Tag: poverty

The conservatives are out of touch with the renewed politics of redistribution

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Posted: 12 Mar 2013 01:00 AM PDT

Bart Cammaerts argues that we have entered an era in which the politics of redistribution is reasserting itself, borne out of the 2008 financial crisis and the moral indignation stirred by massive tax-payer bailouts. The Tories have been caught flat-footed by this development, promoting austerity and breaking down social protections, and will suffer the electoral consequences if they do not pay heed to popular sentiment.

George Osborne’s isolation in relation to (amongst others) the capping of corporate bonuses to one year salary is indicative of how both the UK government and the Conservative Party are out of touch with what more and more people increasingly think and believe across Europe. What the Conservatives fail to understand or rather do not want to hear is that we have now entered an era in which the politics of redistribution is reasserting itself more forcefully and this will, I suspect, manifest itself even more in the years to come.

This renewed politics of redistribution asserts itself in somewhat different ways than in the post-second world war period when the welfare state was massively extended. It is  still taking shape, but it has been given impetus by a financial and economic disaster  comparable in size to the 1930s crash. What this renewed politics of redistribution also draws inspiration from is a deep sense of indignation or outrage, to use the core-concept of the recently deceased activist Stéphane Hessel.

This moral indignation is borne out of the 2008 financial crisis whereby citizens – or taxpayers if you like – effectively bailed out the bankers and by extension capitalism. Subsequently, ‘the market’ moved on to take fright and denounce high sovereign debt rates and forced states to ‘reform’ – i.e. reduce – their welfare states and the rights linked to it, to break down social protections, and to limit the provision of public services. More and more citizens across Europe, but also in the UK, feel that the invisible hand is showing us the finger, so to speak, and they are increasingly unwilling to accept this state of affairs any longer.

The main focus of the renewed politics of redistribution is different from the previous one. This time, the welfare state needs to be protected and/or re-instated rather than still to be built, but like before it is also preoccupied with issues relating to taxation, and is concerned with the out of control wage inequality (the proposals regarding capping bank bonuses are certainly part of this). What is my evidence for these claims in terms of longer-term trends? It is up until now dispersed but conclusive:

  • At the end of 2011 an OECD study revealed that the top 10% in the UK was earning an income on average 12 times higher than the bottom 10%. Moreover, the share of total income of the 1% had more than doubled over the last couple decades. All this, the report concludes, greatly weakened the state’s ability to spread wealth across the population.
  • Last year, Paul De Grauwe, top economist and professor at the LSE, outdid François Hollande by arguing for a 100% tax on salaries above 1 million €. I agree – is there any job that justifies a salary above that amount? I don’t think so.
  • For some years, UK Uncut has been targeting a wide variety of high-street companies such as Top Shop and Vodaphone for dodging taxes and not contributing their fair share to society.
  • Executives of US-based, but in effect transnational, companies such as Amazon, Starbucks, and Google were grilled by the UK Parliament over their aggressive tax avoidance schemes.
  • According to a very recent study conducted by ComRes, 80% of British people feel angry at tax avoidance strategies of companies. One in three people boycott companies that they feel do not pay adequate amount of tax in the UK and a further 10% claim that they are considering doing so.
  • Almost 68% Swiss citizens voted in favour of the “abusive remuneration” initiative, denouncing high bonuses, golden handshakes and parachutes, etc.
  • Although still contested, a Tobin Tax on speculative financial transactions is moving higher and higher upon the political agenda in many European countries, with an expected yield of about €35 Billion. In a way this signals that the time for a payback has come.

Whether the conservatives like it or not, democratic majorities, internationally and here in the UK, are beginning to support the view that back to business ‘as normal’ is no longer tenable; that corporate responsibility towards society has got to start to mean something tangible rather than be a fancy marketing tactic; that a just and proportional taxation system is an important facet of a just society, enabling the re-establishment of social cohesion and solidarity; and that profit should not be the be-all and end-all of our collective life.

Note: This article gives the views of the author, and not the position of the British Politics and Policy blog, nor of the London School of Economics.

