Labour isn't working. Again

The poster that won the 1979 general election was, of course, a fake. The “Labour isn’t working” dole queue was actually composed of twenty fully-employed Hendon Conservatives photographed again and again. But there was nothing synthetic about the impact on Labour government of James Callaghan. Never again, Labour resolved, could the party afford to go to the country when the country was out of work. Yet that is what Gordon Brown risks doing if you believe the spin about the PM delaying the next general election until 2010. There is an unemployment tsunami hitting approaching Britain.

2008 was the year of the panic as oil prices spiked, banks exploded and stock markets collapsed. 2009 will be the year of the dole as unemployment, already higher than at any time since Labour came to office in 1997, climbs inexorably to 3 million by 2010, according to the CBI. The turnaround in the UK employment market has been astonishing. The pace of current job losses, led by the shakeout in the banking sector, has staggered analysts. 300,000 private sector jobs have gone in the last six months of this year alone (CEBR). The 3 million forecast made only ten days ago is almost certainly an underestimate, since the CBI based it on Britain’s GDP declining by 1.7% in 2009, and the Bank of England is now talking about the economy shrinking by 2% next year as Britain enters the worst recession since 1980 . And let’s not even mention that analysts like Stephen King of HSBC say that the official ILO unemployment figures exclude two million people who are economically inactive but would like a job.

What is undeniable is that British firms are indulging in an orgy of redundancy as the 'flexible' labour market allows them to fire first and think later. The good news is that the region hardest hit is likely to be the one most able to cope: the South East, and in particular the London area which is going to lose 650 thousand jobs according to the Local Government Association. This is the one of the wealthiest areas on the planet thanks to the financial services sector based in the City. Mind you, all those redundant middle class professionals might find life a little different on £60 a week job seekers allowance. But they can look after themselves. The people who will have their lives destroyed first are the legions of temporary and casual workers many of whom don’t figure on the unemployment figures because of their age or country of origin. Polish plumbers at least have somewhere to go home to.

Here there are signs that redundancies are being used by some firms as a means of communicating with shareholders and bolstering equity prices. When BT announced 10,000 redundancies two weeks ago it made no attempt to play down the human cost, and according to some analysts, even exaggerated the job losses for effect. Certainly, companies no longer feel they need to apologise for throwing workers on the scrap heap. Firms like Virgin, AstraZeneca, Rolls Royce, Yell, Wolesley, Citigroup have been falling over themselves to announce thousand-plus job reductions in the last fortnight alone. The flexible labour market, inspired by the Tories and realised by New Labour, has allowed contraction to be a first, rather than a last resort. It is the quickest way for a management in trouble to show that they are doing something.

The problem is that this job destruction, rather like banks refusing to lend to small business, is enormously destructive to the broader economy. After nearly three decades of de-industrialisation, the UK desperately needs to protect those skills it has, not allow them to decay on the dole queues. But with trades unions weak, employment law liberal and the government compliant, firms are being allowed to cut the seed corn of the future. This week, following the Pre Budget Report, we are looking to the state to counter the effect of this attrition, as the Chancellor’s tax cuts boost pre-Christmas demand in the high streets. But the government's ability to directly fill the job gap is severely limited. Yes, the public sector is still hiring, and has put on 50,000 jobs in six months according to CEBR. But with public borrowing likely to reach at least £118bn next year, there will have to be a retrenchment in the highly labour-intensive public sector to get public finances into some kind of order in the medium term. Make no mistake - this year's fiscal stimulus will likely be bought at the cost of public sector job losses, even with the Chancellor's heroic assumptions about an economic recovery in 2010.

Nor can the low pound be relied upon to boost employment in export industries in the meantime. This is a global recession, perhaps a global depression, and Britain cannot rely on international markets to replace lost domestic demand. There is also likely to be a wave of protectionism, starting in the US, as countries seek to save their own core industries by state subsidies and other anticompetitive practices. The world market may be a tougher sell in future. Anyway, Britain has lost most of its manufacturing base in the last three decades - down to 14% of GDP - and most of our "exports" in recent years have been in financial services, “invisibles”, the demand for which will be slight for the duration of the credit crunch.

We can be thankful at least that the right man is in the White House at the right time. The Chancellor has moved some way towards matching Barack Obama’s plan to create 2.5 million jobs over the next two years through public work projects and alternative energy investment. But this won’t happen overnight, and will do little to alter the job losses already in train. And in America, which is a 12 to 18 months ahead of Britain, things have already become desperate for people on the margin. U.S. Department of Agriculture reported last week that the number of children who went hungry in 2007 - the first year of the credit crunch - jumped by 50% to over 700,000. Overall, 12.2 of Americans, 36.2 million, "do not have the money or assistance to get enough food to maintain active, healthy lives." Don’t think it couldn’t happen here.

At the very least, Britain faces a return to the early Eighties: a period of sustained joblessness and the destructive psychology that accompanies it. Time perhaps to dig out those old newsreels of industrial armies facing the police lines as they fought to save their jobs. Except, of course, that it won't be like that this time round. There will be dole queues, of course, but the social composition of the new jobless - led by financial services, property, retail - will be very different. As a recent report from the Chartered Institute of Personnel Development argued, those at most risk in the coming “redundancy torrent” will be managers, professionals and skilled non manual workers.

