Labour can ensure that all needn’t be lost in the lost decade(s)

20th December, 2011 6:58 pm

Much derided at the time, the phrase ‘squeezed middle’ became the Oxford English Dictionary’s ‘Word of the Year 2011’. Having enabled Labour’s new leader to sculpt a narrative that the vaguely-defined ‘middle’ were bearing a disproportionate burden amidst the wreckage of the financial crisis, it no longer encapsulates what is turning out to be a deeper, more profound crisis than initially imagined. There now exists a ‘squeezed society’ and ‘squeezed economy’ likely to persist for years if not decades. Labour’s ideals, while important during the time of plenty, are now essential as we enter what may be a period of relative decline, both to ensure fairness and to map out new and better concept of a successful economy and society.

This is not doom-mongering, but hard-headed realism of the kind lacking since the financial crisis began, when the elite was unable to contemplate that the order it had built up was not only under threat, but might be swept away. What was initially described as little local difficulty at the Northern Rock was in reality Act One of a tragedy threatening the entire economy. At each stage of this escalating crisis, politicians played down the risks, drip-fed the truth and attempted to convince us they can lead us back to ‘normality’. Yet as with a train station display board which flashes up a delay of 10 minutes, before gradually revising it sharply upwards, though we fear that some unmentionable horror is being concealed, we crave the truth in order to plot a safe onward journey. We need to accept some of these hitherto unmentionable truths about our economy and society, in order to build a path to better economic future based on more than blind optimism.

Yet even as the pillars of its strategy crumble, the Government clings to the belief that ‘normality’ can be restored. What was to be a mild recession followed by strong growth has morphed into a deep recession followed by either a ‘double dip’ or a long period of stagnation. From the eye of the storm, our leaders are still at risk of mistaking an epoch-changing financial and economic crisis for a recession. ‘Normality’ is taking such a battering that the current generation may be the first since the 1950s unable hold out any hope of their children reaching or exceeding their standard of living and range of life-chances. This is hardly the utopia that politicians of all political hues promised would flow from free markets and globalisation. With IFS data showing that spendable incomes will not return to 2006 levels until 2016 it is not exaggeration to suggest this lost decade may become a lost generation and that a paradigm shift in our economy and society is underway. It is slowly dawning on the West that the boom years from the mid-1990s were sustained not by increasing efficiency or thrift, but by an explosion of debt, fuelled by vast international trade imbalances and the misguided view that growth could be eternal and risk mitigated through complex financial instruments. This masked the emperor’s new clothes – that our economy was incapable of sustaining the kind of growth rates necessary to sustain good public services, high levels of employment and high standards of living?

We must start adapting to a train station noticeboard now reading: ‘All trains to your destination cancelled…please seek alternative methods of transport.’ In short, it is not possible or even desirable to chart a route back to the status quo circa August 2007. Our alternative should be positive, heralding new and better ways of working, living and conducting business. Ed Miliband has started along this track but the rest of the party must embolden him to go further. Rather than accepting declining living standards as a latter-day ‘price worth paying’ of austerity, we must show how it is possible to ‘unsqueeze’ both the ‘middle’ and society itself, even without GDP growth. We must break the mindset of old: a worship of the totem of growth and a small ‘c’ conservative defence of the ossified structures of privilege and power in our economy and society. Labour must set out the radical policies which might ensure that the new economic paradigm is not one of rising inequality and unfairness, as it will surely be under the Conservatives. These straitened times require a more sophisticated and radical policy toolkit, moving beyond the ‘third way’ made possible by the falsely benign environment of ‘boom and growth’. The vested interests which stand in the way of the better society must now be challenged with pragmatic, radical policies rather than the obsequious mollycoddling deemed, perhaps understandably, to be necessary to achieve progressive outcomes in the past.

Housing provides a glimpse into the radical form that this new economy and society might take. The housing crisis is essentially caused by a lack of supply and resolution of the problem is inhibited by the vested interests of those who currently own property, who rent it out and who oppose the building of houses in their neighbourhoods. Yet if the Government built enough new houses to ensure a policy objective of markedly reduced prices, workers would find declining wages more manageable. This could be achieved by establishing new towns and cities built in carefully selected areas of the green belt as done post-war, funded by Citizens’ QE (detractors need only be reminded that £275bn has already been printed and resides in bank vaults being of no economic use at all) and a new tax on land value. The knock on effects would tackle other problems caused of low growth: fewer hours would need to be worked and parents could therefore share child-rearing.

