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Why does business oppose full employment?

July 20, 2010

On the surface one would think that full employment policies would be favored by business since all goods purchased by the workers would be bought from them.   Why, then, does business oppose such policies?

Economist Micheal Kalecki gave us a thoughtful critique back in 1943 in an essay titled ‘Political Aspects of Full Employment’.  He outlined 3 key reasons:

1) Dislike of government interference in the problem of employment.  The laissez faire system depends on the state of business confidence.  This gives capitalists indirect control over government policy – the government must not shake confidence or risk crisis.  If government can increase employment by itself, then capitalists lose some control.  Therefore, these policies are perilous.  The social function of the doctrine ‘sound finance’ is to make the level of employment dependent on the state of confidence.  (Note my post on Ferguson’s cry for increased private sector confidence.)

2) Dislike of public investment and mass consumption.  Public investment should not compete with private business in order to keep private investment high.  The temptation may eventually come to nationalize transport or public utilities.  Subsidizing mass consumption is bad as it violates a key moral principle – you shall earn your bread in sweat, unless you happen to have private means.

3) The ‘sack’ would cease to play its role in discipline if employment were guaranteed.  The social position of the boss would be undermined.  The self assurance of the working class would improve.  Political tensions would increase with increased strikes.  Discipline is politically more important than profits.  Class instinct says lasting full employment is unsound.  Unemployment is an integral part of the normal capitalist system.

He noted that the necessity of something being done in slumps is agreed.  Businesses and their experts tend to accept public investment for alleviating slumps but oppose maintaining full employment.  A powerful alliance is likely between big business and rentier interests (passive investors) if full employment is tried.

He concluded that progressives should not be satisfied with a regime that provides full employment only during times of booms and that we must develop an economic doctrine of full employment.  The stimulation of private investment is not an adequate tool for preventing unemployment.  Using interest rates or taxes during the cycle will reduce fluctuations but not provide full employment.  Keeping interest rates low during the boom will lengthen the boom but a slump will occur since the forces causing cycles will not have been eliminated.

Very relevant almost 70 years after it was written.  How little has changed.

From → Dynamics, Suppression

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