Not Out of the Woods Yet

A quick scan of the adverts placed on British television and it is easy to see the predominance of companies covering gambling, lotteries and expensive pay day loans.

These are all products for desperate people and reflects the continuing weakness of the UK economy. I cannot believe that so many of the UK’s population have suddenly discovered the joys of horse racing or an interest in the number of corners in a particular football match. The fact that many are now turning to the hope of a quick win to boost their finances or hoping against hope that they will scoop the lucky six balls reflects the continuing difficulties many in our society are facing.

UK employment figures are however buoyant despite the latest figures showing that unemployment numbers have stuck at 5.1% for the quarter to December 2015. What is significant is that wage growth is not high. This suggests that a lot of the new employment could be in low paid sectors where zero hours contracts are prevalent or in low pay industries such as care, retail and hospitality. There is also a significant increase in the numbers of those setting up self-employed occupations. Self-employment is often the second choice for those unable to find work. Those who are self-employed will not reap any benefit from the proposed living wage increase and neither will they gain employment rights to unemployment benefit or other social security measures.

It is also sad that today sees the confirmation by Tata Steel UK that the Port Talbot plant will in all likelihood be closed if a buyer cannot be found quickly with the consequent loss of jobs for South Wales. This on top of the job losses announced in other parts of Britain. This is particularly poignant to me as during my school days in South Wales in the 1970’s one of the great sights was driving past the Llanwern Steel Works all lit up and producing steel 24 hours a day. The closure reflects the lack of demand for steel world wide and the fact that other producers can produce steel at a much lower cost, notably China. Oil prices are also very weak further highlighting the lack of demand globally.

The signs are that the global economy is still weak and that the UK has a way to go before it too is out of the woods.

 

 

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The Fall and Rise of Inequality in the UK ?

I can just about remember two generations back in my family and that only on one side.

My Grand Father (Mothers side) was born into the penultimate decade of the 19th Century and died in 1966. He was born in the later years of the reign of Victoria and it was a very different world to that which we inhabit now. It was a world of the very wealthy and a a world of the very poor. Unemployment insurance wasn’t introduced until 1913 and not fully implemented until 1920 when the majority of the working age population became eligible. There was no universal healthcare until 1946.

But over his lifetime the inequality between the population narrowed. A B Atkinson and S Morelli show that the top 1% had a share of total wealth in 1923 of 41.8%. falling to 19% by 1990 (Atkinson and Morelli 2014).  Shares in gross income for the top 1% also fell over this period. Recently this trend has been reversed.

My Grand Father fought in both world wars and reaped the benefits of the social contract forged between the ruling elites and the working man who defended their right to rule by fighting foreign foes. In return the rulers promised a world fit for heroes. He benefited from American loans after the war which helped to re-build the UK. He wasn’t by any means wealthy but he had a good job working as a compositor for the Cambridge University Press and life after the Second World War at least was comfortable.

My Father, born in 1926 really reaped the rewards of the post war boom. He never became, in his words, a “hero” having joined the Royal Air Force at the age of 17, lying about his age to get in. The Air Force sent him to South Africa to be trained and by the time he was ready the war was over. It was a genuine disappointment for him that he was not able to do his bit.

What he received instead was a scholarship to Cambridge, courtesy of being a demobbed local boy and a solid career for life with Lloyds Bank with a final salary pension and membership of the golf club. Britain was booming at least until 1970. Houses were affordable and the prices of consumer goods were falling all of which narrowed the wealth gap.

The early 1970’s were dismal. A transition phase for Britain both politically and economically. Plagued by high inflation, unemployment, Trade Union strife and violence. From the casual Saturday afternoon skirmishes of the football hooligan to the more destructive bombs and shootings born from the political unrest in Northern Ireland. The countries of the Middle East suddenly realised the value of what was under the sands and the price of energy rocketed further reducing Britain’s industry to virtual rubble.

Me, the third generation, formed part of the do it yourself work generation. There were no jobs for life with promotion through the ranks but escalating changes from employer to employer. Pensions were the responsibility of the individual but few took up the savings bug preferring to put cash into property and family and leave the future to itself. From the 80’s on prosperity generally increased. There were a few glitches in the system notably in early 1980 and in 90/91 but these were due more due to national political decisions rather than external factors and in general prosperity for all was on the up until the catastrophe of 2008 which saw a world wide contraction.

