tag:theconversation.com,2011:/uk/business/articlesBusiness + Economy – The Conversation2024-03-27T17:06:39Ztag:theconversation.com,2011:article/2218132024-03-27T17:06:39Z2024-03-27T17:06:39ZJudas and the economics of betrayal<figure><img src="https://images.theconversation.com/files/583742/original/file-20240322-18-kdnips.jpg?ixlib=rb-1.1.0&rect=109%2C63%2C3725%2C2673&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"></span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/san-gimignano-italy-july-11-2017-721701439">jorisvo/Shutterstock</a></span></figcaption></figure><p>No one remembers the names of the soldiers who arrested Jesus, or the civil servants who organised his crucifixion. But Judas Iscariot has not been forgotten, and will forever be associated with treachery and betrayal. </p>
<p>Part of what makes Judas stand out is his position as a disciple. There is only betrayal if there was some form of loyalty beforehand. And many of us will have felt the cruel sting of being let down by people we trusted – whether it was <a href="https://theconversation.com/traitors-betrayal-surrender-british-politics-now-dripping-with-terms-that-fuel-division-124318">in politics</a>, in the family, in a workplace, school playground or on <a href="https://www.bbc.co.uk/mediacentre/2023/traitors-series-3">a game show</a>.</p>
<p>But on a more positive note, <a href="https://www.sciencedirect.com/science/article/pii/S0167487011000869">plenty of research suggests</a> that acts of betrayal are rare. Most humans can be trusted it seems, not because they are genuinely good, but because it is in their <a href="https://www.econstor.eu/handle/10419/282145">interests to be trustworthy</a>.</p>
<p>One social science <a href="https://www.sciencedirect.com/science/article/pii/S0899825685710275">experiment about betrayal</a> involves a participant, referred to as “the sender”, being given a small amount of money. The sender can decide to keep the money for themselves, or they can choose to send it to someone else – “the receiver”. </p>
<p>If the money – let’s say £10 – is sent, it turns into £30. The receiver can then either keep the money or return half of it to the sender so that each ends up with £15. </p>
<p>The selfish prediction of what the outcome of this trust game might be is straightforward enough. We know that the receiver is better off keeping all the money if she receives it. The sender should expect that to happen, and not send the money in the first place. </p>
<p>But we also know that people do not always behave selfishly. And the <a href="https://www.sciencedirect.com/science/article/pii/S0167487011000869">many variants</a> of the trust game find that on average, half of the senders do decide to send the money – and that overall, enough money is returned to them to make sending a profitable decision.</p>
<p>So perhaps people return the money because they feel that doing otherwise would be a betrayal. And one possible explanation for this is the notion of <a href="https://www.sciencedirect.com/science/article/pii/S0899825603001908">reciprocity</a>. </p>
<p>In this scenario, the receiver returns money because she believes the sender has been kind to her. Sending is a kind action because the sender does it without any guarantee of getting something in return. Returning some of the money is a way of reciprocating this act of kindness.</p>
<p>But research suggests that what actually <a href="https://repec.unibocconi.it/igier/igi/wp/2013/506.pdf">seems to matter more</a> is a sense of guilt. The more the receiver believes the sender expected something in return, the more likely she is to return the money. In that sense, sending the money may be less about kindness, but about being a good investment.</p>
<h2>Kindness or cooperation?</h2>
<p>In <a href="https://link.springer.com/article/10.1007/s11238-023-09966-4">a recent experiment</a>, <a href="https://jhwtan.wixsite.com/home">a colleague</a> and I took the question a step further. We wanted to understand the roots of betrayal and how it might be affected by some form of shared experience.</p>
<p>In a slightly modified version of the original trust game, we asked both subjects simultaneously to send or keep £10. If at least one chose to keep the money, both got £10. If both sent the money to the other, one of them was picked at random and allowed to keep the £30 or share it equally. </p>
<p>Here, one might expect that even completely selfish people without any guilt aversion would choose to send money, simply because they can expect (around half the time) to get the larger sum of £30.</p>
<p>We ran our experiment in a garment factory in Pakistan, as we were inspired by a form of credit <a href="https://academic.oup.com/ej/article/128/614/2161/5230958">widely used in that country</a>, <a href="https://www.jstor.org/stable/4132493">in which</a> people combine their savings. They are then able to withdraw varying amounts from that sum of money to pay for things like sending a child to school or starting a small business. </p>
<p>The whole system relies on cooperation. If one person decided to betray their fellow contributors and run away with all of the money, it would be the end of the project for everyone. </p>
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Read more:
<a href="https://theconversation.com/why-judas-was-actually-more-of-a-saint-than-a-sinner-56689">Why Judas was actually more of a saint, than a sinner</a>
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<p>In our experiment, our subjects chose to share the £30 around 70% of the time, even more than the 55% who did so in the original trust game experiment we ran at the same time. Overall, we found that the <a href="https://www.journals.uchicago.edu/doi/full/10.1086/722930">initial option</a> to both send money creates a sufficiently large sense of loyalty to encourage further cooperation. This effect is higher when subjects were in a room of workers they knew – even if the actual co-player remained anonymous.</p>
<p>And maybe most of us have learned the social benefits of not betraying our fellow human beings. That’s why it’s fairly rare, and why stories of betrayal stand out.</p>
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<p>Maybe Judas knew this too. And some people have decided to give him the benefit of the doubt. </p>
<p>The <a href="https://www.britannica.com/topic/Gospel-of-Judas">apocryphal</a> <a href="https://www.nationalgeographic.com/science/article/lost-gospel-judas-revealed-jesus-archaeology">Gospel of Judas</a> for example, casts Judas as an Easter hero, without whom there would be no Christianity. And in his short story Three Versions of Judas, the Argentinian writer <a href="https://www.britannica.com/biography/Jorge-Luis-Borges">Jorge Luis Borges</a> suggests that the disciple’s act was a vital part of a divine plan, which he carried out despite realising that in doing so he would become history’s ultimate villain. </p>
<p>From that perspective, perhaps the kiss of Judas could come to be seen not as an act of betrayal but as the ultimate act of selfless cooperation.</p><img src="https://counter.theconversation.com/content/221813/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Renaud Foucart does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Research suggests that most of us are pretty trustworthy.Renaud Foucart, Senior Lecturer in Economics, Lancaster University Management School, Lancaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2258292024-03-27T13:27:14Z2024-03-27T13:27:14ZIn the fog of the video streaming wars, job losses and business closures are imminent<figure><img src="https://images.theconversation.com/files/584019/original/file-20240325-30-zw5640.jpg?ixlib=rb-1.1.0&rect=1077%2C0%2C4913%2C3997&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"></span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/barcelona-spain-jan-2019-man-holds-1272527956">Ivan Marc/Shutterstock</a></span></figcaption></figure><p>Prussian general and military theorist <a href="https://www.britannica.com/biography/Carl-von-Clausewitz">Carl von Clausewitz</a> presented the concept of the “fog of war” in 1832. It is a phrase that has become synonymous with the uncertainty and confusion of military battle. </p>
<p>But this expression also acts as a useful metaphor to describe the industry and market dynamics that subscription video-on-demand streaming firms find themselves operating in – that is, uncertainty.</p>
<p>This uncertainty is demonstrated by the performance of American streaming platform Disney+. Since 2019, the platform has received <a href="https://www.ft.com/content/c60bd60b-2a81-43fb-8452-fe3002e5c4cbsource?">US$10 billion</a> (£7.9 billion) of investment. But, over the same period, it has lost roughly <a href="https://www.forbes.com/sites/tonifitzgerald/2023/08/09/new-record-for-disney-sheds-117-million-subscribers-password-crackdown-coming/?sh=724e09cc1d7b">12 million customers</a>, and it posted staggering losses of more than <a href="https://www.ft.com/content/ec0f7996-fae9-4e80-baa9-020ad470c25a">US$1.6 billion</a> in 2023. </p>
<p>In November, its parent company, Walt Disney, <a href="https://thewaltdisneycompany.com/app/uploads/2023/11/q4-fy23-earnings.pdf">introduced</a> a new “cost-reduction strategy” that will aim to cut 7,000 jobs and save US$7.5 billion in the face of weakening economic conditions and tougher competition.</p>
<p><strong>Five year share price comparison: Walt Disney v New York Stock Exchange</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/584020/original/file-20240325-22-2f15i6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Five year share price comparison between Walt Disney and the New York Stock Exchange." src="https://images.theconversation.com/files/584020/original/file-20240325-22-2f15i6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/584020/original/file-20240325-22-2f15i6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/584020/original/file-20240325-22-2f15i6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/584020/original/file-20240325-22-2f15i6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/584020/original/file-20240325-22-2f15i6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=425&fit=crop&dpr=1 754w, https://images.theconversation.com/files/584020/original/file-20240325-22-2f15i6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=425&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/584020/original/file-20240325-22-2f15i6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=425&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Disney+ loses luster as investor optimism wanes.</span>
<span class="attribution"><span class="source">S&P Capital IQ</span>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span>
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<p>The COVID pandemic supercharged the on-demand streaming business as consumers sought to entertain themselves during the numerous lockdowns. The streaming industry experienced a period of rapid growth, attracting a flood of new entrants lured by market growth rates of <a href="https://rm.coe.int/audiovisual-media-services-in-europe-2023-edition-a-schneeberger/1680abc9bc">40% per year</a> and potentially high profits from surging consumer demand.</p>
<p>Companies such as Netflix, Amazon, Disney+ and Apple TV gained millions of customers in a matter of months and invested billions of dollars on new content, infrastructure and marketing. It all seemed too good to be true as the “land grab” for subscriber growth and market share continued into 2022. </p>
<p>However, an easing of lockdown restrictions saw consumers vacate their sofas and give up their binge-watching TV habits, ready to explore the great outdoors again.</p>
<h2>The shakeout</h2>
<p>The streaming industry is currently characterised by an oversupply of service providers. This has led to aggressive competitive pricing where businesses set their prices based on what their competitors are charging. </p>
<p>For example, instead of Netflix basing its subscription price solely on production costs and a desired profit margin, it will consider the prevailing prices offered by its rivals in the market and find a strategic price point that allows it to be competitive while also maintaining profitability.</p>
<p>Platforms with less efficient operations or inferior offerings are starting to struggle and an “industry shakeout” is inevitable. This is where a significant number of businesses are eliminated or acquired through competition in a period of intense consolidation. </p>
<p>Think of it as a metaphorical earthquake. The ground shifts beneath established players, forcing some to adapt, some to crumble, and others to emerge even stronger.</p>
<p>Take, for instance, the Swedish streaming platform, Viaplay. Despite being much smaller than its US counterparts, it adopted an expensive international expansion <a href="https://www.ft.com/content/a148bade-3364-43ac-a450-39203919261d">strategy</a> that was fuelled by the pandemic. This strategic approach failed and Viaplay could not expand profitably outside its home market. </p>
<p>The cost of living crisis then resulted in subscriber price increases and higher customer churn as a result. Uncertainty surrounding the firm has also been made worse by the sacking of its CEO and the introduction of a plan to significantly <a href="https://www.ft.com/content/162b0c78-ee3e-4851-9d53-7fb7ce2550a1#post-b522b47e-57da-411c-ba08-6b8d5b44cfb1">cut operating costs</a>. It’s no great surprise then that the company has withdrawn its long-term guidance for sales revenue and its share price has <a href="https://markets.ft.com/data/equities/tearsheet/charts?s=VPLAY%20B:STO">slumped</a> by a remarkable 99% over the past 12 months.</p>
<p>This shakeout phase of industry development will result in job losses and business closures until a situation develops where a smaller number of stronger, more efficient players dominate the industry through “scale advantage”. </p>
<p>A good example of consolidation occurred in the social media industry in the early 2000s. Platforms such as MySpace, Friendster and Friends Reunited gained early popularity with consumers, but then ceased trading or became a competitive insignificance as Facebook emerged as a dominant force. To maintain its market-leading position and access new users, Facebook went on to acquire smaller competitors including <a href="https://www.bbc.co.uk/news/technology-17658264">Instagram</a> and <a href="https://www.bbc.co.uk/news/business-26266689">WhatsApp</a> in 2012 and 2014 respectively.</p>
<p>The benefits of this “scale advantage” are more efficient access to international markets, higher profitability and the ability to deliver lower subscription prices due to the economies of scale. This is particularly beneficial to consumers at a time of inflationary pressure on discretionary spend. </p>
<h2>The outlook</h2>
<p>So, who is at risk on the battlefield of streaming wars? Even household favourites such as Netflix, with a global market share of 24%, 260 million subscribers and best-in-class content are not safe. </p>
<p><strong>Five year share price comparison: Netflix v Nasdaq</strong></p>
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<a href="https://images.theconversation.com/files/584021/original/file-20240325-20-cz3o57.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Five year share price comparison between Netflix and the Nasdaq stock exchange." src="https://images.theconversation.com/files/584021/original/file-20240325-20-cz3o57.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/584021/original/file-20240325-20-cz3o57.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/584021/original/file-20240325-20-cz3o57.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/584021/original/file-20240325-20-cz3o57.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/584021/original/file-20240325-20-cz3o57.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=425&fit=crop&dpr=1 754w, https://images.theconversation.com/files/584021/original/file-20240325-20-cz3o57.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=425&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/584021/original/file-20240325-20-cz3o57.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=425&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Netflix loses stream: investor confidence fizzles as growth slows.</span>
<span class="attribution"><span class="source">S&P Capital IQ</span>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span>
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<p>Given the current focus on corporate profitability in an industry likely to consolidate, Netflix’s ability to produce a <a href="https://s22.q4cdn.com/959853165/files/doc_financials/2023/q4/NEW-FINAL-Q4-23-Shareholder-Letter.pdf">net profit</a> of more than US$5 billion and an impressive operating margin of 21% in 2023 will make it a potential target for acquisition. This is particularly the case given that the size of the company, at US$264 billion, is relatively small compared to larger competitors such as Apple (US$2.75 trillion) and Amazon (US$1.84 trillion).</p>
<p>The “fog of streaming war” will clear and the strategic uncertainty caused by lower market growth rates, inflationary pressure and economic weakness will decrease. As such, competitive industry positions will become more established, normalised and defended. </p>
<p>The key question facing most media companies in the future will be how to make subscription video-on-demand streaming a profitable part of their business.</p><img src="https://counter.theconversation.com/content/225829/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John J Oliver does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The video streaming industry has reached a tipping point.John J Oliver, Professor of Strategic Media Management, Bournemouth UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2265242024-03-26T10:13:12Z2024-03-26T10:13:12ZBen & Jerry’s and why it’s hard for activist brands to stay true to themselves after corporate buyouts<figure><img src="https://images.theconversation.com/files/584067/original/file-20240325-18-e387gu.jpeg?ixlib=rb-1.1.0&rect=13%2C311%2C4407%2C3360&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Relations with parent company Unilever have become increasingly frosty. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/queensland-australia-april-15-2018-photo-1074113045">enchanted_fairy/Shutterstock</a></span></figcaption></figure><p>Since its founding in 1978, Ben & Jerry’s has been known for its advocacy on a wide range of social causes, including homelessness, fair trade and GMO-free products. In 1988, it was certified as one of the world’s first benefit-corporations or B Corps, meaning it was seen as being one of the most sustainable, socially conscious and transparent companies in the world. </p>
<p>When it was sold to Unilever in 2000, <a href="https://ssir.org/articles/entry/the_truth_about_ben_and_jerrys">the news</a> sent “shudders and shivers through the socially responsible business community”. The company had been successful, at least in part, by being perceived as an authentic brand, meaning its marketing and messaging aligned with the reality of its products, values and actions. </p>
<p>An <a href="https://www.taylorfrancis.com/chapters/edit/10.4324/9781315205861-9/craft-contested-term-nadine-waehning-maria-karampela-juho-pesonen">authentic brand</a> is transparent, consistent and genuine in its communication and behaviour, which helps build trust and loyalty. The association with Unilever almost certainly damaged Ben & Jerry’s standing with some customers. All the same, the company retained its independent board and was able to continue its social advocacy as part of the deal, so there was still some hope that its core values wouldn’t change. </p>
<p>After a <a href="https://startups.co.uk/blog/the-rise-fall-and-comeback-of-ice-cream-giant-ben-jerrys/">rocky start</a>, in which it arguably lost its identity within Unilever to a fair extent, Ben & Jerry’s did a decent job of retaining its independence within the corporate structure and still selling lots of ice-cream. </p>
<p>But in recent years, there have been mounting tensions with Unilever. In 2022, <a href="https://www.cbsnews.com/news/ben-jerrys-west-bank-unilever-sale-ice-cream/">Ben & Jerry’s sued</a> its parent for selling the ice-cream business in Israel to a local licensee. Ben & Jerry’s argued that this violated Unilever’s pledge to end sales of its products in the West Bank and East Jerusalem in 2021 as a show of support for the Palestinian cause. </p>
<p><a href="https://www.theguardian.com/business/2022/dec/15/unilever-ben-and-jerrys-ice-cream-israel-west-bank">Unilever announced</a> later that year that the dispute had been resolved, though <a href="https://www.thisismoney.co.uk/money/markets/article-12973025/Ben-Jerrys-risks-renewed-clash-Unilever-Gaza-ceasefire-demands.html">Ben & Jerry’s has continued</a> to make life difficult for its owner in Israel, calling <a href="https://www.bbc.co.uk/news/business-67991822">for a ceasefire</a> in Gaza in recent months. </p>
<p>Now their unusual 24-year arrangement is coming to an end after <a href="https://www.cbsnews.com/news/unilever-ben-jerrys-spinning-off-ice-cream/">Unilever announced</a> it will be selling its ice-cream business, also including big brands like Magnum and Wall’s. The business as a whole <a href="https://www.just-food.com/news/unilever-to-address-disappointing-ice-cream-performance-amid-private-label-pressures/?cf-view">has been struggling</a> with flat sales and falling margins as a result of the recent inflation surge. The group is also cutting 7,500 jobs across the organisation <a href="https://www.fdiforum.net/mag/retail-food-service/unilever-reveals-plans-to-split-off-ice-cream-business/">to make</a> “a simpler, more focused and higher performing Unilever”. </p>
<h2>Social purpose and big business</h2>
<p>Ben and Jerry’s is not the only company that has been taken over by a large corporation which challenged its brand authenticity. The Body Shop, perhaps the world’s most famous social purpose company, has been bought and sold multiple times, and became what has been <a href="https://www.thegrocer.co.uk/high-street/body-shops-demise-highlights-the-threats-to-ethical-trading/688737.article">fairly described as</a> a “respectable and normal commercial player”. Seventeen years after it was originally sold by founder Anita Roddick, the retailer is <a href="https://www.theguardian.com/business/2024/feb/29/the-body-shop-close-stores-uk-cut-hundreds-jobs">currently being dismembered</a>. </p>
<p>Numerous craft breweries have also struggled with their authenticity after buyouts, the most famous being London-based Beavertown. It sold a minority stake to Heineken in 2018, before being <a href="https://www.theguardian.com/business/2022/sep/07/london-craft-brewer-beavertown-sells-up-fully-to-heineken">fully taken over</a> in 2022. Various leading supporters of independent brewing expressed disappointment, with <a href="https://www.morningadvertiser.co.uk/Article/2018/06/21/How-have-drinkers-reacted-to-Beavertown-selling-a-stake-to-Heineken">one retailer saying</a>, “Heineken does not have the health of the UK independent beer scene at heart,” and refusing to stock Beavertown products. </p>
<p>Beavertown’s sales <a href="https://www.mca-insight.com/finance/beavertown-brewery-increases-turnover/683985.article">actually rose 10%</a> during 2022 as a whole, though time will tell if it can continue to thrive as part of a big corporation. A company’s brand authenticity can often be eroded from this kind of arrangement. It can lead to sales becoming lacklustre and brands ultimately being sold on. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/584068/original/file-20240325-16-vfc15z.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Cans of Beavertown Gamma Ray stacked up" src="https://images.theconversation.com/files/584068/original/file-20240325-16-vfc15z.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/584068/original/file-20240325-16-vfc15z.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=458&fit=crop&dpr=1 600w, https://images.theconversation.com/files/584068/original/file-20240325-16-vfc15z.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=458&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/584068/original/file-20240325-16-vfc15z.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=458&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/584068/original/file-20240325-16-vfc15z.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=576&fit=crop&dpr=1 754w, https://images.theconversation.com/files/584068/original/file-20240325-16-vfc15z.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=576&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/584068/original/file-20240325-16-vfc15z.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=576&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">London brewer Beavertown is now trying to make Heineken hip.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/viersen-germany-april-5-2022-closeup-2145101947">Ralf Liebhold</a></span>
</figcaption>
</figure>
<p>In the case of Ben & Jerry’s, there’s no suggestion that the divestment is especially related to activism, though it does come fairly soon after the arrival of a new chief executive, Hein Schumacher. <a href="https://www.telegraph.co.uk/business/2023/10/26/unilever-boss-undelivered-turnaround-effort/">He said</a> he would tone down Unilever’s overall emphasis on social purpose after pressure from shareholders (while pointing to Ben & Jerry’s as an exception). </p>
<p>The clash between profit and values was recently highlighted as one leading investor, Terry Smith of investment firm Fundsmith, was <a href="https://www.ft.com/content/30efd993-8c23-4f1b-9385-132bbba3d863">quoted in the FT</a> as saying: “The group had become obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals of the business … The Ben & Jerry’s row was the most obvious manifestation of this.”</p>
<h2>Lessons to learn</h2>
<p>Acquiring a brand with strong environmental and social values clearly comes with challenges. Integrating a culture of genuine brand activism <a href="https://www.sciencedirect.com/science/article/abs/pii/S0148296318303217">requires a</a> full alignment of values between the parent company and the acquired brand. Multinationals often struggle with this and brand authenticity is the ultimate casualty.</p>
<p>In such situations, it’s sometimes incumbent on the social purpose brand to fight back. Howies, a clothing company in Wales, sold to The Timberland Company in 2006. It <a href="https://howies.co.uk/blogs/news/on-our-own-two-feet">described itself</a> as being “a tiny part of a US$2 billion company and that was not easy”. When Timberland was in turn sold to US clothing group VF, Howies was able to take back to control, completing a <a href="https://www.vfc.com/investors/news-events-presentations/press-releases/detail/174/vf-completes-acquisition-of-the-timberland-company">management buyout</a> in 2012 that allowed it to become “focused on sustainability issues again”.</p>
<p>The effect of this journey on Howies’ brand authenticity is hard to say. However, it is still going and its mission is “to improve how clothing is manufactured by pushing for more sustainable practices in an industry renowned for damaging the environment”. </p>
<p>We’ll have to wait and see whether Ben & Jerry’s will be able to concentrate on being “Berry Revolutionary”, like one of its ice-cream flavours. It will only be a small part of a bigger business, which is either likely to be listed on the stock exchange or sold to a private equity firm, so it could prove challenging.</p><img src="https://counter.theconversation.com/content/226524/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nothing to disclose </span></em></p><p class="fine-print"><em><span>Bob Doherty, Karolos A Papadas, and Victoria Wells do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Vermont ice cream business is one of various brands that have chafed under multinational ownership.Bob Doherty, Dean and Professor of Marketing at School for Business and Society, University of YorkKarolos A Papadas, Associate Professor of Marketing, University of YorkNadine Waehning, Senior Lecturer in Marketing, University of YorkVictoria Wells, Professor of Sustainable Management, University of YorkLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2264172024-03-25T18:23:48Z2024-03-25T18:23:48ZNew house prices are rising rapidly despite a flat market – we need to diversify what we build and who builds it<p>In the <a href="https://www.gov.uk/government/statistics/uk-house-price-index-for-january-2024/uk-house-price-index-england-january-2024">latest figures</a> on UK house prices, new builds are particularly eye-catching. The price for such homes has increased by 17% in the past year, while the average price for existing homes cooled by 2.4%. </p>
<p>While these figures may grab attention for a day or two, there is little awareness of the long-term trend, particularly for new builds produced by the nation’s biggest housebuilders. </p>
<p>For ten years <a href="https://www.shu.ac.uk/centre-regional-economic-social-research/projects/all-projects/large-uk-housebuilders">we have been</a> tracking the performance and finances of the <a href="https://www.housingtoday.co.uk/story.aspx?storyCode=5115234&preview=1&hash=DCD1D60A98A86CC7112B45D1E8463F7C">UK’s largest housebuilders</a>. We know that around the time of the global financial crisis in 2008, the price of new builds from the biggest firms broadly tracked the average UK house price. </p>
<p>Since then, nearly all have increased their prices above the wider market, meaning these homes sell for roughly 8% more than the average house price. </p>
<p>Over the past couple of decades, there have been been fundamental changes in how the major housebuilders operate. In our <a href="https://www.shu.ac.uk/centre-regional-economic-social-research/publications/the-invisible-hand-that-keeps-on-taking">recent report</a>, The Invisible Hand That Keeps On Taking, we showed that in 2005 these firms paid out 16% of pre-tax profits as dividends, amounting to just over £5,000 per home built. In 2022 their dividends were 47% of profits or £22,000 per home. </p>
<p>This has happened as the ownership of these organisations has slowly changed over time, with global asset and investment managers becoming their major shareholders. </p>
<p>Large housebuilders have been able to pay historically unprecedented levels of dividends through a combination of increasing house prices and keeping certain costs down (for instance on land). Evidence suggests some builders have actually been <a href="https://twitter.com/BuiltPlace/status/1428666082936635392">reducing their land costs</a> over time. </p>
<p>A few weeks ago, the UK government’s Competition and Markets Authority (CMA) published a <a href="https://www.gov.uk/cma-cases/housebuilding-market-study">major report</a> into the housebuilding industry. It concluded that the under-delivery of new homes relates to the planning system creating uncertainties and delays, and also the UK’s speculative housebuilding model. On that model, the CMA stated:</p>
<blockquote>
<p>The evidence shows that private developers produce houses at a rate at which they can be sold without needing to reduce their prices, rather than diversifying the types and numbers of homes they build to meet the needs of different communities (for example providing more affordable housing).</p>
</blockquote>
<p>This strongly suggests that to deliver the homes we need, we must diversify the housing types that are built, and this will involve changing who builds. Boosting development by housing associations and other providers of affordable homes, alongside that of self-builders and community-led housing groups, is one of the few routes available to increase the provision of the homes that are actually needed. </p>
<p>For instance, <a href="https://www.gov.uk/guidance/self-build-and-custom-housebuilding">custom and self-build housing</a> accounts for only 7% of new-build homes in the UK, compared to over 50% in Germany. This <a href="https://assets.publishing.service.gov.uk/media/6128c585e90e07053ec5e447/Bacon_Review.pdf">market can be developed</a> by making best use of existing legislation, which requires local authorities to provide enough planning permissions to meet demand for self-build homes. </p>
<p><a href="https://assets.publishing.service.gov.uk/media/65d8baed6efa83001ddcc5cd/Housebuilding_market_study_final_report.pdf">The CMA notes</a> that such forms of non-speculative housebuilding may result in “a lower return on investment which could feed through to lower build prices”. If we are to address the affordability of new housing, we will likely need these forms of development.</p>
<h2>Housebuilders’ profits</h2>
<p>The CMA is certainly alighting on an important issue here. However, we would also argue that it has failed to grasp the changes in how the major housebuilders operate, which directly affects what they build and how much it costs. </p>
<p>The CMA’s report found that the builders’ profits were above ‘normal’ for most of the 2010s, but crucially concluded this is just a feature of the cyclical nature of housebuilding. </p>
<p>And yet its own analysis suggests that for 12 of the last 20 years, returns were greater than a “normal” rate of profit. As cycles go, that’s very favourable, and we think it reflects a step change in value extraction from the firms in question. </p>
<p><a href="https://www.shu.ac.uk/centre-regional-economic-social-research/publications/the-invisible-hand-that-keeps-on-taking">We estimate</a> that over £16 billion was returned to shareholders in the eight largest firms between 2005 and 2022. This represents a major missed opportunity to reinvest in building more homes, and to address other issues that the <a href="https://assets.publishing.service.gov.uk/media/65d8baed6efa83001ddcc5cd/Housebuilding_market_study_final_report.pdf">CMA highlights</a>, including a lack of innovation, issues with the quality of many new homes and the slow adoption of measures to reduce carbon emissions.</p>
<p>Given the significant changes in the price of new-build housing, we should try to understand the real dynamics behind it. If the UK wants to deliver more homes that are affordable to people on modest incomes, then it needs to diversify what is built and, crucially, who builds it.</p><img src="https://counter.theconversation.com/content/226417/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In the middle of a cost of living crisis, new-build prices are up by nearly a fifth in the past year alone.Tom Archer, Senior Research Fellow, the Centre for Regional Economic and Social Research, Sheffield Hallam UniversityIan Cole, Emeritus Professor of Housing Studies, Sheffield Hallam UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2261642024-03-25T11:07:37Z2024-03-25T11:07:37ZLabour’s economic plan is finally taking shape – but will it be enough?<p>Ever since Liz Truss’ fateful <a href="https://theconversation.com/mini-budget-lessons-from-the-uks-long-history-of-economic-crises-191696">mini-budget of October 2022</a>, the Labour party has enjoyed a commanding <a href="https://www.theguardian.com/politics/ng-interactive/2024/mar/18/uk-general-election-opinion-polls-tracker-latest-labour-tories-starmer-sunak">lead in the polls</a>. Yet for many, its political vision has remained <a href="https://www.theguardian.com/commentisfree/2023/apr/04/the-guardian-view-on-sir-keir-starmer-his-party-remains-a-mystery-to-voters">vague and undefined</a>. </p>
<p>But now a clearer picture is beginning to emerge. In <a href="https://labour.org.uk/updates/press-releases/rachel-reeves-mais-lecture/">a speech</a> to members of the UK’s financial sector in mid-March, the shadow chancellor Rachel Reeves outlined a wide-ranging economic plan. </p>
<p>Championing a growth strategy built around stability, Reeves argued that political volatility was a primary cause of Britain’s economic stagnation. In contrast to the policy churn and infighting that has characterised UK politics since the Brexit referendum, she promised a stable government and enhanced powers for the Office for Budget Responsibility and the Treasury.</p>
<p>And plenty of evidence indeed points to post-Brexit volatility having <a href="https://economy2030.resolutionfoundation.org/reports/the-big-brexit/">a chilling effect</a> on investment into the UK. But not all of the country’s economic woes can be traced back to the Conservatives’ internal power struggles. </p>
