The International Labour Organisation… Almost Correct

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I have an article up on Al Jazeera this week. It may be the last journalistic article I write for some time as I start a new job next week. But this one deserves some brief discussion because the material it deals with is hugely important to the politics of the moment.

In the article I discuss a joint report by the ILO, the OECD and the World Bank. The ILO have clearly spearheaded this one. It has their fingerprints all over it. The ILO are pretty fantastic really. They are one of the only large-scale economic institutions that are talking sense today. Indeed, in the report the authors make a properly Post-Keynesian case for why the economy is stagnant: that is, it has to do with skewed income distribution and a low marginal propensity to consume among those in whose favour distribution is skewed in.

The problem, however, is that, like the trades unions that they represent, the ILO fundamentally buys into the deficit-scaremongering stories. They reflect the party line that we see in social democratic governments across the world: deficits are a Bad Thing and governments should be aiming at winding down their supposedly dangerous debt-to-GDP ratios.

It is ridiculous that center-left political parties, trade unions and the ILO often take this as their official line. Almost everyone I meet from these organisations know that it is a pile of silliness. So, why do they spout it in public? Honestly, I think it has to do with appearing as a Very Serious Person in public. There is still a taboo in place that requires people in public to pontificate on the Evils of government debt. Even though a lot of people don’t believe in this moral tale, they have to do it regardless.

After the Second World War the taboo was that no government official would be taken seriously who said that full employment was undesirable. In order to be taken seriously in public politicians and economists had to say that the primary economic problem was unemployment. Any scheme that was seen to generate unemployment was not taken seriously.

The question now is how we get back to that. Earlier this century it required a war. If the Great Depression and the current stagnation have taught us anything it is that capitalist democracies do not respond to problems of unemployment through their in-built institutional mechanisms. Even with very high rates of unemployment — say, 10%+ — the people that are unemployed do not make up a large enough voting constituency to force parties to adopt full employment policies. What is more, lacking leadership, this constituency are not all that sure what they should be voting for as they do not understand the nature of the problem.

Meanwhile, the left-wing and the workers’ organisations are weighed down by the stagnation of ideas to which they have succumbed. The left-wing, still believing that the early 20th century working class make up their key constituency, aim their rhetoric at anyone making upwards of £50,000 or £60,000 a year — when it is these people that they should be trying to win over. Indeed, the left-wing should just shut up about anyone earning less than about £120,000 if they want to sort out their electoral strategy. They would also do well to recognise that income distribution is not so much today to do with salaries as it is to do with asset holdings (CEOs paying themselves in stock options etc.).

In the meantime the labour unions have become over bureacratised and subject to ‘educated elite’ opinion through their hiring practices. Their ideology is the one derived from marginalist economics and typically has a vision of the union representative — now typically a well-heeled type from a major university who comes equipped with an economic degree — representing workers in a supposedly monopsonistic labour market. Yes, you can thank those lefties that bought into marginalist economics for much of the malaise in the ideology of today’s workers’ movement. Thanks boys!

Anyway, I rarely talk politics on this blog but these are the issues that we have to deal with if we want to get back to the old norms. Oh, and never trust a New Keynesian working in any nominally left-wing institution… ever. They do far more damage than you can possibly imagine. You only have to attend a few leftie trade union economic meetings to get a grip on that very quickly indeed.

Here is my article:

Global economic malaise driven by unemployment and low wages

About pilkingtonphil

Philip Pilkington is a London-based economist and member of the Political Economy Research Group (PERG) at Kingston University. You can follow him on Twitter at @pilkingtonphil.
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15 Responses to The International Labour Organisation… Almost Correct

  1. Well said. When you hear heterodox economists challenge the field’s over reliance on mathematics its usually explained as a flight from the vagaries of psychology. While psychology is obviously a part of any economic activity, I always wondered if the math was an attempt to distance theories from their political implications. Even if we accept the standard intro econ assurances that economics is about understanding and not morality, politics will still dictate which theories guide elite decision making and which are taboo.

    I appreciate the joy of abstract understanding as much as the next guy, but I doubt many economists dedicate themselves for so long without some hope of making a difference in the world. Its important to acknowledge that advancing any economic policy changes will have some winners and losers, and therefore some political ramifications. I worry that staying willfully ignorant of that fact leaves economics open to political manipulation. Not that economists need to become PR people, but when even labor organizations don’t support pro-labor econ policy its clear advances in understanding are not translating into better decision making.

