A New Full Employment Policy – Making Politics Matter Again

beveridge reportIn the lead-up to the UK election the big questions are all about either protecting or destroying existing institutions: the National Health Service, the British union, the European union.

Not one party is presenting a policy to design any new institutions – not on an impressive scale, anyway.

No wonder people are uninspired by politics. It’s as though moving into the future is out of the question and the only choice is over various points in the past in which to mire ourselves, like a dinosaur choosing which stratigraphic layer in which to be fossilized.

If you want to know what sort of new institution people could propose building, you really only need to look at the origins of the NHS. It was only ever meant to be part of a broader scheme, attacking just one of what Beveridge called the ‘Giants’ that stalk modern society: Want, Disease, Ignorance, Squalor, and Idleness. Another of these giants – Want – was somewhat fended off by the institution of National Insurance. But Beveridge always made it clear that the one weapon the giants had really to fear was Full Employment.

This is because Full Employment, as Beveridge imagined it, meant action by the government to make sure that nobody was ever involuntarily unemployed who could instead be offered a job doing something to combat the giants. The day that homeless shelters, food banks, hospitals, care homes, daycare centres, libraries, community centres, playgrounds, museums, and schools suffer no shortages of primary, temporary, or maintenance staff – the day that local councils have no trouble finding skilled workers to repair infrastructure and BUILD MORE HOMES – the day that the trains never run late, because there are enough systems analysts, engineers, repair workers, cleaners, and safety officers to keep them running perfectly – the day that student evaluations at universities all mark ‘strongly agree’ for questions like ‘I felt that there was sufficient time to meet with my supervisor/lecturer/tutor’ – THAT is the day when it might make sense for anybody to want a full-time job and yet not be able to find one – the day, in other words, when all the giants are dead.

Full Employment was meant to be the soul of the great policy revolution that Beveridge, Bevan, and others like them sought to bring about after the Second World War. The soul never came to inhabit the body, and British politics has staggered around like a zombie ever since. It is little wonder that the NHS needs saving. It is the only limb that managed to grow on a body that never came to life; only galvanic tricks have kept it animate for this long.

Full Employment is still the policy that the British public – at least ordinary people – want more than anything else. They just don’t all realize it. Take any popular concern and notice how it would be addressed by a Full Employment policy. Immigrants coming over and taking your jobs? Only a problem because there are fewer vacancies than applicants. Long waiting times in clinics? Poor discipline and very little attention per child in schools? More staff would solve those problems. High housing costs and insufficient infrastructure in the big cities? Shortage of regional jobs drives people to crowd into the cities looking for work, and, again, local governments need to be able to hire and train workers to build houses and expand infrastructure. Rising inequality? Well of course workers have been consistently screwed over decades where unemployment has remained high enough to deprive them of all bargaining power. Climate change? Well the private sector has done bugger all about decarbonising the economy, so who does that leave? All of this is helped by a Full Employment policy: a genuine undertaking by the government to spend as much as is necessary to hire every willing worker to perform every needed social task – transferring the needed funds to local governments as necessary.

The problem in Beveridge’s time was that there was no obvious instititution to build for maintaining Full Employment – nothing akin the the NHS or National Insurance. The best Beveridge could come up with was a policy: the government should commit to using ‘demand management’ to keep unemployment no higher than 3%, and also, importantly, to ensure that ‘unemployment in the individual case need not last for a lenth of time exceeding that which can be covered by unemployment insurance without risk of demoralisation’ (p.11). But policies are inferior to institutions. They don’t inspire people. They’re slippery and easy to quietly drop without anyone noticing. And they’re difficult to promote to people with limited comprehension: what exactly is ‘demand management’, and can the government really use it to maintain Full Employment?

This no longer needs to be a problem. The required institution for maintaining Full Employment has been around as an idea at least since the 1960s, when Hyman Minsky realized that President Johnson’s Great Society reforms would fail to significantly reduce poverty in the US. The problem, Minsky perceived, was that they focused too little on jobs. He thus developed his own alternative solution. Minsky has gotten some attention recently as a theorist of financial instability, as in Terry Jones’ new documentary Boom Bust Boom. I wish he got more attention as the economist who designed precisely the institution Beveridge was looking for and failed to find: an institution for ensuring Full Employment. Check out this book.

My preferred name for this institution is the name L. Randall Wray has given it: the ‘Employer of Last Resort’ (ELR). Some people call it a ‘Job Guarantee’, but that name is unfortunate. People confuse it with workfare (indeed the UK Labour party used the name ‘Job Guarantee’ to refer to what turned out to be a workfare arrangement). Also, ‘ELR’ as a name highlights the most important feature of this institution: it is an institution for fighting inflation as well as for generating Full Employment: ‘ELR’, after all, makes people think of ‘Lender of Last Resort’, i.e. the central bank, and the ELR is an anti-inflationary institution just like the central bank.

