The Needle in the Haystack
It’s an old English idiom that most of us will be familiar with; “To find a needle in a haystack”. The implication is simple; the needle is tiny and the haystack is huge; to find the needle would take lots of time and effort, but only deliver a tiny reward — a needle. Unless the needle is made of gold, it’s probably not worth looking for.
So what can you do? Well, there are four options:
1) Give up!
You could come to the conclusion that it’s just not worth the effort. Rather than spend hours looking for the needle, you could just go to the shop and buy another one. Perhaps someone else will come along and find the needle. That’s fine. They’d be welcome to it.
You could just take the plunge. Dive in! Immerse yourself in that big pile of hay. You could spend hours spreading that hay out across the floor, sifting through it, and inspecting it with a fine-tooth comb. You’ll start to get tired, and so your efficiency will diminish. But, eventually, you will find the needle. Your hard work, graft and endeavour, will be rewarded.
3) Team up!
You could invite all your mates around and create a group activity. You would split the hay into small, equally sized piles, which each person would be able to sift through easily. One of them will soon find the needle, and they’d do it before anyone got tired and inefficient. Whilst you’re all looking for the needle, you’ll be able to talk and joke together, which may also increase efficiency, because happy workers tend to be productive workers. And once you’ve found the needle, you could go and have some real fun because, after all, you’re already with your friends!
4) Use a metal detector!
You could spread the hay out over the floor, and walk over it with a metal detector. As soon as you walk over the needle, the metal detector will beep, and you’ll be able to locate the needle. Then you can leave the barn and go and do something more productive than looking for needles!
So we have a needle in a haystack, and we have four options. Which one do we choose?
The truth is that we can choose whichever option we like — some will choose one option, others will choose another. And this is currently the case in British politics.
On the one side, we have Theresa May’s Conservatives who pursue what is known as ‘Neoliberal Economics”. This model uses options one and two. When it comes to government, it takes option one; to do nothing; to let other people come and find the needle in the haystack. To “give up” on the economy and leave it to enterprises operating in the private sector. And, when it comes to those enterprises, they expect employees to take option two; to “graft” away, individually, to find the needle in the haystack on their own. To graft away, individually, at work; competing against their peers, whilst their companies compete against their rivals. It’s all about hard work, even when it’s inefficient. Or, as David Cameron repeatedly told us at the last election, it’s all about “Hardworking Families”.
On the other side, we have Jeremy Corbyn’s Labour, who prefer what is known as “Keynesian Economics”. They prefer options three and four. They want to see communities “team up” to find the needle in the haystack; to build homes, take ownership of local sources of green energy, and set up social enterprises. They also want to use the “metal detector”; to invest in science and technology, in 21st century industry, so that we can become more efficient. So that we don’t have to be “Hardworking Families”. So that we can become “Efficient Families”, “Productive Families” and, above all else, “Happy Families”.
Where’s the evidence then?
So far, so good. But we’ve really only talked about theory. It’s been fun, but we need to analyse real policies, and the results of those real policies, to be able to say which method is truly the best one.
So let’s take each approach in turn…
1) The ‘Give Up’ Strategy
The ‘Give Up’ Strategy says that the government doesn’t need to bother about the economy. It can ‘Give Up’ on it, because private enterprise will fill the gap.
This has been the approach to housing in the UK since 1979, when the government ruthlessly cut back its home building enterprises. It said that private sector house builders would fill the gap. That, because the demand for new housing would still exist, private firms would be incentivised to meet that demand. They would supply new houses. They’d build the houses that the government had stopped building. Everything else would continue on as before.
This is what actually happened:
Public sector house building clearly did go down after 1979. The black and dark grey sections are clearly much smaller on the right of the central line than they are on the left of it. But the pale grey section, which represents private-sector house building, is roughly the same on both sides. So private-sector house building didn’t fill the gap. What happened, as is shown by the red line, is that house prices shot up. The private-sector businesses did well for themselves, they made lots more money from each house they sold, but the everyday person did not. On the one hand, there were less houses being built for the next generation to live in. And on the other hand, the houses which did exist became seven times more expensive, so people had to pay much more for their rents and mortgage payments. It was a lose-lose situation for anyone who wasn’t already on the housing ladder.
