The Economics of Unemployment

There is much confusion about the causes of unemployment and almost as much about how many unemployed there actually are. Early last year when the official figures stood at about a million several unofficial estimates put it much higher. The official figures told us how many men and women there were who were available for work and were on the Register. But what about those who for one reason or another were not on the Register? One estimate was that the real total was a million and a quarter. The Observer (23 January 1972) thought it was a million and a half and the same newspaper (20 February 1972) estimated that there were two million fewer people at work than there had been three years earlier. Harold Wilson (Financial Times, 8 April 1972) capped it with his own estimate that if you included all the people who were not looking for a job because there were no vacancies, the real figure “was nearer three million than the government’s figure of one million”.


There is nothing new about this kind of discrepancy between official figures and unofficial estimates in times of heavy unemployment and, provided it is borne in mind, the official figures do give a sufficient indication of how the level of unemployment alternately rises and falls as trade and production decline and expand.


Karl Marx from his study of nineteenth-century capitalism gave a summary description of what goes on:


The enormous extensibility of the factory system, the way in which it increases production by leaps and bounds, and its dependence upon the world market, necessarily give a febrile impetus to production, with a glutting of the markets, a subsequent relative inadequacy of demand, and therefore a paralysis of industry. The life of industry becomes one characterized by a succession of periods of moderate activity, prosperity, overproduction, crisis, and stagnation.

(Capital, Vol. I, page 456. Allen & Unwin edn.)


Earlier economists had maintained that this kind of trade cycle did not and indeed could not happen. Later critics of Marx, who were compelled by events to admit that it did happen, then maintained that it was not necessary and that it only required certain kinds of corrective action to be taken to prevent it.


Try these Pills
Every variety of “corrective action” has been tried and all have failed because they all come up against certain inescapable aspects of the capitalist system. In a very abstract way it could be said that if all branches of all industries in all the world were planned to be kept in line with market demand and if technical improvements which reduced costs in one country were shared with all other countries and if wages, prices and levels of efficiency were the same everywhere, the trade cycle could be eliminated; but it is only necessary to state this to see that it is impossible. Individual capitalists fight for their own interests and national groups of capitalists have overwhelming economic and military reasons not to be submerged in such an all-embracing scheme. In practice nobody treats seriously ideas of that kind.


In the sphere of what is considered practicable the cures for unemployment fall into a few main groups. One is for the government to prop up ailing firms or industries with subsidies, or to promote employment in particular regions by the same means. These schemes are however not preventives of unemployment but ways of keeping the unemployed on the pay roll and off the dole queue. In effect they are payments to particular employers to employ people they otherwise would not employ. They are a burden on the rest of the capitalist class since they have to be paid for out of taxation. Frances Cairncross (Observer, 28 May 1972) in an article on the cost of promoting employment in the “development areas” in the ten years 1960 to 1970 stated that it was over £2,000 million and “the average cost of each new job created came to £678”; in spite of which unemployment in those areas jumped from 85,405 in June 1961 to 206,740 ten years later. “Looking at those figures, one might well ask whether regional policy was anything more than an expensive attempt to keep marginal constituencies in the backwoods sweet.”


Fewer Hands Make Less Work
A second idea for curing unemployment has been the Labour Party and trade-union belief that workers would be given job security if industries were taken out of the hands of private employers and nationalized. Hugh Scanlon, President of AEUW, voiced this in an attack on the General Electric Company. He pointed out that in the past three years GEC had cut their labour force in Britain from 245,000 to 181,000 while their profits increased (Financial Times, 14 December 1972). He described the company as “the largest unemployer of labour in this country”. He seems to be singularly ill-informed. For years the nationalized industries — coal, gas, railways and electricity supply — have been reducing staff by tens of thousands; now joined by the Steel Corporation’s estimated 50,000 redundancies. The forces pressing the nationalized industries to cut staff are exactly the same as those affecting private industry, the need to be competitive and profitable.


The most spectacular of the schemes to obviate the trade cycle has of course been the Keynesian idea that the government can take action to keep up the demand for goods by its own investments and by stimulating consumption and private companies’ investment — the policy of Full Employment. Now that it has manifestly failed it is hard to believe how confident the Keynesians were that it would work. A typical claim was that made in 1946 by Barbara Wootton (now Lady Wootton) when she wrote: “It is now generally accepted, even at the highest academic and political levels, that there can be enough jobs to go round.” (There are still a few “true believers”. Michael Foot, MP, said on the radio, 24 January 1972: “By following Keynes’ doctrine it is a simple matter to make work.”)


Falls on Deaf Ears
Events of the past two years have shown how right Marx was when he pinpointed the fact that what alone will induce the capitalists to increase production is the confidence that what they put on the market will be sold at a profit. No amount of exhortation by the government and assurances that the banks will advance money to aid them will have any effect, and increases of the governments’ own expenditure make no difference if at the same time companies are holding back on investment.


In a speech on 4 February 1973 Prime Minister Heath was chiding businessmen for their reluctance “to expand and invest”, but he and the Chancellor of the Exchequer and other Ministers had been saying the same for the past two years, back to 1971. On 5 December 1971 the Observer published the results of an enquiry into the extent to which industry was, or rather was not, expanding its investment; under the title “Anthony Barber has been begging industry to invest . . . no-one is listening.” They quoted Barber’s claim in the House of Commons that “never before has a government taken so much action to stimulate employment”.


Mr. Barber was so right in telling the Commons this. He has cut taxes, stepped up spending, urged bewildered nationalized industry bosses to get out and spend, and maintained a brave front about economic progress. But Barber missed the point. No one, especially in industry, is arguing about how much he has done. What they are sweating about is whether it is working.


It was left to the City Editor of the Daily Mail to make the appropriate cynical observation on the situation:

Businessmen are not going to invest their own money or shareholders’ funds just because men are out of work or the Government asks them to.

(Daily Mail, 28 Feb. 1972)


He added that businessmen would not change their line until “prospects of better profits emerge”.


Now indeed, helped by the sacking of thousands of workers and the tightening up of work processes, expectation of profit has risen again and unemployment has fallen. But it comes after several years of stagnation which, if the Keynesian idea had been valid, would never have happened in the first place.


Edgar Hardcastle