A blog by Luke Akehurst about politics, elections, and the Labour Party - With subtitles for the Hard of Left. Just for the record: all the views expressed here are entirely personal and do not necessarily represent the positions of any organisations I am a member of.

Wednesday, June 30, 2010

How jobs are created

Iain Dale rather sneeringly says in a recent post "for any lefty economists reading this, you might like to remember that it's not budgets which create jobs, it's private sector risk taking entrepreneurs. Think on that." (http://iaindale.blogspot.com/2010/06/guardian-economics-editor-cant-count.html).

I've thought on it. And it isn't quite true. One of the learning processes I've had in ten years working for a public affairs consultancy is to sit in on and sometimes contribute to the thought processes of various private sector businesses as they decide whether to create jobs in the UK and where to put them. If they didn't think government and local government policy and budgets were important to these decisions they wouldn't bother hiring people who know about government policy and politics to advise them.

"Budgets" do create - or destroy - private sector jobs as well as public sector ones in the sense that:
  • There are a whole bunch of FTSE 250 companies that provide outsourced services to national and local government - from accountancy to IT to running prisons to cleaning public toilets and government offices. They might gain from government judging it can cut costs by outsourcing, or they might lose by cuts going deeper than that and just axing outsourced services.
  • There are another bunch of companies that provide goods to government - everything from printing school textbooks to making medicines and medical instruments to building aircraft carriers.
  • Then there are another bunch who build public infrastructure - roads, rail lines, housing, schools, hospitals, and for whom the government's capital spend determines their profitability.
  • Then there are people like Rolls-Royce and Airbus and their supply chain who make civil aircraft but whose R&D and capital investment costs are so high that they need repayable government loans - Launch Aid - to persuade them to go to Derby, Broughton or Filton rather than Toulouse, or Hamburg or Madrid.
  • And there are car manufacturers (all with massive supply chains) making choices about whether to build in Luton, Ellesmere Port or Sunderland rather than Portugal, Poland or China. They will make very hard-headed business decisions about the government-created environment here for them - the labour costs and skills, the infrastructure investment in ports, roads and rail, the loans, grants and incentives, all of which are affected by government budgets.

Take the above out of the equation and that's almost all the UK's remaining manufacturing industry gone - our wealth creators. It doesn't leave much beyond the City (which ain't in great shape), farming (also keen on state aid) and "hospitality" - often low paid jobs in tourism and catering.

The problem with Iain and Vince Cable's laissez faire approach to government intervention and support for business is that it isn't start up entrepreneurs (vital though they are), it's only the big multinational companies that can really have a strategic impact and turn round a city or region by creating 5,000 or 10,000 skilled manufacturing jobs in one place and all the many more supply chain jobs and wider boost to the local economy that having all those skilled workers creates. And they are not in the business of philantrophy. If the UK doesn't incentivise them to site factories here, the rest of the world won't play fair and offer them nothing. China or Germany or France or any of the individual US states will offer them the loans or grants that we won't (or in the case of China a very cheap workforce), and they'll go there instead. Similarly if you chop government infrastructure spending or procurement programmes be they defence ones or the Hitachi high-speed trains contract, those companies will just scale-down their UK operations and target other markets.

It's also about where any jobs created go. Maybe there are loads of entrepreneurs just waiting for the Coalition to create a free market paradise. But left to their own devices they'll mainly locate in the south east, along the M4 and round the M25, in areas that are overheated, overcrowded and don't have a huge unemployment problem. It won't cross their minds to create jobs in the regions where they are most needed. That's why the RDAs were created. Very imperfect and perhaps not needed everywhere but they were at least an attempt to lure investment into depressed areas with incentives, grants, loans and infrastructural help. It worked as well - I've been in meetings where RDA funding determined where companies decided to create jobs. I worry that the economically weakest English regions will now be at a huge competitive disadvantage to Wales and Scotland which still have national/regional authorities trying to attract investment.

Anyway Iain (and Vince) if you want the private sector to grow its role in the economy at the expense of the public sector - which is a fair enough policy objective - it won't happen by magic just by cutting the public sector. Your government will actually need to do things to encourage the private sector to take risks and invest in the UK. I don't see much evidence that you get the centrality of government to that process.

15 Comments:

Anonymous Anonymous said...

So obvious Luke that I wonder what an "education" at Eton or Winchester is worth ?

GW

12:05 am, July 01, 2010

 
Anonymous Rich said...

We all know there has to be cuts but it's the timing and the severity of them that's important.

Labour were guilty of creating an army of enforcement officers from parking attendants, street wardens and speed camera enforcement etc etc. This sort of thing costs us all a fortune and if we are going to cut this has to be the first place.

In hospitals we have thousands of people just there to measure targets again these need to be cut. The nhs should not be ring fenced.

I still can not understand why we pay so much in foreign aid, how does this benefit us?

Today I returned to a house that I previously visited 2 years ago. The couple are on welfare and have been since they moved in. Since moving in they have had two children giving them a total of three. This family has no respect for tax payers money as they are clearly planning a family at the expense of the tax payer.

