The truth about those unemployment stats

‘It’s official: Britain is on the way back’, declared a frontpage headline in the London Evening Standard last week. Yet behind the headlines, the UK – and the world’s big, developed nations in general – have a long way to go before the economy returns to pre-recession levels.

The buoyant headlines were the product of two pieces of news. Firstly, unemployment in the UK isn’t rising as fast as would be expected, given the fact that the most recent official statistics suggest the economy was still very much in recession from June to September. While other developed economies like Germany and France have started to grow again, official figures suggest Britain’s national output (gross domestic product or GDP) fell by 0.4 per cent in the third quarter of the year, despite predictions of growth from many economists. Even if the GDP figures are revised upwards later – as many predict they will be – a return to ‘normality’ is a long way off. Nonetheless, unemployment rose by only 30,000 in the three months to September, the smallest rise for 16 months.

The second piece of news was the quarterly inflation briefing from the governor of the Bank of England, Mervyn King. Actually, King’s briefing was pretty sombre. The UK has ‘only just started along the road to recovery’, he said, although the Bank now predicts growth at a respectable four per cent by the end of 2011. However, King warned that the recovery would be restrained by ‘a prolonged period of balance sheet adjustment’ as banks, businesses and consumers paid down debts while new credit would remain hard to obtain for some time. The ‘good news’ is that King’s new forecasts for the economy are not quite as bad as his slash-your-wrists-now previous estimates.

One of the themes of 2009 has been the endless search for the ‘green shoots’ of recovery. They remain hard to find. For example, on Tuesday The Times (London) declared ‘Poll shows Britons see good times around the corner’. What the story actually said was that the number of people who think the economy will do well over the next year has risen from a quarter to a third. Most people still see hard times ahead for the UK.

The pessimism seems well-placed. The UK is stuck under a mountain of borrowing, with its economy propped up by an ever-expanding government debt that’s heading towards the equivalent of 100 per cent of GDP by 2014. In fact, given that the government has temporarily reduced value added tax (VAT), maintained public spending despite a sharp fall in tax revenues and the Bank of England has effectively magicked £200billion of new money out of thin air through the process of ‘quantitative easing’, it really is about time the economy started growing. It’s as if the government has turned the economic defibrillator up to maximum voltage. If there isn’t a pulse soon, King will just have to record the time of death and move on.

Yet if the country is in dire straits, why has unemployment not galloped towards three million – about 10 per cent of the workforce nationally – as widely expected? The BBC’s economics editor, Stephanie Flanders, notes that the process of making people redundant is a costly and time-consuming one, so it may be that there are more job losses in the pipeline. But it is also the case that people have been far more willing to accept cuts in hours and pay to protect jobs than they might have been in the past. There has also been a sharp rise in part-time employment as people accept any kind of work to stay in the jobs market. Despite all this, Flanders argues that ‘given the long-term cost of being out of work – for individuals and for the economy – the slowing rate at which people are losing their jobs overall has to be cause for good cheer, however cautious’.

We should indeed be very cautious about such figures. While the private sector has been hit hard in the past year or so, the public sector has been relatively insulated from job losses. All the major parties agree that deep cuts in public spending will be essential as soon as the economy picks up (see The austerity auction, by Rob Lyons). We can therefore expect a long period of stagnation as a feeble recovery in private-sector activity is offset by a shrinking public sector. And at some point, the Bank of England is going to have to reverse that policy of quantitative easing, too. One BBC reader’s comment on Flanders’ article put it less than delicately: ‘Stephanie, you’re trying to point out the brightly coloured bits in a sea of puke – it’s still puke, no matter how many carrots and peas there are within it.’

Thanks to a considerable degree of employee collaboration with employers, the crushing unemployment levels of the 1980s have so far been avoided. A report in today’s Financial Times suggests such an environment is set to continue in the short term, with half of British companies planning to maintain a pay freeze in 2010. But the long-term economic outlook suggests that the current high levels of joblessness are going to be around for some time. If the unemployment figures are a surprise, the way in which unemployment – and the recession in general – has failed to ignite as a political issue should be deeply worrying. A year or so ago, there was much talk about how capitalism itself was being called into question by the recession. But the reaction so far has been less a defiant fist, and more a resigned shrug.

This is partly because there is an element of phoney war about the recession at present. Some areas of the country have taken a beating in terms of job losses. Unemployment in the West Midlands, an area strongly associated in the past with manufacturing, has hit 10 per cent, for example. But those still in work will have experienced low retail-price inflation and falling housing costs as mortgage interest rates have tumbled. Perversely, many people will feel better off now than 18 months ago. Whether that continues remains to be seen.

But the overriding factor is the lack of any alternative to what is on offer at present. The defeat of the labour movement in the 1980s was quickly followed by the collapse of the only apparent alternative to capitalism, the Stalinist command economies in Eastern Europe, symbolised by the fall of the Berlin Wall 20 years ago. This double whammy has deprived opposition movements of any base to work from. Both the British trade unions and the Soviet-inspired Communist parties were an enormous barrier to meaningful political change, but we live in an era where there is no coherent opposition at all. Unable to find a basis on which to oppose the economic crisis collectively, and with no political alternatives on offer, people are left to cope as best they can as individuals.

When Flanders talks about the ‘long-term cost’ of being out of work, it only emphasises how unemployment is seen less and less as an economic problem and more as a psychological one, particularly for young people. If we don’t socialise people into the world of work, so this train of thought goes, we will end up creating a dysfunctional generation, lost to mainstream society (see Why unemployment is no longer a political issue, by Brendan O’Neill).

The result of this depoliticisation of unemployment and the economy will be a period of stagnation, when much of the potential of society will be wasted and the majority of people will have little or no say over the way events unfold. There is little prospect of a vibrant political movement emerging any time soon, but we can at least make a start by developing a hard-headed and sober assessment of where we are now. It would make a welcome change from the optimistic/pessimistic bipolar disorder that currently characterises the debate about the future direction of society.

Rob Lyons is deputy editor of spiked.