What kind of economy do we want, or can we have?

Alongside the publication of the unemployment figures, a number of related news items have caught my eye in the past week or so.

The one was the prediction from the Chartered Institute of Personnel and Development (CIPD) in the same news report from the BBC that mentioned Barnardo's views about youth unemployment in my last blog.  What the CIPD were saying (based on a quarterly survey of 1,000 employers) is that the UK jobs market faces a 'slow, painful contraction'.  It suggests we are entering a period where there is a 'lull' in business activity that means that few firms intend to recruit as they follow a 'wait and see' policy towards the economy.

This means that there is little prospect of the jobs that are being lost from the public sector being replaced by new private sector jobs.  The only upside seems to be that there may be fewer private sector redundancies although this could worsen if the eurozone crisis turns into a recession.  There seems to be no immediate sign of labour market conditions improving in the short or medium term, which makes any proposals for growth Mr Osborne may have in his Autumn Statement on 29 November all the more important.

Another article Whatever happened to full employment? also caught my eye.  When I learnt economics, full employment was reckoned to be a rate of around 3% which included those who would never work (very few) and those who were between jobs, but would quickly be back at work.  That was in the 1970s when unemployment was still pretty low but inflation was high.  Soon after that the priority became inflation, which I think it has been ever since.  The Bank of England's Monetary Policy Committee's only official aim is to keep inflation within +/- 1% of 2%, though I believe the Fed in the US is also supposed to have regard to unemployment in setting interest rates.  Many of us might believe that reducing the misery of unemployment should be an important aim (some would argue the controlling inflation is the best way of doing this) but to do so would mean changes to a number of economic policy options.

A third article that caught my eye was a report on the latest regional household financial stress index from PriceWaterhouseCooper.  This shows that London is little hurt by the recession compared with Wales, the West Midlands and northern regions. Outside London and the South East slow wage growth, rising taxes, public sector cuts and personal insolvencies are putting pressure on households.  A separate report by Begbies Traynor (who call themselves business rescue and recovery - i.e. insolvency - specialists) says that amid public spending cuts companies in the North East, North West, Yorkshire, the Midlands the east of England and Wales face mounting financial pressure, while London and the South East were escaping relatively lightly.

Whilst we are talking about regions as a whole here, and the West Midlands is far from monochrome, these reports add to a long-standing awareness that not only do we need to rebalance the UK economy away from an over-reliance on finance towards something more productive, we also need to rebalance away from the over-heating, over-crowded South East towards a country where prosperity is more equally shared around.

Again, when I learnt economics, there were car factories built in Scotland (now long closed) as part of a regional policy that is now regarded by many as discredited, and yet somehow, Nissan has built a highly successful car factory in the North East.  Equally, we cannot rely on market forces or we will all move to the South East until it grinds to a halt through over-crowding.  We have had a kind of regional policy again more recently with the regional development agencies.  And whilst the recently closed Advantage West Midlands had some successes the so-called 'output gap' got worse during its existence rather than better.  I remain to be persuaded that the Local Enterprise Partnerships that we now have in place of regional development agencies, with significantly less resources, most of which they have to bid for, will be any more successful.

So where does this leave Worcestershire?  The county is no more monochrome than the West Midlands region but in overall terms we have lower unemployment but also lower incomes.  There is a considerable variation between districts in the county but one interesting fact is that the incomes of those who work in the county are lower than those who live in Worcestershire but work elsewhere.  We are clearly beyond the South East effect that runs out some way up the M40 around the Warwickshire border, though Warwickshire itself is still a wealthier county than Worcestershire, not least because of the Warwick, Coventry, Solihull triangle.

I was struck though, by reading a draft of the Hereford and Worcestershire Chamber of Commerce comments on the South Worcestershire Development Plan.  There are a number of points where it says that there should be clearer and easier ways for businesses to build and grow.  This could put short-term expediency over longer-term sustainability (in the broadest sense of that word) and also alter our priorities for development, such as ending the preference for brown-field sites before allowing new development on green-field sites.

