Social justice and economic performance: beyond the trade-offs?

workersThe subtitle of this blog refers to two of its key concerns when it comes to the application of our ‘dismal science’: economic progress and social justice. The third is individual liberty. It was John Maynard Keynes who in 1926 coined these three as part of the “political problem of mankind” (although he referred to efficiency rather than progress), and noted how difficult they are to reconcile.

A fourth, modern, concern might be sustainability, though this can be incorporated into them in the sense that without them, the economy and society cannot be sustained in the long run. This would include environmental concerns. Theories of sustainable development look at the interaction between the economy, society and environment and try to forge a path in which, being dependent on each other, they are balanced and, literally, sustainable and sustained!

A broad conception of economic progress would necessarily see it as sustainable. If, for example, a particular pattern of economic growth destroys the nature on which it depends, then it will be undermined. At the same time, modern economic growth, which is still part of what most economists consider to be ‘progress’, is a process of transformation, not least of nature, and of society. The task is to ensure that progress can be sustained and this may require that we adopt richer measures of development. For me this needs to include social justice and well-being.

This post explores some themes relevant to the achievement of social justice and economic progress in both developed and developing economies. Some economists consider there to be a trade-off between the two, but plenty of progressive thinkers reject this pessimistic outlook. Indeed they are, together, probably two of the essential ingredients of political stability and a sustainable democracy. Continue reading

Deregulation can damage your wealth – supply-side labour market reforms and productivity

Deregulated and flexible labour markets promote economic efficiency. That has been something of a conventional wisdom in mainstream economics, and an article of faith among proponents of the so-called free market since the 1970s. The examples of the US and the UK, and to a lesser and more variable extent Western Europe, have apparently proven that labour market regulations and the power and influence of trade unions should be curtailed as far as possible, the results being greater efficiency in the form of faster growth in productivity and lower unemployment.

An interesting corrective to these tenets of neoclassical economics, particularly its free market variant, can be found in the March issue of the heterodox and usually fairly leftist Cambridge Journal of Economics. A paper by Alfred Kleinknecht provides a commentary on the links between supply-side labour market reforms and lower productivity growth since 2005, in the US, Japan and Western Europe. Continue reading

The UK’s pay squeeze – no end in sight?

workersSince the Great Recession, and among the world’s richest economies, pay growth in the UK has been historically weak. The Economist magazine reported on 20th April that the pay squeeze in the UK has eased during the last year or two, but is by no means over.

Nominal wages are now growing at around 3.5% year, while real wages (adjusted for inflation) are growing at 1.5%. In a way, this slight improvement is to be expected, with employment at a high level and unemployment relatively low, creating a tightening labour market, and shifting bargaining power from employers towards workers.

Another piece of good news is that more of the jobs now being created have higher pay. To put it another way, the composition of the workforce is changing. As The Economist put it, “strawberry-pickers have made way for stock-pickers”. Continue reading

Harder or smarter? Work intensification and reforming capitalism

stress_at_workBritish workers are suffering, with little to show for it. As Sarah O’Connor writes in last Wednesday’s FT: “[they] are working harder than at any time in the past 25 years, to tighter deadlines and with less autonomy. Medical research shows a link between “high strain” jobs, which combine high pressure with a lack of control, and cardiovascular disease, musculoskeletal problems, stress and depression.” She notes that the recent World Mental Health Day brought news of employer initiatives to combat workplace exhaustion. But will this be enough? Continue reading

Unions need a reinvention

workersThe Observer’s Will Hutton calls for the reinvention of trade unions in the UK (article link below). The labour market continues to change, and workers need effective representation. The balance of power between capital and labour is a key relationship in a capitalist economy, and the dramatic rise of self-employment and the gig economy demand that unions respond.

