Sunday, 3 July 2011

Is "Employment" the problem?

By far the most important economic metric, as far as politicians around the world are concerned, is "Unemployment". If this rises - particularly amongst the middle-class, who can be relied upon to vote - governments tend to fall. This is as true in the democratic nations as in tyrannies. Youth unemployment of over 45% in many Arab nations may have changed the micro-economic risk-reward pay-off of protest. If there are no jobs with which to bribe/blackmail the young, there's less to lose by being part of a demonstration.

When you take on a job, you take on severe constraints upon your time. Usually you're expected to present yourself at a time and place 5 days a week and subject yourself to monitoring and surveillance which would be unacceptable in any other circumstance and a gross invasion of privacy. In return your employer pays you a regular wage, whether or not you've earned it. The employer is also expected to pay significant levels of taxation as a result of each job, and incurs other burdens such as contractual redundancy pay, insurance and so-on.

The result of this is an economic conflict. It's in the employees interest to do as little as possible to earn his pay without getting fired. Every office has shirkers who are carried by the rest of the business, or people who exploit management systems' loopholes to engage in rent-seeking behaviour. On the other hand, it is in the employers' interest to sweat the labour and earn as much as possible from each employee. This is not to suggest that there aren't good employers in some sectors where it is both possible and practical to remunerate according to delivery, and see it in their interests to look after their employees. There are, however, employers who exploit the weak bargaining position of their employees to improve productivity through coercive means, and employees who exploit employers (to death: this is why there are few unionised workers in the private sector). The public sector, without real cash constraints, is easily bullied by organised Labour & rent-seeking professionals.

Let's put some numbers on this. For a private-sector employee to achieve £30k in his bank account at the end of the year (once taxes are taken into account) s/he needs to generate at least £100k of top-line value. If this employee is in a "cost centre" instead of a "revenue-centre", HR, for example as opposed to sales or the shop-floor, his/her remuneration comes from the excess profit of the productive work-force.

As a result of the sheer cost of guaranteeing a wage month to month, the temptation is to seek revenue from employment which doesn't add to customers' utility. The most egregious example of this is perhaps the financial services industry, which sells "products" larded with hidden fees, or insurance to people who don't need it or who could almost never claim on it. A legislation-protected cartel operates to keep bank deposit interest low and lending rates high. Branches no longer serve their customers, whom they know only from computer records, but instead serve sales targets for corporate markets. Evidence: people don't change banks because they're all the same.

Another examples of this "crapitalism" is the McDonalds happy-meal toy, whose negative externalities in the inevitable disposal, manufacture, transport and packaging vastly outweigh the utility gained by the customer. It is a product whose only purpose is pester-power-marketing. You can think of any number of other examples. The disgusting excesses of some of our consumer culture are partially as a result of the drive to manipulate people into purchases they don't need at any cost. Does anyone think 'planned obsolescence' is good for the consumer? Are the people selling this crap, in call-centres, shops; or indeed those making crap in factories around the world really happy with their lot serving this avaricious machine? Should this almost feudal relationship between employer and employee, which could be at the root of it, really be the dominant economic relationship in a supposedly free society?

The crucial thing, above and beyond the crap needlessly produced, is the self-actualisation of the people making and selling it. It is this crucial happiness-delivering facet of the human experience which is missing from much employment in service of crapitalism. Would it not be better if people were able to choose to how much to work, the margins at which they work and their working hours and conditions, and deliver a product or service of which they were proud? I'll declare an interest: I'm self-employed. The freedom to have more, or indeed less than state-mandated holiday allowances and working hours as necessary, is a huge bonus. As is the sense that no-one is looking over my shoulder, telling me I should be working. My time, even in the office, is my own. I am, in a huge number of senses, free. Even if I didn't take a holiday for four years, when starting my practice, and building my client-base, the sense I was building something for ME was hugely motivating.

Many of my clients are likewise self-employed: plumbers, builders, property-developers & businessmen. It is risky and certainly tough at the outset for all people who slip the bonds of formal employment, but because the products of your labour aren't shared with an employer, you get nearer the full benefit of our labour. If more people were self-employed, there would be less work of negative utility: HR, Accounts, Compliance, Health & Safety officers, who serve to enforce legislation which exists only in the EMPLOYED market place would wither. More self-employment would then free these people from their parasitic jobs to do something productive. An ancillary benefit is the state would lose an enormous class of people in the private sector from its control.

But it's also about more than productivity. The self-actualisation and self-reliance that self-employment engenders are benefits in themselves. The fact that the self-employed have to hand their income tax over in a cheque every six months means they actually think about the dead-weight cost of taxation each and every time they do so. (I've never met a self-employed Labour voter...)

At the moment, society, politics and the economy is structured around formal employment, and the resulting drive to squeeze 'human resources' (I call them 'people') at whatever cost. Employees feel the temptation to rent-seek. Neither of these are good: though these activities may help GDP, they aren't productive. Perhaps an economy shaken up by de-industrialisation is an ideal opportunity to have another look at the structures of the job market and consider if legislation unfairly supports one form of labour-market organisation. Self-employment works for me. I am not suggesting it works for everyone, but merely asking the question: Isn't it better to work for yourself, rather than allowing someone to be your boss?