<p>Reeves also cited geopolitical instability – the rise of China, the Russian invasion of Ukraine, the conflict in Gaza and the deepening climate crisis – as a further source of economic disruption. </p>
<p>She even highlighted her own party’s past errors. In a striking <a href="https://www.thetimes.co.uk/article/rachel-reeves-speech-new-labour-britain-financial-crash-wtj20x0th">rebuke to New Labour</a>, the shadow chancellor noted that Tony Blair and Gordon Brown had failed to tackle longstanding problems such as low productivity growth and regional inequality. Economic discontent, she argued, had fed the rise of the radical right, producing political instability.</p>
<p>Labour’s new answer to these challenges, Reeves continued, would be a modern form of industrial strategy, focused on resilience. Investment in domestic energy generation and infrastructure would help to shield the UK economy from volatility in global oil and gas markets, as well as assist the fight against climate change. Supply chains would also be restructured to reduce the UK’s exposure to geopolitical shocks.</p>
<p>This is what Reeves means when she talks about “securonomics”, which is essentially an interventionist economic agenda of the kind seen recently in the US. </p>
<p>Since taking office, President Biden has significantly increased public spending on infrastructure and financial support for green energy generation. He has also sought to bring important industries, such as microchip manufacturing, back to US shores. </p>
<p>Reeves argues that it is cheaper to build resilience upfront than it is to bail out firms, households and public services when crises hit. And her claim seems plausible given the scale of (over)spending on medical procurement <a href="https://www.nao.org.uk/reports/government-procurement-during-the-covid-19-pandemic/">during the pandemic</a>, the cost of subsidies to households and businesses <a href="https://obr.uk/box/an-international-comparison-of-the-cost-of-energy-support-packages/">following spikes in energy prices</a>, and the <a href="https://www.ons.gov.uk/employmentandlabourmarket/peoplenotinwork/economicinactivity/articles/risingillhealthandeconomicinactivitybecauseoflongtermsicknessuk/2019to2023">increase in economic inactivity</a> that has coincided with <a href="https://www.bma.org.uk/advice-and-support/nhs-delivery-and-workforce/pressures/nhs-backlog-data-analysis">lengthening NHS waiting lists</a>.</p>
<p>The shadow chancellor also argued that greater resilience would help to tackle the UK’s productivity problem. There is a <a href="https://www.ucl.ac.uk/bartlett/public-purpose/publications/2023/apr/entrepreneurial-egalitarianism-how-inequality-and-insecurity-stifle-innovation">wealth of evidence</a> to suggest that people who feel economically secure are more likely to engage in innovation and entrepreneurship. Greater economic security can also <a href="https://economy2030.resolutionfoundation.org/wp-content/uploads/2023/06/Flexicurity-and-the-future-of-work.pdf">improve the dynamism of labour markets</a> by giving people the confidence to retrain, move jobs or switch careers.</p>
<p>But questions remain over how Reeves’s agenda will be delivered. Labour has repeatedly said that it will not raise taxes beyond some relatively minor changes, like imposing VAT on private school fees. Reeves is also keen to dispel any suggestion that she will increase borrowing levels (while emphasising that she views <a href="https://www.ft.com/content/9191853c-6844-419d-b729-9051f88cc0c3">borrowing for investment</a> as legitimate).</p>
<p>So with minimal extra money on offer, economic security must be achieved by using existing resources differently. Labour’s strategy leans heavily on the power of government to overcome coordination problems in the private sector and persuade businesses to invest collectively.</p>
<p>Governments can certainly do this to good effect, as <a href="https://drodrik.scholar.harvard.edu/sites/scholar.harvard.edu/files/dani-rodrik/files/the_new_economics_of_ip_080123.pdf">recent research</a> indicates. Countries such as Taiwan and South Korea are often held up as <a href="https://www.jstor.org/stable/422204">exemplars of this approach</a>, helping to channel business investment into high-tech sectors with substantial export potential. </p>
<p>If Reeves’ analysis is correct, securonomics will eventually pay for itself. A more resilient economy will grow faster, provide more tax revenues to invest in industrial strategy and public services, and become more resilient still.</p>
<p>But it is not yet clear how Labour intends to set this virtuous circle in motion.</p>
<h2>Slow and steady?</h2>
<p>“Bidenomics” serves as a model for Labour, as the <a href="https://www.ft.com/content/7240265e-0157-428b-9c47-fb07c360dfc2">strength of the US economy</a> demonstrates how industrial strategy can deliver growth. </p>
<p>But Biden’s interventions have been far larger in scale than anything the Labour party is proposing. </p>
<p>Biden’s Inflation Reduction Act alone <a href="https://www.crfb.org/blogs/cbo-scores-ira-238-billion-deficit-reduction">cost US$500 billion</a> (£397 billion) in public spending and targeted tax breaks. Labour’s <a href="https://www.theguardian.com/politics/2024/feb/08/labour-cuts-28bn-green-investment-pledge-by-half">current plans</a> amount to an extra £4.7 billion of green investment per year. </p>
<p>Even after adjusting for the relative size of the UK economy, the difference in ambition is stark.</p>
<p>And despite Biden’s economic success, growth in the US may have come too late in the electoral cycle for the president to enjoy the political benefits. The instability of another Trump term remains a possibility.</p>
<p>The UK differs from the US in many ways, both economically and politically. But the US experience shows how, in an era of insecurity, time is of the essence. Implementing securonomics incrementally may prove to be a risky strategy for Labour – and for the UK economy.</p><img src="https://counter.theconversation.com/content/226164/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nick O'Donovan is a former Labour party adviser.</span></em></p>‘Securonomics’ examined.Nick O'Donovan, Senior Lecturer, Political Economy and Public Policy, Keele UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2254062024-03-22T16:20:58Z2024-03-22T16:20:58ZIndustrialisation is still vital to economic development but some countries are struggling to reap its benefits<figure><img src="https://images.theconversation.com/files/581880/original/file-20240314-28-tax1ga.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C5920%2C4642&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/industrial-worker-factory-welding-closeup-218715772">SvedOliver/Shutterstock</a></span></figcaption></figure><p>Alexander Hamilton, one of the founding fathers of the US, wrote a wealth of reports that served as building blocks for the country’s economic system. In 1791, during his time as secretary of the Treasury, Hamilton published one of his most important: the <a href="https://founders.archives.gov/documents/Hamilton/01-10-02-0001-0007">Report on the Subject of Manufactures</a>. </p>
<p>It argued that the US needed to develop its manufacturing sector through the use of industrial and trade policy to grow its economy, bolster its military, increase its productivity, and catch up with the industrial and technological powerhouse of the time, Great Britain. </p>
<p>Hamilton died in 1804. But US policymakers, led by Henry Clay, followed Hamilton’s advice. Throughout the 19th century, the US succeeded in its mission of catching up with Great Britain and eventually became the world’s technological superpower.</p>
<p>It’s important that we remember Hamilton’s report. It’s a reminder of how thinking and strategising for economic growth and international competitiveness was changing. It was changing to a mindset that national sovereignty, economic development, international competitiveness and productivity growth are achieved through industrialisation. </p>
<p>But this long-established relationship between economic prosperity and industrialisation is now starting to change. So-called “megatrends” (technological, economic, societal and ecological trends that have a global impact) are changing traditional ideas of technological progress and, as a result, the way countries look to develop their economies. </p>
<p>My book <a href="https://global.oup.com/academic/product/the-future-of-the-factory-9780198861584?cc=gb&lang=en#">The Future of the Factory</a> investigates how four megatrends are changing (and not changing) industrialisation and manufacturing-led growth. These megatrends are: the rise of services, digital automation technology, globalisation of production and ecological breakdown.</p>
<h2>Digital technology</h2>
<p>In some ways, megatrends are not changing or diminishing the importance of manufacturing-led development. </p>
<p>Digital services are increasingly seen as an alternative to manufacturing in boosting economic development. But they are not replacing the manufacturing sector as the engine of innovation and productivity growth. The manufacturing sector still scores <a href="https://documents.worldbank.org/en/publication/documents-reports/documentdetail/155731631771398616/at-your-service-the-promise-of-services-led-development">substantially higher</a> than the service sector on tradeability, innovation potential and spillovers to other parts of the economy.</p>
<p>Digital automation technology has also undoubtedly been disruptive in some sectors and countries. But they are not a significant threat to overall job displacement. This is primarily because automation technology tends to create more jobs than it displaces. </p>
<p>The introduction of the personal computer (PC) is a great example. In the US, the PC <a href="https://www.mckinsey.com/featured-insights/future-of-work/jobs-lost-jobs-gained-what-the-future-of-work-will-mean-for-jobs-skills-and-wages">created</a> 15.8 million more jobs than it displaced between 1980 and 2015. Research has also <a href="https://www.oecd.org/els/what-happened-to-jobs-at-high-risk-of-automation-10bc97f4-en.htm">found</a> that the countries who faced a higher overall automation risk in the early 2010s experienced higher employment growth than other countries in subsequent years. </p>
<p>It seems we are excessively hyping up the expected impact of new technology on economic organisation, as we have done so many times in the past. Industrialisation and factory-based production remain crucial for economic development and innovation.</p>
<figure class="align-center ">
<img alt="People sat at desks using computers in an office." src="https://images.theconversation.com/files/581762/original/file-20240313-16-fvu77.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/581762/original/file-20240313-16-fvu77.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/581762/original/file-20240313-16-fvu77.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/581762/original/file-20240313-16-fvu77.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/581762/original/file-20240313-16-fvu77.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/581762/original/file-20240313-16-fvu77.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/581762/original/file-20240313-16-fvu77.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The PC has created many more jobs than it has displaced.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/diverse-multiracial-workers-sitting-desk-working-1295892817">fizkes/Shutterstock</a></span>
</figcaption>
</figure>
<h2>Uneven opportunities</h2>
<p>Power asymmetries in the world economy are, however, creating uneven opportunities to reap the benefits from industrialisation. At worst, they are making it harder for developing countries to industrialise altogether. </p>
<p>Transnational corporations based in high-income countries are more powerful than ever. And they often use this power to prevent countries, firms and workers in developing countries from getting a fair share of profits in global production systems. </p>
<p>Apple, for example, doesn’t actually “make” the iPhone. It outsources the production of every single component. But Apple still somehow manages to walk away with over 50% of the final retail price.</p>
<p>By contrast, the firms and workers in developing countries who assemble the iPhone (the most labour intensive part of the process) get <a href="https://global.oup.com/academic/product/the-future-of-the-factory-9780198861584?cc=gb&lang=en#">less than 1.5%</a> of the final price. Large corporations like Apple also use their power to lobby for international trade agreements to work in their interests. </p>
<p>Additionally, high-income countries refuse to take their fair share of blame for ecological breakdown. They preach green industrial policy to developing countries before putting their own house in order. </p>
<p>A recent <a href="https://www.thelancet.com/journals/lanplh/article/PIIS2542-5196(22)00044-4/fulltext">study</a> found that high-income countries were responsible for 74% of global excess resource use between 1970 and 2017, despite accounting for only 15% of the world’s population. By contrast, low-income and lower-middle income countries, which make up around 50% of the world’s population, accounted for a mere 1% of global excess resource use over this period. </p>
<p>Given these developments, our system of international trade needs to be reformed so that it is fair rather than “free”. And developing countries should also have more ecological policy space in their implementation of industrial policy. The burden to deal with ecological breakdown should fall mainly on high-income countries, as these are the countries that got us into this mess.</p>
<h2>The return of industrial policy</h2>
<p>In many ways, Alexander Hamilton’s insights are still timely. Hamilton stressed the urgent need for policymakers to build up manufacturing capabilities to achieve economic growth and development. </p>
<p>This is what the US government is currently doing in an effort to re-industrialise its economy and especially to become more competitive with China. In July 2022, the US Senate <a href="https://www.nytimes.com/2022/07/27/us/politics/senate-chips-china.html">passed</a> a historic US$280 billion (£222 billion) industrial policy bill — the largest industrial policy bill in history. </p>
<p>And the US is not the only country actively revamping industrial policy. The global use of industrial policy is at an <a href="https://www.imf.org/en/Publications/WP/Issues/2023/12/23/The-Return-of-Industrial-Policy-in-Data-542828">all-time high</a> as the world grapples with geopolitical tension and shocks to global supply chains. Although megatrends are changing industrialisation in some ways, they are not changing its importance. </p>
<p>We can also use Hamilton’s insights to understand the nature of competition in the modern world economy. The world economy is vastly different today, but we need to understand, like Hamilton understood, that industrialisation is a competitive game that involves power, politics, dirty play – and even warfare. </p>
<p>If the playing field is level, competition isn’t all that bad. But the global playing field today certainly isn’t level when it comes to the distribution of industrial and technological capabilities. This is one of the main obstacles to economic development in the 21st century.</p><img src="https://counter.theconversation.com/content/225406/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jostein Hauge does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In an era of transformation, manufacturing still matters.Jostein Hauge, Assistant Professor in Development Studies, University of CambridgeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2241202024-03-22T16:20:49Z2024-03-22T16:20:49ZWhat Ireland’s smoking ban 20 years ago can teach us about big changes to human behaviour<p>In March 2004, the Republic of Ireland became <a href="https://www.bbc.co.uk/news/uk-67545363">the first country in the world</a> to ban smoking in indoor public places, including bars and restaurants.</p>
<p>Every country that eventually followed suit <a href="https://www.cbsnews.com/news/italians-fuming-over-smoking-ban/">wrestled with</a> the <a href="https://www.ladepeche.fr/article/2007/12/24/421711-tabac-les-fumeurs-a-la-rue.html">same arguments</a>. The bans were seen as a good idea for health reasons, but widely opposed as being against civil liberties, and potentially disastrous for the hospitality industry.</p>
<p>In 2005, <a href="https://www.data.gov.uk/dataset/9f52070a-eab7-4e8b-b5d5-a3ecf93a00e8/smoking-related-behaviour-and-attitudes">only a third of British adults</a> supported a full smoking ban in pubs, which was ultimately implemented in 2007. By 2014, <a href="https://www.smokefreeaction.org.uk/campaigns/indoor-smoking-ban">82% supported keeping it</a> in place. No polling institute is even asking the question anymore.</p>
<p>One reason behind this huge change in opinion is that smoking itself <a href="https://tobaccocontrol.bmj.com/content/32/5/559">is now much less common</a> in most countries (<a href="https://onlinelibrary.wiley.com/doi/full/10.1002/hec.3009">partly a result</a> of the bans themselves). But long-term trends cannot explain the fact that all over the world the popularity of smoking bans <a href="https://pubmed.ncbi.nlm.nih.gov/16754947/">increases dramatically</a> almost immediately after they are imposed.</p>
<p>Economics though, <a href="https://www.jstor.org/stable/26627689">can help to explain</a> this change of perception – and how humans are sometimes more accepting of change than we might think. </p>
<p><a href="https://www.britannica.com/science/game-theory">Game theory</a>, the study of strategic choices, describes this kind of phenomenon as “multiple <a href="https://www.britannica.com/science/Nash-equilibrium">equilibria</a>”. Simply put, it means that when our own choices depend on the choices of others, there is sometimes more than one possible outcome – and no reason to believe that one is more natural or stable than the other.</p>
<p>So with smoking, in one situation (or equilibrium), almost every pub used to allow smoking and that was generally considered normal and acceptable. Twenty years on, we have shifted to another equilibrium where a lack of cigarette smoke in pubs is the norm. </p>
<p>Once you get used to the idea, you can see the concept of multiple equilibria everywhere. </p>
<p>For instance, roads have two sides, and in some countries you drive on the left, in others you drive on the right. The <a href="https://www.aeaweb.org/articles?id=10.1257/jep.10.2.105">two conventions</a> are states of equilibrium. If everyone has agreed to drive on the left, you drive on the left too. It would be dangerous not to. But if everyone drives on the right, you do the same.</p>
<p>Urban planning is another example. When a city starts taking space away from cars, through pedestrianisation or adding bus lanes, it is always controversial. But after more space is given to public transport, research suggests that the quality of the service <a href="https://www.sciencedirect.com/science/article/pii/S0166046214000404">tends to improve</a>, and attracts more customers. </p>
<p>These new customers stimulate demand, which means public transport becomes more regular, making it <a href="https://www.jstor.org/stable/1806101">even more attractive</a>. </p>
<p>And with fewer cars, walking and cycling become safer and more enjoyable too, so less space for cars does <a href="https://www.aeaweb.org/articles?id=10.1257/aer.101.6.2616">not lead to higher congestion</a>. In <a href="https://www.sciencedirect.com/science/article/pii/S2213624X22002085">Barcelona</a> or <a href="https://archive.is/20230521021511/https://www.bloomberg.com/news/features/2023-05-16/from-traffic-choked-brussels-a-model-for-driving-less">Brussels</a> for instance, car ownership decreased following large reductions in the space given to cars, and those who have a car simply use it less.</p>
<p>In this situation, there are again two equilibria: one where most people drive and more space is provided for cars, and another where few people drive, and a majority support wider pavements and bike lanes. A <a href="https://assets.publishing.service.gov.uk/media/65f400adfa18510011011787/low-traffic-neighbourhoods-research-report.pdf">recent UK report</a> found that more than twice as many residents of low-traffic neighbourhoods support their local scheme than oppose it.</p>
<figure class="align-center ">
<img alt="Congested traffic." src="https://images.theconversation.com/files/583502/original/file-20240321-22-ffm99v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/583502/original/file-20240321-22-ffm99v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/583502/original/file-20240321-22-ffm99v.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/583502/original/file-20240321-22-ffm99v.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/583502/original/file-20240321-22-ffm99v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/583502/original/file-20240321-22-ffm99v.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/583502/original/file-20240321-22-ffm99v.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Static state of equilibrium.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/cars-stuck-traffic-intersection-120564112">e2dan/Shutterstock</a></span>
</figcaption>
</figure>
<p>Or consider how much time and attention we give to social media. There is evidence that many teenagers have a <a href="https://cepr.org/voxeu/columns/product-market-traps-case-social-media">fear of missing out</a> on these platforms, so spend time on Instagram or TikTok largely because they expect their friends to be on it. But there is an equally viable alternative: a parallel world where nobody joins social media and there is no interest in doing so.</p>
<h2>Theory and reality</h2>
<p>One problem with multiple equilibria is that they often remain theoretical. The only way to prove they exist is when someone has managed to <a href="https://academic.oup.com/book/34825/chapter-abstract/297731612?redirectedFrom=fulltext">coordinate</a> a switch to a different one, like with the smoking bans. </p>
<p>A personal attempt to achieve this happened a few months ago, when a car nearly hit my daughter as I walked her to school along a pavement. The road in question is always busy with cars on the school run, with vehicles jostling for parking spaces on the kerb.</p>
<p>My interest in multiple equilibria led me to try and convince my local council to at least stop cars driving on the pavement while children were walking, cycling or scooting to school. I argued that it would make everyone safer and <a href="https://researchbriefings.files.parliament.uk/documents/SN03336/SN03336.pdf">healthier</a>. In fact, we know from a pilot project in Birmingham that banning cars altogether around <a href="https://www.birminghambeheard.org.uk/economy/cfssphase4/">some schools</a> at drop off time <a href="https://www.birmingham.gov.uk/downloads/file/22284/cfss_phase_2_evaluation_report">does not increase congestion</a>.</p>
<p>I didn’t succeed. And I can’t really blame my local council for claiming that taking away space from cars would just send more of them on to other roads nearby. I was canvassing for a different situation – an alternative equilibrium – which would require a big change, from the vested interest of a pedestrian parent.</p>
<p>And it’s also true that changing equilibrium can create winners and losers. Some bars had to close because of the smoking bans, and some smokers no doubt wish they could still light up in their favourite pub. Some young people are much happier socialising virtually than in person. And some parents really love their cars.</p>
<p>But 20 years ago, Ireland showed us that things that once looked inconceivable – like pubs that weren’t hazy with cigarette fumes – can very <a href="https://tobaccocontrol.bmj.com/content/14/2/73">quickly become normal</a>. It showed that there is not always just a single equilibrium, one way of doing things, which reflects most of our preferences. Jumping from one equilibrium to another is not easy – but as a society we can, and sometimes do, make significant changes to the way we live.</p><img src="https://counter.theconversation.com/content/224120/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Renaud Foucart does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A controversial change ended up being widely accepted.Renaud Foucart, Senior Lecturer in Economics, Lancaster University Management School, Lancaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2259422024-03-21T18:01:44Z2024-03-21T18:01:44ZUS election: turning off TikTok is a big risk for the Democrats<p>Popular social media platform TikTok <a href="https://www.risch.senate.gov/public/index.cfm/2023/7/china-using-tiktok-as-indoctrination-machine-against-america-s-youth-gop-senator-warns">stands accused</a> of holding US data in China, fostering censorship, and spreading disinformation. Its popularity poses a dilemma for US politicians, but especially Democrats who have heavily relied on the app to reach its core base of young voters.</p>
<p>Is it “<a href="https://www.politico.eu/newsletter/china-watcher/times-up-for-tiktok/">time up</a>” for TikTok in the US? And will it be the Democrats’ own leader, President Joe Biden, who ultimately decides to close down the platform heading into the 2024 elections?</p>
<p>On March 13 the US House of Representatives <a href="https://www.washingtonpost.com/politics/interactive/2024/tiktok-ban-house-vote/">voted</a> 352 to 65 to order TikTok’s parent company, Beijing-based <a href="https://eu.usatoday.com/story/opinion/2024/03/18/tiktok-sale-ban-chinese-government-us-security/72988111007/#:%7E:text=Chinese%20government%20has%20seat%20on%20ByteDance%20board&text=The%20Chinese%20government%20doesn%27t,access%20to%20U.S.%20user%20information.">ByteDance</a>, to sell the app (which is believed to have 150 million US users) or else face prohibition in the US over its <a href="https://theconversation.com/is-tiktoks-parent-company-an-agent-of-the-chinese-state-in-china-inc-its-a-little-more-complicated-225749">alleged links to the Chinese Communist party</a>.</p>
<p>The bill follows <a href="https://www.forbes.com/sites/nicholasreimann/2023/03/14/tiktok-may-split-with-china-based-bytedance-to-avoid-us-ban-report-says/?sh=1c0a7305423d">reports</a> that TikTok’s American executives are already exploring options for voluntarily splitting with ByteDance in a preemptive move to avoid regulatory scrutiny. </p>
<p>Although the bipartisan bill is by no means guaranteed to pass the Senate – where Democrat majority leader Chuck Schumer has <a href="https://thehill.com/policy/technology/4529110-schumer-non-committal-on-house-passed-tiktok-ban/">not committed</a> to bring it to a vote on the floor – Biden has said <a href="https://www.wsj.com/politics/policy/biden-backs-effort-to-force-sale-of-tiktok-by-chinese-owners-ba989656">he would sign the proposal</a> if it comes to his desk.</p>
<p>The campaign implications of this loom large. Many Democrats fear that banning TikTok in the lead-up to the election would be a self-inflicted political disaster, particularly when it comes to courting young voters.</p>
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Read more:
<a href="https://theconversation.com/why-biden-is-investing-in-influencers-to-help-with-this-years-election-224912">Why Biden is investing in influencers to help with this year's election</a>
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<p>One consultant <a href="https://www.wsj.com/articles/bidens-tiktok-dilemma-a-ban-could-hurt-democrats-more-than-republicans-a74bcf2a">called</a> the Democrats “politically insane” for putting TikTok in jeopardy. And US commerce secretary Gina Raimondo <a href="https://www.politico.com/news/2023/03/24/democrats-tiktok-ban-china-00088659">speculated</a> that blocking TikTok would lead to Democrats to “literally lose every voter under 35, forever”.</p>
<p>The impact of losing even a few marginal percentage points of votes from the under 35 crowd matters. </p>
<p>Young voters were <a href="https://www.theguardian.com/us-news/2024/jan/07/joe-biden-youth-vote-gaza-climate-change">pivotal</a> in elevating Biden to the White House in 2020. However, some <a href="https://www.nbcnews.com/meet-the-press/meetthepressblog/number-public-polls-show-young-voters-turning-biden-rcna125794">polling</a> shows Biden lagging behind former president Donald Trump among gen-Z and young millenials. </p>
<h2>Investing in TikTok</h2>
<p>In recent months, Democratic party operatives have not-so-quietly invested enormously into voter outreach on TikTok, in the hopes of shoring up the youth vote. The Biden campaign account, @BidenHQ, has more than <a href="https://www.tiktok.com/@bidenhq?lang=en">266,000 followers</a> and @thedemocrats has over <a href="https://www.tiktok.com/@thedemocrats?lang=en">529,000</a>.</p>
<p>The overwhelmingly young, progressive user base is likely to resent the government taking away their favourite app. A ban could also severely limit the Democratic party’s ability to <a href="https://www.reuters.com/world/us/us-ban-tiktok-would-rob-biden-democrats-2024-election-tool-2024-03-14/">connect with younger voters</a> through advertising and other forms of engagement.</p>
<p>The Biden campaign, the Democratic National Committee and Democrat-aligned groups have spent millions of dollars <a href="https://theconversation.com/why-biden-is-investing-in-influencers-to-help-with-this-years-election-224912">courting influencers</a> who appear on TikTok and other social media platforms such as YouTube, Facebook and Instagram. Recently, the White House even hosted a star-studded gala for hundreds of would-be digital leaders.</p>
<p>Beyond Biden, many of the Democratic party’s most visible rising stars – such as <a href="https://www.tiktok.com/@aocinthehouse?lang=en">Alexandria Ocasio-Cortez</a>, who has more than 900,000 followers on TikTok – use the app to communicate with their constitutents and fans. Similarly, US transportation secretary Pete Buttigieg <a href="https://edition.cnn.com/2020/10/14/media/pete-buttigieg-fox-news/index.html">has made a name for himself</a> on TikTok for his viral take-down videos of Fox News hosts.</p>
<p><a href="https://www.pewresearch.org/short-reads/2023/11/15/more-americans-are-getting-news-on-tiktok-bucking-the-trend-seen-on-most-other-social-media-sites/">Data from non-partisan organisation Pew Research</a> shows that the number of voters aged 18-29 who get their news from TikTok has jumped to 32%, a more than threefold increase since the 2020 election. Additionally, a <a href="https://www.nbcnews.com/politics/2024-election/poll-numbers-help-explain-bidens-camp-joined-tiktok-rcna138489">poll by NBC</a> found that young TikTok users skew Democrat over Republican by a margin of 47% to 30%.</p>
<h2>Trump makes a U-turn</h2>
<p>Biden’s position on TikTok has not gone unremarked on by his rival, who’s tried to exploit the controversy for political gain. In 2020, Trump proposed an executive order to outlaw the app in the US, which was <a href="https://www.washingtonpost.com/technology/2020/09/27/tiktok-ban-injunction/">rejected</a> by a federal judge. But now the former president is <a href="https://www.washingtonpost.com/business/2024/03/12/trump-tiktok-ban-lobbying/">embracing it</a>.</p>
<p>According to reports, that could be partially due the lobbying efforts of <a href="https://nymag.com/intelligencer/article/trump-tiktok-ban-reversal-china-jeff-yass-why.html">influential Republican donor Jeff Yass</a>, whose investment firm owns an <a href="https://www.wsj.com/politics/policy/jeff-yass-tiktok-bytedance-ban-congress-15a41ec4">estimated 15% of ByteDance</a>. Yet it’s also likely to be due to Trump perceiving an opportunity to peel off young voters from Democrats.</p>
<p>“Frankly, there are a lot of people on TikTok that love it,” Trump <a href="https://time.com/6900348/tiktok-ban-donald-trump-congress/">declared</a> in a recent interview. “There are a lot of young kids on TikTok who will go crazy without it.”</p>
<p>Even if Democrats have been more aggressive in leveraging TikTok, Republicans have made inroads in countering this appeal. This includes Trump <a href="https://www.nbcnews.com/politics/donald-trump/trump-hosts-conservative-influencers-libs-tik-tok-babylon-bee-dinner-rcna67396">cosying up</a> to Libs of TikTok and the Babylon Bee, two popular pro-Trump social media influencers.</p>
<h2>Election timing</h2>
<p>A potential forced divestment of TikTok could land right in the heat of the 2024 election season. If Biden were to sign the legislation, ByteDance would be <a href="https://www.businessinsider.com/tiktoks-potential-buyers-2024-3">granted six months to identify a purchaser</a>. A ban could be put in place as early as October of this year, with the election slated for November 5.</p>
<p>Democrats may be calculating that the odds of a sale not going through are low. For example, former US Treasury Secretary Steven Mnuchin has already <a href="https://www.cnbc.com/2024/03/14/former-treasury-secretary-mnuchin-is-putting-together-an-investor-group-to-buy-tiktok.html">announced</a> that he’s convening an investor group prepared to buy TikTok if it goes on the market.</p>
<p>Still, the mere act of putting at risk a platform that millions of young voters use for hours of every day can only have political downsides.</p>
<p>The closure of TikTok would boost demand for other social media platforms, as users search for substitutes. Trump, for example, has <a href="https://twitter.com/CNBC/status/1767171638510964812">lamented</a> that banning TikTok would “make Facebook bigger”. </p>
<p>This would force Democrats to rethink their strategies, to build new followings, and to repackage their messaging for alternative apps. Yet divergent demographics of user bases would ensure that it wouldn’t be a perfect, one-to-one transition. </p>
<p>For instance, according to the research firm <a href="https://apnews.com/article/facebook-teenagers-tiktok-instagram-young-adults-fc9f6daa605e7c7f6fd5f4eaa90141fa">Insider Intelligence</a>, roughly a quarter of Facebook users are between the ages of 18 to 34. On TikTok it’s almost half. </p>
<p>Biden may well perceive that the national security threats posed by TikTok are too steep a price to accept its continuation as it is. But whether he will push ahead with closing down TikTok ahead of November is – like the election result – hard to call.</p><img src="https://counter.theconversation.com/content/225942/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Thomas Gift does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Many Democrats fear that banning TikTok would lose them votes from young people.Thomas Gift, Associate Professor and Director of the Centre on US Politics, UCLLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2261622024-03-20T17:15:40Z2024-03-20T17:15:40ZJohn Lewis relies too heavily on its heritage – here’s what it could do instead<figure><img src="https://images.theconversation.com/files/582852/original/file-20240319-9954-z24f7l.jpg?ixlib=rb-1.1.0&rect=0%2C27%2C6016%2C3980&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Road to recovery?</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/northampton-uk-may-10th-2019-scania-1413220934">Jevanto Productions/Shutterstock</a></span></figcaption></figure><p>In a tricky economic climate, the British department store John Lewis has managed to deliver some good news. The retail partnership – owned by its 80,000 employees – <a href="https://news.sky.com/story/john-lewis-returns-to-profit-but-partners-miss-out-on-bonus-again-13094304">posted pre-tax profits</a> of £56 million after a £234 million loss the year before.</p>
<p>The positive announcement was somewhat tarnished by the fact that those employees (known as partners) would <a href="https://www.theguardian.com/business/2024/mar/09/john-lewis-is-back-in-the-black-but-the-glory-days-of-big-bonuses-seem-far-away">not receive a bonus</a> for the second year in a row. There were also hints of job cuts. </p>
<p>But what more could this giant of UK retail, which also owns Waitrose supermarkets, do to endure its survival? Does its increasing reliance on grocery sales mean its own brand has become less valuable?</p>
<p>For over 160 years on the high street, John Lewis has worked hard on that brand.
