The IPPR Commission on Economic Justice interim report includes much useful data that is well presented (which is crucial). I though this chart telling:
As IPPR say of this:
Economic growth has become ‘uncoupled' from average earnings growth. We have an economy today that is growing in size but not translating this into higher earnings for a majority of the working population.
As they add:
[The following figure] shows a very striking pattern: a rising share of national income going to labour from the second world war to the mid-1970s, and then a falling one until the financial crisis. This is a trend observed in most developed countries: it suggests a major shift in how modern economies both generate growth and distribute its rewards.
Whatever growth out economy is now seeing is not of the type we have seen in the past. Returns to profit and rents are rising. Rewards for effort expended are falling. A number of consequences follow.
One, of course, is increasing inequality.
Another is the increasing despair faced by many, more especially in the younger parts of society, about ever having any financial security.
But most particularly it is now very obvious that GDP is simply not a measure of well being for most people. Whatever merit it once had for that purpose (and it was always open to question) it is now very obvious that a simple increase in GDP, which has for so long been the goal of Treasury politicians, is of no comfort to most people any more. Indeed, as the gap between divisions in society increases it is actually possible that increasing growth increases the perception of division, and so the social and consequent stresses in society, all of which more than counteract any apparent material gains achieved.
What then to do about this?
First, abandon GDP as a measure. As Charles Adams of Durham University suggested on this blog yesterday a much more useful goal for measuring economic well-being would be median wage income. It must be median and not mean wage because the mean is skewed by high pay and inequality; the median is not. And it must be wages because most do not own significant capital in this country and to exclude capital returns is, then, vital.
Second, inequality must be tackled, by progressive income taxes, wealth taxes, the benefits system, an enforced minimum wage (which we do not have at present for all practical purposes), better skills training and from investment in sustainable work (call it a Green New Deal if you like) anywhere but the south-east.
Third, the focus on the abstract - that is both money and the statistics derived from its flows - has to be replaced by a concern for the human story behind it.
That is what economic justice is about. These two charts show why it is needed.
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I agree we should look at the median. So what would that data look like if the median income were tracked over the same period.
Also are these gross earnings or net earnings? And are additional income streams in the form of benefits and tax credits included? Without those the real impact on people isn’t clear. And it becomes hard to see if the very tax and benefits system you suggest are working or not.
Unless we know median pay there is no benchmark for anything else
Your suggestion is deliberately obfuscating the real issue
Really? How about re-reading my first two sentences?
I’m not deliberately trying to do anything other than tease out some understanding from the data.
That wasn’t how I read it
And if you were doing that, data ion earnings is still fundamental
After all, benefits compensate for insufficient earnings in which case your argument still falls flat on its face
I am 52 this year.
I saw my father lose his decently paid job in the early 1970’s as American asset strippers used the strength of the dollar to buy out his British employer on the stock market and closed down the factory and sold the equipment off the SE Asia to reward the investor class (and no doubt generate fat fees for those here who helped them to get away with smash and grab robbery).
He told me to go to university as he thought manual jobs for working people were an endangered species. I did go to university but it has done no good in my view.
I have had my wages cut, had to change my job 3 times, lost Tax Credits and I could have my job axed at any time before I am meant to retire. And I have done nothing wrong. It’s not just the young who are anxious. Many of us are next in line for the same treatment. I worry for my children most of all.
Capitalism as we know it is ceasing to exist right before our eyes.
I entirely agree with your last sentiment
Capitalism is not ceasing to exist. It is operating exactly like it is designed to . Don’t forget besides Industrial Capitalism ( what many think is ceasing to exist) there is Finance Capitalism ( which many refer to as Neoliberalism) Finance Capitalism destroys Industrial Capitalism. This has being going on at a pace in North America, Europe and Japan. Industrial Capitalism is still strong in Asia etc. It’s days there are numbered.
John Adams,
“Finance capitalism” ie. casino capitalism, bubble-riding, ponzi-capitalism, is self-cannibalising, not sustainable and can only but cease to exist.
If you take heed of the environmentalists whose view is that what we call “growth” is unsustainable, notably with the rising world population, then it might follow that when money is created and moved around the system it will not necessarily mean prosperity for very many but quite the reverse given the nature of the relevant financial systems and associated, dependent, governments.
I would have thought a raft of metrics would be required to give us a more complete picture of economic well-being and the levels of inequality – e.g. how many people pay tax in each decile, how many people benefit from tax freebees and how much, the ratio of different levels of pay; unemployment – not just those claiming benefit, but those wanting to work, those not wanting to etc.
But yesterday you talked about “Careism”, a much bigger concept than just the economic, but encompassing all aspects of society. So we need metrics there too – health, housing, political (the ERS publishes how many millions of votes are wasted in “safe” seats, for e.g.), infrastructure and so on.
