August 30, 2023


­The Future of Social Care

Image Credit: Adobe Stock

Written by Peter Beresford, OBE, Visiting Professor, University of East Anglia and Co-Chair of Shaping Our Lives, UK and Colin Slasberg, Independent Researcher and Consultant in Social Care, UK

We’ve been gathering evidence about the state of social care for nearly a decade, publishing in peer-reviewed and professional journals as well as in mainstream media. What has continued to shock us has been the lack of reliable evidence in the field.

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August 21, 2023


Deindustrialisation and Financialisation: Two Sides of the Same Coin?

By Imad Moosa, Professor of Economics, Department of Economics, Kuwait University, Kuwait

Image Credit: Adobe Stock

Deindustrialisation is a process that involves economic and social changes caused by the erosion or dismantling of industrial capacity and activity, as manufacturing industry is replaced by services, particularly financial services. To be sarcastic, I would say that deindustrialisation involves the replacement of engineers with exotic dancers. The shift to financial services in particular amounts to the “financialisation” of the economy, which is indicated by the spectacular growth of the financial sector in terms of profits, size of institutions and markets, and also in terms of political influence and visibility.  

To those who believe in the absolute economic and moral superiority and supremacy of the West, China is the culprit when it comes to finding an explanation for the rapid deindustrialisation of the West. This explanation, however, is not based on sound economics but rather on blind ideology. Free marketeers, on the other hand, do not deny the shift away from manufacturing industry towards services, but they take attitude of “no worries” as this shift is allegedly “natural”, a phase of economic evolution.  In my humble view, both factions are wrong.  

Let us start with the evolutionary view expressed by some pundits who believe that financialisation (hence deindustrialisation) occurs naturally as the economy moves away from manufacturing industry to services. In an article published in The Economist in 2011, an eminent trade economist, Jagdish Bhagwati, expressed the view that those who call for reviving manufacturing industry suffer from “manufacturing fetishism”, arguing that the service industry is as good as manufacturing in generating jobs and boosting exports. However, manufacturing fetishism, which is the idea that manufacturing is the central economic activity and everything else is somehow subordinate, is not as bad as Bhagwati thinks. After all, advanced countries have become advanced and rich in large part because of industrialisation, which is the prime source of productivity growth (recall the industrial revolution).  

It seems that Bhagwati suffers from “services fetishism”, thinking that manicure and massage (and portfolio management) are as good for the economy as manufacturing industry. Rather than supplant manufacturing, business-service enterprises depend on healthy factories, which are among their biggest clients. Bhagwati is wrong because, as one observer puts it, “it’s hard to imagine how service-sector expansion can play a role in wealth creation if growth in, say, manicurists exceeds that of engineers”. An economist of Bhagwati’s calibre should know that while manufacturing industry lends itself to specialisation and economies of scale (hence, rising productivity) the service industry kills productivity because of the lack of potential for the exploitation of economies of scale and exports.  

Financialisation (hence deindustrialisation) has not happened simply as a “natural course of evolution”. Political decisions, or lack thereof, enabled the process to take off and accelerate beyond control. Policies formulated at the national and international levels encouraged activities and changes that provided the right environment for financialisation to move at full speed. Inaction, the deliberate decision to allow market forces to run our affairs, and refusal to intervene (even to regulate fraud or deal with destabilising forces) allowed the proliferation of parasitic activities that are commonly found in a financialised economy. In short, financialisation has not evolved naturally—rather, it is a product of public policy choices motivated by a race among the political elite to serve the financial oligarchy.  

The link between financialisation and deindustrialisation has been highlighted by a number of economists who observe the negative impact of financialisation on value added and employment in manufacturing industry. This link is conspicuous in reported data. For example, consider the annual data (displayed in the chart) on a measure of the financialisation of the US economy, which is the IMF’s index of “financial development”, and manufacturing employment, both measured as indices that take the value of 100 in 1980. Between 1980 and 2000, the financialisation of the US economy was running full steam ahead while manufacturing employment (the number of people employed in the manufacturing industry sector) was following a declining trend, with the usual cyclical ups and downs. Even though the pace of financialiastion has slowed since then (because there is a limit to the financialisation of the economy) manufacturing employment continued to decline. The (negative) relation between financialisation and manufacturing employment, as represented in the chart, can be seen more clearly by looking at the smooth trends of the two variables. Negative correlation is conspicuous: manufacturing employment has been shrinking at a diminishing rate, while financialisation has been rising, also at a diminishing rate.    