  2. Dantey says:

    Hi Philip,

    On a separate topic, you mentioned in your ‘About’ page that “I considered wiping out most of the old posts to ensure that the blog keep a consistent theme, given that these old posts are somewhat haphazard and misguided due to being, frankly, misinformed to a large degree (they were written when I had no real grasp of formal economic theory).”

    Can you point out some of those posts, to an economics noob here? I’d would much appreciate it

  3. Pingback: Philip Pilkington on the ILO and trade unions (and more) | Arjen polku

  4. Be A Debaser says:

    What’s the new job Phil?

  5. Jonas says:

    “representing workers in a supposedly monopsonistic labour market”

    Supposedly? I don’t follow you here. The fact that many labour markets are monopsonistic is actually the best economic argument for strong unions (it is pretty hard to argue economically that people who work in markets where the folks who hire don’t have monopsony power, e.g. hairdressers, should earn more). The fact that shareholders cannot perfectly screen top management (asymmetric information) allows top management to extract rents from the company.

    So basic economics can provide powerful arguments against the deeply entrenched notion that that pay always reflects productivity (as you pointed out so well, this notion is nowadays even widely spread among moderate leftwingers).

    Neoliberalism does uses some ideas from basic econ but this does not imply that you can equate the two; as I just pointed out, you can use basic econ as well to intellectually tear neoliberalism to shreds.

    • This is precisely what I’m talking about. These ideas actually just distract you from the real issues. You’re a lefty trying to make a case against neoliberalism using the language of neoliberalism (marginalist economics). It will always end in disaster. Sorry but it just will. We’ve seen it before in the 1990s. We know where it leads. The enemy within. Truly the enemy within.

  6. Jonas says:

    You are wrong, basic economics is politically neutral. If you take it seriously and don’t distort it for propaganda purposes like some right-wingers (you are obviously only familiar with the latter and not basic econ itself) do it can provide powerful progressive arguments.
    Climate change denial is destroyed by externality arguments, pay reflects productivity arguments are destroyed by monopsonic labour markets and imperfect monitoring of top management. No financial regulation arguments are ripped apart by standard incentive problems due to asymmetric information in financial markets arguments (I try to explain them to laymen via asking them why there is no ebay for loans).
    So much about about your ridiculous notion that standard economics and neoliberalism are the same.

    • If you think that the idea of a rational utility-maximising agent is ‘politically neutral’ then your understanding of politics is pretty crude indeed…

      • Jonas says:

        I am a big fan of Akerlof who tried to tie economics into other social sciences like psychology and economics. But I am also a fan of Stiglitz who has shown that serious market failures emerge when you relax the perfect information assumption of Arrow-Debreu just a little bit and without relaxing the perfect rationality assumption one iota.

        So your notion that standard economics and neoliberalism are identical is wrong as you misrepresent what standard economics is about, probably because you are not familiar enough with it.

        Now I agree that many economists are still pretending that we live in an Arrow-Debreu world in which incentive problems due to asymmetric information and oligopolic market structures do not exist … but this does not mean that economics is wrong but that, to paraphrase your blog title, right-wing economists use wrong models and need dire fixing.

      • Akerlof’s and Stiglitz’s work is purely destructive. It does not provide new relevant theories. Which is why the beast lives on. Flexible labour markets, blablabla.

  7. Dantey says:

    Regarding your upcoming book, is it accessible for someone who hasnt studied economics before?
    And when is it coming out?

    • I would like to think so. And I have no idea. Publication is a very slow process.

      • Dantey says:

        Would like to think so? Hmm.. it’d be cool then to have a preview whenever you deem fit.

        And with regards to my previous post above –
        “On a separate topic, you mentioned in your ‘About’ page that “I considered wiping out most of the old posts to ensure that the blog keep a consistent theme, given that these old posts are somewhat haphazard and misguided due to being, frankly, misinformed to a large degree (they were written when I had no real grasp of formal economic theory).”

        Can you point out some of those posts? I’d would much appreciate it.

      • Anything pre-2012 I think.

  8. erinmickey21 says:

    It is quite relevant even today. The ILO is taking us for a ride.

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