Britain's Livelihood Crisis

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Making a Contribution - Social security for the future

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Touchstone Pamphlet #10, by Stewart Lansley

Executive Summary

Britain is facing a deep-seated 'livelihood crisis', with a significant and rising proportion of the population denied decent work, pay or pensions and facing growing economic uncertainty. Far from offering expanded work opportunities, the country's brittle and turbulent economy has brought near-record unemployment and a fragile labour market in many parts of the country.

In early 2011 2.46 million people in the UK were unemployed and there were another 2.35 million 'economically inactive' people who were out of work and wanted a job. Millions more are trapped in low-paid, low-opportunity, insecure jobs that offer few real hopes for the future. Many households face erratic, static or in some cases falling incomes from a very low base. Large numbers have no real hope of escape from this crisis, of improving their living standards in the medium or even the long term, even if the economy enjoys a strong recovery.

Over the last three decades, Britain has become a much wealthier country; real output has nearly doubled. Despite this, living standards and life chances for many have stood still or in some cases gone into reverse. While rising prosperity could have brought expanded choices and opportunities for all, a significant proportion of the workforce has found itself increasingly squeezed by economic and social circumstances over which it has little control. For a minority, economic and social prospects have actually declined in absolute terms compared with their parents' generation, a decline that set in well before the recession.

This pamphlet will explore the nature, extent and causes of this crisis and possible solutions. It estimates that the crisis currently afflicts up to one-third of the population. For some the crisis has been a temporary experience: for most it has proved enduring or repetitive.

The livelihood crisis has been triggered by the increasing polarisation of the jobs market over the last three decades. As well as spreading joblessness, there has been a rise in the number of well-paid professional and managerial jobs, a decline in the number of middle-paid and skilled jobs, and a rise in the number of routine low-paid service jobs. Alongside this 'hollowing out of the middle' has been a steady growth in the number of 'bad jobs' that offer poor conditions of work, minimal rights and little security.

These trends have been accompanied by an ongoing wage squeeze, with the share of national output accruing to wage-earners falling from a peak of nearly 65 per cent in the mid-1970s to as little as 53 per cent by 2008. Moreover, this collapse in the wage share has been borne most heavily by the middle and lower paid, leading to a sharp rise in earnings inequality. Some unskilled and semi-skilled jobs now pay little more in real terms - and in some cases less - than they did in the late 1970s.

Although these trends have been fuelled by technological change and the rise of a global labour market, their roots lie in a fundamental shift in Britain's underlying economic and political philosophy. From the early 1980s, successive governments subjected the UK economy to an all-embracing economic and social experiment, a switch from welfare to market capitalism.

The post-war commitments to full employment, progressive taxation and inclusive state-provided welfare were scaled back, public services and enterprises were privatised, and trade union and employment rights were withdrawn. The balance of economic power shifted upwards to a new domestic and global financial elite that enforced a new business model - the aggressive pursuit of shareholder value aimed at maximising the short-term rise in the share price.

The experiment in market capitalism led to successive waves of cost-cutting, downsizing, industrial restructuring and short-termism, bringing decades of upheaval for much of the labour force while handing fortunes to the new financial oligarchy on a scale not seen since the late 19th century. The reasons for the upheaval, as set out by its supporters, were clear - to correct for the failings of post-war welfare capitalism, lift Britain out of its tepid entrepreneurial culture and bring renewed economic dynamism. Although the wealth gap might grow, all citizens would be better off through an expanded economic cake.

It has not worked out like that. Finance capitalism has a poorer record on most economic measures than the welfare model it replaced. The new market freedoms have brought slower economic growth, renewed instability and three deep-seated domestic recessions. Far from a more dynamic and entrepreneurial economy, there has been a slump in productive investment, while productivity growth has been lower than in the 1950s and 1960s. Finance and banking created almost no net jobs in the 15 years to 2007, despite the industry's greatly expanded share of the nation's output and profits.

The livelihood crisis and economic instability are now locked together - via soaring inequality - in a dangerous economic vicious spiral. This is because the rising concentration of wealth, driven by the collapsing wage and rising profit share, has not only led to the declining opportunities that underlie the livelihood crisis, but has also contributed to economic fragility. As relative wages fell and purchasing power sank, personal debt soared: as the newly inflated fortunes were turned into giant speculative bets, asset prices boomed. Hence the twin triggers of the credit crisis set in motion by the market experiment.

Despite the scale of its failure, the market model remains the economic orthodoxy, domestically and globally. Yet to tackle the current crisis and reverse the instability cycle requires a radical transformation of Britain's political economy built around a new business and economic model. This does not mean a return to the pre-1979 mix of weak corporatism, state ownership and poorly targeted industrial activism.

What is needed is a 'post-market model' with a re-cast role for the state, business and labour and with an emphasis on wealth and job creation as well as a fairer distribution of the national cake.

First, the state needs to adopt a more central role in both minimising inequality and in promoting productive investment, entrepreneurship and wealth creation.

  • Because of the market economy's natural tendency towards excessive inequality, the state should adopt a new operating principle of a bias towards equality.
  • It also needs to adopt a much more active approach to industrial policy - including the establishment of a National Investment Bank - along the lines of the successful interventionist strategies adopted by other countries.
  • The economy needs to be rebalanced away from its dependency on finance with new controls over the financial excess and speculation that have fed Britain's short-termism and unsustainable asset price booms.

Second, there should be a package of measures designed to encourage a more responsible capitalism with a better balance between market freedoms and the public interest.

  • Regulations need to be tightened to ensure that companies are made more accountable to society, with, for example, new government powers to block or restrain on national interest grounds a hostile takeover of a British company by transient institutional investors.
  • To counter the dominance of the 'for-profit' corporation and promote the idea of public purpose, alternative forms of more socially orientated business models - such as not-for-profit companies, mutualisation and social entrepreneurship - should be encouraged.
  • Legislation is required to ensure that corporations have a responsibility to a wider group than just shareholders, including staff, the local community and the taxpayer.
  • Third, Britain's flexible labour market needs to be modified.
  • The trade union movement needs to play a more central role in workplace decision-making.
  • The level of Jobseeker's Allowance (JSA) - pegged in real terms and now among the lowest of any developed country - should be increased to nearer the European average.
  • To tackle rising levels of long-term unemployment and greater economic volatility, Britain needs more active labour market policies, recognising that conditionality in the benefits system must be accompanied by improved support for unemployed people.

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