Modern Money Blog – Number Forty Six
The Job Guarantee – Program Manageability
by L Randall Wray
New Economic Perspectives (April 15 2012)
As mentioned earlier, critics have argued that the program could become so large that it would be unmanageable. The central government would have difficulty keeping track of all the program participants, ensuring that they are kept busy working on useful projects. Worse, corruption could become a problem, with project managers embezzling funds. We will briefly look at some methods that can be used to enhance manageability.
First, it is not necessary for the national government to formulate and run the program. It can be highly decentralized – to local government, local not-for-profit community service organization, parks and recreation agencies, school districts, and worker cooperatives. Local communities could propose projects, with local agencies or governments running them. National government involvement might be limited to providing funding and – perhaps – project approval. That is the way that Argentina’s program, as well as the new program in India to some extent, is run.
To be clear, the level of decentralization will vary across countries and even across regions within countries. In some developing countries there may be no alternative to the central government – there may be few indigenous not-for-profits, and local government might be too ineffectual (for a variety of reasons). In some developed nations, the central government might be sufficiently competent and respected to run the whole program. However, in a place like the US, there is probably too much distrust of the central government – but, fortunately, the US has hundreds of thousands of local alternatives in the form of community service organizations and local governments.
In order to reduce the likelihood that funds are embezzled, the national government could pay wages directly to program participants. This can be facilitated by using something like a social security number – and paying directly into a bank account much as social security programs pay retirement. If project managers never get their hands on government funds, it will be difficult to embezzle them. To be sure, there will be some cases of fraud, such as paying to a social security of someone who is not working, or who is dead. Transparency is one way to fight corruption – public recording of all participants and all payments, through use of the internet, for example, with rewards for whistle-blowers. Argentina used the internet in this manner.
While there are privacy issues surrounding participation and income received, that is probably outweighed by public interest concerns. Even in the US it is common to make the wages and salaries of public employees available. Further, since our formulation of the Job Guarantee (“JG”) includes uniform wages and benefits, there are no distinctions – all full-time employees receive the same amount – so there is less potential for embarrassment. Further, unlike welfare payments, the program is not means tested. As mentioned in an earlier blog, to the extent that participation in the JG becomes something of a “rite of passage” for young people (and, indeed, for people of all ages) the program won’t necessarily taint workers.
To cover management and materials costs, the national government might provide some non-wage funding to projects. In direct job creation programs, an amount equal to 25% of the wage bill has been common. The greater the payment, the greater the adverse incentive for project managers – who might create projects simply to get funding. For this reason, non-wage funding should be kept small, and the national government should require matching funds to cover non-wage expenses. And, again, all such payments should be transparent and publicly available – published on the internet.
While it is tempting to include private for-profit employers in such a program, adverse incentives are even greater. A private employer might replace employees with JG/ELR employees to reduce the wage bill. Worker cooperatives might work better. A group of workers could propose a project designed to produce output for sale in markets. The JG/ELR program could pay a portion of their wages for a specific period of time (say, for one year) after which time the cooperative would have to become self-supporting. If it could not stand on its own, the workers would have to move into regular JG/ELR projects. (Again, Argentina provides a useful example of successful co-ops included as part of the Jefes program.)
Obviously, there are many more management issues that must be explored. There are many real world examples of direct job creation programs funded by government. We can learn from mistakes made. Programs must be adapted to the specific conditions of each nation. There will be many trial-and-error experiments. One of the advantages of decentralization is that the whole program is not tainted by the failure of some experiments.
Look at it this way. We know that most new for-profit businesses do not make it. Firms fail every day. Yet, the “market system” is not tarnished by these unsuccessful experiments. Indeed, that is said to be the beauty of the “competitive system” – losers get punished. We should, and do, hold our government to a higher standard. We will never accept a failure rate of fifty percent or 75% by government, even though we accept – even welcome – such dismal results in the private sector. We readily overlook all the social costs generated by business failures (including those imposed on workers who lose their jobs because of management’s mistakes) on the belief that the relatively few successes compensate.
We should have the same attitude about JG projects – albeit with an expectation of much lower failure rates. We know the ideological opponents will seize on every single mistake, so we need to have many, many successes to counter them.
Still, some JG projects will not be successful – in terms of providing useful jobs that produce socially useful output. Some will have low rates of transition by workers out of the program. The project managers must be held accountable. Just as projects must be approved before they can receive government funding of JG workers, they must show results to continue to participate in the JG program. Constituencies (workers and communities served) must be part of the evaluation process. JG workers must be free to quit work at poorly managed projects to seek more fulfilling work at other JG projects.
There is a bias in societies like the US that the “market test” is the best way to distinguish successful from unsuccessful firms. Yet, as all economists know, the market does not work well in many important areas: public goods and other cases where social benefits and costs are not reflected in market prices. Even in the most favourable circumstances, “market efficiency” does not equate to “social efficiency”.
There are wide open areas in any economy where social costs can be reduced and social benefits improved by “extra-market” provisioning – by purposeful and organized action. Some of this is the proper role of government, some can be funded by government, and some can be done without government. But there is no justification for believing that the market can “do everything” and that the market test is the only test of value.
I will have more to say about this in a few weeks. In truth, every successful business required help. There is no such thing as a “self-made man” (or woman). And every failed business squandered the help provided by government and society more generally, at least to some degree.
So, yes, problems will be encountered in any real world JG program; some of these can be foreseen and others will surprise us. There will be failures. There will be some waste. The program design will need to be adjusted. There will be an element of trial and error.
But what must always be kept in mind is that the alternative – unemployment – is, arguably, far more socially wasteful.