A Phantom Recovery?

A guest blog from recent PAGE graduate Oliver Westerman, BA Global Development and Political Economy, class of 2013.

Threadneedle Street. Financial hacks gather, their notepads and iPads awaiting the news. Mark Carney, the new monetary chief, grins as he peddles confidence. ‘The Economy’ is recovering, its vital signs positive. Inflation and unemployment have fallen. All may breathe an overdue sigh of relief.

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Oliver Westerman (right) – recent graduate

Guildhall, two days prior: Romanesque windows, polished oak statues and golden thrones adorn the Prime Minister’s speech. A prolonged and stormy applause erupts in the stone hall, as the Old Etonian proposes permanent austerity.  “A leaner state”, he urges, as the post-modern gentry, the captains of industry and City financiers nod in approval, sipping the heritage cognacs and Bordeaux dessert wines, seated comfortably in Savile Row finery around the banquet tables.

These two moments – a technocratic update, an aristocratic soiree – together make for an almost perfect metaphor of post-crash neoliberalism. That is growth, but no welfare; recovery, but not for the masses. Beneath Carney’s data and measurements and glimpses of hope, the long-term ambition of the neo-liberal project is strengthened, policy by policy.

That ambition – the slash-and-burn approach to welfare, the dousing of the poor in unpayable dues – is made perfectly clear when the human cost of austerity is fully calculated.

To begin the equation, a few figures on public-sector unemployment: since the coalition came into power, 631,000 public sector jobs have been cut. By the next general election, roughly one million will have been cut in total. The Local Government Association warns of continued rises in council tax and suffering services (road maintenance, business support and so on)[1]. The GMB analysis of the figures shows a geographical bias, with the North East having to make more workers unemployed. And it is the poorest who have taken the brunt of the cuts: 9 out of 10 jobs lost have been low-paid, according to the PCS. And across the public-sector, wages have fallen by 0.5% for the first time on record, according to the ONS. Total unemployment stands at around 2.5 million, total job vacancies fluctuates around the 500,000 mark; that is enough work for 1 in 5 of the unemployed, and less ‘slack’ than would be needed to absorb all public-sector sackings.

An alarming consequence of unemployment (and low pay) is that there is now scarcely a town without a food bank. According to the Trussell Trust, they fed 346,992 people in 2012, half of whom were children. That number tripled in one year, and the number of food banks open has doubled in the same time. Yet, as the welfare state is cleaved and chewed and thrown to waste, any correlation between the two is flatly denied by the Tories. Even as many food bank users cite loss or delay of welfare as their reasons for visiting, the DWP wildly dismisses any responsibility.

Some of those visiting food banks are the involuntary quarry of the ‘Bedroom Tax’, the tragedies of which must also be added to the human cost. Stories of its victims abound, the disabled and their carers being particularly affected – 1 in 6 face evictions, roughly 70% report cutbacks in food and energy. Victims of domestic violence, re-housed after support work, too face eviction. Many of the unaffordable homes, cleared of those unable to cough-up, are to be demolished. The most callous aspect, though, is in how it effectively backs the most vulnerable against the wall. It forces people to downsize, even though, for many of those affected (96% according to the Guardian), there is nowhere to downsize to. The motion to amend the tax – exempting carers, widows, war veterans, the disabled and sick – was vetoed, meaning that it will likely remain imposed until 2015, at least. This really takes the annoying ‘tough decisions’ rhetoric to its limits: the Tories stand united behind the tax whilst most of the media, numerous charities, nationwide grassroots groups and the Labour party leadership all publicly decry it.

Many of those affected by the Bedroom tax, and those unaffected but claiming housing benefit – in fact, the majority of those claiming any form of welfare – are employed[2]. This is something of a Janus-like predicament: if many of those in work cannot afford to live without welfare, there are two easily identifiable culprits: rising prices (and so inflation) and stagnating wages. It is the latter which, I think, encompass much of the human cost of austerity, and the preceding financial crisis, and the neo-liberal project in general.

It is depressed wages that beg state support, which, for the sake of (historically moderate) government debt, is being gradually hacked away. It is depressed wages which have driven many to food banks, or presented some with the bleakest of dilemmas: food or heat. It is depressed wages which have allowed swathes of unsavoury online money-lenders to prey on the poor, who might finally have their interest rates grudgingly capped. It is depressed wages, especially amongst the young, which cannot keep pace with house price increases, which have averaged 3.1% across the country – higher of course than wage increases. It is depressed wages which lead to lower savings rates and thus lower investment, and also to credit-fuelled consumption, causing mountains of household debt; this alone, according to the Centre for Social Justice, is making 5000 people per year homeless. And, on a more populist but still crucial note, it is depressed wages which lag, exhaustedly, behind the yearly energy price hikes. The effect of this on the elderly and low paid is well documented and far from hyperbole.

