Why unpaid internship is not slave labour

MY COMPANY is currently looking for an intern (don’t all apply at once). The reason is simple. We have a job that needs doing that we cannot get our clients to pay us for and, in the current climate, we cannot afford to pay an experienced person to do it. The work we want doing would involve supervision by a senior manager and would involve learning a set of skills that is very saleable in the labour market. Now, if we accept the argument that unpaid internships are wrong then this work will go undone, to the minor detriment of our business, and nobody will get that valuable experience. Who benefits from that?

There have been angry voices raised against internships recently from people who feel that they are badly treated and exploited. I am not going to defend every unpaid internship, as I am sure that there are bad employers of interns as well as good ones (welcome to the world of work). However, in principle, internship can play a useful role for some people in some circumstances. So what are the objectors saying and how should we assess internships?

Some people claim that internship is a form of slave labour, yet there is nothing compulsory about it. Young people make a rational choice to become interns. The calculation is that if you are prepared to invest some time and effort there may be a big pay-off further down the road, through access into highly competitive and popular trades or professions.

Internships don’t replace paid employment. The interns are too inexperienced to be worth paying in most cases. It is a kind of informal modern apprenticeship where it is recognised that most of the value in the relationship is gained by the apprentice rather than the master. One factor which actually deters businesses taking on more interns is that to be of any use they require time spent on showing them what to do and managing them, which amounts to a hidden cost.

Interns gain real benefits from creating contacts and getting experience that would probably not be open to them otherwise. The time invested by businesses on training them, however little it may be, is not necessarily repaid – once interns have some experience, they are more likely to get a job, and not necessarily in the place where they have interned.

Employers are able to gain assessments of young people before committing to taking them on, and vice versa, lessening the chances of mistaken commitments on both sides. Employers can assess the worth of individuals and interns can decide relatively informally whether the particular industry, business or boss is really for them.

A weakness of internships is that they are often restricted to those whose families have prior contacts in certain professions. If internships were formalised and legalised then there would be more opportunities for young people who may be currently excluded because they are outside the current networks of friends and families. A nationwide internship/apprenticeship scheme would be far preferable to young people going straight from school or college onto benefits.

Some of the criticism of internships has come through the widespread practice of using unpaid labour in the creative and media industries, especially in London. I am afraid that far more young people think they can pursue a glamorous career in fields like journalism than can ever be the case. In effect, the mass of wannabe media stars has created a situation where employers in these industries are inundated with talented youth who are willing to work for nothing. It would be helpful to the UK economy, as well as to the young people themselves, if more of them were prepared to learn skills in engineering, technology and science.

I also believe that there is a value to young people in having to accept that life can be a bit of a struggle. The years from 18 to, say, 24 should be a little tough. After all, most kids in our society have been sheltered until then from having to earn a living. If you are a student, that can carry on into your early twenties. There is a whiff of over-entitlement from some of those who complain about internships. I think it is a mistake, for the same reason, to enable young people to leave school and go straight onto the dole. It would be better for them to have no access to dole money until they reach 24.

Of course, with youth unemployment running at record highs, more jobs need to be created for young people – and for all of us, in fact. But this is a different argument involving investment and economic growth, not the use of internships.

(This article appeared in City AM http://www.cityam.com/forum/why-unpaid-internships-are-good-thing-they-help-the-young-get-foot-the-door)

What is the role of business in society today

(speech given at PWC in debate with Stefan Stern,Vicky Pryce, Michael Green and David Phillips)

Keynes famously said that practical men are usually the slaves of defunct economists. I am going to prove how practical I am by quoting from two of that ilk.  First Adam Smith in the section of the ‘Wealth of Nations’ in which he discusses the hidden hand of the market, went on in the same passage to say of a businessman:

‘By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.I have never known much good done by those who affected to trade for the public good.’

Karl Marx, when asking himself what was the principal function of capitalists, answered:

Accumulate,accumulate. That is Moses and the prophets!