Its slogan (<a href="https://www.bbc.co.uk/news/business-60522421">scrapped in 2022</a>) about being “never knowingly undersold” was well known, it remains a <a href="https://www.marketingweek.com/john-lewis-ikea-ms-top-brand-health-rankings/">trusted supplier</a> of an extensive range of household hoods, rates highly for <a href="https://www.thisismoney.co.uk/money/markets/article-11679259/Top-10-UK-companies-customer-service-revealed.html">customer service</a>, and runs Christmas TV adverts which have became a <a href="https://theconversation.com/christmas-tv-ads-underscore-how-generosity-compassion-and-empathy-still-matter-to-people-217482">media event</a> in themselves.</p>
<p>In doing all of those things, John Lewis seemed to be in a much better place than its rivals. BHS (founded in 1928) and Debenhams (1778) have disappeared from the high street. House of Fraser (1849) was <a href="https://news.sky.com/story/how-did-house-of-fraser-get-into-this-mess-11468409">taken over</a> and has a much-reduced physical presence. </p>
<p>John Lewis’s nearest rival, Marks & Spencer (1884), is now <a href="https://www.bbc.co.uk/news/business-67353897">doing well</a>, but only after it underwent a fairly <a href="https://www.theguardian.com/business/nils-pratley-on-finance/2023/aug/30/after-years-on-the-ropes-is-ms-finally-turning-around">brutal restructuring</a> which involved cutting thousands of <a href="https://www.theguardian.com/business/2020/aug/18/coronavirus-marks-spencer-to-cut-7000-jobs-over-three-months">jobs during the pandemic</a>, <a href="https://www.bbc.co.uk/news/business-63224269">closing 67</a> stores, and <a href="https://news.sky.com/story/m-s-blames-brexit-as-it-axes-11-french-high-street-stores-12409373">slashing its operations</a> in France.</p>
<p>So John Lewis’s “<a href="https://doi.org/10.1108/IJRDM-10-2020-0412">brand heritage</a>” – its history, tradition and pedigree – has worked pretty well for a pretty long time. But its recent return to profit was the combined effort of reinvesting and streamlining, according to <a href="https://www.retailgazette.co.uk/blog/2024/03/john-lewis-refresh-turnaround/">some reports</a>. </p>
<p>Also known as <a href="https://www.forbes.com/sites/forbestechcouncil/2022/11/22/14-smart-ways-to-trim-the-fat-from-your-business-tech-budget/">“trimming the fat”</a> in the business world, the retailer’s streamlining endeavours consisted of cutting more than 1,500 jobs, and <a href="https://www.bbc.co.uk/news/business-56511374">closing underperforming stores</a>, such as the branch in Sheffield, which had served residents for nearly 80 years and was <a href="https://www.bbc.co.uk/news/uk-england-south-yorkshire-56512370">much mourned</a>, including by my own mother-in-law.</p>
<p>It has also been reported that more job cuts are imminent, with <a href="https://www.theguardian.com/business/2024/jan/27/john-lewis-waitrose-jobs-cuts-redundancy-pay">up to 11,000 jobs to go</a> in the next five years.</p>
<p>And perhaps these measures highlight some of the harsh realities of running a department store in the always-open and effortless world of online shopping. Maybe employees (even those considered partners, as under John Lewis’s employee-ownership model) have become expendable. </p>
<p>Maybe physical stores, where consumers go to explore and seek advice, have become expendable. Maybe all traditions are expendable when they are not commercially viable.</p>
<h2>People first</h2>
<p>Yet the world of <a href="https://retailnext.net/blog/retail-reinvention-how-3-legacy-brands-stay-relevant-today">retail</a> is filled with examples of heritage brands reinventing themselves to stay relevant, buoyant and competitive.</p>
<p>John Lewis will need to do the same if it wants to retain its legacy on the British high street. And it could do worse than taking a leaf out of Waitrose’s playbook. </p>
<p>For the company’s <a href="https://www.theguardian.com/business/2024/mar/09/john-lewis-is-back-in-the-black-but-the-glory-days-of-big-bonuses-seem-far-away">return to profit</a> was largely due to the buoyant sales generated by Waitrose supermarkets, which increased by 4%. The department store business meanwhile, suffered a 2% fall. </p>
<p>Part of Waitrose’s success comes from providing a sense of indulgence and enjoyment – including healthy food – through carefully curated and often locally sourced products. It works closely with <a href="https://www.waitrose.com/ecom/content/sustainability/responsible-sourcing/waitrose-farmers">local farmers</a>, supports regional suppliers (an approach that has also contributed to M&S’s success), and reinvests in <a href="https://www.retailgazette.co.uk/blog/2024/03/john-lewis-refresh-turnaround/">stores</a> and product offers. </p>
<p>Essentially, as part of UK’s grocery sector, Waitrose extended its partnership ethos to include people and groups beyond the shop walls – to build a <a href="https://eurocities.eu/latest/local-retail-the-backbone-of-our-cities/">“local retail ecosystem”</a> that promotes and leverages a community spirit around their stores.</p>
<figure class="align-center ">
<img alt="M&S shop front." src="https://images.theconversation.com/files/583101/original/file-20240320-16-zoul2p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/583101/original/file-20240320-16-zoul2p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/583101/original/file-20240320-16-zoul2p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/583101/original/file-20240320-16-zoul2p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/583101/original/file-20240320-16-zoul2p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/583101/original/file-20240320-16-zoul2p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/583101/original/file-20240320-16-zoul2p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Appealing to appetites.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/manchester-city-centre-manchesteruk-july-6-1445264891">Simon Vayro/Shutterstock</a></span>
</figcaption>
</figure>
<p>John Lewis department stores could try and do something similar. They could focus more on products that help customers live healthier and more active lives, and which are relevant to their interests. They could sell products created by local small businesses, and make a determined approach to be a supportive presence in the regions they serve. </p>
<p><a href="https://doi.org/10.1016/j.jretconser.2023.103697">Research suggests</a> that heritage brands benefit from having a moral standing – when they show they care about the people they make money from, the local communities they operate in, and the people they employ.</p>
<p>So perhaps John Lewis should make moral values a part of its evolving heritage. It needs to show it cares not just for the people who work for the company directly, but also the people on whom it relies for success – the customers – and people it can build new relationships with. All of them could prove critical to its future success.</p><img src="https://counter.theconversation.com/content/226162/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kokho Jason Sit is affiliated with the Chartered Institute of Marketing.</span></em></p>The company has returned to profit by making cuts, but there are things it could do to reinvent itself.Kokho Jason Sit, Senior Lecturer in Marketing; Associate Head (Global), University of PortsmouthLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2235822024-03-20T16:35:50Z2024-03-20T16:35:50ZFriend-shoring: what Biden wants to achieve by trading with allies rather than rivals<p>The tendency to move production and trade away from countries considered to be political rivals or national security risks and towards allies, so-called <a href="https://home.treasury.gov/news/press-releases/jy0714">“friend-shoring”</a>, is a <a href="https://www.weforum.org/agenda/2023/02/friendshoring-global-trade-buzzwords/">hot topic</a> among economists. The term popped up during the COVID pandemic, a time of significant disruption to supply chains, and gained further traction when Russia invaded Ukraine.</p>
<p>One of the most high-profile results of a friend-shoring policy is that Canada and Mexico have recently replaced China as America’s largest trading partners by total trade, while Mexico has overtaken China as America’s top importer (see figures below). This followed the introduction of <a href="https://www.researchgate.net/profile/Zhaohui-Wang-22/publication/338085025_Understanding_Trump's_Trade_Policy_with_China_International_Pressures_Meet_Domestic_Politics/links/5fdf5d53299bf140882f7481/Understanding-Trumps-Trade-Policy-with-China-International-Pressures-Meet-Domestic-Politics.pdf">Donald Trump’s trade strategy</a>, which aimed to reduce US dependence on Chinese goods – partly for political reasons and partly because of Trump’s perception of China as a rival power. </p>
<p>Joe Biden has also <a href="https://www.cnbc.com/2022/08/09/biden-to-sign-chips-act-china-competition-bill.html">placed restrictions on trade</a> with China in an attempt to strengthen US competitiveness with China and grow the US tech industry.</p>
<p>The US <a href="https://www.piie.com/research/piie-charts/2019/us-china-trade-war-tariffs-date-chart">raised tariffs</a> on imports from China significantly during the Trump administration. These levels remain high, making the costs of importing goods from China to the US more expensive. </p>
<p>In addition, the International Labor Organization Global Wage <a href="https://www.ilo.org/wcmsp5/groups/public/---ed_protect/---protrav/---travail/documents/publication/wcms_862569.pdf">Report 2022-23</a> shows that China has experienced the highest rate of real wage growth among all G20 countries over the period 2008-22, also pushing up the price of Chinese goods. </p>
<p>The <a href="https://www.economist.com/the-economist-explains/2023/08/30/what-is-friendshoring">Biden administration</a> continues to champion friend-shoring, which has further encouraged companies to shift production from China to Mexico as they weigh up geopolitical risks against differences in the costs of production. </p>
<p>While data on the number of firms relocating production is not available, the latest trade data (see Figures 1 and 2) suggests Mexico has managed to <a href="https://www.ft.com/content/2ca4da83-f858-4215-88e7-544adf0aa18e">capitalise</a> on the US-China rivalry.</p>
<p>Closer relationships with allies can be created by forming new trade agreements, for example, the <a href="https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement#:%7E:text=The%20United%20States%2DMexico%2DCanada%20Agreement%20(USMCA)%20entered,farmers%2C%20ranchers%2C%20and%20businesses.">US, Mexico, Canada Agreement (USMCA)</a>, which is more about geopolitics and friend-shoring than lowering tariff barriers as was the case of its predecessor, the <a href="https://www.trade.gov/north-american-free-trade-agreement-nafta">North America Free Trade Agreement (Nafta)</a>. </p>
<p>But the USMCA was also a product of its time. US political will had shifted towards undermining political competitors and setting out anti-China political statements that resonated with voters. </p>
<p>Trump, a <a href="https://www.cfr.org/backgrounder/naftas-economic-impact">consistent critic of Nafta</a>, had argued that it undermined American jobs and wages, a statement that undoubtedly played well in US industrial states experiencing manufacturing decline. A paper from the National Bureau of Economic Research suggested that far more US jobs were lost due to <a href="https://www.nber.org/system/files/working_papers/w21906/w21906.pdf">competition with China</a>.</p>
<h2>Doing business with your friends</h2>
<p>Friend-shoring is a new term for something that has been around for a long time. Countries engaged in sanctions, blockades, and friend-shoring during the first and second world wars on a much <a href="https://yalebooks.co.uk/book/9780300270488/the-economic-weapon/">larger scale</a>. </p>
<p>In 1948, the US initiated economic sanctions against the Soviet Union, a 50-year-long strategy that started with export restrictions and was solidified by the Export Control Act of 1949. </p>
<p>These sanctions, intensified after the Battle Act of 1951, were aimed at limiting strategic goods to the Soviet bloc and became a permanent fixture of cold war policy following the escalation of the <a href="https://www.americanforeignrelations.com/E-N/Embargoes-and-Sanctions-Cold-war-sanctions.html">Korean war</a>.</p>
<p>Data analysis shows how trade responds to political factors. For over sixty years, trade economists have made extensive use of <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4037001">the gravity model</a> of trade, which has provided empirical evidence that countries tend to trade more with countries geographically closer to them as well as where there is a common language, common legal system, common exchange rate regime and shared colonial history. </p>
<p>Research also shows how political distance between countries and formal military alliances affects trade. </p>
<p><strong>Value of US imports from top five trading partners in 2010-23:</strong></p>
<p><strong>US trade with countries by value:</strong></p>
<p>Governments can use trade policy to strategically support their own industries, so reducing trade with rivals can be part of a political agenda based on boosting domestic manufacturing (and jobs) rather than relying on imports. The <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/09/fact-sheet-chips-and-science-act-will-lower-costs-create-jobs-strengthen-supply-chains-and-counter-china/">US Chips and Science</a> Act, and in the EU, the <a href="https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/europe-fit-digital-age/european-chips-act_en">European Chips Act</a>, are examples of policies that can inflict economic pain on adversaries while ensuring domestic production of this key component in high-technology manufacturing. </p>
<p>However, developing an industry takes time. By the time the industry is established, it <a href="https://www.piie.com/publications/piie-briefings/2021/scoring-50-years-us-industrial-policy-1970-2020">may not pay off</a>, either due to falling prices caused by increased supply or an economic slowdown that suppresses demand. </p>
<p>In the case of US chips, it is particularly interesting to note that the existing industry focuses on design and production of high-quality chips. Therefore, the latest policy will see low-cost microchips, the mainstay of the Chinese chip industry, start to be produced in the US and compete with the established US high-end suppliers. </p>
<p>The US has experienced the negative effects of these types of policies before. Just consider the US support for the steel industry, a popular choice among US presidents, including the <a href="https://www.ft.com/content/e0219409-b863-41fb-bbcb-6be9ad6f0a4e?emailId=c8a49fc1-229a-4246-984b-42598eccb2e6&segmentId=2785c52b-1c00-edaa-29be-7452cf90b5a2">current administration</a>. Under the Trump administration, this saw <a href="https://www.piie.com/blogs/trade-and-investment-policy-watch/trumps-steel-and-aluminum-tariffs-are-cascading-out-control">25% tariffs</a> imposed on steel imports, which benefited the US industry but imposed costs on steel users. </p>
<p>Countries such as <a href="https://www.smh.com.au/world/north-america/a-special-relationship-australia-safe-from-trump-s-tariffs-for-now-20190603-p51tyr.html">Australia</a> were exempt from this policy, while <a href="https://www.piie.com/blogs/trade-and-investment-policy-watch/trumps-steel-and-aluminum-tariffs-are-cascading-out-control">other allies</a>, such as the EU, were hit hard. Industrial policy can reduce dependence on rivals, but it’s not clear that friends always get special treatment.</p>
<p>Other policies can tie in with a friend-shoring agenda. The new generation of <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/twec.13213">EU trade agreements</a> deal with issues including labour rights and environmental protection, making it clear that third countries that want to do business with the EU need to meet the same standards. The EU has also been debating new anti-forced labour legislation, so this type of legislation may also start to get more serious consideration in the UK, for instance.</p>
<p>Friend-shoring policies aren’t new, but the slogan is. Self-sufficiency at the national level can inflict short-term pain on adversaries but may hold limited benefits in the medium term. However, there is broader acceptance that businesses need to have the certainty of trading bloc friends. </p>
<p><a href="https://www.oecd.org/trade/topics/regional-trade-agreements/#:%7E:text=Regional%20trade%20agreements%20(RTAs)%20cover,World%20Trade%20Organization%20(WTO).">Half of all trade</a> currently takes place between members of trade blocs, and recent trade data for the US and Mexico (see figures above) suggests that trade blocs may become more important over time as production moves.</p><img src="https://counter.theconversation.com/content/223582/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Canada and Mexico have replaced China as the US’s largest trading partners, due to friend-shoring policies.Karen Jackson, Reader in Economics, University of WestminsterOleksandr Shepotylo, Senior Lecturer in Economics, Aston UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2256232024-03-19T14:07:44Z2024-03-19T14:07:44ZChina: why the country’s economy has hit a wall – and what it plans to do about it<p>China’s <a href="https://www.bbc.co.uk/news/world-asia-68508868">annual parliamentary meetings</a> in Beijing came to a close on March 11. They were conducted under great pressure: a weak economy and high expectations from both the domestic public and international observers as to what the government can do to get the economy out of the woods.</p>
<p>The country’s leaders did not shy away from mentioning all of the economic problems facing China. But they also attempted to boost the morale of the Chinese public by outlining how the country would march into the next chapter of the Chinese story – mainly by striving to become a global leader in technology.</p>
<p>The government used the meetings to <a href="https://npcobserver.com/wp-content/uploads/2024/03/2024-Government-Work-Report_EN.pdf">declare</a> that it was targeting GDP growth of 5% in 2024. This is lower than the <a href="https://www.reuters.com/world/china/chinas-q4-gdp-grows-52-yy-below-market-forecast-2024-01-17/">5.2% growth rate</a> that was achieved in 2023 but higher than the International Monetary Fund’s <a href="https://www.imf.org/en/Countries/CHN">forecast</a> of 4.6%. The Chinese government did not detail how this target will be achieved, but the target itself is indicative of the leadership’s confidence about the future.</p>
<p>Over the past four decades, China’s rapid economic growth has been attributed to market incentives, cheap labour, infrastructure investment, exports and foreign direct investment. But at the time of writing, none of these drivers are working effectively. </p>
<p>Market activities are intertwined with <a href="https://www.piie.com/research/piie-charts/2023/chinas-state-vs-private-company-tracker-which-sector-dominates">greater state intervention</a>. A declining population has weakened the labour supply. And uncertainty surrounding China’s economy and intensified geopolitical tensions have together driven foreign investment <a href="https://asia.nikkei.com/Economy/Foreign-direct-investment-in-China-falls-to-30-yearlow#:%7E:text=But%20FDI%20declined%20for%20the,recorded%20in%20the%20prior%20quarter.">out of China</a>. By January 2024, inward foreign direct investment in China was less than 10% of the US$344 billion (£270 billion) it received in 2021.</p>
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Read more:
<a href="https://theconversation.com/chinas-doom-loop-a-dramatically-smaller-and-older-population-could-create-a-devastating-global-slowdown-221554">China's doom loop: a dramatically smaller (and older) population could create a devastating global slowdown</a>
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<h2>Property crisis</h2>
<p>Many of the risks facing China’s economy stem from its ailing real estate sector. For decades, China’s economy was dependent on a <a href="https://www.imf.org/en/News/Articles/2024/02/02/cf-chinas-real-estate-sector-managing-the-medium-term-slowdown#:%7E:text=Real%20estate%20has%20long%20been,the%20buildup%20of%20significant%20risks">booming property market</a> driven by speculative investment returns. However, this growth was largely driven by debt. To maximise their profits, developers even began selling houses before they had been built.</p>
<figure class="align-center ">
<img alt="A view of a room full of people in China sat facing a stage." src="https://images.theconversation.com/files/582141/original/file-20240315-28-bsptnj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/582141/original/file-20240315-28-bsptnj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/582141/original/file-20240315-28-bsptnj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/582141/original/file-20240315-28-bsptnj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/582141/original/file-20240315-28-bsptnj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/582141/original/file-20240315-28-bsptnj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/582141/original/file-20240315-28-bsptnj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Delegates attending the closing meeting of the Two Sessions on March 11.</span>
<span class="attribution"><a class="source" href="https://epaimages.com/search.pp">Wu Hao/Shutterstock</a></span>
</figcaption>
</figure>
<p>China’s economy started to slow and, in 2020, Chinese regulators <a href="https://www.bloomberg.com/news/articles/2020-10-08/what-china-s-three-red-lines-mean-for-property-firms-quicktake">cracked down</a> on reckless borrowing. Beijing imposed widespread lending curbs on property developers, meaning they could not borrow more money to pay back their existing debts. </p>
<p>A crisis followed. In early 2024, Evergrande – the world’s most heavily indebted real estate developer – <a href="https://www.reuters.com/business/embattled-china-evergrande-back-court-liquidation-hearing-2024-01-28/">went bust</a>. And other large property developers are in trouble. <a href="https://www.bbc.co.uk/news/business-67142093">Country Garden</a> has defaulted and <a href="https://www.ft.com/content/e1ffbcb4-3222-4a8e-be61-e3a6051567f5">Vanke</a> is struggling to find the new loans it needs to stay alive. </p>
<p>The government confirmed its determination to deflate the property bubble in its annual meeting. It did not highlight how to protect more property developers from defaulting, and only hinted at giving some help to allow developers to complete property projects.</p>
<p>The current weak consumer demand in China’s economy is closely related to the real estate crisis. The value of houses is <a href="https://www.bloomberg.com/news/articles/2024-01-17/china-home-prices-fall-most-since-2015-as-downturn-persists">much lower</a> today than it was two years ago, creating fear about the future value of personal wealth. This has prompted more precautionary saving and less consumption in the face of weak social protection, leading to a general <a href="https://www.theguardian.com/business/2024/feb/08/china-consumer-prices-plunge-at-fastest-rate-for-15-years-as-deflation-fears-deepen">decline in the price</a> of goods and services. </p>
<p>Demand for Chinese goods from abroad has also been <a href="https://www.reuters.com/world/eu-us-pledge-joint-action-over-china-concerns-2023-05-13/">declining</a> due to trade restrictions imposed by the US and the EU, geopolitical concerns and shocks to global supply chains. This explains why throughout its annual meetings the government explicitly emphasised the need to strengthen the self-reliance of the Chinese economy. </p>
<h2>New drivers of growth</h2>
<p>The most eye-catching phrase to come out of the annual meetings was “new quality productive forces”. There are varying interpretations of the term, but they all focus on technology and innovation. </p>
<p>Chinese officials explicitly highlighted the need for China to strive to invent more products related to Artificial Intelligence (AI). The government envisions applications such as AI-powered travel agents and salespeople. </p>
<p>China has, up to this point, been better known for applying AI technologies. Beijing, Shanghai and Shenzhen are all <a href="https://dgap.org/en/research/publications/chinas-smart-cities-and-future-geopolitics">smart cities</a>, where advanced technologies such as AI, cloud computing and big data are used in various areas including transport, urban planning and public security.</p>
<figure class="align-center ">
<img alt="A robot police officer driving down a street in China." src="https://images.theconversation.com/files/582143/original/file-20240315-22-k4w6kp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/582143/original/file-20240315-22-k4w6kp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/582143/original/file-20240315-22-k4w6kp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/582143/original/file-20240315-22-k4w6kp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/582143/original/file-20240315-22-k4w6kp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/582143/original/file-20240315-22-k4w6kp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/582143/original/file-20240315-22-k4w6kp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Shanghai’s first robot police officer patrolling the streets in 2019.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/shanghai-china-dec-20-2019-shanghais-1594426684">atiger/Shutterstock</a></span>
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</figure>
<p>However, transforming China’s economy from one that is driven by investment and fuelled by debt to one that is driven by innovation and technology will bring some fresh challenges. </p>
<p>First, innovation requires incentives and an institutional guarantee to reward risk-taking. Hence, the private sector needs to grow faster. <a href="https://www.piie.com/research/piie-charts/2023/chinas-state-vs-private-company-tracker-which-sector-dominates">Research</a> has found that the share of China’s private sector among the 100 largest listed companies in China dropped to 36.8% at the end of 2023 from 55.4% in mid-2021. </p>
<p>Second, innovation requires more highly skilled human capital. A <a href="https://www.oecd.org/future-of-work/reports-and-data/AI-Employment-brief-2021.pdf">report</a> by the OECD in 2021 concluded that the application of AI technology increases the demand for skilled employees, despite replacing low-skilled labour. This will pose a challenge for China as, up to this point, the country’s growth has been spurred by low-skilled labour. </p>
<p>Third, high-tech industries such as AI and digital services are energy intensive. China has already taken steps to diversify its energy supply, but securing energy supply chains will be essential in the longer term. </p>
<p>Heightened geopolitical tensions and <a href="https://www.bbc.co.uk/news/business-63883047">revamped global supply chains</a> may well reduce exports of energy and other natural resources to China in the future. Many of these resources come from developing economies that have exchanged their resources for China’s infrastructure investment in the past. This is unlikely to be the case in the future.</p><img src="https://counter.theconversation.com/content/225623/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Hong Bo previously received funding from the British Academy. </span></em></p>China is facing many economic obstacles, but Beijing remains optimistic about growth.Hong Bo, Professor of Financial Economics, SOAS, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2258342024-03-18T13:44:57Z2024-03-18T13:44:57ZThere are ways to improve the London Stock Exchange crisis, but they’re not pretty<p>Another week, another set of signs that the London Stock Exchange (LSE) is running aground. Two medium-sized listed businesses are selling out to US rivals: tech-testing firm <a href="https://thebusinessmagazine.co.uk/corporate-finance/crawleys-spirent-communications-sells-for-1bn-to-us-firm-viavi/">Spirent Communications</a>, based Crawley, West Sussex, is being bought by Viavi Solutions for around £1 billion, while west country <a href="https://www.logisticsmanager.com/wincanton-board-set-to-proceed-with-recommended-offer-from-gxo/">logistics-provider Wincanton</a> is going to GXO Logistics for around £750 million. </p>
<p>Meanwhile, Leicester-based wealth manager <a href="https://citywire.com/new-model-adviser/news/pe-house-pollen-street-buys-mattioli-woods-for-432m/a2437857">Mattioli Woods</a> is departing the exchange via a takeover by London private equity group Pollen Street Capital for £432 million. None of these pieces of business may seem spectacular, but they are part of a wider exodus with a common cause: the <a href="https://www.fdiintelligence.com/content/data-trends/the-london-stock-exchanges-star-fades-83429">very low valuations</a> of LSE-listed companies, <a href="https://www.schroders.com/en-gb/uk/individual/insights/six-charts-that-show-just-how-cheap-uk-equities-are/">particularly compared</a> with their counterparts in the US. </p>
<p>These valuations are an “absurdity”, <a href="https://www.telegraph.co.uk/business/2024/03/05/currys-investor-hits-out-absurd-london-stock-exchange/">according to</a> JO Hambro Capital, a leading shareholder in electrical goods retailer Currys. Currys, which is also LSE-listed, has itself just <a href="https://www.theguardian.com/business/2024/mar/11/us-elliott-ends-bid-buy-uk-retailer-currys-board">fended off</a> a takeover bid a from US investment, group Elliott. </p>
<p>Various other UK companies have been defending themselves from predatory moves by relisting elsewhere, commonly in the US. Recent examples include building materials companies <a href="https://www.reuters.com/markets/europe/crh-shareholders-back-primary-listing-switch-new-york-london-2023-06-08/">CRH</a> and <a href="https://www.reuters.com/markets/europe/kingspan-plans-quit-london-listing-latest-blow-lse-2023-04-28/">Kingspan</a> and betting company <a href="https://www.theguardian.com/business/2023/dec/08/betting-firm-flutter-to-list-on-new-york-stock-exchange-in-january-london">Flutter</a>, while office co-working group <a href="https://www.ft.com/content/62908244-579b-4258-ad7c-4f0dd158dcd0">IWG seems set</a> to follow suit. New listings such as the Cambridge-based <a href="https://www.theguardian.com/business/2023/aug/22/uk-chip-designer-arm-us-listing-nasdaq-ipo">chip designer Arm Holdings</a> are heading stateside too. </p>
<p>The UK government is sufficiently concerned about losing tax income that Chancellor Jeremy Hunt announced <a href="https://www.bbc.co.uk/news/business-68359756">several measures</a> in his March budget. UK taxpayers are being given an extra tax-free savings allowance of £5,000 a year to invest in British businesses, while UK pension funds are going to have to publish the proportion of their investments that are UK-based each year. </p>
<p>However, this pensions move <a href="https://www.ft.com/content/ee040014-164e-4a28-9b29-413f16d95276">has been criticised</a> for unfairly interfering in investment activity, while <a href="https://www.theguardian.com/business/nils-pratley-on-finance/2024/mar/06/british-isas-are-a-gimmick-that-wont-move-the-dial">few seem</a> to think the savings allowance will make much difference. </p>
<p>So what is behind the LSE’s problems and what might move the dial?</p>
<h2>Five key problems</h2>
<p><strong>1. Investor preferences</strong></p>
<p>Institutional investors and funds are putting their money into better-performing markets like the US because the UK economy has struggled due to things like <a href="https://www.london.gov.uk/new-report-reveals-uk-economy-almost-ps140billion-smaller-because-brexit">Brexit</a> and <a href="https://www.economicsobservatory.com/the-uks-productivity-gap-what-did-it-look-like-twenty-years-ago#:%7E:text=Despite%20some%20improvement%20since%20the,to%20Sweden%2C%20Finland%20and%20Spain.">poor productivity</a>. Lately, UK companies have been reduced to <a href="https://www.proactiveinvestors.co.uk/companies/news/1023777/mind-the-valuation-gap-why-has-the-square-mile-lost-its-lustre-1023777.html">bargain-basement</a> level thanks to the <a href="https://www.reuters.com/world/uk/what-can-we-expect-uk-economy-2024-after-recession-2024-02-15/">current recession</a>. Take pharmaceutical companies, for instance. They trade on a price to earnings ratio of 13.7 in the UK compared with 22 <a href="https://www.schroders.com/en/global/individual/insights/six-charts-that-show-just-how-cheap-uk-equities-are/">in the US</a>. </p>