This is part of a philosophical difference with what has been existing planning policy, which the government has changed with the Localism Act that has just received the Royal Assent, but also with many residents who wish to resist any kind of development, whether it is commercial or residential.  In the end, the question is: 'What kind of County do we want to live in?'  I'm not sure I agree with the Chamber of Commerce, but neither do I want to live in some kind of back-water where we bumble along gently trying to preserve what we have and the reality is steady decline.             

Unemployment - Worcestershire and Young People

The rise in unemployment announced this week is no great surprise.  The overall figure rose by 129,000 to 2.62 million (8.3%).  Youth unemployment has passed the 1 million mark at 1.16 million (21.9%), a rise of 25,000.  On the claimant count the overall figure showed a rise of 5,300 to 1.6million. 
Whilst in the West Midlands there was a rise, unemployment fell from September to October in Worcestershire by 327 to 10,843 on the claimant count (for some reason, the higher more widely recognised figure is not available for the County), although this is still 582 higher than a year ago.  It is difficult to quote comparable percentages because the County Council use a different base population to the ONS.  On the County basis, unemployment on claimant count in Worcestershire is 3.9% (with Worcester, Redditch and Kidderminster all over 4%), compared with 6.7% for the West Midlands and 5.5% for England and Wales (for some reason they don't give a figure for the UK as a whole).

Youth unemployment in Worcestershire (for 18-24 year-olds) is higher than the overall figure at 7.8% and above the England percentage of 7.4%, though below the West Midlands at 9.3%.  Within these figures are some parts of the County that are consistently higher.  The top ten areas vary slightly from one month to the next but are mainly from the poorer parts of our larger towns, with Oldington and Foley Park in Kidderminster pretty consistently at number one with 17.4% of young people claiming in October.  The numbers involved range from 50 to 95 in the various wards, so small changes in numbers can make a big difference to percentages.  This also suggests that if any local response was appropriate the numbers involved would make it manageable.  However, we should not overlook the fact that the top ten wards only account for 700 out of a County total of 3220, so there are a lot of unemployed young people in the rest of the County too.

WorkCare, the Industrial Mission team in Coventry and Warwickshire have recently surveyed church responses to youth unemployment in conjunction with the Saltley Trust. Details of a recent presentation can be found here. If anyone in Worcestershire has any thoughts about doing work with unemployed young people, then I would be interested to know.

The Oldington and Foley Park percentage is 2% down from September and one might surmise from this that there is some correlation with the academic year and also the availability of training courses.  But it is disturbing to see that the percentage of claimants aged 18-24 claiming for over 12 months started to increase more rapidly, from around 2% of all claimants aged 18-24 in October 2009 to 8.6% in June 2010, and although it then fell to 3%, more recently the figures are starting to rise again to now stand at 5.7%, though a newspaper report I read said that the national figure is over 30%.  It seems that there must be a question of definition here as it is hard to believe the Worcestershire figure could be so much lower that the national one.  The Worcestershire figures refer only to 18-24 year-olds but a recent Barnado's report says the unemployment rate for 16 and 17 year-olds has doubled over the past decade and that they were the most disadvantaged because the government is prioritising young people from the age of 18 and above.

There is talk, once again, of a 'lost generation' (including from Barnado's in their comments on the figures above). An examination of unemployment figures going back 30 years shows that youth unemployment rarely dips below 500,000, even in the boom times. In each of the recessions of the early 1980s, 1990s and now the figure doubled. What may be different this time is that many of those unemployed, or under-employed (i.e. doing jobs below their qualifications) are graduates. I am old enough to have graduated a few years before the 1980s recession, and whilst I had to apply for many jobs, I eventually got something in the line of work I expected and wanted. Although I was not directly involved in running them, I do, however, remember a few years later the huge number of young people on YTS and YOP schemes and the like. The difference, perhaps, is that there was a much smaller number of graduates then as compared with now.

