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If growth benefits only the rich, politics will get very interesting

Posted on 22 May 2011 | 10:05am

An interesting and thoughtful piece from Gavin Kelly in The Observer. You can read the whole article at the bottom of this post, but the basic point is that there has been something of a collapse in living standards for what Ed Miliband, Gavin’s former colleague in the Gordon Brown team, calls the squeezed middle, and that this may continue even when growth comes, with significant political consequences.

In his speech yesterday, Ed said the gap was no longer between rich and poor, but between rich and everyone else. In other words, there are people who are doing very well, and people who are struggling at the bottom end, but now most people in the middle feel they are struggling too.

Gavin, who now heads the Resolution Foundation which is publishing a report on all this later this week, points out that generation after generation has seen kids doing better financially than their parents, but that this generation may not. He points out that the political consequences of this may be profound.

It is interesting to see the Spaniards now taking part, despite being a democracy, in protests that owe their inspiration and their style to the Arab spring. That is what 40 per cent plus youth unemployment can do to you.

Here in the UK, you sense that the bankers feel the storm they helped cause has passed and they can go back to their old ways, their old bonuses, and let superinjunctor Fred Goodwin continue to act as a lighting rod for all of them. Gavin’s report confirms me in the view that they are wrong and that unless they both signal they get it, and also do a better job of explaining why they are part of the solution as well as the problem, the heat will be back on them before long.

Soon, the name of Glencore will enter the national lexicon and we will have paraded in front of us a group of men for whom the flotation of their company will deliver wealth on a par with whole regions of some of the countries where they operate.

What governments do about this is not simple. But it seems fairly evident that when everyone feels like they benefit from economic prosperity, the many will just about tolerate the excesses of the few. Gavin Kelly and his report seem to be suggesting that even when growth comes it is likely to benefit the few not the many. That will make for a very interesting and challenging political landscape, which will make the tuition fees row look like a stroll in the park.

You can read Gavin’s Observer piece here

  •  Alastair, I agree with you entirely on this. I’m from Australia and we are now, and have been for about the last five years seeing the effect of unequal distribution of wealth and growth on the political process.

    One of the major themes of the last two elections, held in 2007 and 2010 has been pandering to what former Liberal (read for anyone unfamiliar with Australian politics as conservative, the party as it stands is well to the right of the Tories on both economic and social issues) PM called Battlers and what Labor (we spell it without the U) calls Working Families. 

    Essentially these people are the Australian equivalent of the squeezed middle. Almost without fail they live in the middle to outer suburbs of major cities, are white collar workers, often in the public service on incomes of roughly AU$70,000+ (46,000 pounds) per year (often substantially higher, my parents would consider themselves part of this demographic and their combined per annum income is roughly AU$155,000 (102,000 pounds), both work for Sydney South West Area Health Service (public sector health care provider.)) This may seem like a lot of money but with growth comes inflation and you trying to convince these people that they are better off when the average house price in Camden, on the very edge of the south-west suburbs of Sydney is $450,000 (295,000 pounds) and a loaf of of bread costs upwards of $4.00 (2.60 pounds.)

    Those of us who are the children of these people realize that we aren’t going to have it as good as our parents did. It is, among my own group of friends rare to have a better education than your parents had, it is even rarer that, as we head into our thirties that we have any sort of foothold in the property market, most of us are resigned to the fact that we will never own homes, most of our parents had mortgages at our age. 

    The political reaction to this growing problem in Australia has been rather unfortunate and has focused on attacking the welfare state rather than attacking the causes of the unequal distribution and beneficiaries of wealth. Tertiary education costs have risen dramatically (we look at the UK and laugh at the idea of rioting over the increases that have been allowed, at one stage it was possible to pay over $100,000 (65,000 pounds) for a degree here, the Labor Party had the good sense to overhaul the fees system when they got into power in 2007.) There have been major cuts to programs such as the Pharmaceutical Benefits Scheme (PBS) which aims to reduce the cost of medication, either because the medications are extraordinarily expensive, as is the case with with a lot of chemotherapy drugs for example and to low-income earners. Both the range of drugs available and the eligibility requirements for low-income earners have been significantly tightened. Eligibility for social security benefits has been progressively tightened, especially for unemployment benefits and disability benefits. On a personal level this has led to the rather frustrating situation where I am, because I happen to be seven years older than my sister, eligible to receive a disability benefit and my substantially more disabled sister is not. 