<p>As well as making takeover bids more likely, this may well be affecting the number of advisers supporting listed businesses in London, such as consultants, lawyers, <a href="https://www.morganmckinley.com/uk/article/londons-financial-services-job-market-decline-amidst-summer-slowdown-and-end-post-pandemic">accountants and brokers</a>. Their numbers are all declining, though it’s difficult to say how much is due to the valuations problem as opposed to other issues like Brexit. </p>
<p><strong>2. Private equity and not enough flotations</strong></p>
<p>Private equity firms aim to buy, improve and sell businesses at a profit, and have been ever more deal-hungry in recent years. In 2021, for instance, <a href="https://www.bain.com/insights/private-equity-market-in-2021-global-private-equity-report-2022/">they conducted</a> one third of all mergers and acquisitions around the world, threatening stock exchanges everywhere. </p>
<p>The LSE is not seeing the same number of flotations as its rivals to offset the phenomenon. <a href="https://www.pwc.co.uk/services/audit/insights/global-ipo-watch.html">Most new listings</a> are heading to the US, particularly in technology, while the UK is becoming a backwater. The number of UK-listed firms <a href="https://scottishfinancialreview.com/2024/01/29/london-stock-exchange-lost-25-of-firms-in-decade/">has shrunk 25%</a> in the last decade and <a href="https://www.telegraph.co.uk/business/2024/02/08/london-stock-markets-decline-starting-look-terminal/">40% since 2008</a>. </p>
<p><strong>3. The LSE-Refinitiv deal</strong></p>
<p>One cause of the problem is probably the <a href="https://theconversation.com/london-stock-exchange-vs-eu-refinitiv-battle-reveals-unease-over-power-of-modern-stock-markets-145215">LSE’s £20 billion acquisition</a> of US data giant Refinitiv in 2021. Since then, one suspects that the LSE management has <a href="https://www.bain.com/insights/10-steps-to-successful-ma-integration/">been distracted</a>. Indeed, Chief Executive David Schwimmer <a href="https://www.thetimes.co.uk/article/lses-pitch-to-investors-were-a-tech-company-not-a-stock-exchange-lrzxcdjc7">made it clear</a> recently that he saw the future in data rather than trading exchanges. If he were doing more to fight the LSE’s corner by persuading investors to back the exchange, and government to relax some regulations, it might help the situation. </p>
<p><strong>4. Regulations</strong></p>
<p>UK listing requirements preclude companies from issuing classes of shares that carry different voting rights. In the US, founders commonly use this to retain control of the business through having, for example, 20 votes for each share they hold, compared with one vote for other investors. Many US technology firms have this structure, including Meta, Google and Snapchat. </p>
<p><strong>5. Salary distractions</strong></p>
<p>For UK companies, relisting in the US has the added attraction that top CEOs earn far more running S&P 500 companies than FTSE 100 equivalents. The difference can be as much as <a href="https://www.ft.com/content/445b6b0f-3ff8-4355-b459-591168989833">US$10 million (£7.9 billion)</a> a year, according to the FT. </p>
<h2>What can be done</h2>
<p>Jeremy Hunt’s budget announcements are certainly welcome, but neither encouraging savers nor putting pressure on pension funds is likely to make a huge difference. Having said that, the alternative solutions would not be plain sailing. </p>
<p>One is to increase the pay of directors of UK-listed companies. Indeed, some senior UK executives <a href="https://www.theguardian.com/business/2024/mar/10/when-17m-isnt-enough-ftse-firms-plead-to-pay-bosses-millions-more">are pushing</a> for rebasing director pay to be more comparable to US levels. Yet investors are not exactly enthusiastic, and it’s hard to imagine the public being supportive after so many years of <a href="https://www.ibisworld.com/uk/bed/average-real-wage/44028/">wages barely rising</a> once you strip out inflation. Another possibility is to split the LSE from Refinitiv to ensure more focus on the exchange, but it is not clear the mechanism exists to do this. </p>
<p>Alternatively, the UK government could allow multiple share classes to make it easier for founders to keep control of businesses. That would certainly help, particularly with tech listings, though investors would have less protection against founders running their businesses badly. </p>
<p>Similarly, the US allows what are known as special purpose acquisition companies or Spacs. Often referred to as “blank cheque companies”, these list to raise funds from investors to buy a business, and are able to avoid many of the reporting requirements associated with other types of listing. However, the outcome for investors has been <a href="https://www.valuationresearch.com/insights/spac-market-update-who-turned-on-the-lights/#:%7E:text=Within%20the%20first%20two%20weeks,%25%20lower%20in%202021%2C%20respectively.">almost universally poor</a>.</p>
<p>That said, this is a race to the bottom. Lifting these investor protections may be the most effective solution – barring a turnaround in the economy. It would lead to better returns, but the risks for the unwary will be significant. This is something that both the main political parties ought to reflect on as the general election draws nearer.</p><img src="https://counter.theconversation.com/content/225834/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Colley does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>If the UK doesn’t want to lose London’s role as one of the great magnets for world capital, there are some ugly choices to weigh up.John Colley, Professor of Practice, Associate Dean, Warwick Business School, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2256402024-03-15T17:34:43Z2024-03-15T17:34:43ZThe millions of people not looking for work in the UK may be prioritising education, health and freedom<figure><img src="https://images.theconversation.com/files/581930/original/file-20240314-28-ovlqfc.jpg?ixlib=rb-1.1.0&rect=107%2C107%2C5883%2C3880&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Taking time out.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/happy-young-business-woman-relaxing-sitting-365682632">pathdoc/Shutterstock</a></span></figcaption></figure><p>Around <a href="https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/employmentintheuk/march2024">one in five</a> British people of working age (16-64) are now outside the labour market. Neither in work nor looking for work, they are officially labelled as “economically inactive”. </p>
<p>Some of those 9.2 million people are in education, with many students not active in the labour market because they are studying full-time. Others are older workers who have chosen to take early retirement. </p>
<p>But that still leaves a large number who are not part of the labour market because they are unable to work. And one key driver of economic inactivity in recent years has been <a href="https://www.health.org.uk/news-and-comment/charts-and-infographics/is-poor-health-driving-a-rise-in-economic-inactivity">illness</a>. </p>
<p>This increase in economic inactivity – which has grown <a href="https://www.health.org.uk/news-and-comment/charts-and-infographics/is-poor-health-driving-a-rise-in-economic-inactivity">since before the pandemic</a> – is not just harming the economy, but also indicative of a deeper health crisis. </p>
<p>For those suffering ill health, there are real constraints on access to work. People with health-limiting conditions cannot just slot into jobs that are available. They need help to address the illnesses they have, and to re-engage with work through organisations offering supportive and healthy work environments.</p>
<p>And for other groups, such as stay-at-home parents, businesses need to offer flexible work arrangements and subsidised childcare to support the transition from economic inactivity into work.</p>
<p>The government has a role to play too. Most obviously, it could increase investment in the NHS. Rising levels of poor health are linked to years of <a href="https://www.theguardian.com/society/2023/jun/26/britons-earlier-deaths-linked-to-nhs-underinvestment-study">under-investment in the health sector</a> and economic inactivity will not be tackled without more funding.</p>
<h2>Carrots and sticks</h2>
<p>For the time being though, the UK government appears to prefer an approach which mixes carrots and sticks. In the <a href="https://theconversation.com/budget-2024-experts-explain-what-it-means-for-taxpayers-businesses-borrowers-and-the-nhs-225194">March 2024 budget</a>, for example, the chancellor cut national insurance by 2p as a way of “making work pay”. </p>
<p>But it is unclear whether small tax changes like this will have any effect on attracting the economically inactive back into work. </p>
<p>Jeremy Hunt also extended free childcare. But again, questions remain over whether this is sufficient to remove barriers to work for those with parental responsibilities. The <a href="https://www.local.gov.uk/parliament/briefings-and-responses/debate-affordability-and-availability-childcare-house-commons-21">high cost and lack of availability</a> of childcare remain key weaknesses in the UK economy.</p>
<p>The benefit system meanwhile has been designed to <a href="https://www.forbes.com/sites/drnancydoyle/2022/02/10/coercion-not-required-uk-governments-new-scheme-sets-risky-goal-for-unemployment/">push people into work</a>. Benefits in the UK remain relatively <a href="https://www.tuc.org.uk/research-analysis/reports/benefit-levels-uk">ungenerous and hard to access</a> compared with other rich countries. But labour shortages won’t be solved by simply forcing the economically inactive into work, because not all of them are ready or able to comply. </p>
<p>It is also worth noting that work itself may be a cause of bad health. The notion of “<a href="https://www.tandfonline.com/doi/full/10.1080/00236560802615236">bad work</a>” – work that does not pay enough and is unrewarding in other ways – can lead to economic inactivity. </p>
<p>There is also evidence that as work has <a href="https://www.ft.com/content/e9835846-d88c-4947-a5ee-33a378ff9f65">become more intensive</a> over recent decades, for some people, work itself has become a health risk. </p>
<p>The <a href="https://onlinelibrary.wiley.com/doi/10.1111/1748-8583.12395">pandemic showed</a> us how certain groups of workers (including so-called “essential workers”) suffered more ill health due to their greater exposure to COVID. But there are broader trends towards lower quality work that predate the pandemic, and these trends suggest <a href="https://academic.oup.com/cje/article/48/1/1/7588710">improving job quality</a> is an important step towards tackling the underlying causes of economic inactivity.</p>
<h2>Freedom</h2>
<p>Another big section of the economically active population who cannot be ignored are those who have retired early and deliberately left the labour market behind. These are people who want and value – and crucially, can afford – a life without work. </p>
<p>Here, the effects of the pandemic can be seen again. During those years of lockdowns, furlough and remote working, many of us reassessed our relationship with our jobs. Changed <a href="https://ifs.org.uk/publications/rise-economic-inactivity-among-people-their-50s-and-60s">attitudes towards work</a> among some (mostly older) workers can explain why they are no longer in the labour market and why they may be unresponsive to job offers of any kind.</p>
<figure class="align-center ">
<img alt="Sign on railings supporting NHS staff during pandemic." src="https://images.theconversation.com/files/582009/original/file-20240314-16-4rntic.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/582009/original/file-20240314-16-4rntic.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/582009/original/file-20240314-16-4rntic.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/582009/original/file-20240314-16-4rntic.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/582009/original/file-20240314-16-4rntic.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/582009/original/file-20240314-16-4rntic.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/582009/original/file-20240314-16-4rntic.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">COVID made many people reassess their priorities.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/london-brick-lane-uk-may-21st-1737902402">Alex Yeung/Shutterstock</a></span>
</figcaption>
</figure>
<p>And maybe it is from this viewpoint that we should ultimately be looking at economic inactivity – that it is actually a sign of progress. That it represents a move towards freedom from the drudgery of work and the ability of some people to live as they wish.</p>
<p>There are utopian visions of the future, for example, which suggest that individual and collective freedom could be dramatically increased by paying people a <a href="https://www.newstatesman.com/culture/2017/07/free-money-everyone-will-universal-basic-income-ever-happen">universal basic income</a>. </p>
<p>In the meantime, for plenty of working age people, economic inactivity is a direct result of ill health and sickness. So it may be that the levels of economic inactivity right now merely show how far we are from being a society which actually <a href="https://www.politybooks.com/bookdetail?book_slug=making-light-work-an-end-to-toil-in-the-twenty-first-century--9781509548620">supports its citizens’ wellbeing</a>.</p><img src="https://counter.theconversation.com/content/225640/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Spencer has received funding from the ESRC. </span></em></p>Economic inactivity is not always the worst option.David Spencer, Professor of Economics and Political Economy, University of LeedsLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2245742024-03-14T17:19:18Z2024-03-14T17:19:18ZBuying your first home? Here’s how to increase your chances of getting a mortgage<figure><img src="https://images.theconversation.com/files/580959/original/file-20240311-16-tn9hxt.jpg?ixlib=rb-1.1.0&rect=56%2C56%2C3342%2C2414&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/mortgage-concept-by-money-house-coins-278179301">Denphumi/Shutterstock</a></span></figcaption></figure><p>Applying for a mortgage for the first time can be a daunting task. But there are several ways you can increase your chances of having your application accepted.</p>
<p>The outcome of a mortgage application largely depends on your deposit size, ability to repay and credit score. These are the factors that make you more or less risky in the eyes of the lender.</p>
<p>As a first step, it is important that you improve your understanding of <a href="https://www.money.co.uk/mortgages/a-complete-guide-to-mortgages">what a mortgage is</a> and how the <a href="https://theconversation.com/five-ways-to-reduce-your-mortgage-repayments-in-2023-and-why-rates-have-risen-so-high-196327">repayments work</a>. </p>
<p>But make sure you are also familiar with a <a href="https://www.moneyhelper.org.uk/en/homes/buying-a-home/mortgage-affordability-calculator">mortgage calculator</a> to see what you can afford. Mortgage calculators are tools that give you an estimate of how much you could borrow from a lender or what your monthly repayments and other costs might be.</p>
<hr>
<figure class="align-right ">
<img alt="Quarter life, a series by The Conversation" src="https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p><em><strong><a href="https://theconversation.com/uk/topics/quarter-life-117947?utm_source=TCUK&utm_medium=linkback&utm_campaign=UK+YP2022&utm_content=InArticleTop">This article is part of Quarter Life</a></strong>, a series about issues affecting those of us in our 20s and 30s. From the challenges of beginning a career and taking care of our mental health, to the excitement of starting a family, adopting a pet or just making friends as an adult. The articles in this series explore the questions and bring answers as we navigate this turbulent period of life.</em></p>
<p><em>You may be interested in:</em></p>
<p><em><a href="https://theconversation.com/if-you-get-your-financial-advice-on-social-media-watch-out-for-misinformation-222196">If you get your financial advice on social media, watch out for misinformation
</a></em></p>
<p><em><a href="https://theconversation.com/future-graduates-will-pay-more-in-student-loan-repayments-and-the-poorest-will-be-worst-affected-222840">Future graduates will pay more in student loan repayments – and the poorest will be worst affected</a></em></p>
<p><em><a href="https://theconversation.com/four-environmental-red-flags-to-watch-out-for-when-buying-your-new-home-215763">Four environmental red flags to watch out for when buying your new home</a></em></p>
<hr>
<h2>Try not to stretch your budget to the limit</h2>
<p>Typically, you are allowed to borrow four-and-a-half times your annual income from a mortgage lender. So, for a 30-year old earning an annual salary of <a href="https://www.forbes.com/uk/advisor/business/average-uk-salary-by-age/">£32,000</a>, the top limit will be £144,000. Two people with the same salary would be able to borrow £288,000 for a house they are buying together.</p>
<p>Next, decide whether you want to stretch your budget to its limit. The higher the value of the home you are buying, the bigger the mortgage repayment you will have to make. Not stretching your budget may help increase your chances of getting a mortgage.</p>
<p>This is because lenders consider your other outgoings, such as utility bills, council tax, childcare or other debt payments, when evaluating your application. Having an income buffer makes your mortgage application less risky for the lender as you will have more ability to repay.</p>
<p>Allowing yourself a buffer will also offer you at least some insurance against a future blip to your income, and help manage the UK’s current <a href="https://www.instituteforgovernment.org.uk/explainer/cost-living-crisis">cost of living crisis</a>. Household incomes are not keeping up with living costs and are not expected to return to 2021 levels until 2027.</p>
<h2>Improve your credit score</h2>
<p>A <a href="https://www.moneysavingexpert.com/credit-cards/what-is-a-good-credit-score/">credit score</a> shows mortgage lenders that you have managed money well and responsibly in the past. A higher credit score makes you a less risky investment for them. Various <a href="https://www.experian.co.uk/experian-account/01_free_score.html?awc=7716_1709563137_ace0ba76c949f233521c2af44416b28e">credit reference agencies</a> allow you to check your credit score for free.</p>
<p>You can protect your credit score in a number of ways. Holding one bank account for a long time is helpful but your borrowing history also matters. </p>
<p>Being close to your credit limit may lower your score. However, not having any debt at all in the past may also make it difficult for mortgage lenders to judge whether you are a responsible borrower. So a good balance is needed.</p>
<p>Missing regular payments for bills or debt will certainly dent your credit score. And be aware that if you have joint bank accounts with others, their poor credit score may also impact yours.</p>
<figure class="align-center ">
<img alt="An approved mortgage loan application with a house-shaped keyring." src="https://images.theconversation.com/files/580961/original/file-20240311-20-mal1md.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/580961/original/file-20240311-20-mal1md.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/580961/original/file-20240311-20-mal1md.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/580961/original/file-20240311-20-mal1md.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/580961/original/file-20240311-20-mal1md.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/580961/original/file-20240311-20-mal1md.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/580961/original/file-20240311-20-mal1md.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">There are several ways you can increase your chances of having your application accepted.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/approved-mortgage-loan-agreement-application-house-355901639">Fabio Balbi/Shutterstock</a></span>
</figcaption>
</figure>
<h2>Save a larger deposit</h2>
<p>The risk for lenders is lower when borrowers have a large deposit in comparison to the value of the home they are buying. Lenders also charge lower interest rates on mortgage repayments when you have more of a deposit.</p>
<p>A 10% deposit is often the norm, and the rest can be borrowed from the lender. However, there are also opportunities to buy a home with <a href="https://www.ownyourhome.gov.uk/scheme/mortgage-guarantee-scheme/">only a 5% deposit</a> for first-time-buyers. </p>
<p>This type of mortgage may increase your chances of buying a home if you cannot save for a larger deposit. But be aware that lenders charge <a href="https://www.moneysavingexpert.com/mortgages/new-mortgage-scheme-for-5-deposit/">higher interest rates</a> for low-deposit mortgages as the risk is higher for them.</p>
<p>So-called <a href="https://www.skipton.co.uk/mortgages/track-record-mortgage">rental track record</a> mortgages even allow you to buy with no deposit. If you are renting at the moment and are planning to apply for a rental track record mortgage, then make sure you pay your rent on time for at least 12 months beforehand to be eligible.</p>
<p>However, it is important to be aware that smaller deposits mean a greater risk of you ending up with negative equity if house prices drop. <a href="https://www.moneyhelper.org.uk/en/homes/buying-a-home/negative-equity-what-it-means-and-what-you-can-do-about-it">Negative equity</a> is a situation where the value of your home ends up lower than the remaining value of your mortgage.</p>
<h2>Borrow for longer</h2>
<p>Currently, 55% of first-time buyers have a mortgage term of <a href="https://www.ukfinance.org.uk/system/files/2023-03/Household%20Finance%20Review%202022%20Q4.pdf">longer than 30 years</a>. Mortgages that last as long as <a href="https://www.ftadviser.com/mortgages/2019/06/26/most-mortgages-now-have-40-year-terms/?utm_campaign=FTAdviser+news&utm_source=emailCampaign&utm_medium=email&utm_content=">40 years</a> are also on the rise.</p>
<p>The longer the mortgage term, the lower your monthly repayments are likely to be as they are stretched over a longer period. This increases your ability to afford the monthly payments so again reduces the risk for lenders.</p>
<p>However, longer mortgages mean paying interest charges for a longer period, so they cost much more over time. For a £288,000 mortgage with a 5% interest rate, for example, you would make a staggering £161,653 in additional interest payments if you borrow for 40 years instead of 25. Check other scenarios <a href="https://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator/">here</a>.</p>
<p>With many mortgage products you can make an over payment of 10% per year. Thus, another option would be to keep your monthly payments low and make bulk payments whenever you have extra savings. This will help you to reduce the duration of the mortgage.</p>
<p>This may not be ideal for everyone. However, buying jointly with family and friends could help strengthen your repayment capacity and credit scores. You should, of course, seek independent legal advice over the risks involved before doing so.</p><img src="https://counter.theconversation.com/content/224574/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alper Kara does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Simple tips to improve your chances of having your mortgage application accepted.Alper Kara, Professor of Banking and Finance, Brunel University LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2230312024-03-13T16:44:25Z2024-03-13T16:44:25ZWith the UK creeping out of recession, here’s an economist’s brief guide to improving productivity<figure><img src="https://images.theconversation.com/files/577347/original/file-20240222-30-l4cov4.jpg?ixlib=rb-1.1.0&rect=72%2C51%2C3363%2C1942&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Keep on digging.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/view-digger-working-on-building-site-1359679658">kstuart/Shutterstock</a></span></figcaption></figure><p>At the end of last year, the UK was <a href="https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpfirstquarterlyestimateuk/octobertodecember2023">officially in recession</a>. The economy shrank by 0.3% between October and December 2023, after a previous contraction between July and September.</p>
<p>New figures for January 2024 show <a href="https://www.bbc.co.uk/news/business-68550259">a slight improvement</a>. But there is nothing to indicate that the UK has made meaningful progress when it comes to <a href="https://www.productivity.ac.uk/research/the-midlands-productivity-challenge-exploring-the-issues/">productivity growth</a> – and how the UK needs to produce more goods and services if living standards and wages are to improve. </p>
<p><a href="https://www.productivity.ac.uk/">Productivity growth</a> in the UK has been <a href="https://www.productivity.ac.uk/research/the-productivity-agenda-report/">virtually non-existent</a> since the financial crisis of 2008. It lags significantly behind countries like Germany and France, and even further behind the US. </p>
<p>Growing productivity is not easy. Having <a href="https://gtr.ukri.org/projects?ref=ES%2FS002278%2F1">researched this area</a> of the economy extensively, <a href="https://www.productivity.ac.uk/research/the-midlands-productivity-challenge-exploring-the-issues/">I’m acutely aware</a> of the the challenges facing firms which are trying to be more productive. They include everything from investment levels and access to research and development to regional inequality and a shortage of skills.</p>
<p>But there are some things that could be done to improve the situation. And two of the most important ones are greater investment, and a more localised approach to the national economy.</p>
<p>For example, one major problem in the UK is that its labour market <a href="https://www.wbs.ac.uk/news/how-policymakers-can-win-the-global-war-for-talent/">prioritises what economists call “flexibility”</a> – allowing firms to hire and fire employees fairly easily (compared say with France, where it is more difficult) – and getting people into entry-level jobs. It is much <a href="https://ifs.org.uk/publications/investment-training-and-skills">less focused on training</a> and development. </p>
<p>Major investment in training at all levels, from basic skills through to high-level technical and managerial skills, would make <a href="https://www.researchgate.net/publication/260219097_THE_IMPACT_OF_EMPLOYEE_TRAINING_AND_DEVELOPMENT_ON_EMPLOYEE_PRODUCTIVITY">workers more productive</a>. It would allow greater job mobility, which in turn leads to a better match between demand and supply. </p>
<p>The UK also <a href="https://www.economicsobservatory.com/boosting-productivity-why-doesnt-the-uk-invest-enough">needs to invest</a> in what’s known as “capital equipment” – the stuff that businesses use to produce things. For a building company this might mean buying a JCB digger instead of shovels, or for a dressmaker it could be buying a sewing machine. Put simply, if UK industries had more kit, productivity would improve.</p>
<p>A recent change to <a href="https://www.gov.uk/capital-allowances/first-year-allowances">capital allowances</a> which allows firms to offset investment against tax is welcome. But companies need to know that this will stay, and not be subject to political changes and inconsistent economic policy.</p>
<h2>Freedom to grow</h2>
<p>So money needs to be spent, and investments need to be made. But another crucial element is that the money needs to be invested locally, in the places where people actually live and work. </p>
<p>To be truly beneficial, this needs close collaboration between local authorities, education providers and the private sector. <a href="https://gtr.ukri.org/projects?ref=ES%2FS002278%2F1">Local knowledge</a> about where certain sectors are being held back, what skills are required and where they are needed, is fundamental. </p>
<p>Local authorities should be able to address these issues, rather than having to constantly defer to London. This means doing two more things (neither of which have ever had national government support). </p>
<p>The first is simplifying the workings of local government, which is <a href="https://link.springer.com/chapter/10.1007/978-3-031-41792-4_14">notoriously complex</a> and a <a href="https://www.productivity.ac.uk/research/levelling-up-local-growth-and-productivity-in-england/">constant drag</a> on regional productivity. </p>
<p>And the second is helping those local governments <a href="https://lipsit.ac.uk/wp-content/uploads/2021/09/FINAL-Levelling-up-Report-digital.pdf">financially</a>, not just in terms of the <a href="https://theconversation.com/one-in-five-councils-at-risk-of-bankruptcy-what-happens-after-local-authorities-run-out-of-money-222541">current funding crisis</a>, but also by allowing then to plan investments in skills and infrastructure over the long term, rather than having to bid piecemeal for short term funding. </p>
<figure class="align-center ">
<img alt="Labelled cogs in a machine." src="https://images.theconversation.com/files/577348/original/file-20240222-30-ctiofr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/577348/original/file-20240222-30-ctiofr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=300&fit=crop&dpr=1 600w, https://images.theconversation.com/files/577348/original/file-20240222-30-ctiofr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=300&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/577348/original/file-20240222-30-ctiofr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=300&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/577348/original/file-20240222-30-ctiofr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=377&fit=crop&dpr=1 754w, https://images.theconversation.com/files/577348/original/file-20240222-30-ctiofr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=377&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/577348/original/file-20240222-30-ctiofr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=377&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Everything connects.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/macro-photo-tooth-wheel-mechanism-productivity-736661698">EtiAmmos/Shutterstock</a></span>
</figcaption>
</figure>
<p>It is clear to me from the work I have done in the West Midlands area of England that the UK economy is far too centralised. Everything from access to finance and venture capital, to investment in skills and infrastructure is <a href="https://ifs.org.uk/inequality/wp-content/uploads/2023/02/Levelling-up-economics-IFS-Deaton-Review-of-Inequality.pdf">heavily skewed</a> towards the south east. </p>
<p>Away from that region, the <a href="https://ifs.org.uk/inequality/wp-content/uploads/2023/02/Levelling-up-economics-IFS-Deaton-Review-of-Inequality.pdf">UK has a low level</a> of what economists call “aglomeration economies”, where a particular industry is concentrated within a geographical area, and supported by decent infrastructure and a good supply of skilled workers. </p>
<p>Compared to Germany or France, public transport in the UK is <a href="https://www.centreforcities.org/publication/comparing-public-transport-uk-europe-cities/">expensive and patchy</a>, meaning people in towns often can’t access employment opportunities in cities which are relatively close by. This means that we see high levels of inequality over short distances, where poverty exists close by to great wealth. </p>
<p>This kind of imbalance could be addressed by combining increased investment (both public and private) with a much greater willingness to understand the various British regions which make up a currently disunited kingdom. These two steps would make the whole economic system more resilient, and in the long term, more productive.</p><img src="https://counter.theconversation.com/content/223031/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nigel Driffield receives funding from the economic and social research council. He has also received funding in the past from Nuffield and Leverhulme trusts, the OECD, UNCTAD, and carried out research for various U.K. government departments.