Now it looks as if we are at the onset of the deepest global slump since the 1930s. Surely the question of this debate, ‘What is the role of business today?’ should be a rhetorical one.  The role of business people in society  today is to grow their companies and through this grow the economy.  Businesses in the UK have around £60b in cash sitting on their balance sheets doing nothing useful. They should be investing more of this in research and innovation than the pitiful amounts they currently are; they should be taking more advantage of the huge new consumer markets in the emerging economies; they should be trying to grow, to create jobs and to raise living standards here and elsewhere. All the wealth of society is created by businesses. Jobs are created not only for those who work in those businesses but also the taxation that pays for education, health and the other public services. A focus on growth and the creation of surplus, or profit; that should be the role of business in society today.

But business has become too cautious to play this role to its full potential. Business today has more cash on its collective balance sheet than anybody can remember, but instead of looking for productive ways to invest it is playing the financial casinos, investing in arcane financial instruments in the vain hope that it can find a safe haven for its cash.

Perhaps it is not surprising that businesses find it diffiulct to focus on their core fucntion.It sometimes seems the main role of business today is to be the whipping boy for every special interest group in society. Business has to be seen to be environmentally aware, morally conscious of its obligations to the developing world, an active force for racial and sexual equality, careful about what it researches into and particular about its use of scientific breakthroughs and new technologies. It seems to have taken on the doctors’ mantra, first do no harm. This is damaging for innovation and growth. These days’ businesses are expected to avoid making a mess in the process of making anything. They seem to have forgotten what the purpose of business is first and foremost making things and developing services. It’s a terrible cliché, but you really cannot make an omelette without breaking eggs.

 If you read the mission statements of many large corporations they will mention their main business in passing before going through a long list of all the ways they are making the world a better place through their corporate social responsibility agendas. You may think that some if not all of these issues are ones that society in general should be in favour of, I may too for that matter. But I fear that this concentration on broader social issues that fall under the CSR area are the wrong ones for business to be focused on.

If you look at some of the corporate disasters of recent years one wonders how much of the damage could have been avoided if businesses were completely focussed on their core business. Would BP have been more careful in the Gulf of Mexico if they had not been simultaneously trying to convince us they were Beyond Petroleum? Would UBS managers have been more likely to have spotted its rogue trader had they not been busy engaged in human rights, the environment and empowerment, all key objectives
according to their website. Not to mention producing a 44 page document on the proper way to dress for business. I remember sitting through an address about how wonderful Toyotas’ environmental policy was at the precise time its cars were accelerating off the road while their terrified drivers were helpless.

Directors and managers, like all of us, have limited attention spans and limitations to what they can concentrate on. I would like to see more businesses sticking to their knitting. Now some might say that all the CSR is superficial, pandering to an external agenda, a kind of box ticking exercise. If that is true then CSR is just a cynical PR exercise, if it is not then it takes up management attention that would be better spent on its core business. Either way it is wrong. Let the politicians and the campaign groups argue for and legislate for a better society, business should get on with business.

Those who are really interested in global wellbeing should consider this: the average global wage is around £5000 per annum. In order to bring that average up to £25,000, the average wage in the UK, the global economy would have to grow by a factor of 5. This growth is what would make the real difference to the people we aspire to help in underdeveloped parts of the world.

By the way, it would also be a good idea if politicians and others laid off those dynamic sectors of our economy, pharmaceuticals, bio engineering, energy and aerospace for example which are often treated as if they are the spawn of the devil. Without these progressive industries we will be truly condemned to a desolate economic future.

Business has become far too risk-averse in every way, too cautious to take chances with innovation, too scared to make risky investments in case of upsetting interests groups, too distracted and too cowardly all round. It has lost the confidence to say that the business of business is business.It is going to take an enormous amount of risk taking and innovation to get this economy  out of its slump, caution and risk aversion are standing in the way.

