Steering Us Towards More Inclusive Growth…
Like many , I’ve always found the idea of endless economic growth to be problematic. As we know, economic activity takes place within a broader social system, which also is nested within a still broader natural system. I’ll leave the problems created for the environment by economic growth for another day. But clearly, within the system we have, a lack of economic growth can be a source of human misery because of the resulting impacts on incomes, jobs and overall consumption, government revenue and so on. This video from the Bank of England explains this quite nicely.
The problem though is that there has been a tendency to assume that economic growth is all we need for delivery of broader human goods, such as job security, empowerment, human health and wellbeing, and equality and reduction in poverty.
However modern Britain (not just Britain of course) tells us that strong economic growth can exist alongside rising inequality, poor health, low job security, discrimination, rising income disparities, poor skills, and a host of other societal ills.
So, as I wrote in an earlier blog on pay ratios, we need a package of measures for fairer work and more inclusive growth and I’d like to explore some of those ideas here.
Why Have We Arrived Here?
So why have we arrived at a situation where we can have a strongly growing economy but without some or all of the anticipated benefits of economic growth? Firstly, it’s worth saying that this isn’t exactly new- Fred Hirsch was writing about some of the problems with economic growth in the 1970s and many more have since.
Very simply put, I believe that as the political consensus began to accept the market and liberal economics as the best means to secure the advancement of social aims, we have ended up taking too shallow a view. We haven’t discriminated as well as we should have. We have tended to accept growth as a good thing, and then sought to redistribute the fruits of growth afterwards without looking at the quality of that growth and the problems it creates in achieving the growth. Often, and in addition, we’ve not made a very good case as to why economic growth matters, and we’ve taken too glib a view of issues of empowerment and identity that are clearly important to people, often suggesting they are holding back liberal trade and are relics of a time gone by. Arguably, this leads us to conditions ripe to be exploited by populists and even potentially underpins things such as Brexit. If people read and hear about how well the economy is doing, but can’t relate that to their own lives, it surely breeds a toxic mixture of cynicism, despair, disillusionment and anger.
I tried to show in my post on societal risks however that it is incumbent on governments to actively think through and manage the risks that its citizens face. Or, going back to first principles, that we need to look at the basic structures of society to ensure they are set up in a way that supports empowerment, dignity, the individual life plans that people make, and that sense that we are truly ‘all in it together’. Again from an earlier post:
‘Equality matters because ultimately, people need dignity and respect, they need the ability to execute their life plan, they need a sense of fairness in all of the rules and institutions and processes of society.’
Before I get down to details, I want to make it clear that I’m not talking about a ‘bolt-on’ to normal patterns of growth. Whilst it is good, for example, to see a commitment from the Scottish Government to inclusive growth, I think there is a tendency for that commitment to be a series of additional costs added onto normal business as usual, and I think we need to go deeper than that.
The RSA and Inclusive Growth
As I mentioned at the start, the RSA’s Inclusive Growth Commission, which reported recently, has been examining these issues. The Commission’s job was to examine how inclusive growth could be achieved. It sets out the challenges for the UK (with an admittedly English focus for solutions) very well, including the wide range of disparities in life chances, incomes, economic activity and skills across the regions, the worsening problem of in-work poverty, and the low spend on work programmes and skills that the UK makes compared to its competitors.
This diagram from the report illustrates the problem of in-work poverty:
The report itself is short and punchy and well worth a read, but it’s this key diagram that both informed and summarises a great deal of my own thinking:
In particular, the right hand side of the diagram is worth showing more clearly:
This sort of thinking ties in very well with a raft of traditional liberal policies and I’d like to comment on the ideas the RSA has put forward, before adding a few of my own.
Social Infrastructure Not exactly new thinking in many parts of Europe, but relatively new in the UK. It should be obvious that ‘pure’ economic growth policies are unbalanced if they ignore the needs of citizens. Chadwick and many more in the 19th century knew that. It should be obvious we need to support the human resources that make up the economy, ensure that working people have proper access to childcare, to mental health services and to the right mix of education, training and skills. But often we have assumed the market will provide, without making sure that everyone is included and without recognising that the more we spend on these preventative and facilitating services, the more our economy is likely to flourish. We have rushed into expanding University provision without always thinking through whether University is always the best option. We have shamefully neglected mental health provision, and acted like we mostly think community groups, activism and local pride are irrelevant to local economic dynamism. We too often act as if the loss of community ‘anchors’ such as post offices, pubs, small businesses and community halls is a necessary price of market or public service efficiency when they are clearly the bedrock of ensuring a truly local economy can function.