Osborne must find reverse gear to drive the UK economy towards recovery

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The Faustian pact the coalition made with the Bank of England and the markets has not worked. It’s time to end austerity and use fiscal policy to revive Britain

Faustian pacts are not a good idea. On assuming office in 2010 the coalition entered into a pact with the Bank of England and the financial markets which ranks as one of the most ill-conceived ventures in economic policy by any British government since the second world war.

It was to be deficit reduction – indeed the elimination of the so-called “structural” deficit – by 2015, in return for supportive monetary (including exchange rate) policy from the Bank of England and the enthusiastic backing of the financial markets. The sine qua non as the criterion for success of this policy and pact was to be a marked improvement in the pace of economic recovery.

The chancellor, George Osborne, made a bad start by raising VAT – a £12bn blow to consumer spending, with additional multiplier effects. The economy the incoming government inherited was recovering, albeit slowly. But the combination of the perverse increase in taxation (knocking almost 1% off gross domestic product per annum), and the impact of the austerity programme was sufficient to stop the recovery in its tracks.

This added to the deflationary impact of higher import prices arising from the massive – but necessary – devaluation of the pound in which the Treasury and the Bank of England had acquiesced. Then there have been all the other depressing influences on real incomes of which the governor, Sir Mervyn King, recently complained.

I should emphasise that paradoxically, an increase in energy prices can be inflationary in that it affects the general price level and deflationary in that, via the impact on real incomes, it has a depressing effect on spending power and therefore economic activity. Thus the monetary policy committee can be criticised by purists for not hitting the official inflation target of 2%, yet praised for not taking its brief too literally, and aggravating the depression.

For depression it is: in common with the redoubtable Jonathan Portes of the National Institute of Economic and Social Affairs I have regarded the term depression appropriate to a situation where output continues to remain well below its previous peak, let alone the 15% or so by which it is below what the historical trend would indicate.

In a paper which I recommend to all (“How to Restore Growth and Cut the Deficit, The Policy Consequences of Revived Keynesianism, Lombard Street Research“) the economist Christopher Smallwood reminds us of Keynes’s definition of depression: “a chronic condition of subnormal activity without any marked tendency either towards recovery or towards complete collapse”.

Although things are pretty bad, we have certainly avoided complete collapse – so far! The role of Gordon Brown and others in “saving the world” in 2008-09 was vital in preventing disaster then. Central bankers since had either read or heard about Liaquat Ahamed’s book Lords of Finance about how their predecessors got it so wrong in the 1920s and 1930s. Through quantitative easing – open market operations to offset a private sector credit crunch by easing monetary conditions – the central banks have stopped the rot.

Quantitative easing was urged way back by Keynes in order to lower interest rates. But it was when monetary policy was ineffective – like “pushing on a string” – that Keynes advocated what have come to be known as “Keynesian” policies – the use of fiscal policy (government spending) – to revive activity.

Unfortunately, under the Faustian pact we have witnessed a double whammy: fiscal policy being used to reduce government spending when the economy is already depressed. And a monetary policy that has been pushing on a string.

As Smallwood points out, the Treasury and Bank drew the wrong conclusion from the apparent success of the combination of fiscal contraction and monetary expansion in the 1980s and 1990s. “In both cases, the contractionary impact of tax rises and spending cuts was counterbalanced by substantial falls in interest rates, and of the sterling exchange rate at a time when our export markets were growing,” he writes. Exports and investment took up the slack left by budgetary cuts.

This time there was not much further for interest rates to fall. Indeed, banks were widening their margins and many borrowers did not feel the intended effects. For some, interest rates actually rose. Moreover, despite the more competitive pound, the sluggishness of our main markets prevented an export boom.

George Osborne cannot bear to admit he has been wrong, blames the Bank, and produces a Canadian ex machina in the shape of Mark Carney. And so far from pleasing the financial markets with this austerity programme, he finds they are more concerned about lack of growth, or continuing depression. Indeed the markets showed signs of incipient panic when they learned last week that King himself wanted more quantitative easing at the last meeting of the MPC.

