Inside Story

All hands on deck

Noel Pearson’s job guarantee plan meets its most powerful critic: the newspaper that published it

Michael Dillon 21 August 2020 2251 words

Cape York Aboriginal leader Noel Pearson poses for a portrait during the Garma Festival near Nhulunbuy, East Arnhem Land, Sunday, August 5, 2018. The Garma gathering brings together business leaders, international political leaders, intellectuals, academics and journalists to discuss the most pressing issues facing Australia. Mick Tsikas/AAP Image

Last month Aboriginal leader Noel Pearson emerged from a period of relative quiet to advocate an ambitious and in some respects radical proposal, a national job guarantee. Like his previous forays into policy advocacy, the plan is based on serious thought and a corpus of pre-existing research. It also has impeccable theoretical antecedents dating back to John Maynard Keynes’s path-breaking work, The General Theory of Employment, Interest and Money, in which the economist spelt out the need for governments to spend during downturns.

In developing the job guarantee proposal, Pearson has linked up with economist Bill Mitchell, a leading proponent of Modern Monetary Theory, or MMT. Mitchell argues that fiscal deficits are not inherently bad and that seeking to control inflation by maintaining a “buffer” of unemployed people (the current orthodoxy) is economically damaging. While the lively international debate about the feasibility of MMT is important, the job guarantee proposal doesn’t stand or fall according to how you view MMT.

Proponents argue that a universal job guarantee, set at the minimum wage, would have three important benefits. It would act as an “automatic stabiliser” (in Keynes’s terminology) by countering undue rises or falls in demand across the economy. It would forestall the significant economic and social costs of structural unemployment. And it would allow the central bank to focus squarely on managing inflation rather than having to attend to both inflation and employment targets.

In an opinion piece in the Weekend Australian, Pearson made plain what was driving his interest in this issue: “My people, consigned to welfare and structural exclusion from the real economy in the post-60s era of growing unemployment, have been victims of public policy choice for which there existed a better and more humane alternative.” He went on to outline his long campaign against passive welfare and its “bitter harvest”: “social problems, broken families, intergenerational poverty, lower life expectancy, egregious rates of out-of-home care for children, juvenile detention and adult incarceration.”

Although the necessary legislation would be national, the scheme would be administered through local government, Pearson wrote. He distinguished it from work for the dole — “It’s a full-time, minimum-wage job” — and stressed that the payment would replace unemployment benefits and end the churning of “hapless clients” through welfare-to-work programs.

Three weeks later, Pearson and Mitchell followed up with a two-pronged argument for their idea. First, focusing on the employment gap for Indigenous citizens, they cited a recent national cabinet pledge (not then public) to raise the Indigenous employment rate from 49 per cent to 60 per cent of working-age people by 2028. When it was finally announced on 29 July, the target was set at 62 per cent by 2031. With the mainstream rate currently 75 per cent, this new Close the Gap target concedes that four in ten Indigenous people will be without a job for the indefinite future.

Second, focusing on mainstream employment, they pointed to current estimates of 7.4 per cent unemployment and around 11.7 per cent underemployment. Figures recently published by Mitchell suggest that an annual $50 billion in government outlays could create 1.24 million jobs and bring employment down to 4 per cent. This fiscal stimulus would also have the flow-on effect of increasing private sector demand for labour, and its cost would come down as the private sector picked up.

Pearson and Mitchell point (persuasively, in my view) to the illogicality of the government’s recent decision to withdraw fiscal stimulus in the face of ongoing community shutdowns and rising unemployment.

Finally, they argue that separating Indigenous disadvantage from mainstream disadvantage is a poor policy choice:

[It] allows a pall of exceptionalism to be cast over the constantly depressing and outrageously out-of-step numbers that characterise Indigenous disadvantage. It’s as if the country — inured to the bad numbers — has come to accept that little can be done.

The country needs to address inequality and poverty as an Australian problem, not just an Indigenous problem.

So, how should we assess Pearson and Mitchell’s job guarantee plan?

The Australian’s editorial on 8 July 2020 provided an early critique. Headed “The Promise and Pitfalls of Modern Monetary Theory: Printing Money Doesn’t Reduce Deficits or Create Lasting Jobs,” the editorial takes aim at Pearson and Mitchell for overreach, the cost of administration, and the putative lack of fiscal self-control if “a populist National, a clueless Green, or a Labor class warrior” were they to control the Treasury benches.

“Pearson’s is a mammoth, brave proposal, one that would redefine the role of the state,” said the editorial, conceding that “In the midst of the greatest social and economic calamity in ninety years, there has to be more scope for imagination and ambition in our policy approach.”

Nevertheless, it saw a number of hurdles. The cost and administration of the scheme “would be vast,” work incentives would be skewed, some citizens wouldn’t want to work or train, and welfare would still be required for those who fall through the cracks. “While the policy edifice is failing Indigenous people, a neat solution is a chimera,” it summed up, concluding with the trite observation that:

we live in a complex, even messy world… How can you hope to manage the economy?… As an analytical tool the theory [MMT] has merit. But with printing money in the real world, there is a day of reckoning or just a long stagnation. Our income can never be guaranteed, so we need to earn and pay our way.

The value in this editorial is that it begins to set down the outlines of the case against the Pearson–Mitchell proposal — and it appears to be a collection of time-worn chestnuts synonymous with the slogan “private good, public bad.”

The Australian relies on the ideological trope that fiscal responsibility (austerity, in other words) must at all times be paramount in policy-making and administration — an idea already blown to smithereens by the pandemic. It also assumes that government’s role should be minimised and the concomitant red and green tape shredded — a view also blown out of the water by the exigencies of the pandemic. And its argument rests on a belief that complexity and messiness make for expensive policy and programs. Well, yes, but that reflects the world we live in. Markets and Adam Smith’s “invisible hand” are amazing mechanisms for allocating resources, but they require strong and independent regulatory oversight if they are to work in the public interest.