He is also an inactive member of the Labour Party </span></em></p>The country is crying out for more investment, and more devolution would help deliver it.Nigel Driffield, Professor of International Business, Warwick Business School, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2240442024-03-13T12:28:20Z2024-03-13T12:28:20ZRobo-advisers are here – the pros and cons of using AI in investing<figure><img src="https://images.theconversation.com/files/580679/original/file-20240308-28-55toe3.jpg?ixlib=rb-1.1.0&rect=59%2C0%2C7951%2C4345&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">shutterstock</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/smart-businessman-hand-close-nft-financial-2074315681">thinkhubstudio/Shutterstock</a></span></figcaption></figure><p>Artificial intelligence (AI) is <a href="https://www.ft.com/content/6766a3bd-1cec-4e88-9f51-5ed93b39528c">shaking up</a> the way we invest our money. Gone are the days when complex tools were reserved for the wealthy or financial institutions. </p>
<p>AI-powered <a href="https://www.investopedia.com/best-robo-advisors-4693125">robo-advisers</a>, such as <a href="https://www.betterment.com/">Betterment</a> and <a href="https://investor.vanguard.com/advice/robo-advisor">Vanguard</a> in the US, and finance app <a href="https://www.revolut.com/en-HU/news/revolut_launches_robo_advisor_in_eea_to_automate_investing/">Revolut</a> in Europe, are now democratising investment. These tools are making professional financial insight and portfolio management available to everyone. But although there are plenty of advantages to using robo-advisers, there are downsides too. </p>
<p>Since the 1990s, <a href="https://arxiv.org/pdf/2104.05413.pdf">AI’s role</a> in this sector was typically confined to algorithmic trading and quantitative strategies. These rely on advanced mathematical models to predict stock market movements and trade at lightning speed, far exceeding the capabilities of human traders. </p>
<p>But that laid the groundwork for more advanced applications. And AI has now <a href="https://www.weforum.org/agenda/2017/09/robots-could-plan-your-retirement-financial-advice/">evolved</a> to handle data analysis, predict trends and personalise investment strategies. Unlike traditional investment tools, robo-advisers are more <a href="https://www2.deloitte.com/us/en/insights/industry/financial-services/financial-services-industry-predictions/2023/democratize-financial-services.html">accessible</a>, making them ideal for a new generation of investors. </p>
<p>A survey published in 2023 showed that there has been a particular <a href="https://www.investopedia.com/study-affluent-millennials-are-warming-up-to-robo-advisors-4770577">surge</a> in young people using robo-advisers. Some 31% of gen Zs (born after 2000) and 20% of millennials (born between 1980 and 2000) are using robo-advisers. </p>
<p>Another <a href="https://www.magnifymoney.com/news/robo-advisor-survey/">survey</a> from 2022 found that 63% of US consumers were open to using a robo-adviser to manage their investments. In fact, projections indicate that assets managed by robo-advisers will reach <a href="https://www.statista.com/outlook/fmo/wealth-management/digital-investment/robo-advisors/worldwide">US$1.8 trillion</a> (£1.4 trillion) globally in 2024. </p>
<p>This trend reflects not only changing investor preferences but also how the financial industry is adapting to technology.</p>
<h2>Tailored advice</h2>
<p>AI can <a href="https://www.ftadviser.com/your-industry/2023/07/17/can-generative-ai-truly-replace-a-financial-adviser/">tailor</a> investment advice to a person’s preferences. For example, for investors who want to prioritise ethical investing in environmental, social and governance stocks, AI can tailor a strategy without the need to pay for a financial adviser. </p>
<p>AI can <a href="https://www.sciencedirect.com/science/article/pii/S0275531923000077">analyse</a> news and social media to understand market trends and predict potential movements, offering insights into potential market movements. Portfolios built by robo-advisers may also be <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/poms.14029">more resilient during market downturns</a>, effectively managing risk and protecting investments.</p>
<p>Robo-advisers can offer certain <a href="https://www.ft.com/content/6694bb4a-a585-496a-b7f3-d1841984f9b3">features</a> like reduced investment account minimums and lower fees, which make services more accessible than in the past. Other features such as <a href="https://corporatefinanceinstitute.com/resources/wealth-management/robo-advisors/">tax-loss harvesting</a>, a strategy of selling assets at a loss to reduce taxes, and <a href="https://corporatefinanceinstitute.com/resources/wealth-management/robo-advisors/">periodic rebalancing</a>, which involves adjusting the proportions of different types of investments, make professional investment advice accessible to a wider audience.</p>
<p>These types of innovations are particularly beneficial for people in underserved communities or with limited financial resources. This has the <a href="https://www.brookings.edu/articles/robo-advice-an-effective-tool-to-reduce-inequalities/">potential</a> to improve financial literacy through empowering people to make better financial decisions. </p>
<h2>AI’s multifaced role</h2>
<p>AI’s impact on investment fund management goes way beyond robo-advisers, however. Fund managers are using AI algorithms in a variety of ways. </p>
<p>In terms of data analysis, AI can sift through vast amounts of market data and historical trends to identify <a href="https://doi.org/10.1016/j.frl.2022.102941">ideal assets</a> and adjust portfolios in real time as markets fluctuate. AI is also used to <a href="https://www.sciencedirect.com/science/article/pii/S0378426621002466">improve risk management</a> by analysing complex data and making sophisticated decisions. </p>
<p>By using AI in this way, <a href="https://doi.org/10.1016/j.jedc.2022.104438">traders</a> can react and make faster decisions, which maximises efficiency. Other mundane tasks like <a href="https://ieeexplore.ieee.org/document/9315986">compliance monitoring</a> are increasingly automated by AI. This frees fund managers up to focus on more strategic decisions. </p>
<figure class="align-center ">
<img alt="A close up of a pair of hands holding a mobile phone with pound coins superimposed onto the foreground." src="https://images.theconversation.com/files/580727/original/file-20240308-24-xg6lqw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/580727/original/file-20240308-24-xg6lqw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=350&fit=crop&dpr=1 600w, https://images.theconversation.com/files/580727/original/file-20240308-24-xg6lqw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=350&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/580727/original/file-20240308-24-xg6lqw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=350&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/580727/original/file-20240308-24-xg6lqw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=440&fit=crop&dpr=1 754w, https://images.theconversation.com/files/580727/original/file-20240308-24-xg6lqw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=440&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/580727/original/file-20240308-24-xg6lqw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=440&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">While AI is democratising investing, that comes with challenges.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/double-exposure-uk-stock-graphic-close-792232471">Loch Earn/Shutterstock</a></span>
</figcaption>
</figure>
<h2>What are the disadvantages?</h2>
<p>One of the biggest concerns regarding AI in this sector is based on how having easy access to advanced investment tools may lead some people to overestimate their abilities and take too many financial risks. The sophisticated algorithms used by robo-investors can be opaque, which makes it <a href="https://www.lseg.com/en/insights/data-analytics/how-might-ai-impact-investment-management">difficult</a> for some investors to fully understand the potential risks involved. </p>
<p>Another concern is how the evolution of robo-advisers has outpaced the implementation of <a href="https://fastercapital.com/content/Regulatory-Compliance-in-B2B-Robo-Advisors--Navigating-the-Legal-Landscape.html#Challenges-and-Opportunities">laws and regulations</a>. That could expose investors to financial risks and a lack of legal protection. This is an issue yet to be adequately addressed by financial authorities. </p>
<p>Looking ahead, the future of investment probably lies in a hybrid model. Combining the precision and efficiency of AI with the experience and oversight of human investors is vital.</p>
<p>Ensuring that information is accessible and transparent will be crucial for <a href="https://www.turing.ac.uk/sites/default/files/2021-06/ati_ai_in_financial_services_lores.pdf">fostering</a> a more informed and responsible investment landscape. By harnessing the power of AI responsibly, we can create a financial future that benefits everyone.</p><img src="https://counter.theconversation.com/content/224044/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Robo-advisers and AI are making investing accessible to everyone, but there are also risks to consider.Laurence Jones, Lecturer in Finance, Bangor UniversityHeather He, Lecturer in Data Science/Analytics, Bangor UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2253152024-03-12T17:51:13Z2024-03-12T17:51:13ZA beginner’s guide to the taxes you’ll hear about this election season<figure><img src="https://images.theconversation.com/files/580913/original/file-20240311-18-u3336k.jpg?ixlib=rb-1.1.0&rect=198%2C66%2C5304%2C3597&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/young-caucasian-family-having-debt-problems-550887700">Cast Of Thousands/Shutterstock</a></span></figcaption></figure><p>National insurance, income tax, VAT, capital gains tax, inheritance tax… it’s easy to get confused about the many different ways we contribute to the cost of running the country. The budget announcement is the key time each year when the government shares its financial plans with us all, and announces changes that may make a tangible difference to what you pay. </p>
<p>But you’ll likely be hearing a lot more about taxes in the coming months – promises to cut or raise them are an easy win (or lose) for politicians in an election year. We may even get at least one <a href="https://www.bbc.co.uk/news/business-66897881">“mini-budget”</a>. </p>
<p>If you’ve recently entered the workforce or the housing market, you may still be wrapping your mind around all of these terms. Here is what you need to know about the different types of taxes and how they affect you.</p>
<p>The UK broadly uses three ways to collect tax:</p>
<p><strong>1. When you earn money</strong> </p>
<p>If you are an employee or own a business, taxes are deducted from your salary or profits you make. For most people, this happens in two ways: income tax, and national insurance contributions (or NICs).</p>
<p>If you are self-employed, you will have to pay your taxes via an annual tax return assessment. You might also have to pay taxes this way for interest you earn on savings, <a href="https://www.investopedia.com/terms/d/dividend.asp">dividends</a> (distribution of profits from a company or shares you own) received and most other forms of income not taxed before you get it. </p>
<p>Around <a href="https://www.gov.uk/government/statistics/hmrc-tax-and-nics-receipts-for-the-uk/hmrc-tax-receipts-and-national-insurance-contributions-for-the-uk-new-annual-bulletin">two-thirds of taxes collected</a> come from people’s or business’ incomes in the UK. </p>
<p><strong>2. When you spend money</strong> </p>
<p>VAT and excise duties are taxes on most goods and services you buy, with some exceptions like books and children’s clothing. About 20% of the total tax collected is VAT.</p>
<p><strong>3. Taxes on wealth and assets</strong> </p>
<p>These are mainly taxes on the money you earn if you sell assets (like property or stocks) for more than you bought them for, or when you pass on assets in an inheritance. In the latter case in the UK, the recipient doesn’t pay this, it is the estate paying it out that must cover this if due. These taxes contribute only about 3% to the total tax collected.</p>
<p>You also likely have to pay council tax, which is set by the council you live in based on the value of your house or flat. It is paid by the user of the property, no matter if you own or rent. If you are a full-time student or on some apprenticeship schemes, you may <a href="https://www.gov.uk/council-tax/who-has-to-pay">get a deduction</a> or not have to pay council tax at all.</p>
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<img alt="Quarter life, a series by The Conversation" src="https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p><em><strong><a href="https://theconversation.com/uk/topics/quarter-life-117947?utm_source=TCUK&utm_medium=linkback&utm_campaign=UK+YP2022&utm_content=InArticleTop">This article is part of Quarter Life</a></strong>, a series about issues affecting those of us in our 20s and 30s. From the challenges of beginning a career and taking care of our mental health, to the excitement of starting a family, adopting a pet or just making friends as an adult. The articles in this series explore the questions and bring answers as we navigate this turbulent period of life.</em></p>
<p><em>You may be interested in:</em></p>
<p><em><a href="https://theconversation.com/if-you-get-your-financial-advice-on-social-media-watch-out-for-misinformation-222196?utm_source=TCUK&utm_medium=linkback&utm_campaign=UK+YP2022&utm_content=InArticleTop">If you get your financial advice on social media, watch out for misinformation</a></em></p>
<p><em><a href="https://theconversation.com/future-graduates-will-pay-more-in-student-loan-repayments-and-the-poorest-will-be-worst-affected-222840?utm_source=TCUK&utm_medium=linkback&utm_campaign=UK+YP2022&utm_content=InArticleTop">Future graduates will pay more in student loan repayments – and the poorest will be worst affected</a></em></p>
<p><em><a href="https://theconversation.com/selling-on-vinted-etsy-or-ebay-heres-what-you-need-to-know-about-paying-tax-220988?utm_source=TCUK&utm_medium=linkback&utm_campaign=UK+YP2022&utm_content=InArticleTop">Selling on Vinted, Etsy or eBay? Here’s what you need to know about paying tax</a></em></p>
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<p>Put together, these totalled almost £790 billion in 2022-23, which the <a href="https://ifs.org.uk/taxlab/taxlab-key-questions/what-does-government-spend-money">government spends</a> on <a href="https://www.gov.uk/government/statistics/public-spending-statistics-release-february-2024/public-spending-statistics-february-2024">public services</a> such as the NHS, schools and social care. The government collects taxes from all sources and sets its spending plans accordingly, borrowing to make up any difference between the two.</p>
<h2>Income tax</h2>
<p>The amount of income tax you pay is determined by where your income sits in a <a href="https://www.gov.uk/income-tax-rates">series of “bands”</a> set by the government. Almost everyone is entitled to a “personal allowance”, currently £12,570, which you can earn without needing to pay any income tax. </p>
<p>You then pay 20% in tax on each pound of income you earn (across all sources) from £12,570-£50,270. You pay 40% on each extra pound up to £125,140 and 45% over this. If you earn more than £100,000, the personal allowance (amount of untaxed income) <a href="https://www.gov.uk/government/publications/rates-and-allowances-income-tax/income-tax-rates-and-allowances-current-and-past#tax-rates-and-bands">starts to decrease</a>. </p>
<p>If you are self-employed, the same rates apply to you. You just don’t have an employer to take this off your salary each month. Instead, you have to make sure you have enough money at the end of the year to pay this directly to the government.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/taxes-arent-just-about-money-they-shape-how-we-think-about-each-other-223889">Taxes aren't just about money – they shape how we think about each other</a>
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<p>The government can increase the threshold limits to adjust for inflation. This tries to ensure any wage rise you get in response to higher prices doesn’t lead to you having to pay a higher tax rate. However, the government announced in 2021 that they would freeze these thresholds until 2026 (extended <a href="https://www.ftadviser.com/your-industry/2022/11/17/income-tax-bands-frozen-until-2028/">now to 2028</a>), arguing that it would help repay the costs of the pandemic. </p>
<p>Given wages are now rising for many to help with the cost of living crisis, this means many people will pay more income tax this coming year than they did before. This is sometimes referred to as <a href="https://commonslibrary.parliament.uk/research-briefings/cbp-9687/">“fiscal drag”</a> – where lower earners are “dragged” into paying higher tax rates, or being taxed on more of their income.</p>
<h2>National insurance</h2>
<p>National insurance contributions (NICs) are a second “tax” you pay on your income – or to be precise, on your earned income (your salary). You don’t pay this on some forms of income, including savings or dividends, and you also don’t pay it once you reach state retirement age (currently 66).</p>
<p>While Jeremy Hunt, the current chancellor of the exchequer, didn’t adjust income tax meaningfully in this year’s budget, he did announce a cut to NICs. This was a surprise to many, as we had already seen rates fall from 12% to 10% on incomes higher than £242/week in January. It will now fall again to 8% from April.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/budget-2024-experts-explain-what-it-means-for-taxpayers-businesses-borrowers-and-the-nhs-225194">Budget 2024: experts explain what it means for taxpayers, businesses, borrowers and the NHS</a>
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<p>While this is charged separately to income tax, in reality it all just goes into one pot with other taxes. Some, including the chancellor, say it is time to merge these two deductions and make this simpler for everyone. In his budget speech this year, Hunt said he’d like to see this tax go entirely. He thinks this isn’t fair on those who have to pay it, as it is only charged on some forms of income and on some workers. </p>
<p>I wouldn’t hold my breath for this to happen however, and even if it did, there are huge sums linked to NICs (<a href="https://www.gov.uk/government/statistics/hmrc-tax-and-nics-receipts-for-the-uk/hmrc-tax-receipts-and-national-insurance-contributions-for-the-uk-new-annual-bulletin">nearly £180bn</a> last year) so it would almost certainly have to be collected from elsewhere (such as via an increase in income taxes, or a lot more borrowing) to make sure the government could still balance its books. </p>
<figure class="align-center ">
<img alt="A young black man sits at a home office desk with his feet up, looking at a mobile phone" src="https://images.theconversation.com/files/580917/original/file-20240311-26-i6orsk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/580917/original/file-20240311-26-i6orsk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/580917/original/file-20240311-26-i6orsk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/580917/original/file-20240311-26-i6orsk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/580917/original/file-20240311-26-i6orsk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/580917/original/file-20240311-26-i6orsk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/580917/original/file-20240311-26-i6orsk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Do you know how much tax you pay?</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/mobile-stock-application-young-black-man-2044261055">Alex from the Rock/Shutterstock</a></span>
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<h2>Other taxes</h2>
<p>There are likely to be further tweaks to the UK’s tax system soon, perhaps by the current government before the election – and almost certainly if there is a change of government. </p>
<p>Wealth taxes may be in line for a change. In the budget, the chancellor reduced capital gains taxes on sales of assets such as second properties (from 28% to 24%). These types of taxes provide only a <a href="https://www.gov.uk/government/statistics/hmrc-tax-and-nics-receipts-for-the-uk/hmrc-tax-receipts-and-national-insurance-contributions-for-the-uk-new-annual-bulletin">limited amount</a> of money to the government, as quite high thresholds apply for inheritance tax (<a href="https://www.thetimes.co.uk/money-mentor/income-budgeting/tax/inheritance-tax-threshold-uk-what-is">up to £1 million</a> if you are passing on a family home).</p>
<p>There are calls from many quarters though to look again at these types of taxes. Wealth inequality (the differences between total wealth held by the richest compared to the poorest) in the UK is very high (much higher than <a href="https://equalitytrust.org.uk/scale-economic-inequality-uk">income inequality</a>) and rising. </p>
<p>But how to do this effectively is a matter of much debate. A <a href="https://www.lse.ac.uk/News/Latest-news-from-LSE/2020/L-December/Wealth-Commission-report">recent study</a> suggested a one-off tax on total wealth held over a certain threshold might work. But wealth taxes are challenging to make work in practice, and both main political parties have already said this isn’t an option they are considering currently.</p><img src="https://counter.theconversation.com/content/225315/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andy Lymer and his colleagues at the Centre for Personal Financial Wellbeing at Aston University currently or have recently received funding for their research work from a variety of funding bodies including the UK's Money and Pension Service, the Aviva Foundation, Fair4All Finance, NEST Insight, the Gambling Commission, Vivid Housing and the ESRC, amongst others. </span></em></p>Everything you need to know about income tax, national insurance and more.Andy Lymer, Professor of Taxation and Personal Finance, Aston UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2255912024-03-12T14:39:27Z2024-03-12T14:39:27ZWith bitcoin hitting new highs, it’ll likely reach the US$100,000 milestone before 2024 is out<p>Cryptocurrencies are surging again. Bitcoin has just hit an all-time high of more than US$72,000 (£56,300), pushing past the level of circa US$69,000 where it turned back during its last bull phase in late 2021. </p>
<p>Other top cryptocurrencies like ethereum and solana have reached their highest prices in three years, on the back of a run that has been going since the autumn. The value of the whole cryptocurrency market has raced up to US$2.6 trillion, triple what it was worth at the beginning of 2023 and not far off its previous US$3 trillion peak. </p>
<p>Much of this run has occurred at a time when the US dollar has been strengthening against other currencies (though it has fallen in the past couple of weeks). This can often be a time when cryptocurrencies get weaker, so it shows how strong they have been lately. </p>
<p>Many other fiat currencies around the world have been losing value against the US dollar during this period, so bitcoin reached <a href="https://twitter.com/balajis/status/1762802897518215405?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1762802897518215405%7Ctwgr%5E6debfb13283d2ec2221fc72013fb2560076013a7%7Ctwcon%5Es1_&ref_url=https%3A%2F%2Fwww.coindesk.com%2Fmarkets%2F2024%2F02%2F29%2Fbitcoin-is-hitting-all-time-highs-around-the-world%2F">all-time highs</a> in many of them long before it finally took out its high in the US currency. </p>
<p>So what has contributed to this explosion in prices and where is the market going for the rest of 2024?</p>
<h2>Bitcoin ETFs</h2>
<p>A major driver for this appreciation in prices has been the <a href="https://theconversation.com/bitcoin-four-reasons-why-the-price-should-surge-in-2024-220557">US authorities’ approval</a> in January of an investment vehicle known as an exchange-traded fund or ETF for the general or “spot” bitcoin market. An ETF is an easy way for the average saver to get exposure to an asset, since they buy shares in the vehicle, usually through their financial advisor, rather than having to go to the trouble of buying the underlying asset. </p>
<p>A total of 11 bitcoin ETFs were approved in the US, and their daily trading volume has now <a href="https://news.bitcoin.com/bitcoin-etfs-break-trading-volume-record-blackrocks-ibit-now-holds-over-170k-btc/">exceeded US$10 billion</a> – driven by frontrunners <a href="https://twitter.com/RexVIII/status/1767381095820022148">Blackrock and Fidelity Investments</a>. This demonstrates the large interest from traditional market participants, and as the spot ETFs become more mature, their providers will offer more promotional material and education to get more customers onboard.</p>
<p><strong>Bitcoin/US$ price</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/581314/original/file-20240312-24-ee1c8v.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Bitcoin price chart showing fall from previous high in 2022 and sharp climb to new record peak in 2024." src="https://images.theconversation.com/files/581314/original/file-20240312-24-ee1c8v.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/581314/original/file-20240312-24-ee1c8v.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=360&fit=crop&dpr=1 600w, https://images.theconversation.com/files/581314/original/file-20240312-24-ee1c8v.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=360&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/581314/original/file-20240312-24-ee1c8v.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=360&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/581314/original/file-20240312-24-ee1c8v.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=453&fit=crop&dpr=1 754w, https://images.theconversation.com/files/581314/original/file-20240312-24-ee1c8v.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=453&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/581314/original/file-20240312-24-ee1c8v.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=453&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="source" href="https://www.tradingview.com/">Trading View</a></span>
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<p>The cryptocurrency market is always adapting and innovating, and one possible future innovation is the offer of option contracts on the new spot ETFs. Options allow traders to hedge their bets on whether the crypto market will go up or down, and would likely attract even more new money into the space. </p>
<p>However, US regulator the Securities and Exchange Commission (SEC) has <a href="https://cointelegraph.com/news/sec-delays-spot-bitcoin-etf-options-trading-decision">just postponed</a> a decision on this innovation until late April. Some <a href="https://www.reuters.com/technology/regulatory-nod-us-spot-bitcoin-etf-options-may-take-months-sources-2024-02-01/">experts think</a> approval may take longer than that as it is unclear which regulatory body would be responsible for policing this new class of derivative contracts. </p>
<h2>The bitcoin halving</h2>
<p><a href="https://www.investopedia.com/bitcoin-halving-4843769#:%7E:text=A%20Bitcoin%20halving%20event%20occurs,block%20reward%20of%206.25%20BTC.">One feature</a> of the bitcoin system which was built in at the beginning is that, roughly every four years, the rewards to companies using arrays of computers to create or “mine” bitcoin get cut in half.</p>
<p>The last halving <a href="https://theconversation.com/bitcoin-halving-qanda-what-its-all-about-and-what-it-means-for-the-cryptocurrency-138570">took place</a> in May 2020, where miners went from receiving 12.5 bitcoin for each unit of work they do to 6.25 bitcoin. The next is due to take place <a href="https://www.nicehash.com/countdown/btc-halving-2024-05-10-12-00">on April 19</a>, cutting the reward down to 3.125 bitcoin. </p>
<p>Because each halving means less new bitcoin coming on to the market, they have <a href="https://qz.com/bitcoin-halving-event-explained-price-1851300020">coincided with</a> strong price appreciation in the cryptocurrency. What isn’t clear is whether this is already priced in and therefore not actually the reason price is going up. </p>
<p><a href="https://www.cnbc.com/2024/02/29/what-bitcoin-being-halved-means-for-its-price.html">One theory</a> is that the institutions behind the spot ETFs are buying aggressively now because they know there will be less bitcoin on the open market once the halving takes place. </p>
<h2>Ethereum prospects</h2>
<p>Meanwhile, the crypto market could also be boosted by spot ETFs for the ethereum cryptocurrency system in the coming months. At least ten firms, including Blackrock and Fidelity, have applied to launch them and the SEC has until May to make a decision. </p>
<p>Whereas the online ledger that underpins bitcoin, known as its blockchain, has been seen largely as a store of value, ethereum has become the leading blockchain for developers to write applications using this technology.</p>
<p>SEC Chair <a href="https://www.coindesk.com/policy/2023/03/15/sec-chairman-gensler-suggests-again-that-proof-of-stake-tokens-are-securities-report/#:%7E:text=Gensler%20has%20said%20that%20bitcoin,of%20existing%20cryptocurrencies%20are%20securities.">Gary Gensler believes</a> that most cryptocurrencies should be treated differently to bitcoin, as financial instruments known as securities rather than as more straightforward commodities. This adds complexity to the ethereum ETF approval process. If the US authorities were to decide it was the case, <a href="https://www.coindesk.com/policy/2023/03/09/what-happens-if-ethereum-is-a-security/">it would mean</a> that ETFs couldn’t buy ethereum from crypto exchanges until those exchanges had received approval to trade it as a security. </p>
<p>While that uncertainty continues, ethereum could be boosted by the so-called <a href="https://www.coindesk.com/tech/2024/02/08/ethereum-developers-target-march-13-for-milestone-dencun-upgrade-on-mainnet/">Dencun upgrade</a> (also known as Duncan or EIP-4844). Ethereum has competition from other blockchains such as solana and avalanche due to its relatively slow transaction speed and high costs. </p>
<p>It already completed its first major step in a long-term plan to reduce costs and cope with many more users (known as scalability) when it transitioned in 2023 to a different system for verifying transactions known as <a href="https://www.investopedia.com/terms/p/proof-stake-pos.asp#:%7E:text=Proof%2Dof%2DStake%20(POS)%20uses%20randomly%20selected%20validators,new%20blocks%20to%20the%20blockchain.">proof of stake</a>. The Dencun upgrade, which goes live on March 13, will further improve scalability by making data storage more efficient on the network, while also lowering transaction fees. </p>
<h2>Where next</h2>
<p>Predicting cryptocurrency prices is not for the faint-hearted. The market is very volatile, and often exceeds expectations when it goes up or down. The behaviour of individuals determines market prices and, as <a href="https://www.amazon.com/Intelligent-Investor-Definitive-Investing-Essentials/dp/0060555661/ref=as_li_ss_tl?ie=UTF8&linkCode=sl1&tag=smithsonianco-20&linkId=25e3e053f80d4575dc0bbe8e86cdda59">Isaac Newton put it</a>, you can “calculate the motions of heavenly bodies, but not the madness of the people”. </p>
