In line with my presentation at the PPAU congress on the matter, I am opening this thread to facilitate discussion on the new Job Guarantee Program policy I will be drafting with PPAU members in the Policy Development Committee.
You can view my presentation and Q&A (please watch before asking a question or raising as a concern, as this may have already been addressed) here (it goes for 1 hr):
A transcript of the speech I read out before the Q&A was a re-purposed speech I borrowed from Warwick Smith (with his permission) who spoke recently at the Right2Work conference I helped organise and found earlier this month, which I have attached here and I have pasted below in case the link dies.
I have also attached a recent report Warwick did on the topic for the think tank Per Capita, as well as a policy document from Prof Bill Mitchell (who pioneered the concept over 40 years ago) he made for a commissioned report he made for the Australian Government in 2008.
I will be organising working groups thorough the next 12 months so those who wish to help contribute are more than welcome. I run PDC meetings usually on the first Tuesday of every month at 8:30pm (AEDT) unless otherwise organised, and can be contacted at email@example.com
The job guarantee
By Warwick Smith
Please indulge me while I begin with a tangent.
When it comes to dealing with homelessness I’m a fan of the Utah policy: provide homeless people with homes. Here in Melbourne, with some commendable exceptions, the policy debate around homelessness seems to focus on where they should or shouldn’t be allowed to sleep and to what extent to enforce laws against begging and loitering. Actually solving the problem of homelessness by providing people with homes is, for some reason, a radical proposal.
It’s very interesting to me when the most obvious and direct solution to a problem is seen as radical and unimplementable.
I’m standing here today to talk to you about an equally crazy idea: solving joblessness by giving people jobs.
Firstly, I’d like to point out that this is not my idea, I’m only a messenger. The brains behind the notion of a Job Guarantee include Hyman Minsky, Randall Wray and Australia’s Bill Mitchell. None of them could be here today – so you’ve got me.
The idea of a Job Guarantee is that, if you’re willing and able to work, the government will give you a job. This job would be funded by the federal government but administered by local authorities (most likely local government).
The jobs would mostly be conceived and planned locally, performing tasks that are beneficial to the local community but would not be provided by the market.
Such jobs would primarily involve the provision of so-called public goods. In economics we define a public good as something that is non-excludable and non-rivalrous meaning if you produce a public good you can’t exclude people from benefiting and one person benefiting doesn’t reduce the benefit to others. Classic examples are clean air, national parks and many other environmental goods.
[Show slide of history of unemployment]
I’m a firm believer in the value of history to the field of economics. I reckon a lot more can be gained by listening to economic historians than looking at the output of modern econometric models. Models have their uses, of course, but when it’s available, give me the real world any day.
A commitment to full employment through direct government intervention is not entirely a new idea for Australia. Policy makers in the 1940s would be very familiar with this conversation.
In the 1940s there was explicit acknowledgement of the benefits and costs of a market-based capitalist system. While the benefits were thought to far outweigh the costs, the costs were not whitewashed away. Nor were those who bore the costs, such as the unemployed, shamed and blamed as they are today.
It was openly acknowledged that in a capitalist economy there will, pretty much by definition, be winners and losers. Some will do extremely well and some will do extremely poorly and the only way that a ‘rising tide will lift all boats’ is through government intervention and redistribution.
The thinkers and policy makers of those times had all lived through both the Great Depression and the Second World War and the contrast left an indelible mark on them. The Great Depressions showed the dangers of unregulated capital and “free markets” - while the War demonstrated the power of the state to fully employ the productive capacity of the economy.
THE GREAT DEPRESSION
Triggered by a financial crisis in the United States, the Great Depression hit Australia very hard. Initial policy responses across the globe included the raising of tariffs and implementing financial capital controls. These protectionist responses are largely blamed for rapidly deepening the recession in what had been a highly trade-linked global economy.
Unemployment in Australia peaked at about 20% during the depression years. This was an average figure, with unemployment in some parts of the country and for young school leavers being much higher.
During the Great Depression, when domestic economic conditions were very weak and tax receipts were falling quickly, the federal government cut back on spending. This was the policy orthodoxy of the time, treating government like any other economic entity that should adjust spending according to revenue. The result, obvious with hindsight, was that reduced government spending exacerbated the economic crisis by further reducing demand. This depleted government revenues further, resulting in still greater pressure to reduce expenditure. This is what we now call austerity – demonstrating that many people do not, in fact, pay attention to history.
