The same neo-liberal mythology which declares National as the best manager of New Zealand's economy is used in the UK to boost the credibility of the Conservative Party with disaster-ous consequences.
This article from The Guardian and reproduced in Social Europe Journal gives debunks the mythology and gives Labour Parties world wide the argument necessary to shift the political debate from the grasp of the Tory myth makers.
This article from The Guardian and reproduced in Social Europe Journal gives debunks the mythology and gives Labour Parties world wide the argument necessary to shift the political debate from the grasp of the Tory myth makers.
Why Did Britain’s Political Class Buy Into The Tories’ Economic Fairytale?
Ha-Joon Chang
Falling wages, savage cuts and sham
employment expose the UK recovery as bogus. Without a new vision we’re
heading for social conflict.
The UK economy has been in difficulty since the 2008 financial crisis.
Tough spending decisions have been needed to put it on the path to
recovery because of the huge budget deficit left behind by the last
irresponsible Labour government, showering its supporters with social
benefit spending. Thanks to the coalition holding its nerve amid the
clamour against cuts, the economy has finally recovered. True, wages have yet to make up the lost ground, but it is at least a “job-rich” recovery, allowing people to stand on their own feet rather than relying on state handouts.
That is the Conservative party’s narrative on the UK economy, and a large proportion of the British voting public has bought into it. They say they trust the Conservatives more than Labour by a big margin when it comes to economic management.
And it’s not just the voting public. Even the Labour party has come to
subscribe to this narrative and tried to match, if not outdo, the
Conservatives in pledging continued austerity. The trouble is that when you hold it up to the light this narrative is so full of holes it looks like a piece of Swiss cheese.
Even the Labour party has come to
subscribe to this narrative and tried to match, if not outdo, the
Conservatives in pledging continued austerity.
First, let’s look at the origins of the
deficit. Contrary to the Conservative portrayal of it as a spendthrift
party, Labour kept the budget in balance averaged over its first six
years in office between 1997 and 2002. Between 2003 and 2007 the deficit
rose, but at 3.2% of GDP a year it was manageable.
More importantly, this rise in the
deficit between 2003 and 2007 was not due to increased welfare spending.
According to data from the Office for National Statistics, social
benefit spending as a proportion of GDP was more or less constant at
about 9.5% of GDP a year during this period. The dramatic climb in
budget deficit from there to the average of 10.7% in 2009-2010 was
mostly a consequence of the recession caused by the financial crisis.
First, the recession reduced government
revenue by the equivalent of 2.4% of GDP – from 42.1% to 39.7% – between
2008 and 2009-10. Second, it raised social spending (social benefit
plus health spending). Economic downturn automatically increases
spending on many social benefits, such as unemployment benefit and
income support, but it also increases spending on things like disability
benefit and healthcare, as increased unemployment and poverty lead to
more physical and mental health problems. In 2009-10, at the height of
the recession, UK public social spending rose by the equivalent of
3.2% of GDP compared with its 2008 level (from 21.8% to 24%).
David Cameron’s economic policy is wrong and the narrative a fairytale according to Ha-Joon Chang.
When you add together the
recession-triggered fall in tax revenue and rise in social spending,
they amount to 5.6% of GDP – almost the same as the rise in the deficit
between 2008 and 2009-10 (5.7% of GDP). Even though some of the rise in
social spending was due to factors other than the recession, such as an
ageing population, it would be safe to say that much of the rise in
deficit can be explained by the recession itself, rather than Labour’s
economic mismanagement.
When faced with this, supporters of the
Tory narrative would say, “OK, but however it was caused, we had to
control the deficit because we can’t live beyond our means and
accumulate debt”. This is a pre-modern, quasi-religious view of debt.
Whether debt is a bad thing or not depends on what the money is used
for. After all, the coalition has made students run up huge debts for their university education on the grounds that their heightened earning power will make them better off even after they pay back their loans.
The same reasoning should be applied to
government debt. For example, when private sector demand collapses, as
in the 2008 crisis, the government “living beyond its means” in the
short run may actually reduce public debt faster in the long run, by
speeding up economic recovery and thereby more quickly raising tax
revenues and lowering social spending. If the increased government debt
is accounted for by spending on projects that raise productivity –
infrastructure, R&D, training and early learning programmes for
disadvantaged children – the reduction in public debt in the long run
will be even larger.
Against this, the advocates of the
Conservative narrative may retort that the proof of the pudding is in
the eating, and that the recovery is the best proof that the
government’s economic strategy has worked. But has the UK economy really
fully recovered? We keep hearing that national income is higher than at
the pre-crisis peak of the first quarter of 2008. However, in the
meantime the population has grown by 3.5 million (from 60.5 million to
64 million), and in per capita terms UK income is still 3.4% less than
it was six years ago. And this is even before we talk about the highly
uneven nature of the recovery, in which real wages have fallen by 10%
while people at the top have increased their shares of wealth.
But can we not at least say that the
recovery has been “jobs-rich”, creating 1.8m positions between 2011 and
2014? The trouble is that, apart from the fact that the current unemployment rate of 6% is nothing to be proud of, many of the newly created jobs are of very poor quality.
The ranks of workers in “time-related
underemployment”, doing fewer hours than they wish due to a lack of
availability of work – have swollen dramatically. Between 1999 and 2006,
only about 1.9% of workers were in such a position; by 2012-13 the
figure was 8%.
The success of the
Conservative economic narrative has allowed the coalition to pursue a
destructive and unfair economic strategy, which has generated only a
bogus recovery largely based on government-fuelled asset bubbles in real
estate and finance.
Then there is the extraordinary increase in self-employment. Its share of total employment, whose historical norm (1984-2007) was 12.6%, now stands at an unprecedented 15%.
With no evidence of a sudden burst of entrepreneurial energy among
Britons, we may conclude that many are in self-employment out of
necessity or even desperation. Even though surveys show that most newly
self-employed people say it is their preference, the fact that these
workers have experienced a far greater collapse in earnings than
employees – 20% against 6% between 2006-07 and 2011-12,
according to the Resolution Foundation – suggests that they have few
alternatives, not that they are budding entrepreneurs going places.
So, in between the additional people in
underemployment (6.1% of employment) and the precarious newly
self-employed (2.4%), 8.5% of British people in work (or 2.6 million
people) are in jobs that do not fully utilise their abilities – call
that semi-unemployment, if you will.
The success of the Conservative economic
narrative has allowed the coalition to pursue a destructive and unfair
economic strategy, which has generated only a bogus recovery largely
based on government-fuelled asset bubbles in real estate and finance,
with stagnant productivity, falling wages, millions of people in
precarious jobs, and savage welfare cuts.
The country is in desperate need of a
counter narrative that shifts the terms of debate. A government budget
should be understood not just in terms of bookkeeping but also of demand
management, national cohesion and productivity growth. Jobs and wages
should not be seen simply as a matter of people being “worth” (or not)
what they get, but of better utilising human potential and of providing
decent and dignified livelihoods. Ways have to be found to generate
economic growth based on rising productivity rather than the continuous
blowing of asset bubbles.
Without a new economic vision
incorporating these dimensions, Britain will continue on its path of
stagnation, financial instability and social conflict.
