This article was originally posted at – https://99-percent.org/time-to-change-track/
The UK is a rich country with a proud democratic tradition. We have produced some of the world’s greatest scientists and a number of world-leading companies. We are strong in the Arts and our sporting heroes are world-class. Many of us have been (generally) proud of our past and optimistic about our future.
And yet in recent years, and particularly right now, many people have the uneasy feeling that the country is on the wrong track, or even at risk of unravelling. We have one of the highest death tolls from COVID in the world; our economy has suffered more than most others; as Brexit begins to bite, we have shortages of fresh food and fuel; wages are failing to keep pace with inflation (especially in the public sector); benefits are being cut; and poverty is on the rise. And at the same time, the wealthiest in society are increasing their wealth very quickly. Democratically, the government is undertaking a sweeping power grab from parliament, the courts, the media and even the population. There is a growing sense that the country is spiralling out of our control and into the hands of a very few extremely wealthy individuals, and that it will not end well.
Is this feeling correct: are we in danger, or is this just a bump on the road to some sunlit uplands?
Unfortunately, our intuition is correct: the future we are currently heading for is dystopian; but the good news is that a very attractive future is still perfectly possible, if we collectively demand it:
- on current trends, and with current policies, the UK will become a very unattractive country: economic growth will continue to falter, our social contract will be dismantled, healthcare will suffer, wealth will become even more concentrated into even fewer hands, and our future prospects will be grim;
- fortunately, creating that dystopia requires a continued succession of bad policies. If we simply start to implement sound policies for the benefit of the entire population, we can build a country we can all be proud to live in.
Our social contract is being dismantled and the country weakened
The risks to the UK are manifold: economic growth is lacklustre and risks continuing to be so; the post-war social contract including the Welfare State and the NHS is under serious assault; British companies and other British assets are being snapped up by wealthy individuals and corporations abroad; and instead of trickling down as promised, wealth is being pumped rapidly upwards. Each of these points deserves a little explanation.
First, economic growth. Since the end of the Golden Age of Capitalism (1945–1980), as in most other countries, UK growth has declined.
But unlike other countries, the UK, performance since 2010 has been dismal. As you can see, since 2010 we have been among the poorest performers. And since 2016, we have been almost uniquely bad. On a real (inflation-adjusted basis) per head of population we have seen our economy shrink faster even than Italy.
Figure 1: Annualised growth rate in the UK compared with other leading economies
Austerity, justified on the spurious basis that the state of public finances demanded it, damaged the whole economy, and the most vulnerable suffered most.
And of course, public services were severely damaged by austerity. The NHS, which was supposedly “protected” has seen a reduction in its funding per unit of workload (i.e. given the ageing of the population over the period) and this created unbearable stresses, even before COVID.
And now the NHS is under even more serious threat: the government has introduced a Health and Care Bill which gives ministers almost complete power to do what they like with the NHS, without scrutiny. And they have spoken and written enough for us to know that what this means in practice is an accelerated privatisation of the NHS and a shift towards something much more like the US health care system.
Figure 2: Comparison of global healthcare systems
As the chart shows, not only would this be far less efficient – the US system costs more than twice as much as ours does – it would also be less effective: our health would be worse. And for many families, the cost of private provision would be ruinous. In the US, two thirds of personal bankruptcies are due to inability to meet medical bills.
Benefits are being cut or frozen – which in real terms means they buy less. The poorest families will be pushed even deeper into poverty, and those currently not in poverty will be nudged closer towards it. The latest cut to Universal Credit alone is likely to push 130,00 people into poverty in London alone; some estimates for the UK suggest that as many as 800,000 could be plunged into poverty, many of them children.
Rather than reversing these policies, the government seems determined to double-down on them. The Chancellor repeatedly describes himself as a ‘fiscal conservative’ – he, like many others in the cabinet, favours market fundamentalist views on austerity and will use the discredited but still widely used excuse that the ‘state of public finances’ dictates it.
Another round of austerity now would be even more damaging than the first. The economy is already too weak to perform well in such an environment; many public services will come close to collapse; and most peoples’ real incomes will reduce.
The current generation is the first in living memory with a realistic prospect – if we do nothing to change direction – of being far poorer than its parents’ generation.
Figure 3: Scenarios for UK wages in 2050
To most people, this scenario reads like a disaster. But for some people, it is actually quite attractive. The chart below shows the share of UK wealth held by the richest 1%.