WORLD WAR TWO
On the tail of the recovery from the Great Depression came the Second World War. This turned out to be another critical phase in the development of employment policy in Australia.
By 1943 close to two-thirds of the available labour force was employed either directly in the armed services or in supplying the Allied forces with food, clothing, transport, and administrative services. This left a dramatic shortfall in labour for the rest of the economy. Rationing and price controls were used to partly address the impact of labour shortages but the most substantial change was the increase in the participation of women in the workforce. The efficiency of the economy at full employment inspired employment policy for decades to come.
A small group of economists in the commonwealth government’s Financial and Economics Committee, trained in the new Keynesian economics, was extremely influential in planning for peace during the last years of the Second World War. During the war, they had observed the capacity of government expenditure to eliminate unemployment and saw no reason why this could not be replicated during peacetime.
THE POST-WAR BOOM, KEYNES, & THE WHITE PAPER ON FULL EMPLOYMENT
It was this experience that led to the remarkable 1945 White Paper on full employment.
In the White Paper the government acknowledged that unemployment arises as a result of insufficient private demand for labour. This lack of demand is particularly pronounced during economic downturns and recessions. Because these downturns are an inevitable result of the instability of a market based capitalist system, the government and broader society is responsible for the unemployed.
Maybe that’s worth repeating: because these downturns are an inevitable result of the instability of a market based capitalist system, the government and broader society is responsible for the unemployed.
Therefore, the government can, and should, use its spending power to maintain demand such that the economy is always at full capacity and full employment.
How’s that for a commitment? It sounds implausible by today’s standards but, for 25 years, both stripes of government did just that. Between the end of the second world war and the early 1970s unemployment averaged two percent.
If you were unemployed there was plenty of government work on offer. You could turn up at a railyard and be given a job. The Commonwealth Employment Service, rather than treating you like a bludger and scammer, would help you find a job, help pay for you to move to where suitable work was and, if your skills didn’t match demand, would help you get training.
Not coincidentally, the commitment to full employment came to an end across the globe in the 1970s, right at the point where most of the influential economists and policy makers who had lived through the Great Depression had either retired or died. The balance of power shifted to a younger cohort who were trained in a new brand of economics, neoclassical economics, that gives primacy to the individual over collective needs and to the market over government regulation and intervention.
Neoclassical economists came up with the horrendously named NAIRU – or Non-Accelerating Inflation Rate of Unemployment. This is a largely fictitious measure of the level of unemployment, below which, wage earners will gain enough power to demand wage increases above productivity growth.
Now, maybe that needs a little bit of unpacking for those new to the NAIRU.
What it means is that we need a large pool of desperate unemployed people clamouring at the door looking for jobs. This pool of the unemployed act as a disciplinary force on wage claims by those in employment. The most powerful bargaining chip that workers have is to walk away. If they are easily replaced by an unemployed worker who is ready to work then their bargaining power is greatly diminished. When workers are easily replaced, employers are much less likely to meet their demands for better wages and better conditions.
So, the currently accepted economic management paradigm uses the unemployed to put a constraint on wages – as a mechanism for controlling inflation. We need hordes of the unemployed clamouring at the doors to keep a cap on inflation.
Why is inflation so important that it’s worth throwing all these lives to the lions? Inflation is sometimes referred to as a kind of tax on capital. Who wins from very strict controls that create predictable inflation? The holders of capital. Who loses? Labour.
As a result, these days, if you’re unemployed, instead of giving you a job, the government’s role seems to be to kick you while you’re down. The unemployed are blamed for their status and labelled as dole bludgers. Never mentioned is the fact that there are more job seekers than there are jobs and that the system is designed that way. This is about diverting attention from the real cause in order to avoid responsibility for the consequences of the political economic system that we have created.
I agree with Nugget Coombs and the other authors of the 1945 White Paper on full employment; we have a responsibility to the unemployed and we would all benefit from an economy at full employment. This begins by shifting back to seeing unemployment as a collective responsibility instead of individual failure and putting full employment front and centre as an explicit policy goal of government.