The government didn’t so much leave the needle in the haystack for private enterprises to come and find. Everyone left the needle it in the haystack. It never got found. And the prices of every other needle went through the roof as a result!
And this example isn’t a one off. A 2014 study by Corporate Watch found that households all across the UK would “Save £250 each on their electricity, gas and water bills and train fares if those services were publicly financed.” Those industries were all privatised in the 1980s and 90s. But, like with the housing market, there wasn’t much of an expansion in supply, just an increase in prices which hit the everyday person in their pocket.
2) The ‘Graft’ Strategy
The other side of the Neoliberal economic plan says that it’s hard work that brings results. That if we ‘Graft’ away, we’ll be better off. It’s up to us as individuals to find that needle in the haystack. If we work hard enough, we’ll be rewarded — we’ll find the needle. But if we don’t work hard, we won’t be rewarded, we won’t find the needle, and we’ll only have ourselves to blame.
In order to see if this ideology holds true in reality, we need to look at real world data:
This chart shows that we’re not doing so well in the efficiency stakes, here in the UK. Only three of our neighbours produce less per hour than we do. A British worker takes five days to produce what a French worker will produce in just four days. The Norwegians produce 66% more wealth for each hour they work than us Brits.
But the fact is that we do work hard:
Only in five of our neighbouring countries do people work more hours per year than we do here in Britain. We do ‘Graft’. We graft more than eleven of our neighbours, as shown by the grey bars in the chart above. But that graft isn’t rewarded with extra productivity.
People in the most productive countries, those on the right-hand side of the graph, actually work less hours than people in the least productive countries, those on the left-hand side of the graph. They spend less time looking for needles in haystacks, and yet they manage to find more needles when they do look for them.
So there’s a clear correlation, which states that people who work less are also more productive. We can’t read too much into this; correlation does not imply causation. We can’t say that it’s the lack of work that leads to that efficiency; there could be other causes that haven’t been considered here; things like infrastructure, education and investment. These things will be considered in the next two sections. But it does go to show that the ‘Graft’ method of finding a needle in a haystack, the individual endeavour method of economics that has been so popular in the UK since 1979, is highly inefficient.
This could be because of a phenomena which economists call “Diminishing Returns”. We don’t have an unlimited amount of “graft”. The more we work, the more tired we become, and so our ability to produce goods and services diminishes. If we work really hard every day, there’ll also be a cumulative effect; we’ll be tired when we turn up to work, and so we’ll be inefficient from the start.
And the “graft” approach to economics isn’t only productively inefficient — it’s socially inefficient too. It doesn’t ask, “What do we need to produce?” It only asks, “How much can we produce?” As long as a worker produces goods and services which can be sold for a profit, that worker is seen as productive. It doesn’t matter if they’re manufacturing weapons which will end up in the hands of terrorists, or if they’re gambling recklessly on the stock-exchange, only that they are make money. A nurse may save your life, but, in this model, if she doesn’t generate much revenue for her employers, she’s not seen as productive. In an economy driven by the free-market, by entrepreneurial graft, profit is the only thing that matters.
This can have a drastic effect on morale. In a 2015 YouGov survey, 37% of working British adults said that their jobs weren’t making a difference to the world. A further 13% were unsure. When asked if they found their jobs fulfilling, 10% said “Not at all” and 23% said “Not Very”. Those people spent hour after hour searching for a needle in a haystack, they did ‘Graft’, but they thought that the needle wasn’t worth finding. They just worked for the money. And that can be a recipe for mental illness.
So David Cameron’s “Hardworking Families” ethos really does fail on every count. It’s a defunct ideology. Grafting away for hours to find a needle in a haystack really is a pointless endeavour. And, thankfully, Jeremy Corbyn is providing an alternative…
3) The ‘Team Up’ Strategy
The alternative to cut-throat competition is collaboration; “Teaming Up” to find that needle together, and having fun whilst you’re at it.
The focus here is not simply to make profit for shareholders, but to provide socially beneficial outcomes for everyone in society. Hard work is not the key, it’s the outcome of that work that matters. And to achieve those outcomes it is important to be efficient.
So how do economies become efficient? The data suggests that they need to invest in capital:
This graph uses a statistic called “Gross Capital Formation”. This measures the value of all public sector capital such as roads and schools that exist in an economy at a given time (regardless of when it was built), and all private sector capital such as factories and machines. But it doesn’t include financial capital, such as stocks and shares.