Figure 4: How wealth has been shared over time in the UK
While the reforms of the early 20th century – and in particular the Golden Age of Capitalism – were very good for most people in the country, for the very wealthy, at least in relative terms, they were bad news. At the dawn of the 20th century, the richest 1% had over 70% of the country’s wealth. By 1980, this had fallen to under 20% (of course this is still almost twenty times what an equal distribution would give them, but the wealth differential was not what they had been used to). While they have clawed back a fair amount during the age of Market Capitalism, to some of the extremely wealthy, this is unfinished business. And they are extremely influential on government policy.
If we do nothing to change direction, the UK will become a banana republic (except for the bananas, of course). The economy will continue to underperform dramatically, and most of the population will become gradually poorer over time. For most people, things that previous generations took for granted – being able to get a steady job, saving up to buy a house, having enough to raise a family, having high-quality healthcare – will all seem like a distant and impossible dream. But the richest will enjoy another Gilded Age.
We should be building a strong, fair, prosperous country
If the dystopian vision above is not where we should be heading, what should we be aiming for? And is it achievable?
We should be aiming for a just, prosperous, democratic society in which everybody has the chance of a decent life. A society with secure, fairly paid jobs so that ordinary people have a reasonable expectation of being able to afford to buy themselves a flat or house. A society where people can count on being able to bring up children without fear of poverty. A society where access to healthcare is a right not a luxury. A society where the government accepts that it has responsibilities for the population as a whole and that collective action is often the only way to solve important problems (for example tackling the climate emergency or funding basic research with no immediate commercial application). A society, above all, where each new generation has a reasonable expectation of a better life than its predecessors.
What is truly extraordinary is that our expectations have become so low that the paragraph above sounds optimistic or even utopian. In fact, all of the points above were part of the ‘deal‘ on offer to a 20-year old in 1980, when the total wealth of the UK was far lower than today! This vision is really no more than a minimum requirement for a civilised society, and it is clear that if we could afford it then, we can afford it now.
So why does it sound so difficult to achieve? The biggest single reason is that, as Part Two of the book 99% sets out in detail, we have become conditioned to believe that all the levers that we would need to pull in order to create such a society are impossible to activate. And once we believe that, we can no longer believe in change.
You have probably heard all of the following statements so many times before that they feel true to you – perhaps even unquestionably true. And yet each of the statements below is demonstrably false:
- government finances are just like household finances – since households cannot run a deficit without going bankrupt, nor can governments;
- taxing the rich will simply hurt the poor – low tax rates will create a trickle-down effect which will enrich the whole population whereas high tax rates inevitably stifle economic growth;
- the State is slow cumbersome and inefficient and therefore unsuited to providing the products and services the population requires such as social housing – all state activities should be privatised (see Figure 2 above for how well the largely private sector US system works in healthcare);
- regulating businesses is the route to economic failure – businesses which are unregulated will naturally innovate to create the maximum benefit for society;
- money cannot just be created out of nothing.
If we believe the five myths above and attempt to formulate policy accordingly, we are stuck on our current track. Taken together, they imply that the UK simply can no longer afford to remain a civilised country. If we believe that we cannot increase government spending, that we should privatise all government activities, that we should deregulate businesses and that we should reduce taxes, we are left with simply hoping that somehow this time, despite all the evidence of the last 40 years, it will work.
But if we abandon the myths and deliberately formulate policy to create an attractive society, there is nothing to stop us achieving it. As John Maynard Keynes remarked, “anything we can actually do, we can afford.”
And the post-war period should give us some inspiration. After the Second World War, the ratio of government debt:GDP was over 250% – two and a half times more than today. It would have easy for the government of Clement Attlee to say, “We are fully committed to building a better world, but it would be fiscally irresponsible to do so now. The NHS and the Welfare State will have to be postponed until we have got government finances back under control.” Fortunately, they did not say that: they invested to create the NHS and the Welfare State and to drive growth in business – and the Golden Age of Capitalism was the result.
So we have two challenges: first, we need to make sure that our government embarks upon the right track; and secondly, we need to make sure that future governments will not simply undo all the good work.
That sounds daunting.
Perhaps surprisingly, it will take only five, fairly straightforward actions, to achieve both goals. These are explained in detail in Chapter 15 of 99%, and briefly set out below.
Step 1: Democratic Reset
Of course we need policy change. But even more fundamentally we need a democratic reset. We don’t have a written constitution in this country – and recent weeks’ events have shown very clearly how precarious our rights are in the absence of such a protection. It is not illegal for a government in this country to pass legislation that it knows will harm the interests of 99% of the population. And we are witnessing the early days of a government that is happy to take advantage of that freedom.
Here are the key elements of that democratic reset.
Step 2: Fact-based Policy
And we need fact-based policy. There is a spectrum of truth from absolute truth to unfounded falsehood. And far too much policy is based on the right-hand end of that spectrum.
