WRITERS such as Charles Handy felt that the 1980s jobs crisis was not merely cyclical. Deep changes in western economies were leading to "a gradual tapering off of the employment society".

In his 1985 book The Future of Work, Handy reasoned as follows:

"Businesses need to improve their productivity continuously if they are to stay in business. Their output must grow at as much as that productivity improvement if they are to keep the same number of jobs. A productivity improvement of 10 per cent given the same quantity of output, is a polite way of saying that the labour force has been decreased by 10 per cent ... We may look to business for more output, indeed we must, but not for more jobs unless we think we can grow faster than our competitors or abandon the need to compete on efficiency (i.e. move to a protected economy ...). Extra high growth or a siege economy; these are the two ways of avoiding a declining workforce. The first is implausible, the second undesirable. There will not, therefore, be enough jobs."

On this premise, Mr Handy broadcast a view about the future to a wide audience. Job scarcity, he said, was inevitable. Only those out of touch with reality could deny the prognosis, a prognosis soon echoed by every favoured opinion.

The logic did seem plausible. At the time, events did seem to bear out Handy's reasoning. After all, if productivity does grow at 10 per cent and output remains flat, jobs must fall. The sums are clear and it is hard to think of sustaining output growth rates above to per cent.

But the logic is purely mathematical. The number that sticks in the mind is 10 per cent, but in reality, productivity growth rates of that size are not typical of any economy or sector. Sustainable productivity growth rates are typically about 2 to 3 per cent.

Even with the technological revolution of recent decades, productivity growth rates rarely exceeded 4 per cent in developed economies or 6 per cent in some Asian "catchup" economies. Furthermore, however implausible Mr Handy suggested it might be, output growth often topped these productivity rises.

Mr Handy based his theory on a simplistic mathematical equation that was remote from business reality. Impressed by the shocks and events of a particular era, Mr Handy (and other writers of the "death of work" school) thought that the exceptional would become customary.

Thankfully, the era of downsizing has shown itself to be temporary after all. The job losses of the 1980's were the result of the excesses of the previous decades as Western firms overmanned in the good years after the Second World War. This Was fine while the international situation insulated them from serious global competition but it could not last.

Protected nationalised industries in western Europe were cases in point. Many of these have now downsized (or "right sized", to use the current jargon) to restore productivity and the rest will have to follow. This downsizing is merely a reversion to normal economic rectitude after periods of indiscipline. Companies that sought to drive up productivity through technological substitution often faced slackening prices for their output and diminishing returns on their investment. Downsizing offers little respite from profit pressure unless the company already has a powerful market franchise.

Capital, seeking better returns, will look to new outlets that, by their nature, produce new jobs. It is up to governments to frame the marketplace for capital and products to allow this to happen and in this regard, the political philosophy that informs government policy is of the utmost importance.

What the disillusioned prophet of downsizing, Mr Stephen Roach, calls the "hollow ring of the productivity revival" has brought the debate on jobs full circle. Mr Handy and others expounded a belief about economic growth and productivity that took no account of the returns to capital. Jobless growth has proved to be unprofitable so their scenarios of the future are negated.

From all of this we have learned that job cutting and real wage compression are short term expedients only.

Corporate strategists bent on increasing long term shareholder wealth will focus on innovation. Governments bent on solving the employment problem will focus on the flexible framing of product and capital markets to allow them to do so. Jobs will follow.