Those who reject the proposition that deindustrialisation and financialisation are two sides of the same coin (blaming deindustrialisation on China or otherwise) would suggest that what the chart shows is correlation, not causation. However, theory, intuition and observation of the facts on the ground tell us that the association between financialisation and deindustrialisation represents causation and not (spurious) correlation. Financialisation has a negative impact on manufacturing industry because of its adverse effect on capital accumulation. In a financialised economy, non-financial firms spend less on real capital accumulation. Financialisation imposes short-termism on management and curtails animal spirits with respect to real investment in capital stock, the outcome being increasing preference for financial investment to generate short-term profits from financial transactions that add no value whatsoever. It also drains the internal means of finance available for real investment purposes, owing to increasing dividend payments and stock buy-backs.  

By observing the profits and the potential increase of management compensation provided by financial transactions, non-financial firms shift from their primary activity of producing goods and services to financial activities for the purpose of making easy and quick “buck”. Financialised accumulation has implications for how the economy works. If companies can make more money by trading financial assets than by manufacturing products, they are unlikely to invest in new technology, opting instead to expand their finance departments to the detriment of other areas. This is why non-financial firms have become “financial rentiers”. We should not forget that the productive sectors of a financialised economy (including manufacturing industry) experience the adverse effects of the brain drain inflicted on them by the financial sector. Scientists and engineers leave labs and factories, take off their lab coats and uniforms, and rush (in suits and ties) to utilise their brain power in parasitic activities such as the pricing of “exotic” financial assets.  

An anecdotal “evidence” for the proposition that China has played a role in the deindustrialisation of American and the West in general can be found in a story told by Paul Krugman, a Nobel Prize winning economist, in a 2011 article in The New York Times. The story is about a Russian immigrant, an engineer by profession, who had just arrived in the US. The Russian engineer made the following observation: “America seems very rich… but I never see anyone actually making anything”. Krugman thought that the observation made by the Russian engineer became increasingly accurate over time, which led him to suggest (at the risk of being called a “Putin propagandist”) that “Americans made a living by selling each other houses, which they paid for with money borrowed from China”. This is an accurate description of the status quo as reflected in the trends displayed by the chart. Deindustrialisation and financialisation have not occurred naturally, and they are indeed two sides of the same coin.    

Financialisation and Manufacturing Employment in the US (indices, 1980=100)

Financialisation: Measurement, Driving Forces and Consequences
By Imad Moosa, Professor of Economics, Department of Economics, Kuwait University, Kuwait is available now.

Read the introduction and other free chapters on Elgaronline

August 2, 2023


The global Basic Income debate

By Malcolm Torry, University of Bath, previously London School of Economics, Basic Income Earth Network (BIEN) and formerly Citizen’s Basic Income Trust.

Image Credit: Adobe Stock

The modern debate about Basic Income—an unconditional income for every individual: sometimes called a Universal Basic Income, a Citizen’s Income, or a Citizen’s Basic Income—can be dated from the founding of the Basic Income Research Group in 1984. The Basic Income European Network (BIEN) soon followed in 1986. For the following thirty years the subject remained a minority interest. Once every two years an international congress was held; most of us knew each other; and I could honestly say that I had read everything written on the subject in English as well as some of the books and articles in other languages.

But then everything changed. Opinions differ as to precisely when that happened, but it was about ten years ago. And inevitably opinions differ as to why it happened. I suspect that there was no single factor, but rather a combination of them: successful pilot projects had taken place in Namibia and India; the Swiss were preparing for a referendum on the subject; the Finns were discussing a minor experiment with something similar to a Basic Income; the fake news that Finland was planning to give everyone a Basic Income began to circulate, and try as we might we couldn’t stop it; and the UK had seen the first mainstream newspaper article on the subject for twenty years in The Guardian following the publication of my Money for Everyone: the first general introduction to the subject for nearly fifteen years. BIEN’s international congresses became annual events; a journal, Basic Income Studies, was founded; think tanks and academic departments piled in; and publications multiplied. Nobody can now say that they have read everything on the subject. A personal consequence was that what had been a half a day a week voluntary task quickly became an almost full time one, so I had no option but to retire early from the post of Team Rector of a large and busy South London parish in order to give to Basic Income organisations and research the time that they needed. If we count second editions, I have now written twelve books on the subject, and it has been a particular pleasure to have worked with Edward Elgar on four of them: A Modern Guide to Citizen’s Basic Income: A multidisciplinary approach (2020), Basic Income—A history (2021), A Research Agenda for Basic Income (2023), and Unconditional: Towards unconditionality in social policy (forthcoming).

