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Friday 10 April 2009

Fixing The Roof – Part 2

I’ve previously considered the Tory concepts of “fixing the roof while the sun is shining” and “living within our means”, concluding that these soundbites are in fact a cover for increased unemployment in the public sector, at least in the immediate term. Here I’ll show that any increase in public sector unemployment is bad news for the wider – private – sector as well.

To continue the example from Part 1, in Crewe, many people across a wide range of skills are employed at Leighton Hospital. They buy or rent property, use public transport, buy and maintain cars, shop for food, clothing and household goods, are entertained at cinemas and in clubs, enjoy eating out or takeaways. Most, if not all, of these purchases are from the private sector. The businesses concerned employ people, and these employees also buy services from other businesses.

Any reduction in the public sector workforce means that there is less demand for property, cars, household goods – even less demand for food, in money terms, as loss of income drives a move from premium to utility. The simple and chilling conclusion for the private sector is that they, too, will suffer a reduction in employment as the public sector shrinks.

And the reduction in employment can be made worse if the reduction in public spending is made when the wider economy is turning down, or has already turned down. This is, broadly, what happened in the first years of the Thatcher government. There were calls for restraint and patience, and headlines screamed the necessity of the approach in phrases such as “If it isn’t hurting, it isn’t working”. Such calls and phrasings were invariably sourced from those who, at the time, enjoyed a regular income.

It’s always easier to call for belt tightening if the belt concerned belongs to someone else.

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