We are potentially entering not merely a new economic paradigm but a period of profound crisis as a restive population realises the full extent of the continuing economic crisis and that them that things may never be the same again. To suggest that a dose of patrician Toryism can return the country to its former glory or that the received wisdom of the boom years merely needs tweaking is at best wishful thinking and at worst, dissembling. Labour must explain how this new economy and society will be reformed to work in the interests of the ordinary people rather than the elites whose wealth and influence has increased during the boom years and whose political allies would curtail steps to ensure a more equitable society in the future. The centre-left must begin the thinking necessary to navigate what was once regarded as a worst case scenario, but is now becoming a reality. All needn’t be lost in the lost decade(s).

John Slinger is a member of the Labour Party and Editor of Pragmatic Radicalism

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  • Stuart

    Yup, good stuff. Inevitably vague and airy, but that’s the stage we’re at. I do think a central part of this new economy will have to be some kind of land value tax, some attempt at a progressive consumption tax, a shift away from taxing labour, and a revolution in the banking system, involving stronger regional banking, national investment banking (i.e. some kind of government/parliament/democratic/accountable direction over allocation of credit), a big emphasis on financial inclusion (credit unions and the like), and so on. Basically, a lot of the stuff that the new economics foundation have (handily) been banging on about for a long time. Chuck in some of Will Hutton’s ideas, and age-old ideas of the co-operative economy and economic democracy and…ok, it’s getting vaguer.  How popular/practical all that will be thought, I’ve not got a clue…

    • Land Value Tax?  you mean like the council tax we already have
      Consumption Tax?  you mean like VAT, which we already have
      Shift away from taxing labour?  and how do you propose to replace the billions from NI and income tax?
      Revolution in banking?  Kill off 11% of our economy and replace it with something which would be declared illegal under WTO rules
      Financial inclusion?  You mean like the US law which forced institutions to give loans to those who had little chance of ever repaying them, causing this mess in the first place?
      Co-operative economy?  Once again illegal under WTO rules, not to mention EU regulation make it unworkable.
      Economic democracy?  You mean redistribution of wealth don’t you, the rich will simply leave, meaning nobody to redistribute from.

      It wouldn’t work, it wouldn’t be popular, it isn’t at all practical, so, infact, it’s just like all the garbage which is currently coming out of the left.

      You really do have no clue.

      • @twitter-124891292:disqus 

        LVT is nothing whatever to do with Council Tax, being levied on the unimproved value of  land, not the buildings and improvements.

        In Hong Kong – where it has been levied as a rental charge on state owned land, and Denmark, it has raised up to 30% of government income; meant that people did not have both landlord and government monkeys on their shoulders; and allowed their economies to prosper as a result.

        Consumption tax and VAT I would abolish, since both are regressive.

        A levy on labour income to cover education; another to cover health, and a smaller one to cover security – maybe 25% in all.

        Banking as currently constituted would be a net drain on our economy were it not an even greater drain on other economies. Suggesting we should be grateful for taxes paid by the City is like being expected to be pleased when a plumber charges £1000 to change a washer and then gives you a £200 discount for cash.

        It is trivial to replace current banking with a system which renders the WTO entirely redundant – in fact the banks themselves are already doing it now that the banking system is terminally broken.

        Financial inclusion – should be achieved through a progressive fiscal system, not by monetary means.  

        Co-operative economy illegal? The fact is that – properly structured – a co-operative business model will out-compete a ‘for profit’ model – and  it will do so on a WTO-compliant level playing field.

        As for Economic democracy, the wealth creators will be well rewarded, since they will keep more of their gains than they do now.

        But  the socially useless wealth extractors, who earn nothing, but simply sit back on unearned income from dividends and rentals may leave to cripple other economies, and good riddance.

        You really do have no clue. Go and troll somewhere else.

        Chris Cook

        • Anonymous

          Chris I wonder who you see as the big losers in this redistributive revolution, since you list a lot (numerically speaking) of winners.  I’m guessing the Crown, a few Oxbridge colleges and other big landowners, and pension funds are top of the list.