The danger with a single measure like GDP, or Median, is that it shows us only a very small part of the overall picture (and may be susceptible to political manipulation as has been the case with GDP and Unemployment); the danger with widening the scope is a deluge of statistics.
There is always a compromise to be made
I accept that there may be other issues; it is deciding how many
John.Adams
I disagree.
Capitalism has not always been so extreme in its effects as it is now. At the moment it is fair to say that we are heading towards the sort of free market type capitalism that there was in early 20th Century. And what did that lead to?
Picketty’s longitudinal study has shown that the accumulation of capital has always tended to accrue to the top but the rates and speed of the accruals has changed over time. That is what I am getting at. We (I) am living in a time of increased accruals to the top, using such tools as austerity to make it happen as well as a twisted legal system that puts investors first (to name but two factors of bad capitalism).
Since the Berlin wall came down my view is that without the spectre of Communism or revolution, capitalism (capitalists) has grown bolder and less inhibited at grabbing more and more of any economic output that there is.
Thus we live in an age of extreme capitalism where the benefits of economic activity are not distributed widely enough. This is bad capitalism and there are better models out there whose time has come and will.
If you want to find out what they are, read more of this blog or Richard’s book ‘The Courageous State’ which sets out a better capitalist model that should be given a chance.
Slight Pilgrim thank you for your reply to my post.
You write “…we live in an age of extreme capitalism where the benefits of economic activity are not distributed widely enough. This is bad capitalism. ….. the Courageous State sets out a better model”.
So, what you are saying is that capitalism is fine in theory but doesn’t always work out so good in practice. Funny that is just the same criticism applied to socialism/communism. If practice doesn’t follow theory, the theory is wrong.
To dispel any ambiguity of meaning lets remind ourselves what the most famous critic of capitalism Marx meant by the term. He did not define capitalism either in terms of private ownership versus state ownership, nor in terms of markets versus planning. He defined it as a property relationship. Namely, the people who do all the work have no say whatsoever in what is produced, how or where it is produced, or how the benefits of their work are distributed. In capitalism, the people who make all the important decisions namely the board of directors and major shareholders appropriate and distribute all the profits. They are not the same people who do all the work. Guess what, as dear Cilla would have said “Surprise, surprise” they distribute and give all the profits to themselves. That may provide a clue as to how and why we have wealth and income inequality.
You are right Piketty’s work show many turning points in the share of wages compared to the returns to capital. But those turning points had nothing to so with a less extreme form of capitalism. They had to do with the growth of mass trade union membership, the development of strong socialist and communist parties as champions of the working class. The gains labour made were hard fought for, nothing was offered without a fight. On the back of those struggles grew a prosperous middle class. However, the development of those labour organisations was the product of Industrial Capitalism, with the decline of Industrial capitalism those organisations have also waned. Union membership is dwindling and the socialist and communist parties are only shadows of their former selves.
With the demise of the countervailing forces of the left there was nothing to stop the rise to dominance of predatory finance capitalism from the 1980’s onwards. Progressive taxes were rolled back; public enterprises were privatised and debts soared — owed mainly to the wealthy. Wealth became concentrated in the hands of the top 1% during the post -1980 bubble and even more during its post 2008 collapse.
Richard is a Keynesian economist, and although there is very little to disagree with and much to admire in such programmes as Green Quantative Easing it does not address the conflictual relationship between Capital and Labour. It is not a question of capitalists becoming nicer people. There is nothing wrong with capitalists. But the dynamics of Capitalism rewards modes of behaviour that are destructive of the general good. We can have thriving businesses that are non-capitalist. The pleas of “lets be nice to poor people” echoes the pleas of “lets be nice to slaves”. Just as we abolished the system that manufactured slaves, we should abolish the system that produces poor people.
John
You are raising issues to which I am giving a lot of thought at present
I do not think your descriptions of capitalism are entirely correct but I also readily admit I have not structured the appropriate answer as yet
My broad position is that I cannot see any way a successful society can exist without allowing a person to work for personal gain but in that case the challenge is to find the appropriate regulation for that enterprise when shared
I believe that regulation has to be possible, but I’m only going to muse on it on Saturday night
Richard
Getting back to a drier issue: The relative worth of GDP as a measure. Increasingly we find that it is not merely an inadequate measure of well-being. It is an inadequate measure of production itself.
It includes too many forms of rent-seeking ( a re-distribution and capture of existing wealth) being wrongly classed and counted as production.
For example we sometimes find GDP statistics and analyses stating that the finance sector (which produces nothing) has increased its (proportionate) contribution to GDP.
If anything, a proportionate increase in its “contribution” represents a decline in actual GDP.
But I see no sign of the fixation ending as yet
Irma should be the foreteller of change in this respect
But even with Jose following the message will not get through