I see this sort of thing daily and it makes my blood boil because it is this type of abuse that is hurting genuine claimants.

Benefits should only be paid to those who have contributed NI for more than two years. The payments be equal to 80% of their last salary and should be paid for no more than 12 months. After that all benefits simply stop.

National insurance should be an insurance scheme that gives access to our welfare system. If you don't pay into this scheme then why should you receive benefits.

The whole system needs looking at.

1:13 am, July 01, 2010

 
Anonymous observer's friend said...

Luke, what an excellent well-argued post!

Rich, you write:
Benefits should only be paid to those who have contributed NI for more than two years ... After that all benefits simply stop.

Rich, if you want to live in a society where benefits are only paid to those who have contributed for at least two years, and for the rest there should be nothing, why not move to a country where begging - and starving to death - are acceptable, such as India, or the USA?

Personally, I want to live in a civilised country and don't resent having paid tax and national insurance for many decades, so that those who are born profoundly disabled or become so later in life (for example, through sickness or injury) can live a life of dignity. So you would rather these people are left to starve to death on the street?

6:05 am, July 01, 2010

 
Anonymous Anonymous said...

Observer's friend

I don't any of us have a problem with helping those who cannot help themselves.
The problem arises when we end up those who can help themselves but choose not to.

'Free school meals' This is a pretty basic issue for me. If yuou can't afford to feed your kids then don't have them in the first place.

1:54 pm, July 01, 2010

 
Blogger Merseymike said...

Not only that, it is quite possible to have a revival which does not increase the number of jobs

Rich: a social insurance based benefits system is all very well on paper, but its the very worst type with demographic outlooks as they are and it costs the earth to set up on the first place

4:56 pm, July 01, 2010

 
Anonymous Rich said...

I don't have problem with helping those that can't help themselves. But for most people this isn't the case and the whole point of unemployment benefit was to protect working people from periods of unemployment. In terms of protecting those that can not work then there others ways of dealing with it and this has nothing to do with being unemployed.

At the moment a single working person can lose their job after contributing many years and then face an income of just £60 per week. That is truly unfair and what makes it unfair is that unemployment benefit or contribution based JSA has been watered down by the millions claiming income based JSA.

While I know that many jobs offer less income than benefits this is no excuse for not working. The Tories will use this as a weapon to lower all benefits and thus hurt the genuine.

We must strive to get as many people back into work as possible. Anyone who refuses to contribute must lose all rights to benefits. Savings made must then be recycled back into the benefits system to help the genuine.

The French, the Germans, the Dutch and the Danish all have a similar system.

9:40 pm, July 01, 2010

 
Blogger Miller 2.0 said...

There are of course wider things as well, for example how well educated prospective employees are, whether they have access to transport, etc.

All of which the state can be pretty useful for. Before we even start on where public sector workers spend their money.

5:01 pm, July 02, 2010

 
Blogger Miller 2.0 said...

"If yuou can't afford to feed your kids then don't have them in the first place."

There are a great many things wrong with that argument indeed.

5:02 pm, July 02, 2010

 
Anonymous observer's friend said...

Great quotes from Rich ...

"I don't have problem with helping those that can't help themselves. In terms of protecting those that can not work then there others ways of dealing with it and this has nothing to do with being unemployed."

Eh? Yes it does! If we can not work due to our chronic ill health (or employers won't give us work due to their prejudice about our disability) it has everything to do with being unemployed!

"While I know that many jobs offer less income than benefits this is no excuse for not working."

You obviously know nothing about the expenses involved with being disabled, employing a personal assistant (or two), cleaner, adapted home and transport and clothing, medication, etc.

"Anyone who refuses to contribute must lose all rights to benefits."

Here we go again! Rich ... why don't you change the record (or just go away and join the BNP/NF)? Your attitude towards chronically sick and disabled people is dreadful!

3:24 am, July 03, 2010

 
Anonymous Ed said...

Listening to the Labourites and socialists talking about "putting money into the economy" it sounds as though money grows on trees from which a benificent government picks it and throws it into the economy.

Of course the truth is that the money that is "put into the economy" is taken as taxation out of the pockets of citizens and businesses who would otherwise invest it or spend it, say on employment.

I think it is a reasonable assumption that the money that the socialists so generously want to put into the economy would create more wealth and employment if it had remained in the private citizen's pocket, given the inefficiency of state beaurocracies.

6:40 pm, July 03, 2010

 
Anonymous Rich said...

Observers friend if you read what I'm saying instead of jumping to conclusions. If you can't work due to I'll health or a disability then you should not be grouped as long term unemployed. That is what I meant.

Those that can't work are being treated badly in the current system. You should get a lot more help than you do at the moment. My dad died of cancer but under the current rules got nothing.

If you read my post you would see that I'm actually arguing for more money for the genuine. The Tories are using extreme examples as an argument for hitting the unemployed. What I would like is a fairer system.

11:53 pm, July 03, 2010

 
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Anonymous H. Ome said...

You have discussed many obvious checkpoints in the jobs which are for both public and private jobs.

4:38 am, August 02, 2010

 

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