Reflections from Europe | AUGUST 2, 2004
"Bread and Circuses" in the Modern Welfare State: Is the Worm Finally Turning?
As vital as the bread and the oil for keeping the people happy, were the numerous and frequent circuses scattered all over the city, where gladiators fought wild beasts and each other. This free entertainment, too, was provided by the Emperor. In the modern welfare state, the equivalent of the gladiators are professional football players and athletes, and the equivalent of the circuses are mainly provided by the television networks out of the advertising revenue they attract. Like in ancient Rome, so in our modern civilisation, it is ultimately the final producers of all goods who provide both the bread and the circuses. They do so both for themselves and for those who do not produce.
As then and so too today, there is a variety of reasons for producing nothing, or at least less than one could with a reasonable effort. Laziness and shirking are probably not the chief culprits. The dominant causes are more complex. Some are bad and cannot be defended, but others can honestly be argued both for and against.
Unemployment over and above the rate consistent with normal between-jobs mobility, about 3 to 5 per cent of the labour force, cannot be defended. Rates much above this can perhaps be excused at the trough of a business cycle, but high rates that have become endemic in good times as well as in bad are unforgiveable. At present, South Korea can boast the lowest unemployment at 3.4 per cent, the Netherlands at 4.5 , Britain 5, Japan 5.3 and the USA just below 6 per cent. At the other end of the scale, Poland (for special and presumably transitory reasons) is at nearly 20 per cent, Spain shows a notoriously overstated figure of 11.3, while France is stuck at just under 10, Germany at 8.7 and Italy 8.4 per cent.
For background on employment and unemployment, see the article on Unemployment by Lawrence H. Summers in the Concise Encyclopedia of Economics.
Some of this unemployment is widely suspected to be voluntary, in that some people prefer to live on the dole rather than go for jobs that look to them too lowly or too low-paid. Thus, the French construction industry is short of 300,000 workers, while Germany has just relaxed its immigration laws to let in people who would fill jobs for which no German is supposed to be available. The remedy against voluntary unemployment is well known. It consists mainly in reducing the period over which unemployment pay is available, and gradually cutting the link between the last salary and the unemployment compensation. The Netherlands, Britain and Denmark have successfully done this, Germany is preparing to do it to a cautious extent. Elsewhere, it is still rejected as anti-social. Here one might rightly say that it is the political system that maintains voluntary unemployment.
The same is largely true of involuntary unemployment. It suffices to think of the array of labour laws and regulations that “protect workers' rights” and make the laying off of workers so difficult that creating jobs and hiring workers whom you may have to keep paying till they retire (whether or not you have work for them to do), has become a reckless act few dare undertake. In fact, virtually all “social” measures have ultimately to be paid for in reduced employment, a truth European public opinion has until recently furiously denied.
The other major cause of non-production is the way people prefer to divide their time between hours worked and hours off the job. To choose what one prefers is hardly inconsistent with rational conduct, so that it is difficult to quarrel with the length of time people arrange to spend on and off the job if time on, time off, and pay are freely negotiated. In language that now sounds a little unfashionable, economics used to teach that individuals seek to balance the marginal “utility” of wage income against the marginal “disutility” of work. The former falls as you earn more, the latter rises as you work more, and your preferred use of your time is where the two just match. Like other valid theorems, this is a truism, but it is not useless, for it helps in organising the argument.
The average gainfully employed American works about 1,950 hours in the year. This corresponds to 49 standard 40-hour weeks, leaving 3 weeks for sick leave and paid holidays. Average annual hours worked in Britain are much the same. In sharp contrast, the average German and French working year is about 43 standard 35-hour weeks. It takes an effort to believe that the balance between more income and less work is so vastly different for the English and the Americans on one side, and the Germans and the French on the other. In addition, these statistics tell us nothing about the intensity of effort the average worker in these countries devotes to his work. Per capita income in Germany and France is in fact a little higher than the low number of hours worked would predict.
Moreover, weekly hours are often not freely negotiated. For the last four years, France has had a monstrous law fixing the “legal” work week at a maximum of 35 hours—a paternalistic impertinence that passes for a great “social advance”. Part of the present centre-right majority would like to dilute or repeal this law, but President Chirac has vetoed attempts to do so. In Germany, there is no “legal” working week; but labour union hierarchies have done their utmost to whip their members into demanding shorter hours until it became the politically correct thing to prefer this “social advance” to higher wages (though it was preferable still to demand both).
Finally, with the gradual disappearance of heavy manual labour as well as of deadly monotonous assembly line work, it is no longer evident that work necessarily involves “disutility”. Some people actually enjoy doing what they are paid for. Many more may not enjoy the work itself, but they enjoy the amenities and atmosphere of the workplace and the company they find there—often in pleasant contrast to the solitude and boredom of their evenings and weekends. Bread they can earn and no doubt they would continue to get some, in the modern welfare state, even if they failed to work for it; but by way of circuses, most of them are reduced to watching television. If labour laws, institutional arrangements and the motives of union officials were different, many workers might well settle for longer hours and higher incomes. They might also settle for longer hours rather than see their jobs disappear, if that was the choice that faced them and their government and their union permitted them freely to take it.
Precisely such was the choice that recently faced 2,000 employees of two Siemens plants in northwest Germany. The company could no longer make the production of mobile phones pay with a 35 hour week. It proposed to its employees to work 40 hours for the same pay, or else it would move the whole operation to Hungary where willing and good quality labour was available at a fraction of the cost. The 2000 German workers massively accepted the 40 hour week.
One swallow does not a summer make, but a few more are now seen to be fluttering. Daimler Benz and Bosch have already followed Siemens. Over a hundred similar moves on hours or paid vacations are said to be in preparation. The political weather may be changing in Germany. A few months ago Chancellor Schroeder scolded German entrepreneurs who talked about moving their business to the former Soviet satellite countries to the east. Early in July, in what seemed a wildly improbable about-turn, the chairman of the ruling Social Democrat party warned the labour unions against “selfishness”.
The significant thing is not that some groups of workers now dare ignore their unions or that politicians take the electoral risk of showing some understanding of economics. It is, rather, that business leaders, for long years cowed into timidly suffering “co-determination” and the exactions of both the tax collector and the labour hierarchy, have finally regained some courage and started boldly “telling it like it is”. The worm seems to have turned.