Friday, 9 December 2011

Not what you know

Any student of economic statistics recently would have to be very positive to spot encouraging trends. The best we can say is that perhaps we have passed the bottom of the slump. Vince Cables speech at Lib Dem conference this autumn set the scene - responsible but very serious.

Many people are saying that young people today may be the first generation in centuries where they are worse off than their parents. Of course in many northern towns, the neglect of traditional industries by successive governments has meant that for working class families that has been the case since the 1930s for many families.

The problem is that the chances of a meritocratic society, where everyone gets what their skills and work ethic entitle them to,  existing are becoming slimmer with every year. Increasingly, what your parents earn is the guide to your likely success. As social mobility shrinks, the ability for people to make the most of their potential goes down. The increasingly Victorian (in economic terms at least) nature of our economy is reflected in the growing gap between the haves and the have nots. The OECD recently published a report on economic inequality in Britain (you can see a summary here).

Its conclusions are that inequality started to increase rapidly from 2005 at the peak of the last economic boon (interestingly, youth unemployment started to rise). Yes that's right, it rose when the Labour government were spending like crazy on public services, so one does have to question how redistributive that spending was.

We are one of the most unequal western societies (after the USA, Portugal, Chile and Israel!). That is not good for society but it is not good for growth either as research shows poorer people spend the vast majority of extra income in the local economy and as people get richer they increasingly salt income away in savings.

So income inequality is a bad thing above a certain level. We are definitely above that. So why has this increase happened? The OECD report blames reduction in redistributive taxes for the rich, a move to more people being self employed and less benefits for poor people. It states that public services have become better at targeting disadvantage however. Most worrying for me is the conclusion that:

More people are marrying within the same earnings class. Unlike many other countries,  the earnings gap between wives of  rich and poor  husbands has grown  strongly:  this gap was about GBP 3,900 in 1987,  but increased to GBP 10,200 in 2004. 

I think this is really sad. What it is saying is that Britain is becoming a more class bound country. How horrible. The natural conclusion is the emergence of an underclass of "untouchables" where it doesn't matter if you are bright and hard working you will never be allowed to move on up the ladder. We shouldn't let the occasional exception (such as self styled barrow boy Lord Sugar) blind us to this reality.

So what is the solution? Well I broadly agree with the OECD report but I would say we need:

-To expand sectors of the economy which offer a skilled well paid jobs base for people from a working and middle class background. Bluntly we need to prioritise manufacturing at the expense of the sectors of the economy the government has worshipped, financial services and retail.
- We must get away from a culture of rampant consumerism, where you are seen to be more successful if you have more stuff. I see people every day who have got into massive debt funding a lifestyle that society says they need to have but in reality they can't afford.
-We need to give young people practical skills that give industries what they need. Frankly that doesn't mean sending millions more teenagers to average universities to do media studies degrees. It means investing in vocational training
-We need to encourage people to work and reduce the benefits trap. The Lib Dem policy of raising the basic threshold is a start, it is a disgrace that on the minimum wage you still pay income tax at all
- We need to tax undeserved wealth. Vince Cables mansion tax was a rough and ready stab at that but land value tax and other taxes that tax money that you gain from, for example, the increase in value of land due to the council building a new access road must be looked at.
- Everyone must have access to cheap and accessible public services.

Not hard is it? Well it must be because since the 70s Britain has been going backwards. If we don't give everyone a fair chance in life then we will definitely go backwards as a country in terms of GDP, but more importantly in terms of decency.

1 comment:

  1. £3900 in 1987 is worth £7,150 by 2004 adjusting by RPI inflation, so this growth is not as dramatic as implied. A better comparison still would adjust by average earnings, giving £9,270.

    Not sure how you adjust for the fact that more wives are working, and more full time.

    I think your points are correct, but I am always suspicious of dramatic looking figures.