What is missing from the Australian’s critique is an acknowledgement of the devastating costs (both financial and intangible) of an unemployment rate in excess of 10 per cent — and much higher among young people — over a sustained period. A recent Productivity Commission working paper on the consequences of the global financial crisis reports that “workers aged twenty to thirty-four experienced nearly zero growth in real wage rates from 2008 to 2018, and workers aged fifteen to twenty-four experienced a large decline in full-time work and an increase in part-time work.” Imagine what the commission will report in 2030 about the consequences of the current crisis.

A second omission from the Australian’s response is any acknowledgement of past policies directed at full employment, including New Deal–era programs in the United States and Australia’s own 1945 White Paper on Full Employment, which underpinned the postwar boom. The white paper’s full employment focus continues to this day as one of the legislated core functions of the Reserve Bank.

The third major omission is any conception of a dynamic and evolving role for government not just as a provider of public goods but also as a manager of risk. A job guarantee can be viewed as an institutional mechanism to retain, strengthen and develop the nation’s human and intellectual capital. To take just one example, the laws governing limited liability corporations are a form of risk insurance for shareholders. As the American economist David Moss points out in When All Else Fails: Government as the Ultimate Risk Manager, it wasn’t initially obvious that such innovations were required or would work. Today, they underpin the financial markets that raise most of the world’s capital for investment. I don’t hear any calls for this “red tape” to be removed.

Ultimately, though, the problem with the Australian’s editorial is that it focuses on the costs of delivering a job guarantee but entirely ignores the costs of failing to deliver one. Yes, a job guarantee would have implications for other policies. But it should be included on policymakers’ list of potential priorities and assessed against all others.

Leaving employment policy to the private sector is a choice of policymakers and governments, and it has serious consequences for citizens who can’t find work. Conveniently for governments, employment levels are made to seem as if they are someone else’s responsibility. Notwithstanding the rhetoric of the government (and indeed the opposition), the current orthodoxy allows governments to avoid hard decisions about social priorities. It means they can dodge the question: is full employment a priority or not?

In other words, I am a strong supporter of the Pearson–Mitchell proposal. If implemented, it would expand social inclusion, alleviate financial disadvantage and undoubtedly have other positive spin-offs for individuals, while providing a considerable impetus to social and economic infrastructure in local and regional communities. It would also make a huge contribution to eliminating Indigenous disadvantage, although it is not a silver bullet in that regard.

Like any complex public policy proposal, the guarantee will present challenges. As with planning for postwar reconstruction in the 1940s, designing the scheme will throw up many issues, the administrative systems required will be complex, and unintended consequences will emerge, particularly in the implementation phase. Tension is inevitable between the Commonwealth, as the funder of the program, and the delivery agencies (currently proposed to be local governments) over modes of operation, allocation of labour resources, and lines of accountability and reporting. These are not insurmountable challenges, but they do point to the importance of maintaining a degree of flexibility in the overall architecture of the scheme.

Despite the substantial merits of this proposal, though, the likelihood of any Australian government implementing it over the next five years is close to zero. This is not down to any fault in the proposal; it reflects the quality, risk aversion and blinkered ideologies of our governments and public institutions.

Would any modifications to the proposal make it more attractive to government? While a key virtue of the Pearson–Mitchell proposal is that it is universal, it may be that a second-best option, more limited in scope, will have a better chance of being implemented. This wouldn’t preclude the eventual adoption of a universal scheme and would provide an opportunity to test what will inevitably be a challenging and complex reform.

The economic and social crisis arising from the pandemic certainly demands more than business as usual, and its impact is likely to persist well beyond the current political cycle. This suggests that a proposal focused on the current crisis — rather than an open-ended scheme — might be more politically palatable. With a ten-year horizon, for instance, the effectiveness of the policy could be assessed based on its tangible record in cushioning the economic impacts of the crisis.

Another possibility would be to introduce the job guarantee across remote Australia, replacing the current Community Development Program, which is widely acknowledged outside government circles to be less than effective and highly punitive in its implementation. The levels of unemployment and underemployment are far worse in remote and very remote Australia, and it is already clear that current policies are doing very little to turn that around.

Even this scaled-back version would meet political resistance, but the Commonwealth’s very modest Indigenous employment ambitions in the new Closing the Gap program — and the absence of any strategy to meet even those meagre targets — suggests the need to try something new. A mainstream job guarantee in remote Australia would automatically target a substantial proportion of the most disadvantaged Indigenous citizens in the nation.

However a job guarantee program is rolled out, the unique circumstances of remote Australia will require particular attention. Indigenous organisations would expect to co-design the program, and community-controlled organisations would expect accreditation as job providers. The decentralised demographics and legitimate cultural aspirations of the remote Indigenous population will also create challenges. The lack of resources for managing the extensive and growing Indigenous land estate will need to be a focus, and the guarantee must build on successful innovations like the “working on country” programs that fund over one hundred ranger groups across the nation.

In what is clearly shaping to be a once-in-a-century financial, health and social crisis, the job guarantee is an idea whose time has come. It would align squarely with both major parties’ claim that job creation is the key priority for government. It would provide stimulus over the next decade. It would build rather than waste our most precious national resource, the skills and intellectual capital of our citizens. It would provide a strategy to reject the idea that the nation’s prosperity requires the impoverishment of a significant proportion of our citizens, particularly our youth. And it would open up employment opportunities to structurally excluded Indigenous communities and citizens — a choice the nation has lacked the political will to reverse.

In the shadow of a potentially existential climate crisis, we need all hands on deck. The national interest requires that we use all the human resources available in economically, socially and environmentally productive ways. •