Like me, you probably don’t pay too much attention to the monthly unemployment figures, since they don’t seem to be going anywhere in particular. In fact, something quite extraordinary is happening, which is transforming the world of work, making a nonsense of government policies, like the much criticised Work Programme and turning a once prosperous and relatively secure society into one driven by insecurity and debt. It also poses a very serious question about Scotland’s future.
You see, unemployment – 2.5million – is a lot lower than it should be. Indeed, the numbers out of work have been falling even as the country heads into triple dip recession. Unemployment rose to 8% in November 2011 and has been falling more or less ever since. Yet in the recession of the 1980s, which was mild compared to this one, unemployment rose to 12% and stayed there.
Stranger still, unemployment in Scotland has been running at a lower rate than in the UK. This month, 7.7% of Scots were out of work, against 7.8% for the UK. In the 1980s, unemployment in Scotland soared to 15% – almost double what it is today and far ahead of the rest of the UK. Indeed it was nearer 18% in the West as Scotland’s industrial heartlands were ripped out and thrown on the scrap heap. So, although this recession has lasted twice as long as the 1980s and is far deeper, unemployment is falling when it should be rising.
This is all exceeding strange, because I defy anyone to look around Scotland today and regard it as a country in economic recovery – despite the claims made by the Scottish government, who can’t seem to decide whether Scotland is being dragged down by the UK Chancellor, George Osborne’s austerity or being held aloft by Alex Salmond’s Plan Mc B.
What has happened is something we haven’t seen in Britain since the 19th Century: a productivity recession, in which the economy is going back in time. The reason unemployment hasn’t increased is largely because people are accepting lower wages. Pay (except of course for bankers) has been falling by 1% a year, in real terms, which may not sound like much, but equates to around £1500 in reduced income for average households so far, and earnings will continue to fall until 2018 at least. This is unprecedented. Firms are are using cheap labour instead of new machines – which is why productivity is falling in Britain. We’re getting poorer by making ourselves less efficient. This is why those high street shops have all been closing and why Britain isn’t recovering through exports, despite the fall in the value of the pound.
This only sounds counter-intuitive because our political culture is still essentially neo-liberal and assumes that if you hold down wages the economy must do better. In fact, quite the reverse is the case. Low wages breed economic stagnation because worker/consumers lack money to buy goods and firms have no incentive to apply new techniques and machinery because labour is so cheap. That’s why this depression is unlike any this century. You have to go back to the 1870s to find a recession as long and as deep – though even then industrial output continued to grow through the application of new technologies. Coalition policies today are taking us back to the days when people wore top hats and the government was run by ex public schoolboys. Oh – I forgot, it already is.
In all previous recessions this century – and this includes the 1930s – recovery has come through consumer spending led by house building. In the 30s, the recession ended as a result of a building boom in the South East of England, plus the emergence of new consumer industries like radios and cars. This time around, housing starts have been falling year on year and are at the lowest levels since the Second World War.. Britain has largely opted out of the productivity race because firms have been told that the falling value of the pound will boost British exports by making them cheaper. But that only works if the economy is producing something that other countries want to buy. All Britain has produced in the last decade is debt, and the rest of the world has plenty of that.
So it’s hardly surprising that the government’s Work Programme is failing. Equipping workers for employment – quite reasonable in its own way – can only succeed when there is a buoyant labour market, with lots of turnover, to create openings, and that isn’t happening. We have a cobweb labour market, with lots of underemployed workers hanging around in companies that would be out of business were it not for near zero interest rates and the low pound. There are a million extra part time jobs, mainly among male employees, plus 4.2 million self-employed – mostly redundant workers who have set up on their own and are keeping alive through the burgeoning “cash-only” black economy. There are also nearly a million people of pension age still working.
We’ve heard of zombie households, who can’t pay their debts and are only surviving because of near zero interest rates and forbearance by the banks. We also have thousands of zombie companies that would go out of business the moment interest rates return to normal. On top of them, we have the zombie banks, which only cling on to existence because the government is printing money and guaranteeing the value of their bad debts. So it won’t surprise you to learn that the UK is turning into a zombie country, which has lost its AAA credit rating.
And the only remedy the Governor of the Bank of England, Sir Mervyn King, can offer is yet more inflation. The euphemism currently employed by the governor, who has missed his inflation target for the last four years, is that we have to “see through” high inflation, to the sunny uplands beyond. But there aren’t any. Inflation applied to a stagnant economy will only lead to further falls in consumer spending, as wages are eroded by the rising the cost of living. Fuel and energy are rising at 10% year-on-year even though Scotland is sitting on massive energy reserves.
There is a third way. Scotland could conceivably depart from this by becoming independent, using its natural resources – oil and green energy – to develop a high value economy based on Scotland’s lead in higher education. We have more top universities than France. There’s no guarantee, of course, and some might regard it as morally wrong for Scotland to cut adrift from the zombie UK. But Scotland bailed out the UK economy in the 1980s with Scottish oil revenues, and received precious little in return except factory closures and the highest mortality rates in Europe. And it doesn’t take a genius to see that any improvement the UK economy is going to happen in London and the South East, rather than in Scotland. Like the High Speed Rail link, it might eventually extend to Manchester but no further. Scotland is on its own whether it likes it or not. A very big choice for those in and out of work.