Neither the Keynesians nor the monetarists have really been able to understand or deal with the problem of rising unemployment levels. This problem is now moving to the top of the political agenda in the industrial nations. In 1993, the European Union (EU) published its White Paper on Growth, Competitiveness and Employment,6 in which it set out targets for economic growth which would stabilise unemployment. An examination of the basis for that paper highlights the critical links between employment and growth in the market economy.
Obviously, if national labour productivity rises by 2 per cent per year (say) and the labour force remains constant, unemployment will rise unless output also rises by 2 per cent per year. In reality, the labour force7 is still increasing slightly in Western nations, and these increases, together with the increased empirical labour productivities, mean that a growth rate of 3 per cent per year is now essential if unemployment in the EU is to be held constant. If growth fails to match this target, and productivity does not alter, unemployment will rise, the demand on the public purse will increase, and future economic output will be depressed by limitations on spending power. Unfortunately for the EU, the potential rate of growth—that is, the rate of growth which can be sustained without the economy 'over-heating'8—is only about 2 per cent per year. Even in its own terms, therefore, the existing system is failing to deliver a sustainable economy.9
At the same time, accepting a rising rate of unemployment is tantamount to admitting that the free market is not doing its job properly. The monetarist response is to place much of the blame on organised labour which allows wage rates to be raised above the equilibrium wage in times of labour surplus. This 'overinflated' wage persuades industrialists to invest preferentially in capital rather than in labour, further increasing labour productivities and reducing the labour demand. But this is a dangerously regressive argument. The monetarist is saying that if we left things to Adam Smith's invisible hand, the problem would be solved because employers could continue to pursue their own profit by paying less money to their workers.10
Orthodox economic reasoning attempts to mitigate the moral inadequacy of this position by an argument which has become increasingly important to the environmental debate. This is the so-called
'trickledown' philosophy, which I visited briefly in Chapter 5. This theory justifies the pursuit of economic growth on the grounds that the wealth created 'trickles down' from the richest investors to the poorest workers, and thereby acts to alleviate poverty at all levels. Although wage rates may fall temporarily during demand-deficient periods, the lower wage rates stimulate increased employment until a new equilibrium level is reached: fuller employment stimulates new economic growth, increased profits and wage rises.
Later in this chapter, I shall question the legitimacy of this position. But the problem of stability cannot be reduced to a question of social equity. Whether or not the monetarist policies of the 1980s are morally and socially acceptable, the fact of the matter is that neither monetarism nor Keynesianism has provided any kind of basis for dealing with increasing levels of unemployment. Each points to a single fundamental strategy: to increase demand growth to a sufficient level to offset improvements in labour productivity. Without economic growth the industrial economy heads quickly for a spiral of depression.
Are there ways of escaping this spiral? In principle, we might conceive of some ways of improving the situation. And ironically, it is from the direction of environmental policy that these possibilities emerge.
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