That the top 1% of earners pay 30% of income tax clearly shows the stagnation of lower wages. Whilst this enticed a preposterous, cheerleading response from Boris Johnson, and whilst some might take this to mean the rich are being over-taxed, this would be a misreading. For the rich to be paying such a high percentage (up from around 8% in 1979) their share of the nation’s income has had to increase, and disproportionately so.

The top 0.1% of earners – the types who trade corporate junk-bonds in the morning and pledge at Tory fundraisers in the evening – they contribute 14% of income tax[3]. This is the real disparity, and where a fat slice of national income goes. It is unfortunate, then, that low-to-average wages won’t be lifted by the breezy winds of economic growth, or at least not for the time being.

Carney says he wants “real people in real jobs” (so presumably not the zero-hours contracts pervading the labour market, and not the workfare being enforced by the Tory supremos). But in his speech – and this is crucial – we workers are told not to expect any real-terms wage increases until 2014, at the earliest. For the one million or so workers on minimum wage, which in real-terms is still around £1000 lower per year than in 2008, it will be more like 2017 when pay can keep just ahead of prices[4]. Likewise for the further million people earning within 50p of the minimum wage, and for the 300,000 or so full-time workers earning less than minimum wage.

The implication, then: real jobs for real people, but for many, not at a living wage. The graphs will be pleasing, the numbers will impress, but anything more than depressed incomes and unaffordable living is opulent fantasy, even for the skilled and the qualified (more graduates are entering non-graduate jobs, according to the ONS). In a recent Ipsos Mori poll, 48% surveyed said, in effect, that if a recovery is in fact happening, it is happening unbeknownst to them. This sentiment would be echoed, I’m sure, by all those now unemployed, visiting food banks, being taxed because of a bedroom, those in poverty (or hovering delicately just above), or those for whom a living wage is some distant ideal.

But what of the growth itself? In his interviews and statements, Carney has kept suspiciously quiet on what is growing. Which sectors of the economy? Slight growth in manufacturing aside, growth in retail has been noted, the corollary of which is increases in personal borrowing, meaning unsecured debt, certainly when set against depressed or declining wages; UK consumers are some of the world’s most indebted, even when mortgage debts are excluded. Interestingly, house prices in the capital have also increased: the price rises are 5% higher than the national average, and a London home is on average £200,000 more expensive, according to Danny Dorling; whether this is the embryonic stage of another bubble is unclear. Regardless, growth confined to credit and housing should be sounding klaxons in Carney’s mind as being a thoroughly unsustainable growth-model.

We do well here to listen to Thomas Sedlacek, who urged world-leaders to “do something with economic growth” by channelling it into welfare and stability, if only for economic reasons: if inequality remains – if the proceeds of growth aren’t redistributed; if, in Robert Skidelsky’s words, “credit continues to replace the welfare state” – then excessive borrowing remains, meaning endless rises in asset prices, which often causes bubbles, and bubbles tend to burst.

So, then, we can say that economic growth remains slight and is largely oblivious to maybe a third of the population. Where there is growth, it appears to be spurred on once again by house prices and debt. But what about austerity? If there is truly a return to growth, surely state debt will soon be affordable, and austerity written-off as a brief episode of fiscal madness? Not so.

Carney, when asked by Jon Snow, said “We take that [austerity] as given and we set policy accordingly.”[5] This isn’t entirely surprising: monetary and fiscal policy should complement one another. What can be taken from this is Carney’s preparedness to work with Cameron’s ‘permanent austerity’. Whereas in previous years, state spending on welfare at least slowed the widening inequality amidst wild deregulation and soaring executive pay, now even this meagre redistribution is spoken of as unfair or unsound or irresponsible, or whichever ideological denigration is used to defend the establishment’s desire to do away with it entirely[6].

So, my short conclusion: growth is meaningless when neo-liberals have colonised the executive branch of government. A ‘phantom recovery’ has yet to enter economic lexicon, but it describes the present one quite accurately: the graphs look good, the bankers are grinning, but inequality continues its upward trend and wages vegetate, unfit for purpose. And without welfare, without redistribution and without wage limits, the neo-liberal project – with its dislike of red-tape and the poor – ensures it is only the rich who prosper.


[1] Interestingly, the LGA published a paper in 2010, just before the election, advising that greater autonomy of local government would lead to savings of roughly £500 billion over 5 years – coincidentally the same approximate figure the Tories wanted to cut in 5 years.

[2] It was embarrassingly ‘discovered’ two weeks ago – much to the chagrin of neo-liberals and other sordid right-wing types – that receiving welfare doesn’t actually make recipients lazy; who knew?

[3] The Christmas period for many means more debt, overtime and a tiring, shoestring January. Not so for a smattering of RBS employees who will enjoy, as members of this lucky 0.1 percentile, bonuses divvied from a pot of £500 million.

[4] The Resolution Foundation has provided these figures.

[5] And Carney was offended that he might be ‘too close’ to Osborne.

[6] See here Osborne’s autumn statement, which claimed the welfare state was ‘unaffordable’.

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