOT ON.

Chris

I agree that people are probably very frustrated, but I tend to be a rose colored glasses person who also believes that if you personally have to drive and optimism, those people will find a job (eventually, right?)

patek philippe

This is just one idea, and perhaps displays no more than my limited imagination. If there are better ideas out there, that amount to more than "implement something called "market socialism" and then - alacazam! - full employment!" then I'd love to hear them. http://www.watchgy.com/ mostly bank deposits, fell by £143.2bn in Q1. And of course there’s no guarantee such buying will continue.
http://www.watchgy.com/tag-heuer-c-24.html
http://www.watchgy.com/rolex-submariner-c-8.html

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Jobs for men over 55 accounted for all of February’s gain, the statistics agency said. Employment for people aged between 15 and 24, meanwhile, fell by 4,200 positions. The unemployment rate for that group rose to 15.2 percent, from 15.1 percent in January.

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