Job Insurance - The Public/Private Issue (Part 7 in a Series)

Introduction:

This is a cross-post from The Realignment Project.

For earlier parts in the series, see here.

One of the largest ideological barriers to establishing Job Insurance, just as was the case with Social Security and Medicare/Medicaid, is that it would in a fundamental way reshape the composition and relations of the public and private sectors. This more than anything else is what terrifies Republicans (it’s the reason why the GOP has targeted the public option especially) because it undermines one of the most important justifications for anti-statist and pro-corporate ideology. If the public sector and the private sector are not diametric opposites – if in fact, the public can do things that the private can, instead of the private sector being the only repository of competence and efficiency (and thus, capable of replacing the public sector) – then there is no practical argument against government intervention in the economy, and increasingly fewer philosophical arguments against it.

And so the argument will be made that this is socialist, that it’s un-American. And none of that is true.

Background:

In previous installments of this series, I’ve written about how the origins of job insurance can be found in the work of the Committee on Economic Security (CES), the New Deal working group that designed Social Security. One of the more interesting archival finds I’ve made in my study of the CES is a presentation commissioned by Federal Emergency Relief Administration (FERA) staffers, who were advocating on behalf of jobs programs. In the process of developing a jobs plan for the CES, FERA staffers did something remarkably ordinary – they hired an outside consultant, Economic Security Associates, a private firm of economic analysts, to develop of a structural model of the American economy- and got a remarkably unusual product.

Lewis Baxter of the ESA devised a graphical chart (essentially, a primitive PowerPoint presentation)  that displayed the American economy as a figure-eight, with public and private economies as two halves of a whole, inherently linked by flows of taxation, interest, government spending, investment, and above all, purchasing power. By adjusting a slide that denoted the size of the Federal budget, the reader saw that increasing Federal outlays on public employment expanded purchasing power, and thus repaid the cost of the program of taxation fully by increasing personal and corporate incomes and the revenue that flowed to the government from them, as long as “universal useful employment based on assured jobs in public service” could be assured. It was essentially Keynes’ General Theory, a year before the General Theory would be published.

(Note: unfortunately, I didn’t have a digital camera with me to make a copy of this document, so you’ll have to use your imagination with the crude mockup below; I will replace the image the next time I visit the National Archives)

mockup of Baxter

By establishing full employment through a “job assurance” system, Baxter thought the fundamental nature of the economic system had to be re-assessed.“Government activities constitute, in effect, an auxiliary industry,” Baxter argued, “which might always utilize advantageously the entire labor surplus.” By focusing on government as a net producer of capital, with its own rates of return on investment and labor, Baxter argued that the old idea of government spending as a chill on private economic activity (and thus a barrier to economic recovery) was missing the big picture. In one hypothetical recession, Baxter argued, “Decreased private activities have released 1,200,000 workers…but under this plan, expanding public activities would promptly take on 1,200,000 extra men.” Thus, government-created jobs would maintain “the required equation between total workers and total available jobs. There would be no labor surplus to start the “vicious cycle” of a depression.” Thus, in the public employment view, public employment would be the solution to cyclical economic crisis, stepping in to alleviate the effects of depression as they happened.

Moreover, Baxter argued that public employment offered two further advantages. First, public employment provided the prospect of recovery through growth by putting potential labor to use. “The point to be emphasized here,” Baxter wrote, “is that allowing an over-supply of human productive energy to go to waste in idleness, which might be utilized to create general benefits, deflates the entire price and investment structure.” By putting labor power to work, public employment would push the economy to its maximum level of production, reduce the downward push on wages caused by mass unemployment and decreasing demand, and restore an imbalance in the distribution of capital between consumers and investors by shifting tax revenue taken from the rich towards wages for the poor. Second, public employment represented a movement towards the socialization of work and an affirmation of the importance of being a worker, a productive member of society, part of the workplace. By expanding government into the role of employer and producer, public employment blurred the distinction between the private and public sectors. The public industry “differs from the others only with reference to the nature of its products and the methods of marketing them,” Baxter argued. In the conclusion of his report, he emphasized the sameness of government and industry, how government would become a model of moral capitalism, such that the basic economic structures Americans were used to seeing would change without seeming to change; with public employment , “total income remains constant. The average personal income remains constant. The sole change is that the average producer is buying less individually and more cooperatively.”