<p>However, the <a href="https://www.forbes.com/uk/advisor/investing/cryptocurrency/bitcoin-price-prediction-2024/">majority of commentators</a> expect crypto prices to keep rising over the coming months. <a href="https://advisor.morganstanley.com/the-ernie-garcia-group/documents/field/e/er/ernie-garcia-group/S%26P%20500%20in%20Presidential%20Election%20years.pdf">Election years tend</a> to be good for investments in general, while a <a href="https://www.politico.com/news/2024/01/08/donald-trump-crypto-savior-00132417">second Trump administration</a> would probably create a <a href="https://www.cnbc.com/2024/03/11/trump-suggests-he-would-not-oppose-bitcoin.html">more favourable</a> regulatory environment for crypto assets (as would a <a href="https://www.coindesk.com/policy/2023/12/20/uk-to-cooperate-with-crypto-industry-on-legislation-for-digital-securities/">Rishi Sunak victory</a> in the UK, however unlikely that seems at present). </p>
<p>As bitcoin becomes more and more mainstream and integrated with traditional assets, it isn’t inconceivable that it could hit US$100,000 in 2024 – an extraordinary feat for a invention that was worth nothing as recently as 2009.</p><img src="https://counter.theconversation.com/content/225591/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Urquhart owns some cryptocurrencies.</span></em></p>Often dismissed as a libertarian ponzi scheme, why has crypto bounced back yet again?Andrew Urquhart, Professor of Finance & Financial Technology, ICMA Centre, Henley Business School, University of ReadingLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2254892024-03-11T17:18:51Z2024-03-11T17:18:51ZHayek’s Road to Serfdom at 80: what critics get wrong about the Austrian economist<p>“The most powerful critique of socialist planning and the socialist state”, is how Margaret Thatcher described Friedrich von Hayek’s book, The Road to Serfdom. Published in March 1944 during the Austrian economist’s tenure at the London School of Economics (LSE), the book has been enduringly popular among free-market liberals.</p>
<p>Among its admirers was Winston Churchill, who as prime minister released 1.6 tons of precious war-rationed British government paper to allow additional copies to be printed. More recently <a href="https://x.com/elonmusk/status/1731885154061205750?s=20">Elon Musk tweeted</a> a photo of The Road to Serfdom with the caption “Great Book by Hayek” to his 174 million followers, no doubt bringing Hayek’s work to a new generation. </p>
<p>On the other hand, the Austrian is <a href="https://www.aier.org/article/progressives-blame-f-a-hayek-for-everything-they-dislike/">often seen</a> by the left as an intellectual bogeyman, an enabler of unfettered greed, minimal social responsibility and soaring inequality. </p>
<p>So who was Hayek and why does The Road to Serfdom matter?</p>
<h2>How laissez-faire fell out of favour</h2>
<p>Born into an upper middle-class Vienna family in 1899, Hayek earned doctorates in law (1921) and political science (1923) at the city’s university. He first made a name for himself in economics in 1928, publishing a report for his research institute employer that predicted the Wall Street crash of 1929 (<a href="https://socialdemocracy21stcentury.blogspot.com/2011/12/hayek-and-stock-market-crash-of-1929-so.html">some critics argue</a> that his achievement gets exaggerated). </p>
<p>Hayek spent 18 years at the LSE (1932-1950), before moving to the University of Chicago (1950-1962). There he worked alongside Milton Friedman, another seminal advocate for free-market principles.</p>
<p>These views were profoundly unfashionable at the time. The social democrat consensus had been shaped by the “robber barron” period of the late 19th and early 20th centuries. Key industries such as rail and oil had been dominated by cartels and monopolies, leading to massive wealth inequalities. </p>
<p>Then came the Wall Street crash and great depression, prompting a loss of confidence in economists and economic reasoning. Free-market capitalism took much of the blame. Socialism was offered as a realistic and even desirable alternative.</p>
<p>Prominent colleagues of Hayek’s at the LSE, including political scientist Harold Laski and sociologist Karl Mannheim, believed socialist planning was inevitable in the UK. The Labour party explicitly warned in a <a href="https://search.worldcat.org/title/4719782">1942 pamphlet</a> against a “return to the unplanned competitive world of the inter-war years, in which a privileged few were maintained at the expense of the common good”.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/581009/original/file-20240311-24-wfbl99.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Copy of the Road to Serfdom" src="https://images.theconversation.com/files/581009/original/file-20240311-24-wfbl99.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/581009/original/file-20240311-24-wfbl99.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=929&fit=crop&dpr=1 600w, https://images.theconversation.com/files/581009/original/file-20240311-24-wfbl99.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=929&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/581009/original/file-20240311-24-wfbl99.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=929&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/581009/original/file-20240311-24-wfbl99.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1167&fit=crop&dpr=1 754w, https://images.theconversation.com/files/581009/original/file-20240311-24-wfbl99.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1167&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/581009/original/file-20240311-24-wfbl99.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1167&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<p>Hayek disagreed. <a href="https://www.aeaweb.org/articles?id=10.1257/jel.20191542">He thought</a> this wave of popular “collectivism” would lead to a repressive regime akin to Nazi Germany.</p>
<p>In The Road to Serfdom, he accepted the need to move beyond the <em>laissez-faire</em> approach of classical economics. But he argued in favour of “planning for competition” rather than the socialists’ “planning against competition” approach. He opposed the state being the sole provider of goods and services, but did think it had a role in facilitating a competitive environment. </p>
<p>In a central theme of the book, Hayek described the difficulties that democratic decision-making would face under central planning. He believed it would lead to policy gridlock and present opportunities for unscrupulous characters to become the key decision-makers. </p>
<p>Hayek’s goal was to show that the British intelligentsia was getting it wrong. Socialist planning, he believed, would see citizens returned to the types of limited freedoms endured by serfs under feudalism.</p>
<h2>Hayek and conservatism</h2>
<p>The Road was especially popular in the US. This was helped by Reader’s Digest publishing a shortened edition in 1945, introducing Hayek to a non-academic audience of some 9 million households. He was seized upon by conservatives opposing Franklin D Roosevelt’s interventionist <a href="https://en.wikipedia.org/wiki/New_Deal#:%7E:text=The%20programs%20focused%20on%20what,to%20prevent%20a%20repeat%20depression.">New Deal</a>, who feared for the loss of personal freedoms and a drift to totalitarianism. </p>
<p>However, Hayek was concerned his ideas had been oversimplified and misinterpreted. <a href="https://www.aeaweb.org/articles?id=10.1257/jel.20191542">He warned</a> of “the very dangerous tendency of using the term ‘socialism’ for almost any kind of state which you think is silly or you do not like”. By the mid-1950s he had distanced himself from American and European conservatives.</p>
<p>Ultimately, though, after the second world war most western countries adopted a more Keynesian approach. Named after Hayek’s greatest intellectual rival, John Maynard Keynes, this involved using government spending to influence things like employment and economic growth. </p>
<p>Hayek’s work, meanwhile, was mostly ignored until the 1970s, a period during which the UK became mired in stagflation and industrial action. He then <a href="https://www.sothebys.com/en/articles/this-is-what-we-believe-margaret-thatcher-and-f-a-hayek">became the inspiration</a> for Margaret Thatcher’s policy mix of deregulation, privatisation, lower taxes and a bonfire on state controls of the economy. With the US also facing domestic economic challenges, the then US president, Ronald Reagan, followed suit. </p>
<h2>What the critics say</h2>
<p>If that was perhaps peak Hayek, he has been heavily criticised from some quarters in recent years. The American economist John Komlos, in his 2016 paper, <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2814469">Another Road to Serfdom</a>, convincingly argues:</p>
<blockquote>
<p>Hayek failed to see that any concentration of power is a threat to freedom. The free market that he advocated enabled the concentration of power in the hands of a powerful elite.</p>
</blockquote>
<p>Such over-concentration had created the “too big to fail” environment in the financial sector in the run-up the global financial crisis of 2008, and many thought Hayekian deregulation was the culprit. </p>
<p>More recently, the tax-cutting economic policies during Liz Truss’s short stint as UK prime minister <a href="https://www.prospectmagazine.co.uk/culture/60233/the-remarkable-influence-of-friedrich-hayek">were incubated by</a> think tanks who <a href="https://oll.libertyfund.org/page/friedrich-hayek-birthday-biography-may-1899">regard themselves</a> as the keepers of the Hayekian flame. Similarly, Argentinian president Javier Milei’s libertarian vision of a minimalist state <a href="https://www.nytimes.com/2023/11/19/world/americas/argentina-election-javier-milei.html">is said</a> to be influenced by Hayek. </p>
<p>Equally, however, it is easy to fall into that trap of oversimplifying Hayek. It is worth noting, for instance, that in the Road, he also envisaged a substantial role for the state. He saw the state providing a basic minimum income for all. He also argued that “an extensive system of social services is fully compatible with the preservation of competition”. </p>
<p>Even Keynes <a href="https://www.cambridge.org/core/books/collected-writings-of-john-maynard-keynes/9793AEBA349007C6A2829CFE044238F5">congratulated him</a> on his publication, saying, “morally and philosophically I find myself in agreement with virtually the whole of it”. </p>
<p>In short, while it’s probably fair to say that the world has had to suffer the flaws in Hayek’s ideas, it is important to separate him from his supporters. He was certainly no statist, but his vision for how best to run an economy was not as uncompromising as many would have us believe.</p><img src="https://counter.theconversation.com/content/225489/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Conor O'Kane does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Championed by Thatcher, Reagan and Elon Musk, there’s a marked tendency to reduce Hayek to less than the sum of his parts.Conor O'Kane, Senior Lecturer in Economics, Bournemouth UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2248802024-03-11T17:18:50Z2024-03-11T17:18:50ZVenezuelan migrants are boosting economic growth in South America, says research<p>Venezuela is engulfed in a political and economic crisis, which has forced over <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9870179/">6 million people</a> – some 20% of the population – to flee the country since 2015. The mass exodus began when Venezuela’s economy collapsed, giving rise to rampant inflation, political turmoil and pervasive violence. </p>
<p>Over 80% of those who have left Venezuela have set up a new life in <a href="https://www.iom.int/venezuelan-refugee-and-migrant-crisis">17 countries</a> across Latin America and the Caribbean. According to a <a href="https://www.acnur.org/sites/default/files/2024-02/spotlight-note-socioeconomic-integration_ibd-oecd-unhcr.pdf">recent report</a>, these displaced migrants are having a positive effect on the economies of their host countries. </p>
<p>Between 2017 and 2030, migrant workers will boost the economies of their host countries by 0.10%–0.25% on average each year. The report, which was published by several leading international financial institutions and the UN Agency for Refugees, focuses on Venezuelan migrants but also covers Cubans and Salvadorans, among others.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/venezuelas-soaring-murder-rate-has-plunged-the-nation-into-a-public-health-crisis-116771">Venezuela's soaring murder rate has plunged the nation into a public health crisis</a>
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<p>The economic impact of migrants in Latin America is significant. But their <a href="https://www.acnur.org/sites/default/files/2024-02/spotlight-note-socioeconomic-integration_ibd-oecd-unhcr.pdf">integration</a> into local job markets and society is poor. The economic benefits derived from migrants across Latin America could be even greater if they are given better access to jobs.</p>
<figure class="align-center ">
<img alt="A crowd of Venezuelan protestors blocking a highway." src="https://images.theconversation.com/files/580921/original/file-20240311-22-dwm91w.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/580921/original/file-20240311-22-dwm91w.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/580921/original/file-20240311-22-dwm91w.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/580921/original/file-20240311-22-dwm91w.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/580921/original/file-20240311-22-dwm91w.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/580921/original/file-20240311-22-dwm91w.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/580921/original/file-20240311-22-dwm91w.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Protesters closed a highway in Caracas, Venezuela, while demonstrating against the government of Nicolás Maduro in 2017.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/caracasvenezuela04262017-protesters-closed-highway-caracas-while-1093703018">Edgloris Marys/Shutterstock</a></span>
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<h2>Boosting economic growth</h2>
<p>Migration has clear <a href="https://www.imf.org/en/Blogs/Articles/2020/06/19/blog-weo-chapter4-migration-to-advanced-economies-can-raise-growth">economic benefits</a> for local economies. It leads to an <a href="https://www.frbsf.org/research-and-insights/publications/economic-letter/2023/02/role-of-immigration-in-us-labor-market-tightness/">expansion</a> of the workforce, thereby <a href="https://data.americanimmigrationcouncil.org/en/labor-market-forecast-2022/?_gl=1*1afuj9x*_ga*MTk0Nzk1NjQzNS4xNzA5NTUzNTg3*_ga_W0MSMD2GPV*MTcwOTU1MzU4Ni4xLjAuMTcwOTU1MzU4Ny4wLjAuMA.">alleviating labour shortages</a> and enhancing economic output.</p>
<p>Migrants bring a diverse range of skills and specialised knowledge to their host countries, which can improve the overall skill level of the local workforce. Their <a href="https://www.cato.org/cato-journal/fall-2021/effects-immigration-entrepreneurship-innovation">productive capabilities</a> bridge skill gaps in local labour markets and heighten overall productivity. </p>
<p>Most migrant workers will also pay <a href="https://www.jstor.org/stable/23056953">income tax</a>, which increases government revenues. In <a href="https://thedocs.worldbank.org/en/doc/7277e925bdaa64d6355c42c897721299-0050062023/original/WDR-Colombia-Case-Study-FORMATTED.pdf">Colombia</a>, for instance, the income tax contribution of Venezuelan migrants in 2019 was approximately US$38.7 million (£30.1 million), equivalent to 0.01% of Colombia’s GDP.</p>
<p>And when migrants gain employment, they will spend their wages in the host country and create new demand in various other sectors. Greater demand leads to <a href="https://www.mercatus.org/research/policy-briefs/benefits-immigration-addressing-key-myths">higher growth</a>, which in turn attracts more investment and increases employment opportunities both for local people and migrants.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/colombia-gives-nearly-1-million-venezuelan-migrants-legal-status-and-right-to-work-155448">Colombia gives nearly 1 million Venezuelan migrants legal status and right to work</a>
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</em>
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<h2>Underemployed</h2>
<p>However, xenophobia and discrimination prevent many migrants from finding jobs in Latin America and integrating into society. According to the report, roughly 30% of the migrants residing in Chile, Colombia and Peru experience discrimination because of their nationality. </p>
<p>Thus, many migrants are forced to take jobs within the <a href="https://www.imf.org/en/Publications/fandd/issues/2020/12/what-is-the-informal-economy-basics">informal sector</a>. Over <a href="https://www.undp.org/latin-america/publications/how-do-migrants-fare-latin-america-and-caribbean">50% of migrants</a> in Latin America work informally compared to 44.5% of locals. </p>
<p>Migrant workers also often earn lower wages than their local counterparts. In <a href="https://documents.worldbank.org/en/publication/documents-reports/documentdetail/099022024085522704/p17578013f69d804019f8516ffbb072fc34">Colombia</a>, the average monthly salary of locals with post-secondary school education is US$1,140. Venezuelan migrants with the same level of education earn just US$644 per month. </p>
<figure class="align-center ">
<img alt="A man cleaning a car's windshield as it stops at a traffic light." src="https://images.theconversation.com/files/580924/original/file-20240311-20-jwh460.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/580924/original/file-20240311-20-jwh460.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/580924/original/file-20240311-20-jwh460.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/580924/original/file-20240311-20-jwh460.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/580924/original/file-20240311-20-jwh460.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/580924/original/file-20240311-20-jwh460.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/580924/original/file-20240311-20-jwh460.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">A man cleaning a windshield at a traffic light in Lima, Peru.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/lima-peru-may-12-2020-poor-1729866145">Myriam B/Shutterstock</a></span>
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<p>Despite this, immigrants still <a href="https://www.undp.org/latin-america/publications/how-do-migrants-fare-latin-america-and-caribbean">outperform</a> the native-born population in their labour force participation and employment rates. Yet many of the migrants who are in formal employment are overqualified for their roles. In <a href="https://www.acnur.org/sites/default/files/2024-02/spotlight-note-socioeconomic-integration_ibd-oecd-unhcr.pdf">Chile</a>, for instance, 34% of highly educated locals are overqualified for their jobs, compared to over 60% of migrants. </p>
<p>Migrants are often <a href="https://www.sciencedirect.com/org/science/article/abs/pii/S2049879923000360">mistakenly assumed</a> to be exclusively low-skilled workers. But the Venezuelan migrant crisis has seen many highly skilled people flee the country too. For example, <a href="https://documents.worldbank.org/en/publication/documents-reports/documentdetail/099022024085522704/p17578013f69d804019f8516ffbb072fc34">65% of the Venezuelans</a> living in Chile and 48% residing in Ecuador have post-secondary school education.</p>
<p>However, most Venezuelans have not officially <a href="https://documents.worldbank.org/en/publication/documents-reports/documentdetail/099022024085522704/p17578013f69d804019f8516ffbb072fc34">validated</a> their academic credentials in their host countries. In fact, only 10% of those residing in Chile have completed the certification process.</p>
<p>Many migrants are <a href="https://documents.worldbank.org/en/publication/documents-reports/documentdetail/099022024085522704/p17578013f69d804019f8516ffbb072fc34">unaware</a> of the process so lack sufficient documentation about their qualifications. And the complexity of the process also demands investment that many migrants may not have the resources to cover.</p>
<p>To further enhance productivity in Latin America, it is essential to <a href="https://documents.worldbank.org/en/publication/documents-reports/documentdetail/099022024085522704/p17578013f69d804019f8516ffbb072fc34">integrate migrant workers</a> into professions that allow them to use their skills.</p>
<h2>Access to services</h2>
<p>Several other factors hinder the integration of migrants into society across Latin America. The report indicates that migrant workers have significantly lower access to health insurance relative to the native-born population. In Colombia, for example, 96% of local workers have access to health insurance, compared to just 40% of migrants.</p>
<p>Similarly, there are often <a href="https://www.undp.org/latin-america/publications/how-do-migrants-fare-latin-america-and-caribbean">barriers</a> limiting access to education for migrants. Foreign-born residents and their family members have the right to access public primary and secondary education in the majority of South American countries. But school attendance rates are lower among displaced children than among native children, while the propensity for dropping out of school early appears to be significantly higher among migrant children.</p>
<p>Some people argue that immigration comes with costs, such as the perceived notion that migrants deprive locals of jobs. Nevertheless, the contribution of migrants to Latin American economies underscores the potential benefits. Improving their access to labour markets is thus a crucial tool for fostering long-term growth in Latin American economies.</p><img src="https://counter.theconversation.com/content/224880/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jose Caballero does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>More than 6 million people have fled Venezuela seeking better living conditions – now they are boosting economic growth in their host countries.Jose Caballero, Senior Economist, IMD World Competitiveness Center, International Institute for Management Development (IMD)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2252582024-03-08T16:20:14Z2024-03-08T16:20:14ZSpring budget: slavishly following fiscal rules is holding back this government and will hold back the next one<p>The <a href="https://theconversation.com/budget-2024-experts-explain-what-it-means-for-taxpayers-businesses-borrowers-and-the-nhs-225194">March 2024 budget</a> turned into an exercise in political game playing rather than an attempt to address the UK’s ongoing economic woes. It was dominated by more cuts to national insurance (after a previous drop in January this year), which the chancellor hopes will revive the government’s electoral fortunes ahead of the general election. </p>
<p>To partly fund this, Jeremy Hunt stole Labour’s plans to scrap “non-dom status”, which allows UK-based foreign residents to avoid paying tax on overseas earnings. Removing this loophole is expected to bring in an <a href="https://news.sky.com/story/budget-2024-chancellor-abolishes-non-dom-tax-breaks-and-confirms-national-insurance-will-be-cut-by-2p-13088343">extra £2.7 billion a year</a>, which Labour had already earmarked for <a href="https://www.theguardian.com/politics/2024/jan/12/flagship-labour-plan-scrap-non-dom-tax-breaks">additional NHS funding</a>. </p>
<p>Elsewhere there was another freeze in fuel duty, plus changes to child benefit thresholds. But the chancellor must be hoping that voters will not notice that their incomes have been cut due to “<a href="https://www.theguardian.com/uk-news/2022/nov/17/what-is-fiscal-drag-and-how-could-hunt-use-it-in-his-autumn-statement">fiscal drag</a>”, where personal tax allowances are not uprated in line with inflation (they have actually been frozen since 2021). </p>
<p>According to the <a href="https://ifs.org.uk/articles/spring-budget-2024-initial-ifs-response">Institute for Fiscal Studies</a>, this means that for every £1 cut in national insurance, the government has effectively taken back £1.30 in income tax. Indeed, the <a href="https://obr.uk/box/the-uks-tax-burden-in-historical-and-international-context/">overall tax burden</a> in the UK is at its highest level for more than 75 years, and is set to rise further. </p>
<p>So the backdrop to the spring budget is one of a stagnant UK economy, which is now officially in a <a href="https://blog.ons.gov.uk/2023/02/20/the-r-word-what-exactly-is-a-recession-anyway/">“technical recession”</a>. But the true picture is even worse. </p>
<p>For on <a href="https://www.reuters.com/world/uk/uk-economy-entered-recession-second-half-2023-2024-02-15/">a “per capita” (per person) basis</a>, the UK economy contracted in every quarter in 2023, and has not grown since the start of 2022. Over the past few years, it has significantly <a href="https://www.ft.com/content/b48cfce5-6a0b-4811-9e17-847da43d9a33">under-performed</a>, especially compared to the US and the eurozone.</p>
<p>And while economic growth should return in 2024, the Office for Business Responsibility <a href="https://www.msn.com/en-us/money/markets/spring-budget-2024-obr-upgrades-uk-growth-forecasts-on-lower-inflation-and-growing-population/ar-BB1jqkEd">forecasts</a> that this will stutter along at 0.8%, before returning to a more respectable 1.9% in 2025. But even these forecasts may be a <a href="https://uk.finance.yahoo.com/news/spring-budget-2024-why-obr-172043048.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuYmluZy5jb20v&guce_referrer_sig=AQAAAHwwe3vlVKB3mqu8t-fQvPGTqklQkTPbQKXXKm28eRDIUme2WAZ6HJdxYrnGloE1FiR94ZKjSpP9vg83D2llMg4nGiJz-msx6dgd1Zr-ehYVxCJev4Z8P0UJpVvm7-VD3fJ4kMotGuhG_jZkbtZceA7KrhYycfOEChoC5gFmSgyv">little optimistic</a>, given the underlying weaknesses of the economy, which include <a href="https://ukandeu.ac.uk/wp-content/uploads/2024/01/UKICE-The-State-of-the-UK-Economy-2024-Report.pdf">relatively weak business investment</a>, <a href="https://www.cer.org.uk/in-the-press/uk-trade-volumes-suffer-record-five-year-decline">lower trade</a> over the past five years, and <a href="https://www.standard.co.uk/news/uk/oecd-government-gdp-conservative-b1016422.html">sluggish productivity growth</a>. </p>
<p>Add in <a href="https://www.theguardian.com/society/2023/oct/30/uk-public-services-policy-institute-for-government-report">cash-starved public services</a>, <a href="https://www.bloomberg.com/news/articles/2024-02-28/uk-towns-are-going-bankrupt-here-s-what-s-gone-wrong-quicktake?leadSource=uverify%20wall">local government bankruptcies</a>, <a href="https://www.theguardian.com/business/2023/oct/29/britain-inequalities-growing-levelling-up-difficult-why-divide">widening regional inequalities </a> and the transition to net zero, and the challenges facing the UK are, quite frankly, enormous. </p>
<h2>Missed opportunities</h2>
<p>Unfortunately, the budget has done little to change things. </p>
<p>To boost investment, the chancellor announced plans to extend <a href="https://www.theconstructionindex.co.uk/news/view/hire-companies-left-hanging-over-full-expensing">a scheme</a> which allows firms to set their investment expenditures against profits, reducing their corporation tax bill. There were also some tax breaks to stimulate growth in the <a href="https://kpmg.com/uk/en/home/insights/2024/02/spring-budget-2024-overview.html">UK’s creative sector</a>. </p>
<p>Yet on <a href="https://www.theguardian.com/environment/2024/mar/07/budget-fell-far-short-on-uk-green-investment-experts-say">green investment</a>, apart from some relatively small subsidies here and there, the budget was a missed opportunity. The US and the EU have huge subsidy schemes to promote the green transition, and while the UK is reasonably competitive in <a href="https://purehost.bath.ac.uk/ws/portalfiles/portal/313095142/Industrial_policies_and_net_zero.pdf">some green technology</a>, new investment could bring <a href="https://theconversation.com/the-uk-needs-a-new-industrial-strategy-or-it-will-lose-the-global-green-subsidy-race-205483">new growth</a> and reduce dependency on overseas energy. </p>
<p>Many of these low carbon industries (such as offshore wind) are based in northern England, so new investment could also assist with <a href="https://www.bbc.co.uk/news/56238260">“levelling up”</a> – the government’s plan to spread wealth and opportunity more widely across the country. </p>
<figure class="align-center ">
<img alt="Wind turbines offshore at sunset." src="https://images.theconversation.com/files/580501/original/file-20240307-26-2kns8s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/580501/original/file-20240307-26-2kns8s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/580501/original/file-20240307-26-2kns8s.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/580501/original/file-20240307-26-2kns8s.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/580501/original/file-20240307-26-2kns8s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/580501/original/file-20240307-26-2kns8s.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/580501/original/file-20240307-26-2kns8s.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Offshore opportunities in northern England.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/offshore-windfarm-redcar-sunset-on-north-1158303736">pauljrobinson/Shutterstock</a></span>
</figcaption>
</figure>
<p>But when levelling up was briefly mentioned during the budget, the main beneficiary appeared to be <a href="https://www.theguardian.com/uk-news/2024/mar/07/hunt-redefines-levelling-up-with-focus-on-cambridge-canary-wharf-and-surrey">Canary Wharf</a> – at the heart of London’s financial centre for – which will receive funding for housing and the development of a life sciences hub. And so far, research suggests that <a href="https://www.tandfonline.com/doi/full/10.1080/21582041.2023.2282161">levelling up has failed </a> to meet its aims and has been <a href="https://www.theguardian.com/politics/2024/mar/03/fewer-than-20-levelling-up-projects-completed-england-figures">poorly funded</a>. </p>
<p>The outlook for public services is also dire. The chancellor announced public expenditure will rise by just <a href="https://www.bbc.com/news/uk-politics-68488467.amp">1% over the next five years</a>, with slightly higher increases for the NHS (to modernise IT systems) and defence. </p>
<p>This will mean cuts in other essential public services, such as local government, roads, railways, education and policing. Many of these services are already under severe financial pressure and <a href="https://www.theguardian.com/politics/2024/feb/26/uk-public-services-will-buckle-under-planned-spending-cuts-economists-warn">could buckle</a> under a further round of austerity. And depleting the public realm weakens the <a href="https://academic.oup.com/cje/article/38/4/701/1739112">foundation for economic growth</a>.</p>
<h2>Time to break the rules?</h2>
<p>Much of the budget narrative has been framed around so-called <a href="https://news.sky.com/story/what-key-budget-terms-mean-fiscal-headroom-income-tax-thresholds-and-much-more-13012840">“fiscal headroom”</a> and “fiscal rules”. The idea here is the chancellor needs to ensure public debt is falling as a percentage of GDP by 2029 to reassure the financial markets. </p>
