About Economics

Introduction

I want to live in, and play my part in, a society which enables people to have a life free from want, with help in times of illness and hardship and which allows everyone a shot at achieving some kind of fulfilment. I want the habitat which gives us life to remain healthy so that it continues to do so.

We need to acquire and share out the wherewithal to do those things, and lately we haven't been doing well at it. I'm not an economist. I did study history as part of my education and have continued to do so since, so I'm aware of at least some economic ideas and terminology. But in what follows I avoid using any of the familiar economics terms and avoid discussing this or that theory - because I don't want to pull in the preconceptions associated with them. I have tried to stick to plain language.

I do not set out some kind of theory or plan. I'm not smart enough. I'm more intent on clearing the decks (i.e. my head) for rational discussion. I'm happy for you to disagree with me and set out some other case – so long as it's rational and evidence based. (If you've read my environment stuff you'll know what I'm driving at here.) That's how we progress towards solutions.

Worker-Free Products

The economic circumstances which brought us to where we are today;

which made and spread around the wealth that gave us a better standard of living than ever before and

which formed much of our thinking about how society works, no longer exist.

For a couple of hundred years the wealth creating process needed us, 'the masses', in order to function. Now it doesn't.

Then, industries needed vast numbers of workers to make the products which brought in the wealth. The money all those workers received as their share in the proceeds spread out into the wider economy as they spent it, benefiting other people who worked to supply what they wanted.

The state was able to take its cut in tax and National Insurance contributions which provided for public services such as health care and welfare, police, local services, education and so on.

Now, the wealth creation process does not need all those workers. In car factories where thousands used to labour, robots have taken on much of the work. They do it well, so it's good for the shareholders, exports and balance of payments. But robots don't queue up for pay packets on a Friday, don't pay taxes and don't pay someone to cut their hair. Employment in the industry is growing as I write, but it's on a much different scale to what it was half a century ago.

(There's loads of Google-able stuff on this – for starters see

http://www.thisismoney.co.uk/money/cars/article-2548149/How-booming-British-car-manufacturing-helped-drive-economy-upwards.html

and

www.parliament.uk/briefing-papers/SN00611.pdf )

Britain has a highly successful computer gaming industry. Again, good for balance of payments. But such a product is created by a small number of highly able people and needs no great labour force to make it. In the Guardian March 13 2011, Ray McGuire, chairman of BAFTA's games committee and head of Sony Computer Entertainment UK, said that, while the sale of boxed goods was declining,

'..the industry as a whole is growing – it is in good health in terms of revenue, and in terms of audience reach it's never been bigger.'

In a similar vein, Japanese manufacturers said, on the BBC's Today programme, (1/4/2013), that making devices was no longer a paying game. They said they had failed to move to digital products, which was where the new game was at. You only make a copper or two on a manufactured plastic thing, but it then becomes the vehicle for much more profitable digital online products. Plastic things and 'boxed goods' need people to make them and move them about; digital online products are non-labour intensive and, once created, are infinitely reproducible with the click of a mouse.

Our highly regarded and highly profitable animation industry is said to employ 4600 people (2012).

(http://creativeskillset.org/assets/0000/5070/2012_Employment_Census_of_the_Creative_Media_Industries.pdf )

In my town the Raleigh Cycle Company employed 12000 in 1963 (Grace’s Guide). And according to the BBC movie Made in Dagenham, in 1968 there were 55000 men and 187 women employed at the Ford plant there. We'd need a lot of gaming industries to keep that lot busy.

Of course, it has always been the case that increased productivity (i.e. using fewer people to make more stuff) makes people unemployed. The idea used to be that those who could not be kept on as a business grew would find work in new enterprises which were coming into being as the economy grew. That is precisely what doesn't happen now. The new enterprises - the computer gaming industry, the animation industry, the motor industry, and the rest - don't need to recruit large numbers of production workers. Small groups of highly trained and creative people make the product, assisted where necessary by automation (maintained by a small number of highly skilled engineers), and it is to these few, and their investors, that the profits return – without the need for them to pass any of it on to a large workforce.

Meanwhile, what are the ex-workers to do? Instead of being in organised industries getting negotiated pay and conditions they are increasingly offered zero hours contract (i.e. casual) work in service industries, deliveries etc. - all lower paying, all insecure and without opportunities for progression. The self employed sector is growing fast, and it appears that those who do it like it. But the earnings are relatively low and erratic. The tax take is lowered and there is the likelihood of people needing state support from time to time, between jobs or when earnings drop. That's not going to generate much to pay for public services.

