It's time to introduce workplace citizenship to Britain's employers. Photo: Getty
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How to fix Britain’s broken workplaces

A new inquiry into Britain's work problems presents a vision of workplace citizenship.

There’s something seriously wrong with the world of work, and not just in the places you would expect. We know that the UK is near the bottom of the EU low pay league and that those on low pay make up a fifth of the labour force (the same as in 1994, despite the introduction of the minimum wage). And, we know we are world leaders in zero-hours contracting and outsourcing.  But, the problems at work today are no longer confined to precarious employment. As the Smith Institute’s inquiry into Making Work Better shows, the majority of Britain’s workplaces are now broken and under-performing. 

The inquiry’s 100-page report by Ed Sweeney, the former chair of Acas, documents a litany of employee concerns: falling real wages, insecurity, mistrust, skills under-utilisation and low levels of engagement. Workers in all types of jobs say they feel undervalued and over worked. They are also angry about excessive top pay and the way they are managed. Many employers are communicating, caring and investing in their staff. But, the gap between the rest and the best is widening.

Problems at work may be a blind spot for the government, but it’s undermining our productivity (which already lags well behind our competitors) and costing the taxpayer billions in terms of in-work benefits. The fact we have so many low paid, low skilled jobs in low value business is also holding back the recovery. 

With so many people feeling short-changed at work there are potentially huge dividends for a party that champions not just more work, but ‘good work’. Promising a fairer and more prosperous society with greater opportunity for the many can’t be achieved with a government that ignores the benefits of social partnership and employee voice and fails to tackle worsening wage inequality and widespread mistreatment at work. International research quoted in the Sweeney report, for example, busts the myth that deregulated labour markets with fewer employment rights and a power imbalance tilted firmly in the employers favour leads to higher productivity and happier workers.

Moreover, there’s a compelling business case for making work better. Highly motived, empowered and engaged workers make for more successful organisations. Fear and anxiety at work are hardly the hallmarks of modern businesses. What is self-evident to the vast majority of people in work is that a top down “bosses know best”, “us and them” view of the world belongs to yesteryear.  It not only stifles both productivity and innovation, but creates mistrust between employee and employer.

A serious problem in many of our workplaces is not so much the lack of skills, but the poor way managers use the latent talent in their workforce. Innovation is not just about spreadsheets or tests in the science lab. Surprising as it may sound to some, employees often know the best way to undertake a task and may have insights into what is not functioning properly. Instead of using the skills and knowledge, workers in the long tail of poor performing companies are left feeling disengaged and disillusioned.

In many instances workers also feel insecure. Indeed, the race to the bottom on rights and voice is not just about the acute problems in troubled workplaces. According to a recent Smith Institute and TUC poll, half the workforce is fearful of loss of job status while a similar proportion feel anxious or worried about work. This is hardly a basis for building trust or encouraging employees to go the extra mile, let alone the foundations for a healthy one.  Studies by Professor Michael Marmot and others repeatedly show the harmful effects insecurity (and low pay) has on the health of the nation. Making those social costs more transparent and identifying and benchmarking the good employers can help, as can support for better management and HR training.

For some, the societal costs associated with insecurity and wages are just downsides to the unstoppable forces of globalisation and technological change. However, such ‘natural forces’ are not experienced in the same way in other countries. And, most low paid jobs are not subject to the pressures of international competition. Indeed, a telling conclusion from the Making Work Better report is that these inter-related problems at work (poor productivity, insecurity and inequality) are a consequence of a financial business model designed to pursue the low road on wages, skills, and employee involvement.  The fact that the government’s employment policies encourage this ‘race to the bottom’ is no coincidence, as its failed ‘shares for rights’ scheme illustrates.

There is an alternative which challenges some of the prevailing assumptions and sets out an alternative narrative on the labour market. It’s based on the concept that work gives us meaning; that productive work is achieved by colleagues working together; that success requires workers at all levels having a say over their work; and fair rewards and security require balanced power relationships at work.

Such a vision of workplace citizenship isn't a fantasy, and there is much that government can do to ensure that employees do not surrender their rights as citizens at the point they cross their employer’s threshold. Government, for example, can do more to spread good practice and help create a level playing field so the best employers are not undercut on the basis on lower pay and poorer conditions. As the report suggest, government can become a Living Wage employer and use its power of procurement to lift people out of poverty pay. It can  also insist that companies disclose their pay ratios and support collective bargaining; clamp down on the abuse of zero hours contracts and bad agency work; reform the employment tribunal system to make it affordable and fit for purpose; improve the enforcement regimes for the minimum wage and equal opportunities; ensure that a two tier workforce doesn’t emerge when services are contracted out; extend childcare and improve eldercare; and simplify and amend the existing Information and Consultation Regulations to give employees a stronger collective voice.

Improving the world of work will of course rely on decisions and circumstances of individual employers and employees (and trade unions). But government can take a lead and advocate a culture of cooperation and consultation. The prize is not just a better deal for employees and more productive organisations, but a better deal for government.

Paul Hunter is head of research at the Smith Institute

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We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?