Reorganisation for Material Security (not growth, jobs and redistribution)

Friday, 3 July 2015: 8:30 AM-10:00 AM
TW1.3.03 (Tower One)
Ewald Engelen, University of Amsterdam, Amsterdam, Netherlands; University of Amsterdam, Amsterdam, Netherlands
Sukhdev Johal, Queen Mary, University of London, London, United Kingdom
Angelo Salento, University of Salento, Lecce, Italy
Karel Williams, N/A, United Kingdom
National and EU politicians and central bankers all use GDP growth and jobs as their policy objectives and measure of success; critics like Piketty complain of increasing inequality and argue for redistribution which would produce a more inclusive growth. This paper takes a revisionist view and argues that the objective of policy should instead be material security through reorganisation to ensure local provision of an adequate basket of foundational goods and services. The desirability of such a problem shift is illustrated with argument and empirics from the UK’s post 1979 experiment.

The problem with the growth objective is that income gains are unequally distributed; especially in the UK when labour markets have been flexibilised and organised labour has been marginalised. In the UK under the Conservatives from 1979 -96 and New Labour from 1997-2010, the top 20% of non-retired households captured more than 45% of nominal income growth and the bottom 20% of households received round 4%. Thus, lower income working households in the UK depend increasingly on redistribution to top up inadequate wages.

This was provided as part of the British post 1979 experiment which has combined American style labour markets and European style social protections. But the growth of housing benefit, family income support and subsidised child care has shifted the balance between tax paying and benefit claiming households: since the late 1970s, the proportion of non-retired households receiving more in benefits than they pay in taxes has increased from 25 to 40%. Against this back ground it is structurally much easier to cut benefits than it is to raise taxes.

Redistribution has become an increasingly utopian strategy which requires tax increases that are not politically saleable. So it is time for some fundamental re-thinking which could start by considering whether and how the masses were enlisted in the growth project and recalling what the post war settlement was aiming to achieve.

In a country like the UK, there is no doubt that the mass of working households have been enlisted in buying growth and jobs by incurring household debt and paying taxes. GDP growth is driven by consumption demand which is (unsustainably) driven by housing equity withdrawal whose legacy is household debt. Taxes paid for public expenditure on health and education and an (unsustainable) expansion of the public sector which accounted for 2/3rds of extra jobs from 1979-2010.

But citizens have a negligible economic understanding of such processes, not least because they are grossly confused about categories and objectives. In a recent yougov poll, only 43% of respondents were able to choose the correct definition of GDP from a list of alternatives; and the 36% of respondents favouring quality of life measures as a government policy objective outnumbered the 26% favouring monetary value measures.

It is therefore worth recalling the post war settlement was not about increasing affluence but securing the material basics and security for the whole population through the abolition of poverty ( or “want”) as measured by Rowntree subsistence calculations. The explicit means was the redistributive technology of social insurance through which employed workers would cover the income needs of sick, unemployed and retired; the background assumption was that the contributing workers would be adequately paid + full time, mainly male heads of household.

The context of insecurity is very different in the 2010s. But it is worth thinking about how the Berveridgean objective of security could now be restated and whether increased security could be achieved through strategies of reorganising the economy with income redistribution in a supporting role.

The measure of success could be shifted from growth and jobs towards adequate and reasonably priced supplies of the key foundational goods. Housing, utility services, food, health, social care and education are the basis of material security and civilized life for all citizens especially those on low incomes. A civilized society delivers a basket of mundane goods to all citizens and the task of policy would be to rectify specific regional and national deficiencies which vary according to time and place eg housing would be a London issue, broadband is peculiarly a problem in the British countryside, utility pricing and adult care are national issues.

This redefinition shifts the focus away from generic technologies of redistribution which give individuals income on the demand side and shifts towards specific policies of reorganisation to increase the supply of foundational goods by changing firm and public sector behaviours. What we need is reterritorializing policies that shift business practice from point value and extraction towards chain obligation and social payback by larger firms and public sector organisations which need to take some responsibility for suppliers and workers; all backed by a commitment to state investment in key social infrastructure like housing and broadband

This would turn shareholder value and private equity priorities upside down. The present aim is high financial returns and value at a point for fund investors who are often disappointed and clipped by intermediary charges so that our pension funds yield no more than 5-7% net. The alternative is to aim for 5% and social benefits from direct investment in utility type activities, like building housing ir rebuilding care homes. The debt finance now used for intermediary enrichment could be deployed to some social purpose; and backed by state guarantees without any pfi type financial engineering.

Beyond this, we need a much more social concept of innovation to meet unsolved foundational needs (not technical innovation to raise productivity). Consider, for example, adult care which is one of the tests of a civilized society. Our population is ageing and the sector is already a large scale employer of untrained and ill paid workers; the number of over 80s will increase  from 3- 8 million in the next generation and adult care already employs 5% plus of the UK workforce. It is time to think fundamentally about the forms of care not just the streams of income that pay for care.