Social policy and productivity

The volume ‘Systems of Production’ tried to answer the question: can social policy be a productive factor? Traditional neo-classical economic models tend to view progressive social policy in the form of regulation and transfer payments through the tax system as a cost to business and a drain on enterprise. A dynamic institutional approach to economic theorising offers potentially different results.
When social policy becomes enabling to individuals and groups in society, and increases capabilities and opportunity, productivity in the economy can actually be enhanced. But it is difficult to measure such relationships, isolating certain causes of increasing productivity and linking them to particular social policies.
The prospect of intelligently designed social policies therefore give societies and polities  a choice. Progressive social policies which involve, for example, labour rights, need not negatively affect enterprise. To the extent that cooperation in the workplace can enhance business performance, but may sometimes not take place due to competitive pressures, legislating for workers’ representation and encouraging cooperation can be a positive force for the economy.

Productive Systems, structural change and re-regulation

A key lesson from my reading of the volume ‘Systems of Production‘ is that economic policy-making must always look beyond the simplicities of ‘deregulation‘ as an ideology and concentrate instead on more effective regulation. In some instances this might mean a re-regulation of business and labour markets for example, in other words the removal of some laws and the creation of new ones, which are more appropriate to a changed environment, and which can stimulate productive efficiency and contribute to social progress.

‘Systems of production’ contains a number of chapters written with Frank Wilkinson‘s original 1983 article from the Cambridge Journal of Economics entitled ‘Productive Systems’ very much in mind. His chapter opens the main body of the book and a working paper with the same content can be downloaded here.

A point that several of the chapters in the book make is that cooperation between capital and labour in the productive process is necessary for efficiency and that adverserial industrial relations are likely to impede economic progress. What is more controversial is the form this cooperation should take. The authors of a number of the chapters clearly support trade unions and the role they can play in safeguarding social rights, ‘decent’ wages, and productive efficiency. Where wages sometimes need to be cut in a company or across an industry during a recession for example, trade union agreements can ensure a more equitable outcome in securing a ‘voice’ for labour. They can press for social rights in the workplace and help firms and economies adjust to structural change in which workers need to be re-allocated from declining to growing industries. Government has a role to play here too, in providing training and re-training, assisting with worker mobility and setting the macro- and microeconomic framework for the economy in which productivity grows and improves the standard of living of as wide a majority as possible.

In the chapter on German industrial relations, it is argued that what is often needed more than ‘deregulation’ is ‘re-regulation’; new laws should replace older ones to enhance the flexibility of the workforce and stimulate innovation. The productive system should therefore evolve from where it is rather than fit into a textbook prescription. In some ways this is a conservative view, in which history and past successes are taken very much into account in designing new policies and systems of regulation. Occasionally radical change may be needed however, but history and insitutions still need to be studied carefully in the process.

One of the important lessons from Wilkinson’s original article (see above) and the updated piece from 2003 is that history and institutions matter and should be analysed fully in formulating theories in economics and using those theories to make effective policy.