          My supplementary question then is one of scale: do you think the equations will balance, and that these wealthy minority can afford to keep the remaining majority in this new and happy state for any length of time?  Or will these estate owners simply be forced to hike rates on their land tenants to pay their tax bills, forcing farmer out of business and increasing shop rates dramatically, and pension funds bolster their fees for everyone, making basic pensions unaffordable for most?

          • jaime taurosangastre candelas

            @ JD,

            succinctly put.  I don’t instinctively reject any of CC’s ideas, many of which I find intellectually very interesting, but I’d like to see some worked examples with real numbers and percentages before I sign up to them.  It’s not only Chris of course:  he at least fairly frequently interacts with commenters and shows great patience, there are other articles on the net from other people, all pushing in the same way and they can be disappointingly vague and offer no interaction with the reader.  

            I’m fairly data-driven and empirical.  Until I know in fairly certain terms what this means, I can’t possibly know whether it is a good idea, bad idea, good in theory but impracticable, etc.  I have over the last 5 years invested in land (not vast quantities – in the UK it is an 8 acre field in Devon).  I’m therefore curious to know if I am now categorised as a plutocrat and class enemy to be taxed until I give up and put my money (such as it is) into a foreign investment, and take my family and my skills elsewhere to practice.

          • Peter Barnard

            @ Jobless,
            Re-distribution : winners and losers
            There was an article in the FT about a week ago that mentioned something along the lines of (in the US), “If employees had the same proportion of national income as they had fifty years ago, then each employee would be about USD 5,000 a year better off.”
            In the UK, compensation of employees as a percentage of GDP has dropped from 58.8 per cent in 1979 to 53.2 per cent in 2008 (ONS Time Series Data code IHXP) ; that 5.6 per cent of GDP represents about £85 billion and should the proportion of gross national income be returned to the level of 1979, every employee would be about £3,000 a year better off.
            Further exacerbation has occurred because of the massive re-distribution of wages, since 1979, from the lowest earners to the highest earners ; most of this occurred between 1979 and 1990 but Labour, to its eternal shame, did very little to disturb the inequalities that it inherited. It fiddle-faddled around at the edges with tax credits and what-not, but it did virtually nothing to challenge the assumptions underlying the situation that it inherited. Indeed, as I wrote to Patricia Hewitt when she was at Trade and Industry, “Neither the Prime Minister nor the Chancellor would say ‘boo to a goose’ if it happened to be wearing a hat that was labelled ‘FTSE-350 director’.”
            As I have remarked before, the most effective form of redistribution is voluntary, by employers themselves – including those in the public sector.
            Finally, in Q3 2011, GDP was running at an annual rate of £1,520 billion : about £58,000 per household. It appears to me that there is considerable scope for all adult employees to receive a “living wage.” After all, that’s what they do in Sweden and Denmark – or so I believe.

          • GuyM

            The diference between the 1970s and now is that the market for skills at the top end is very tight and is global.

            You simply are not going to get a low multiple between say a Manchester office cleaner and a London technically skilled senior manager/executive.

            The economic value of the jobs is ever more disparate and the available labour for the cledaning job to great compared to the top end.

            The only chance perhaps is to upskill enough of the workforce, but there is the problem of a less than impresive education system and a rump of the country who are anti-education.

            When I negotiate a salary I don’t expect to have my potential market rates undermined by what a cleaner might earn in comparison.

          • Anonymous

            I don’t disagree with the thrust of what you say Peter, but isn’t the other way of looking at that statistic that employees have become more productive, increasing their contribution to the economy from 1.7x their salary to 1.88x: in line with increasing productivity (use of internet/digital media rather than paper-based/analogue equivalents)?

          • Peter Barnard

            @ Jobless,

            Not sure on how you’ve arrived at 1.7x cf 1.88x, JD, but anyway : if employees have become more productive, why hasn’t their (real) wage gone up commensurately?

            Regarding internet/digital media “resulting in increased productivity,” didn’t some dude in the US say a few years ago, “I see computers everywhere, except in the national productivity figures?”

            And : how much of all this computer stuff – software and hardware – is transactional in nature, rather than transformational?

