First World Problems
This week’s guest essayist is Lee Nguyen
The 1920s was a period full of great innovation and technological progress. Almost a hundred years later, 2019 heralded a similar wave of optimism and almost felt as if the swing had become a full circle. We, as a nation, had found ourselves in a DeJa'Vu-like position. After decades of lacklustre productivity and stagnant growth, many of us were hoping for a repeat of the economic boom of a century ago. The prophecy being touted by some soothsayers – I mean analysts – was that the 2020s’ would be a tribute to the 1920s Great Gatsby era, starring economic growth, lavish consumption, high investment returns and calling each other ‘old sport’.
Instead, we find ourselves in a decade that is more yawning than roaring. When comparing the two epochs, it seems as if we have completely skipped the roar of the early 20th century and are heading straight to the great depression. The Office for Budget Responsibility (OBR) found that annual real earnings fell by 2.2% in 2022, making it the biggest fall in living standards of any single year since records began in 1956/57. This is forecasted by the Government’s fiscal watchdog to worsen in 2023/24, falling further to -7.7%; erasing a whole decade's gains.
Although politicians and their spin doctors may blame the fall in incomes on inflation and other exogenous factors, declining living standards have plagued our economy for decades. Since the end of the second world war and up until the 2008 recession, the spending power of Britons had been on an upward trend; typically doubling every thirty years, tripling the wealth of the average household over a lifetime. However, for the last 15 years, the real disposable income of households in the UK has stagnated. Looking at the data across a longer period, while there have been blips along the way, there hasn’t been a period as bad as this in the last 260 years of records from the National Institute of Economic Review.
Living standards are inextricably linked to productivity growth as the more efficient we are with our labour and capital inputs, the more output we can produce. From the dawn of the Industrial Revolution this was an area where Great Britain led the world but the new millennium has seen us significantly lagging our western peers. Between 1974 and 2008, the UK’s productivity grew at an average rate of 2.3% a year, but between 2008 and 2020, this fell to around 0.5% - The second slowest in the G7.
We know that the last fifteen years haven’t been prosperous. The cannonballs from the financial crisis, the Brexit vote, the pandemic, and the war in Ukraine have left large holes in the sinking 'HMS Economy' battleship. All throughout, Captain Conservative has been desperately scrambling to bail out the rising water from the vessel with his bucket… and failing miserably. After the Global Financial Crisis in 2008, the UK was crying out for Keynesian intervention. Instead, we got Neoliberalism 2.0 in all its condemnation. The Haykien desires to reduce state intervention, promote deregulated labour, and privatise public services, all did nothing but exacerbate the issues of inequality and reduce living standards even further. Since 2008, we have seen a massive reduction in the funding of our public sector – Education, healthcare, housing, and public infrastructure has not received nearly enough funding to offset the damage from the cannonballs listed above. Investing more into these vital areas would vastly boost the chances of solving long-term productivity puzzle.
Ultimately, our nation is shaped by our government policy, and investment in the public sector. The state of Britain’s productivity puzzle reflects not the laziness of the population that has been the false scapegoat for our nation’s problems, but the dysfunction and failure of our political cadre. Adversarial politics are also to blame for the inherent issues with our government. Having a bi-partisan mandate to reduce the productivity puzzle between all political parties would go a long way to solving our failings in the long term. More importantly, politics has the capacity to improve our living standards, but this can only be achieved if there is proper funding for the right areas. Austerity has been proven to have made the last thirteen years more painful than they should have been, so it is perplexing as to why it’s being rolled out again. The UK now finds, itself in a legacy of its own making and the working people, who are the backbone of our economy, are yet again suffering.
So far, the roaring twenties seems like wishful thinking. Instead of a post-war ‘white heat of technology’ revolution to drive change, we need a political one!
Lee Nguyen