Monthly Archives: August 2017

What’s wrong with our job markets?

Worry about the lack of ‘good jobs’ is growing, with a widely held perception that our job markets aren’t working.

While I agree the job markets have problems, I disagree with some of the diagnosis, or proposed solutions.  I am concerned that expecting the government to take action to ensure good jobs risks taking us away from what the job market should be doing: incentivizing people to make and do the things people want made and done.

In what follows, I will outline what I think is wrong with our job markets, and what could be done better.   In particular, I see four fundamental problems:

  • Ignorance: people don’t know what their choices are
  • Externalities: people don’t experience all the repercussions their actions
  • Lack of Capacity: some people don’t have the ability to engage in free markets
  • Injustice: free markets lead to an outcome we consider unjust

I believe there is a lot that can be done to address each of these, strengthening the power of job markets to deliver the work that should done.

Ignorance

I acknowledge ignorance is a problem, particularly in an interconnected and fast-changing world.  We will all, on occasion, display preferences and make decisions that we probably shouldn’t.

The challenge of working out what we want, can tempt us to make simplifying assumptions that we only care about ourselves and our own wealth (economic models frequently do this).  While I’m not going to claim that everyone is perfectly altruistic, the vast majority of us do genuinely care about others and about things other than wealth, and it seems genuinely irrational to ignore that when deciding what work we want to do.

Another unhelpful simplifying assumption is that only paid work done for an employer, is justified as work and valuable.  I would argue that any activity that creates value for others, that improves people’s lives and improves the world, should be considered a worthwhile activity – for example caring for others or enriching our culture.

We will never have certainty, but I do believe that both education and reflection can help us improve our knowledge of the likely outcomes of our various choices.  In particular, I’d argue that the temptation to believe that some group or institution knows better than us what is in our best interest.  I’d argue that this rarely goes well.

Externalities

Our actions have consequences for others, good and bad, that we ignore when making decisions as they don’t affect us.

As societies have grown in size and interconnectedness, our action are more likely to affect others.  Examples come to mind easily, for example someone else polluting near us, or painting their house which improves my neighbourhood.  We should also bear relative position in mind – for example, someone else cannot gain status without us losing it.

I would argue that we need to increase awareness of externalities, and understanding of how each person’s actions affect others in the world (and the planet itself).

While we can punish those that hurt others, or reward those that help others, there is a cost to this monitoring.  (Indeed, bearing this cost is often itself an externality, something done by an individual to help the group.)  I accept that as society has grown and become more open, it has become less good at performing this function, but I’m certain there was never an age of complete justice.

The goal here is to design better incentives to reflect externalities.  This involves challenging trade-offs, between the cost of monitoring and punishing, our value of compassion, and how completely externalities are reflected in individual incentives.  I believe we can do it better than we do now.  

For example, charitable foundations could play a larger role in recognising and rewarding individuals and groups that promote the wider good.  And, though there are definite dangers in public-minded vigilantism, public media does a lot of good in raising awareness of those that benefit at the expense of others.

Lack of Capacity

At present, financial insecurity limits the capacity of a small but growing population to freely engage in labour markets (described by Guy Standing’s book The Precariat).  When you are desperate, it is difficult to make sensible decisions.

Social welfare programmes should work to address this, however our current system makes the problem worse, reducing individual agency and creating perverse and distortive incentives (for example, low or even negative marginal return from working).  

I believe a universal basic income would go a long way to improving such people’s capacity to engage in a free market.

Injustice

Economics suggests that free markets will lead to ‘pareto optimal’ outcomes (those in which no one can be made better off without others being worse off).  Contrary to what some people believe, it makes no claim that these will be outcomes that we’d necessarily consider just or desirable.  For example, we may consider it unjust that someone benefits from a large inheritance; a free market will not correct for that.

People sometime highlight the post-war period as one when labour got its fair share of the profit (in contrast to 2000-2015).  I would argue that while it is good when markets do lead to fair outcomes, we shouldn’t count on this in general.  Rather than blaming markets for this, I believe we should accept this limitation of markets, and use other tools for achieving justice, for example redistribution or social care.

Why I support Corbyn

Friends of mine are often surprised that I could support Jeremy Corbyn, given socialism’s track record.  

