Leading Article: Jobs: the hard truth

FROM now on, it will become ever more difficult to disguise the real reasons why Britain faces persistent long-term unemployment, particularly among young people. The intellectually honest will find it harder simply to blame Thatcherite excesses, global markets, cheap imports, new technology or the impact of recession.

The truth is more fundamental. A landmark report published yesterday by the Organisation for Economic Co-operation and Development makes the reality plain. It finds that, like the rest of Europe, we in Britain have been too slow to transform the way we live and work. Stuck with outdated social and economic systems, the continent is bedevilled by structural unemployment. Thirty five million jobless workers have been forced to pay the price for a failure of their societies to adapt quickly enough to economic change.

The report demonstrates that sclerosis set in here and in continental Europe during the Sixties and has since become well established. Governments of rich, high- growth, industrialised countries extended their welfare provision, social protection and a panoply of company regulations. The turmoil of the Seventies oil price shocks and the boom-bust of the Eighties failed to prompt a radical rethink.

Employees carried on pricing themselves out of jobs, backed up by generous state support. Employers found it less attractive to take on more workers in an anti-entrepreneurial atmosphere. As a result, each period of growth began with a higher level of unemployment than the previous one. Private sector job creation slowed as bloated public sectors became engines of the labour market. Budget deficits grew, along with the dissatisfaction of taxpayers.

The OECD's answers are not easy, nor will they appeal to voters. Governments cannot spend their way out of this problem, since macroeconomic stability is essential in ensuring long-term job growth. Protectionism is no solution, since trade is not the problem. Expanding the public sector further is not a viable policy when there is overwhelming budgetary pressure to cut it.

The only option is to create work forces that are flexible and useful in the production of goods and services that are in demand. This may seem simple and pain-free. But for Britain, which has already changed more than its competitors, it still requires a transformation in social and economic policy. No political party can shrink from the task if it is serious about reducing joblessness.

Unemployment and welfare policy will have to become a re-employment strategy, the report concludes. There will have to be sticks: reduction of benefits for those who give inadequate reasons for refusing to take work. But carrots must also be offered: tax rebates to the working poor, childcare support for working mothers. Countries that have a minimum wage will have to water it down, while Britain should avoid adopting a measure that costs jobs. The Social Chapter has no place in a policy aimed at cutting unemployment.

These are issues that the Labour leadership campaign should be grasping. Gordon Brown was right yesterday to claim that the OECD backs his ideas for better training programmes, particularly for school leavers. But such measures will not alone cure unemployment.

The Tories cannot be complacent about this report. After 15 years in office, they have yet to prove that they are seriously committed to ambitious training policies. However, the OECD's verdict is more challenging to Labour and indeed the Liberal Democrats. The unavoidable message is that only radically updated welfare policies and a deregulated labour market can begin to tackle Britain's jobs crisis.