          • jaime taurosangastre candelas

            @ Peter B

            are there not (at least) two causes for increased productivity?  One is clearly employees doing stuff more efficiently / quickly / using less resources etc as a result of their own personal skills increasing or work rate going up, and the second is an increase in productivity caused by the employer providing and paying for training, or new equipment that achieves tasks faster for the same input, or a new process, etc.

            The first should in my view be awarded to the employee via extra pay, the second may justifiably be taken by the employer as either a saving on the bottom line, or increased output and sales (or even, across a large organisation, by a reduction in total staff to achieve the same output).  That last thought may be sacrilege on LL though.

            I suspect that in the majority of organisations the majority of productivity increases automatically accrue to employers.

          • Anonymous

            Exactly, and the flip side of the same point, which really is a left-centrist (perjoritively, to some at least, “Blairite”) goal, is that embracing some of the capitalist-led improved efficiencies permits lower prices: Tesco and Asda are (rightly, in some cases) maligned for their actions squeezing farmers and the like, but we cannot ignore how much they do for us by providing a wide variety of cheap, nutritious food to “hard-working families” across the country.

          • Dave Postles

            The point about the ‘countervailing’ tendency of supermarkets was made by Galbraith yonks ago in his The New Industrial State – that supermarkets can negotiate more effectively with oligopoly producers (not farmers, but other corporations).  The problem with the argument is that they have themselves become oligopolies.  I would like to know more about the conditions of service of their employees.  I suspect that Asda is not as bad as Walmart (its parent) has been in the past, but I’ve heard pretty dire comments about employee conditions.  Personally, I do all my shopping at the Co-op, which has its own farms, of course.

          • Peter Barnard

            @ Jaime,

             I disagree on your proposal on how to “divide the spoils.”

            It’s covered in my response to Jobless, above.

          • jaime taurosangastre candelas

            @ Peter B,

            my language was probably not clear enough.  I’m not making a prescription for how the fruits of increased productivity should be divided, more an observation that they can be caused by differing factors, and an observation as to what probably happens in real life.

            I would like to see a more equitable split in the fruits, so that employees feel part of their organisation, and incentivised to seek further productivity rises.

          • Anonymous

            Mathematically I’m referring to 1/0.588 vs 1/0.532.

            And I think you are absolutely right that this is transactional rather than transformational, but I believe it is having an impact: in words what I’m saying is when people work they produce goods and services which make up our domestic production.  If those goods are considered more valuable then the price rises, and with it GDP goes up and wages (assuming they are not linked) as a % go down, by definition.

            This links to your point about wage rises in real terms, but I think we are delving into some pretty hardcore economic theories here: to my mind, if we think about the knock on impact of wage increases, we can imagine that, unless there is a startling (i.e. transformational, to the point above) change in productivity in primary industries such as agriculture, wages work like that “travelator” from Gladiators a few years back: every step forward in your own salary requires an increase in the cost of your output service/product to pay for it and retain fiscal balance in your business.  Take this across a nation and you can see that any rise in national average salaries will be accompanied by a rise in national average living costs, bringing you back (broadly) to where you started.

            Salary is therefore the wrong measure: it’s what you can buy with your money, and since we have gone from being a 1 car to 2 car per family nation in broadly the time you outline (forgive an approximation here as I don’t have the exact stats to hand), you can broadly surmise that we are wealthier now than we were.

            Wage inequality is, I agree, a very different issue, however.

          • Peter Barnard

            @ Jobless,
            Thanks, JD. I don’t think that if we were able to find a time and place for a pint and a natter, there’d be a million miles between us.
            On wage inequality : basically, if the real wages of the lower 60 or 70 per cent don’t keep up with chained-volume national output, then that proportion of employees will not be able to purchase national output to the same extent that they used to. Those whose wage increases exceed national output will have a surplus – and guess what? They’ll be able to lend this surplus to the other poor bu##ers …
            For this reason, I don’t buy Jaime’s thought that employees should only receive real wage increases according to the increases in their own inputs. To my mind, a logical development of this thought would be to say that, compared to 1900, we are now working a 40-hour week compared to a 60-hour week, and wages should drop by one-third …
            Finally, although it’s impractical for obvious reasons, the true measure of personal purchasing power is, “How long do I have to work to buy this good or service, compared to “x” years ago?” (on the assumption that the work demands and the good or service remain the same … as I say, impractical but I’m sure that there’s a way through there somewhere, eg by occupation : teacher, agricultural labourer, policeman (or fireman) in his/her first year, and so on).
            For sure, we’d find out that the price of residential housing is false wealth ….

