Tag Archives: housing policy

Time to wake up to the de-industrialisation of advanced economies

Trying to understand the global economic crisis?  This article from Joe Stiglitz is required reading.

I have flagged it already on Facebook and Twitter, but without much in the way of reflection. In fact it has produced an epiphany moment for me.  I have maligned Professor Stiglitz in a past blog as producing only superficial commentary on the crisis, alongside his fellow Nobel laureate Paul Krugman.  This was based on one or two shorter articles in the FT and some snatches on the radio; I wasn’t reading or listening carefully enough.  Professor Stiglitz is one of the foremost economists on the current scene.  He used to be part of the Clinton administration, and worked at the World Bank in the 1990s, but his views proved politically unacceptable.  He also wrote the standard text book on public economics, which I used in my not so recent degree course.

The article is wonderful on many levels, but the epiphany moment for me came with his observation that, underlying the current crisis, is a long-term decline of manufacturing employment in the US, and by implication, other advanced economies too.  He draws an interesting parallel with the Great Depression, which was caused, he claims, by a comparable shift from agricultural employment – again in the US; I think that such a shift was less marked in Britain, but the depression was also less severe.  This decline in employment brought about a doom-loop of declining demand across the economy as a whole – which was only reversed by World War 2.  The war effort caused a boom in manufacturing industry which was readily redeployed into the postwar economy.  This view of the Great Depression rises above the fierce controversies over fiscal and monetary policy, and places them in a proper context.

We have been witnessing the decline in manufacturing employment for some years, and grappling with its social consequences.  The important point is that it is mainly irreversible. It has been brought about by technological change, which has improved productivity.  There is a limit to the number of manufacturing products that we can consume – just as there is a limit to the food we can consume, and we are at that limit.  So the number of jobs declines.

Of course the picture is complicated by the rise of manufacturing in the developing world, and especially China, and their exports to the developed world.  In the US I am sure, and certainly in the UK, more manufacturing output is now imported than exported, causing a further loss of jobs.  This is reversible, though, and in due course will reverse, as the developing world advances and loses its temporary competitive edge.  But this won’t be enough to reverse the overall trend of rising productivity.

But advancing productivity should be good news in the long run.  It releases the workforce to do other things, or, if people prefer, to increase leisure time.  So what replaces the manufacturing jobs, in the way that manufacturing took over from agriculture?  Services, of course.  What is, or should be, the product of these services?  Improved wellbeing.

Services have rather a poor reputation in our society.  Traditionalists see them as ephemeral, compared to the real business of making things – a bit like Soviet planners were obsessed with producing steel rather than consumer goods.  More thoughtful people associate them with poor quality jobs in fast food restaurants or call centres.  But it doesn’t have to be this way.

We need to develop clearer ideas of what tomorrow’s service-based economy will look like. That’s important because the way out of the current crisis is through investments that will take us closer to this goal, just as war led to investment in manufacturing in the 1940s (and earlier in Europe).

And the key to this is thinking about wellbeing.  This is important because one of the answers could be an increase in leisure, hobbies and voluntary activities – which is not normally regarded as economic activity at all.  Reflecting on this, I think are two areas whose significance will grow and where investment should be made, both of which raise awkward political problems – health and housing.

It is easy to understand that health and social care will take up a higher proportion of a future economy than they do now, and not just because of demographic changes.  These services are vital to wellbeing.  But we are repeatedly told that we can’t afford to expand them.  And that is because we are reaching the limits of what state-supplied, taxpayer funded services can deliver in the UK. (In the US it’s another story for another day).  The health economy of tomorrow will have a larger private sector component, whether integrated with the NHS or parallel to it.  But what should our priorities now be, while this private sector is on the back foot?  It seems sensible to make the NHS more efficient and effective, but foolish to cut jobs.  We should be building the skill base alongside the reform programme.  The chief critics of the government’s NHS plans (including the Labour front bench) are that NHS reforms should be stopped so that they can focus on the critical business of raising efficiency.  But maybe it should be the other way round – we should be pushing ahead with reform, but relaxing the efficiency targets and letting the costs rise a bit until the economy starts showing greater signs of life. then, as any cuts are made the private health sector can take up the slack.

Perhaps housing is pushing at the boundaries of what “services” are.  We traditionally view this as a capital investment.  But what I mean is providing more and better places for people to live in, whether they own them or not.  Most of the country is quite well off here, but poor housing is probably what divides rich from poor more than anything else – and more investment in the right places (decently sized social housing) could rebalance things nicely and dramatically improve wellbeing.

But beyond this we badly need to get out of a manufacturing mindset, both in the private and public sectors.  We should not view division of labour and specialisation as the ideal form of organisation (massive call centres, and so on), and we should value listening skills much more – I nearly wrote “communication skills” but most people understand this about getting over what you want to say, not understanding what your customer or service user actually needs.  This is happening only very slowly.

So I would add a third priority: education.  We need to greatly expand the teaching of life skills at school and elsewhere.  This would not only help build the skills that tomorrow’s economy needs.  It would help people make better choices in a changing world.

 

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