This letter in the Guardian needs reproducing in full:
There is an urban myth that all pay in the private sector is frozen, and so public-sector pay should be frozen too. In fact, pay awards have continued in the private sector this year - about two-thirds have awarded increases, from 1% to 4% or more. Your article (Chancellor signals pay squeeze for public sector, 6 July) uses misleading earnings figures which seemingly give credence to the urban myth. You write: "Average earnings in the public sector for the three months to March 2009 (including bonuses) stood at +3.6% in the public sector, compared to -1.2% in the private sector." This private sector figure is dramatically negative almost entirely because of a large drop in bonus earnings in the financial sector in February and March. (Earnings growth in finance in February was -28.4% because of the drop in bonuses for high flyers.)
The data for April 2009, using figures not seasonally adjusted and excluding bonuses, shows earnings growth of 2.5% in the private sector and 3.3% in the public sector, consistent with IDS research on pay settlements. In the private sector, the official figures show manufacturing (where most freezes are) at 1% and private services at 2.9%.
The recession has hit some companies extremely hard and others much less. There is a spectrum, within which we have found pay freezes at one end and increases up to 4% at the other. It would be quite ridiculous for an urban myth about the private sector to become the basis of policy for the public sector.
Alastair Hatchett Head of pay services
Ken Mulkearn Editor, IDS pay report, Incomes Data Services
Quite so.
And this one too:
When will we get a government that recognises the value of the public sector? We reward those who make money with status and high pay while the people who clean our streets, deal with our rubbish and care for our vulnerable people seem to be thought barely worthy of respect, let alone a decent income. If all those earning over £100k swapped jobs with bin men, social workers, police officers, etc, we might see a change in attitude.
Mick Belford
Again, spot on. Most of those doing these jobs add more value to the world than any number of private sector advertising agency staff charging a fortune to work out how to deplete the planet of resources at an ever faster rate and increase our sense of unhappiness at the same time.
So Polly Toynbee is right when she says today:
Public pay mirrors the private world, and it is not some world apart. Although a step or two behind, the same patterns take hold, including some of the worst aspects. Since 1997, national health service chief executives have had double the increase of average NHS pay, copying private sector managers soaring away from their staff. As there seems to be no way of insulating one sector from the other, a government should have a view on what happens to private pay. Very tentatively, Darling expressed mild concern about BAB — Bonuses are Back — in the City. A white paper this week will modestly attempt to rein them in by obliging banks with risky bonuses to hold extra capital as security.
It is in the private sector that we need cuts — or more tax if they refuse to do it. The reason is straightforward: much (and I know, not all) of what the the private sector does is froth on the top of the cappuccino, nice but wholly unnecessary. It’s the state sector that provides what we need most: health, education, housing (oh yes — all of it is regulated), safe food (oh yes — again, we only have that because it is regulated), transport infrastructure, safety, protection and so much more. They are, if you like the coffee in life. The froth is the extra. And we can do without some froth — we can’t do without the coffee.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Where do you think the money to pay for the “coffee” comes from?
Wealth creation by he people of this country – but if you think wealth creation is only by the private sector you’re living in a land of make believe – wealth is from human endeavour and ownership of the structure has little to do with that
In other words: wealth is created by the public sector as much as by the private sector – and both rely on money to transact
So by extension of your logic, taxation of the private sector is redundant if most of the wealth is created by the public sector, right?
PC
Would you like the day’s aware for crass logic now, or shall we wait until later in case some other libertarian comes up with something even more banal?
Richard
Richard,
I notice you didn’t actually answer my question. Perhaps you’d be so kind as to point out where my logic goes off the rails?
PC
PC
The banliity of your comment was that I argued that ” wealth is created by the public sector as much as by the private sector” – which does not mean more than as you implied, it means in symbiotic relationship, as extension of which of course private sector wealth must be taxed – not least because the line between the two is highly porous.
Why was your comment banal? Because any logical person could not move from what I said to what you concluded. That is why.
Richard
1) Are you seriously suggesting that if there were no government regulation we’d all be living in cardboard boxes and dying of food poisoning at the same time? Because that seems to be what you imply with your regulation comments
2) In general what you seem to be advocating is Soviet style communism with the state meeting all the basic requirements and a few bits frothy disposable income on top. Need I point out to you how successful that experiment was?