          • Anonymous

            @PB As ever you are generous in your responses, and I’d be delighted to take you up on such a proposition.  It would, I suspect, be a most interesting evening 🙂

          • derek

            JD, I’m pretty sure I read somewhere that the Internet, especially e-mails were responsible for a down turn in production, people spending up to 3 hours per day trying to sift through their e-mails.

          • Anonymous

            I strongly doubt we are less productive as a nation now than in 1979, even if people are wasting some of their working day reading Facebook (or indeed, ahem, by replying to posters on other, let’s say political as an example, community sites)

          • derek

            JD, if we were producing leyland cars, truck, tractors, mining and producing our own steel in 1079, then our levels of British production must have be higher than today measures? 
            If your advocating that all computer employed personal have the right to an agony aunt time out in their employment, I’d like to see that evidence?

          • Anonymous

            You are confusing our “productive output” with “heavy industry”.  The latter is a small subset of the former (since we are a heavily service-led economy).

            I agree we do less steel production.  Given how much that cost our economy to support (I am tempted to make a sardonic comparison with the bank bail-outs), that is a good thing for the economy, if not for the people involved.

          • derek

            JD, given Cameron’s stance against the city and it’s banking vaults, are we somewhat more vulnerable today than we ever were because we are reliant on one sector? Banking, it would seem like the Bundersbanks has made it’s move to corner the market? or the ECB? can the BoE match there loans?

          • Peter Barnard

            @ Derek B,

            On emails : there was an article in the FT the other day about two companies that had dropped emails as a means of internal communication – they had become ineffective and a drag on personal output.

            You’re in good company, ol’ cock!

        • GuyM

          You’ve been saying this for years…. it won’t happen.

          No government is going to stick it to those who have worked for years in an income tax based economy and where 60% plus are home owners.

          The banking system is not going to suddenly turn turtle and disappear up it’s own backside and the billions of institutional investment that would get pulled out of the UK would cause meltdown.

          All those “wealth extractors” you discuss have a large dollop of pension funds amongst them. When you seriously downgrade the fund growth prospects I hope you also explain to pensioners why you are also cutting their pensions back as well – the public sector unions will love you.

          You can’t explain why investors looking for a decent return would all sit quietly like good little boys and put money in one of your low yield UK schemes rather than investing in foriegn equity and property.

          You also can’t explain what happens to all those households who slip into negative equity as a flight from property occurs.

          You can’t explain how the UK doing this in isolation and thus allowing people to play systems off by working in the UK and investing in property abroad would play out.

          I’ve asked you before, don’t give Hong Kong and Denmark as some nirvana, give an example of a major economy where an income based taxation system has been shifted wholesale to a land tax based system. You’ve never managed to do so. Therefore you have no idea of the hidden costs and problems in carrying this out.

          The only troll on this point (if there is one, rather than polite debate) is you Chris. You dive in with these ideas at every opportunity, insult anyone not agreeing with you and basically imply everyone else, including governments and economists, who disagree with your near lone voice as being self interested simple minded cranks.

          I fully expect to visit LL in a few years time to read you still telling everyone the sky is about to fall in…..

      • Dave Postles
      • Stuart

        That fella below has done a helpful job replying to some of your concerns. But in case you’re still a bit confused about what a land value tax is, as opposed to the council tax and business rates we currently have, wikipedia is always a good place to start –, and if you’re still not sure go to
        In case you’re confused about the difference between a progressive consumption tax and VAT read this (from The Economist no less!) – -depending on the amount you’d expect to get from LVT and consumption tax, after the abolition of council tax/business rates, you could look at lessening the income tax burden on lower and middle earners, but that’s beyond my knowledge, I’ll admit.I don’t think we’d see eye to eye on the banking stuff so there’s no need to counter what you say there, but it’s worth noting that the loans of the top 10 UK banks are 450% of our national output, compared to 60% in the US. In the five years up to 06/07 the finance sector paid and collected £203 billion in taxes, while the upfront costs of the bailout were £289 billion (though we’ve underwritten £1.3 trillion). No less a hawk than Tim Geithner said “The UK experiment in a strategy of ‘light touch’ regulation to attract business to London from New York and Frankfurt ended tragically”. No doubt we could interpret them facts differently, but it’s misleading of you to suggest the proposals I mentioned in my original post were somehow going to destroy the entire banking sector in the UK. 

