The headlines would have us believe things are now going well but the underlying trends in our economy, which would lead to us having a “viable” economy – one with social, economic justice and environmental sustainability leading to human well being, are all in reverse. What are these adverse underlying trends and why are we not promoting overall well being?
Global and UK inequality continues to accelerate with the top 1% owning 41% of the world’s wealth in 2012 rising to 48% in 2013 and by now it is well over 55%. At the current rate the top 1% will own everything in five years – not a tenable situation so what may change?
Will the economy become more balanced? There seems no sign of this as manufacturing continues to decrease and opportunities for exports deteriorate with the global slow down. The long period of salaries not keeping up with inflation means there is less money around for people to buy goods, leading companies to prefer to keep their piles of cash rather than invest it in the real economy. Further, our economies have traditionally been driven by technological innovation but few profound new products are on the horizon. The reductions in military expenditure (a good thing if the public money were spent on meeting human need) as well as companies seeking quick profits instead of facilitating long term research are partially to blame.
Will wealth and income inequalities lessen? Some say that salaries will now overtake inflation and this will soon make things better for the majority. At the upper end of the pay scales salaries are increasing faster but for most there is little sign of this happening. Indeed the underlying trends suggest more people will have to live near or below the living wage. The underlying trends keeping most salaries low include:
a) Continued Globalisation. The owners of capital can move their companies to where labour is cheap and they are still moving. Even service industries, like the provision of further education, are now moving, leading to a reduction of foreign students here in the UK. Plus the free movement of labour within the EU means an ever increasing number of people coming to the UK to seek employment, removing any risk of shortages that have traditionally forced up salaries.
b) Continuing technology innovations are being utilised, especially those seeking to reduce the salary bill. It is estimated that 700,000 middle range jobs have gone in the last 10 years as technology has made them redundant. Skilled and semi-skilled jobs in accountancy, construction, retail managers and even some professionals – lawyers and lecturers, are likely to go as technology advances take on more of their tasks.
c) The rapid and continued reduction of the State and its welfare provisions. Good secure public sector jobs have been outsourced inevitably leading to reduced employment conditions and salaries. As social security provision is removed more people are being forced to compete or enter low paid work. Many have become self-employed and most of these are on low pay. Liberalising the labour market has led to many more insecure workers with less power to seek increased pay.
d) Financialistion of our society is said to be the biggest new factor driving down salaries. Companies are being driven by short term profit as their constantly changing share holders have no long term vision. Many have little interest in training and keeping staff for long term results. Trade Unions have become much weaker, productivity lower, and more workers increase their credit to solve their needs.
To reverse our low wage economy, some say that increasing the skills of our workforce can be a long term answer, but the evidence is that a high proportion of existing and new jobs need fewer skills and they are often gained through on the job learning. After increasing their skills few workers can now increase their employment prospects. 80% of those who started with education to levels 1 and 2 stayed on low wages after 10 years employment. Further, for those with level 3 and 4 education the ability to progress is being reduced by the hollowing out of middle range jobs largely due to technology. Even level 5, university graduates, are often finding it harder to find employment that requires their skills.
Another possibility for a reversal of our low wage economy is increasing productivity but this is a missing factor in our current economic trends as productivity has stagnated (and more productivity can mean fewer staff are needed). Even though some gains are made through technology employers are taking on more low paid workers thereby keeping overall productivity stagnant. Further, increasing productivity must be more challenging as most workers find their jobs more stressful, precarious and demanding than ever before. A recent survey of workers found “two thirds of employed people say the amount of work they do has grown over the past few years and more than one third are expected to do unpaid overtime – Only a third look forward to going to work – One in five say they have seen at least one person sacked or made redundant without good reason”. It is not surprising that the Health and Safety Executive reports increasing workplace illness related to stress, depression and anxiety in the last financial year, with around half being new cases, and this is likely to reduce any prospects of increased productivity. Cuts in key mental health services could be an important factor in increasing workplace absenteeism.
Meanwhile the wealth and incomes at the top 10% and especially the top 1% keep increasing at a rapid rate causing further disenchantment amongst many workers with 40% seeing no chance of them making any real progress.
Another outcome of the elite now holding so much wealth has been their use of it to stimulate mergers and acquisitions, leading to huge multinational corporations that are not easily subjected to fair competition, Trade Union pressure, or Governmental regulations or controls.
As there seems little chance for better income distribution will the elite use their resources to improve the economy for the rest? Traditionally it has been those with capital who have enabled the formation of new job creating companies, but since the 80’s the top 1% have found it far more profitable to invest money into the virtual economy where huge often speculative profits have been made. Most new companies are started by comparatively poor entrepreneurs who have often been frustrated in their endeavours due to the current difficulties of obtaining loans from our banks.
Some of the elite have invested heavily into the property market driving up house prices and increasing the private rented sector from 8% to 18% in less than 10 years. Private sector rents have increased far faster than inflation, leading to the greatest transfer of money from the majority to the elite in well over hundred years.
With continued consumer growth unlikely and with the elite preferring to keep their money in the financial and property markets, can the Government become the economic driver of the real economy?