Why breaking up the banks is not the solution to the UK’s economic woes

 

 

 

 

 

 

*This is a seconding speech to be made at this event alongside Kitty Ussher of Demos against Phillip Blond, the so called ‘Red Tory’

The truth is that poor profitability in productive industries fed the Wall Street monster; that is why it has had so much money to play with. Sean Collins 

The argument for breaking up the big banks, to separate investment banking from retail banking, is based on a flawed analysis of the underlying causes of the financial crisis and the recession which followed. While I hold no brief for the financial sector, the public campaign to break them up is based more out of a desire for revenge than a clear understanding of what needs to be done to make our economy dynamic.

The financial boom and bust was not the product of risky behaviour by bankers, something that those who argue for the break up generally contend. Rather it was the outcome of government sponsored credit expansion policies, here and elsewhere. Low growth rates were artificially stimulated by easy credit policies. The banks were certainly complicit in this behaviour as executors of a strategy of bolstering consumption instead of investment, but they were not the cause. The banks have become scapegoats for the recession, accused by many of the same politicians who encouraged them to keep on lending when times were good.

The fault for the crisis lay with those who believed that a consumption based credit boom could continue forever. We can now see how wrong that belief is. But the real problem facing the UK economy is now laid bare. It is not insufficient consumption that is our problem, but lack of productive investment, in all types of businesses and also in the basic infrastructure of our country, in its roads, railways and power stations. Money, the most fungible of all substances, will continue to flow to where the biggest profits can be made whatever walls are built to stop it. As long as there is no profit to be made in productive investment, money will inflate the next bubble instead.

Breaking up the banks will not help to solve this problem of under investment, and the disruption to banking that would ensue may even hinder it. We need the banks to do their job of lending more effectively than they presently are. Breaking them up is likely to hinder not help that process.

Military thinkers are often criticised for always trying to fight the last war. It would be a mistake for us to now want to focus on what happened in the past rather than what needs to happen in the future. We need to forget about revenge on the bankers and focus instead on the huge task of recovering growth in our economy. The constant harping on about banks and bankers has acted as a giant displacement activity. Being envious about bonuses is far easier than working out how to solve the growth problem. Fantasies about a return to some mythical past when small businesses ruled the roost will not help us to prosper in a globalised economy. It is time to let the bankers get on with their jobs. Instead of backward looking banker bashing we should be working out how we can make this a successful country in the 21st century.

Happiness is (about to be) overrated

I have to be careful here. A few years ago I spoke at a discussion on happiness and passed the flippant comment that I had not been happy since 1963 (a reference to Philip Larkin as I am sure you all know). After the discussion I was approached by a man who,  identifying himself as a therapist,  offered to help me with my ‘problem’ of unhappiness.

So to be clear, this piece is not about my own state of mind, which those who know me well will confirm is that of a sunny optimist who can only see the bright side of life. It is rather about the intention of the UK government and others to find a new and better way of measuring the wealth of nations, not through the present measure of growth, GDP, but by adding in some as yet undefined way of assessing the happiness or state of well-being of the nation.

Tim Harford, in his excellent summary of the current discussion, makes the point that all of the information that the government purports to want to find out in its new ‘happiness’ initiative is already available from numerous other official surveys. So, if the information already exists, why has the government decided to make a public issue of surveying ‘happiness’ at this moment in time?

The ‘happiness’ debate is a product of the coming together of two different but connected social phenomena. One is the pervasive sense of ‘limits’ which imbues much of contemporary society, the idea that we are reaching the end of the road of exploitation of the earth’s natural resources, that we need to learn to be more sustainable and less dependent on material growth.

The second is the recession and  the very real impact on our lives, here in the west, of the cutbacks in living standards which we are beginning to experience. When we face a future of stagnant  growth and financial pain how tempting it must be for those in government to try to convince us that growth is not what we need, or indeed that it may even be a hindrance to our happiness and well-being.

I am not suggesting that this is simply a cynical ploy by Cameron and others. They undoubtedly have been influenced, as have many people in our society, by the idea that the value of material wealth is overstated and that we should all be looking to other aspects of our life for solace. (Although, I  doubt that this will lead Cameron and his wealthy chums to forswear their own vast riches along the path to a supposed happier existence.)