    There are a lot more examples of the poor handling of the squeezed middle by both the Labor and Liberal parties. Long story short, both parties have chosen to, largely for short-term political gain chosen not to focus on the causes of inequality but rather scapegoat the most vulnerable members of society to pander for votes.

    I can only hope that the political parties in UK don’t end up going down the same path.

  • Olli Issakainen

    In addition to over a thousand books and thousands of magazines and annual reports, I have about a hundred files full of newspaper cuttings and articles printed from the internet.
    The articles in the files are in colour-coded sections. The most important ones are at the beginning.
    Toby Helm´s article about Gavin Kelly´s Resolution Foundation report is at the top section in my latest file.
    Whether the falling living standards and lower aspirations will be reversed even when the UK economy returns to robust health is the question. (I do leave aside my opinion that it will not return under Mr Osborne.)
    The squeezed middle are losing out in the post-boom era, as the highest earners take more from proceeds of limited growth and so-called middle-skilled jobs are replaced by advancing technology.
    Current generation of hard-working individuals is being left with lower-paid jobs in retail and care. Its living standards will not be rising as output expands.
    As Ed Miliband has said, inequality is now also between those at the top and those in the middle and on lower incomes.
    This is nothing new. This has been going on at least since 2003. Now it looks to worsen.
    Median earnings were flat in the UK from 2003-2008, and are expected to fall in the coming year.
    As I have said before, we are heading for a society which consists of the super-rich and the rest.
    Pay gap is widening to Victorian levels. Top earners´ slice of national income will rise from current 5% to 14% by 2030.
    72% of the public think that high pay makes Britain a grossly unequal place to live. By 2030 the top 0.1% of UK earners will get 14% of national income!
    The gap between the corporate elite and general public is widening beyond control.
    In 2010 the average annual salary of FTSE 100 chief executive was more than £3,747,000, 145 times greater than national median full-time wage of £25,800. By 2020 the ratio will be 214:1.
    Why are people not complaining about this more?
    Rich prosper, but others struggle with inflation (now twice the wage growth) and spending cuts. According to the Sunday Times Rich List the top 1,000 are £60.2bn better off than in 2010.
    The top-paid banker at Barclays will get £14m, 1,128 times more than the lowest-paid employee!
    And now after 15 years of virtual stagflation, most people´s incomes are set to fall.
    Between 1997 and 2008 the top 0.1% got a £19,000 pay rise every year, a gain of 67% over 11 years. The top 0.01% did even better.
    This is all down to neoliberalism in both the US and UK. The very rich are soaring ahead leaving others behind including doctors, teachers etc.
    It is claimed that pay levels are dictated by global competition.
    It has been difficult to translate into political programme the view of the majority that differences in income are too large. Envy is a difficult emotion to sustain across a broad social distance. Most Britons underestimate the rewards of bankers and executives.
    Top pay has reached such levels that figures mean little to ordinary people.
    But this inequality should completely change the political landscape.  The problem is that the middle classes have internalised the values of individualist aspiration propagated by Margaret Thatcher and Tony Blair. They do not look to social justice to improve their lot.
    The struggling middle classes look more anxiously to down than to up. They do not like redistribution.
    Americans accept tax cuts to rich.
    Neoconservative right believes in a minimal state and free markets. The Tories in Britain are now advocating neoconservative ideas. But these ideas are mistaken and dangerous.
    Labour must seize the opportunity and build a cross-class consensus for a MORE EQUAL SOCIETY.
    Ed Miliband is thinking on right lines when he targets the “squeezed middle”.  

  • Trudi Freestone

    spot on, both your piece and his. None of the main parties are really challenging this orthodoxy which relies on everyone thinking if bosses and companies do well we all will. it is not happening and I predict the anger to grow. Because the media are part of the boss elite, they do not understand how people are feeling on this and how those feelings grow. 

  • Chrissie Kingsley

    I was thinking exactly the same about Glencore the other day. it has emerged out of nowhere and I saw an interview with one of the key people who is living in a different world to the rest of us … including saying he would not hire young women because they go off and get pregnant. There was something chic about ostentatious wealth a while back but it is becoming nauseous

  • Colin James

    I read your blog about Ed Miliband yesterday and as a result looked up his speech which I agreed was interesting in several respects. Yet looking at most of the papers it is as though it did not happen. The media is totally reverting to its Tory traditions

  •  Gavin
    Kelly states “Many economists now expect families gradually to run down their
    debts in the years ahead, reversing the trend of the last two decades, so
    another prop for today’s living standards is removed.”  According to the Guardian on 2 April the
    OBR is assuming that household debt will rise substantially by 2015.
    Things will get even more interesting if they don’t.