How on earth can wealth be created by the public sector? That sector is, virtually by definition, a consumer of wealth. It costs more to run than it produces, that’s why it has to be funded from taxation. If it created wealth, we wouldn’t neeed to pay tax.
Richard, you might stop and reflect on the underlying idea in the children’s story about the goose that laid the golden egg. Perhaps you might do this over a nice cup of coffee!
Richard,
You said in your post:
“much (and I know, not all) of what the the private sector does is froth on the top of the cappuccino, nice but wholly unnecessary.”
To which I asked, given that the private sector only produces unnecessary stuff (according to you), taxation must surely be redundant, if the public sector is doing most of the wealth creation.
Of course, both of us know this not to be true, as the public sector only exists due to wealth transfer from the private sector. So surely what the private sector produces can’t simply be “froth on the top of the cappuccino”?
PC
I admit being an economics ignoramus and I don’t understand how the public sector creates wealth for the country as a whole. Employees in the public sector do become wealthier I imagine than those who do not have a job. But which public sector services create wealth (which I construe to be the influx of money etc for goods and services exported)?
Cheers,
Captain “Confused” Fatty
“In other words: wealth is created by the public sector as much as by the private sector – and both rely on money to transact”
Faulty logic. In the private sector when an oranization in no longer solvent (eg. not providing wanted goods or services) it ceases to be a going concern and folds. The market aborts it and the waste of others wealth, or resources if you will, ceases (or used too until the current socialist administration arrived). When the public sector provides services or goods that become over priced, inefficient and no longer wanted by the public, it supposedly serves, it unfortunately continues to drain resources from the private sector and citizens, the hosts to all its funding, and become a huge burden upon the public. The relationship between public and private sectors has become parasitical and completely unsustainable in the near future (eg. Calafornia). Suggest you read up on some economics intertwined with history before posting these little bon mots.
Richard, I think what is interesting and relevant to your “debate” with PC is to consider the impact of moving the NHS to the private sector. Notwithstanding that it would look very different, it would certainly make your position over wealth creation easier to understand.
The debate over “fair” pay is largely a red herring. The point is that pay is a function of supply and demand. There is a finite supply of labour. Pay is distorted by the relative scarcity of the resource compared to the demand for its output. Fairness has little to do with it.
The discussion about fairness and comparability with private sector pay settlements is another red herring. There is still a market rate for the job. There is also a fixed pot of money available for the payroll, which is why public sector people are also being made redundant. But most of the furore relates to the prevalance of defined benefit pension schemes, the perception of jobs for life, and the power of the unions to propogate market distortions, which was once the rationale for public sector jobs attracting a lower salary. Something about risk and reward!
But the real issue is that the public sector is a distortion to market forces. The best mechanism for allocating scarce resources is price. We have a public sector that currently consumes more than 50% of GDP (paid from taxes that are broadly 40% of GDP), based purely on government priority. And in the current economic climate the proportion rises as GDP falls, unless government cuts its cloth accordingly. The pressures to cut are less becuase the price mechanism is excluded – so it comes down to government making tough decisions, which the current mob seems unable to do. I guess the public understand this, and it is one of the reasons why nulabour will lose the next election. It also puts Gordon’s boast of no more boom and bust into clear perspective
BTW there are lots of examples of real deflation in private sector pay – its hardly an urban myth.
Unbelievable. The sector that depends and is built on the taxation of the private sector is now the wealth creator. 😮
“It is in the private sector that we need cuts”
That’s happening at the moment – it’s called a “recession” isn’t it? It is obviously now your personal goal to increase unemployment.
Really, Richard, I’ve read some economically illerate blogs from you over the past year or so but this takes the biscuit. It reveals you as a deeply authoritarian man and an extremist far removed from the centrist you like to portray yourself. And I hope you don’t get anywhere near power. In fact I’m still hoping you’ll admit this blog was a wind-up.
@Ian Bennett: “how on earth can the public sector create wealth… it costs more to run than it produces, that’s why it has to be funded by taxation”.