The talk of a "white collar recession" is not all myopic hogwash by middle class journalists facing an insecure future. Just look at the tens of thousands of jobs about to evaporate from the British banks. Then multiply that by all the professional jobs that depended on those middle class incomes like estate agents and lawyers. Of course, in this recession, as in all previous ones, the first people to be hit will be those at he bottom . But they are likely to be joined by large numbers of articulate middle class individuals shaken out of sectors like finance, the media and the countless peripheral service occupations - from aromatherapy to management consultancy - which have grown up during the long boom.

This is going to be a severe shock to the self-confidence and self-esteem of the middle class - a social and cultural transformation that could have profound political implications. In the 1980s, the middle classes were still relatively secure in their career structures in management and the professions. They had homes, occupational pensions, assured promotion. Certainly, they were a world away from the trades unionists fighting for their jobs in the old industrial heartlands of Britain. Margaret Thatcher could rely on the middle class to support her war on the militants with their braziers - the people who were blamed for 80's recession. Well, the braziers are gone, and industrial working class has largely been dismantled, but so have the secure middle class career structures.

When i joined the BBC from university in the 80s, it was very much a job for life with annual pay increments, annual promotion, pension rights and a predictable future. Not any more. The modern media is a shifting sea of freelance and contract workers working for subcontractors to the large institutions. In the BBC there is a crust of highly paid performers like Jonathan Ross and all those anonymous executives who earn more than the Prime Minister, and a huge army of irregulars often on startlingly low salaries coming in and out of the corporation's revolving doors. The commercial sector has been relying on large numbers of underpaid or unpaid "interns" who will do anything to get a job. The flexible labour market operates in a particularly pernicious manner in the media for obvious reasons: a lot of people want to get a foothold in that world. But is not so different from the British economy as a whole.

After a couple of decades of deregulation and leveraged buy-outs by private equity, many firms have flattened their management structures considerably, often relying on outside consultants to get them through busy periods. Occupational pensions have become a rarity. Promotion has become intensely meritocratic. Companies have also begun to "offshore" many white collar functions to countries like India with an educated middle class willing to work for much lower wages than in the UK. Most of the job losses at BT are among self-employed contract workers in the UK, while the company has not axed any of the jobs it has outsourced to India. As a consequence of all this the middle classes are - outside the public sector - facing a very difficult time. Small wonder that there are record numbers of applicants for jobs like teaching and lecturing.

The group hit most hard are the under-thirty 35s, the sons and daughter of the post war baby-boom, who have emerged from university with large debts and even larger expectations. Sometimes called the "smug generation" these are the young people who have little experience of recession in their adult lives and none of mass unemployment. Neither have their parents, who lived sailed through the 70.s and 80s largely untouched by unemployment or debt. if there is going to be a political response to the new depression, it is likely to emerge from this group of déclassé graduates, many of whom now face a future without the middle class security they have been brought up to expect - who cannot afford to buy houses, are unable to establish a career. Indeed the under-35s have so much personal debt that their net wealth is actually negative. Locked out of the housing market, three quarters of under-35s are in the red, according to the Skipton Building Society, owing more than £9,000 on average. They will look to the state for security, but the state will not be able to deliver.

As I was researching this piece I came across a remarkable forecast from a Ministry of Defence think tank about the future of political militancy. Published in April 2007 this DCDC report speculated that in coming years “The world’s middle classes might unite, using access to knowledge, resources and skills to shape transnational processes in their own class interest,” and that, “The middle classes could become a revolutionary class taking the role envisaged for he proletariat by Marx...the growing gap between themselves and a small number of highly visible super-rich might fuel disillusion...” This was dismissed as idle futurology at the time, and the idea of Marxist revolution sweeping suburbia is faintly risible. But the MoD may have grasped an important truth about the nature of politics in the new global economy - that it has begun to erode class differentiation and left many middle income earners exposed to the kind of insecurities which formerly afflicted lower class workers. Clearly, the economic circumstances of management consultants cannot be compared directly with those of retail workers. But when they find themselves losing their jobs, they face now many of the same challenges: mortgage, debt, catastrophic loss of earnings and retraining. At the very least, it will be very much more difficult for political leader to find scapegoats as the current recession develops. Already the government is having to backtrack on attempts to force single parents, older workers and people with disabilities back into the labour force.

Part of the Conservative leader, David Cameron’s difficulty in developing a coherent political response to Gordon Brown’s neo-Keynsianism, is that the party of capital has lost its 'class enemy': the industrial working class. There is no trade union menace to blame for economic distress and the Conservatives have had to fall back on fiscal conservatism - spending down public debt - which is simply not a priority for an electorate which is looking to the state to protect it from the predations of the market. Equally, New Labour under Gordon Brown, has been forced almost against its will to become more critical of the plutocrats running the Banks, to accept nationalisation and greatly increased government spending. Gordon Brown has even abandoned one of the founding principles of New Labour by proposing higher taxes on the rich after the next general election.

The Conservatives, who have not entirely lost their Thatcherite reflexes, are looking to the middle classes to react against the new profligacy - but they will find it very difficult to do so. A unemployment mounts among the middle classes, especially among the under-35s, there is going to be a much stronger demand for policies which promote jobs and growth even at the cost of public borrowing. The Tories cannot afford to be on the wrong side of this battle. As Martin Hutchieson, author of Great Conservatives put it: “A world in which few if any have security in their livelihood is not conservative, it is anarchist. It is also deeply repugnant to the average voter”. If Labour isn't working, neither are the Conservatives.