Higher growth – of the right kind – is a desirable goal. But Britain has a dismal record on this front. The rate of economic growth in the UK has slowed sharply since the millennium. Today it is lower than those of other rich nations.
However, this is only one of the multifaceted problems the country faces. Levels of poverty are double those of the 1970s. The income gap between rich and poor is wider than in nearly all other countries. And key public services have been starved of resources.
Neither the Labour party nor the Conservatives have much to say about these multifaceted crises, nor how to tackle them. The message seems to be that without faster growth, little can be done – a stance which recent history shows is far from the solution to either rising poverty or social frailty.
My research shows that the gains from economic activity in recent decades have been increasingly captured by a small, rich elite, while many post-war social gains have been reversed. This has been greatly exacerbated by rolling austerity measures since 2010.
Britain’s pro-rich, anti-poor bias is central to its broken economy and fractured society. In recent decades, key determinants of national strength – rates of innovation, investment, labour force skills and the quality of social support – have lagged those of our competitors.
A primary, if not the only reason for this failure, has been the way business activity, too often aided by misplaced state policies, has been increasingly geared to quick personal enrichment. This process of “corporate extraction” by a small elite has come at the expense of the long-term wealth creation that would boost economic resilience and serve the common good.
Neoliberal economists claim that weaker state regulation makes markets more competitive. However, more relaxed rules hand greater freedoms to boardrooms, enabling them to consolidate corporate power. Key markets, from banking and audit to pharmaceuticals and housebuilding, are now dominated by a few narrowly owned and controlled companies.
Many large corporations have been turned into cash cows for owners and executives. Boardrooms have adopted anti-competitive devices, from killing off rivals to price collusion. This is a return of what the American economist Thorstein Veblen termed “market sabotage” over a century ago.
Such practices crowd out the kind of innovation that offers greater social value. Since the Victorian era, they have been a central driver of Britain’s low wage, low productivity and high poverty economy. And their return in recent decades has become a key barrier to social and economic progress.
Instead of private investment and wages being boosted, the rising profits of recent times – which have continued to grow during the pandemic – have been siphoned off in disproportionate payments to shareholders and executives.
A 2019 report from the Trades Union Congress reported that three-quarters of the profits of FTSE 100 companies were returned to shareholders in buy-backs and dividends in the four years from 2015.
With UK corporations increasingly owned by overseas institutional investors – notably US asset management firms – little of this flow has ended up in UK pension and insurance funds or been fed back into the domestic economy.
Wealth creation versus appropriation
In 1896, the influential Italian economist Vilfredo Pareto distinguished between “value-added activity” that brings gains across society and “extractive” or “appropriative” business practices that benefit a powerful minority.
Appropriation was commonplace in the 19th century. With the return of concentrated power, such practices have once again become dominant. These include the rigging of financial and product markets and the skimming of returns from financial transactions.
Consortiums of private-equity investors seeking fast and inflated returns have taken over many publicly listed companies (from motoring group the AA, to retailers Topshop, Debenhams and Morrisons, to name a few). In many cases, including Debenhams and Topshop owner Arcadia Group, this has weakened long-term viability.
Key public services are now undergoing similar treatment. Social care, once provided largely by public agencies, has become a key target for the private buy-out industry. As a result, significant proportions of public money are being effectively siphoned off by the new providers.
These trends have had a mostly damaging effect on the way society functions. An important effect of the process of wealth accumulation, for example, has been the diversion of resources from meeting the basic needs of all citizens to feed the lifestyles of the wealthiest.
As a result we are seeing the reappearance of what the American economist JK Galbraith once called “private affluence and public squalor”. Since 2010, at least 1,000 Sure Start childcare and family services centres have folded in England. Cuts in council spending have led to the loss of more than 4,500 youth worker jobs.
Post-war social reforms
When Clement Attlee became UK prime minister in 1945, his Labour government inherited a society shattered by war. The public was hungry for change. Heeding economist and social reformer William Beveridge’s 1942 warning that Britain needed “more than patching”, he ignored the nation’s historic debt crisis (the result of paying for the war).
Instead, he launched an unprecedented programme of social spending that took priority over boosting private consumption. Ground-breaking and popular reforms included the National Health Service, a comprehensive, compulsory and universal system of national insurance, and family allowance benefits.
The strategies of both main political parties today contain a central contradiction. Higher growth alone, even if it can be delivered, will not bring a stronger, fairer and more equal society. That requires a transformative plan to tackle the way in which so much of modern business strategy drives inequality. As in 1945, this means more than “patching”.