 See for instance http://www.taxresearch.org.uk/Documents/SEI2013.pdf

The fact that the wealth creating industries no longer have a great need for workers does not mean workers are not needed. The public services need them: health care, police, rescue, social care, community services such as waste disposal, street cleaning, care of the elderly, care of the environment, education, defence - the list is endless, all the stuff that keeps society going. But none of these things creates wealth: given an input of wealth they can spread it and amplify it, but there has to be some there in the first place - dug out of the ground as raw materials or brought in from outside by exports, say. In the absence of that, the people who could be doing the work are having to serve in coffee shops or wrap and deliver parcels for Amazon – and I suspect at least one of those jobs will be automated out of existence soon.

In the past the workforce was the means of transferring some of the proceeds of wealth creation across to the non-wealth-creating yet highly necessary sectors via spent and taxed wages. Without that means wealth will stop with the original entrepreneurs. 

Are there other ways of making that transfer? Can service industries, in providing for rich people, be a way of moving the wealth on? Only to a degree, because however lush their lifestyle, they are not going to keep all of us busy are they? Alarmingly, such people will be well able to afford to pay for private health care and education, so providers could become oriented to serving them, making education and health, once more, expensive privileges of the better off.

We should remember that service industries do not create new wealth. They circulate and amplify wealth which has already been generated, except when they bring money in from outside our economy, like tourism for example.

There are consequences for education too, and with it, motivation and ambition. Liam Beatty, a young graduate interviewed on BBC Radio 4's World At One, 30th March 2015, said that his experience of seeking work and internships in Brussels London and Edinburgh, and being offered only the usual low paid zero hours contract jobs,

 '...contradicted this ethos, instilled into you from a very young age, and repeated by the chancellor at the graduation ceremony, that if you work very hard you will get a very good job at the end of it'.

They misled him. He was told stuff that was true a couple of generations ago but is not true now.

Then, the great manufacturing industries at the core of the economy provided a ladder of advancement through merit and training. As well as top jobs for graduates there was in-house training, white collar jobs for A-level non-university school leavers and apprenticeships for others. They were structured to offer a kind of step by step upward mobility.

Now, with few such industries, doing well at uni and working hard will only qualify you to enter a competition with a lot of similar people for one of the few good jobs going. Or, if you're really good, to create the next world beating idea and be made for life. Otherwise, you become a well educated barista.

So why go to uni? Why land yourself with an enormous debt at the beginning of your adult life? Well, the public services need graduates and highly trained people don't they? One could work for and/or be trained by them. But no. The public services can't get enough money for that – see above. 

So, if we think there is a lot of work for people to do in things like education and public services, how do we get the funds to pay for them? Instead of the money coming into the economy indirectly via the pay packets of the masses, why not take an equivalent amount directly from the businesses that are making the money? This view gets a lot of approval whenever another tax dodging scam by a big corporation is revealed. But what about all the clever boys and girls at Silicone Roundabout, or the gifted people in the creative industries? Do we really want to cane them for being good at stuff, as well as being good for GB plc? Especially as there is a world out there waiting to offer deals to them?

A right wing economist might argue that public services should be privatised, market driven. But if what I say above is true, the market that drives them will be a small and exclusive one, consisting of the few who have enough money to pay. No-one will want to build a business serving the needs of a low-paid, erratically paid, population.

And finally, here's another thought: that last paragraph also blows out the get-rich chances of the entrepreneurs. For who's going to buy their products in such a population? People who don't earn can't buy. When people can't buy, the wealth creators can't function. J. K.Galbraith pointed this out in his book about the Great Crash of 1929 : industry and consumers, he says, were well able to carry on as before, 'given the income to spend'.[my emphasis]. (The Great Crash 1929 p191). But unfortunately the consumers had no income to spend - they were queuing up for free soup.

So the situation I describe above will in fact be short lived, an intermediate phase in the slowing down and seizing up of the economy – an economy designed to function in the era of the industrial masses. We need to accept that circumstances have altered and that we need to find a radically new way of going forward. 

Bonanza and Legacy

My family live in and around an area of awesome historical significance - a UN World Heritage Site in fact - and the chances are you've never heard of it. The American author Bill Bryson has said of it that 'Everything that is manufactured on Earth today traces its beginnings back to this tranquil corner of rural Derbyshire.’ (The Road to Little Dribbling: More Notes From a Small Island, p. 277.) It is here that Richard Arkwright put together for the first time ever the power, the mechanisation, the transport infrastructure and the buildings full of wage earning workers, that go to form the modern industrial plant. Almost immediately he was being copied nation-wide. The industrial revolution had begun to roll.

Our mass-employing industries brought us a 250-year bonanza fueled by empire, exploitation of raw materials and our unique position in world markets due to being first on the scene with technological innovation.

Towards the end of the era the workers in those industries finally achieved, through the efforts of generations of trades unionists, reformers, activists and enlightened politicians, the chance of a fair share of the proceeds – just as the bonanza was running out of steam.