Having recently made a comment about the present numbers of graduates, I was reminded that the most successful countries are those where their people are highly qualified. Does this mean that the economy is not providing the kinds of jobs for the number of qualified young people we have encouraged to take degrees, or does it mean that we need to look again at the skills that courses are providing (both 'hard' in the sense of the academic content and 'soft' in terms of personal qualities)?

This is a subject of some interest to the Church that thinks much about the education of the whole person, and I have to say that I personally react against the rather utilitarian sense of many government policies about education over the past 30 years - though I write as someone with two vocational degrees, albeit the second might be regarded as vocational only insofar as it was obtained to be used for the rather narrow occupation I now pursue!

I will look rather more generally at some issues about employment both in terms of the current jobs market and the distribution of work in the country in a following post.   

Costa - not Radical Enough

I have been passed a copy of Ken Costa's article (Chairman of the St. Paul's initiative) in the Sunday Telegraph (6 November 2011).

He quotes Rowan Williams in his FT article as saying that there is: 'widespread and deep exasperation with the financial establishment'.  And Costa himself says he cannot recall when public feeling worldwide has run so high, and even if only a minority takes its anger onto the streets, no one should imagine that the majority is indifferent to their cause.

He seems to have grasped the public mood pretty well, and has also spoken to the protesters in the camp outside St. Paul's reporting that there are a large number of informed and articulate individuals who were serious and whose ambitions were far from Utopian.

But perhaps, having been a banker himself, in seeking to place the market in a moral framework, as he quotes David Cameron as saying, Costa seems to imagine this is a process of adjustment whilst the serious business of making money continues.  Seemingly, we cannot begin a debate on taxation before we are quite sure the economy is growing and jobs are being created.

Given the grim economic news, we could be waiting a long time for growth and most people don't feel in the mood to wait, when they perceive the manifest inequality and injustice that exists in our economic system.

The FT article by Rowan Williams was also, I believe, a call before the G20 Summit for world leaders to support the so-called Robin Hood or Tobin tax on financial trades for the benefit of the poorest in the world.  As a long-time supporter of this tax (long before it became a popular campaign) I am particularly disappointed at our government's resistance to this.  There seems a particular irony in acting on behalf of some of the richest in our world economy at the expense of the poorest.

But this is only one very small part of the kinds of reforms that are needed.  Costa rightly says that we need to look for businesses more generally to have a wider purpose than just maximising shareholder value and he clearly sees the creation of jobs as another purpose.  This will come, he says, through  a vibrant private sector supported by a vibrant financial services sector.  Quite apart from saying little about so much of the financial sector that is concerned with making money from trading with money rather than services for industry and commerce, he also backs the neo-classical economic line that only the private sector can create jobs, and governments can't.

Leaving aside whether public sector jobs produce anything (Professor David Green of Worcester University in the seminar mentioned in my blog of 4 November says, for example, that health workers produce health) this suggests the classical economic view that the economy is always in equilibrium, even with unemployment, and anything a government does is an external shock that will upset that equilibrium.  Keynesian economists would say this is nonsense, but it also suggests that all government interventions such as Local Enterprise Partnerships and enterprise zones are ineffective.

The newspaper headline (online is slightly different) for Costa's article was 'Markets have lost their moral moorings - it's time to be radical'  but it seems to me that   Costa could learn a good deal from his fellow evangelical Donald Hay, who in his lecture 'Financial Crisis - a Moral Crisis', at Worcester cathedral in the summer, used scripture to both critique our financial system and to suggest that  it should be there to support human flourishing.  This requires a more fundamental questioning of the purpose and functioning of the banking system than Costa seems to be willing to consider.

He may find the not just Occupy but many of that majority of the public who he identifies as not indifferent to their cause will give him short shrift if he cannot allow find it in himself to step outside the banker's mould.

I hope to look at what Hay and possibly others had to say in a later posting.

No Referendum but will the Bailout Stick?

