Extend state ownership to save jobs
We are entering a period of financial socialism, by which I mean that the government is buying enterprises which cannot survive in the free market -
Fannie Mae (NYSE:
FNM) and
Freddie Mac, the $700bn credit bailout in the US,
Northern Rock and Bradford and Bingley in the UK. Most observers look at such financial socialism as an emergency measure - and a bad thing. To me it is a good thing; indeed, public ownership needs to be extended from the financial sector to the manufacturing and service sectors.
The reason for this is that
Europe and the US have many industries and service businesses which cannot survive in the global economy. In the 1980s it was often assumed that the developing world would get the poor-quality, grunt jobs and the west would reserve for itself higher-quality skilled labour. This has proved in the past 20 years not to be the case. India, Brazil, China and south-east Asia are more than cheap labour markets; they are increasingly places able to provide high-skill, high-quality work.
At home, many of the new jobs created in the past 15 years are low-skilled service work. These jobs are hostage to the fluctuating credit card debt of local consumers. Job losses in the developed world are a fact of life and those losses are going to increase. My own calculation is that structural unemployment in
Britain and the US will rise to about 7 per cent by 2015, and that the rate of underemployment will rise by 30 per cent. This is a conservative estimate; some of my colleagues, such as Robert Reich, the former US labour secretary, put the loss factor much higher. Even at my more modest estimate, these figures will prove a huge drain on unemployment and disability benefits. In Europe, with its increasing numbers of elderly and a shrinking labour force, every notch upwards in unemployment spells further misery. Politics enters the picture: people without work are angry, explosive citizens. And so, too, does simple humanity: people gain self-respect through being productive.
How did we get into this dangerous mess? Both Europe and the US have done a poor job and not invested the necessary sums to create new, sustainable work. Britain, justly famous for technological invention, has failed to develop the green industries such as wind turbines that this innovation has spawned. The US has cut down on the vocational education of skilled craftsmen and reacts with surprise that good-quality skilled manual labour has to be outsourced or imported.
The way companies are run globally has also weakened their viability. Managers have been forced to focus on fluctuations in their share price and continually to reconfigure themselves with mergers and acquisitions, rather than managing for the long term. In the car industry, it is a commonplace to contrast
Toyota with
Chrysler as a well-run versus a badly run enterprise; an essential difference is that Toyota is much less subject to the demands of its external shareholders than Chrysler.
So why is public ownership a good idea? Chrysler, after all, has been bailed out before. Employee ownership, such as we saw for a time with
United Airlines, has also not proved a success. It is a good idea, in my view, once we swallow a large, bitter pill. In our present situation the western economy is not self-sustaining; private enterprise as we know it is a poorly constructed clunky machine and if we do nothing it will shrink opportunities and degrade the lives of its workforce. Still, why public ownership?
Protectionism of the sort advocated by advisors to
Barack Obama, the Democratic presidential candidate, seems a weak response to the rising tide of unemployment. You cannot protect jobs by shutting out the world. Protected industries - and there are many in the US - have not added more jobs, proportionately, than free-market industries. Regulation, of the kind the financial sector is now experiencing, is largely irrelevant to expanding the number of jobs. The point is not to restrain risky action, but to encourage investment and innovation. That agenda requires money, more money than can be justified by the austere calculus of the market. This extra cash is where public investment comes in.
If this seems too much to swallow, consider India. Much of its construction, information technology and healthcare sectors have been - on a western calculus - over-staffed and inefficient, supported by government grants. Public investment has, however, developed these industries and as they have grown the need for government aid has declined. Many Scandinavian countries have also added to their growth by making public investments without worrying about interfering with free markets. Industries aided in this way have prospered.
In the case of Britain and the US, I do not foresee such a happy outcome, although I hope for it. To keep people in work, we have to accept that permanent government support of our ailing productive sector is required. Full employment is more important to our societies than efficient profitability. If this seems too much to accept, consider the choice: government can put its money into unemployment benefits or into jobs - jobs which cannot be justified in purely business terms.
To put the matter more positively, in the
Great Depression, US society ultimately benefited from the
New Deal's massive programme of public works and, in the shorter term, American workers found ways to pay their bills and retain their self-respect. Today, a new deal would work differently but would have the same goal - to give sick private enterprises the cash to stay alive for the sake of their workers.