While the advantages of the bonanza era are no longer available, a huge beneficial legacy remains. We accumulated vast knowledge and expertise, and highly developed forms of organisation and education. These have already brought us the new industries mentioned above. They should also enable us to work out new forms of technology and social and economic organisation with which to provide a decent standard of living for our population and care for the habitat which gives us life.

Importantly, we should target our efforts at what we need for a good life, not at churning out crap we don't need which, we hope, might generate a bit of what we really do need as a tax by-product.This also provides us with a role in the world. Societies outside our own, which started on modernisation later, or not at all, need not go through all those clumsy, dirty stages of development our ancestors went through. We are the ones in a position to explore the way forward to cleaner, safer, more just ways of generating and circulating wealth. 

There’s no point in trying to claw our way back to an earlier time. By all means cry, ‘bring back manufacturing’ but, for all the reasons set out above, don’t expect it to bring back mass employment. The mill owners are gone, along with their factories dependent on toiling masses, so there's no point in shouting 'Everybody out!' The time has come to acknowledge that a mighty phase of history is over, and we, as the first society to enter and leave it, should concern ourselves with pioneering the next phase. 

___________________

Update, 12/12/1015:

Since I wrote that piece, I have come across a book on the subject. I've bought it, but haven't read it yet. Here it is:

Eric Brynjolfsson and Henry McAfee,

Race Against the Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy

Update, 12/12/2015:

Another employment opportunity bites the dust.

On 3^rd of December 2015, Antony Jenkins, ex-boss of Barclay's Bank, was interviewed for BBC Radio 4's In Business programme. He is about to start a job putting through a programme of automation in his industry. He predicts a

'… significant reduction in the number of people employed in the traditional [banking] sector … I estimate it to be somewhere between a 20 and 50 percent reduction over the next 10 years. You can already see this starting to happen. If you look at branch utilisation in the UK last year for example, it was down 6% on the prior year. So these are profound changes for the financial services industry.'

[Interviewer] A 50% reduction in jobs, employment, in branches – that's an absolute devastation of a very large UK industry.

'A very large UK industry and a very large global industry but there is, in my view, no escape from the forces of technology, which are automating all sorts of processes for customers. So getting a loan, making a payment, checking a balance – those of course are the obvious things you see, but if you look inside the operations of a large bank - regulatory compliance, analysis of companies, book keeping - all of those things the new technologies allow to be automated very very extensively, much more than they are today. And so in what banks call the middle and back office, we'll see very very significant reductions there as well.'

[Interviewer] There's going to be a huge storm through the financial services sector – it's almost equivalent to the storm we saw in the financial crisis.

'Well, I think it's a huge transformational force. I think it's going to end up being better for the customer. That's a good thing. Look at other areas of our lives. Look at how people buy music, look at how people buy books, look at how people buy goods online. All these industries have been transformed by technology as financial services really hasn't. So in my view it's entirely reasonable to expect that transformation to occur. It will have profound impacts and create winners and losers across the sector, and the winners will be the ones who can adapt and thrive in the new circumstances. The losers will just fall behind.'

[Interviewer] You talk about this 50% figure – that equates to hundreds of thousands of jobs in the UK alone. Is that the threat you see from this digital revolution?

'Absolutely.'

OK. But it will only be better for the customer 'given the income to spend' [Galbraith, see above]. And he's just told us that the income is about to be taken away from a large group of potential customers. 

I do not hold to a kind of religious faith that believes an equivalent income will appear from some at the moment unseen source. If that were ever true, it was in the mass industrial era. As I point out elsewhere, any available work opportunities are likely to be less well paid.

Neither he nor the interviewer seem aware there's an issue here at all. It could have been discussed when they talked about his chairmanship of

 'Business in the Community, which is about businesses really understanding the need for them to be players in the social and the economic life of their customers not just about the bottom line.' 

They just talked about customer convenience instead. But paying customers and employees are the same people. In the past when an industry folded, its employees were left to fend for themselves. The justification was that, with effort and motivation, they would find equivalent, or better, employment in new ones opening up - and be able to go on spending. If this is no longer tenable, there's a need to find a way of managing transitions like this, and, dare I say it, of providing people with the security of a stable income.

Update, 21/02/2016

Here's the UNESCO introduction to the Derwent Valley Mills World Heritage Site, discussed above,

http://whc.unesco.org/en/list/1030

and a video:

http://whc.unesco.org/en/list/1030/video

Update 30/04/16

Even the usually very savvy Have I got News For You (BBC2 TV) panelists don't get it. On the programme of 29/04/16 at 10mins 35secs, the topic of Jeremy Corbyn's  talk with President Obama,  'Post industrial societies and the power of global corporations and the increasing use of technology around the world', was good for a laugh. I do have to say though, while I'll happily give Mr C full marks for content, I can't do the same for his style and communication.