<p>These rules are set not by external financial bodies, but by the Treasury itself. Indeed, chancellors have often changed the rules – <a href="https://www.theguardian.com/uk-news/2024/mar/05/uks-fiscal-rules-obr-treasury-budget-jremy-hunt">seven times since 2010</a>– to fit shifting political and economic circumstances. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/if-you-follow-the-degrowth-agenda-it-leads-to-an-economy-that-looks-a-lot-like-the-sickly-uk-224803">If you follow the degrowth agenda, it leads to an economy that looks a lot like the sickly UK</a>
</strong>
</em>
</p>
<hr>
<p>Yet both the government and Labour maintain that fiscal rules must be kept, and engage in rhetoric that treats the economy as being like a <a href="https://www.msn.com/en-gb/news/newslondon/tories-have-maxed-out-the-national-credit-card-warns-labour-leader-keir-starmer-in-budget-response/ar-BB1jqVsF">household budget</a>. This does not make any economic sense. Unlike a household, the UK government can tax and borrow indefinitely, and through the Bank of England, can even print money (<a href="https://www.wallstreetoasis.com/resources/skills/economics/quantitative-easing">via quantitative easing</a>). </p>
<p>Abiding strictly by these self-imposed fiscal rules <a href="https://www.ft.com/content/661aa9b4-0b53-4b02-a1d7-76c373c2817b">actually constrains</a> the ability of government to undertake worthy public investment projects that can help grow the economy. </p>
<p>This does not mean there are no constraints on public spending, as simply printing too much money will lead to inflation. Nevertheless, many economists, including myself, believe the very notion of fiscal rules <a href="https://www.theguardian.com/commentisfree/2024/mar/04/the-guardian-view-on-treasury-fiscal-rules-no-way-to-run-a-country">needs to be revisited</a> to provide more scope for greater public investment. </p>
<p>If the UK wants to emerge from its current doom loop of <a href="https://www.theguardian.com/commentisfree/2023/dec/31/britain-stuck-in-doom-loop-system-rigged-against-growth-that-needs-to-change">slow, stagnant growth</a>, then the next government will need to be brave enough to <a href="https://neweconomics.org/2024/02/labour-should-learn-that-every-fiscal-rule-is-a-political-choice">rewrite the rules</a> that have been holding the country back for so long.</p><img src="https://counter.theconversation.com/content/225258/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Phil Tomlinson receives funding from the Engineering and Physical Sciences Research Council (EPSRC) for Made Smarter Innovation: Centre for People-Led Digitalisation.</span></em></p>The UK does not allow itself enough room for the public investment necessary for growth.Phil Tomlinson, Professor of Industrial Strategy, Co-Director Centre for Governance, Regulation and Industrial Strategy (CGR&IS), University of BathLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2247122024-03-07T13:03:42Z2024-03-07T13:03:42ZWhy Israel’s economy is resilient in spite of the war<figure><img src="https://images.theconversation.com/files/580093/original/file-20240306-18-g3idi5.jpg?ixlib=rb-1.1.0&rect=648%2C0%2C2356%2C2005&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/back-shot-several-soldiers-israel-army-1423050641">Melnikov Dmitriy/Shutterstock</a></span></figcaption></figure><p>Israel’s war in Gaza and more limited conflict with Hezbollah on its northern border with Lebanon is taking a toll on the Israeli economy. </p>
<p>In the final quarter of 2023, Israel’s gross domestic product (GDP) – a measure of a country’s economic health – <a href="https://www.cbs.gov.il/en/publications/Pages/2024/Monthly-Bulletin-of-Statistics-February-2024.aspx">shrank by almost 20%</a>. Consumption dropped by 27% and investment by 70%.</p>
<p>It’s important to note that these are annualised figures relative to the same period a year ago. The 5.2% drop in GDP from the third quarter was substantial, but it is likely to be a temporary setback unless the war with Hezbollah intensifies.</p>
<p>The outbreak of war disrupted <a href="https://www.boi.org.il/en/communication-and-publications/press-releases/a09-11-23/">around 18%</a> of Israel’s workforce. In October, 250,000 civilians fled or were evacuated from border communities. Meanwhile, around 4% of the workforce – some 300,000 people – were called up as reservists as Israel mobilised for its military offensive.</p>
<p>Over the next few years, the war will cost Israel an estimated <a href="https://boi.org.il/media/ruuby3mw/%D7%9E%D7%A6%D7%92%D7%AA-%D7%94%D7%A0%D7%92%D7%99%D7%93-%D7%9C%D7%95%D7%95%D7%A2%D7%93%D7%AA-%D7%94%D7%9B%D7%A1%D7%A4%D7%99%D7%9D-22124.pdf">255 billion shekels</a> (£56.6 billion) due to reduced economic activity and increased expenses. But the <a href="https://www.moodys.com/research/Moodys-downgrades-Israels-ratings-to-A2-changes-outlook-to-negative-Rating-Action--PR_484801">projected rise</a> in national debt from 60% to 67% of GDP by 2025 is manageable, as is the plan to raise annual military spending from 4% of GDP to <a href="https://boi.org.il/media/ruuby3mw/%D7%9E%D7%A6%D7%92%D7%AA-%D7%94%D7%A0%D7%92%D7%99%D7%93-%D7%9C%D7%95%D7%95%D7%A2%D7%93%D7%AA-%D7%94%D7%9B%D7%A1%D7%A4%D7%99%D7%9D-22124.pdf">6%</a> or <a href="https://www.calcalist.co.il/local_news/article/s15g7mett">7%</a> by the end of the decade. </p>
<p>Israel entered the war with a relatively low national debt and foreign currency reserves equivalent to about 40% of annual GDP. Its population is young and still growing, and <a href="https://www.cbs.gov.il/he/publications/DocLib/2022/def20_1857/h_print.pdf">data</a> reveals that Israel has surpassed current military spending levels before. Between 1967 and 1972, military spending averaged 20.3% of GDP, rising to 28.7% from 1973 to 1975 before stabilising at 20.8% between 1976 and 1985.</p>
<p>The years following the Yom Kippur war in 1973 and through the first Lebanon war (1982–85) are often referred to as “lost years” for Israel’s economy. Per-capita GDP growth averaged <a href="https://www.rug.nl/ggdc/productivity/pwt/?lang=en">4.8%</a> in the 12 years before this period; over the following 12 years it dropped to just 0.8%. Inflation gradually rose, <a href="https://www.globes.co.il/finance/indexprice/inflation.asp?Lang=HE">peaking at 445%</a> during 1984.</p>
<p>So the question is not if Israel can weather the current storm, but whether the burden of higher military spending will be offset by budget cuts elsewhere to ensure economic growth resumes and public debt returns to a sustainable trajectory. </p>
<p>So far, Benjamin Netanyahu, Israel’s prime minister, and other members of his coalition have resisted <a href="https://economists-for-israeli-democracy.com/">advice</a> from economists to change the government’s spending priorities. They have done so for fear of upsetting the small but influential constituencies whose votes keep them in power.</p>
<figure class="align-center ">
<img alt="Benjamin Netanyahu speaking in front of an Israel flag with his right hand outstretched." src="https://images.theconversation.com/files/580092/original/file-20240306-20-xvroza.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/580092/original/file-20240306-20-xvroza.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=339&fit=crop&dpr=1 600w, https://images.theconversation.com/files/580092/original/file-20240306-20-xvroza.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=339&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/580092/original/file-20240306-20-xvroza.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=339&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/580092/original/file-20240306-20-xvroza.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=427&fit=crop&dpr=1 754w, https://images.theconversation.com/files/580092/original/file-20240306-20-xvroza.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=427&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/580092/original/file-20240306-20-xvroza.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=427&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Benjamin Netanyahu speaking at a meeting in Berlin, Germany, in March 2023.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/berlin-germany-20230316-prime-minister-benjamin-2276731307">photocosmos1/Shutterstock</a></span>
</figcaption>
</figure>
<h2>Political opportunism</h2>
<p>Netanyahu has demonstrated a good grasp of market economics. As finance minister between 2003 and 2005, Netanyahu implemented <a href="https://www.nevo.co.il/FilesFolderPermalink.aspx?b=books&r=%D7%9B%D7%AA%D7%91%D7%99+%D7%A2%D7%AA%5C%D7%9B%D7%AA%D7%91%D7%99+%D7%A2%D7%AA%5C%D7%9E%D7%A9%D7%A4%D7%98+%D7%94%D7%A2%D7%91%D7%95%D7%93%D7%94%5C%D7%9B%D7%A8%D7%9A+%D7%99">sweeping reforms</a> that lowered tax rates, <a href="https://muse.jhu.edu/article/543634">privatised state companies</a> and raised the state pension age. He also used his tenure to curtail the country’s bloated benefits system and introduce requirements for job training.</p>
<p>Yet since the start of Netanyahu’s second term as prime minister in 2009 (the first was 1996–99), many of these reforms have been <a href="https://main.knesset.gov.il/mk/government/documents/addCoalition2009_2.pdf">scaled back or eliminated</a>, particularly the cuts to the benefits system. This benefits system disproportionately advantages the ultra-Orthodox Haredi community, whose parties form part of Netanyahu’s governing coalition.</p>
<p>Netanyahu was once again elected as prime minister in November 2022. Though a proponent of a limited role for the state, his new government included a record 34 different ministries. This was to satisfy the appetite for patronage and ministerial salaries among the different coalition partners as well as factions within his own Likud party. </p>
<p>To secure the continued support of ultra-Orthodox parties he also promised unprecedented <a href="https://www.idi.org.il/articles/49642">levels of funding</a> for religious schools and seminaries. In seminaries, grown men spend their lives studying religious texts at the public’s expense and are exempt from military service. Despite the need to fund the war and for more young men in uniform, Netanyahu and Bezalel Smotrich, the finance minister, have <a href="https://www.calcalist.co.il/local_news/article/bkerxsacp">resisted</a> nearly all suggestions that these budget items be reduced.</p>
<p>Here we have a case study where political opportunism easily defeats ideology. We know what Netanyahu believes and what he understands about good economic policy, and we can isolate these from what he is willing to do to remain in office. </p>
<p>Will he choose to defray some of the costs the war will impose on the budget by eliminating wasteful spending on useless ministries? Or will he introduce policies that grow the economy by incentivising higher labour-force participation among the ultra-Orthodox community? The plan for the moment is to borrow more.</p>
<figure class="align-center ">
<img alt="Two ultra-Orthodox men holding signs written in hebrew." src="https://images.theconversation.com/files/580090/original/file-20240306-18-4nzv1y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/580090/original/file-20240306-18-4nzv1y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/580090/original/file-20240306-18-4nzv1y.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/580090/original/file-20240306-18-4nzv1y.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/580090/original/file-20240306-18-4nzv1y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/580090/original/file-20240306-18-4nzv1y.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/580090/original/file-20240306-18-4nzv1y.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Ultra-Orthodox men protesting for the release of a religious youth who was jailed for refusing to serve in the military in 2017.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/safed-israel-oct-19-2017-ultra-1026922030">David Cohen 156/Shutterstock</a></span>
</figcaption>
</figure>
<h2>Strong civil society</h2>
<p>We may also overestimate the role politicians and governments play in ensuring a country’s success. Since its founding in 1948, Israel’s electoral system of proportional representation has yielded weak, unstable coalitions.</p>
<p>Historically, the Likud party has strongly supported the independence of the country’s judiciary. But after the last election, Netanyahu’s government introduced <a href="https://www.bbc.co.uk/news/world-middle-east-65086871">new legislation</a> that, among other things, would have given the Knesset (parliament) the power to override Supreme Court decisions with a simple majority vote. </p>
<p>Had these changes been implemented they would have further magnified the worst properties of the country’s dysfunctional (unwritten) constitution. People do not invest money in countries where court decisions can be overturned by politicians and property rights are not secure.</p>
<p>Yet, despite the weaknesses of its government institutions, Israel has absorbed millions of poor refugees from every corner of the Earth, has fought back when attacked and has defeated far larger neighbours over its 75-year history. It has done so all while transforming itself from an impoverished backwater to a first-world economy and a centre of high-tech innovation. </p>
<p>In the first nine months of 2023, hundreds of thousands of Israelis <a href="https://www.theguardian.com/world/2023/sep/12/israel-protests-judicial-curbs-supreme-court-challenge">demonstrated</a> in the streets to defend the rule of law and the independence of the country’s judiciary. Many of those same people rushed to join their reserve units on October 7 to defend the country’s borders. Others, acting without any government direction, <a href="https://www.ynetnews.com/magazine/article/bjd1lrmlp">organised relief</a> for the survivors and displaced while ministers dithered or disappeared from view.</p>
<p>Countries with strong civil societies and highly engaged populations survive and even prosper not because of their political leaders, but despite them.</p><img src="https://counter.theconversation.com/content/224712/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Ben-Gad does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>War is taking a toll on Israel’s economy.Michael Ben-Gad, Professor of Economics, City, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2251942024-03-06T17:01:05Z2024-03-06T17:01:05ZBudget 2024: experts explain what it means for taxpayers, businesses, borrowers and the NHS<p><em>The spring budget of 2024 was widely seen as a chance for UK chancellor Jeremy Hunt to inject some economic optimism into British politics ahead of a general election. Would he or wouldn’t he cut income tax? (He wouldn’t.) Would he pull rabbits out of hats in a bid to convince the electorate that the Conservatives should stay in power? Here’s what our panel of experts made of his plans:</em></p>
<h2>National insurance cut only partially offsets rising tax burden</h2>
<p><strong>Jonquil Lowe, Senior Lecturer in Economics and Personal Finance, The Open University</strong></p>
<p>The big attention-grabber in the budget was a two percentage point cut in national insurance contributions for employees and the self-employed from April. It comes hard on the heels of a similar cut in January this year. </p>
<p>The government also announced a long-term, but undated, ambition to abolish national insurance altogether. However, the national insurance cut (which will cost the government <a href="https://assets.publishing.service.gov.uk/media/65e8578eb559930011ade2cb/E03057752_HMT_Spring_Budget_Mar_24_Web_Accessible__2_.pdf">£10.1 billion</a> in the coming year) only partially offsets the impact of the ongoing freeze in the income tax personal allowance and higher rate band until April 2028. </p>
<p>Normally these levels would rise each year with inflation. But the freeze causes what’s known as “fiscal drag”, meaning that as your earnings rise, you get drawn into higher tax bands. The higher your top rate of tax (your marginal rate), the less you get to keep of every extra pound you earn. </p>
<p>This amounts to a substantial rise in income tax, estimated to rake in an extra £35 billion a year for the government <a href="https://commonslibrary.parliament.uk/research-briefings/cbp-9687/#:%7E:text=Freezing%20tax%20thresholds%20increases%20people's,tax%20at%20a%20higher%20rate">by 2028-29</a>.</p>
<p><strong>How the national insurance cut might affect you:</strong></p>
<p>Separately, there was good news for better-off parents, with a raising, from April 2024, of the income threshold at which the government starts to claw back the amount the family gets in child benefit. The threshold will rise to £60,000 (from £50,000) and the rate at which the benefit is withdrawn will also be reduced. </p>
<p>The tax charge currently kicks in when the highest earner in the household reaches the threshold, which inherently favours couples. For example, two parents could each earn just under £60,000 (joint earnings of nearly £120,000) and keep their full child benefit. But a single person on £60,000 would start to lose theirs. </p>
<p>The government has said it will look to end this unfairness by asking HMRC to come up with a method of basing the tax charge on household income from 2026. </p>
<p>But this should sound alarm bells. Those with long memories will remember that until 1990, the UK jointly taxed married couples. The introduction of <a href="https://hansard.parliament.uk/Commons/1990-07-11/debates/6f8f9eac-354f-4a86-bc5e-bcb3b4e0a066/IndependentTaxation#:%7E:text=Independent%20taxation%2C%20which%20took%20effect%20on%206%20April,set%20against%20her%20own%20income%20of%20any%20kind.">independent taxation</a> was important in giving women independence and privacy in their financial affairs. </p>
<p>But as always with an election year budget, any commitments for the future depend on the outcome of that election. This time next year these matters may not be in Jeremy Hunt’s hands at all. </p>
<h2>Why the cuts to national insurance are a damp squib</h2>
<p><strong>Shampa Roy-Mukherjee, Vice Dean and Associate Professor in Economics, University of East London</strong></p>
<p>The <a href="https://obr.uk/efo/economic-and-fiscal-outlook-march-2024/#:%7E:text=But%20we%20expect%20output%20growth,1%E2%85%94%20per%20cent%20by%202028.">OBR expects</a> the economy to grow by 0.8% this year and 1.9% next year – that is, 0.5% higher than its <a href="https://obr.uk/efo/economic-and-fiscal-outlook-november-2023/">autumn forecast</a>. Growth is then forecast to continue this trend until 2027.</p>
<p>The OBR has also forecast that inflation will go back to a 2% target level within the next few months. This means that the key Conservative priorities of tackling inflation and growing the economy are going to be met in 2024.</p>
<p>The chancellor also announced that he has been able to keep to his “fiscal rules” of national debt as a proportion of GDP falling in the next five years, and government borrowing not exceeding 3% of GDP. This will probably reassure the markets that the UK public finances are steady.</p>
<p>The chancellor went into the budget with “<a href="https://theconversation.com/budget-2024-what-to-expect-from-jeremy-hunts-pre-election-tax-giveaway-224294">fiscal headroom</a>” of approximately £13 billion for pre-election giveaways (though you always want to leave some in reserve for emergency), but he increased this by announcing the reforms to the non-dom tax status. This enabled him to cut employees’ national insurance (NI) by another 2p in the pound, at a cost of £10 billion and benefiting the average worker by £450 a year.</p>
<p>When combined with the NI cut last autumn, the government can now claim to have delivered a £900 annual tax cut to the average worker. Lowering NI might also encourage people to re-enter the workforce or work more, which could boost companies in sectors that have been struggling to attract talent, such as <a href="https://www.hrmagazine.co.uk/content/news/businesses-face-record-recruitment-difficulties/#:%7E:text=Firms%20in%20the%20hospitality%20sector,health%20sector%20all%20on%2083%.">hospitality and manufacturing</a>. However, it might not have a massive impact, given that income tax thresholds remain frozen, meaning more and more workers pay extra tax each year as their wages rise with inflation.</p>
<h2>A few bonuses for a few businesses</h2>
<p><strong>Hilary Ingham, Professor of Economics, Lancaster University</strong></p>
<p>For all of the expectations around this being the last chance for the government to <a href="https://theconversation.com/budget-2024-what-to-expect-from-jeremy-hunts-pre-election-tax-giveaway-224294">make its economic case</a> in the year of a general election, this was a rather underwhelming budget. </p>
<p>The main event – a drop in national insurance – was <a href="https://www.thetimes.co.uk/article/jeremy-hunt-cut-national-insurance-income-tax-inheritance-stamp-duty-k9tx63rfq">leaked in advance</a>. And aside from that, there was little to get very excited about. Measures directed at UK businesses were rather limited, targeting specific industries and firms of a particular size. </p>
<p>One measure that will be welcomed by owners of small businesses was the VAT threshold being increased from £85,000 to £90,000, meaning that some small firms will be exempt from this tax. But the rise, a mere £5,000, is small. </p>
<p>There was also good news for the hospitality industry, with the freeze on alcohol duty – which had been due to expire – being extended until February 2025. And the <a href="https://www.sheffield.ac.uk/news/covid-19s-impact-arts-culture-and-heritage-sector-revealed-landmark-report">pandemic</a> tax relief given to the performing arts industry was made permanent.</p>
<p>Less pleased will be those whose businesses involve letting out holiday properties. The favourable regime they faced, which has been <a href="https://www.mirror.co.uk/travel/uk-ireland/budget-announcement-government-comes-after-32285856">widely blamed</a> for housing shortages in popular areas such as Cornwall and the Lake District, will be abolished.</p>
<p>But perhaps the measure which will have the widest impact for business is that the 5p cut in fuel duty will be maintained, with the duty frozen for a further 12 months. This will be welcomed given the fuel costs that business and households have faced over the last 18 months.</p>
<p>Overall though, for British companies struggling in this harsh economic climate, the news from Jeremy Hunt was rather muted. Tomorrow will be a return to business as usual.</p>
<h2>Good vaping measures – shame about the delay</h2>
<p><strong>Rob Branston, Senior Lecturer in Business Economics, University of Bath</strong></p>
<p>The new levy on vapes is a win-win-win for society. It is unfortunate that it isn’t due to happen for more than two years, though, as the new measures will only come into force on October 1 2026.</p>
<p>When they arrive, it will lead to higher prices in the shops, which will definitely help to deter the use of these products, particularly for children and young adults, who are amongst the most price sensitive. Action in this area is most welcome as vaping has been <a href="https://ash.org.uk/uploads/Use-of-vapes-among-young-people-GB-2023-v2.pdf?v=1697209531">increasing greatly</a> in recent years, notably among those who have never smoked, which is worrying as these products are <a href="https://www.lung.org/quit-smoking/e-cigarettes-vaping/impact-of-e-cigarettes-on-lung#:%7E:text=E-cigarettes%20produce%20a%20number,as%20cardiovascular%20(heart)%20disease.&text=E-cigarettes%20also%20contain%20acrolein,primarily%20used%20to%20kill%20weeds.">not risk free</a>.</p>
<p>The new tax and associated price increases are probably large enough to make a meaningful difference. A 10ml vaping refill currently costing £2.50 <a href="https://assets.publishing.service.gov.uk/media/65e80ba108eef600115a5621/Vaping_Products_Duty_Consultation.pdf">is predicted</a> to increase in cost to £3.70 if nicotine free, and up to £6.10 for the higher nicotine strengths.</p>
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<img alt="Vapes in a shopping trolley surrounded by smoke." src="https://images.theconversation.com/files/580203/original/file-20240306-26-2rvdcj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/580203/original/file-20240306-26-2rvdcj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/580203/original/file-20240306-26-2rvdcj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/580203/original/file-20240306-26-2rvdcj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/580203/original/file-20240306-26-2rvdcj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/580203/original/file-20240306-26-2rvdcj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/580203/original/file-20240306-26-2rvdcj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">In the right direction.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/disposable-vapes-shopping-cart-on-black-2060552477">Reshetnikov_art/Shutterstock</a></span>
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<p>These higher prices will be a stronger deterrent if accompanied by restrictions on packaging, flavours, display and availability. The government is <a href="https://healthmedia.blog.gov.uk/2024/01/30/creating-a-smokefree-generation-and-tackling-youth-vaping-what-you-need-to-know/">planning such restrictions</a> as part of the forthcoming tobacco and vapes Bill. This will create a broad and welcome package of measures, assuming it goes ahead.</p>
<p>One further win is that the levy will bring vapes within the government excise tax system. This should mean more oversight of retailers and manufacturers, which will hopefully make it easier to identify and take action against products that don’t comply with the rules.</p>
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Read more:
<a href="https://theconversation.com/to-stop-teenagers-vaping-they-need-to-see-it-as-cringe-not-cool-222946">To stop teenagers vaping they need to see it as cringe, not cool</a>
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<p>I also welcome the chancellor’s one-off increase in tobacco taxation, which is predicted to increase the cost of a packet of cigarettes by about £0.89. This is a crucial part of the package, since it will help to ensure that e-cigarettes remain a cheaper and less harmful alternative source of nicotine.</p>
<p>The two tax measures together are forecast to increase government tax revenues by £615 million a year by 2028-29, so they will help the government finances at the same time. </p>
<h2>Not enough to alleviate fuel poverty</h2>
<p><strong>Andrew Burlinson, Lecturer in Economics, University of Sheffield</strong></p>
<p>The recent energy-price crisis caused “<a href="https://www.ucl.ac.uk/news/2022/sep/marmot-review-thousands-will-die-and-millions-will-suffer-humanitarian-crisis-fuel-poverty">epidemic levels</a>” of hardship in the UK, leading the UK to <a href="https://committees.parliament.uk/publications/42584/documents/211695/default/">spend £40 billion</a> in energy price support. However, such consumer price support did not target those in most need or protect households from future energy price shocks.</p>
<p><a href="https://assets.publishing.service.gov.uk/media/65ccecba1d939500129466a9/annual-fuel-poverty-statistics-report-2024.pdf">Just under</a> 40% of households (9 million) spend more than 10% of their residual income on energy, after deducting housing costs. Despite prices falling, typical consumers <a href="https://researchbriefings.files.parliament.uk/documents/CBP-9491/CBP-9491.pdf">still pay</a> around 60% more than pre-pandemic levels.</p>
<p>The chancellor’s main move to help this situation is to confirm another extension to the £842 million <a href="https://www.gov.uk/cost-living-help-local-council#:%7E:text=You%20may%20be%20able%20to,energy%20and%20water%20bills">household support fund</a>, which is used at the discretion of local councils to help households struggling with the cost of living. While this fund is potentially more targeted than the <a href="https://www.ofgem.gov.uk/energy-price-cap">price cap</a> and the <a href="https://www.gov.uk/get-help-energy-bills#:%7E:text=You%20may%20be%20able%20to,Fund%20from%20your%20local%20council">energy bill support payments</a>, the fact that it doesn’t go directly to those in need means it is probably missed by many households.</p>
<p>Today’s announcement was quiet on reintroducing social tariffs and funding for energy efficiency, suggesting the government has gone cold on these measures since announcing them in the <a href="https://researchbriefings.files.parliament.uk/documents/CBP-9491/CBP-9491.pdf">autumn statement 2022</a>. Either form of support could have been funded, at least partly, by the extended windfall tax on oil and gas companies. This apparent U-turn compounds the government’s <a href="https://www.theguardian.com/environment/2023/sep/23/uk-ministers-scrap-energy-efficiency-taskforce-after-six-months">decision in September</a> to terminate its energy efficiency taskforce. </p>
<p>It risks <a href="https://www.theccc.org.uk/wp-content/uploads/2019/02/UK-housing-Fit-for-the-future-CCC-2019.pdf">another decade</a> of low investment into domestic energy efficiency, at a time when UK households are living in some of the <a href="https://theconversation.com/the-uk-has-some-of-the-least-energy-efficient-housing-in-europe-heres-how-to-fix-this-151609">leakiest homes in Europe</a>. There’s a clear need for a large-scale rollout of energy efficiency, perhaps by extending the <a href="https://www.ofgem.gov.uk/environmental-and-social-schemes/energy-company-obligation-eco">existing requirement</a> on energy companies to insulate the homes of those in fuel poverty.</p>
<p>Not only would this be consistent with the government’s energy-security agenda, it is also <a href="https://researchbriefings.files.parliament.uk/documents/CBP-9491/CBP-9491.pdf">widely acknowledged</a> as the key to making energy affordable to consumers for the long term. Despite today’s tax cuts, <a href="https://www.ons.gov.uk/economy/grossdomesticproductgdp/timeseries/mwb7/ukea">real incomes</a> have eroded, and many <a href="https://friendsoftheearth.uk/climate/britains-cold-homes-crisis-affecting-nearly-10m-households">households are struggling</a> to keep their homes warm. <a href="https://www.ofgem.gov.uk/energy-data-and-research/data-portal/all-available-charts?keyword=debt&sort=relevance">Energy debt and arrears</a> rose to record levels from £1.3 billion to £3.1 billion between 2021 and 2024.</p>
<p>This will all have a <a href="https://www.nea.org.uk/wp-content/uploads/2024/01/NEA-debt-allowance-consultation-response.pdf">long-lasting impact</a> on UK households’ physical and mental health. <a href="https://www.sciencedirect.com/science/article/pii/S0140988324001221">My recent research</a> shows that strengthening households’ resilience to energy price shocks, particularly energy solvency issues, could improve the health and wellbeing of children and adults.</p>
<h2>99% mortgages avoided – thankfully</h2>
<p><strong>Alper Kara, Professor of Banking and Finance, Brunel University London</strong></p>
<p>The chancellor has cut capital-gains tax charges on the sale of residential property from 28% to 24% for high-income taxpayers. This may bring more supply to the housing market, assuming there are landlords out there who were hesitating to sell due to the higher capital gains payments. If so, many of these properties will be smaller dwellings, which could benefit first-time buyers by bringing down prices. </p>
<p>On the other hand, the change may also encourage potential landlords that wanted to own second properties but did not do so due to high capital gains tax. We will have to wait and see the ultimate impact of the policy on households struggling to get on the mortgage ladder. </p>
