Rewards For Failure

This was the name of the Government White Paper(warning: pdf) presented earlier this week by the Trade Secretary Patricia Hewitt, with, it must be said, a facial expression that was not a smile. I’ve scanned the paper and my capsule summary of “Rewards for Failure” is; she’s against ’em. So everybody who thought “oh, how nice, they’re doing something for the failures for once, those poor buggers have a terrible time” has been misled, sorry.

Facetiousness apart, however, there is a serious point here. Who do the Labour Party think that they’re appealing to with this bollocks? Last time I looked, there were about twelve million failures in the UK and a fairly high proportion of them voted Labour. Admittedly, Hewitt is only going after a small set of the UK’s failures, (specifically, company CEOs who in some way nause it up and get paid big golden parachutes to go away), but the general tone of the thing appears to be that the problem with the UK economy is not national ennui, historic underinvestment or (as John Kay argues) the erosion of our civic culture, but rather that we aren’t wielding the big bloody stick enough to make everyone work harder for fear of a financially ruinous downfall. What type of a person do you have to be to lap this up?

I maintain that the ordinary plain man does not have anything like the rabid envy of other people’s pay packets that Ms Hewitt appears to believe he has. In general, while people are often shocked at the multiples of a nurse’s salary that it’s possible to pull down by wearing a nice suit, being tall and having good hair, this is a result of underlying egalitarian instincts and is not massively exacerbated when companies fall on their arse into a delirium of moral outrage that the meritocracy hasn’t worked in the way that Adam Smith didn’t say it would. The attack on golden parachutes doesn’t even appeal to aspirational values; for one thing, all of us perhaps like to think that we shouldn’t envy the rich, because we might join that class one day, but our pipe-dreams of being the boss of IBM surely don’t extend to believing we’d be any good at it. I think that all of us like to believe that if we lucked out and got put in charge of a major company, there would be a nice payoff waiting as second prize even if we performed as badly as we suspect we might. For a second point, the sudden hatred of CEOs who don’t make it isn’t even internally consistent with the recent Enterprise Bill which aimed to “reduce the stigma of bankruptcy” in order to turn us all into budding entrepreneurs. I suppose that the message that the DTI is attempting to send to corporate executives is that if you’re going to fail, fail big and make sure you take the whole company down with you. Sheesh. It isn’t even good socialist analysis anyway; wherever the money that gets saved by reducing big golden parachute payments might go, it’s not going to go to the workers. So this is a proposal aimed at protecting the share-owning class from having to perform its economic function of bearing risk on behalf of (a small group of) its employees. This does not strike me as the happy hunting grounds for Labour votes.

In any case, reflecting on the latest moves in the Blairite project of tearing down the old order of privilege, class and background and replacing it with a new order based on pushy young lawyers and their faintly alarming wives (Christ I’m full of bile today), gave rise to a few thoughts about economics, so here they are.

First, the crusade against failure has to be seen in the context of a wider project that has been going on since the Thatcher-Reagan years; the attempt to load risks on to the working class which have historically been borne by the owner class. I’ve been wanting to post something on the general theme of class and risk for ages, but felt that it was in danger of burgeoning into some horrendous treatise. But basically, I think that there is an interesting analysis of class based on exposure to risk, which creates room for that bastard entity the “middle class”, which famously doesn’t have any room to exist in class theories (like Marx’s) based on relationship to the means of production. Say we define three classes thus:

  • The “upper” or rentier class, whose standard of living is at risk if the economy as a whole fails to produce as much as anticipated.
  • The “middle” class, whose standard of living bears the risk of surprises in the production of firm-level business units (economic entities larger than a household but small relative to the economy as a whole).
  • The “working” class, who bear both of the above risks, but who are also exposed to risks associated with their own bodies.

It’s not a fully worked out theory, so don’t take it seriously. But it strikes me that what’s bad about being a proleterian in Marx’s analysis is that you have to sell your labour in order to live, and a lot of what’s bad about that the fluctuations in your ability to supply it are potentially as dangerous to you as fluctuations in the demand for it. I’d certainly argue that one of the biggest differences between the working class and the middle class in the ordinary language senses of the terms, is that if you’re middle class, it’s not such a big deal to miss a few days through illness.