Now, following recent work on the operation of “fiscal multipliers” in the US, Smallwood argues that a switch to a policy of fiscal expansion is the only way out. The multiplier was a discovery of the economist Richard Kahn’s, which Keynes adopted. Normally economists think of additional public spending or tax cuts having “multiplier” effects, as the person or institution in receipt of extra funds spends them in a way that boosts the incomes and spending of others. Similarly, higher investment produces what economists call “accelerator effects”.

But at present we have very damaging negative multiplier effects, in which budget cuts lead to obvious hardship, to further reductions in people’s ready cash and consequent social problems.

Smallwood argues convincingly that fiscal policy needs, selectively, to be put into reverse. “A properly designed fiscal stimulus could restore growth, at the same time generating powerful tax flow-backs from (a) national income (multiplier effects); (b) higher private investment (accelerator effects); and (c) improved long-term growth potential as a result of increased investment.”

There is a huge range of potential infrastructure projects out there. They can pay for themselves. The only way out of this mess is a complete reversal of fiscal policy. It would be seriously ironic if the financial markets ended up punishing this country for the unintended consequences of a Faustian pact that was meant to please them. The ratings agencies have already started.

Wages and productivity falling despite positive unemployment figures

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By Duncan Weldon | Published: February 20, 2013

At first glance today’s labour market statistics seem to be much like those of previous months – good headline numbers but with worrying data underneath.
Unemployment once again fell whilst employment rose but youth unemployment nudged up and the squeeze on real wages continued.
real wages
But looking at the longer term trend a worrying picture is starting to emerge of a UK economy which may be shifting towards a lower wage, lower productivity state.
The pattern over the course of much of 2012 is now familiar – employment growth coupled with real terms falls in earnings.
Average weekly earnings rose at an annual rate of 1.4% in December, less than half the rate of RPI inflation which was running at 3.1%. In real terms, average earnings fell by 1.7%.Real wages have now been falling in every month for the past three years.Over 2012 the rate of inflation has fallen from 4.8% to 3.1%m, which have provided a large boost to household finances, but as earnings growth slowed from 2.1% to 1.4% much of the slowing of inflation failed to filter through into improved real wages.
Indeed, since September the pace of real wage falls has been picking up again.
We known that in the 4th quarter of 2012 whilst output fell by 0.3% as GDP contracted, the total number of hours worked rose by 0.2%, over 2012 as a whole the number of hours worked rose by 2.6% whilst output was flat.In other words, productivity is falling. This is the so-called ‘conundrum’ of rising employment coupled with weak output growth, the UK’s ‘productivity paradox’.
The medium term picture of the UK economy over the course of 2012 is one of falling real wages, employment growth and falling productivity.
Whilst any increase in employment is obviously to be welcomed and it is far better for people to be in work than out of it, we may be seeing the start of a very worrying shift in the UK economy towards a lower wage, lower productivity model.

As the most recent TUC Economic Report, and the TUC’s Budget Submission this week, both warned there is evidence that hiring is being concentrated in lower productivity sectors. In a 2012 paper the economists Bill Martin and Robert Rawthorn argued that:
“The economy recovered in 2010 but disappointed in 2011. In those two years, around 550 thousand jobs were created in relatively low-productivity, low-paid largely private service activities that had less incentive than other activities to hoard labour during the preceding contraction and more to gain from the availability of cheaper labour. This expansion of jobs is another feature of a demand-constrained, lower wage economy.”
The combination of weak productivity, employment growth and falling real wages suggests that this trend continued into 2012. This is deeply concerning for the future – a lower wage, lower productivity economy means lower living standards in the medium to longer term.
By failing to expand demand now the government is further pushing the UK down this path.
In effect tight fiscal policy now means not only a weaker economy in the short term but potentially a weaker economy in the future. Long-term damage is being done to the UK’s growth prospects and living standards.

Wages and productivity falling despite positive unemployment figures

Austerity operates not only as a set of economic policies but also as a cultural object within policy and popular debate

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While there has been some recognition of the gendered impact of austerity, less attention has been paid to its specific implications for mothers. Drawing on a journal special issue, Tracey Jensen explains how through understanding austerity in cultural as well as economic terms, we might come to see its implications for our shared culture and sensibilities, as well as its specifically gendered dimensions. 