It would also be wrong to dogmatically assert that all that matters in life is money. Of course, there are many aspects of our daily life which give us pleasure and a degree of contentment that do not depend on money. Most of us get a sense of well-being from achievement and a feeling of control over our lives. But I am opposed to a happiness index precisely because  those kind of things are not measurable in any meaningful way, they are mainly subjective and often temporary and individualised.

The importance of economic growth and its measurement, in GDP, is that it is measurable. It gives an approximation of how dynamic a society is, how much wealth is being created, how productive its people are being.  Wealth creates possibilities which do not exist otherwise. If you look at the world today the nations which have the most human longevity and the best health are the most developed ones. Generally speaking those countries also have the most stable and democratic institutions and the most flourishing cultural activities. This is because wealth creates spare time and spare cash, time and money which can be used to pursue other things than the mere struggle for subsistence that occupies much of the world’s population even now. Economic development  transforms the nature of work from being dangerous, long and tedious to safer, better remunerated and less time-consuming.

The development of a bandwagon around the ‘happiness’ debate at this time is a tacit recognition by the ruling elites in the west that they have lost faith both in their belief in economic development and in their ability to maintain economically dynamic societies. They would like us all to stop pushing for more, to accept austerity and to learn to love it. It is an acquiescence to stagnation at every level in western society. They would like to encourage us not only to accept this stagnation but to call it happiness.

Ten key aspects of developed economies, post recession

There are times when the ideas of the world’s rulers and the institutions through which they govern are adequate to the needs of the era, and there are times–like the present–when they are not.   Walter Russell Mead

1. The shift in economic weight from west to east has been accelerated by the recession and its outcomes, leading to growing tensions

The latest G20 meeting took place in South Korea, a symbolic recognition of the growing importance of the east both from the venue and from the fact that the G20 itself, containing the dynamic eastern growth countries, is now the main international economic forum. The global imbalances between developing countries which helped to fuel the credit boom remain in place. Tensions over currency valuations between the US and China reflect both the interdependence between the two countries and their long-term divergence.

Low interest rates in the US and elsewhere lead to investment money pouring into China. This continues to stimulate the Chinese economy and promotes exports back to the US. This continues to make US exports less competitive. The US tries to combat this through more stimulus to the domestic economy and therefore the requirement for lower interest rates persists. The US would like China to allow the value of its currency to rise, something the Chinese have resisted up until now.

China is by far the largest holder of foreign exchange reserves, with stockpiles of $2,454bn at the end of June, around 65% of which is dollars – almost 30 per cent of the global total. In addition China holds 22% of foreign-owned US government debt or$843.7bn. As Hillary Clinton said recently in relation to China ‘how do you deal toughly with your banker?’

2   The US remains the global consumer of last resort

While the US continues its slow decline as a global power it remains the only one with a global reach. It also continues to play its role as the global consumer of last resort. 70% of US GDP is consumption based and its recovery from recession is based on increased domestic consumption not exports.

3. Political incoherence is encouraging the pursuit of narrow national self-interest

Most western economies are struggling to get out of the recession. This has led to a breakdown in international cooperation and the pursuit of what Philip Stephens calls ‘a pinched nationalism’ of countries that have ‘lost confidence’ in their future.

As Sean Collins argues

The underlying pressure comes from the fact that the major economies have not seen a robust recovery, and countries are pursuing their national interests, defined narrowly.

In particular the loosening of US influence has encouraged a breakdown in international cooperation between debtor and creditor nations

 4.  The eurozone may buckle under the pressure

Nowhere is the breakdown of political cooperation clearer than in Europe, whose eurozone countries constitute together the second biggest economy in the world. The long-term contradiction between countries whose currencies are linked but which have separate political systems has come to the fore. Germany, which is the main dynamo of the European economy, has now decided it is no longer going to bail out the weaker peripheral countries, the so-called PIGS. These economies can only exist in their current form on the basis of continued economic support from Germany and other large European economies.

This pursuit of a narrow self-interest by Germany could lead to the break up of the eurozone.

