Are you a ‘Kurzarbeit’ or a ‘chômage partiel’ person? UK Chancellor Rishi Sunak will make an important statement to the House of Commons this afternoon about what will replace the furlough scheme at the end of October, with debate rife about whether German or French models will be preferred, or something completely different altogether.
The Kurzarbeit (“short-time work”) tops up a worker’s pay if an employer cuts their hours. It can run for up to 21 months and cover a maximum of 80 per cent of lost wages. Chômage partiel (“partial unemployment”) limits the amount firms can cut a worker’s hours to 40 per cent for up to three years. Again, the government pay a per centage of the lost hours. Both schemes are not new, but they have been given a lot more cash since the pandemic. Both the CBI and TUC are fans of a variation of these schemes, with the TUC’s more generous to workers and the CBI’s more business-focused, naturally. What will Sunak do?
“The chancellor has shown he has been creative in the past and we hope that people will trust us to continue in that vein,” A Treasury source told The Guardian.
Talk of creativity got me thinking of Joseph Schumpeter, the late Austrian economist who developed the idea of “creative destruction” being integral to how capitalism renews itself. Schumpeter, who was writing about this in the midst of the 1930s Great Depression, would not have been a fan of job schemes which seek to suspend the economy in mid-air.
The “gale of creative destruction,” Schumpeter argued, was the “process of industrial mutation that continuously revolutionises the economic structure from within, incessantly destroying the old one, incessantly creating a new one”.
The economic historian Barry Eichengreen has sought to put a left-wing gloss on “Schumpeter’s virus”, arguing that rather than the UK Government focusing on protecting existing businesses through a furlough scheme, the cost of which will inevitably be used to make the case for public sector cuts later, it would “make more sense to protect the worker”.
“Back when we imagined that the coronavirus crisis would be short and the recovery would be V-shaped—in the different world of a couple of months ago—it made sense to protect jobs,” Eichengreen writes. “Now that we understand better that many of the changes wrought by the crisis are permanent and that more than a few of those jobs will—and should—disappear, it makes more sense to protect the worker. This means providing him or her with unemployment benefits, monthly stipends, and tuition subsidies. It means using the public sector’s financial resources to ramp up training for new workers in healthcare, homecare, and other expanding sectors while resisting predictable calls for austerity.”
Eichengreen rightly argues that many furloughed jobs in hospitality, tourism and aviation are almost certainly not going to return like they were pre-pandemic because of permanent changes to consumer demand. Not only that, but after the 2008 crisis many unproductive firms only survived because they had access to cheap debt. These “zombie firms” could be as much as one in seven, according to a 2019 study, and are now only likely to be hanging on due to a combination of government subsidy and Bank of England rock-bottom interest rates. Given this, is it not better to let these firms die and move workers into the post-pandemic economy, where new skills and indeed potentially entirely new sectors are urgently needed?
Thankfully, Sunak does not appear to be a Schumpeterian. For hundreds of thousands of Scots on furlough and in fear of unemployment, a Tory Chancellor playing around with free-market ideas like creative destruction is not exactly desirable. It’s not even clear in a highly integrated modern capitalist economy like Britain’s that creative destruction is possible without bringing the whole financial house of cards crashing down.
Yet we can still take something from the Schumpeterian critique, which is the need for a pro-active labour and industrial policy to create new jobs, to go alongside schemes to save existing jobs. Indeed, there should be clear incentives and pathways established for workers in sectors like hospitality to switch sectors with financial security (less “labour market”, and more “labour planning”). The left is missing a trick if it’s only making the defensive argument in favour of furlough, and not the offensive case for a Green New Deal and a care economy. Ultimately, furlough or “partial employment” is not a promising future for anyone – we need to think big, and we need to think forward.
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