Tuesday, 11 July 2017

Bad work will persist in spite of the Taylor Review

The government’s independent review on modern working practices in the UK contains some important messages. Put together by Matthew Taylor, head of the RSA think tank and former policy chief to Tony Blair, the review highlights the fact that job creation alone is not sufficient to create a “thriving economy and fair society”. Rather, progress is also needed to create “better jobs”. The focus on the quality of work underscores a broader goal to promote “good quality work for all”.

But the review stops short of recommending major changes in employment regulation and adopts an approach that is ostensibly business-friendly. Beyond the high principles, there is a failure to tackle the underlying causes and drivers of bad work. The fact that the government has welcomed the review speaks to its essential conservatism.

Paying the price for higher employment

The years since the 2007-08 crisis have seen employment rise to record levels in the UK. This situation would imply a favourable environment for workers to improve their pay and their terms and conditions of work. Higher employment, in theory, means that workers have stronger bargaining power to gain concessions from employers. Yet, in practice, the opposite has occurred. Workers have had to forgo both higher pay and job security to gain access to and maintain employment.

The UK is the only country in the EU where employment has risen at the same time as real pay has fallen. The flexible labour market has delivered to employers the labour they require at lower rates of real pay. For workers, it has delivered work that is barely able to cover the cost of living.

The review recognises how the country’s move to full employment has been at the expense of more low quality jobs. Workers have been required to become self-employed and to take jobs in the so-called “gig economy” to make ends meet. These forms of employment have not only yielded poor financial outcomes for workers; they have also meant greater insecurity, exploitation and control by bosses.

“Bad work” (insecure, exploitative and controlling), the review says, has wider economic and social impacts. It erodes the health and well-being of workers. It also holds back productivity – the amount workers produce per hour – and makes the economy in general less productive. Resolving bad work is therefore seen as key to overcoming the UK’s productivity deficit and as a vital ingredient in building a more cohesive and participatory society.

Beyond full employment, in short, the goal should be to maximise “good work”.

What’s recommended

The review recommends changes to the status and entitlement of workers in the gig economy. There is a new recommended category of “dependent contractor”, which sits somewhere between full time employed and self employed status, and is designed to prevent bogus forms of self-employment.

There are also recommendations to make it easier for gig workers to gain benefits such as sick and holiday pay. Plus, it is recommended that agency workers and those on zero hours contracts gain the “right to request” a more formal working relationship after a 12-month period.

To many, the recommendations will appear too timid. Why not outlaw all zero hours contracts, for example? Others may argue that the recommendations are simply harmonising existing workers’ rights – they are bringing gig work up to what is a minimum standard of labour protection and are downplaying issues of the non-enforcement of existing legislation.

Unions have declared their disappointment that the report is no game-changer. A sentiment that is likely to be shared by many millions of UK workers who will continue to face real hardships at work.

Power matters

The review resists imposing greater costs on employers. It refers to the fact that “the ‘employment wedge’ (the additional, largely non-wage, costs associated with taking someone on as an employee) is already high and we should avoid increasing it further”. The stress is on exhorting businesses to change – a policy stance that has failed over many decades to deliver a better deal for workers at work.

There is also a scapegoating of the low paid for working cash-in-hand, but no condemnation of the bosses of big corporations for not paying tax. This unbalanced commentary suggests a review that favours businesses more than workers.

Theresa May declared that the review is consistent with her commitment to “make Britain a country that works not for a privileged few, but for everyone”. Yet, her government lacks the political will to tackle the injustices at work and beyond. The need to protect and promote workers’ rights goes against the grain of the market-based approach that May’s government avows.

“‘The British way’ works and we don’t need to overhaul the system”, proclaims the review. Yet, years of “the British way” have brought us a low wage economy wherein employers lack the incentives to invest in labour and workers lack the power to push for progressive reform. The system, in truth, is broken and needs overhauling if Britain is ever to achieve higher quality work for all.

The review, in policy terms, looks destined to change very little. Indeed, it can be seen to reinforce the view that vested interests still rule in UK workplaces, frustrating progress towards fairness and dignity at work.

*** This article was originally posted at the Conversation

Friday, 13 January 2017

A crisis in economics? If only it were true

The Bank of England’s chief economist, Andy Haldane, recently criticised his very own profession. This led to a bout of soul searching for economists as we face, again, the familiar criticism that nobody predicted the 2008 financial crisis (in fact, some economists did) and reflect on whether the subject is being taught properly at school and university.

Yet Haldane’s criticisms are less severe than they might first appear. Indeed they remain largely innocuous at the level of economic prediction.

To his credit, Haldane made some effort to highlight more deep-seated problems in economics. These problems relate to issues of theory and method. They are also related to an unwillingness to allow dissent within economics and to open up to other disciplines.

Unwittingly, however, he distracts attention away from these problems by focusing on the issue of forecasting and misses the opportunity to ram home the point that economics is flawed in a fundamental sense. Better forecasts cannot exonerate economics from its failings now and in the past.

Weak and off-target

Economics should be in crisis. But in reality it is not. Rather, economics remains largely the same as it was before the financial crisis – in effect, it remains just as problematic now as in the past. This is an issue not just for economics but for society as a whole, given the enduring power and influence of the discipline on policy and public life.

To think of economics in terms of forecasting is to limit its nature and scope. Economics ought to be about explanation. It should be able to make sense of the world beyond forecasts of the future. It is not clear that as it exists now, economics is able to understand the world in its present form. To this extent, it cannot help understand the frequency and depth of crises.

Economists remain committed to a particular approach to theory building in which mathematical models are all that count. They are often too abstract to be tested and exist as formal abstractions with no connection to the real world. For example, some macroeconomic models before the crisis were so out of touch with reality they excluded the existence of banks. No wonder the crisis came as a surprise.

As things stand, there is little chance that economics will open up to the ideas and methods of other disciplines. Instead, the discipline has embraced a project of “economic imperialism” seeking to colonise other social sciences. Genuine interdisciplinary debate has lost out in this process.

Haldane’s criticisms of economics, therefore, remain weak and off target. He calls for economics to learn from meteorology. That way it can improve its forecasts. What he misses is the need for radical change at the level of theory and method. He misses the need for economics to embrace reform that turns it into a social science which explains the world as it actually is – not a device for better predicting the economic weather.

Alternatives exist

To be sure, Haldane questioned standard economic assumptions such as that of all actors being perfectly rational. He has also encouraged the use of alternative methods like agent-based modelling, which offers a more realistic view of individual behaviour. Yet, his proposals for reform are limited and weak. The notion that economics might need to be reworked from first principles and rebuilt as a more open and less formal social science remains implicit in his criticisms.

Alternative economic ideas do exist. They exist among dissenting heterodox economists, but they remain on the fringes of economics debate, without any real influence on the core discipline itself.

This fact is probably a surprise to most. Surely the crisis has led to a rebirth in the study of great economic thinkers like Marx, Keynes, and Hayek? After all, these thinkers studied in detail the economic system including its crisis-prone nature.

The sad truth is that this rebirth hasn’t happened. In fact, any rebirth has been stifled by the insularity of the economics discipline. Economic dissenters like Marx, Keynes, and Hayek are still more likely to be studied by scholars outside of economics than within it.

So while Haldane is correct to call for reform in economics he misses the barriers to reform and the need to overcome them. He misses how economics has stifled dissent and how the restructuring of economics requires root-and-branch reform in the way that economics is studied. We need economists that are not better weather forecasters but rather committed social scientists concerned with addressing and resolving real-world problems on an ongoing basis.

*** This blog also appeared at the Conversation