Economic and social policy without vision is not policy, it’s fire fighting!

WHAT IS THE NEW MODEL?
If we are building a new economic model, what is it and how can we achieve it? Shouldn’t the citizens be inspired by a shared vision and policies be guided and coordinated synergistically by a focussed strategy that aims to take the economy from its current disarray and failed economic model into a new era with a new economic model? Psychology and moral fortitude are critical to the success and sustainability of any economic model; we should have learned this lesson from our current troubles.
Our irrational exuberance and selfish greed of yesterday has landed us in the ruins and misery of today. If, instead of articulating a new vision and a new moral code to inspire people to work towards a better common future, we cater to special interests to secure their political support and loyalty, we are not going very far. For one, there are not enough resources to go around. Second, and more important, we should be fuelling collective effort, sacrifice, and hard work, not dependence, moral hazard and selfishness.
Ask anyone in the street if they see the light at the end of the tunnel. There likely response is “what tunnel?” In the same way we should not confuse “activity” with “productivity”, nor “decision” with “vision”. Like activities, which can be many and varied, but outcomes meagre and disappointing, decisions for new measures could be many and frequent but they may not add up to much if they are not part of a vision. Actually, individual policies might conflict with each other making the whole less than the sum of the parts, when the scarcity of resources dictates that we maximise synergies as to achieve the maximum outcome with the minimum of resources.
Let’s take a recent example. Several policies have been announced to combat unemployment and more recently a new social policy has been announced that extends a guaranteed minimum income for the unemployed university graduates, once their unemployment benefits expire. This is a clear invitation for moral hazard, that is, an incentive for unemployed graduates to continue to be unemployed. Instead of converting the “unemployment allowance” into a “work incentive” by requiring any type of engagement, event voluntarism, as a prerequisite for its payment, the new social policy, through the guaranteed income, extends the unemployment benefits indefinitely, covering food and clothing, rent or mortgage, house repairs and even taxes. It doesn’t take rocket science to predict that, as a result, job search will weaken and the unemployed status will be extended as the pressure for finding a job, or creating one’s own job is diminished by the guaranteed income policy.

LAZY BUMS FOREVER?
As we know, from the work of Nobel laureate Christoforos Pissarides, a world authority on unemployment and Head of the Council of Economic Advisors, the longer one remains unemployed, the lower his incentive to search and find a job; after a year in unemployment he may even stop searching. Scientific research has found that those who start their career in unemployment have increased chances to remain unemployed in the future and their earnings are 20% lower for the next 20 years with negative consequences on the next generation.
Shouldn’t the employment policy, the social policy, the education policy and the policy on entrepreneurship and innovation be coordinated as to reduce the time university graduates remained unemployed and the cost to the government (the taxpayer more precisely) of unemployment and social benefits? Unemployment means a cost of hundreds of millions of euro in unemployment and social benefits and use of public services without contribution to public revenues.
The inactivity of 75,000 unemployed people means the loss of over 2 bln euros annually, since the annual productivity of the average employee is about 30,000 euros a year. And, it is not only the human capital that remains idle and is been degraded. There are many other resources, natural and man-made, like land and water, natural and cultural heritage, buildings and infrastructure, factories and funds which remained idle or underused, while we are begging for funds for investment and development.

GUARANTEED EMPLOYMENT
Instead of providing a guaranteed minimum income we should be providing a guaranteed employment, analogous to the EU “guaranteed youth employment”, according to which the member states take measures so that young people, up to the age of 25, are offered employment, training , internship or continuation of their studies within four months from the day they became unemployed. Organised systems of training, internship, apprenticeship and practice correct the mismatch of skills between the unemployed and the available jobs and ease the transition from education to work.
The first principle in such a scheme is “nobody who can and wants to work should remain idle”. The second principle is “nobody who is able to work and chooses not to should be paid unemployment or social benefits”. The third principle is “if no work in one’s area of skills is found he should acquire new skills through further education, training or internship in order to find a job in another area or start his own business”. The fourth principle is that “if one still is unable to obtain a job, and unwilling to start his own business he should earn his keep (unemployment or social benefits) through voluntary work with communities and non-profit organisations”.
Such an integrated solution to the unemployment problem cannot be conceived by addressing each issue (unemployment, social policy, education, entrepreneurship, innovation) in isolation. Overly theoretical education, misguided career orientation, demonisation of entrepreneurship, neglect of innovation and the perverse incentives of unemployment and social policy have created massive unemployment at the first shock to the system. The loss of the ability of the public sector, of the state monopolies, of the public education system and of the banks to create jobs outside the market by fiat and dictate, has revealed a huge long-term structural problem that cannot be remedied with unemployment benefits and social policy.
Effectively combating unemployment calls for turning the issue on its head:
a) by converting unemployment benefits from incentives for idleness into incentives for work;
b) by reversing the shift from vocational to academic education;
c) by demonising idleness and fostering entrepreneurship; and,
d) by catalysing a cultural change from imitation to innovation.
I am sorry to say that the announced new social policy, like the earlier employment policy, treats the symptoms rather than the systemic causes of the problem, and it is certain to have unintended perverse side effects (moral hazard) which may make the problem worse in the long-run and perpetuates the now defunct old economic model. Without vision, policies put out little fires but do not prevent the next big fire.