Whilst there are now thousands of books and articles on Basic Income, what sets those four books apart is their somewhat obsessive concern for clear definitions and the best available research. Agreed definitions and high quality research matter, and the debate suffers when they are neglected.

To take a recent example: The Government of Ontario called an experiment with payments that varied with the recipient’s household structure and other income a ‘Basic Income Pilot Project’. A means-tested and household-tested income is a long way from unconditionality, so the experiment was not a ‘Basic Income pilot project’ as that phrase might normally be understood: but it has often been discussed as if it was one. And a number of recent United States experiments that have employed ‘Basic Income’ terminology have imposed proxy means-tests, again disqualifying them as Basic Income pilot projects. This matters, because only if we all understand the same things by the same words can we communicate accurately; and if we mean different things by the same words then misunderstanding is bound to occur. The problem that we now face is that the global extent of the Basic Income debate means that a) it is more important than ever that definitions should be agreed and that we should all stick to them, and b) it is more difficult than ever to achieve agreed definitions and just as difficult to ensure conformity with definitions over which consensus might have emerged.

Just as important as agreed definitions is the employment of the best available research methods. For instance: A particular contribution that the UK has made to the Basic Income debate is microsimulation research. A Basic Income would never be implemented on its own because it would have to be paid for by implementing new taxes, adapting existing taxes and benefits, or creating new money. Whilst a Basic Income is always an unconditional income for every individual, a ‘Basic Income scheme’ is a specified level of Basic Income along with the funding method fully specified and changes to existing taxes and benefits also fully specified—and there is an endless number of different ones, all with different effects. The only way to ensure that a Basic Income scheme would not increase poverty or inequality, would not tip low-income households into deeper poverty, would be affordable, would take people off means-tested benefits, and so on, is to employ microsimulation: a computer programme that employs a vast real-world dataset to predict what would happen in the real world if a particular scheme were to be implemented. In the UK we have discovered that there is a fairly narrow range of Basic Income levels that would be feasible. The existence of such robust research does not stop campaigners advocating for high Basic Incomes that they should know by now would impose deeper poverty on poorer households, and neither does it stop Basic Income’s opponents from employing a particular infeasible Basic Income scheme to vilify the whole idea of a Basic Income: but it does mean that the research results are available for anyone who wants an intelligent debate about Basic Income and how it might be feasibly implemented.

This is just one example of the importance of employing the best available research. The same applies to every aspect of the Basic Income debate. Readers might tire of the way in which my books are strewn with references, but they are essential, as are the long bibliographies that contain only high quality social science research and not some of the less well evidenced books that my readers sometimes hope to find there.

Both clear definitions and high quality research matter, which is why I was particularly pleased to be asked to write the Research Agenda for Basic Income for Edward Elgar. It starts with a thorough discussion of definitions, and then outlines both the research that is already available and the research that now needs to be done.

To be personal again: It is a pleasure to see so many organisations and individuals now involved in the global Basic Income debate. In order to give to new generations of researchers, educators and advocates the social space that they need to run the organisations, hold the conferences, and write the books and articles that the debate now needs, it is high time for some of us who have been involved for forty years to leave the field. Unconditional will be my last book on social policy, and I look forward to seeing how the next generation develops the global debate on Basic Income and on unconditionality more generally. I hope that some of them will publish with Edward Elgar.  

A Research Agenda for Basic Income
By Malcolm Torry, University of Bath, previously London School of Economics, Basic Income Earth Network (BIEN) and formerly Citizen’s Basic Income Trust is available now.

Read the introduction and other free chapters on Elgaronline

August 1, 2023


Responding to employability needs in the cost of living crisis

Image credit: Shutterstock

Reflecting on their new edited collection Saskia Loer Hansen and Kathy Daniels consider how student employability is affected by cost of living.

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July 20, 2023

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Starting a new Journal – by Ben Booth

Academic publishers are certainly open to proposals for new journals, but are also mindful of the difficulties in establishing a publication which will be successful over the long term. So what are the factors you should be mindful of when proposing a new journal?  Ben Booth, Publisher, Academic Law at Edward Elgar, considers the challenges and opportunities of starting a new journal.

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