        Your counters to the co-operative economy/economic democracy/financial inclusion points are as vague as my original proposals were so there’s not much need to go into that, though I meant by financial inclusion less the pressures from HUD and commercial lenders that led to the sub-prime problems (which seems to me more of a symptom of problems in the ‘old’ pre-2008 way of doing banking) in the US and more their integrated debt prevention, financial education, and debt repayment sector that works through credit unions and the community development finance institutions.

        Anyway, I don’t really go in for all that insulting other people over the internet – if you’d asked fairly for more detail on my proposals that’s to be welcomed, and if you had substantive counter-arguments that’s also fair enough. What you wrote above was neither of them things, which is a shame to be honest.

  • Sandfhoy

    You mean the Labour with Balls as its economic guru? The man that the FSA singles out as a major cause of the financial crash is the man to lead us to the new economy?
    Forgive me if I,m not convinced. Labour supporters seem not to understand why they are not trusted on econ0mic policy. Some genuine humility is needed before the can start any recovery in support.

    • Alex

       The FSA singled him out? Pot, kettle, black.

  • Franwhi

    I absolutely love this post. It’s the most exciting and empowering thing I’ve read in Labourlist for such a long, long time. It feels like the nascent force of something worth fiughting for – yes vague and airy to a point but some might say visionary and the beginning of an action plan. This would make me vote Labour again – even Scottish Labour  

  • Daniel Speight

    Vague and airy in the comments does sum up this post quite well. Few specifics, few policy suggestions. I think we can be suspicious of this sort of thing. It’s a bit too Blair third way and we’ve had that before a few too many times.

    Maybe a few more paragraphs like the new town housing one will help. (Worth remembering if you build a new town it will need new industry.) How about railway ownership or the return of mutually owned building societies? How about tax policies to encourage corporate democracy? And most of all how about what we replace the neo-liberal consensus with?

  • Anonymous

     Rather than accepting declining living standards as a latter-day ‘price worth paying’ of austerity, we must show how it is possible to ‘unsqueeze’ both the ‘middle’ and society itself, even without GDP growth

    Well brave words.

    Three major issues:
    1. the ageing population
    2. NHS cost inflation of 5-10% pa.
    3. Net immigration raising the population levels.

    The ageing population means more needs to be spent on health care
    NHS cost inflation means more needs to be spent every year just to stand still
    Net immigration and a rising population without GDP growth means a fall in living standards by definition.

    More taxes is the suggestion.

    I am sorry but this article is just not worthy of serious consideration as it ignores reality.

  • Peter Barnard

    @ John Slinger,
    “Labour must explain how this new economy and society will be reformed to work in the interests of the ordinary people rather than the elites ….”
    Well, go on then – do the explaining and give us your concrete ideas. This reminds me of Labour politicians who say (things along the lines of), “We must make the case for Europe,” and then give us diddly-squat.
    As Daniel S says, “vague and airy …”

  • Anonymous

    Middle class thing nothing to do with millions of us at the bottom…..

  • GuyM

    Perhaps you might explain what specific policies you would be voting for and how you fund it?

    Try as I might, specifics evade me in the ideological essay above.

  • Dave Postles

    Their liquidity and inter-bank lending only being sustained by central bank loans – 490bn from the ECB today:

  • Dave Postles

    As a point of interest, did the representatives of the corporations buy Hartnett’s meal for him?  I’ve just read a (partly) satirical piece in the business press about meals up to the value of £30.  If you did that in the local authorities for where I was employed, you would be contravening the rules and you would be in some trouble.  We constantly received memos about not accepting any gifts.  If any arrived which could not be returned, we were advised to place them into a common fund (like a Christmas party). 

    • Dave Postles

      delete ‘for’


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