2nd October 2012 by The Harried House Hunter
The pursuit of growth is the prevailing mood music of our time. Whilst the political parties are divided on how best to achieve this, they are at least united in their dogged conviction that our sluggish economy can only pick up if growth is achieved, and fast.
For the Coalition, locked into an unassailable ‘no u turn’ syndrome, this can only be achieved by an austere and aggressive deficit reduction programme. For their Opposition counterparts, nothing less than a classic Keynesian stimulus based on increased public spending will kick-start activity.
For economists, the difference is of course a vital debating point, but the essential rationale of either approach is not disputed. For the country to prosper, growth has to be achieved. Perhaps it is only given to non-economists to pause and question this unchallenged assertion; that growth will benefit everyone, QED, growth must be good.
In its leader last week The Observer gave prominence to new research carried out for the Resolution Foundation by the respected Institute for Fiscal Studies (IFS) and the Institute for Employment Research (IER), probingly called ‘Who Gains from Growth?’
Employing the most optimistic of growth scenarios, which even the Treasury would blush to endorse, the research chillingly concludes that between now and 2020 the UK will descend into a nation of two halves of ‘deepening income inequality’. The research suggests that even if the UK were to enter a golden period of sustained economic growth of 1.5% between now and 2015, and then 2.5% a year until 2020, middle income households can expect to see a sharp contraction in earnings, whilst the lowest paid will see crippling changes to their overall economic wellbeing. The authors state baldly that if current economic policies remain unchanged, trends would be ‘strongly against income growth for the bottom half of households’. Conversely, households in the top 50% will enjoy sustained rises in income. To put a little colour on that, a household on average, middle incomes of £22,900, will see a 3% fall by 2020, whilst a low income household on £10,600 (at 2009 prices) can expect to see their income fall by 15% to a little over £9,000, plunging significant numbers into long-term poverty.
The authors point to several systemic reasons for this trend, already witnessed in the US over the past two decades; a reversal of the march towards greater social mobility, vanishing blue collar employment at the lower end, and vanishing ‘middle class’ security in the ‘squeezed middle’. Technology is now effectively disinfecting the employment market and removing whole occupations. Whilst high and low paid jobs are being created, there are fewer and fewer opportunities in the once comfortable middle. By 2020 they argue, 2m new jobs will have been created in professional and managerial employment, and 700,000 in retail, caring and leisure. Traditional roles in administration and skilled manufacturing (once the roost of middle income families) are becoming endangered.
In their important new book ‘How Much is Enough?’ Robert and Edward Skidelsky challenge the unquestioned economic mantra of growth at any cost for one based on seven elements of the good life. Echoing Keynes’ thinking in his 1930 work, ’Economic Possibilities for our Grandchildren’ they show how contemporary attitudes to employment and growth have failed to deliver what Keynes envisioned capitalism as delivering: sufficient material needs to afford no more than 15 hours a week of work.
Instead, they argue ‘we live in a country divided into workaholics who have more money than they know what to do with and millions of unemployed and under-employed citizens struggling to make ends meet on the proceeds of work in the informal economy or claiming state benefits. In the middle there are the debt slaves, worried about the mortgage and often one pay packet away from penury’.
The Skidelskys assert that economics by and large has arrived at a cul-de-sac in which needs and wants are no longer married, and where the theory of ‘enoughness’ is singularly missing. These two separate, but uncannily stark prognoses should begin to unlock debate on what growth is for, and who it is actually benefitting.
Growth pursued for its own sake at the cost of wider social cohesion, affording the few to overwork and be remunerated abundantly, whilst many more are condemned to economic idleness and poverty, will increasingly cause the social glue to become unstuck. Both argue for radical action – a living wage, root and branch reform of taxation, curbs on unchecked consumerism, investment in vocational education, and an end to the ruinous expense of childcare. These could help ‘remodel the hourglass’ economy of ‘lovely and lousy’ occupations by boosting middle incomes by up to £1600 per year. In the investment world too, a focus on short term profit maximisation at the expense of wider social needs should be urgently looked at.
Sadly, this is not the debate our largely unimaginative leaders want to have; the current narrow economic jousting, reminiscent of ancient battles fought long ago, needs urgent and imaginative re-engineering if the consequences are not to be an irrevocable breakdown in the landscape of social cohesion, and the bleak prospect of Victorian style income disparity.