The political economy of the service transition.
| Author | Wren, Anne |
| Position | Essays |
Over the past thirty years the wealthiest OECD economies--in Europe, North America and Australasia--have experienced rapid de-industrialisation. A range of factors have contributed to the de-industrialisation process: some, like technological change and changes in the characteristics of consumer demand, are internal to the development process in the economies themselves; others, like increased competition from developing countries in the market for manufactured goods, are external. Whatever its roots, there is no doubt that the impact of de-industrialisation on labour markets has been profound: more than three quarters of employment in most OECD countries is now in services, while industrial sectors, on average, account for less than one fifth. This sectoral shift in the locus of economic activity has potentially radical implications for politics and society. In a new book on The Political Economy of the Service Transition (Wren, 2013; hereafter: PET), I have brought together a group of scholars from Europe and North America to assess the implications of the service transition for existing socio-economic regimes. We investigate how variations in the underlying institutional structures of alternative 'varieties of capitalism' have influenced their ability to manage the transition to services--in particular their capacity for creating new types of jobs in the face of declining opportunities in core manufacturing sectors, and the distributional outcomes with which new strategies for employment creation are associated. We also analyse the implications of the transition for politics--and for the sustainability of existing socio-economic models. The central findings of this volume speak to the on-going debate on the pages of Renewal and elsewhere about the viability of alternative 'varieties of capitalism' in a post-crisis world.
In the book we identify a set of critical challenges which de-industrialisation and the transition to services create in the economic and electoral arenas. In this essay, I will outline these challenges in brief, describing what I see as their primary implications for alternative models of capitalism.
The transition to services: economic challenges
One of the most serious socio-economic challenges posed by the de-industrialisation process is a reduction in job opportunities at medium and lower skill levels. The question for governments is: as the core of employment in manufacturing sectors shrinks, how, and where, are new jobs to be created? (Wren, chapter 1, PET). At stake in the resolution of this problem, also, is the future of the welfare state: reductions in the number of industrial workers in stable jobs who are contributors to the system threaten the affordability of welfare state provision, unless new jobs can be created in services (Nelson and Stephens, chapter 4, PET).
Low-skilled employment and the employment-equality trade-off
One 'solution' to the problem of declining employment opportunities at medium to low skill levels, which has been pursued most aggressively in Liberal regimes like the US and UK over the past few decades, has been to facilitate the expansion of low-skilled (and low-paid) private sector employment in personal, consumer, and social services. These countries have enjoyed considerable success in terms of employment creation in these sectors in recent decades. However, there are marked downsides to the strategy which they have pursued.
The first is that it has been heavily reliant on keeping relative wages in low-skilled service sectors low. The demand for personal and consumer services is very responsive to changes in prices (this is unsurprising when we consider their capacity for home production--think of catering and gardening services, for example). However, the capacity for productivity increases in the provision of these kinds of services is low (waitressing and childcare are good examples to think through here--it might be possible to increase the number of children supervised by one carer, the number of tables served by one waiter and so on, but in the process the quality of care and service will almost certainly decline). Given a low capacity for productivity growth, it becomes particularly important to keep relative wages in these sectors low, in order to generate a demand expansion based on the high price elasticity of demand for these kinds of services. As a result it is harder to combine the expansion of lower-skilled service employment with equality than it was during the so-called 'golden age' of manufacturing expansion in the 1950s and 1960s (Iversen and Wren, 1998). (When the simultaneous occurrence of high demand elasticities for new consumer durables, and high rates of productivity growth in manufacturing sectors engendered by Fordist innovations in production processes, meant that relative prices could be kept low at the same time as real wage rates in these sectors were growing: Meidner, 1974; Rehn, 1985).
In Liberal regimes, then, the dominant response to the trade-off between wage equality and employment creation in low-skilled, low productivity service sectors has been to emphasise the goal of employment creation, with increases in wage inequality facilitated by the removal or reduction of protections on the wages of low-paid workers, attacks on the power of trades unions, and de-centralised wage bargaining.
As the experience of recent years has made clear, however, increasing inequality has not been the only downside of the Liberal strategy for employment growth over the past quarter century. In addition to these supply-side adjustments, there was a strong demand side component to the expansion of employment in low-skilled service sectors in these regimes during this period. Part of this demand resulted from increases in family working hours (as more women entered paid work, and more workers began to work longer hours). Increases in working hours raise the demand for consumer and personal services via a substitution effect (women working in the paid labour force purchasing childcare and catered food, for example), but also via an income effect (families that work more hours earn more money, and personal and consumer services are 'luxury' items which occupy proportionately more of individual and household budgets as incomes rise) (Gregory, Salvadera, and Shettkat, 2007). Both of these effects can be seen as outcomes of structural labour market change, therefore, which are not inherently unsustainable. By the turn of the century, however, the expansion of demand, and of employment, in these sectors was also closely linked to the expansion of cheap consumer credit and the asset (and in particular house) price inflation which accompanied it. Just how important this highly unsustainable element of the employment growth model had become in Liberal regimes by the early part of this century has yet to be accurately assessed: what is clear, however, is that the shock to employment in these countries in the wake of the crisis (when the supply of credit dried up) was relatively severe.
In contrast to the Liberal regimes, in the co-ordinated regimes of central and Northern Europe, levels of coordination in wage setting (and, as a result, levels of wage equality) remain relatively high, and the extent of reliance on employment creation in low paid, low productivity private service sectors in recent decades has been considerably lower. The social democratic regimes of Scandinavia, for example, have (to varying degrees) managed to continue to pursue simultaneously high rates of employment and wage equality by employing large numbers of workers at all skill levels in public service sectors. Meanwhile some continental European regimes--like Germany--have kept unemployment levels down in part by their continued strong performance in traditional export-oriented manufacturing sectors, but also...
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