I started this post with the Arab Spring, at the root of which is unemployment. The Tunisian revolution which saw dictator Ben Ali flee to Saudi Arabia started when an unemployed man called Mohammed Bouazizi started selling vegetables in the street without a permit, and the subsequent harassment (he wasn't making enough to bribe the police) led him to self-immolate. Such is the effect of denying people the right to earn what they can. Whilst a secure job may be preferable in many economies, for many people the guaranteed wage just costs too much. For many marginally productive workers, Spain, for example, has youth unemployment comparable to Tunisia's, they just aren't productive enough. What prevents Spain from imploding, apart from the pressure valve of democracy, is a black economy which allows the poor to subsist in the manner attempted by Mr Bouazizi - without the interference of a rent-seeking police force.

Instead of harassing the black economy Western governments also suppress it using an over-generous welfare state, at vast dead-weight cost: people paid to do NOTHING. There's no need to scrape a living: the state will take from the rich and give it to you, gratis. Is this just? Maybe. But it also comes at a cost; the self-reliance, independence and integrity of the recipients of the tax-payers' largess, who lose any habit of independence and will never work as a result of their handouts. Would it not be better to deal with our welfare rolls by cutting the hand-out (a CBI could ensure everyone's basic needs were met), and encouraging people to find something, anything, they can do for other people for whatever they can earn?

An employment market which rewarded self-employment, independent trading, if allied to a tax and benefits system which didn't act as a massive barrier to entry to marginally productive workers, would cut welfare rolls and could eventually end the concept of unemployment. Perhaps we could also reduce much of the nonsense economy of crapitalism? After all, self-employed people don't eat unless their product or service is actually valued, instead of being 'bundled' with something that is. (Would you pay for the happy-meal toy or the mobile phone insurance which comes with your bank account, unless it were"free"?) Above all, freeing people from employment they know to be useless would improve people's sense of self-worth. By removing the totalitarian oversight of the feudal lord - your employer - you achieve freedom.

So far, so Marxist. He wasn't all bad, you know. The temptation in current politics is to play the masters - state & business off against each other. The electorate's choice is their proxies: Labour & Tories. We libertarians marginally favour the latter, but regard both, or indeed any master, as abhorrent.



7 comments:

Single acts of tyranny said...

Congratulations on a very well reasoned post. Having recently started down the road of self-actualisation or self-employment, I can identify entirely with your points.

It is no surprise that the state wants people on PAYE because they can be easily taxed and monitored whereas the aelf-employed as well as being annoyingly independent, are harder to monitor and tax.

Once again we see that the obvious and clear route to prosperity and self-determination (ie low tax, low regulation, small government) is actively opposed by ~ the government. What a surprise.

Again, great post.

Anonymous said...

Hmmm, I think I can offer some sort of a counter-point to this as tomorrow will mark my first non-self-employed day for four years.

The only reason I am taking a permanent job is for the holidays, sickness and other liabilities that my employer will now be responsible for rather than me. The nub of it is that I have a new family and want to take it easy for a couple of years. I can coast my way to a regular (if unspectacular) pay check every month. When the humdrum becomes too boring (or more likely when my Wife returns to her shit-proof public sector job) I fully intend to return to the ranks of the self-employed.

The only reason that I am able to take such advantage of my new employers is because my new employers are bound up in red tape and I know that all the advantages lie with me. Such institutionalised rent-seeking is hardly conducive to a dynamic globalised economy.

Mr. Pants.

Tim Newman said...

Another examples of this "crapitalism" is the McDonalds happy-meal toy, whose negative externalities in the inevitable disposal, manufacture, transport and packaging vastly outweigh the utility gained by the customer.

According to whom?

Anonymous said...

Great post, I too would love to be self-employed one day, but how would your self-employed economy compare to the capitalist one next door? I imagine that their economies of scale would blow the self-employed guys out of the water.

Single acts of tyranny said...

@ Anon about economies of scale

Depends on the sector, but the big guys have wacking overheads which can for the most part be avoided, and as anon (the first) says, the big guys have a lot of rent seeking passengers

stevehem said...

Take a look at this: http://rwer.wordpress.com/2010/12/21/coase-uncertainty-and-the-firm/

or just google for "coase theory of the firm".

The very interesting question that Coase asked in 1937 is: why do firms exist given the destruction of incentives and rent-seeking by employees that characterise them?

I haven't really seen a very convincing answer even now, although Mike Munger has a good attempt: google "Bosses Don't Wear Bunny Slippers: If Markets Are So Great, Why Are There Firms?"

Thanks for a good contribution to this interesting question that most professional economists and politicians seem blissfully unaware of.

Anthony Harrison said...

Excellent analysis! As one self-employed bloke to another, when you're not writing about bloody bicycles you really can be rather good. I became self-employed far, far too late, but even so every morning as I make my coffee I rejoice at not having to turn up at my former employer's dread abode - or Castle Dracula as I considered it... I was a lecturer in an FE college, and the management included probably the worst managers I've encountered and also some of the most truly unpleasant people I ever met. Utter shits. And I've been free of them for ten years!

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