If unions are to stay relevant in the new workplace, they must change

On immigration – The Economist’s surprising structuralist turn

immigration airportHere is a useful extract from a recent piece in The Economist magazine on the economics of immigration. Surprisingly for this free market-oriented publication, which often emphasizes individual freedom in its analysis, they highlight the importance of structural factors in boosting the earning power of immigrants:

“Workers who migrate from poor countries to rich ones typically earn vastly more than they could have in their country of origin. In a paper published in 2009, economists estimated the “place premium” a foreign worker could earn in America relative to the income of an identical worker in his native country. The figures are eye-popping. A Mexican worker can expect to earn more than 2.5 times her Mexican wage, in PPP-adjusted dollars, in America. The multiple for Haitian workers is over 10; for Yemenis it is 15.

No matter how hard a Haitian worker labours, he cannot create around him the institutions, infrastructure and skilled population within which American workers do their jobs. By moving, he gains access to all that at a stroke, which massively boosts the value of his work, whether he is a software engineer or a plumber. ”

‘The best policy’, The Economist, March 18th 2017, p.74

Continue reading

Beware the zombies

An interesting post (link below) from Marxist economist Michael Roberts on the ‘zombie’ companies holding back economic growth across the rich world since the financial crisis. In short, many that would otherwise go bust are struggling on, just able to meet interest payments on their debt, since rates are so low, but unwilling to invest due to a low prospective return on their capital.

Roberts argues that for the average rate of profit for the whole economy to recover, the weakest and least productive firms need to fail, and resources (capital and labour) need to be reallocated to firms with brighter growth prospects.

If this happens, there is likely be some considerable short term pain in the form of rising unemployment in the midst of bankruptcy as economic restructuring takes place to restore average profitability across the economy.

Where I disagree with Roberts is in his solution to these kinds of problems under capitalism: socialist revolution and widespread central planning.

There are alternatives to this, which can mitigate some of the social pain of economic restructuring without necessitating socialism. Continue reading

Immigration, the brain drain and development

DSC00236aMass immigration across the capitalist world is arguably one of the factors that has been fueling nationalist and populist politics. From Brexit in the UK to Trump in the US, anti-immigration rhetoric has proved appealing to many. Despite promises made by former Prime Minister David Cameron here in the UK, net immigration from the EU and beyond has been substantial since the Conservatives came to power in 2010.

It is clear that huge numbers of immigrants come to the UK to find higher paying jobs than they would get in their home countries, and the EU’s policy of free movement has been part of this story. A number of Eastern European countries joined the EU in 2004, when Tony Blair’s Labour Party was in power, and immigration soared. Nevertheless, until the Great Recession of 2008, unemployment stayed relatively low. It rose during the recession but has since fallen back to fairly low levels, with record numbers now in work.

If those immigrants who have taken low paying work in the UK have had any impact on the labour market, it is argued that this has been through them depressing wages at the bottom of the distribution rather than affecting overall employment levels. This has been the subject of debate, and I will not go into that here. What I want to argue is that part of the response to those who are concerned about immigrants should be to encourage the creation of better-paid jobs in their home countries. Continue reading

Restoring shared prosperity: the structural Keynesian solution


Keynes argued that government policy could restore full employment under capitalism

What should be the direction of economic policy in the US and more widely following the damage wrought by the Great Recession and its aftermath? Sluggish growth across many advanced countries continues to be a problem. Where jobs have been created, there has been wage stagnation. In the US, this stagnation, which has recently shown signs of abating, has afflicted the average worker for several decades. These economic trends have surely contributed to disaffection with the established elite and the rise of populism and a more radical politics. Continue reading

Time to work smarter: the UK’s continuing productivity problem

workersHere is an interesting take on the UK’s poor recent productivity record, and possible solutions to it. According to the article, low wages, inflexible work practices and job insecurity are to blame. If this is right, then there are some win-win policies which could reverse the trend and also improve working conditions across the country.

Productivity growth is essential to the prosperity of the economy. If it does not grow, then there is no room for wages and profits, as the two main categories of income, to grow together, so as to improve the material conditions of the majority. Of course, growth needs to create jobs as well, since those without employment cannot share in rising incomes, other than through out-of-work benefits which represent incomes redistributed from those in work. Employment in the UK has grown strongly since the recession, but wages have not, so that the economic ‘pain’ due to sluggish growth has been shared more fairly, with more people in work alongside stagnant wages. Continue reading