Why did the Prime Minister of Greece try to call a referendum on the bailout?  Nobody is sure, but it has been suggested that local leaders of his party may have contacted him to say they weren't confident the further austerity demanded would be deliverable.  Given the riots on the streets of Athens and elsewhere, and the constant stories of hardship coming out of the country, that's not hard to believe.  Now he has been forced to back down because effectively the people of Greece are caught up in a bigger power-struggle over the future of the Euro and the EU itself.

Because of the single (Euro) currency, Greece is being forced to effectively devalue by driving down its costs of production by cutting the living standards of its people through increased taxation and the slashing of public services.  This is supposed to restructure the economy to make it competitive within the Euro rules, but apparently it isn't working fast enough so more keeps on being demanded.  They broke the rules to get into the Euro in the first place - though surely the powers that be in Brussels must have been aware they were at least being bent pretty hard - and the the way the Euro has been run to suit the powerful countries at the centre has exacerbated the problems for those on the periphery.

Now it is said the rich and powerful in Greece, who have never paid ther way, are getting out what remaining money they have in the country and the ordinary people will be left to pick up even more than their fair share of the tab.  From what I have read from development charities this is just the same as the euphemistically named 'Structural Adjustment Programmes' of the IMF in poorer countries.  The ordinary people pay for the loans to tide their country over with the loss of education and health and other services.

However corrupt and inefficient parts of the Greek system have been, there will be a real cost for ordinary people.  Is it any wonder they have been objecting when they are being made to pay the price of the catastrophic failure of the EU leaders to get a grip on a problem that would have been relatively inexpensive to sort out a year or so ago and now threatens the world economy?

Another verse from Isaiah 3 that I quoted in my last post strikes me as apposite: 'A man will take hold of his brother in his father's house, saying, 'You have a cloak, you shall be our chief; our stricken family shall be in your charge.'  but the brother will at once reply, 'I cannot heal society's wounds when in my house there is neither bread nor cloak.  You shall not put me in authority over the people.'  (Isa 3: 6,7).   

Occupy Have a Point About the Present Crisis

We're all much taken up with the convulsions surrounding the Euro and the G20 Summit and what will happen in Greece.  The complexities of this are mind boggling for most of us and the situation changes very fast.  Only a week ago many of us were despairing at the way St. Paul's was handling the Occupy protest.  Whatever happens over the Euro, and the consequences if it all goes wrong are extremely worrying, none the less the Occupy protesters at St. Paul's and around the world are pointing us to a significant part of the underlying cause.

We are now only too aware of the dangers of debt both personally, corporately and for governments.  There has been a tendency to suggest that government debt is somehow worse than any other - and in one sense it is because, as we are seeing, if governments can no longer repay the options that are left are increasingly scary.  But we have to ask where the governments' indebtedness came from and here I'm indebted to an article by the economist, Nouriel Roubini at his blog: www.economonitor.com/nouriel/2011/10/17/full-analysis-the-instability-of-inequality/

Just as with the 1920/30s crash there is a great deal of 'leverage' (debt in other words) around but also just as then inequality in the economy is very high.  Roubini points out that the share of income of the top 1% in the US reached 23% in 2010, a figure not seen since 1928, having been 10% 25 years ago.  The top 5% control about 75% of the financial wealth.  The figures for the UK are lower but the same trend is evident.

This means that not only have some people become fabulously wealthy but that many of the rest of us have seen relatively low increases in our living standards.  In part this is due to globalisation and the ability to manufacture goods in places where labour is cheaper, which has seriously affected people doing unskilled jobs.  But in more recent times the 'off-shoring' of many middle income jobs means that few people feel unaffected any more.

The response to this in the Anglo-Saxon economies has been the liberalisation of credit, which has meant that the gap between income and aspiration could be made up by borrowing income from the future.  Many people are now on a personal level facing a painful payback period.  In Europe, Roubini argues, the gap was made up by increased social welfare spending, which if not matched by economic growth (or where the rich avoid their taxes) has created growing budget deficits.  Similar deficits have accumulated in the Anglo-Saxon economies, such as the US and UK when the private debt bubbles burst and the private losses of the banks were socialised, automatic stabilisers (e.g. Job Seekers Allowance for more unemployed people) kicked in and counter-cyclical fiscal policies were employed in 2007-8 to prevent a depression (e.g. bringing forward government spending and the temporary VAT decrease).

