Working harder or smarter? Thoughts on economic progress and social welfare.

Production_LineShould the British work as hard as the Chinese? Jeremy Hunt, the UK government’s Health Secretary, seems to think so. While the Prime Minister, David Cameron, has subsequently called his remarks, ‘misinterpreted’, Hunt is implying that we as a nation should in general work harder in order to become more wealthy and successful. In comparing the low paid (and others?) in the UK with those in China and Asian economies more generally, he is also implying that longer working hours are something to aspire to.

It is well known that, on average, workers in the US work longer hours and take shorter holidays than the British, and many economies on the European continent in turn have shorter working hours and take longer holidays than the Brits.

In mainstream economics, the aim of working and earning is to maximise welfare, rather than simply income and wealth. In theory, workers should be able to trade-off work and leisure time in order to do so. In capitalist economies, notwithstanding the UK’s recent poor performance, the key determinant of long-run growth is productivity, or how much output can be produced with given resource inputs. The gains from rising productivity can result in some mix of increased wages, given fixed or rising working hours, or possibly increased leisure time and reduced working hours, at the same level of wages as before.

Different countries’ populations have apparently come to different decisions about how the gains from rising productivity are distributed. The US labour force has ‘decided’ to work relatively long hours compared with European nations, and benefit from rising incomes and wealth. In much of Europe, shorter hours and greater leisure are more the norm, with the UK somewhere in between.

In mainstream economics, these ‘decisions’ regarding the work-leisure trade-off are theorised as being taken individually. The truth may well be different. In many European nations, such as Germany or the Nordic countries, trade unions have more influence over wages and working conditions than in the US, so it is likely that the work-leisure trade-off has been changed in a political process, through collective rather than individual action. If such decisions are left to the individual, the latter may find him/herself part of the ‘rat race’ and driven to work longer hours than he/she would optimally choose. Thus collective rather than individual action may result in superior social welfare outcomes for the workforce. The individual can therefore be empowered by being part of a larger group (a trade union) and achieve greater political influence than by acting alone.

Following the above analysis, it is clear that productivity growth is crucial to raising material welfare under capitalism, rather than longer working hours per se. Investment in new technologies and structural change are key determinants of such growth.

The emergence of capitalism and industrialisation in the UK saw working hours at 12 hours a day or more, and men, women and children all part of the workforce. The history of the workplace since then has been one of what many see as progress: working hours have fallen, workers have more legal rights, child labour is banned, and the welfare state provides a form of insurance against unemployment and poverty. This has not prevented an unprecedented increase in wealth, alongside more leisure time for many. In fact such changes may have contributed to the increase, by creating a better educated, healthier and more cooperative workforce. It is productivity growth that has made these changes possible and acceptable. One may argue about inequality and the distribution of income and wealth, but such change cannot be denied.

The workforce in poorer developing nations, in the throes of industrialisation and a process of ‘catching up’ with richer countries, tends to work longer hours than in the advanced nations. Does this mean that we are worse off materially? Of course not. Our productivity and income per capita is much higher than these nations, and material welfare is higher. Working hours are shorter and holidays longer, but we are still much richer on average.

If Jeremy Hunt wants the UK to be a great nation, he should be encouraging us to work smarter rather than harder, since the British work longer hours than is the norm in some European nations, but remain poorer on average. Innovation, superior infrastructure and education are some of the keys to increasing productivity. With sufficient political representation for the labour force, we can also continue to make beneficial choices between higher wages and more leisure.

Having said all this, the UK’s recent economic history has seen stagnating wages and productivity, which have only just begun to pick up. The distribution of increased income and wealth will remain a political as much as an economic issue. Economic change will inevitably create winners and losers, and creating a better future for the majority under capitalism will require political intervention.

We are not China. In terms of economic prosperity, human rights and social welfare, China should in the long run aspire to be more like us.

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