Most Western Governments increased their debt levels enormously by the huge bank bailouts following the last economic crisis. The following austerity policies then triggered a period of negative or low growth leading to more Government debt. Increasing Government debt is primarily driven by a mixture of lower tax revenues and increasing demand due to rising needs. Two examples of rapidly increasing need is the health, pension and social care costs of our growing elderly population and the greater support required to the working poor to meet the gap between the minimum and living wage, especially in terms of Housing Benefits to meet soaring increase in house rents. Taxation has been reduced further by multinational companies finding ways to avoid paying and now even evading the pay of taxes using tax havens. In the last 4 years although multinational company’s profits have risen, corporation tax has decreased by over 20%. It is still decreasing along with personal taxes due to more low earners and some reduction in taxes. All this has lead to most Western Governments implementing drastic austerity by lowing investment in infrastructure, cutting or outsourcing public services and in some areas increasing taxation. Austerity is leading to Governments having less ability to drive the economy.
The recent way forward has been by central banks creating money through Quantitative Easing (QE). While it has been argued this has brought a respite, no serious economist considers it to be the solution and indeed in many places it has led to unforeseen negative outcomes. Japan has utilised huge quantities of QE but is now back in recession. Emerging markets have often been swamped with too much “free” QE money leading to harmful currency turbulence. Even in the UK much of QE seems to have ended up in a bloated stock market with further investment in financial assets, or even more disastrously pushing up house prices. Nevertheless even though currently the US and UK central banks have stopped the practice the EU central bank is suggesting issuing over a trillion Euros of QE at this time.
Since the 80s we have heard the call that more structural changes are required: less regulation, especially the liberalisation of the labour market, but although such changes can give a spurt to GDP growth, many would say they have played a key role in causing our current gross inequalities – a prime cause of our current situation.
We still have some GDP growth but in an unbalanced way, dependent on unsustainable rises in property prices and consumer spending by increasing personal debit. To make the situation even more untenable we have many dark clouds on the horizon that include; global economic slow down, great volatility in commodity prices, the adverse effects of Global Warming and, another huge collapse of the financial markets.
Global economic slow down is gathering pace in virtually all countries of the world with each having its own internal economic challenges. At the G20 meeting no consensus emerged on how to change this – just countries issuing “red light” warnings. It is likely some countries will start to take defensive action such as the Chinese threat to put taxes on Australia coal imports.
The global slow down will mean many commodities will continue to reduce in price. The current low price of oil, which is still dropping, is causing concern in oil producing countries and even threatening many fracking companies in the USA who have huge debits and are now struggling to pay them. However, in the longer term some key commodities will increase in price as their availability through easy extraction has to be replaced by more expensive processes. Potash for fertilizers and rare earths are two key examples of this trend.
Global Warming has already caused adverse climate conditions leading to a significant loss of economic production in many parts of the world. In 2012 alone, the US suffered eleven “billion-dollar” weather disasters. Adverse weather plus deteriorating soils and increasing population is leading to food shortages and increasing food prices (an effect amplified by speculation), which have often lead to social instability. Between 2007 and 2012 food prices in the UK increased in real terms by 18%. In the UK this has reduced primarily due to intensive competition (as we noted in comparison with Germany in a previous post) but as the supermarkets lose profits the trend must soon be reversed.
In the short term our biggest challenge could arise as the result of another huge collapse of the financial markets. Observers of financial markets note a growing trend towards fragility. Some examples-huge unpaid debits for student loans here and in the USA, increasing personal debit, house price bubbles in many countries, vast increases in the value of financial instruments such as derivatives, and catastrophe bonds. All this while we are aware many bankers are not playing by the rules with impunity; instead a pernicious culture of short term rewards often overrides sound financial judgements. Many financial observers suggest this instability will soon lead to an economic crisis on an unprecedented scale. True or not, it leads to uncertainty that often frustrates rational decision making.
With all this uncertainty with its related increase in stress and increasing acute poverty why are we not seriously reconsidering our economic model? Change is always hard as it often involves making sacrifices but today information abounds due to the speed of the change and easier means to communicate it, but time to properly analysis it all seems in short supply. People often want quick answers to problems, making it harder to have long term more workable strategies for politicians but also for business, to put forward and follow.
Our education system has become more specialised making it difficult for many people to analysis the whole system, leading us to become highly vulnerable to underlying systems changes, which are not easily foreseen, such as the growth in extremism and the huge increase in children’s self harming. The constant flow of manipulative advertisements makes it hard for many to reflect on how they are leading their lives, frequently leading people to take actions based on implanted emotional needs to secure status than to seek healthy lives.
Perhaps most importantly we are more and more becoming separated from what is around us, leading more isolated individualistic busy lives with a lack of social cohesion. The result is we are less aware of our effects on the environment; have less satisfactory working lives with only a third of people enjoying going to work; have less stable, trusted institutions and communities to rely on and in which we can organise ourselves; and, even families are becoming more dysfunctional.
To survive happily we must stop, reflect, promote and work towards a viable economy – one which integrates economic, social and ecological well-being. We must find ways to reverse the adverse trends and start to implement them now.
Steady State Manchester