A fairer capitalism for the next generation

More must be done to tackle the marginalisation of young people in Britain, and the inequality of opportunities and rewards they face. In an era of social democracy with no money, Labour must articulate the hard choices and trade-offs needed to create a fairer society as well as a fairer capitalism.

What should today’s young people want from a fairer capitalism? The most direct answer is jobs. The UK is facing a youth unemployment crisis, with the level now standing at 21.9%, higher than for a generation. What is so serious about youth unemployment is not only the damage it causes in the here and now, but the long-term ‘scarring effects’ of unemployment in early adulthood. The evidence from the recession of the early 1980s is that young adults who become unemployed during that downturn subsequently endured a lifetime of higher employment insecurity and lower earnings. Many were placed on a carousel between casual work and the benefits system throughout their working lives. So Labour is right to highlight the imperative of government action to tackle youth unemployment.

However, the challenge of forging a fairer capitalism goes even deeper than youth unemployment, predating the global financial crisis of 2008-9. It relates to the vast inequality in opportunities and rewards across our society. This has been driven by structural trends, then exacerbated by policy failure.

The last two decades have witnessed a stark polarisation in the labour market and the emergence of two extremes: on the one hand, highly qualified graduates with significant earning power and relatively high employment security; on the other hand, young people without degrees and significant post-16 qualifications who face the prospect of lower lifetime earnings and greater job insecurity. The distribution of rewards in the economy has then become more extreme in the face of the ‘hollowing-out’ of skilled jobs in the middle of the occupational hierarchy, fuelling the enormous rise in income and wealth inequality.

Particular groups of young people have been badly hit by these structural trends. The prospects for 16-24 year olds without good educational qualifications in the north-east and north-west of England, for example, are relatively poor. There are also young people from particular BME groups who face higher levels of educational disadvantage, lower employment prospects, and who are more likely to be subject to alienating and intrusive stop and search practices. This can increase their sense of marginalisation and exclusion from the mainstream of society.

These trends have been exacerbated by subsequent policy failures. New Labour strongly advocated a flexible labour market, making it relatively easy to hire and fire workers. This impacted particularly negatively on many already disadvantaged groups, amplifying the effects of systemic discrimination. At the same time, there was a wider failure to generate compelling policies for ‘the other 50%’, leading to a general lack of opportunities through apprenticeships and further education (FE) for those not progressing to university. At the same time, too few skilled jobs were being created outside London and the south east.

All of these trends have been amplified in their impact and severity by the recent recession. So what is to be done now? This is an era of social democracy with no money, a climate of austerity that is now widely accepted throughout the Labour Party. This will inevitably entail a more focused and deliberate approach to government intervention. Labour’s policy goals beyond 2015 must articulate the hard choices and trade-offs that convey where the priorities for social democracy truly lie:

– Education Maintenance Allowances (EMAs) have proven to be absolutely essential as a tool to narrow the gaps in post-16 educational disadvantage. Labour should reinstate EMAs immediately, and pay for this by means-testing concessionary travel for the over-65s. This is a difficult choice but it protects the most vulnerable older people, while investing in the prospects of the next generation.

– Apprenticeships are another crucial opportunity for young people not going onto higher education, and are more needed than ever in a climate of rising youth unemployment. However, apprenticeships need to be expanded while their quality is sustained: additional investment should come from reversing the cut in corporation tax made in George Osborne’s last budget – an irrelevant and costly measure.

– Finally, more investment is desperately needed in statutory youth provision and youth centres. This ought to be paid for by diverting money out of the criminal justice system from policing and prisons. Yes, we need to sustain police numbers, but high quality youth provision is among the best crime prevention strategies available. They can help to tackle the root causes of alienation and disaffection which impose large-scale costs on the rest of society.

These measures will make a difference to the balance of rewards and opportunities in an era of fiscal constraint. However, no single measure will be sufficient unless more is done to create a fairer society, alongside a fairer economy in Britain. Many young people are alienated not just because of what happens in schools and the labour market, but because they perceive themselves as facing a lifetime of discrimination and systemic disadvantage. More than a decade after the Macpherson report first identified the reality of institutional discrimination, Labour needs an agenda to reform stop and search practices, dramatically narrow the educational and employment gap, and invest in institutions that create a sense of belonging and identity. Only then can we create a fairer, more equal society worthy of the name.

This is an essay from the latest Fabian Society pamphlet “The Economic Alternative”, posted here as part of our “Economic Alternative Day”. You can download the pamphlet in full here.