Rejoice. The UK economy is back to where it was
before the crisis. The depression is over and sunny economic uplands lie in the
future. Feel good, damn it, the economy is growing again.
There is a reason why the positive growth
statistics are treated sceptically. That reason relates to the fact that real
incomes have fallen in the UK. Despite the restoration of growth, workers in
the UK have continued to suffer cuts in their real pay. One of the arguments
for growth is that it raises real incomes – in the UK at least, the reverse is proving to be true.
The economy has achieved growth, while
many millions of workers have suffered increasing economic hardship with little prospect of improvement.
From a growth perspective, the grim facts of the
recovery provide cause for concern. The UK economy has only been able to grow
by workers spending beyond their means. Workers have run down savings and borrowed more to increase
their consumption and this has driven growth. But workers can only
go on behaving like this for so long. Without a rise in real pay, the spending
must come to an end and with it the recovery.
There is no sign yet of net exports recovering to support
consumption and any rises in
business investment will need to continually confound expectations to offset
the further fiscal tightening to come. Again as in the
past the UK economy is relying on workers spending more than they earn to
support the economy. This is a growth model that cannot be sustained and will
ultimately end in disaster.
Even the most ardent backers of the government’s current policy
stance must harbour some concerns about the prospects for growth in the
economy. Lower real wages may help firms keep a lid on their costs but from the
perspective of raising demand on a sustainable basis they place restrictions on
the ability of firms to grow output. Demand side barriers will bite in the end
and terminate the recovery.
But beyond growth there are deeper issues here
relating to work and its relation to poverty. Work has long been heralded as
the best form of welfare and the route to economic success. This view – summed
up in the mantra ‘work always
pays’ – has been exposed as a miserable lie. Now it
seems that work for many is no
escape from poverty. Working hard for a living often
means struggling to keep one’s head above water.
Evidence shows that in-work poverty is on the rise in the UK.
Among working age adults in low income households, the number in working families has
been growing and is now greater than the number in workless families. It used
to be that
worklessness was the prime determinant of poverty. Now it is more likely to be low
waged work.
How did we get into this situation? The
underlying causes are complex and multifaceted. They include the decline of
unions, the deregulation of the labour market, an inadequate training system and the rise of
the service sector at the expense of manufacturing. The UK has lacked the
necessary modernising forces that would have otherwise led it towards a high
wage economy. Instead, it has evolved an institutional structure that has
favoured and entrenched low wages.
What can be done? In the short term, policies to
raise real wages in the UK would help not only to sustain the recovery if that
is the concern but also to address the problem of in-work poverty. The national
minimum wage, although a welcome development, has not managed to address the
problem of low pay and this is where calls for a living wage come in. Raising
the minimum wage to the level of the living wage would be a bold but
economically sensible step to take. Critics may say that this will lead to
unemployment. Yet evidence shows that minimum wage hikes have not had
adverse employment effects. Indeed, their effect has been to
increase productivity via higher levels of worker morale and to reduce welfare
spending.
Longer-term, the UK needs to break its reliance
on a low wage growth model. For this, it needs a new industrial strategy that
focuses on building things, rather than on making money. It needs to invest in
new industries via the help of the State. Challenging vested interests particularly
in the world of finance and creating a model of sustainable prosperity based
not on endless growth but on the promotion of human flourishing remain the
ultimate goals. Whether these goals are achievable under current conditions
remains a moot point. Yet they are goals that we need to keep in our sights and
agitate for.
In the end, the UK cannot afford to pay workers
less. Driving real wages down is a recipe for economic stagnation and human
misery. For all our sakes, we should seek a rise in real wages.