The contraction in 2008 from which we are still recovering definitely saw a change in wealth inequality but that was inevitable. But I am not sure it is in reality necessarily a permanent upward trend. Certainly the link between the ruling elite and the rest of the the population which was strengthened via two World Wars has gone over the past 70 years and there is no need for the new elite to buy the co-operation of the rest of us.

I suppose that is the point. It is not that inequality has got wider more that the nature of the inequality has changed. In Edwardian times the rich were the landowners, industrialists and bankers and the working class accepted that these groups were different from them. That there was a hierarchical reason for the disparity in wealth. Today the inequality lies not in a distinction between classes. Today the top employees of a bank have phenomenal wealth compared to that of the clerk on the till but they are both still employees. Musicians, sportsmen film stars achieve phenomenal wealth but are essentially the same people from the comprehensive schools as those those who work in shops and offices. Without that sense of difference the perceived inequality is all the more acute for those of the same backgrounds as those who “make it”.

Finally the rich are far more global in there movements. No longer do the rich remain in their country of birth and no longer do the rich have a sense of place. They choose to live in places that minimise their tax and maximise their safety. There is no longer the view that a rich man should contribute to the well being of their nation of birth if they don’t want to and it is that which creates a sense of inequality. There has always been inequality and I am not convinced that the overall levels of inequality have increased dramatically since the Victorian era to the present day. What has changed is the nature of that inequality in that it seems far more randomised than in previous times.

 

 

 

Brexit – What’s the story

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Ever since the Conservative Government of Edward Heath took Britain into what was then the European Economic Community (EEC) MPs of all colours have swung between agreeing that membership is good or bad for Britain. Over forty years later the political classes are still arguing.

It is easy to see why politicians might be opposed to the influence of Europe. Membership of the EU is a constraint on the political power of politicians at the individual state level.  Membership reduces their personal influence and power. No wonder they may hate the EU.

For the rest of us Europe has largely been an irrelevance. The occasional angst at attempts to ban the pint or the great British sausage or concerns over holiday money costs is about it. Now it is back on the agenda with a vengeance.Should it be? What really are the issues confronting the voter and which are truly going to affect us?

Firstly, let’s be clear there have always been disputes between European nations some of them disastrous. Further there have always been treaties and agreements between the European nation states and these have been maintained by various mechanisms from royal inter-marriages to interlocking treaties between states. The point is that a vote to leave will not result in a clean break from Europe and because Britain, if it is indeed still Britain, will be outside the European political mechanism each negotiation will probably be longer and messier.

Secondly, for those not old enough to remember the early seventies when Britain joined the European collective it was a period where Britain was a failing state. There was uncollected rubbish in the streets, power cuts, three day working weeks, corpses weren’t being buried and bombs were going off in mainland cities and in Northern Ireland on a daily basis. Since then during the period of British membership of Europe Britain has done rather well both economically and politically  That said there are a number of items on the agenda that everyone seems concerned about.

SOVEREIGNTY – This is the one politicians care about. Pesky foreigners interfering with British laws which they alone should have a right to decide. To be fair no-one likes to be told what to do but the fact is that the majority of British voters did not vote for the ruling party in Parliament. The last time a single party had more than 50% of the vote was 1931. We all cede part of our personal sovereignty in a variety of ways every day be that at work, at a local political level for things like who can park in the street and when to at a national level when we allow Parliament to decide on law that individually we might not necessarily agree with. Is it right to draw the line at the Parliamentary stage and say that that stage is the full extent that sovereignty should be ceded? Emotionally everyone probably wants decisions effecting them to be decided by their national parliament and in the majority of instances they will be. But there are wider issues that should be decided on a European scale not just on a national scale such as the environment, defense, trading rules and pan European policing initiatives. The leave campaign will say that all of these decisions can be made without being part of the European Union and indeed all things are possible but is it necessarily for the best? Norway and Switzerland are both non-EU members but in reality these countries do adhere to EU policies on the Right of Free Movement, immigration and numerous other EU wide agreements.

