Not my words, but those of my Green New Deal colleague Larry Elliott writing in the Guardian this morning. He’s right though. As he says:
Left to their own devices, markets have proved to be neither rational nor stable. They don't miraculously come up with perfect solutions.
Unemployment is a case in point. According to neoliberal theory, those countries that had the most flexible labour markets would find it easiest to adapt to the more challenging environment, while those countries that insisted on featherbedding their workers would reap the consequences of being soft.
It hasn't worked out like that. There are, according to estimates, 210 million unemployed people around the globe, an increase of 30 million since 2007. The largest increases have been in the US, the home of the hire-and-fire culture, and Spain, which developed a two-tier labour market in which temporary workers enjoyed fewer rights than their full-time colleagues. Youth unemployment in Spain has doubled to almost 40%.
In contrast, in Germany and Norway — two countries that have strong trade unions and long traditions of collective bargaining — the unemployment rate barely budged.
Larry’s right. The data proves the point.
And he’s right to note that increasing inequality helped create the environment for the recession by forcing people into debt — and that greater equality will therefore help us out of it. As will growth. As he puts it:
The concentration of wealth at the top, the attacks on trade unions and the whittling away of welfare protection have all contributed to both greater inequality and greater instability.
Even the IMF see that now, and argue:
As a general strategy, most advanced countries should not tighten their fiscal policies before 2011, because tightening sooner could undermine recovery.
and
There should be specific measures to protect the most vulnerable from the effects of the consolidation.
As Larry concludes:
In other words, we need to junk the right-wing dogma that has dominated economic thinking for the past 30 years. And, in the case of the UK government, still does.
I fear that we’ll have four million unemployed before we do.
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“in Germany and Norway — two countries that have strong trade unions and long traditions of collective bargaining — the unemployment rate barely budged”
What Elliott doesn’t mention is that, in Germany and Norway, unemployment – even during the boom years – was over 10% of the labour force. This is no lower than in the UK recessions of the 1980s and 1990s.
By comparison, UK and US unemployment was about 5% during the boom.
So even though UK and US unemployment has risen, it is still below Germany’s and Norway’s.
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The point about unemployment is really very daft. The US has a flexible labour market in terms of regulations therefore has seen high unemployment as a result of the easier ability to trim staff numbers in a recession. Spain also has high unemployment, but rather than saying flexible or inflexible about Spain, it should really be described as two tier. Those in permanent contracts are still almost unsackable without huge expense, but at the expense of generally higher unemployment – note that unemployment before the crash in Spain wasn’t any lower than in the US/UK now. They do however have legions of part-time and temporary staff in Spain who were never put on permanent contracts – largely because it’s then impossible to get rid of them in a downturn – who have been very quickly made redundant. That’s the explanation as to why Spain have continued problems, along with having a particularly severe recession.
Same for Germany – it is difficult to sack people, however on the flip side it lags behind US/UK in terms of job creation. Thus it’s unemployment rate remains relatively stable (and high).
@Rob
As ever – neoliberals treating people as objects
I did a study of the relationship between labour market flexibility and unemployment (and various other measures of economic performance) for the TUC earlier this year looking at all the recent evidence. Overall, there was no strong evidence that deregulation led to falls in unemployment. Germany has had relatively high unemployment over most of the last 15 years, but many of the other Eurozone economies – for example Denmark and the Netherlands – had very low unemployment over the same period. The US’s recent record on unemployment has been abysmal (admittedly in the context of a major recession.)
The idea that huge doses of deregulation are needed to secure good labour market performance is claptrap.
@Howard
Quite so
@Howard
There is plenty of evidence that flexible labour markets lead to lower unemployment.
Denmark (contrary to what you say) actually has a highly flexible labour market, according to one report: “The Danish labour market is known for its flexibility. International surveys by the World Bank and the Organisation for Economic Co-operation and Development (OECD) have for years ranked the Danish labour market as one of the most flexible in the world and allows employers to adjust employees given market demands.”
The Netherlands also has a highly flexible labour market – in fact Holland’s is probably the nearest you’ll find to a “Thatcherite” economy on the continent.
Finally, again you refuse to acknowledge that unemployment in the US – even now – is substantially lower than in Europe.
A key aspect of ‘flexible’ labour is cheap migrant labour – in EU free movement of labour and services, in agricultural worker entry, in national labour migration policy, with which the faux ‘cap’ is supposedly dealing, in intracorporate transferees, and – the big one – in Mode 4 commitments in trade agreements.
But neither you nor your ‘Green New Deal’ colleagues will deal with this (Caroline Lucas was in a particularly information privileged position, on the EP International Trade Committee) but kept the information from the people she was paid to represent.
And neither will you let this emial go online.
Now what does that say for the honesty of the Green New Deal brigade? Not a lot.
Does Larry Elliot really think Spain has a liberalised jobs market? Really? Is he sane?
Also Germany has had, on average, much higher unemployment then the UK/US over the past 20 years. So has Spain, of course.. I think I’m right in saying that Germany still has higher unemployment than the UK.
So, apart from being absolutely wrong about everything, great article…
@Howard
Nonsense Denmark and the Netherlands are two of the most liberalised laboru markets in Europe. And unemployment in US is still lower than in Europe. So get your facts right in future please.
@Richard Creitzman
On the OECD’s index of labour market regulation, Denmark and the Netherlands are significantly more highly regulated (i.e. less flexible) than the US. And Germany’s unemployment rate is below the US at the moment (I think it’s about 7% for Germany vs 10% for US).
If you plot the OECD labour market regulation index against unemployment levels across all OECD countries the correlations are extremely weak – pretty much zero in fact. Now admittedly I don’t want to set too much store by that finding because cross-sectional correlation studies are a very weak form of evidence. But it does suggest that the smug right wingers who go round saying things like “there is plenty of evidence that flexible labour markets lead to lower unemployment” are talking baloney.
@Howard
I think you prove the point that objective observers such as you and Larry draw sensible conclusions from sensible data and others can’t, won’t, or are blinded by dogma from doing so