Well, this graph shows that workers in countries with more of that real capital, produce more GDP for each hour they work. Only three of our neighbours have accumulated less capital than us, as a proportion of their GDP, and they are the same three countries which produce less than us for each hour they work. Every country which has more capital than we do, also produces more per hour than we do. They’re more efficient than us.
There are two main reasons for this. The first is that public sector capital can drive efficiency in the private sector. If a government invests in its road network, private sector firms will be able to transport their products more efficiently. If a government invests in its hospitals, private-sector firms will get a healthier and therefore more productive set of workers. And so, in this regard, the public and private sector can help each other; they can complement each other rather than compete with one another; they can “Team Up” to find that needle in the haystack.
Private sector capital can also drive efficiency. The more capital a firm has, the more that capital will do its work for them. As a worker, it might seem like you’re producing more GDP for each hour you work. But in reality, it’s the capital that’s doing the work with you. Rather than “Grafting” away on your own, you’re working with that capital. You’re ‘Teaming Up’ with it. And you’re becoming more efficient as a result.
Efficiency is driven by capital. And so a government which wishes to have an efficient economy must do two things; it must invest in public capital (such as roads and schools), and it must “Team Up” with private sector firms to ensure that they invest in their own private capital too.
This doesn’t happen under the Neoliberal plan. Under Neoliberalism, the government steps away from the economy and allows the private sector to take control. They take a ‘Give Up’ approach. And, as we saw when we analysed the UK housing market, this leads to a reduction in supply and an increase in prices.
Well, when the government leaves investment in capital to the private sector, we also see a reduction in supply; a reduction in our stock of capital:
This graph clearly shows a decline in our capital per GDP in the period of Neoliberal economics (from 1979 onwards). And it is this decline in capital that has led to the inefficient state we’re in today.
Corbyn wishes to rectify this state of affairs. And “Teaming up” exists at every stage of the process…
Firstly, we all need to “Team Up” and pay our taxes, to ensure we have the money to invest. At the moment, the man on the street does this, but many big businesses don’t. Jeremy Corbyn will close the tax loopholes which cost the treasury £120b a year, and invest in the Inland Revenue to ensure that those taxes are collected.
Corbyn then plans to create a “National Investment Bank” which will provide £500b in funds for new, socially beneficial, enterprises. It’ll be up to us to “Team Up”, to decide how that money is spent. And it’ll be up to us to “Team Up”, to fill the jobs which will be generated by that investment; to build the houses, schools and hospitals which we desperately need; and to staff the businesses which will be formed using that seed capital.
Like in the original analogy, by teaming up we’ll become more efficient. We’ll find that lost needle in super-quick time.
Corbyn plans to build 500,000 new houses in five years. This isn’t pie-in-the-sky thinking; the Labour government of 1945–49 did just that, and they did it with a smaller population and less advanced machinery than we have now. So we can definitely build those houses, if we take the “Blitz Spirit” of 1945 and all “Team Up”. It’s a political choice.
As the first graph showed, building those extra houses won’t push out private enterprise. Between 1945 and 1979, when the government built many, many homes, there was plenty of private sector house building too. Private sector building actually increased seven-fold; from about 20,000 homes a year in 1945 to about 140,000 homes a year in 1979! Public sector investment supported private enterprise!
Corbyn is proposing we return to that, successful model. That we return to a period where we were building more houses, employing more people to build those houses, and selling or renting those houses at a lower price. It’s a win-win.
But Corbyn doesn’t only plan to invest in housing. His shadow chancellor, John McDonnell has said that “a developed country like Britain should be spending 3.5% of GDP on infrastructure”. Together, they plan to invest across the board.
They plan to invest in green energy, which will save us all money on our electricity bills. They plan to invest in our internet network, which will increase the efficiency of all the private sector firms who rely on the internet to trade. And they plan to introduce regional banks so that people can come together to decide how to invest in their local communities. That will create new jobs, reduce unemployment, and provide a stimulus for less developed parts of the country. It’ll provide an environment in which everyone, including private sector firms, can be more efficient together.
4) The ‘Use a Metal Detector’ Strategy
“Teaming Up” isn’t the only way to improve efficiency. We don’t only have to improve the quantity of the capital we own as a nation. We can also expand our economy by improving the quality of that capital. By inventing new machines which produce more or better products, and by improving our own human capital, through education, so that we become more efficient workers.