In the aftermath of the 2008-2009 recession and as the resultant austerity regime of reduced public spending began to be implemented, budget reviews demonstrated that it would be women who would bear the brunt. Fast forward to 2013 – with the second dip of recession a recent memory and a third dip imminent – the gendered effects of recession are impacting most acutely on one group in particular: mothers. The lattice of austerity policy – including reductions in public service provision, reduced levels in real terms of social security payments, frozen housing benefit and reductions in tax credit payments (amongst others) work together to have a compound effect on the support, income and security of mothers and especially those on low incomes, single mothers and those caring for disabled children. Changes in employment since the recession, such as the rise in short-term, part-time, insecure and precarious work, all impact disproportionately on those with caring responsibilities who are more likely to be snared within the ‘low-pay, no pay’ cycle of underemployment and poverty. The Equal Opportunities Commission estimated that some thirty thousand women a year lose their jobs as a result of becoming pregnant, and emerging evidence suggests that this maternal discrimination is currently increasing as employers seek to cut back, stall promotion and reduce workforces. Austerity is powerfully gendered, certainly, but it is particularly fixed upon women who have children.

Examining the public debate around austerity and gender, and extending it to consider more closely the implications and impacts of austerity upon families, the online journal Studies in the Maternal has published a Special Issue on the topic of ‘Austerity Parenting’. Drawing together work from sociology, critical social policy, community development, media and cultural studies, gender studies and economics, ‘Austerity Parenting’examines how the developing public narrative of austerity is connected to moral discourses of parenting. In particular we have asked how parents and parenting have been called upon by the architects of austerity, as both ‘to blame’ for the crisis (through ‘bad parenting’) and as being the solution (through ‘good parenting’) to an increasing variety of social and economic ills. ‘Parenting’ – articulated as moral and personal conduct and choices – is positioned as being the most important factor in determining a child’s life chances, more important than income, security, access to decent housing, healthcare, education, and so on. This moral narrative around good parenting distorts the wider debates we should be having about widening social and economic polarisation and stagnant social mobility.

An (initially tentative) rhetoric which has accompanied the implementation of austerity policies is that austerity is the necessary lean time which must follow on from the excessive spending of the previous Government. This rhetoric has grown bolder and is now echoed across policy and popular debate. We have spent too much money supporting those at the bottom, according to this narrative, and this spending has led to the breakdown of moral fibre and personal responsibility. This rhetoric rewrites the crisis of capitalism as being caused, not by the high-risk speculative financial sector, but rather by the ‘burdens’ of the welfare state and the ‘dependency culture’ it is said to create. Incredibly, social security levels (in 1979 worth 23% of the average income, now worth a paltry 11% and falling) are positioned as ‘too generous’ and as such enabling people to ‘choose’ a life on benefits. Those placed and blamed at the centre of this so-called dependency culture are ‘troubled families’, held to be chaotic, undisciplined, lacking in work ethic and responsibility; and importantly, to be transmitting these problems to their children who are doomed to repeat the cycle. These ideas are familiar enough to social scientists who remember Charles Murray’s claims about the underclass, which (despite a lack of evidence) exerted an enormous influence on policy in the early 1990s and as Imogen Tyler has documented dramatically re-emerged in media representations and political responses to the riots in August 2011. In the United States the underclass thesis led to the construction and circulation of figures such as ‘welfare queens’ and since the beginning of the current recession, we have seen a surge in similar stigmatized names for those in poverty, including ‘welfare scrounger’ and ‘feckless poor’.