  • Gavin
    Kelly states “Many economists now expect families gradually to run down their
    debts in the years ahead, reversing the trend of the last two decades, so
    another prop for today’s living standards is removed.”  According to the Guardian on 2 April, the OBR is assuming that household debt will rise
    substantially by 2015.

    Things will get even more interesting if they don’t.

  • Gilliebc

    Worrying times for all except the very wealthy.  Regular contributor to AC’s web site Olli I, has got it right when he refers to the pay gap widening to Victorian levels!  Talking of Victorian levels the Devon and Somerset Fire Authority in a bid to save £2 million has in addition to other cost-cutting ideas, sent letters to front-line staff i.e. Firefighters “suggesting” they work a 96 hour straight shift!
    Whatever happened to Health & Safety?  They, the D&SFA say this would be “voluntary” however the consequences of not “volunteering” would be quite drastic.  I suppose I ought to declare a personal interest in this particular issue and say that my husband is a retired Firefighter, a veteran of the 1977/8  10 week all out strike.  But more importantly to my husband and me now is the fact that our son, married with 2 young children, is a currently serving Firefighter.  I think it’s fair to say that terms and conditions improved greatly after the 1977/8 strike and I for one won’t sit idly by whilst this Tory Led government trys to make the working class people in particular the public sector workers pay for the huge mistakes made by the bankers who used their high-power jobs to play roulette with the Country’s economy.

    The Tories have deliberately made the words “public sector workers” into something akin to scroungers and it plays very well with a lot of private sector workers who are not doing too well at the moment.  It serves the Tories purpose well if people think that the Country’s present economic situation is due in a large part to the so-called overblown public sector. The fact that this is simply untrue does not stop a large majority of the electorate thinking and feeling that way.  Perhaps Ed M could try and address this misconception sometime soon.

    On a lighter note, I’ve got some facts and figures somewhere about the public sector.  Perhaps I should adopt the Olli I system of filing i.e. colour coding!
    that’s a great idea, I luv it!   I bet he’s got his DVD’s etc. well organised also.

  • ambrosian

    Is this saying any more than that trickle-down economics, so beloved of Reagan and Thatcher, is nonsense? I thought it had been proven long ago that the trickle-down effect simply does not work.

    And it’s funny how we seem to get a lot more hand-wringing over the squeezed middle than over the crushed poor. Maybe it’s the belief that “the poor are always with us” combined with the re-emergence of Victorian notions of “the undeserving poor”. 

  • MicheleB

      I can’t help wondering at what stage a private sector worker becomes recognised as a state employee when they work for a company whose only clients are Govt departments.

      Am also starting to feel sorry for the lack of knowledge some people will ever have, ever achieve, if they don’t experience stuff first hand themselves. 

    How can a poor lickel uber-rich like DC (apt initialism) or a GO (even more apt) ever comprehend what makes some debt acceptable?  Even sensible, even worth owning? 

    NObody wants debt but without it I wouldn’t now own a house.  If I had been scrupulous about avoiding debt (especially the period of 16/18% interest rates under Snatcher) and had insisted on saving up to buy in cash I would have been paying rent all the while plus having to save an ever-increasing total amount.  What ideology makes THAT sensible? 

    I must admit I’m thick in these matters, I can fully understand why someone with a £35m inheritance would never ever need good debt but for the life of me I don’t understand why he would take a Govt-funded mortgage in order to pay off another / earlier one that he’d taken out ….


    But …… the most important aspects of ‘good debt’ are that it allows the enjoyment and use of and benefit from things sooner AND if it has been negotiated at beneficial interest rates it means generations don’t get skipped by debt-phobes. 

    It’s what has funded the re-building of the country’s infrastructure so we no longer have to feel ashamed of what our children have to accept (vs: the schools situation of the 80s/early 90s) or dread having to visit a falling-down hospital.

    Aggggh have just seen the time, how did I get here?  

  •  There are ‘easy’ solutions in dealing with banks that have excessive bonuses & no sense of social responsibility…but no one will say the answer for fear of being branded a Marxist.

  • There is a quick and easy solution regarding how banks operate,  their excessive bonuses and complete disregard towards social responsibility…
    No one will say it though for fear of being branded a Red Menance Marxist.