Just the job for the Nineties: Inflation was beatable, and so is unemployment. Geoff Mulgan suggests ways back to work

Across the political spectrum it is conventional wisdom that unemployment is here to stay and little can be done about it. Twenty years ago much the same was said about inflation. Yet as the costs became unsustainable, governments found the will to act and in many countries inflation was defeated.

Something similar is happening with unemployment. This week's Group of Seven jobs summit in Detroit is a sign that rising benefits, the cost of policing and much greater economic insecurity all over the Western world are combining to push unemployment back up the agenda. At the time of writing, Detroit has revealed a surprising degree of consensus. But if words are to turn into deeds, there are still many barriers to overcome.

Perhaps the biggest - one common to left and right - is the continued dominance of economics. Though economics offers many insights, it has failed to illuminate some of the key policy issues of the Nineties: the links between learning and work, between joblessness and crime, and the role of the labour market culture.

These failings matter because so much has changed beyond the view of the economic statistics. Since 1950, 5 million jobs have disappeared in the UK's goods-producing industries, while 8 million jobs have been created in services, both public and private. This was not enough to prevent unemployment rising, because the old male cultures of work prevented unemployed men from taking up the new jobs, and rising aspirations encouraged women to enter the labour market in their millions.

The biggest culture shift, however, has been in work itself. A decade ago many people forecast a leisure society. Instead, work has become if anything more central. A large majority now say they would work even if they did not need the money. Two in five young people want to be self-employed.

Mark Twain said that if work was so good, the rich would have hogged it for themselves. That is precisely what they have now done, with sharply rising working hours for those at the top; an underworked, unhappy minority at the bottom; and in between, millions stuck in jobs that do little to develop their potential.

Leaders and policy makers have been slow to adapt to this. But with rising job insecurity in the middle classes and the mounting costs of benefits and policing, a huge political prize can be won by the party that addresses unemployment most credibly.

Few would dispute that the starting point must be learning and brain power, the key currencies of international competition, and essential for the quantity and the quality of work. But we also need to find out how to spend money well. Not only will we need to transform schools and universities, making them more porous to local communities and employers, more open to new multimedia technologies and more conducive to teaching people how to learn and adapt. We will also need to copy Japan and Korea by fostering a more active private market for tuition and schooling.

Teaching will have to be transformed with fewer but far better paid teachers working with mentors to help children to make the transition from school to jobs. If the deep division in the labour market is to be tackled, we will need a wholesale shift in the balance of spending towards pre-16 schooling and training, ending the anomaly that Britain spends half as much on an unemployed trainee as an undergraduate.

For the left, the tough part is understanding that as jobs disappear from big firms and big government there is no substitute for enterprise creation. This sort of culture has still not been sufficiently embedded in our education system, in the elite and in support networks of finance and advice. We still suffer from the stereotype of the entrepreneur as a young man with slicked- back hair and mobile phone, when in the years ahead entrepreneurship should become equally natural for an 18- year-old woman or a 55-year-old man.

For the right, the problem is security. In the past this came from having a job. In the future it will come from employability, involving the skills and work experience needed to move between jobs. Cultivating employability will mean new obligations on employers to provide everything from sabbaticals to placements, and a new role for trade unions: not so much defending people in old jobs as helping them into new ones. If there is one institution that Britain probably needs more than any other, it is an equivalent of the Consumers' Association to make our chronically undeveloped labour market as sophisticated as our markets for consumer goods and finance.

A radical agenda would go much further. Few have yet grasped what an important role the informal, cash-in-hand economy can play in job and wealth creation. Few politicians dare to admit how much immigration from places such as Hong Kong could do to foster a job-creating enterprise culture in parts of Britain. And little attention has yet been paid to how the tax system could be reformed to improve the quality and quantity of jobs, through shifting the tax burden from work to consumption, energy and property, and through better incentives for investment in learning.

Policies of this kind would do much to cut unemployment. But they need a political dimension. The best recent records on employment have been achieved by societies that have managed to combine competitive and efficient industries with a less efficient sector absorbing unskilled labour. In Japan, workers in companies such as Mitsubishi subsidise those in farming and services by paying more for rice or consumer goods. In Sweden, workers have paid higher taxes to help government to absorb jobs displaced from manufacturing.

Each solution uses a sharing mechanism to finance jobs for those who would otherwise have been unemployed. Though both these countries are now facing problems, substantial cuts in unemployment will be impossible without sharing mechanisms of this kind.

Despite its limitations, the Detroit summit is showing that politicians are at last breaking free from a long period of intellectual and policy paralysis. If they are to succeed they will need to discard much ideological and intellectual baggage. The prize: a better quality of life for everyone, in and out of work, and a chance for divided societies to regain vitality and a common purpose.

The author is director of Demos, whose paper, 'The End of Unemployment: Bringing Work to Life', is published this week. Copies from Demos, 9 Bridewell Place, London EC4V 6AP.

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