This is what the ‘Use a Metal Detector’ Strategy is about. It’s about scrapping the “Work Harder” mentality, and replacing it with a “Work Smarter” mentality. Spending a few minutes to find a needle in a haystack, because you’ve got a metal-detector which is perfect for finding metal, rather than using rakes and brushes which were never designed for that purpose.
But, if you don’t have a metal detector, which let’s face it — most of us don’t, you’d need to buy one. And if you don’t have futuristic technology, which let’s face it — none of us have technology which hasn’t been invented yet, then you need to invest in research…
This graph shows that the UK drastically reduced its research and development spending, as a proportion of GDP, when Thatcher was in power. That spending stabilised when Tony Blair came into office, but it has not recovered.
We’re spending less on research, so we’re creating less new technology, and so we’re becoming less efficient when compared to our neighbours.
Labour plan to change this. The shadow chancellor, John McDonnell, has committed a Labour government to spending 3% of the nation’s GDP on R&D by 2030. That would totally that reverse the decline, turn us into a hi-tech nation ready for the 21st century, and boost our long term efficiency.
But Labour doesn’t only want to invest in the creation of better capital. They also want to invest in the creation of better labour; to invest in people, so that they can learn the tools necessary to produce more valuable goods and services.
Labour wants to boost education.
We’ve spent a fairly constant proportion of our GDP on education over recent years. But we’ve really put up the barriers when it comes to further education — the part of education which can give us the skills we need to excel in the workplace. We’ve reduced the bursaries poor students used to receive, introduced tuition fees, and then increased those fees. Theresa May’s government is about to set those fees at a whopping £9500 per year. The average student already leaves university with a debt of £44000. According to the Sutton Trust, that’s the highest amount in the English-speaking world.
This acts as a barrier. Students, especially those from poorer backgrounds, are put off from going to university by that debt. Graduates often go for the best paid jobs, simply to pay off their debt, rather than the most socially beneficial jobs. The country has become less efficient as a result.
But Corbyn and McDonnell wish to change this. They would scrap tuition fees and re-introduce some bursaries. They are also looking into the concept of Universal Basic Income, which would give students an extra income whilst they study. Together, these policies will make education available to all. The best students will get the best education, and they’ll become efficient producers when they begin work. We’ll all benefit from their increased contribution to society.
So we have a needle in a haystack, and we have four options. Which one do we choose?
The truth is that we can choose whichever option we like — some will choose one option, others will choose another. More often than not, they’ll chose the option which suits their own personal self-interest.
Some people do benefit from the Conservative’s approach, using the first two methods, through what is called Neoliberal Economics. We saw in the first example that when the government takes a ‘Give Up’ approach and builds less homes, house prices go up. So anyone who owns a home may very well be better off, financially if not socially. And the private sector firms which build those houses will also be better off. Their top executives will take home bigger pay-cheques and their shareholders will take home bigger dividends. Shareholders can do pretty well under this sort of economics.
But anyone who doesn’t own shares or a home is probably going to be worse off. They may struggle to find accommodation. And when they do find it, they’ll have to pay a big chunk of their wages on their rent or mortgage payments. (Wages which have fallen by 10% in real terms since 2008).
The alternative is to ‘Team Up’ and invest; to invest in capital, R&D and education. This is Labour’s approach. It’s about becoming what one of their economic advisors, Mariana Mazzucato, calls the “Entrepreneurial State”. It’s about working together, and working smarter, to create an economy which doesn’t just serve shareholders and house-owners, but which serves everyone.
Such investment will create millions of new jobs, so less people will suffer from unemployment. There’ll also be higher wages, because McDonnell plans to introduce a real living wage of over £10/hour, and because competition for workers will push up wages. And there’ll be a real focus on providing the things which will really improve our lives; things like greener energy, more homes and cheap education.
And, what’s more, as our efficiency improves, we may even see a reduction in working hours. I mean, Sweden just introduced legislation to cap the working day at just six hours. And if that bunch of wannabe Vikings can do it, then why can’t we?
Joss Sheldon is the author of two political novels, ‘Occupied’ and ‘Involution & Evolution’. His third novel, ‘The Little Voice’, will be released later in 2016. Check out Joss’s books here.