Not up to the job

Today’s figures suggest we might be approaching the point at which the current cycle of rising unemployment peaks. But this shouldn’t distract from the massive national and international jobs crisis. The 2.67 million people officially unemployed are only half the problem. If the number who would like a job but aren’t registered unemployed and the number who are working part time when they would like to be full time is added the figure is probably closer to seven million.

The yawning jobs gap can also be seen in other countries and globally. As Joseph Stiglitz wrote in yesterday’s Financial Times the better news on American employment should be set against a ‘miserable’ 58.6% of working age American adults in paid work. On a global scale, Gallup Chairman Jim Clifton argues in his book ‘The Coming Jobs War’ that the world is currently generating 1.2 billion jobs out of the three billion for which there is demand. As Clifton says, this is particularly shocking given that a paid job is by far and away the single most desired social aspiration amongst the world population, and also the one most closely linked to wider wellbeing.

So, Governments, business and everyone else should be doing all that we can to boost jobs. There are many different arguments made for how best to do so. These range from boosting aggregate demand (by increasing spending or reducing taxes depending on the ideology of the proponent) to reforming the labour market to more specific interventions such as providing incentives for those in the informal economy to ‘go legit’. But one sector which could certainly be doing more is our old friend financial services.

The theory is that financial services boost the economy not simply or primarily by the jobs they create directly, but by increasing the efficiency of markets, particularly by directing saving and investment to their most productive use. Two stories today suggest the financial sector may not be doing this job very well.

First, there is the strident critique of Goldman Sachs offered by its former senior employee Greg Smith. Smith’s article reveals that what motivates Goldman Sachs advice to customers is not how best to maximise investment returns (which market theory would suggest should mean money going to the most productive sectors and firms) but what advice is best for Goldman Sachs as a firm and for each individual senior employee.

Then there is an interview in today’s Times with Lord Adair Turner head of the Financial Services Authority. Here is the first paragraph of the story:

‘ The head of the FSA has launched a broadside against innovation in the City, accusing parts of the Square Mile of developing complex products that mislead regulators and hoodwink customers’

Another of Turner’s points worth repeating in full is this:

‘ He [Turner] mentioned as an example structured products, over which the FSA has raised concern repeatedly. When presented with proposals for a hugely profitable new retail initiative he said that boards [of banks and financial services firms] should ask ‘How can it possibly be that a product with such a high profit margin could possibly be in the interest of the consumer buying it?’’   

It is poignant fact that while the economy is limping along and unemployment still rising in most developed countries, the amount of money sitting unused in corporate reserves is at an unprecedented level. Presumably, a trusted, effective and genuinely innovative financial services sector would be developing ways for corporates usefully to invest some of those funds in ways which are profitable and boost the productive economy. But, apparently, this useful task is of limited interest as long as so much of the sector sees its overwhelming priority as being the short term maximisation – by any legal means possible - of its own income.

We need a concerted effort to start to address the growing global jobs gap. Sadly in relation to that task much of the financial services sector is about as much use as a chocolate teapot.