<p>Hunt has also abolished tax relief on mortgage payments for furnished holiday lets. The previous regime made holiday-lets more attractive for landlords in comparison to long-term lets. Changing the policy could discourage landlords to convert their properties to holiday lets, which should in turn make more long-term lets available in the market. This will hopefully help households struggling with increasing rental costs. </p>
<p>There were <a href="https://www.thomasduntonsolicitors.co.uk/news/is-a-99-mortgage-scheme-a-good-idea/#:%7E:text=Rumours%20of%20a%20prospective%2099,deposit%20on%20their%20first%20home.">also rumours</a> of the chancellor introducing a 99% mortgages scheme to help first-time-buyers struggling to save enough deposit to buy a home. With such mortgages, households could have bought a home with only a 1% deposit. </p>
<p>It would have been good news for first-time-buyers, though these mortgages would have probably come with higher interest payments as they would have been riskier for banks. </p>
<figure class="align-center ">
<img alt="'Sold' sign outside terraced house." src="https://images.theconversation.com/files/580224/original/file-20240306-28-o6gdca.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/580224/original/file-20240306-28-o6gdca.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/580224/original/file-20240306-28-o6gdca.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/580224/original/file-20240306-28-o6gdca.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/580224/original/file-20240306-28-o6gdca.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/580224/original/file-20240306-28-o6gdca.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/580224/original/file-20240306-28-o6gdca.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Not sold on 99% mortgages.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/sold-sign-displayed-outside-terraced-house-1785988439">I Wei Huang/Shutterstock</a></span>
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<p>The scheme would also have pushed already inflated UK houses still higher by creating more demand, putting even more pressure on the affordability of mortgages. And such deposits mean a greater risk of home owners ending up in <a href="https://www.moneyhelper.org.uk/en/homes/buying-a-home/negative-equity-what-it-means-and-what-you-can-do-about-it">negative equity</a> if house prices drop, meaning the home is not valuable enough to pay off the remainder of the mortgage.</p>
<p>Overall, 99% deposits would have not solved the UK’s chronic housing affordability problem, which <a href="https://www.centreforcities.org/publication/the-housebuilding-crisis/#:%7E:text=Compared%20to%20the%20average%20European,homes%20a%20year%20is%20reached.">many argue</a> is simply because of not building enough new homes. So it’s welcome that the chancellor did not incentivise them. </p>
<h2>NHS investment in tech, but what about basic equipment?</h2>
<p><strong>Peter Sivey, Reader in Health Economics, Centre for Health Economics, University of York</strong></p>
<p>This budget did not offer any quick solutions for the ongoing <a href="https://www.bbc.co.uk/news/health-64190440">NHS crisis</a>. Despite its problems, the NHS has actually seen substantial funding growth in the last few years.</p>
<p>Over the past five years, the official “<a href="https://www.nuffieldtrust.org.uk/news-item/overspent-and-overlooked-why-britains-politicians-need-to-talk-nhs-funding-again">NHS Long Term Plan</a>” factored in funding increases of 3.4% above inflation from 2019 to 2024. This was interrupted by the pandemic which saw a spike, then a fall, in funding. But the overall goals have been met, with spending now more than £20 billion more in real terms than in 2019.</p>
<p>There are also regular announcements of <a href="https://www.nuffieldtrust.org.uk/news-item/funding-announced-will-only-partially-fill-nhs-financial-black-hole0">top-up funding</a> each winter. However, with the long-term plan funding increases coming to an end, the <a href="https://ifs.org.uk/articles/health-spending-planned-fall-england-and-scotland-2024-25-suggesting-top-likely">Insitute for Fiscal Studies has noted</a> that existing plans would have seen small but painful real-term cuts to funding in the upcoming financial year.</p>
<p>These have been mitigated by the announcement in the budget of top-up funding of around £2.5 billion in England. But this will see funding <a href="https://email.nhsconfed.org/cr/AQiRgxMQjuRkGPzxzkh8zy8hl2dV-r9smSrWGxi6Wj2_G7Xb99l1WiwX18B-gw">essentially flat in real terms</a>, which will feel like a cut in a health service that is treating an expanding and ageing population with increasingly expensive new health technologies.</p>
<p>The chancellor has shown he is not partial to further increases in NHS spending, stating when he was health secretary, that “money alone” was <a href="https://www.newstatesman.com/spotlight/healthcare/2021/10/money-alone-will-not-fix-the-nhs">not the solution</a>. That sounds fair enough, but with increasing demands on the NHS, it need real-term rises in spending just to stand still.</p>
<p>The budget also announced a big figure – £3.4 billion – for investment in technology such as improved electronic patient records. However <a href="https://email.nhsconfed.org/cr/AQiRgxMQjuRkGPzxzkh8zy8hl2dV-r9smSrWGxi6Wj2_G7Xb99l1WiwX18B-gw">there is already disappointment</a> from within the NHS that this won’t address a more pressing need for more basic investment in equipment and buildings.</p><img src="https://counter.theconversation.com/content/225194/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rob Branston is a non-active member of the Liberal Democrats and receives funding from Bloomberg Philanthropies as part of the Bloomberg Initiative to Reduce Tobacco use. He also owns ten shares in Imperial Brands for research purposes. The shares were a gift from a public health campaigner and are not held for financial gain or benefit. All dividends received are donated to health-related charities, and proceeds from any future share sale or takeover will be similarly donated.</span></em></p><p class="fine-print"><em><span>Andrew Burlinson currently receives funding from UKERC (UKRI) and previously received relevant funding from EPSRC.</span></em></p><p class="fine-print"><em><span>Jonquil Lowe is a member of the Policy Advisory Group of the Women's Budget Group (<a href="https://wbg.org.uk/">https://wbg.org.uk/</a>).</span></em></p><p class="fine-print"><em><span>Peter Sivey receives funding from NIHR.</span></em></p><p class="fine-print"><em><span>Alper Kara, Hilary Ingham, and Shampa Roy-Mukherjee do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>What could Jeremy Hunt do for voters ahead of a general election?J. Robert Branston, Senior Lecturer (Associate Professor) in Business Economics, University of BathAlper Kara, Professor of Banking and Finance, Brunel University LondonAndrew Burlinson, Lecturer in Economics, University of SheffieldHilary Ingham, Professor of Economics, Lancaster UniversityJonquil Lowe, Senior Lecturer in Economics and Personal Finance, The Open UniversityPeter Sivey, Reader in Health Economics, Centre for Health Economics, University of YorkShampa Roy-Mukherjee, Vice Dean and Associate Professor in Economics, University of East LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2245452024-03-06T13:23:20Z2024-03-06T13:23:20ZNigeria: botched economic reforms plunge the country into crisis<p>Nigeria, Africa’s largest economy, is facing an economic crisis. From a botched currency redesign to the removal of fuel subsidies and a currency float, the nation has been plunged into spiralling inflation and a currency crisis with far-reaching consequences. The question now is: how long before the inferno consumes everything?</p>
<p>On October 26, 2022, the Central Bank of Nigeria announced a <a href="https://www.thecable.ng/breaking-buhari-unveils-redesigned-naira-notes">bold move</a> – that it had redesigned the country’s highest denomination notes (₦200, ₦500 and ₦1000) and would be removing all old notes from circulation. People were given a deadline of January 31, 2023 (a couple of weeks before a national election) to make this exchange, or all of the old notes would cease to be valid legal tender.</p>
<p>This initiative ostensibly aimed to curb counterfeiting, encourage cashless transactions, and limit the buying of votes during the elections. But, while the intention may have been sound, the execution proved disastrous. </p>
<p>Short deadlines, limited availability of new notes, and inadequate communication created widespread panic. It led to long queues at banks, frustration among citizens, and a <a href="https://carnegieendowment.org/2024/01/18/why-nigeria-s-controversial-naira-redesign-policy-hasn-t-met-its-objectives-pub-91405">thriving black market</a> for the new notes. </p>
<p>The confusion surrounding the currency redesign had an unintended consequence: the beginnings of a loss of confidence in the naira. People began to look to other mediums as a store of value and as a medium of exchange. The obvious choices were foreign currency like the US dollar and the British pound, as well as more stable cryptocurrencies like <a href="https://businessday.ng/business-economy/article/weak-naira-cross-border-payments-drive-nigerians-into-cryptos/">Tether’s USDT</a>.</p>
<p>The currency redesign was criticised at the time by the then-presidential candidate of the ruling party, Bola Ahmed Tinubu, who saw it as a move to <a href="https://www.vanguardngr.com/2023/01/2023-fuel-scarcity-naira-redesign-ploy-to-sabotage-my-chances-tinubu/">derail his presidential campaign</a>. However, Tinubu won the contested election and, once in power, set out to reshape the economy immediately. </p>
<p>In his inaugural address in May 2023, Tinubu <a href="https://www.premiumtimesng.com/news/top-news/601239-fuel-subsidy-is-gone-tinubu-declares.html">announced</a> that the “fuel subsidy is gone”, referring to the government’s longstanding subsidised petrol policy that ensured Nigerians enjoyed some of the lowest petrol prices in the world. Over the coming days, he would also announce the reversal of the currency redesign policy and the <a href="https://leadership.ng/tinubu-begins-monetary-policy-reforms-floats-naira/">floating of the Nigerian naira</a> on the foreign exchange market.</p>
<figure class="align-center ">
<img alt="A compilation of Nigerian naira bank notes." src="https://images.theconversation.com/files/579202/original/file-20240301-28-sej1lc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/579202/original/file-20240301-28-sej1lc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/579202/original/file-20240301-28-sej1lc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/579202/original/file-20240301-28-sej1lc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/579202/original/file-20240301-28-sej1lc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/579202/original/file-20240301-28-sej1lc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/579202/original/file-20240301-28-sej1lc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">When in office, Tinubu reversed the currency redesign policy.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/naira-currency-nigeria-200751113">Pavel Shlykov/Shutterstock</a></span>
</figcaption>
</figure>
<h2>Fuelling the flames</h2>
<p>Other underlying economic conditions around the time of Tinubu’s inauguration included a large amount of foreign debt, dwindling foreign reserves and global economic headwinds. When the removal of the fuel subsidy was announced, it was met with a mix of surprise and elation by many Nigerians, and in particular by international donor agencies like the International Monetary Fund and the World Bank, who had long been <a href="https://www.reuters.com/markets/commodities/nigeria-should-end-fuel-subsidy-speed-reforms-boost-growth-world-bank-says-2021-11-23/">advocating</a> for the removal.</p>
<p>But this was all before the effects began to bite. And bite hard they did. The price of Premium Motor Spirit (also known as gasoline or petrol), which used to retail for ₦189 (US$0.12) per litre, increased by 196% practically overnight and began to retail for <a href="https://www.reuters.com/world/africa/nigeria-triple-petrol-prices-after-president-says-subsidy-end-2023-05-31/">₦557 per litre</a>. </p>
<p>One challenge with developing economies like Nigeria is that a rise in fuel price tends to cause the price of everything else to rise. Many industries, particularly those in manufacturing and agriculture, tend to rely heavily on fuel for powering machinery and equipment due to the poor supply of grid electricity nationwide.</p>
<p>Many Nigerian households were significantly affected by the increased prices. But they saw an opportunity in that the savings from the fuel subsidy regime would be redistributed to improve education, healthcare provision and the general welfare of the people, as was promised during the electioneering. The regime cost the country an estimated <a href="https://www.premiumtimesng.com/news/top-news/582724-fuel-subsidy-now-above-n400bn-monthly-nnpcl.html">₦400 billion</a> a month at its height, after all. </p>
<h2>Enter currency devaluation</h2>
<p>Then, on June 14, 2023, the Tinubu government ended the policy of pegging the naira to the US dollar, allowing it to float and find its true market value based on supply and demand. The idea was to stop corruption and reduce arbitrage opportunities due to the difference between official and black-market foreign exchange prices. </p>
<p>Currency arbitrage happens when people buy a currency at the lower official exchange rate and immediately sell it at the higher black market rate for a profit. This practice often occurs where there are strict currency controls and black markets offer a truer reflection of a currency’s value based on supply and demand.</p>
<p>However, this was one policy change too many. The naira lost a staggering <a href="https://www.focus-economics.com/countries/nigeria/news/exchange-rate/central-bank-sets-the-naira-free-to-fall/">25% of its value</a> in one day, and the cascading effects now push the country to the brink.</p>
<p>Nigeria depends heavily on imported commodities, including essential goods like food, fuel and medicine. So the policy escalated the inflationary crisis, pushing inflation to almost 30% (the major driver being food inflation, which <a href="https://leadership.ng/food-headline-inflation-spike-to-35-4-29-9/">reached 35.4%</a>). </p>
<p>Imports in general have become significantly more expensive, and Nigerians are finding their purchasing power being eroded. Wages in Nigeria are pretty fixed. The current minimum wage in the country is <a href="https://www.statista.com/statistics/1119133/monthly-minimum-wage-in-nigeria/">₦30,000</a> per month and the average monthly income is <a href="https://wagecentre.com/work/work-in-africa/salary-in-nigeria">₦71,185</a>. </p>
<p>Businesses are also feeling the pinch, facing difficulties accessing the <a href="https://www.trade.gov/country-commercial-guides/nigeria-market-challenges">foreign exchange</a> critical for importing raw materials and equipment. </p>
<h2>Pheonix or ash?</h2>
<p>The Central Bank of Nigeria has implemented measures to counter the crisis. It recently raised interest rates from <a href="https://punchng.com/just-in-cbn-raises-interest-rate-to-22-75/">18.75% to 22.75%</a> and is selling US dollars through auctions. </p>
<p>Recovery is a possibility and there are already signs of appreciation in the currency. The <a href="https://businessday.ng/news/article/naira-records-first-gain-at-official-market-after-rate-hike/">naira appreciated</a> by 6.89% a day after interest rates were raised. But it will be a long, hard road. </p>
<p>These strategies often come with trade-offs. Higher interest rates can stifle already struggling economic growth, while currency interventions might deplete already strained reserves of foreign currency. </p>
<p>The bottom line is that if the current cost of living crisis continues, civil unrest is likely. Should this happen, who knows what – if anything – will be left behind when the flames are done.</p><img src="https://counter.theconversation.com/content/224545/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kunal Sen has received funding from ESRC and DFID. </span></em></p><p class="fine-print"><em><span>Chisom Ubabukoh does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Africa’s largest economy is in crisis, and unrest is growing.Chisom Ubabukoh, Assistant Professor of Economics, O.P. Jindal Global UniversityKunal Sen, Professor and Director, World Institute for Development Economics Research (UNU-WIDER), United Nations UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2248032024-03-05T16:21:01Z2024-03-05T16:21:01ZIf you follow the degrowth agenda, it leads to an economy that looks a lot like the sickly UK<p>The degrowth movement has become <a href="https://foreignpolicy.com/2023/12/17/degrowth-economics-europe-climate-policy/">very popular</a> in recent years, particularly among younger people who appreciate <a href="https://grist.org/looking-forward/the-growing-popularity-of-degrowth/">its critique</a> of the endless pursuit of economic expansion. The problem with growth, advocates argue, is that it implies the use of more and more resources and energy, as well as ever larger quantities of waste. </p>
<p>Well, the good news for the movement is that one of the world’s leading economies has offered itself up as a case study. If you look past the debate about whether the UK’s recent <a href="https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpfirstquarterlyestimateuk/octobertodecember2023">technical recession</a> is going to deepen or <a href="https://www.lloydsbankinggroup.com/assets/pdfs/media/press-releases/2024-press-releases/lloyds-bank/2024.02.29-business-barometer-february-2024.pdf">peter out</a>, the economic situation is pretty dire. </p>
<p>The UK’s GDP per person (or per capita), which economists view as the best measure of the wealth of a country, <a href="https://www.statista.com/statistics/785543/quarterly-gdp-per-capita-uk/">has declined</a> in seven out of the most recent eight quarters. At the end of 2023, GDP per person was still lower than before the COVID pandemic. In contrast, <a href="https://stats.oecd.org/index.aspx?queryid=66948#">the US equivalent</a> is up 7%. </p>
<p><strong>UK GDP per capita 2005-23</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/579137/original/file-20240301-20-fcuz60.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Graph showing GDP per capita in the UK over time" src="https://images.theconversation.com/files/579137/original/file-20240301-20-fcuz60.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/579137/original/file-20240301-20-fcuz60.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=395&fit=crop&dpr=1 600w, https://images.theconversation.com/files/579137/original/file-20240301-20-fcuz60.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=395&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/579137/original/file-20240301-20-fcuz60.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=395&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/579137/original/file-20240301-20-fcuz60.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=497&fit=crop&dpr=1 754w, https://images.theconversation.com/files/579137/original/file-20240301-20-fcuz60.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=497&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/579137/original/file-20240301-20-fcuz60.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=497&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">GDP per capita is by chained volume measures, which is a way of adjusting the statistics to account for inflation.</span>
<span class="attribution"><a class="source" href="https://www.ons.gov.uk/economy/grossdomesticproductgdp/timeseries/ihxw/pn2">ONS</a></span>
</figcaption>
</figure>
<p>One main reason for the UK stagnation is a lack of investment in productivity, which advocates of degrowth would argue is an essential part of moving away from a resource-hungry economy. So what can we learn from the UK’s experiences so far?</p>
<h2>The degrowth perspective</h2>
<p>Degrowth has become the latest element in a <a href="https://press.uchicago.edu/ucp/books/book/chicago/E/bo3639845.html">long line</a> of critiques of economic growth. One leading proponent, the Spanish ecological economist <a href="https://www.sciencedirect.com/science/article/abs/pii/S0921800910005021">Giorgos Kallis</a>, defines it as the “socially sustainable reduction of society’s throughput”, which is “incompatible with further economic growth, and will entail in all likelihood economic (GDP) degrowth”. </p>
<p>Pursuing GDP growth is criticised, both because of its increased use of resources and for “<a href="https://www.penguin.co.uk/books/441772/less-is-more-by-jason-hickel/9781786091215">unrealistic expectations</a>” that technological improvement and productivity growth would allow us to stay within so-called “<a href="https://www.nature.com/articles/461472a">planetary boundaries</a>” (meaning the limits beyond which humanity will be unable to continue to flourish). </p>
<p><a href="https://www.sciencedirect.com/science/article/abs/pii/S0921800910005021">Kallis</a> argues that degrowth implies reduced spending on goods and new technology, while distinguishing “good” and “bad” investments:</p>
<blockquote>
<p>We will have to do with less high-speed transport infrastructures, space missions for tourists, new airports or factories producing unnecessary gadgets, faster cars or better televisions. We may still need more renewable energy infrastructures, better social (education, and health) services, more public squares or theatres, and localised organic food production and retailing centres.</p>
</blockquote>
<p>Yet this fails to appreciate that <a href="https://www.sciencedirect.com/science/article/abs/pii/S0921800910004209">a reduction in GDP</a> implies lower investment in technologies across the board, including those underpinning renewable energy. It also misunderstands that modern economic growth is not driven by accumulating and using more resources, but by innovation through investment. Witness what has happened in the UK. </p>
<h2>The UK situation</h2>
<p>The chart below shows the continual decline of investment in the UK relative to other major economies:</p>
<p><strong>Total investment as a % of GDP</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/579211/original/file-20240301-22-fhjn8o.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Chart showing investment levels in different economies" src="https://images.theconversation.com/files/579211/original/file-20240301-22-fhjn8o.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/579211/original/file-20240301-22-fhjn8o.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=416&fit=crop&dpr=1 600w, https://images.theconversation.com/files/579211/original/file-20240301-22-fhjn8o.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=416&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/579211/original/file-20240301-22-fhjn8o.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=416&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/579211/original/file-20240301-22-fhjn8o.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=522&fit=crop&dpr=1 754w, https://images.theconversation.com/files/579211/original/file-20240301-22-fhjn8o.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=522&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/579211/original/file-20240301-22-fhjn8o.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=522&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.ippr.org/articles/now-is-the-time-to-confront-uk-s-investment-phobia">IPPR</a></span>
</figcaption>
</figure>
<p><a href="https://www.productivity.ac.uk/wp-content/uploads/2022/12/WP030-Macroeconomic-Perspectives-FINAL-131222.pdf">This reflects</a> both a decline in UK private investment and a decision to poleaxe public investment since the beginning of the 1980s (spending has improved a little since the global financial crisis of 2007-09). </p>
<p>This has meant that the UK’s rate of productivity growth has lagged the competition, not yet even returning to its level before the global financial crisis: </p>
<p><strong>Growth in productivity, 1950-2023</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/579199/original/file-20240301-20-upis86.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/579199/original/file-20240301-20-upis86.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/579199/original/file-20240301-20-upis86.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=419&fit=crop&dpr=1 600w, https://images.theconversation.com/files/579199/original/file-20240301-20-upis86.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=419&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/579199/original/file-20240301-20-upis86.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=419&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/579199/original/file-20240301-20-upis86.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=526&fit=crop&dpr=1 754w, https://images.theconversation.com/files/579199/original/file-20240301-20-upis86.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=526&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/579199/original/file-20240301-20-upis86.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=526&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Productivity is measured as GDP per hour, adjusted for purchasing power parity.</span>
<span class="attribution"><a class="source" href="https://www.economicsobservatory.com/what-explains-the-uks-productivity-problem#:~:text=It%20is%20in%20the%20bottom,of%20improvement%20in%20recent%20years.">The Economics Observatory</a></span>
</figcaption>
</figure>
<p>This goes a long way to explaining the UK’s weak GDP per capita, along with the <a href="https://wrap.warwick.ac.uk/117419/1/WRAP-fall-potential-output-financial-crisis-bigger-UK-Crafts-2019.pdf">effects of Brexit</a>, which the underperforming economy <a href="https://www.aeaweb.org/articles?id=10.1257/aer.20181164">had encouraged voters</a> to support in the first place. </p>
<p><strong>GDP per capita, G7 nations</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/579213/original/file-20240301-30-7rnpm2.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Chart comparing GDP per capita in the G7" src="https://images.theconversation.com/files/579213/original/file-20240301-30-7rnpm2.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/579213/original/file-20240301-30-7rnpm2.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=367&fit=crop&dpr=1 600w, https://images.theconversation.com/files/579213/original/file-20240301-30-7rnpm2.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=367&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/579213/original/file-20240301-30-7rnpm2.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=367&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/579213/original/file-20240301-30-7rnpm2.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=461&fit=crop&dpr=1 754w, https://images.theconversation.com/files/579213/original/file-20240301-30-7rnpm2.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=461&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/579213/original/file-20240301-30-7rnpm2.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=461&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Figures are adjusted for purchasing power parity.</span>
<span class="attribution"><a class="source" href="https://stats.oecd.org/index.aspx?queryid=66948#">OECD</a></span>
</figcaption>
</figure>
<p>The UK hasn’t been the worst G7 performer since the pandemic – Canada and Germany have fared even worse – but it fits the degrowthers’ model particularly neatly in some respects (they do also call for various pro-equality measures, so the comparison only works up to a point). </p>
<p>Degrowthers are clear to distinguish their proposals from a recession, portraying it more as a <a href="https://www.tandfonline.com/doi/full/10.1080/14747731.2020.1812222">planned “coherent policy”</a>. The planned disinvestment in the UK has helped to bring about some developments that they would presumably welcome. Carbon emissions have <a href="https://www.gov.uk/government/news/uk-first-major-economy-to-halve-emissions#:%7E:text=New%20official%20statistics%20confirm%20UK,50%25%20between%201990%20and%202022.&text=The%20UK%20is%20the%20first,official%20statistics%20released%20today%20confirm.">fallen substantially</a>, while <a href="https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/employmentintheuk/february2024">unemployment</a> has not risen and inequality has <a href="https://equalitytrust.org.uk/scale-economic-inequality-uk">only increased slightly</a>. </p>
<p>On the other hand, the weakness in GDP per capita shows it hasn’t been great for living standards. Also, when GDP growth is lower than the interest rate that the state pays on outstanding debt, the state has less money to spend. This is why tough choices have had to be made in the UK about public services including the NHS and education – and the situation is likely to only get worse. </p>
<p>This goes some way to explaining the <a href="https://www.ipsos.com/en-uk/eight-ten-britons-are-dissatisfied-how-government-running-country">high dissatisfaction rates</a> among people in the UK, though of course the long period of Conservative rule and the government’s perceived mishandling of things such as the pandemic and the economy are also major factors.</p>
<p>Nonetheless, it does suggest that people don’t like the effects of degrowth as much as the concept. Degrowth advocates might well counter that this is the price we have to pay for a better environment. They would also argue that the UK has not adopted their pro-equality agenda. Equally, however, their failure to recognise that investment in technology can drive both growth and climate change solutions is a major weakness in their arguments. </p>
<p>That doesn’t mean there’s a simple “off-the-shelf” solution to fixing the UK’s investment problems – the Truss premiership found this out the hard way. Replicating Thatcherite reforms without the support of oil funds to finance government spending will not work: North Sea oil was about <a href="https://www.sciencedirect.com/science/article/abs/pii/S0095069613001083">5% of GDP</a> at its peak, and was a <a href="https://www.sciencedirect.com/science/article/abs/pii/S0301421520300331">significant contributor</a> to government spending. </p>
<p>Any step change will therefore need to rely mainly on private investment. <a href="https://www.cbi.org.uk/media-centre/articles/manufacturing-output-falls-while-selling-price-expectations-accelerate-cbi-industrial-trends-survey-3/">Business confidence</a> will be key to <a href="https://www.statista.com/statistics/623727/business-confidence-in-the-united-kingdom/">spurring this</a>, and has not been helped by chops and changes to public policy in recent years – <a href="https://www.constructionenquirer.com/2023/10/04/its-official-rest-of-hs2-is-cancelled/">HS2 being</a> an obvious example. </p>
<p>Degrowth advocates will not welcome this kind of approach, but technological improvement is ultimately likely to be a better way of achieving their goals than impoverishing people.</p><img src="https://counter.theconversation.com/content/224803/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Eoin McLaughlin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Degrowthers advocate cutting investment as a way to reduce use of precious resources, which is exactly what the UK government has been doing for the last 40 years.Eoin McLaughlin, Professor in Economics, University College CorkLicensed as Creative Commons – attribution, no derivatives.