Sunday, February 20, 2011

Full Employment and the Future of Industry (W.H. Hutt, 1945)

Perhaps it is still not too late to attempt to put things right. Full employment and a prosperous industry might yet be achieved if what I propose to call the three "basic principles of employment" determine our planning.

The first basic principle is as follows. Productive resources of all kinds, including labour, can be fully employed when the prices of the services they render are sufficiently low to enable the people’s existing purchasing power to absorb the full flow of the product.

To this must be added the second basic principle of employment. When the prices of productive service have been thus adjusted to permit full employment, the flow of purchasing power, in the form of wages and the return to property is maximised.

The third basic principle of employment must also be mentioned, although it is (in my present opinion) definitely subsidiary. It is as follows. The ideal monetary policy is one which has the least tendency to bring about price maladjustments of a kind which prompt resistance to the price changes necessary for full employment.

As stated, these principles are probably sufficiently general to demand more or less universal assent. But their implications may not be so readily accepted. To make the implications perfectly clear, the following question should be answered: If the State had been seriously planning in the light of these principles, what legislative steps would have been announced or taken?

The most important pronouncements would have been intended mainly to set industrialists and trade-union leaders thinking along the right lines. The problem of graphic, vivid communication could not have been avoided. The full philosophy behind the pronouncements could become clear only gradually.

(1) The Government should have been asked for legislative powers to increase the traditional hours of labour in all occupations. They should have said that they needed these powers until all the unemployed ex-soldiers and all displaced war-workers were adequately absorbed in remunerative tasks. They should have explained that leisure is a privilege which we should all be prepared in some measure to sacrifice until there is adequate employment for everyone. The workers should have been told on the wireless and through the Press that larger outputs per person in all occupations are essential until the flow of outputs in general (that is, the flow of real purchasing power) is sufficient to demand products providing satisfactorily paid jobs to all. The people should have been told that, whilst any ex-servicemen were lacking adequate employment, it would represent the grossest selfishness on the part of those already employed if they insisted upon short hours of labour, or if they resisted the claim that the product of their increased labour should be priced so that the people could purchase it.

But in the Union, because there is no recognition of the fact that it is the people and not the employers who pay for labour costs, and because it is believed that the amount of work available resembles a limited stock of something, the Government policy so far announced is exactly the reverse of what is here recommended. If employment difficulties arise, the proclaimed intention is to maintain the price of labour high and to cut down the amount of output provided by each worker.

(2) The Government ought to have made an appeal to all women in employment, whether married or not, to retain their existing employments for as long as possible. They should have acknowledged fully the sacrifice in terms of normal social life which this would involve. But if it were put to them, most women would be prepared to make the sacrifice in order to contribute to the purchasing power necessary for full and adequate employment. In the interests of justice and the avoidance of depression, as many women as could possibly do so should have been encouraged to continue to contribute to the flow of goods and services.

The failure to make such an appeal is again due to concern with the ancient and depression-causing "lump of labour fallacy."

(3) The Government should similarly have pleaded with the older men. As far as possible, they should have been asked to postpone their retirement. The appeal should have requested them to remain in harness until the stimulation of the industrial and commercial system was sufficient to offer not only adequate immediate openings for ex-fighting men, but adequate prospects. There should have been no suggestion, of course, that old persons, well past their prime, who have been carrying on as a matter of duty, should cling to the posts which would normally have been occupied by younger men. The official explanation should have been that the substitution of young for old ought to take place on the basis of efficiency alone, and not be inspired by the belief that the cessation of work by one creates work for another. In other words, it should have been made clear that, in so far as older people are able to contribute anything to the common pool of productivity, they ought to continue to do so as a matter of duty, for as long as the employment situation remains difficult.

I must repeat that the object of pronouncements of this kind would have been to set the people thinking. Of course there would have been opposition. I can well imagine that many practical people would have been prompted to cry: "But this is completely fantastic. In our trade the cessation of work by one man certainly does mean an opportunity for another. If we sack one employee we have to engage someone else. When a member of our staff dies or retires, that means that someone from outside must come in either to fill the vacancy left by him, or that of some employee promoted."

This objection states the very circumstances which give rise to the illusion which I am attempting to expose. Economic errors are never without an origin. The truth is that such critics could even go further and say that, very frequently, in any single industry considered in isolation, the amount of employment can be increased for newcomers through the dismissal of existing employees; or, alternatively, that the number employed can be increased as the result of the work at present being done, and the wages at present being paid, being shared among a larger number of employees. I do not deny that one conceivable way of securing an income for all ex-soldiers and ex-war workers (but not adequate incomes or employment) would be to insist upon their being allowed to share in the existing work and in the existing wages of firms working at their present capacity. This would mean that a given flow of wages and a given amount of work in each industry was divided among a greater number. For example, the Government, after considering the rates of earnings in different trades, could decide that so many persons must be employed in this trade and so many in that. They would presumably direct ex-soldiers into occupations, the ultimate remuneration of which might be considered a reasonable reward for the dangers which they have endured on behalf of those already employed. Applying this principle, the ex-soldiers would presumably be directed into the better paid trades. Thus, the Department of Labour might say to the printing industry "you must employ 40% more men than before the war. You must give so many ex-soldiers a shortened apprenticeship of one year, and allow them to share in the present flow of wages and the present amount of work. This will mean that your workers will be relieved of a considerable portion of their previous labours, and that they will have to renounce a proportionate amount of their previous earnings."

If we are to proceed on the assumption that the amount of work to be done is a fixed quantity, that is the only way to go about things. To share the work and share the wages must then be the principle. But, it need hardly be stressed, this is not only a wrong principle, it is a completely impracticable principle.

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