July 22, 2013
Anyone who has been unemployed, or has had a family member on the dole, will know exactly what unemployment does to people: it destroys them emotionally as well as financially. When you experience this at close quarters, you don’t forget it. As a result, the single most important objective of any economy must be to get as many people in productive work as possible. Only when this has been achieved can we truly say that an economy is working for the people, all the people.
And before we get into the debate about people who don’t want to work or who are taking advantage of the welfare system, let me set out my own opinion straight: I believe the vast majority of us want to work.
We want to get up every day and do a job that is rewarding and gives us self-esteem. Yes, obviously, there are those who want to doss around and if dossing around all day is all you see around you as a teenager, it soon becomes normal. But most people don’t start out that way. In the great march of life, self-improvement – either for yourself or your family – is still one of the dominant forces which drives the majority of humans.
One of the recurring themes in modern economics – at least since the industrial revolution – has been the vast improvement we have seen in living conditions from one generation to the next. This is achieved through hard work.
However, for the first time in more than one hundred years, we are in danger of that conveyor belt of prosperity coming to an end. We already have examples of countries and great civilisations that found themselves on the wrong side of history, so the stakes are extremely high.
As globalisation brings us closer and closer together, we can see there are three major forces which have meant a huge difference between the experience of the average worker starting now and the average worker starting, let’s say, when I came into the workforce in the early 1990s.
The first of the three international trends is the movement of manufacturing jobs relentlessly to Asia. This is affecting the job prospects of traditional working men all over the Western world.
The second massive change is in disruptive technology associated with automation. Consider such innocuous developments as online shopping which is destroying old service industries such as retail – the traditional working home of many young women.
This process will continue relentlessly, as automation reduces the need for human workers everywhere.
Finally, we have seen an enormous increase in the amount of women in the workforce in Ireland. This will continue as Ireland becomes more and more service oriented.
One global factor has corroded economic confidence. Massive global deleveraging, after a decade of excessive debt, is destroying the balance sheets of the middle class all over the English-speaking world.
In Ireland, we have to add to this toxic mix the collapse in house prices, the resulting negative equity, and the fact that our banking system – the essential lubricant of the modern economy – is broken, possibly beyond repair.
The result of these developments is huge levels of unemployment in the Western world. In Ireland, the construction boom masked the above long-term trends for about a decade, because young men who were in the direct firing line of these global developments found work on the sites and when they went out to spend their wages they spent it in retail, where many young female employees benefited.
Now all that has come to an end, and the rate of unemployment has quadrupled.
So how do you bring unemployment down? You find customers.
As a small employer of a number of people, I know that the only reason I will take someone else on is if I get more customers. Without customers, there are no sales and sales are the magic of business. Without sales, there is nothing, just talk. Without sales there can be no profits and without profits there can be no employees because the company, no matter what it does or is trying to do, goes bust.
So unemployment begins and ends with the customer. Irish companies are not employing more people because we have not enough customers.
We also know from America that the most dynamic employers are now small, new companies, not big, old ones. So we need customers who are willing to pay for our products in sufficient but not huge numbers, so that we need to employ more people.
The majority of Irish people are, and will continue to be, employed by Irish companies, doing small amounts of trade with one another.
So, contrary to the endless talk about “creating jobs”, we have to realise that you don’t create jobs, you create customers and the jobs follow.
People with income turn into customers when they spend. If they save, they are not customers. And if their savings are not lent out by banks to other people who want to spend, then there will be no customers. Without customers, there are no sales; and without sales, there are no jobs.
This means that Ireland needs to get consumer spending moving again. This implies policies that reduce the propensity to save,which has exploded as evidenced by the relentless rise in the savings ratio.
The reason why those with income are saving is that they are fearful of the future. Also, those with too much debt are trying to pay as much of it back as possible. The simultaneous impact of both these things on domestic demand is catastrophic.
In order to cushion the rapid rise in unemployment which ensues, the government has to borrow and spend. This means that the government budget deficit is the consequence, not the cause of, the problem.
As long as the government is reducing spending and raising taxes in this environment, we haven’t a hope in hell of reducing mass unemployment.
In addition, the only way we could keep things as they are in the face of the liquidity trap in the banks, where credit is still tightening, and the tax increases would be through a massively devalued currency. This would allow us to export our way out of the recession. But our currency – or at least the currency we use which clearly isn’t “our” currency – is hugely overvalued.
So where are the customers going to come from without a revolutionary change in the present economic status quo?
If the government was truly serious about creating customers who create the demand, we would see large-scale debt forgiveness of all debts, including sovereign debt renegotiation and restructuring, because debts that can’t be paid won’t be paid.
This should be accompanied by a massive monetary easing via a move to a new currency, which would fall in value to re-price Ireland downwards on international markets.
These are the type of radical moves that are needed to re-boot the Irish economy and shock the customer of Irish goods and services – both local and international – into life.
Without these serious and difficult moves, the chances of unemployment falling seem extremely remote. And those of us who have experienced the trauma of unemployment up close will know what thousands of Irish families are going through – and will continue to go through.