Since 2010, policy has been guided by the myth of unaffordability – that was the reason for austerity. When Theresa May wanted as her final act to commit the UK to carbon neutrality by 2050, Philip Hammond didn’t try to deny the science, but he claimed that it would cost £1 trillion, and it was taken for granted that this meant that we couldn’t afford to do it. Why not? Because of the ‘state of Government finances.’ But Government Debt:GDP is today at its 300-year average, below where it was before the Industrial Revolution took off, and below where it was before the Golden Age of Capitalism. It is simply a myth that we couldn’t afford to protect the health of the economy and our environment. Without facts, there can be no sanity.
Step 3: Policy for Solidarity and Abundance
On the basis of this constitutional reform and a commitment to look at the facts, we can then expect government to formulate policy that will tackle and reverse mass impoverishment. Policy formulation is complex, but there are only fundamentally four types of policy.
Each policy either grows the pie or it doesn’t; and it either shares the benefits of that growth fairly or it doesn’t. That gives us these four types of policy: I. captured growth policies, II. shared growth policies, III. vulture policies and IV. balancing policies.
We got into this mess because, especially since 2010, we have had far too many captured growth policies and vulture policies, and far too few shared growth policies and balancing policies. And we can get out if we focus as much as possible on Shared Growth policies and recognise that where we adopt Captured Growth policies, they need to be Balanced.
First, the shared growth policies. Why not spend £100 billion over the next few years insulating every house in the country? Why not spend a few £ billion on R&D for battery technology or infrastructure for electric vehicles? Why not build a million eco-friendly social housing units? And why not fund the NHS properly?
And for the balancing policies, how about immediately ensuring a true living wage. Why not stop the roll-out of universal credit and replace it with something fit-for-purpose, and why not return to a taxation system that at least stops inequality growing?
Step 4: Investing in the Future
The fourth step is to invest wisely in the future. That is the Type II policies. We haven’t been wise, because of the narrative of unaffordability which has prevented all kinds of sensible investments. The chart shows the case of flood defences. And of course environmental investments would fall into this category, too. It is no more prudent for the Government to say that it cannot afford these things than it would be for me to ‘save’ money by not fixing a leaking roof in my house.
Step 5: Clean-up Capitalism
And the fifth step is to clean up capitalism. At the moment, the immensely powerful force that is the capitalist profit motive is too often fighting against solving the problems we are most concerned about. But it need not be.
In Appendix IX to the book 99% (you can download the Appendices free from the website), there is the story of a fictitious but quite realistic business, Alpha plc. The story goes like this:
In 1997, Robin Quickly was a young man with a dream. Working with two friends from rented premises in an out-of-town business park, using second-hand IT equipment funded by a loan from his parents and a small government grant, he founded a company which was destined to change the way Britons buy their clothes. In its first year of operation, the then unknown Alpha company had a turnover of just over £300,000 and made a small loss.
Today, Alpha plc is recognised as one of the UK’s most dynamic and successful companies. In little over 20 years, it has grown from nothing to a turnover of £1.5 billion and is still growing at over 10% per annum. Customers love Alpha. Because of its innovative business model, its costs are approximately 5% lower than those of bricks-and-mortar competitors – and it has passed this cost saving on to customers. Its service levels are consistently high. And Alpha was one of the pioneers in using algorithms to drive product selection. It has swept its competition aside.
And the reported profit of Alpha looks very healthy. But underneath the surface, the picture is very different. Alpha externalises many of its costs. It gets us to pay for its pollution, for its underpayment of staff and its failure to pay its taxes.
Because it externalises its costs, it can outcompete more ethical businesses. Because it externalises its costs, it becomes an engine for mass impoverishment. And because it externalises its costs, it gets rewarded for destroying the environment.
But if it could no longer externalise all these costs, it would cease to have an advantage over more ethical businesses. It would not have grown. It would not have contributed to mass impoverishment or environmental destruction.
In a world without externalisation, ethical businesses would outcompete unethical ones and the profit motive would become a force for good.
So, once we free ourselves from the myths, and in particular from the myth of unaffordability, we see that we can do as we have done before and create an attractive future for ourselves and our children.
We can have a world where you do not need to be born rich to succeed and where ordinary people can expect comfortable lives. A world where being a nurse, a teacher, a truck-driver or an artist does not mean forgoing all hope of financial security. A world where government acts to tackle climate change and poverty. A world where the law applies equally to (and is accessible to) rich and poor alike.
But if we want that, we need to act now, to make sure that we change direction.
If you think you might like to help or just to keep informed, please do sign-up and join the 99% Organisation.