22 August, 2019

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Achieving Full Employment

By Hema Senanayake

Hema Senanayake

Hema Senanayake

Global Economic Revolution Is Overdue: Part 3

Full employment is an economic situation in which virtually all who are able and willing to work are employed. Some economists consider that having less than 3% of unemployment rate as full employment. At least due to two important reasons any meaningful economic reform should target to achieve full employment, not one million jobs, as has been promised by the new government.

I concluded last week’s column as follows: “Near zero unemployment rate has nothing to do with the growth level of an economy. Yet, it has something to do with human imagination.” This intimates that the full employment is a possibility now.

Unemployment is an issue in many economies around the world. But it is not an issue for all the countries. Most importantly, during the Great Recession of 2008 and in subsequent years, Austria resolved the issue of growing unemployment successfully by using a novel approach. In other words Austria achieved full employment in a difficult period of time while many other European countries posted severe unemployment rates.

For example Spain reported over 20% unemployment when Austria has been reporting almost full employment. The approach is simple; Austria devised a policy mechanism to share the employments available in the country. They deviated from the rule of eight-hour workday and sometimes they deviated from the five-day workweek. We all agree that the country’s economic output is produced with a certain number of work hours of all kind. Now, can we devise a methodology to share the working hours among all prospective employees? Yes, we can. The result is that we will have full employment. This is a resolved question now at least by one country. Let us discuss what is not resolved. Hence, in this column I want to focus on something else assuming that we can achieve full employment.

At least two important economic objectives can be achieved only if we can have full employment. One is that we can prevent in indulging extreme consumerism. Second is that we can have the best possible economic efficiency only if we can have full employment. In this article, I will focus on the issue of extreme consumerism. Perhaps in next week’s column we will address the issue of economic efficiency.

In this series of articles I intend to deconstruct the existing economic view in order to reconstruct a better and provable thesis. Perhaps application of it will help us to establish a newer and efficient economy in which all economic risks faced by the man will be removed. If we do so, economically we will be at peace. Is this a dream? I guess it is NOT.

Let us get back to our topic about consumerism. Even though Sri Lanka is not a rich country it has its own form of consumerism. Recently Prime Minister told in the parliament that Sri Lanka cannot continue with the habit of spending more than what it earns. Our common sense suggests that the statement of Prime Minister is true. The systemic arrangement of modern economy is so complex and as a result many common sense understandings are simply not accurate. So is Prime Minister’s above observation even though it appears as true. More interestingly living beyond our monetary means or spending more than what we earn, does not fall into the phenomenon of extreme consumerism.

Those who propose to reform the economy should understand the complexity of modern economic system. If they propose to use the Singaporean or Dubai or any other social market economic model in reforming Sri Lankan economy, I insist that the country’s economic management will be a business as usual. In future columns, these issues will be addressed one by one with a view to establish a fairly new economic model. Hence, let us now focus on the issue of extreme consumerism.

Wikipedia defines consumerism as follows:

“Consumerism as a social and economic order and ideology encourages the acquisition of goods and services in ever-increasing amounts.” Economists who supports this ideology believes that Man’s needs and wants are unlimited. Is this true? Let us continue our investigation.

Consumerism, even though it appears to be originating from individual human choice, it is not so; rather, it is a systemic need of the modern economy. What does this mean? It means that even if all the members of society want to live with less stuff (like practicing “minimalism”) they can’t do it. If they do, the economic system will crash creating unemployment and income fears. People do not want to be unemployed and hence they indulge in consumerism in getting goods and services in ever-increasing amounts. Why we need to talk about this?

It is because that we cannot create abundance in goods and services, in a society in which human needs and wants are made unlimited by our own systemic design rather than individual human choice. It further means that in such a society we cannot remove the economic risks faced by the Man even if productivity is increased exponentially. No person will be happier if he faces economic risks and economic uncertainties. That is why this discussion is important in reforming any economy. We are going to remove the systemic part of extreme consumerism so as to allow the economic efficiency to take care of the human needs and wants.

People have been pushed to consume more and more. There is a certain economic parameter known as “consumer confidence index.” It measures the consumers’ interest in buying things. If consumer confidence is good the government is happy. If consumer confidence is weak then the government knows that an economic recession is around the corner. Therefore, governments do whatever possible to increase consumer confidence. In other words governments want people to keep buying more and more. Can you ever think of stopping consumerism under these circumstances? Never!

An economic recession means the reduction of output gradually. When output is reduced for two consecutive quarters, then it is officially defined as a recession by economists. When system produces less, then it requires lesser amount of workers. Hence, in fact, reduction of output in a recession is not the real problem, instead the real problem is the unemployment created by recessions. Modern capitalism has temporarily resolved the question of unemployment by promoting consumerism. That is why they keep an eye on “consumer confidence index.”

Capitalist economist John Maynard Keynes presents an important theory about unemployment and a suggestion to prevent unemployment. He says that any employer or consumer goods producer would produce something with an expectation that he would get a certain income out of the expenditure of consumers. If he did not get what he expects then he reduce his production and slashed jobs. This is common sense. Further Keynes says that when the income of the community increases people tend to save more since their needs have already been satisfied. This idea too, is very logical. Read the next point carefully. Keynes further insists that if the peoples’ savings are not invested, entrepreneurs would not get back what they expect from consumers. If this happens what the entrepreneurs would do? – They slash jobs.

Even if savings are invested, it also must be done subject to one condition. That condition is that the investments made must not produce goods or services for immediate consumption. If investments produce goods for immediate consumption, again entrepreneurs would not get back what they expect from consumer spending which would result unemployment. Hence, investments must be used to produce goods and services which would be made available in the future. If that happens there will be full employment, since entrepreneurs get back what they expect from consumers. This is almost (but not fully) an accurate explanation of modern capitalistic production system.

Now, what does it mean by investing in producing goods and services which would be made available in the future? It simply means that we need to add more and more consumable output year after year; for what? – In order to ensure that we have full employment. This is why capitalist economists keep an eye on “consumer confidence index.” This is how extreme consumerism has been a systemic need in modern capitalist system. For people keeping their employment is much more important than countering consumerism.

This system cannot be replaced just putting up more humane slogans. This system can be replaced only by an alternative economic system in which entrepreneurs would get back what they expect from consumers at any level of production; no matter whether the production is increased or decreased or stay stagnant based on individual consumer needs and preference. Now assume that we have a system to ensure full employment at any volume of output of goods and services. Will the real consumer needs, wants and preference be reflected in the volume of total output in such a system? Yes, it is. This should be one important element in new economic model. Thus we will remove the systemic part of extreme consumerism in the new model. This is essential to free the Man from economic uncertainties. Let us continue this discussion in the next week.

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Latest comments

  • 0
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    Good and thoughtful analysis.

  • 0
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    Hema Senanayake,

    Thanks for the analysis. It goes to show that Capitalism, even with all the socialist incorporations, is yet prone to grave debacles. We will wait for your suggestions for this new alternative economic system. (Wonder if an insurance system based on taxation will work…..but guess that will also involve a certain social awareness based on conscientious nationalism…..like what the Austrians are like)

  • 0
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    Isn’t it funny that when articles not worth a penny are drawing myriad of comments this wholesome article beg for attention. It is not a reflection on the treatise; it is a reflection of the poor taste of our readers.

    However, I have a complaint, valid or not. The presentation is tedious, more like lecture material to undergraduates. Sorry.

  • 0
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    Capitalism has come to standstill ,because rich-capital owners do not seek further reinvestment in new acres of innovations.

    By your writing are dreams of economics and your reading short sights that in political-economic.

    You are far from realized that current political -economics system of Global.

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