The liberalisation of credit and of the financial system more generally has meant that money has become a commodity in itself from which more money could be made, hence the huge growth in the banking industry.  However, as Will Hutton, Roger Bootle, and David Green (vice chancellor of Worcester University in a recent seminar orgainsised by the Diocese and the University Business School) have said, much financial dealing in the City is a zero-sum game - it is simply moving money around so some win and some lose.  If the money to do this is borrowed (leveraged) then the winnings can be huge, but it doesn't contribute to the overall wealth of the country.  What all this redistribution and concentration does, as Robert Peston said in his book 'Who Runs Britain' in 2007, is give the beneficiaries a great deal of power, which because it is not gained through the ballot box is largely unaccountable.  Which brings us back to the Occupy protestors and the increasing sense more generally of unease about the inequity in our society and the way the 99%, as Occupy would put it, are losing out.

A lot of that anxiety is about not feeling in control of one's destiny.  There are healthy and unhealthy ways of not being in control - it is fine, for example,to reliquish control of your life to God if you choose, but for many the present situation is not one they have chosen.  Having personally been made redundant (though fortunately redeployed into another post) I feel the pain of those I visit as a chaplain who are presently going through restructuring where there will be fewer and different jobs, places where the bosses can't see beyond the next year or so, and particularly young people who can't find any kind of work and have no history of working to fall back on the give them any sense of esteem or hope.

The kind of dispair that grows from that is desparately sad, but it could be come very dangerous if it turns to anger.  Perhaps sensing this, it is interesting that Bob Diamond, CEO of Barclays, who earlier this year was saying it was time for the period of remorse and apology for the banks to be over is now saying that they need to be better citizens and bolster their contribution to society.  However, the point of the Occupy protests and the feeling of many other people is that a slight modification on the part of the banks is not sufficient.  It is what appears to be the business as usual behaviour of banks and bankers that draws so much ire.

In the light of this, I was struck by some words of Isaiah in the daily lectionary readings for morning prayer today (4/11/2011) in the early prophecies against Judah, giving reasons for why the country is in the mess it is:

'Money lenders strip my people bare, and userers lord it over them.  My people, those who guide you are leading you astray and putting you on the path to ruin' and '...against the elders and officers of his people: It is you that have ravaged the vineyard; in your houses are the spoils taken from the poor.  Is it nothing to you that you crush my people and grind the faces of the poor?' (Isa 3: 12, 14-15).

Christians often focus of the crucifxion of Jesus, of course, in reflection on suffering and often then move almost seamlessly to the resurrection as the hopeful antidote.  Of course, we must have this hope but we must never be trite about it.  I recall writing in these terms about the Rover crisis in 2000 and then 2005 when the Longbridge factory closed.  Yes, something like 90% of people did get jobs or training within six months as the authorities claimed.  But many of them never regained the kind of pay they were getting at the car factory.  It may be at the present time we should be mining the prophets more for our theological inspiration.

But in time most of the prophets see that Israel or Judah has served its time in exile and there is restoration.  The critical question is what is learnt in the time of exile and how it is that the country is in a fit state to emerge.  One should not overdraw analogies, but returning to Roubini his main prescription is a rebalancing between laissez faire markets and public goods, a rebalancing between capital and labour to increase effective demand and investment in social goods such as education to up skills and productivity.

It would be tempting to offer further prescriptions for getting out of the current crisis, though much may depend on what happens with the Euro in the coming days and weeks.  We may conclude, though, that inequality is not simply unfair, it is morally wrong and it is bad economics because we all lose out not just because some get less than others but because the overall effect is that the economy as a whole is smaller.