Whilst I believe there is a real probability of the UK going “to hell in a handcart” if current policies are pursued and inequalities are not addressed, such a outcome is not inevitable, given certain changes. As I see it, in very broad terms, the following needs to happen:
There needs to be a change in UK fiscal policy so that, in the medium term , a Keynesian fiscal expansion is pursued. I see this as happening over a 3 – 5 year period, with a view to getting a recovery in the UK economy so that aggregate demand increases, employment rises, consumer spending recovers, confidence increases and the government's tax take increases. Possibly an increase in government investment in pubic infrastructure is the most effective stimulant to start this process – those public investment programmes which bring a legacy. “Take care of unemployment and the budget will take care of itself” said Keynes. As the economy recovers and real incomes rise, it is easier to start stripping out the structural deficit from the budget and balancing it, hopefully at the full employment level.
Secondly, getting the UK economy on the mend by judicious use of Keynesian policy is easier and far more effective if all other members of the G20 are doing the same – and beyond the G20. The world economy requires a co-ordinated response from the developed and developing nations. If the UK hopes to recover partly by exporting more, then our export markets need also to be in recovery phase with rising demand for imports from the UK. Autarky and “beggar my neighbour” policies will be wholly counter-productive. The growth of international trade in the 1960s and 1970s greatly assisted the growth of national economies. Nation states (and blocs like the EU) must synchronise their fiscal recoveries.
Thirdly capitalism has to be reformed in all sorts of ways – a huge topic and only just touched on here. Whilst there needs to be rapid growth in the recovery phase (the 3 – 5 years I mention) beyond that there are arguments for a reduced preoccupation with growth, certainly in the developed world. Populations need to focus more on quality of life and less on their material standard of living and firms within the economy need to serve that end. But “good capitalism”, as described by people such as Will Hutton, involves a fairer balance of power between capital and labour. Such a change will see an increase in the share of wages in national income and a reduction in the share of rents and profits. This in turn will contribute to a fairer distribution of income – although there may still be a role for fiscal policy to bring about greater equality of final income. The sort of inequality described above in the first part of this piece is not just socially unjust, it also has adverse economic consequences within the UK.
A way has to be found of sharing out work more equitably. I have argued for the intrinsic desirability of people having more leisure time and chances to self-educate, enjoy culture and warmly socialise. However, if a side effect of fewer industrial working hours being worked is a slowing in the growth of output of consumer goods, some of this may be offset by a growth in leisure industries since people have more leisure time to themselves.
For perhaps 90% of the populations of the developed and developing world the changes I have hinted at in the previous two paragraphs will require a huge change of mindset. Across all populations there will need to be a re-thinking of values. However, for the top 5% of income-earners and wealth-owners my prescriptions are likely to be particularly unwelcome. These are the people who, at the moment, “call all the shots”. These are the “serious men” who set the conventional wisdom. The status quo suits these people all too well as the vast majority of increases in income and wealth are funnelled in their direction. (2010 figures for the US economy show that the top 1% of Americans in that year saw their incomes grow by 11.6% whilst the growth in income for the remaining 99% was 0.2%). The current political systems in both the USA and the UK suit this top 5% given that both systems allow campaign contributions to buy influence in conservative political parties. Most newspapers, too, fall in with the conservative line and help set the agenda in favour of the conventional wisdom.