The principle behind it is beautifully simple, as with any institution worth having. The ELR – either centrally or (my preference) divided into autonomous regional units – hires every currently unemployed or underemployed person willing to work in a public sector job. No more involuntary unemployment, no more shortage of public services. The giants down with a single blow.

The ELR programme could have its own job centres which, like current job centres, would help to match workers up with the right positions for their skills, available hours, location, etc. as well as providing advice on training opportunities as necessary. The difference would be that these job centres would be connecting people with jobs that actually exist. Of course they would be in constant consultation with charities, local councils, the NHS, the school boards, the utility companies, etc. to make sure they knew where human resources were most needed within the public and charity sectors.

The workers would be paid a living wage, set and periodically adjusted by an appointed panel of industry leaders, trade union representatives, etc. – as with ‘the Accord’ in Australia, which has worked pretty well. In this way the ELR would work as an inflation-control. If wages began to rise in the private sector, workers would move out of the ELR and into the private sector labour market, checking the rise in wages by increasing the supply of labour. If wages began to fall, workers would move out of the private sector and into the ELR. The ELR’s living wage would become the wage-anchor for the private sector.

The ELR would pay its workers by running a direct overdraft at zero interest with the Bank of England (here the connection between lender of last resort and employer of last resort). If the Treasury or the Bank of England were worried about new bank reserves driving down interest rates, either could sell gilts to offset the operating factors. This would mean that the government deficit would increase when the private sector laid off workers, since these workers would then move into the ELR. But this happens anyway, since laid off workers claim unemployment insurance, visit food banks, switch from private to public health care, etc.

On the other hand, you could just not issue gilts and let the rate run to zero (some discussion here).

There are various objections people have to the ELR programme. Randall Wray has addressed most of them here. Follow the link and you’ll find the following concerns addressed (though from a US perspective – most Europeans won’t be asking number 9):

1. Some commentators have wondered what happens if one country tries to go it alone; others objected that a large country like the US might be able to run an ELR program, but small countries like Canada or Mexico could not because it would place them at a tremendous disadvantage.

2. It will be impossible to administer the program.

3. ELR employment will consist of nothing but “make-work” jobs.

4. States are already implementing “welfare to work” programs; why is ELR needed?

5. What can be done with belligerent/anti-social/lazy ELR workers?

6. What effect will ELR have on unions?

7. Won’t participation in ELR lead to stigmatization, like welfare does?

8. What if the Fed [/central bank] or financial markets react negatively?

9. Why worry now, when unemployment is lower than it has been for a generation?

Really, the last thing that politics should be is boring. Are you happy with the way things are? Things could be so much better. We just need to design the necessary institutions. That’s what Beveridge tried to do, but the project was abandoned before it had even really begun. And yet all the ideas are there. All that is needed is the courage to put them into practice. The soul floats around in the Realm of Ideas; it merely awaits embodiment.

Reflect for a minute on the vision, the optimism, and the courage of the women and men who built the institutions of which the British people are justifiably proud (and about whose future they are justifiably worried). Compare them to politicians today, whose most original idea is either to destroy what exists or to preserve what exists. Comparing that time to ours feels like standing on the lifeless moon and looking back at the Earth. It’s easy to feel alienated. But we’re not. We’re all still here, together, having ideas and caring about things.

In the lead-up to the UK election, this is what I have to say to the British people, who built some of the greatest institutions in the modern world: You’ve been on smoko since 1945 or so. Time to get back to work.


17 thoughts on “A New Full Employment Policy – Making Politics Matter Again

  1. NeilW

    The problem with the Last Resort concept is that it is bad marketing. Nobody wants something that is the Last Resort and of course the Last Resort employer actually needs to be the first port of call in an economy. It is for the rest of the economy to advance improved offers to tempt people away from the guaranteed job offer.

    Which is why I tend to prefer Job Alternative Guarantee.

    Because everybody really wants a JAG.

    1. axdouglas Post author

      Good point – banks feel like failures going to the LLR; you don’t want workers feeling like failures going to the ELR.

      It’s really the association with Workfare that worries me. Labour have poisoned anything with ‘Job’ and ‘Guarantee’ in it.

      Regardless of the name, the angle I want to work is in promoting it as the missing third of the trio of institutions intended by the people who built NI and the NHS. The third of the, um… Troika? Yes, let’s not.

  2. Peter Hockley

    I’ve never heard of this before, what a wonderful idea. I’ve always thought that Beveridge was very under rated.

  3. amnesiaclinic

    Reblogged this on amnesiaclinic and commented:
    Very useful – the politicians like Beveridge and co actually created new institutions but now all they can come up with is destroying or at best preserving these institutions from the past.

  4. reallyniceguy2014

    Great post Alex!

    How about National Work Provision/Public Workforce, Demand Stabilisation Employment, or Employment Buffer managed by the Department for Employment Security/Support or Employment Stabilisation perhaps?

