Clearing Easily

Giles Wilkes, a former No 10 adviser and fellow at the Institute for Government think tank, explained why Conservative politicians would be anxious about the scheme’s life span:

A striking success of British policy in the last three decades was creating a labor market that clears easily at low levels of unemployment. They won’t give that up easily.

When Wilkes talks about a market that “clears easily,” he means that labor costs in the UK have remained low in recent years despite historically high levels of employment. In December 2019, official data showed that unemployment was at its lowest level since 1975, at 1.28 million, while an all-time high of 32.8 million people were in work. Yet wages weren’t expected to rise above their pre-2008 peak until 2025 at least.

This is not the way things are supposed to work. A tighter labor market should mean upward pressure on incomes, as workers feel more confident to push for wage rises, knowing there are other jobs available. That shift away from the familiar pattern is the “striking success” that Giles Wilkes speaks of, and of course he is right to assume that the Tories won’t want to give it up.

Labor Redeployment

Take-up of the furlough scheme has been huge, with 6.3 million UK workers now furloughed and 800,000 employers applying to make use of it. According to some estimates, around half of these furloughed workers would have been made redundant already without the emergency program, and there’s no reason to doubt a similar proportion would be sacked outright if Sunak allowed it to expire at the end of June.

A number of prominent voices are talking about redeploying labor from furloughed sectors, many of which are clearly not going to survive — at least not in their current forms — such as tourism and hospitality. “We want to facilitate the reallocation of workers from sectors that are going to shrink to ones that are going to grow,” Stuart Adam, senior research economist at the Institute for Fiscal Studies (IFS), told the Financial Times.

The IFS is led by notorious fiscal hawks, but even they seem to have understood that more austerity now would merely exacerbate what looks set to be a second Great Depression. The think tank has urged the government to “consider public investments that would employ these people in the interim to do productive work that will pay off later, such as improving national infrastructure.”

The Resolution Foundation has talked about some sort of labor-redeployment scheme, and the Trades Union Congress (TUC) has proposed a “job guarantee,” providing work and training at the national living wage for a minimum of six months.

The Fear of the Sack

Direct government intervention of this nature into the economy, to provide something like full employment, is what Giles Wilkes has in mind when he talks about Tory nerves jangling. They don’t want to encourage wage inflation, which could lead to the working class finding its voice again.

The classic text on this question is Michał Kalecki’s “The Political Aspects of Full Employment” (1943). The Polish-born economist argued that the strictly economic case for full employment had basically been won. However, it still had to overcome political opposition, buttressed by “so-called ‘economic experts’ closely connected with banking and industry,” who had “consistently opposed experiments for increasing employment by government spending” during the Great Depression:

The attitude is not easy to explain. Clearly, higher output and employment benefit not only workers but entrepreneurs as well, because the latter’s profits rise . . . the entrepreneurs in the slump are longing for a boom; why do they not gladly accept the synthetic boom which the government is able to offer them?

Kalecki identified three likely reasons for this hostility: “(i) dislike of government interference in the problem of employment as such; (ii) dislike of the direction of government spending (public investment and subsidising consumption); (iii) dislike of the social and political changes resulting from the maintenance of full employment.”

Kalecki’s famous elaboration on the third point has the most relevance to the current situation:

Under a regime of permanent full employment, the “sack” would cease to play its role as a disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension. It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire; and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests. But “discipline in the factories” and “political stability” are more appreciated than profits by business leaders. Their class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the “normal” capitalist system.

Rise of the Rentiers

How much purchase does Kalecki’s analysis have on today’s world? It’s easy to note three significant differences. The first is that the neoliberal state was actually very active in the economy before the present crisis.

It’s common for analysts to confuse the practice of neoliberalism with the abstract theory of laissez-faire economics. In truth, the neoliberal state has not been smaller; it has simply been geared toward different objectives — keeping inflation low and asset prices rising, supporting finance capital through its regular booms and slumps, and hiving off any kind of state enterprise or service that could be profitable for corporations.

These priorities informed all the major policy initiatives of Britain’s neoliberal era: the Private Finance Initiative (PFI), right-to-buy and help-to-buy schemes for homeownership, housing benefits to subsidize private landlords, working tax credits, bank bailouts, low tax rates, privatization.

The second difference is that central banks play a crucial role in the neoliberal economic regime — one that is much broader than in Kalecki’s time, when the gold standard still restrained monetary expansion. Today, under the free-floating currency system, the Bank of England can use its money-creation powers as a kind of permanent financial intervention.

Over the last decade, this has involved mobilizing hundreds of billions through quantitative easing which acts to maintain price stability, while also boosting asset-price inflation. “Rentier interests” were a secondary concern for British capital in Kalecki’s day, but the prices of land and property now lie at the heart of the UK’s financialized economic model.

In the current crisis, we have even seen Britain’s central bank skip the bond-purchasing process altogether by directly financing government expenditure, with new, almost interest-free cash.

Decoupling

The third difference is partly a result of the first two: in a globalized, neoliberal economy, the relationship between low levels of unemployment and greater bargaining power for labor does not appear to be as direct as it formerly was. The persistent rise of poverty among those in work is evidence of this decoupling.