It is a difficult question to respond to, for several reasons:

  • Socialism as a label is ill-defined: critics can invoke Stalin and Pol Pot, while apologists describe it as mere concern for others.  
  • It is impossible to know what Corbyn and his party would do, if in power.  I can easily imagine dreadful decisions, but also decisions that are brave and much-needed.  Also, no one knows how some of his policies would turn out in practice.  If I’m honest, I have to recognise that outcomes from decisions will differ from my expectations, for better and for worse.
  • It is also impossible to know how the future will pan out in a world if we stick with the status quo.  It may lead to major social and environmental disaster, but it may not: small changes may lead to a better, or at least tolerable outcomes.

So, despite those caveats, what do I think?

Am I a socialist?

Firstly, I wouldn’t define myself as a socialist, but mainly because I feel it suggests too many ideas that I don’t support.  In particular, I don’t believe that states, institutions, principles and abstract concepts (like class or nation) should ever be given priority over individual people.  

Having said that, I don’t believe that genuine individual well-being can or should be optimised as individuals; we clearly derive happiness and meaning from our relationships and our communities, and also benefit from markets. Individuals would be very much worse off without any government with powers of enforcement, but is easy to see how some actions of such a government could hurt individual well-being.  As a result I accept tradeoffs, but believe they should be made in such a way that promotes sustainable individual well-being.

When it comes to individual ownership of property, I do feel that allowing property rights enhances overall well-being.  But I don’t see how these property rights can be absolute; after all, they depends on others to recognise and enforce them.  In practice, this means I support property rights, but also laws that ensure those property rights remain in the general public interest.

From this mix of views, I don’t think I fit neatly into any other political label either, but I can live with that.

Do we need political change?

Firstly, I believe the status quo is unsustainable, both from an environmental and a social perspective.  I believe that the majority have their heads in their sand, choosing not to recognise just how much our well-being is vulnerable to the Earth’s whims and to the actions of its populations.  

In many ways, our current political system, being fundamentally driven by markets and democracy, is compatible with a greater awareness of the factors that drive genuine individual well-being, and the need to ensure environmental and social sustainability. Indeed, many people are already doing this, individually and within their communities.  I do believe that this will increasingly occur, even without major political change.

However, I do worry that it may not happen fast enough.  Political and environmental changes, both negative ones and positive efforts to mitigate, take time, and are impossible to model accurately.  By the time the problem is sufficiently serious that enough people are convinced to act, it may be too late.

It also seems unfair to reward those who happen not to recognise the risks, letting them reap the last remaining benefits of an unsustainable system, while others incur the costs.

As a result, I do support political changes to move us to a more sustainable future in a faster and fairer way that would occur if left entirely to individual choice.

Do I believe Corbyn and his policies are the answer?

To be honest, I don’t know.   

I support the thrust of most of the policies as stated in Labour 2017 Manifesto.  

An obvious point I disagree with his support of Brexit, but this hardly seems a reason to support the Conservatives instead!

I’m ambivalent about its approach to workplace rights. I would prefer an approach that involved creating more freedom and genuine flexibility (say with a basic income), rather than more rules. But I do accept that something has to be done.

The most socialist component of his policies is that of nationalisation.  While I do believe that private property make people generally better off, I am less convinced when it comes to  ‘utility’ industries like rail and energy.  As a result, I am supportive of these returning to public ownership, though this shouldn’t be seen as a guaranteed solution; governments are also capable of running organisations contrary to the public interest.  Also, I’d note that nationalisation doesn’t have to mean centralisation – there have been some great programmes involving local groups running utilities and transport.

I would worry if I thought Corbyn intended to bring all industry within government control, but I don’t get that sense.  Likewise, I don’t think he believes that a government has all the answers or can solve all problems.   Instead, he seems to show an awareness that there’s a tradeoff between freedom and rules that allow individual well-being, and I’m not convinced his position is a million miles away from my own.

There’s a temptation for the left to paint politics as class war, where the goal is to destroy those that are successful.  I prefer a more inclusive approach, where all are given opportunities, and all who support the public interest are welcomed.  Others may disagree, but I found Corbyn’s campaign pleasingly inclusive.

That said, I do have other concerns.  Firstly, understandable as it is (given how many people have been ignored by our political system), I am worried by the tendency of a small minority in the party towards change by undemocratic means.

But more critically, I’m not convinced Corbyn will be able to work with other parties and convince sceptics to deliver his policies (I don’t believe major political changes should occur without widespread support – say over 60%).  Logically, this isn’t a reason to not support him, or to prefer another five years of the same.  But I do worry that he won’t deliver, and then people might use this as proof that progressive, sustainable policies don’t work in politics.

 

Overall, though, given my conviction that we do need changes like these, I feel justified in supporting Corbyn and his policies.  And I’m not worried about him wanting to bring about a totalitarian state.