However, this is not 1945. Times have changed. So-called “shovel-ready jobs” are far less likely to involve an actual shovel and are far more likely to require skills and capital backing. That’s not to say we can’t achieve full employment through government intervention, only that the path may be more challenging than it was in the post war boom.
One example of a great public good employment scheme would be to put our power lines underground across the country. The benefits are extensive, including reduced bushfires, reduced blackouts and other disruptions due to downed cables, increased visual amenity and the release of a huge system of linear corridors suddenly available for revegetation and conservation reserve connectivity and enhancement.
That’s just one example that I could come up with. The more people involved in the planning and decision making about such jobs the more would emerge, particularly locally appropriate jobs designed by local communities.
Inflation risk is a common criticism of the job guarantee. Job Guarantee proponents respond by arguing that price stability is inherent in the proposal. Inflation is caused by competition for scarce resources but the unemployed are superfluous to current demand at current prices so the JG is not competing for their labour. By maintaining the Job Guarantee wage at or just below the minimum wage, there is always incentive for Job Guarantee workers to move into private employment when it becomes available.
Workers who were once unemployed and are now on the Job Guarantee would have more income and demand more goods and services. This would prompt an increase in supply that would pull more of the JG workers into the private labour market in order to meet the new demand. The end result is, that while upon its introduction, a JG might employ a lot of workers, this demand effect of increased wages would result in a rebalancing back towards private sector employment.
All of that might work well when the skills required to meet the increased demand for goods and services can be supplied by the JG workers. But if there is a substantial skill mismatch – as may be the case with the coming robotics and artificial intelligence revolution, then problems may arise and inflation may be driven up.
None of these issues are deal-breakers for the job guarantee, it just needs to be considered and taken into account in planning and policy. Again the 1945 White Paper explicitly acknowledged all of these issues and the government committed itself to using all of the means at its disposal to maintain price stability in the face of inflationary pressures caused by full employment. Some of those means are no longer available or have reduced capacity, such as rationing and protectionism; however, others are still available and currently underutilised. That said, it’s important to note that they didn’t give inflation targeting nearly the same importance that we do today and inflation was more volatile than it has been since the establishment of the Reserve Bank and its inflation targeting mandate.
I would argue that, once again, we can learn something from history. I believe a rethink of the independence of monetary policy (that’s interest rate setting) from fiscal policy (spending and taxing) is well overdue. Monetary policy is an absurdly blunt instrument whereas fiscal policy can be very specifically targeted, both geographically and by sector or industry. It makes sense to use monetary and fiscal policy in a coordinated way for macroeconomic management.
Government funded research and innovation was a key element of the post-war boom with government institutions dedicated to improving productivity and assisting industry to implement the improvements. This was a key part of inflation control. The clearest example of this was the CSIRO, for many years considered one of the premier government research organisations in the world. The CSIRO transformed agricultural productivity in this country as well as making substantial contributions to many other industries. Sadly, those magnificent days are over and the CSIRO is a mere shell of its former self.
Universities obviously also play a key role in productivity enhancing research. They are also being increasingly squeezed and forced to self-fund and forced to meet endless “efficiency dividends”. Lack of tenure and increasing competition for dwindling research funding undermines the value of Australia’s universities in increasing productivity and, therefore, placing downward pressure on inflation.
Education is another key factor in productivity and is yet another area where Australia is sliding backwards at all levels including school, VET and tertiary education.
Fortunately, all of these things can be improved with sufficient political will but, nevertheless, the challenges should not be glossed over.
Involuntary unemployment was once effectively eliminated in Australia using a buffer-stock of jobs, meaning that anybody who wanted work could find a job. Today, inflation and wage costs are managed through a buffer-stock of the unemployed. This shift is as profound in impact as any in our political history.
Ultimately this comes down to the never-ending power struggle between capital and labour. It’s become unfashionable to talk about class and power but that’s just another symptom of the dominance of the capitalist class. There is a fundamental conflict between the interests of the holders of capital and the interests of labour. This conflict used to be openly acknowledged, discussed and debated. We need to bring back these conversations and debates.
How much of our national output should go to the holders of capital and how much to the workers? It seems to me that’s a fundamental question but even asking it seems radical. While we stay silent on this question an increasingly large proportion of output is being quietly appropriated by the holders of capital.
A Job Guarantee is one way to claw back some power for labour in this perpetual struggle – a rebalancing that is, in my opinion, well overdue.