From the doom loop to an economy for work not wealth
In spite of suffering the longest pay decline in modern history, the government and Bank of England are issuing calls for pay restraint, and workers are being told once more that they must be poorer still. Yet since austerity policies began wealth has expanded relentlessly. The economy and pay are in an unending doom loop of decline.
- TUC analysis published today shows that in 2023 the economy has lost around £400 billion of GDP compared with a projection of the forecast made by the OBR in 2010.
- Comparing with a projection from ahead of the global financial crisis, the loss forecast for 2027 approaches £900 billion or one third.
But austerity policies are only symptomatic of a model that has for more than 40 years put the interests of wealth ahead of work. On this longer view, comparing with pre-1979 trends:
- GDP has fallen short by £2 trillion or nearly half, but
- wealth (household net worth, adjusted for inflation) has gained £7 trillion and nearly trebled.
This paper outlines an alternative model to reset the balance in favour of work and away from wealth. These policies have a substantial international dimension, given inequalities and failures of work are no less apparent between countries as well as within them.
- North American and Europe account for only 10 per cent of the world population but 57 per cent of global wealth.
Kristalina Georgieva, IMF managing director, recognised in 2020 ‘A New Bretton Woods Moment’, and recalled the end of the Second World War and “the foundations for a more peaceful and prosperous post-war world”.1 These foundations were well laid:
- Ahead of 1979 (from 1948) more vigorous gains in UK GDP of 3.1 per cent a year were set against greatly more moderate gains in wealth of 1.8 per cent a year.
But over recent decades these foundations have been badly undermined. With too much emphasis on wealth, the performance of the economy has progressively deteriorated. Workers have lost out badly, and there is a sense of permanent financial instability.
This paper draws on the recent ‘New macroeconomics’ literature, that in turn recalls the historic contributions of J. A. Hobson (1858-1940) and J. M. Keynes (1883-1946). These emphasise the relation between a too high return to wealth and too low return to work, and theories of over-production and underconsumption. Rather than deficient supply the underlying problem of the world economy is excessive supply in the context of deficient demand. This situation translates in practice to a balance sheet inflation, with the counterpart to high household net worth likely excessive private debt. As the IMF and others recognise, this is vital context for the actions of central banks – but is ignored in practice.
But crisis should not be inevitable. Clement Attlee’s government effected the necessary rebalancing, and built a social infrastructure that endured to 2010. The call is to restore the global foundations for a labour internationalism, and in the UK to repair the infrastructure of the past and build a new green infrastructure for the future.
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