The secret of wage suppression at a time of high employment is the nature of the new jobs being created. In the decade of austerity that followed the 2008 crash, about a million fairly secure, unionized, public-sector jobs were eliminated, to be replaced by inferior jobs in the private sector with lower wages.

A number of other factors also weakened the position of labor in its struggle with capital over the distribution of wealth: increased household indebtedness, new forms of employment linked to the rise of digital platforms, the fall in tax rates, and greater mobility of capital across national borders.

Even so, we shouldn’t take the Tory claim to have achieved genuinely high levels of employment at face value. As David Jamieson has highlighted in an analysis of the UK labor market, the real number of those out of work is distorted by bogus forms of self-employment, the sharp growth of underemployment with part-time jobs, and the benefit-sanctions regime that forces people off Jobseekers’ Allowance and into the category of “noneconomic activity.”

Uncharted Waters

Does this mean we can discard Kalecki’s insights? Not so fast. All three of the factors mentioned above — the neoliberal state, permanent intervention by central banks, and globalization — are now under severe strain in the crisis, as private credit expansion has long been the motor of GDP growth.

When the huge buildup of financial debt stops and central bank intervention can no longer reenergize it, governments will be forced to act in a different way to stop all the dominoes of financialization from falling.

Attempts to underwrite UK bank lending to small businesses have failed: even with no liabilities on their side, the banks can’t see where the returns are going to come from in a crisis as deep as this one. In order to stimulate any kind of economic activity under these conditions, intervention on a massive scale is required, without any thought of making a profit. Only the state can perform that role.

As the crisis deepens, interstate tensions will grow, pressure on global supply chains will intensify, and deglobalization — a process that was already underway — could become entrenched. It’s too early to speculate about how exactly this breakdown will unfold, and there are also countervailing tendencies (most importantly, the growth of automation as robots replace workers in many industries).

But it is at least possible that national borders will start to constrain capital in a way that hasn’t been seen for many years, which may in turn create an opening for the power of labor to be enhanced. As the economist James Meadway has argued: “For the first time in decades, the terrain may not be decisively skewed against those who work.”

Kalecki’s Revenge

Could Kalecki yet have his revenge? Such concerns are one reason why the Tories are just as likely to accept mass unemployment as they are to embrace some sort of Keynesian, New Deal solution. While unemployment may be a disaster for millions of workers, Tory politicians will see the crisis as an opportunity to wipe out zombie firms and restructure British capitalism toward growth markets.

They worry that the furlough scheme, combined with persistently low interest rates, will obstruct what they consider to be a necessary purge of the weak. When the Times speaks about an alleged “addiction” to furloughing, it’s not entirely clear whether they have businesses or workers in mind — or perhaps both.

The business lobby has been demanding a more flexible kind of furlough, which would function as a giant corporate subsidy when the lockdown ends. Predictably, the new Labour leader Keir Starmer has backed this call. Civil servants at the Treasury are reported to be considering this option, but they’re concerned that it would be open to manipulation by employers (as indeed it would).

So far the Left has failed to set the agenda in these debates, even though the British government has been forced to stage unprecedented interventions to rescue the economy from collapse. With Starmer lining up behind the business lobby, there’s precious little leadership being given over the huge threat of mass unemployment.

Calls for a Universal Basic Income are all well and good, but a measure like that would not be a serious answer if one-quarter or even one-third of workers find themselves unemployed, as some economists are predicting.

The Right to Work

The Left should demand full employment: not on a short-term, temporary basis, but as a permanent change to the economic system, where the state guarantees the right to work on a livable income for all those who want it. There’s no need to indulge doubts about affordability. After all, the Bank of England has already demonstrated that it can create new money at short notice.

There is no shortage of work that needs to be done, from the vital care needs of a society already cracking under the pressure of the pandemic and its attendant lockdown, to the urgent task of transforming our energy and transport systems through a Green New Deal.

We should back calls for a labor-redeployment scheme, but demand the democratic participation of communities, unions, and citizens, in order to develop a clear understanding of the work that is needed in every part of the country. And we should certainly resist any job scheme that promotes workfare to subsidize corporate profits.

It will also be necessary to go beyond demands for large-scale fiscal intervention. There is a danger that the Left will become trapped within these boundaries, while the key resources of the British economy remain in the hands of big capital. As George Kerevan has written, this is the point at which the limitations of Modern Monetary Theory (MMT) become apparent.

MMT is an approach to the economy that sees the level of state spending as being fully adaptable to private-sector activity. That’s fine as far as it goes, but the power of the private sector — most critically, the stranglehold of tech and financial firms over data and credit creation — is fundamental and can’t simply be ignored. If figures like Jeff Bezos still control Britain’s digital infrastructure, any job guarantee scheme will be left picking over the scraps.

Kalecki was right about the “instincts” of the capitalist class. However, the titans of capital are probably factoring the question of labor’s social power into their calculations much less than they would have done in Kalecki’s time. If we can galvanize a social movement behind a coherent platform demanding decent jobs for all, their complacency could become a source of strength for our side.