Malthus and the Jobs Crisis

There is lots of talk of crisis these days, most of it exaggerated. Robert Malthus was an 18^th century Englishman who foresaw a food crisis. He thought that the population was growing so fast that the world would soon face mass starvation. He turned out to be wrong, as agricultural techniques succeeded in responding to the challenge.

 

There would be plenty of candidates for a modern Malthus to despair over. Top of his list might be the environmental crisis, with the growth of emissions and its consequences for climate, and little consensus for action. There is also a looming water crisis. These are certainly scary, but probably some technology will come to our aid just in time.

 

Malthus would certainly quote a population crisis as an environmental driver, and maybe even to rehash his food theory. Within the population issue, there is a social crisis in the wings as gender selection becomes more prevalent: history shows a male excess to be a good predictor of catastrophic war. He might look at other social changes, such as tolerance of homosexuality and female emancipation, as forerunners of a fertility crisis.

 

Despite massive advances in medicine, a health crisis is often predicted because of the decline of potency of antibiotics. We could have a nuclear crisis any time, there are many flash points and many weapons around.

 

What about economics? Well, the world lurches through depressions, mainly because we don’t seem to understand economics very well yet. Most recently we are recovering from a banking crisis. Despite all this, living standards for most of us seem to get better, albeit in fits and starts. Some countries, such as China, have seen tremendous progress at all levels.

 

But might the model behind this progress be breaking down before our eyes? The basic building block of the model has been employment, paid work. Ever since the end of feudalism and slavery, people have worked for pay for much of their life. Initially this was mainly men, and manual work on farms and later in mines or factories. Nowadays in many countries, women also work for money, and jobs have migrated into services.

 

This has been a splendid model for the world. Combining labour with capital and land, entrepreneurs have led innovative progress, and the benefits have been shared moderately well, with pay enabling social mobility and consumer benefits to a wide class of society, and enabling states to invest in infrastructure, health and education. Things have been far from perfect, but the overall story is wonderful.

 

But the model relies on jobs, and there are signs that these are drying up globally. There is no immutable rule that jobs are available at living wages. Before we have had cyclical depressions and stubborn shortages in some regions or countries. But then supply and demand has rebalanced, with help from government. What if this no longer is achievable?

 

Consider the trends which remove jobs. I don’t mean trends to shift work from country to country, though this has changed the landscape a lot. Other trends simply remove jobs. First, farming became mechanised. Then manufacturing created the production line. More recently, much accounting or research work has shifted to computers. We are on the verge of major advances in robotics, of driverless cars, of 3D printing, of online shopping, and of virtual teaching. Most major employing sectors are not just moving, they are vanishing. And quickly.

 

At the same time, the supply of labour is increasing. Women are now part of the workforce in most countries. People are living longer and many wish (or must) work longer too. Populations are still growing rapidly across the developing world.

 

So labour gets cheaper. First, jobs move to places with lower costs. Then, costs have to get lower in other places, and a negative spiral results. Countries attract companies via lower tax rates on business, but globally that only takes more of the pie from labour. Entrepreneurs create new jobs, but there are limits. In places with no living wage jobs, there can also be no demand, so no-one to buy the goods or services. Even if labour is nearly free, robots or websites can be even cheaper.

 

And labour, at least contracted, mid-term labour, is rarely free, even in a non-unionised world. At least in the developed world, recruitment costs are substantial, as are legal overheads. Most of all nowadays are accrued pension benefits – the reason most companies collapse these days – and, especially in the USA, healthcare benefits.

 

The result is that what jobs there are tend to be held long-term, or be temporary. With unions and inflexible laws, this is exacerbated, and younger people simply can’t find jobs, even at pitiful wages. Even when there are jobs, they are un-contracted piece work type of offers, or even unpaid “internships”.

 

The shortage appears to be becoming structural. Youth unemployment rates in Southern Europe are a disaster. Most developed countries have rust belts with little employment. As trends work their way around the globe, this will affect developing countries too before too long.

 

Unless something can be done, the prognosis of this is horrific. First, we already see a return of nineteenth century levels of inequality. As wages are driven down further and governments respond by incentivising companies, this will accelerate. Much of the economy will go underground to escape unaffordable taxes.

 

Then will come social tensions, as youth becomes increasingly disillusioned. When you have social riots in Stockholm, of all places, you know the world has problems. The social tensions will quickly focus negative attention on immigrants. Eventually we may even see resentment of pensioners. Finally, a generation growing up with no work will experience mental problems, and be compromised as parents.

 

The Economist has commendably raised the inequality issue, and recently also focused on long-term youth unemployment. But for me its classical remedies do not address the fundamental issues, indeed they may make it work. You can invest all you like in better education or vocational training or even back-to-work programmes, but there have to be jobs at the end of the tunnel or disillusion will only grow. Liberalising labour markets, working on “ease of doing business” and incentivising companies are all good, but will generally only succeed in shifting jobs from market to market, the overall growth of global jobs from this sort of policy will plateau quickly.

 

It is hard to envisage other remedies. Reducing retirement ages or female involvement in the labour force would be backward steps. Holding back technology in favour of labour seems to make little sense.

 

At a risk of sounding like a 21^st century Malthus, I wonder if we need nothing less than a fundamental rethink of the work model. After all, there are other fulfilling things to do in life than work, if funds are sufficient. It would surely be progress if we could create more free time?

 

As so often with global issues, this one really needs a global solution. France once tried a 30 hour week, but the result was a relative loss of competitiveness to other countries. Just like global warming, or Tobin taxes, or multinational taxation, oh for an effective global governance structure.

 

Governments could focus on sectors that find it hardest to replace labour. By accident or design, the US already does this with its spiralling healthcare costs. It is unaffordable, but at least it keeps people in jobs, and in an even profile across the country. Jails, police and military achieve the same, but are hardly recipes for competitiveness or harmony.

 

What about creating new jobs in sectors that help wellbeing but that need intervention to be viable? One such job could be a carer, of the old or very young. Pre-school and day care in most of the world relies on extended families, and the increasing army of very old people often live lonely and unfulfilling lives. It should be possible to create jobs from this via the right incentives.

 

Other opportunities come in local food production (glorified gardening or allotments), in community maintenance (litter removal, graffiti, beautification) or infrastructure improvement. Finally, work could be become more optional, to be earned by the lifetime rather than the week or month, with glorious sabbaticals. We would need some benefit money to help, of course.

 

At the moment, attitudes to taxation and pressures to compete crowd all these labour intensive sectors out. While there are, give or take, most of the time, enough jobs to go around, that can be tolerated. But I fear this age is finishing. If this is true, then current economic policies will be nothing short of disastrous for mankind.

 

Mr Malthus, where are you when we need you?