Whatever happens after the Brexit process, the UK needs a radical transformation of its economic settlement, write Rachel Reeves, John Tomaney, and Karel Williams. They explain why this transformation should revolve around everyday economics.
Global market forces and national policy have concentrated wealth and political power in the metropolitan cities and major university towns, amongst the asset rich elite and the professional middle class. They have taken the lion’s share of jobs and political and economic power. They monopolise the top of a socially immobile and deeply unequal society in which a multi-ethnic and economically insecure working class provides essential services. In contrast, in the urban hinterlands, rural areas, and ex-industrial and coastal towns the loss of work through new technology and off-shoring have destroyed the collective and political power of the working class and impoverished whole communities. Here society is less unequal, more homogenous, and poorer.
The liberal market settlement of the last four decades has left England deeply divided by class and geography. It has devastated communities and put intolerable strains on social relationships and ties. It has poisoned a relatively benign common view of immigration, and it has estranged Britain from Europe and moved politics closer to a harsh and intolerant nationalism.
In partial recognition of this deep political failure, governments have tentatively reintroduced the idea of industrial strategy. Peter Mandelson, as Secretary of State for Business, Innovation and Skills, took the first step after the 2008 financial crisis. The Conservatives also now accept the need for strategic intervention. Theresa May’s government promises to ‘boost productivity and earning power throughout the UK’. It identifies five foundations of productivity – ideas, people, infrastructure, business environments and places. These underpin its attempt to tackle four ‘grand challenges’ of artificial intelligence and the data economy, the future of mobility, clean growth and an aging society. Central to its strategy are sector deals to drive up innovation.
It is a big step forward, but this strategy continues the discredited policy choices of the past. It relies on wealth trickling down to the majority by high value jobs creating demand for services, and by redistribution through tax-and spend policies. It claims to address regional inequalities, but it focuses on the globally mobile and financially extractive parts of the economy, fuelling the house price bubble in our growing cities. Its sectoral approach is too narrow targeting only 10% of our manufacturing base. And its focus on research and development largely benefits facilities in the affluent South.
Most recently Paul Swinney of the Centre for Cities has defended this approach, albeit with reservations. The purpose of the Industrial Strategy he argues, is to tackle the UK’s lagging productivity, and so an approach based on innovation is ‘pretty fundamental’. Innovative sectors push up demand for such things as bars and restaurants which create jobs. Wages and workers rights, while important, fall outside the remit of an industrial strategy.
We believe this approach is much too limited. The concentration on the cities as engines of growth, on commercial property development, technological innovation and the high-productivity trading sectors ends up neglecting the middle and low paid. It neglects the civic infrastructure required to develop research and innovation across the whole economy, and it tends to exclude rural areas and towns from the wealth creating activity it is promoting. The process of gentrification means that housing becomes unaffordable, pushing out the children of the long settled local population.
By focusing exclusively on Britain’s global competitiveness, this kind of industrial strategy perpetuates the dynamic of social and economic division which has brought our democracy to the brink of collapse. Innovation is vital, but the task is to improve the lives of all our citizens through social and economic innovation. We need to broaden our conception of industrial strategy and include the foundational economy and the everyday life of work and the family household.
Industrial policy to date has had little to say about this everyday economy. It is made up of the services, production, consumption and social goods that sustain our daily lives. Its core activities include transport, childcare and adult care, health, education, utilities, broadband, social benefits and the low wage sectors of hospitality, retail, food processing and distribution. This core employs around 40% of the workforce in England and Wales. Everyone in both our cities and regions, regardless of income, participates in the everyday economy. It is made up of the private, public, and social sectors and is distributed across the whole country.
In mainstream economics it has been dismissed as low productivity activities which can provide low paid jobs for the low skilled. But this low productivity stereotype is empirically unjustified. Productivity levels are not low but variable in different activities. The material utilities have a high Gross Value Added per capita of nearly £70k per annum. Services like health, education, and care are substantially lower but they usefully distribute more than 75% of their Gross Value Added as wages.
The argument about whether these sectors are sources of productivity growth misses the point. In health, education, and care we are concerned with the human emotional and cognitive qualities of flourishing, caring, and learning. These are often not captured by productivity measures. In reforming adult care, our concern is with the needs of our parents and grandparents, not whether their home visits can be done in fewer minutes. The low pay of the home visit workforce simply reflects the low cultural value we attach to care work and so its inadequate funding and poor working conditions.
The utilities, health education, and care are the infrastructure of everyday life that keeps us safe and civilised. They are not sustained by the trickle down of consumption demand from the globally integrated advanced sector. They involve collective consumption, which is a public good. They depend on social investment and their improvement requires good pay and conditions for their workers.
To rebuild the everyday economy we need a place-based development strategy which innovates institutional arrangements to respond to ‘international patterns and dynamics of geographical change’. Centrally-imposed city region devolution with limited powers will have a limited impact. Genuine devolution creates power beyond the town hall, prioritising participatory and deliberative models of decision-taking to give people more control over the places they live, the work they do, and the institutions that govern their lives. Deindustrialised places suffer economic disadvantage but they retain valued community ties and strong social bonds. The kind of everyday economics of belonging we argue for recognises the importance of these relationships. They are a crucial asset in the economic health and resilience of communities. An industrial policy that increases private affluence by focusing on the already wealthy and high productivity areas will only lead to more public squalor, anger, and division.
All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science. Featured image credit: Pixabay (Public Domain).