Will Hutton made an interesting point in the Observer yesterday:
Fewer than 150,000 jobs are directly involved in the making of [1.4 million cars and more than 3 million engines in the UK each year] and the numbers have been gently falling for years as modern production techniques transform productivity. Tata is building a new engine plant in Wolverhampton that will be a world leader in low-carbon engines; it might create 750 jobs.
I discussed this phenomena in detail in a recent article on the new economics of social democracy, here but the way Hutton presents the argument makes it easy to draw the conclusions in a different way.
When Henry Ford built his car plant he realised that unless the product he made was cheap enough for the workers to buy then there was no point in building it: there was no market to supply. This was the basis of Fordism.
Now we can build cars with fewer and fewer people. Indeed we can build anything with fewer people, and although we might make more 'stuff' the number of people involved is still falling steadily. As a result even though those remaining people engaged on such work are well paid their share of the total reward from manufacturing is falling and profits are rising as a share of GDP. That's what happens when productivity reaches such extraordinary peaks.
The consequences of such productivity are only now becoming apparent though. The pressure and ability to consume despite stagnant or falling real wage shares was, of course, fuelled by the finance sector that promoted debt to fill the gap in demand as overall wages fell and profits grew as a result of this obvious fact. But that has proved unsustainable: the model of consumption based on personal debt growth is dying.
But with the close of that model of consumer capitalism two other things are happening. The consumer is no longer spending: growth has disappeared; the growth that has underpinned our current model of capitalism has gone. And there is no prospect of that consumer returning when the universal reaction to debt management issues in the public and private sectors alike is to cut spending. The inevitable result is that jobs in services are being decimated: 50% yout unemployment in Spain is the obvious result. It is more than 20% in the UK.
We've forgotten the lesson of Ford. Being able to make something is not enough. Unless someone wants to but the product then the technical ability to produce it is in very many cases pointless. And to make sure people want what can be produced they must have jobs, and jobs that pay well enough for them to afford what the market wants to offer them to buy. Those jobs either come from the production process itself or by redistributing the surplus - usually arising in the form of rent - from that production process. Those rents, on skills, on the use of resources, on the compartmentalisation of risk and so much more, belong to society but they're not being shared now. Instead they're being captured by the few who aren't paying tax and whose wealth is not trickling down.
So right now we're demanding production at the same time as we're demanding a cut in the number of producers and a cut in the number with the resources to buy what is being produced. The consequence is inevitable: this model will fail. We've forgotten Ford and the need to create markets. Instead we're now intent on destroying them.
I'm not saying Ford's idea of production was entirely right: there are limits to growth. But we'll discover those limits a lot sooner if we do not ensure that people have the capacity to buy what business has to offer, and our current model of capitalism matched with the political thinking of those who are the supposed strongest supporters of that model guarantees a dearth of consumers. In combination it's a giant suicide note for our current economic model. No wonder we need alternatives waiting in the wings.
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In Ford’s time the two curses of the working classes were drink and gambling. We have forgotten that then there was a moral climate that attempted to discourage this. Having created a world where the financial elites are basically extracting money from economies to gamble and promote alcoholism amongst the serfs it is little wonder that the current model does not work.
I’ve always consider it perverse that as a society we deploy technology to ameliorate the need for human labour, and then we chide the unemployed for not being able to find work. Surely the former guarantees the latter.
We’ve forgotten the lesson of Ford. Being able to make something is not enough. Unless someone wants to but the product then the technical ability to produce it is in very many cases pointless.
Which is where other factors come into play. Firstly, with real tangible goods we see again and again that they are built to a design lifespan, and that lifespan is getting shorter. Consider that the basic design of the Mini did not change in nearly 40 years and even its Metro sibling took 22 years to arrive: these days the average motor manufacturer reckons on remodelling a given design at least every 5 years, and probably doing a cosmetic upgrade at half that interval. And that is almost glacially slow when compared to phones and computers.
We have got used to having these devices around, so much so that we regard them as a necessity. If my washing machine were to break down I could (of course) use a laundrette until I had the inclination or money to buy a new washing machine. But like as not I’d be out there looking for a new one to be delivered the same day (the more so were this a few years back when I had three kids at home!). Industry relies on the fact that we’d rather go into some debt than deal with the inconvenience – and the finance industry encourages it.
And for those things that we really can’t justify as a necessity there’s always marketing…
Ford’s idea was only applicable in a closed system where the workers had to be the consumers as well. In today’s globalised world the consumers can all be abroad in the export market which can be driven by oil, mineral wealth etc.
This is why Land Rover export 50% of their cars to the Far East and why that is the fastest growing market by a long long way. So Land Rover have no need to employ more workers or pay them more because the future for their custom is export.
Utter nonsense
The vast majority of goods and services are produced and consumed domestically in the UK
Investment in new plant and machinery attracts relief from tax (including relief on interest payments on any debt employed). Investment in the labour force doesn’t (at least not to the same extent). It seems to me that unless and until the the bias in the way capital and labour are treated for tax (with reliefs increasingly just for the former) we will continue down an unsustainable and increasingly unequal path.