5. There has been insufficient restructuring of developed countries to create the conditions for growth

Wikileaks revealed that even the Governor of the Bank of England, Mervyn King, recognises that the UK economy has not been restructured enough to create the conditions for a new growth spurt

As Sean Collins has argued, even the kind of limited restructuring that General Motors has undergone in the US, under US government control, is both atypical and probably inadequate to return GM to its dominant position in the car market.

6. Big corporations are saving not investing

The main outcome of the recession for big western corporations is that they are sitting on piles of cash. In Europe cash now comprises between 9 and 10 per cent of assets on balance sheets and may break 12 per cent in two years time, a third higher than the peak of the previous cycle. As the graphs below illustrate, this cash hoarding is at the expense of investment

The opportunity to take advantage of the new growing markets in developing countries is being spurned due to conservatism and risk aversion.

 

7. Austerity not growth is the watchword

With the exception of the US all western economies are being subjected to austerity packages. While these are being justified on the basis of the need to appease global bond markets there is no doubt that governments really have no idea of what else to do. George Osborne, the UK Chancellor of the Exchequer, recently had to abandon plans to produce a white paper on growth because there were insufficient ideas to put into it. Austerity is the only policy they have, which leads to a decline in domestic demand, a dampening of international trade and probably an increase in protectionism.

8. The recovery,such as it is, is jobless

Austerity policies and the absence of investment has led to a situation that while most economies are now growing slowly, this has not led to an increase in employment.

9. The debate about our economic future is painfully inadequate

Both free market and neo keynesian economists have been discredited by the recession. Economic debate is now characterised by its pessimism, and a general belief that slow or even no growth in the west is both impossible to avoid and in some cases desirable. The door has also opened wide for those who have psychological explanations for economics, the behaviouralists. David Cameron’s attempt to switch the focus of the economic debate from ‘growth’ to ‘happiness’ is a sign of how bankrupt the economic debate has become.

10. The absence of opposition leaves considerable room to manoeuvre

The absence of any political opposition or economic alternative to austerity means that the elites have plenty of room to manoeuvre in managing their domestic economies: indeed, there is even some popular support for austerity measures.

On that note I would like to wish you all a merry Xmas and a very happy new year!!

Our aim should be a growth economy not a balanced one

 * This is a seconding speech I made alongside Richard Lambert from the CBI against the following motion at this debate organised by the Royal Academy of Engineering, 

 This House believes that a manufacturing sector accounting for at least 20% of GDP will provide the only basis for a balanced UK economy

Many myths have grown up around the problems of the UK economy post recession-not the least of which is that the recession was apparently caused by some unemployed scroungers in Newcastle. But before we consider what kind of economic policies we need and how we should shape the future we need to avoid falling for the myths rather than the facts.

For example, we all know that it was the financial services sector that provided much of the dynamism of our economy in the past 15 years. It was the fastest growing sector, the motor of the economy, and had enormous positive knock on effects for the rest of the economy, not the least of which was to enable the state to create nearly a million new jobs. Even today, post recession, living standards in the UK are far higher than they were 15 years ago.

The financial crisis has been interpreted by some as a sign that we should look for a different way of organising the UK economy, hence today’s debate. There has been a growing distaste for the financial services which created prosperity, summed up by Vince Cable’s attack on the ‘spivs and gamblers’ in the city, and a more general sense that greed is to blame for our problems.

But it would be a mistake to conclude that what has happened over the past two years was because of an over reliance on the financial sector or the product of outrageous greed. The problem with the financial sector was not its dynamism per se, but that ultimately it fuelled a bubble which then burst-as bubbles tend to do. The problem was  not the dynamism which it brought to the country, ie the growth itself -which most of us enjoyed the benefits of- but the fact that it was based on a credit bubble and was ultimately unsustainable. Had the bubble not burst we would I am sure all still be happily doubling up on our credit card bills and inflating our house prices.

