Labour's forgotten jobs guarantee By Philip Pilkington, The Guardian Friday 7 June 2013
This week we have seen two interventions from Labour that mirror the current government's taste for austerity: Ed Miliband's commitment to copying the coalition's benefits cap; and shadow chancellor Ed Balls's call for "iron discipline" with regard to the fiscal deficit. This seems like a far cry from January, when Balls advocated a jobs guarantee programme to help the long-term unemployed get back to work. Yet with interest rates on government debt still at record lows, a jobs guarantee programme is exactly what Britain needs. And it's hardly an idea without foundation either.
The Levy Institute at Bard College recently published a volume of the economist Hyman Minsky's writings on the idea of a job guarantee. Minsky, who is famous for his prescient theories about financial market fragility in capitalist economies, recognised long ago that the welfare state that grew up in many western countries after the second world war was completely incapable of tackling the problems it was supposed to address. The hidden assumption lying behind the conception of the welfare state was that full employment was a given – everyone who wanted work could find it.
Sadly the reality is quite different. Minsky's theories of financial instability suggested that capitalist economies were prone to serious downturns in which huge amounts of the labour force would find themselves unemployed. What's more, this would lead to large shortfalls in demand for goods and services which would further exacerbate such downturns. The result was a vicious circle that would become worse and worse as the financial system evolved into an increasingly fragile entity and households and businesses became increasingly mired in debt.
The only way out of this was to build robust institutions that insulated working people from the excesses of the system. While progressive taxation and unemployment benefits went some way toward both protecting workers and propping up demand during downturns, it did not, according to Minsky and his followers, go nearly far enough. They believed that governments should offer a job to anyone willing and able to work and then pay for these jobs by engaging in increased deficit spending – as they currently do with unemployment benefits during downturns.
The programme Labour pushed back in January was not nearly as radical. It was not to be set up to manage the level of economic activity. Nor was it voluntary, as the Minsky/MMT programme would be. It was also only targeted at young people who had been out of the labour force for long periods. Nevertheless, it moved the debate in the right direction.
Recently though, feeling that it has to toughen up its rhetoric about battling the supposedly nefarious budget deficit, Labour has given up ground that might have allowed it to begin to put forward a new vision of economic management. Instead it has fallen back on all the old platitudes about the "evils" of government debt. Two steps forward, six steps back.
Today it is becoming increasingly clear that Minsky was right about the nature of capitalist economies. They are highly unstable systems that are seriously prone to debt-fuelled collapse. By recognising this we can begin to think of new and improved ways to manage these volatile systems but to do so we must begin to shed some of our most stubborn taboos. The first is the notion that government debt is somehow inherently "evil". If the Labour party wants to be the party to lead us into this brave new world it needs to drop this tired rhetoric immediately.