    1. axdouglas Post author

      Cheers! All good suggestions. I like the idea of having ‘buffer’ in there to convey that it’s a buffer stock policy: NOT some socialist plan to nationalise labour (to calm down right-wingers).

      1. reallyniceguy2014

        Thanks! I think Bill Mitchell uses phrases such as work (shovel?) ready, aka employable, to make the case to genuine business men rather than casino bankers or sweatshops.

  5. David Merrill

    JG not a central topic for any of the well known political theorists, from Rawls onward. Most of these assume something like neoclassical market optimality. Debt deflation and the need to boost effective never part of their narratives. Have too benign view of today’s finance capitalism. They would share, do share, Minsky goals of price stability, full employment and rough economic equality but do not think through what the necessary means would require. What is radical about Minsky is not his ends, his good society, but the required means, which his excellence as an economist clearly sees.
    Should Rawlsians transfer their moral theory to the new context of the economic realities as Minsky sees them. Do not think it would works as Rawls needs to assume a preexisting pareto optimal economy to make his difference principle work.
    Should also add to the mix something missing from both neoclassical and Post-keynesian economics, corporatism, an essential element in the success of countries from Sweden to Japan.
    Keep up the good work.

    1. axdouglas Post author

      Thanks for this very interesting comment!

      ‘Rawls needs to assume a preexisting pareto optimal economy to make his difference principle work.’ : I agree. What’s really interesting is that when political philosophers in the (vaguely) Rawlsian tradition think outside a basic Walrasian system, they bring in these neoclassical assumptions that return us to Pareto optimality. An example is Philippe van Parijs, who says that labour markets don’t clear but then assumes that the right explanation for this is a neoclassical ‘efficiency wage’ story. I discussed this in another blog post (and am writing an academic article on it now). As is perhaps obvious, I think, like James Galbraith, that ‘the “labour market” is a misconception; it doesn’t exist’.

      I think it’s not just the difference principle but rather the general emphasis on distributive justice that blinds political philosophers to the possibility that governments can bring about Pareto improvements. I suppose they would say that something so absolutely beneficial is of no interest to the political philosopher, since there’s no interesting moral question about whether we should do it: of course we should! But that doesn’t excuse their failure to even mention the possibility. I wonder what you think.

      1. David Merrill (@DavidMerrill21)

        I am sorry, I did not understand your last paragraph. I look forward to reading the Galbraith piece and your pieces on van Parijs.

        I believe that all the top political theorists writing on social justice, e.g., Rawls, Dworkin van Parijs, assume a context of a neoclassical economy or general equilibrium. Their moral theory would not work without it. I think Rawls’s difference principle works if and only there is already an existing efficient or general equilibrium economy in place. While there is some awareness within economics of the failures of neoclassical economics there is no such self-consciousness within political theory as far as I can tell. I have yet to encounter a political theorist who even mentions explicitly that the economy for all these theorists is a neoclassical one. It is like the air we breath, they do not even notice it. I attend conferences and read a few papers. Also I think most of these political theorists have theories that assume that wages are a function of the marginal productivity of labour, which like general equilibrium does not exist, is not true. It is striking the extent that left liberal political theorists all assume it makes sense to work within the neoclassical economics paradigm. It is really Rawls who sets political theory in this direction. I pretty much buy all of Steven Keen’s specific criticisms of neoclassical economics.

        That individuals have a right to employment which the JG enshrines is not a moral question but an ethical one, as it concerns what justice is and so not something that political theory which is almost wholly moral can address. None the less, it would do my heart good if all the hundreds of political theorists that are about would accept that the problems and answer regarding the economy are roughly how Minsky describes them. For most their view of the economy is too benign.

        Have you even known of a public meeting on MMT in the UK? Somehow MMT seems not to even be getting off the ground in the UK. One problem is that there is not a single UK academic economist who is fully behind it. The post-Keynesian group in the UK is not behind MMT either. Did you catch Wray, Kregel and Tcherneva when they came to the UK last year?

        I appreciate very much what you are doing with your blog.

      2. axdouglas Post author

        I my last paragraph I meant to say pretty much what you’ve now said. Neoclassical economics is assumed without comment in political philosophy; the idea is that the economy just does its thing in producing real goods and services, and the business of the political philosopher is to work out how best then to distribute the product. It’s an inherently conservative enterprise. I guess it’s an ideology; as Joan Robinson says, one can no more detect one’s own ideology than smell one’s own breath. I also agree with Steve Keen’s criticisms.

        I wish there were an MMT group in the UK. Perhaps we should try to start one. But you’re right – academic economists aren’t interested. I didn’t catch Wray, Kregel, and Tcherneva unfortunately. I hope they come back!

        Thanks for your support.

  6. Pingback: The UK Election and Some MMT Policies | Origin of Specious

  7. Pingback: The UK Election and Some MMT Policies | Origin of Specious

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