The boom years model of growth was morally and practically bankrupt


In a context in which we have been long told that “we are all in it together”, to ask for inclusive growth might not seem to be asking for very much. Who could object, after all, to the idea that any growth dividend arising from our (admittedly) still meagre recovery should be evenly shared?  Indeed, isn’t such a commitment logically entailed by the very suggestion that we are all in it together – shared pain; sharing gain? 

Put like this, inclusive growth might seem a very modest and unobjectionable request. But the sad reality is that inclusive growth remains a very radical idea; all the more so in the context of the kind of capitalism that has characterised the Anglo-liberal world since the late 1970s. During that period the standard measure of income inequality, the Gini co-efficient, has risen at an alarming and alarmingly consistent rate, reversing all of the gains made in the post-war years. For Britain and the US, inequality is now at levels last seen in the 1930s.

And things have been getting worse not better. Since 2008 whilst the income-rich and, above all, asset-rich have been largely spared the costs of post-crisis readjustment, and even compensated for the losses they endured, the income- and asset-poor have borne the brunt of the public austerity that has been the principal response to the crisis. In short, neither the misery and suffering of non-growth, nor the dividends of growth, have been fairly shared since at least the 1980s. 

To understand why this might be so, we need to return to, and consider again, the economic growth models put in place since the turn to Thatcherism and Reagonomics in the early 1980s. At its heart that model was a simple variant of the “trickle-down” thesis.  In such a conception what mattered was not the inclusivity of growth but growth alone – and the best way to maximise growth, so the argument went, was not to think about its potentially inegalitarian implications at all. Unremarkably, under trickle-down economics, whilst the pie did indeed get a little bigger (though at nothing like the rate of the earlier post-war period), the ever-smaller slices left for the (conveniently labelled) “undeserving” poor proved an ever more meagre ration.

Yet, by the turn of the new century, and partly prompted by the piquing of the moral conscience of somewhat more socially progressive administrations – notably, in Britain, those of Blair and Brown – the “trickle-down” model of growth started to morph into what we now know as the Anglo-liberal growth model of the pre-crisis.

Though in the end this model proved scarcely less inegalitarian than its predecessor, it offered something new to some, though by no means all, of those suffering from declining real wages and ongoing welfare retrenchment.

That “something new” was the opportunity to participate in – and to benefit, for as long as it lasted, from – the asset price bubble that had been fuelled by the new low inflation and low interest rate equilibrium. As we now know, and should perhaps have realised all along, it was not going to last indefinitely. But, for as long as it did, those with assets and those sufficiently non-risk averse and sufficiently credit-worthy to borrow to acquire such assets in a cheap credit market, were able to compensate themselves for their stagnant wages with a credit-engendered top-up.

But this model too was unevenly distributed – staggeringly so – opening up a new stark axis of social and economic inequality between those with and those without appreciating assets, most notably, of course, property. This made access to the private housing market, through mortgage lending, the new marker of social inequality of our times. With house prices rising again, albeit far more unevenly than before, it remains so today. But the point is that in a context of stagnant or declining real wages, whether one experiences a net improvement in living standards or not is determined to a previously unprecedented extent by whether one is asset-rich or asset-poor. The more asset-rich one is, the greater the gain; one has to be in it to win it.

As this suggests, we are as far from inclusive growth today as we have been since at least the 1930s. And things are almost bound to get worse before they get better.

This may well sound like a manifesto of despair; but it can be read rather differently. In a sense, the crisis reminds us that the growth model that we nurtured in the years before the bubble burst was always flawed and bankrupt technically and practically (it didn’t work); the story of Britain’s non-inclusive growth both then and now reminds us, at a time when we most urgently need to be reminded, that it was also flawed and bankrupt morally.

The challenge to achieve inclusive growth is therefore the challenge of our times: to build something both economically and morally sustainable for our children and for their children in turn. We will be judged and we deserve to be judged by how we respond.

Colin Hay is director of the non-partisan Sheffield Political Economy Research Institute (SPERI). He is also professor of political science at Sciences Po, Paris where he is the new director of the Doctoral School in Political Science and author of The Coming Crisis (Palgrave 2017, with Tom Hunt) and Developments in British Politics 10 (Palgrave, 2017, with Richard Heffernan et al). 

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