Any road up, that’s just a thought of mine that I think about when I have no other thoughts. Perhaps more interesting is this working paper on the ideas of Jerome Levy, another one of those early twentieth century borderline crank engineer-economists who fascinate me so much. The following extract is a bit tangential to the main point of the paper but it caught my eye:

The working class is the original and fundamental economic class. . . . The function of the investing class is to serve the members of the working class by insuring them against loss and by providing them with desired goods.

Compare to this throwaway line of John Quiggin‘s and you’ll begin to see where I’m coming from (warning: linked page contains beard)

The last line of defence [for a neoliberal argument under discussion — dd] is the idea of X-efficiency, or the ‘cold shower’ effect of competition. As Chicago stalwart George Stigler was the first to point out, this idea is based on the fallacious assumption that additional work effort is costless. This fallacy is hard to kill, but anybody who’s experienced 1990s-style ‘workplace reform’ knows it for what it is.

One way to look at the “reforms” (I believe I have explained the meaning of “reform” in scare-quotes before) of the 1990s in job security, union-busting and casualisation of the labour force, is that they were aimed at extracting more labour from people (increasing absolute surplus-value to you Marxist types) and deploying the existing stock of labour more efficiently from a scheduling point of view. But another way to think about it is to look at the risk transfers involved and this is quite revealing.

What effect does it have on the allocation of the general risks of production if one shortens the term of implicit and explicit labour contracts, increases the proportion of casual and temporary staff and increases the proportion of labour hours which are overtime? To ask the question is to answer it; the effect of doing this is to transfer volatility from profits to wages. Previously, owners of companies had effectively provided income insurance against the business cycle to workers as part of the wage bargain; starting 1980, this insurance was gradually withdrawn, and it is difficult to see from the national income statistics that there was any compensation for this loss of benefit in terms of higher wages. The move to defined-contribution pensions rather than defined benefit is analysable in similar terms as a shift of the risks of the stock market, and with the newly launched War On Failure, the process has gradually begun to eat itself as the owner class turns on its managers in order to shift the risks of corporate mismanagement. Any of the analyses of inequality and mobility which have been popular in the weblog community over the last week or so ought to take this into account; it is not at all impossible that a significant proportion of the observed “mobility” in the income distribution these days represents the end of the salaryman existence in the West, a social trend which should not be confused with anything that might convince the poor that their opportunities have got better.

This is something which ought to cause more fuss than it ever will. I have a lot of sympathy with Levy’s view that if the ownership class aren’t bearing risks, it is hard to see what the hell else they might be doing to earn the profits that they claim. And the importance of these risk transfers is, I suspect but cannot prove, pretty big. In general, insurance is pretty valuable to which is why they buy so much of it. Certainly, the withdrawal of a valuable insurance policy against business cycle risk would do a lot to explain the stylised sociological fact that although we’re clearly much better off, we don’t feel as good about things as our parents did (fun fact from Kay’s latest book; the median score on standardised tests of anxiety for twelve year old children today is worse than the median score for twelve-year-old mental patients in the 1950s). But of course, uncertainty and risk are powerfully difficult to measure and they don’t show up in the national income accounts at all. I suspect that if there had been (more or less per impossibile) a free and liquid market for privately provided unemployment insurance for the last thirty years, and if it had been part of the CPI, people might be absolutely outraged at what had happened to real wages since the Big Neoliberal Project began.


1. Thanks to all the email correspondents (you know who you are) who forwarded material used in this post.
2. If anyone can source a copy of “Economics Is An Exact Science” by Jerome Levy, I’ll pay good money.
3. Apologies for the more than usually convoluted and verbose sentences; I’m in a funny mood today.
4. The other half of this article was going to look at the “Rewards For Failure” concept in the context of the academic job market and the “crisis of adjunct pay”, but I read it back and it seemed rather mean-spirited, so I will try again another day.
5. Presumably after I’ve finished the series on insurance and done all the other things I promised to write about at some unspecified future date.


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