But this particular moment is also bearing witness to the emergence of new terms and subjectivities designed to censure, accuse and condemn: the ‘skiver’ (vs striver) the ‘shirker’ (vs worker), the ‘feral parent’ and the ‘troubled family’. Such terms are wounding – they are designed to police, punish and hold in place, to individualise blame for stagnant social mobility and the conditions of poverty and worklessness. These ‘names for Britain’s poor’ are also arguably designed to produce or procure a consensus for welfare roll-back and deepening inequalities. Certainly, the enlivening and reanimating of such wounding terms alerts us to a profound poverty of imagination in policy debates. Emerging critical research demonstrates the inaccuracy of these emerging and moralising vocabularies and even more troubling the wilful ignorance of policy elites who insist on individualising poverty with no empirical evidence. This Special Issue contributes to this growing body of critical policy research, and seeks to explore the ways that austerity might be understood to operate not only as a set of economic policies but also as a cultural object within policy and popular debate, a subject-making discourse that is conferred, occupied and resisted, and as a web of socio-historical fantasies about the nation’s past and its possible futures. As such, this collection of work examines how austerity, in its connections with parenting, is circulating a particularly damaging vision of what causes poverty and social inequality and what our response could be. In proposing that social injustices are simply the result of bad choices made by lazy, irresponsible or workshy parents that ‘the rest of us’ can (and should) no longer afford, austerity parenting is reconfiguring our very sense of what public, mutual and collective sensibilities we should or ought to have towards one another.

Note: This article gives the views of the author, and not the position of the British Politics and Policy blog, nor of the London School of Economics. Please read our comments policy before posting. http://blogs.lse.ac.uk/politicsandpolicy/

About the Author

Tracey Jensen is a Lecturer at Newcastle University. Her research explores the classed and gendered intersections of contemporary parenting culture, and how these are reproduced across social, cultural, media and policy sites.

Osborne’s economic strategy has failed

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These GDP figures are a disaster for the coalition government – politically as well as economically
When the rating agencies strip Britain of its AAA credit rating – as they almost certainly will – George Osborne’s strategy will be in complete tatters.

The strategy has failed. The public knows it. The International Monetary Fund knows it. The credit rating agencies know it. Even George Osborne knows it, although he can’t bring himself to admit as much.

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Here is a brief résumé of how things stand for the economy after two and a half years with the coalition government at the helm. National output has just contracted for the fourth quarter in the last five. The only quarter of 2012 in which the economy expanded was the one that contained the London Olympics, and unfortunately for the chancellor these sort of jamborees happen once every half century rather than once every three months.

During 2012 as a whole the economy registered no growth at all. Nothing. Zilch. A big fat zero. The level of gross domestic product is 3% below where it was when the recession started, a weaker performance than during the 1930s. Royal Bank of Scotland says the four-year performance of the economy between 2008 and 2012 is the weakest since the 1930s apart from post-war mobilisations.

Industrial production was to blame for the drop in output in the final three months of 2012, with factory output back to levels last seen in the early 1990s. Rebalancing is a pipedream. Unsurprisingly, the Treasury’s deficit reduction programme is well off track. This is an abysmal record.

Sure, there are all sorts of excuses that can be trotted out to explain away the fact that three years after the recession first ended GDP is still contracting. The crisis in the eurozone hasn’t helped. Rising commodity prices have raised business costs and acted as a brake on consumer spending.

But the government also sucked demand out of the economy by raising taxes, cutting welfare and by taking the axe to capital spending programmes. The blood-curdling rhetoric from Osborne in 2010 about Britain being a Greece in waiting had the entirely predictable effect of shredding consumer and business confidence.

So what happens next? Clearly, there is a risk that the first quarter of 2013 will also be negative. The economy is fundamentally weak and the heavy snow of the past week will not have helped.

Against this backdrop, there will be mounting pressure for further steps to get the economy moving. Ideally, action would come from the chancellor himself in the budget in the form of tax cuts and higher spending on small-scale infrastructure projects that can be started immediately.

In reality, changes to fiscal policy are likely to be small scale and cosmetic. Osborne will rely, as he has for the past two and a half years, on the Bank of England to do the heavy lifting. Further monetary easing looks inevitable, even though a combination of 0.5% bank rate and £375bn of quantitative easing has proved ineffective until now.

Politically as well as economically, these figures are a disaster for the government. It ensures the next few months will be spent debating whether the UK is heading for a triple dip and how soon the credit rating agencies will strip Britain of its AAA credit rating. When that happens – as it almost certainly will – Osborne’s strategy will be in complete tatters.