Tuesday, January 26, 2010

Public sector workers climbing out of recession may fall into a total place

Still poorly but feeling up to sitting up at a computer for a bit I am wondering, as we all are, how to celebrate the news that we are out of recession! I think perhaps I will settle for a cup of weak tea, since, like the economy, I am weakly recovering.

Unfortunately plans are afoot to take a hatchet to public spending, which could all too easily push the economy back into recession. In London some bright sparks think that the "Total Place" approach to public service provision could have saved eleven billion pounds last year.

Allowing for the possibility of exaggeration arising from the use of extrapolation (a tool used by statisticians to make large and bold claims from smaller less clear data) this suggests both a massive target for public spending reduction in the capital and an outline agenda for how they would be made.

I'll comment again later about the problems with this approach for the services themselves (although I do sympathise with the view that public services should be under local democratic control even if the point is made by Tory controlled London Councils).

The point I want to make here is about the macroeconomic consequences of such significant cuts for the economy.

Eleven billion pounds in savings will mostly come from laying off workers in the public sector and organisations providing services to the public sector. Most of these workers will be working within the domestic economy, many of them in the immediate locality, and their wages and salaries will be spent in the economy, purchasing jobs and services produced by other firms and their workers. Sack them and their expenditure will fall, with knock on effects on unemployment, which themselves have further knock on effects (it's called "the multiplier").

Total Place would make some sense at a time of growth if it was used to reallocate public sector resources the better to meet social need, but in a time of cuts, it is far more likely to be a device to drive down employment and prosperity in our communities.

I have now finished my cup of weak tea and finished celebrating the end of the recession.

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