The point is that it would be a mistake to infer from the financial crisis that any one type of business would be necessarily immune from this kind of bubble. Currently it looks as if there is a bubble emerging in the BRICS, the developing countries, as huge amounts of money are moving into manufacturing and other businesses there. We saw in the recent past how a bubble emerged around the digital industry at the time of the dot-com boom and bust. There is nothing about the specific character of any  industry which can guarantee stability or prevent bubbles. The problem of investment bubbles is a general one, outside the scope of this debate

Secondly, the idea of balance is itself problematic, as it implies that balance is more important than growth. The concept  of a balanced economy has two major problems. Firstly it runs against the tide of globalisation. The world economy has become globalised and operates increasingly through an international division of labour. Countries which develop a particular area of expertise, such as the Finns in electronics or indeed the UK in financial services, can then sell their products globally.

Secondly, balance also carries connotations of the status quo ante, of going back to some prelapsarian state  when the making of things rather than money was virtuous, almost a romantic idea of how economies work. At this stage it is far more important for us to be trying to identify what we can bring to the world market in a better way than our competitors, to identify what can provide the engine of growth we need to break out of the current stagnation. Balance also contains within it the idea of sustainable growth, code for a slow or even stagnant economy. Consciously or unconsciously it is an endorsement of the lack of dynamism of our economy and offers only a further diet of austerity.

Of course, it may turn out that manufacturing can play this locomotive role , or the digital sector I work in and which the Coalition Government is very keen to push, but it might also continue to be the expertise we have in financial services, on a non bubble basis. Or indeed it could be a combination of one or other of them.  Indeed, I must confess an enthusiasm for engineering more generally, I would certainly like to see more large-scale infrastructure projects being backed by the state for example.

To sum up, it would be a mistake to put arguments for promoting manufacturing in order to achieve balance in front of arguments for growth. We need to focus on value, however it is created. Better a one-sided growth economy than a balanced stagnant one.

Why those working in the financial sector need to tell the truth about the crisis

When Vince Cable recently attacked the ‘spivs and gamblers who did harm to the British economy while paying themselves outrageous bonuses’ he summed up what many think is the problem with the finance sector. Politicians like Cable have led the way in blaming the banks for taking too many risks out of greed and thereby causing the recession. We all love to find scapegoats for our problems and the banking industry has become the main scapegoat for our economic woes.

The reality is somewhat different from the story. The  banks’  massive extension of credit was in fact a government backed attempt to stimulate stagnating western economies artificially by pumping up consumption. The slicing and dicing of credit in the form of derivatives and other financial instruments prior to the recession was an attempt to spread the risk of this explosion of credit. The real problem is that investment in productive areas of the economy requires genuine risk and not enough of that kind of risk is being taken in western economies. Spending money on new research and technologies has no guaranteed pay off, it’s far easier to sink your cash into property and hope for a steady return.

Bankers operate within the parameters set by those whose money they manage. The supposed surprise that politicians now express at the way banks behaved is disingenuous. All the main parties were fully behind the credit boom. To express surprise and shock now as Cable and others have done is simply dishonest. Blaming greed is foolish and hypocritical. Indeed many of the same people who blame greedy bankers and consumers in the west for our problems are urging the Chinese and others to increase consumption so they will buy more of our exports.

The Hotwire survey reveals a great deal of defensiveness within the financial sector. While this may not be surprising it is unfortunate. The financial sector has attracted many of the brightest people in the UK. These people need to be more upfront about what really needs to be done to help our society move on. The Hotwire respondents felt for example that too much transparency may not be good for the industry; let us hear this argument being made more forcefully in the face of those who believe that more and more regulation is the answer.

Blamed for the crisis and also seen as responsible for the way out of it, some bankers hope that better corporate responsibility will restore trust. But in truth, the message that bankers need to get across is that economic stagnation cannot be solved by more regulation of banks but requires a much more fundamental reappraisal of how the west is run. Rather than spending their efforts on persuading us they are not greedy, those working in the financial sector would be better spelling out the real economic dangers we face. This would be taking real social responsibility.

*This is the preface I wrote for a report by Hotwire PR which was launched at this event, at which I was also speaking