Thinking About Places and Decentralising Power It should be obvious but a central plan from London or Edinburgh doesn’t cut it today, if it ever did. We are too monochromatic and too centralised, and we lack resilience in our economic systems, our banking, our food provision and our retail offerings. We need to unleash the power of local people, of regional strengths, of previously disempowered and disillusioned people- the RSA is surely right to call for a fundamental reset in central-regional relationships. As the RSA rightly says we need minimum national standards but we must have local flexibility to decide on the best way to deliver those standards- no more massive, complex central plans for local democracy, for local economic functions or for pubic services reform. or at the very least, only when absolutely needed and not just because a new government or a new minister is in charge.
Just Being Smarter Too often the economic and the social policy communities don’t talk to each other. Too often social policy is seen as a cost, and economic policy as a wealth creator, when the reality is they both can be both. Too often grandiose regeneration plans don’t really involve local people, or aren’t tailored to local and regional distinctiveness or need. Too often infrastructure spend is just about large pieces of ‘kit’ with not enough recognition of the possibilities of procuring differently, of kick-starting self-sustaining changes during construction, or of supporting particular disadvantage groups through cleverer use of public (and private) funds. Too often Universities and colleges are not asked to take a more active local role, as large employers, providers of knowledge and skills and as potential community anchors of innovation and solidity in a changing world.
Measuring the Right Set of Things The RSA rightly calls for a much fuller basket of measures to understand and assess economic growth. Again this is not exactly new (does anyone remember the 1999 sustainable development indicators?? ) but it is great to see- and I’ve reproduced the RSA’s proposed indicators below.
I agree with the RSA that a properly balanced picture of inclusive growth needs to understand much more than just GVA– it needs to try and understand the quality of jobs being created, the skills and training being attained by citizens, the patterns of income and any worrying disparities being created, and measures such as the strength and resilience of local communities, civic groups and local activists.
Finally, its great to see the RSA calling for a much more diverse, local and distinctive approach to banking. The UK is hugely reliant on a small number of large banks- it shouldn’t be, doesn’t have to be, and wasn’t always. Many successful countries, including in Europe, and the US, have much more diversified and locally and regionally focussed financial institutions. I agree with the RSA that diversity and greater decentralisation of the banking system is a key component of a more inclusive agenda. And of course with Blockchain...
What Else Might We Need?
I think the RSA Commission has done a great job of setting out a chunky set of recommendations for people to consider. It is a report full of ideas, and I’ve certainly not mentioned all of them (for example the report also calls for a move away from the push to get more and more people to University, to a more discriminating approach that gives equal value to vocational education).
But I still don’t think the RSA’s work is the final word. So well else would I argue for? As usual dear reader, my words outrun your patience so let me be mercifully brief.
Firstly, I think we need to continue the path we are now on to increase the living wage, to ensure that work really does pay. We’ve made a start but we need to do much more. And as I argued before, I think there is a good case to go further and examine a Basic Income.
Secondly, we need to take action to cap pay and to set up a body to monitor it and report
Thirdly, we need another look at the opportunities for greater fairness in the tax system, to make sure that the tax system is fair, and is transparently so. Here I’d mention the ideas of the late Tony Atkinson, and ideas floated in 2013 by the IFS
Fourthly I’d mention the new structure for companies that many are exploring- from social finance and community development companies, through to interesting ideas on the very nature of companies themselves- see here and here and here for example.
Fifthly, I’d mention the worker and community empowerment agenda- from including workers on company boards, to establishing greater incentives for people to establish cooperatives or mutual structures. These are not new ideas- Lloyd George’s Liberals were calling for such solutions in the 1920s and many other reformers have led the way, going back a long way , though I’d argue if anything since the 1990s the UK has gone backwards here. Sadly, we’ve never seriously gotten to grips with the ideas of Jo Grimond writing in the 1950s and 1960s.
So, there it is- we need a broader, deeper and more thoughtful approach to economic growth. We do need more spending on public services, but we also need a more discriminating approach. In my view, only then can our economic system deliver what it should- freedom and opportunity for everyone. Thanks for reading.