Far from a socialist idea, Job Insurance as a transforming element is actually the product of a private consultant (albeit a private consultant who was astonishingly enthusiastic about a government-led reconstruction of the American economic order). Far from an un-American import from the socialist reaches of Scandinavia, Job Insurance is as American as Social Security.

Today:

In today’s post-industrial economy, it is clear to all but the most obstreperous anti-staters that the inherent differences in public sector activity and private sector activity are becoming increasingly less important. After all, the public sector is not only about 30% of GDP, but it’s also a major player in some of our fastest-growing sectors – health care, education, elder care and child care, research and development, and other sectors are areas in which you have both the public and the private sectors providing the same services, making the same kinds of capital investments, and employing quite similar workforces.

Given that many other developed nations have public sectors that are well above 50% of GDP, the idea that there is an inherent bright line between the public and private sector doesn’t really make much sense. Instead, as I’ve noted in my Public Virtues series, the question shifts from “should we have a public sector or a laissez-faire system?” to “what elements of life are best suited to be commodified or de-commodified” and “what does the public sector do better than private sector and vice versa?”

And Job Insurance, similar to the WPA, raises these kinds of questions. In its time, the WPA employed about 7% of the workforce and the New Deal’s expenditures (of which the WPA’s expenditures made up the majorities) made up about 8% of the GDP. The WPA’s activities, moreover, challenged the normal conceptions of what the right balance between public and private should be. As a “force account” construction agency, the fact that the WPA could build hundred of thousands of miles of road, thousands of bridges, tens of thousands of public buildings, and all without having to make a profit brought into question whether private construction could actually satisfy the public’s needs – especially at a time when private construction, especially in housing, had  basically collapsed, the New Deal’s construction program (combining the WPA and Public Works Administration) made up 2/3rds of all construction in the 1930s. Similarly, the WPA’s “production-for-use” program, which employed people, mostly women, in canning food, sewing clothing, and building furniture that was distributed free to families on relief, terrified conservatives as the vanguard of American socialism. The WPA so terrified private sector interests that you can still find anti-force account “watchdogs” set up by private construction and contractors to fight against any government attempt to actually build things on its own.

A Job Insurance system, combining the WPA’s trademark “light construction” and social services, will raise the same questions of whether “cost-plus” contracts are really the best way of building public goods, and whether child care or elder care should be ferociously expensive private commodities or widely-available public goods. And private contractors will fight Job Insurance with all their might.

Conclusion:

However, this is a fight worth having. On one side, you have the promise of full employment and a public square and commons beautified and made fruitful, and on the other, the profit margins of private contractors who couldn’t exist without government handouts.

I know which side I’m on.

Meta: 

Comments

did you see the FNVs?

It's getting tougher and tougher to find embeddable (legally) online documentaries but I dug as best I could on infrastructure this last Friday.

It's much worst than I originally thought and it's so obvious just focusing in on these not only would be a great jobs program, complete with skills training because a lot of the work is not unskilled, but also is such a great way to invest in America.

I haven't dug into as much as I'd like to find in terms of contracts in Stimulus for infrastructure, it could use a lot more research as a topic, but I saw that one system was using the Iraq no-bid system as well as corruption, cronyism in state disbursements...

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FNV?

Not familiar with the acronym.

I believe that the majority of the stimulus was under contract. The Green Corps stuff isn't, and certain states and localities might route things through their Department of Public Works, but most of it is probably private contractors.

Then again, this is something of an exception - normally, private contracting limits the number of jobs created, because contractors generally already have a workforce, tend to use a small number of skilled workers plus lots of machinery, and only therefore hire at the margins.

However, with unemployment at 9.7% officially, and unemployment so centered in the construction industry, it's probably more efficient than it would be in a normal recession.

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oops!

FMN - Friday Movie Night, it's in the blog list at the top, marked Infrastructure.

Every week I try to locate as best I can good media on economic related topics and tried to grab infrastructure documentaries, reports.

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