Er… it has to be funded by taxation because most of the output it produces isn’t sold on the open market. Schools, the NHS, police… all these create ‘wealth’ in the sense of making the UK a more prosperous place than it would be without them. (OK so we could lose the unmarked police units who spend most of their time beating up protesters, but you get my drift.
@alistair: ‘the best mechanism for allocating resources is price’. Yes, that worked incredibly well during the credit boom and subprime crisis didn’t it. All those financial instruments were perfectly priced… and the credit crunch, in fact, never happened! The fact is that the price mechanism can cause GIGANTIC misallocations of resources through bubbles and volatility.
I find it highly amusing that most of the people commenting on this blog who are calling Richard ‘economically illiterate’ are themselves completely clueless – not even operating with an A-level understanding of economics in most cases…
You are Ricky Gervais and I claim my £10. Or do you really believe this stuff?
The public sector does not create wealth. You create wealth by selling something for more than it cost you to supply it – that is the only way; no other method has been found. The Public sector pisses 50% of the wealth up the wall, having taken it from the public by force.
Businesses selling food do not only not poison people because of regulations, they do it because poisoning customers is bad for business. Frozen food was not invented by state scientists, but by private enterprise looking for new ways to satisfy customers so that they could create more wealth,
Hi Howard. It amuses me more to see people resorting to unsubstantiated snide comments when they are unable to put forward a proper argument!
[…] knew it would happen: I just say the public sector adds value and the far right come out in force accusing me of every economic crime […]
[…] discussed some of the comments on added value ion the public sector with my wife last night. She has an opinion on this. She’s a […]
“Businesses selling food do not only not poison people because of regulations, they do it because poisoning customers is bad for business.”
And this, incidentally, is exactly why we do not need to worry about the financial sector for at least a decade. Companies are not in the business of self-destructing – having almost done so once, it is the last thing they are going to do now. In fact, the problem is that banks are now too cautious, and now is actually the time when we should be relaxing regulation.
Again, the libertarians cannot see any definition of wealth or value that is not measurable in cash. People who see the price of everything and the value of nothing.
The idea of privatising the NHS and having everyone pay for their healthcare can only be made by someone who has
a) no idea how ordinary people live
b) doesn’t care that many will be unable to pay for the healthcare they need.
Libertarians! What are they good for….
James for Durham :-
I can see you point but how is your argument not also an argument for the nationalisation of food supply. Am I missing something?
David
I think generally that food supply seems to work, in private hands. I don’t know of people going hungry in this country, although I am sure there must be some, but the numbers involved must be minuscule.
(I just know someone is going to come on now and tell me that in fact the supply of food in this country is a disaster area.)
James, I’m a little confused; as you say, the food supply works in private hands, so what is to say that the NHS wouldn’t work if in private hands? It isn’t as if we’ve tried it and failed. The closest guide we’ve got is probably opticians. That is an aspect of healthcare which is provided privately and it seems to work pretty well.
We have had the conversation about private provision of healthcare before. Perhaps, Richard, you could provide a link to that discussion to Paul Lockett. Consider the American example, Paul, unbelievably expensive and many do not have access.
Opticians provide the most basic aspects of eyecare. For any serious problems, it’s the NHS, because it is so expensive. If you have a detached retina, you don’t waste your time going to the optician, you get yourself down to the hospital.
James, the NHS is also unbelievably expensive and fails to meet many people’s demands. Irrespective of what aspect of eyecare opticians provide, that’s the job they have to do and they seem to do it well.
I really don’t understand the phobia of the private sector which exists amongst some in the UK. Sweden is often held up as the model social democracy, but they don’t seem to have a problem with parents taking a voucher and purchasing education from the private sector, rather than being stuck with the state as a monopoly provider.
“Most of those doing these jobs add more value to the world than any number of private sector advertising agency staff…”
No. If the street-sweepers were doing their jobs out of the goodness of their hearts then you would be right.
As it is all the value comes, in the end, from the private sector. Without taxes coming from provate enterprise there would be no street sweepers, nor any nurses for that matter. A man earning £500,000 should be valued more than half a dozen nurses, because his taxes pay for half a dozen nurses, and they are doing a job for pay; he gets very little in return for those taxes. He doesn’t even get nursing, which he pays for privately.