23 Things They Don't Tell You About Capitalism

Another sense in which the world has become more unstable during the last three decades is that job insecurity has increased for many people during this period. Job security has always been low in developing countries, but the share of insecure jobs in the so-called ‘informal sector’ – the collection of unregistered firms which do not pay taxes or observe laws, including those providing job security – has increased in many developing countries during the period, due to premature trade liberalization that destroyed a lot of secure ‘formal’ jobs in their industries. In the rich countries, job insecurity increased during the 1980s too, due to rising (compared to the 1950s–70s) unemployment, which was in large part a result of restrictive macroeconomic policies that put inflation control above everything else. Since the 1990s, unemployment has fallen, but job insecurity has still risen, compared to the pre-1980s period.

There are many reasons for this. First, the share of short-term jobs has risen in the majority of rich countries, although not hugely as some people think. Second, while those who keep their job may stay in the same job almost (although not quite) as long as their pre-1980s counterparts used to, a higher proportion of employment terminations have become involuntary, at least in some countries (especially the US). Third, especially in the UK and the US, jobs that had been predominantly secure even until the 1980s – managerial, clerical and professional jobs – have become insecure since the 1990s. Fourth, even if the job itself has remained secure, its nature and intensity have become subject to more frequent and bigger changes – very often for the worse. For example, according to a 1999 study for the Joseph Rowntree Foundation, the British social reform charity named after the famous Quaker philanthropist businessman, nearly two-thirds of British workers said they had experienced an increase in the speed or the intensity of work over the preceding five-year period. Last but not least, in many (although not all) rich countries, the welfare state has been cut back since the 1980s, so people feel more insecure, even if the objective probability of job loss is the same.

The point is that price stability is only one of the indicators of economic stability. In fact, for most people, it is not even the most important indicator. The most destabilizing events in most people’s lives are things like losing a job (or having it radically redefined) or having their houses repossessed in a financial crisis, and not rising prices, unless they are of a hyperinflationary magnitude (hand on heart, can you really tell the difference between a 4 per cent inflation and a 2 per cent one?). This is why taming inflation has not quite brought to most people the sense of stability that the anti-inflationary warriors had said it would.

Now, the coexistence of price stability (that is, low inflation) and the increase in non-price forms of economic instability, such as more frequent banking crises and greater job insecurity, is not a coincidence. All of them are the results of the same free-market policy package.

In the study cited above, Rogoff and Reinhart point out that the share of countries in banking crises is very closely related to the degree of international capital mobility. This increased international mobility is a key goal for free-market economists, who believe that a greater freedom of capital to move across borders would improve the efficiency of the use of capital (see Thing 22). Consequently, they have pushed for capital market opening across the world, although recently they have been softening their position in this regard in relation to developing countries.

Likewise, increased job insecurity is a direct consequence of free-market policies. The insecurity manifested in high unemployment in the rich countries in the 1980s was the result of stringent anti-inflationary macroeconomic policies. Between the 1990s and the outbreak of the 2008 crisis, even though unemployment fell, the chance of involuntary job termination increased, the share of short-term jobs rose, jobs were more frequently redefined and work intensified for many jobs – all as a result of changes in labour market regulations that were intended to increase labour market flexibility and thus economic efficiency.