A Taster of Issues Discussed in the Book

This page leads you through some issues addressed in the book, in a question and answer format.

Does a market economy tend to full employment?

NO. A market is a very effective way of swapping things (goods or services) between people who have something to swap that others want. If all someone has to offer is their labour, they may well find that there is no demand for it because employers already have all the labour they want. [See Chapter 7. Dynamics of the Economy: The Labour Market]

So what does set the level of employment in a market economy?

THE ‘WANTS’ OF THOSE WHO OWN SOMETHING TO GIVE IN EXCHANGE. We live in a very unequal world. Ownership of resources – land, farms, mines, factories – are in relatively few hands. The number of workers needed globally is the number required to produce what the resource owners want for their own consumption, plus those required to produce what the employed workers themselves consume. There’s no reason why the total should be equal to the total population of people who need work. [See Chapter 5. Market Exchanges]

But surely workers can price themselves into jobs by accepting lower pay?

NOT THE WORKFORCE AS A WHOLE. An individual worker might displace another by being willing to work for less, but if ALL workers accept lower pay, they will consume less, and therefore less work in total will be needed, resulting in not more jobs but fewer. [See Chapter 8. The Labour Demand Curve]

Why then are employment levels fairly high, at least in the richer countries - surely, given all the automation developed over the last two centuries, there should be far less labour required?

GREAT QUESTION! The answer is that our market economy does have an in-built drive to create employment. Whether you are an individual or a business, the way to make a living and to prosper, is to come up with new stuff or services that others want: new wants. Anything will do, whether it’s an electrically-warmed car seat, a singing telegram, or a smartphone, a new product will create new consumption by those who do have resources to exchange for the new thing, and by creating more consumption, will create new work. [See Chapter 9. Dynamics of the Economy: How Labour Demand is Increased]

Brilliant, that’s the employment problem solved then – just grow consumption!

YES, BUT NO. The growth in consumption has meant that despite all the automation, there are still fairly high levels of employment. HOWEVER, that growth in consumption comes at a disastrous cost to the environment we live in and depend on. We are using up resources, polluting the planet, obliterating wildlife and generating global heating, all at a rate that, as the UN General Secretary told the General Assembly, “We are on the edge of an abyss”.

This catastrophe is happening even though most of the ‘developing’ countries still have nowhere near the levels of car ownership of the USA or Europe, and only a minority of the world’s population have ever been on a plane (cars and aviation being particularly resource hungry and polluting). But unsurprisingly people around the world aspire to the consumption levels of the richer countries, so even worse is to come unless everyone worldwide learns to live sustainably.  [See Chapter 13. Environmental Impact of the Market Economy]

What about ‘Green Growth’, isn’t that the way to save the planet and have jobs?

IF ONLY! Unfortunately, simply replacing fossil-fuelled resource-and-energy-hungry products, with electric alternatives is no panacea. An electric vehicle (EV) actually results in MORE carbon emissions during its manufacture than a petrol/diesel equivalent, and while the emissions in use may be lower (depending on how the electricity used is generated) they will almost certainly not be zero. We need to reduce consumption, not grow it. Richer countries must aim for a lifestyle that is sustainable if adopted worldwide. [See Chapter 27. Changing Direction: Reducing Environmental Impact and Protecting the Natural World]

Having said that, there will be jobs in tackling the environmental crisis, but not in generating ever more consumer goods, i.e. not in growth. The jobs we need will be in restoring nature, retrofitting houses, and so forth. Typically they will need to be financed by taxes rather than sales.

OK, so we have to stop producing more and more ‘stuff’. So let’s keep the economy the way it is and just sell people more services instead.

NICE IDEA: the plan is we get around the ‘growth damages the environment’ problem by focussing all growth on services. That way production and consumption can continue to grow but only in terms of non-material goods (like music, or drama, or care of the elderly).

HOWEVER this won’t work unless the current structure of society is radically altered. That is because as things stand, in order to stay competitive, employers will always want to pay workers as near as possible to subsistence - enough to provide them only with life's material basics (food, shelter, clothing, and the odd cheap luxury like a TV or smartphone), not with non-essential services. The very wealthy do of course provide a market for services, but there is a limit to how many domestic servants, lawyers, accountants, personal assistants, etc. that anybody can possibly need or want. Note however that the wealthy can be sold prodigious quantities of expensive material products (yachts, private jets, fancy cars) which create lots of employment in their design and manufacture - but then we are back to producing excessive material stuff.

Furthermore, if we wanted to design an economy that only allowed service industries to grow, we would need to provide people's incomes in a way that somehow allowed the purchase of services, but limited the purchase of material goods. Otherwise how would you ensure that people spent their money on services like a trip to the theatre,  and not on stuff like a bigger TV or car? [See Chapter 13, Section 13.4. Can a Service Economy Save the Environment?]

You say “unless the current structure of society is radically altered”. Are there changes we could make that would allow us to create more service jobs?

YES, THERE ARE SUCH CHANGES ... and one of the main ones would merely involve extending what we already do. Many of the services that most benefit society cannot easily be purchased by individuals: things like infrastructure, education, public health, parks, law and order, regulation and enforcement to keep our air, rivers and seas clean, and much more. Modern complex industries need the state to provide most of these things in order for businesses and the market to function properly. States often pay for things that are considered of social or cultural value, even when in theory it could be left to the market to charge users; for example when states subsidise museums and galleries so that entrance is cheap or free.

States finance these services via taxes which we are obliged to pay: collective expenditure that we cannot choose to opt out and splurge the money on material consumer goodies instead. So one way forward is to expand this expenditure we make collectively, making our towns and cities better kept, safer, more sustainable and more beautiful, and in doing so, creating jobs. [See Chapter 26. Changing Direction: Livelihoods]

If we do that, won’t we end up with a monolithic state controlling everything?

IT’S A RISK we have to manage. As it stands now in most developed countries, collective spending is already spread across many layers of government – local, regional, national – as well as NGOs and charities. There may be other ways of collective spending that we can create too. Corrupt and inefficient governments are horrible, but good government is a boon. People usually flee countries with weak states and head for countries with strong and effective governments where state spending accounts for a large share of the national GDP.

Whatever we may wish, it remains highly likely that collective spending and government regulation will continue to grow into the future unless society collapses, because the new technologies and products that are appearing are so numerous, and many of them are likely to be potentially dangerous – such as modifying bacteria or viruses for example. Such technologies cannot safely be left to a free for all. Our task therefore, is to implement the best democratic checks and balances that we can. [See Chapter 15. Spending Alone or Together – Private or Public]

Didn’t an economist say that government always spends money badly compared to consumers?

YES, BUT WITH LITTLE EVIDENCE! Frequently the opposite is true because governments can set up sophisticated institutions to select the best quality and value - for example in the UK, the National Institute for Health and Care Excellence (NICE). By contrast, individual consumers are bombarded by adverts for products whose complexities and risks they often cannot hope to understand. Furthermore, individuals cannot choose to spend on public goods, like parks or clean air. [See Chapter 15. Spending Alone or Together – Private or Public]

That’s the end of the taster. We mentioned only 8 chapters in the taster, and there are 29 chapters in the book ... so there's a  lot more to explore!