The End of “Full Employment”?
Unemployment has been increasing continuously for five years. It was increasing under the Wilson Labour government and the rate of increase has accelerated under the Tories. At first it was noticed that the monthly figures were higher than they had been a year earlier; then they had reached levels which were a record for seven, eight, nine and ten years; and when unemployment passed the 900,000 mark in August, this represented the highest total for thirty years—back to the beginning of the war.
Normally unemployment is expected to rise in winter and fall in summer. This summer the fall did not take place. The September figure was 280,000 more than in January and about 560,000 above September 1966. It may well reach the million mark this winter.
Every industry has been affected—private and nationalised, old and new. No section of the workers has escaped and some of the most heavily hit have been the clerical, technical and managerial. Many who have lost their jobs have little prospect of ever getting work again at their old rates of pay.
This is not the first time since the war that unemployment has reached peak levels, but the peaks go higher. In the four years 1947, 1958, 1959 and 1962 the average for the whole year just exceeded 500,000. In 1963 and 1967-9 it was about 600,000. In 1970 640,000 and for 1971 it is likely to come out at 850,000.
Of course it will drop back again sometime as markets and production pick up but there are signs that it will run in future years at levels considerably higher than it was in the nineteen fifties and early nineteen sixties, when the annual average was usually below 400,000 and often below 300,000.
One new factor is that employers’ expectations about quick recovery have been undermined by the long duration of the present recession. In earlier setbacks employers expected a quick recovery with a return of labour shortage, and were often prepared to keep surplus staff on in slack times; now it has become the practice to get rid of “redundant” workers immediately.
Why was unemployment relatively low in the early post-war years? Why is it rising now? and what will happen in the future?
Many politicians and economists have had a ready answer. They believed that governments have almost complete control of the situation and can make unemployment as high or low as they choose. This assumed control was not claimed to be total—it would not eliminate small up and down fluctuations and it might take a few months to be effective. In 1957 Professor A. C. L. Day in his The Economics of Money, discussing the pre-1914 ten year cycle of boom and depression, wrote:
“It may now have been mastered as a result of the insight into economic processes which has been acquired in the last generation.”
Even more confidence in what the government can do was expressed in the Sunday Times (24/5/70) when their contributor Malcolm Crawford wrote that American bankers “know that the government can stop a recession of any magnitude, nowadays, at about six months notice”, and that the steps already taken by the American government were “enough to stop the recession”. (Since then Nixon has had two or three more goes “to stop the recession”, but it still persists). The economic backwoodsmen of the TUC still firmly believe in this assumed power of governments.
Naturally, therefore, those economists and politicians regarded the low level of unemployment which lasted for about fifteen years after the war as proof positive that they were right in believing that Keynesian methods had changed the nature of capitalism and that serious unemployment need never be feared again.
The explanation was too simple. From the start it had one major flaw, for the same Keynesian methods were also supposed to keep prices more or less stable and not even the most zealous believer can regard the rise of prices since 1938 to a level four and a half times what it was as price stability. And now they have to explain why the Labour government before 1970 and the Tory government since 1970 could not prevent unemployment rising to levels both say are too high.
The odd thing is that though they claimed to be Keynesians they hadn’t even got Keynes on their side for he didn’t believe it possible to keep unemployment down to two per cent or less, which it was in those years. When Lord Beveridge hoped that, taking the good and bad years together, they could keep unemployment to an average of three per cent, Keynes dissented on the ground that Beveridge was too optimistic. Keynes did not state how much above three per cent he thought it should be but if we assume only three and a half per cent as an average, this would mean a range of, say, two and a half per cent to four and a half per cent. This would mean unemployment ranging from about 600,000 to 1,100,000. So present unemployment is Keynes’ “Full Employment”.
It is interesting to note that in America, where Democratic Presidents have from time to time been said to be operating on Keynesian lines (and Nixon suddenly announced in January that he too had been converted) unemployment in May was at a nine year record level of 6.2 per cent, and Nixon’s Chief Economic spokesman John Connally admitted in a moment of candour that, except in war-time, it has never been below four per cent (Financial Times, 8/7/71). In Britain four per cent would be about a million.
An examination of the causes of low post-war unemployment in Britain was made by Professor R. C. O. Matthews, himself broadly a supporter of Keynes, and published in the Economic Journal (September 1968). His conclusion was that, starting with the stimulus given by making good war damage of all kinds, a major cause was a prolonged investment boom and that “the decline of unemployment as compared with 1914 is to a large extent not a Keynesian phenomenon at all”.
On a comparative basis he estimated pre-1914 unemployment at 4.5 per cent and that from 1945 to 1967 at 1.8 per cent. He expected this situation to continue, but the doubling of unemployment since 1967 has already destroyed the basis for that optimism. On one point in particular Matthews has been proved wrong. He thought that the greater job-security of the post-war years, due to employers retaining surplus workers in slack periods, would continue, but this is no longer true as the hundreds of thousands of redundancies show.
The fact is that some British industries have been losing ground and failing to keep up with the expansion of world markets. Better equipped, more efficient rivals in Japan, Germany and elsewhere have been undercutting British (and latterly also American) companies. The two devaluations of 1949 and 1967 delayed, but did not stop, this drift.
Belief in the ability of any government to secure “full employment” at will soon came up against a complication. The 1945 Attlee government (followed by Tory governments) discovered, as Marx or even Keynes could have told them, that when unemployment is very low the workers are in a better position to push up wages and this combines with other boom developments to cut into profit margins; which in turn discourages capitalist plans to expand industry. So the governments applied their “incomes policies” to keep wages down. It never succeeded for long. The Heath government came in with its alternative, of encouraging employers to show tougher resistance to wage claims, and warning them that if they could not pay their way they must no longer count on the government bailing out “lame ducks”—which also adds to unemployment.
If we disregard the possibility of another world depression like that of the nineteen thirties, present indications are that the years ahead will see more unemployment in Britain, coming nearer to the pre-1914 average of four and a half per cent. But the myth of “full employment” will die hard. The Labour Party and trade unions will go on pursuing it, for—not being Socialist—what else have they to offer?