It is also arguable that membership of a wider European political system acts as a brake on the growth of extremist views in any one individual state. Europe has been decimated in the past by extremist politics.   A forum where all of Europe can meet to discuss mutually beneficial policies can only be a good thing.

We would all like, as individuals, to decide our own destinies but any individual voter does not have that right anyway. Parliamentary democracy is subject to the influence of wealthy political elites, lobbyists and international business as well as that of the voting public. A broad spectrum of political views and political mechanisms to have those views voiced constrains the fanatic and stops one single state being overly dominant. The broader the influence of a wider political forum is probably better than consolidating power in a smaller national environment. This may lead to a messier form of political governance and this is an argument against further broadening of political processes. But for me politics is a process of negotiation and compromise and by its very nature a messy business.

There is perhaps a bigger possible impact for the United Kingdom relating to sovereignty. The devolved nations and especially Scotland are highly likely to vote to stay in the European Union. The independence genie is already out of the bottle in the case of Scotland and a vote to leave in the forthcoming referendum will almost certainly lead to another independence vote. If, as is not inconceivable, the other UK nations also press for independence then England could become the only nation state outside of the European fold. All European policies would then be made without any reference to the concerns of England. England would be isolated and irrelevant within a greater Europe.

IMMIGRATION – The next favourite topic of the European argument is immigration, or more accurately the free movement of European nationals within Europe. Firstly let’s be clear large parts of the European Union have ageing populations and declining birth rates, notably the UK, Germany and Italy. This ageing population will need to be paid for either by increasing the working age or by importing younger workers through immigration or most likely a combination of the two. If this doesn’t happen the economy has no choice but to be allowed to contract. The UK currently has a declining unemployment rate and it is now at its lowest since 2005 so it is clear there is no real excess capacity to soak up a further contraction in the work force caused by an enforced control on immigration. Immigration levels will therefore need to be maintained or the economy will contract. Current population density levels for the UK are already high mostly in England and these population figures are also forecast to grow even more throughout the next fifty years in the absence of any meaningful controls on immigration. Clearly there is a finite limit on the capacity of the UK to absorb a higher and higher level of population but that level has not been reached yet. Undoubtedly a rise in the UK population will put an increased strain on existing public services supplying health care, education, waste management and other public services. What is important is, if we are to maintain current economic standards is that these services are managed and increased where necessary to ensure the economic prosperity of Britain.

THE ECONOMY – Not much good news here in the short term if the country decides to leave Europe. It has been reported that wage levels will rise if the UK leaves the European fold. This will be due to the artificial shortage in supply of labour supply brought on by the reduction in immigration. These wage increases will be passed on to the UK consumer so UK prices of goods and services will increase. This will make our export prices rise although this will be swiftly counteracted by a weakening of the currency (it is already clear that the international financial community see little in the prospect of the UK leaving Europe). The weakening of the currency will lead to an increase in the cost of UK imports and as the UK has been a net importer for many years the most likely outcome is that prices for all of us will increase.

A secondary prospect could arise from any independence movements at the periphery of the UK. Overseas companies have in the past housed themselves in the UK to give themselves access to lucrative European markets and other benefits available to business. If England becomes the sole nation outside of Europe then it is not inconceivable that those overseas businesses currently located in Tyneside, Wearside, East of London and elsewhere in England could relocate to Scotland, Wales or Northern Ireland. Depending on the outcome of the political stresses imposed by the European Referendum in the UK the question in the Nations and Regions becomes is it in their interests to remain as a United Kingdom or as individual nations within Europe.

The above I believe are the main elements of concern to voters in the European debate. Each has consequences good and not so good based on whether the vote is to stay or go. For me I feel the balance is in favour of staying at least for the foreseeable future. I feel a vote to leave is a vote to revert to a 19th Century view of Britain. But the days of Britain as a major industrial power, of an era when Britannia ruled the waves are long gone. Britain’s place is currently within Europe negotiating its position as a principle party in the development of a economically and socially just society at a national and European level not as a solitary bystander looking back towards a perceived glory of empire and industrial might.