There is a loud demand for a new ‘social contract’ - GulfToday

There is a loud demand for a new ‘social contract’

Vince Cable

@vincecable

Party leader of the Liberal Democrats in the United Kingdom.

Party leader of the Liberal Democrats in the United Kingdom.

Chile-Unemployment

People wear face masks as they queue to get an unemployment insurance outside the Chilean Unemployment Funds Administration headquarters in Santiago. File/Agence France-Presse

As the unemployed count rises, jobs have become the main currency of political debate around the economy.

The leader of the opposition, Keir Starmer, demands a “laser-like focus on jobs”. His colleagues have adopted the slogan: “jobs, jobs, jobs”. Tomorrow, we shall see the government’s response when the chancellor, Rishi Sunak, gives an economic progress report.

Elsewhere, especially in the US, there is a similar preoccupation as the human cost of lockdown becomes more apparent in rising unemployment.

Governments are under pressure to think big. The template of good policy is Franklin D Roosevelt’s New Deal in 1930s America. Joe Biden in the US and the European Commission have adopted a Green New Deal as their economic mantra. More improbable New Deal devotees now include Boris Johnson and Michael Gove, who claim Roosevelt as an inspiration for their version of post-Brexit and post-Covid conservatism.

The problem with this new New Deal cult is that it references a programme which dealt with a different problem in different circumstances. Roosevelt was a transformational, indeed great, president who made big advances in what we call “progressive” politics: labour rights and a minimum wage; curbs on business abuses and bank reform; generous welfare and anti-poverty measures; redistributive taxation; affordable mortgages; ambitious public works and nature conservation projects; not to mention winning the war and establishing the post-war international order.

What his administration was rather bad at was tackling unemployment. The percentage of the workforce out of work was 25 per cent in 1933 and still 17 per cent in 1938. And Roosevelt firmly repudiated Keynesian economics until well into his second term. The New Deal did not compare well on jobs with Britain where unemployment almost halved from 15 per cent between 1932 and 1937.

A more recent model is the Coalition government. Unemployment plateaued after the financial crisis at around 8 per cent but fell to 5.4 per cent in 2015 (and beyond). Employment, which had peaked at 72.5 per cent of the labour force before the financial crisis, rose to 76 per cent. Our government may not have been to everyone’s taste but it was good at “jobs, jobs, jobs”.

Why then are progressive voices not calling for a return of Cameron, Osborne, Clegg? Tribal politics is part of the answer. But the grudging response is more because a lot of the improvement occurred because of what we euphemistically call a “flexible labour market”, creating lots of insecure, non-unionised, often part-time, badly paid jobs.

All jobs are equal in the employment and unemployment statistics. But they differ greatly in quality. A highly skilled, high productivity, engineering job at Rolls-Royce contributes more to the economy and is paid more than one in an Amazon or Sports Direct warehouse. Yet recent events show us that low-paid, so-called unskilled jobs — like care work, driving delivery vans or buses, and manning supermarket checkouts — are essential to our survival.

There is a loud demand for a new “social contract” with more job security, higher minimum pay and tighter regulation of employers. But it isn’t always obvious how this can be reconciled with “jobs, jobs, jobs”. Indeed there is a big strategic choice as to whether we should be like the Scandinavians, driving up wages and conditions, removing low-productivity jobs and concentrating resources on educating, training and retraining people for a more productive “knowledge economy”; or maximising employment opportunities in jobs paid above a fairly low minimum. Political rhetoric is all about quality jobs; political reality is all about quantity.

The choices are painfully illustrated by one of the industries which did survive lockdown: the garment trade, in Leicester. The jobs were poorly paid and demanding and also, it seems, a perfect breeding ground for Covid. So do we now, in the wider interests of Leicester, abandon these jobs or preserve them – or push for better pay and conditions – which will probably result in them potentially disappearing overseas?

The government fervently hopes that lifting lockdown quickly will get people back to work and restore business confidence. In England the focus is the hospitality sector where the low-skill, low-productivity jobs are concentrated. Social distancing is making those jobs less attractive for their employers to hire. So, what gives? The jobs? The employment conditions? Or public safety?

Sunak’s statement tomorrow also illuminates the government’s financial dilemmas. This financial year the budget deficit is likely to be around 9 per cent of GDP as a result of subsidising 9.3 million jobs under the furlough scheme, business support and lost tax revenue. It is right that the state is temporarily running big deficits to keep the economy going and protect jobs. But the Treasury is already showing signs of panic and is at risk of choking off its stimulus package too quickly. We are told that, thanks to Dominic Cummings, Whitehall is humming with new, radical, ideas. One genuinely interesting and clever idea in circulation reconciles government spending, free markets and sectoral selectivity: a mass distribution of vouchers to be spent on specific goods and services which need a boost to demand. I suspect that the Treasury will kill it. We shall see tomorrow.

Meanwhile, the genuinely radical furlough schemes, providing an 80 per cent wage subsidy in the UK, are being phased out. Yet there is a strong case for continued payments when firms are not allowed to open fully due to social distancing (like public transport companies or airlines). Targeted tax cuts to support new employment (like cuts in employers’ national insurance contributions) or to support specific industries or apprentices or retraining. And if support is to be selective there will be a real dilemma choosing between high productivity industries (like cars and aerospace) or “green” activities (probably not cars and aerospace).

The public sector could also choose to support lots of labour-intensive services, by training and hiring lots of people for socially useful jobs: care workers, nurses, bin collectors, bus drivers, teaching assistants and teachers, nursery staff and social workers. Doing so would mean paying them all properly, and that will require higher levels of local and national taxation to be sustainable.

One of the government’s slogans is “build, build, build”. Johnson’s reheated, re-announced proposals last week were pathetic. But a real, major programme of building infrastructure and houses would generate a lot of jobs, directly and in the construction supply chain. The British recovery in the 1930s was powered by a massive house-building programme: lots of suburban semis like the one I live in, and lots of council houses built by pro-active local authorities.

Making that a reality again would require big changes. The Treasury needs to abandon its hostility to capital spending — borrowing to build. Local councils and elected mayors must be empowered to borrow for investment, and get ahead with local priorities.


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