'Political parties incessantly talk about low economic growth but none are willing to address the major issues'
This week, the UK economy narrowly avoided tipping into a recession, but sustainable economic growth remains elusive. The modest rates of economic growth were halted by the 2007-08 banking crash. Between 2010 and 2021, the real economy grew by just 1.2% a year. Under the weight of Brexit, never-ending austerity and low investment, the economy is growing at the slowest rate for two centuries. Masses don’t have the purchasing power to revive the economy.
Political parties incessantly talk about low economic growth but none are willing to address the major issues, which include low household incomes and investment. None of these can be addressed without equitable distribution of income and wealth, and curbs on corporate power.
In 2010, the UK had 54 billionaires with wealth of £58.1bn. By 2023, it grew to 171 billionaires with wealth of £684bn. Just 50 families have more wealth than half of the population, comprising 33.5m people. The richest 1% are wealthier than 70% of the population combined. They own 36.5% of all financial assets, with a value of £1.8tn.
The concentration of wealth means that governments rely upon a small section of the population to build a sustainable economy. The last 40 years have shown that such a task is virtually impossible. The inequalities have emboldened the super-rich to discipline elected governments by demanding laws and policies that promote their interests. Rather than curbing the power of the wealthy elites, the government has reduced the income of low and middle income families through austerity, real cuts in wages, state pension and benefits. Without good purchasing power, people can’t buy goods and services, and economic stagnation follows.
A large proportion of the population has been pushed into poverty as part of an economic experiment to produce a docile and obedient workforce. In 1976, at the height of trade union membership, workers’ share of the gross domestic product (GDP), in the form wages and salaries, was 65.1%. At the end of September 2023, after the onslaught of anti-trade union laws, fire and rehiring of workers on low pay, zero-hour contracts and more, workers’ share of GDP has declined to around 49% of GDP.
Ministers boast that since 2010, GDP has grown by 24%, but the benefits have hardly trickled-down. The average real wage has returned to the 2005 level. In 2023, the annual median wage in money (nominal) terms were £29,669; and mean wage was £35,404. The Joseph Rowntree Foundation estimates that a single person needs to earn £29,500 a year to reach a minimum acceptable standard of living. A couple with two children need to earn £50,000 between them. Some 19m adults have annual income of less than £12,570. Nearly 50% of the population is teetering on the edge of economic survival and does not have the reserves to boost economic revival. The standard of living of the poorest Britons is 20% lower than their counterparts in Slovenia.
The purchasing power of low and middle income families is under constant attacks by corporations using their market political and financial power to extract profits from a captive population. A sustained economy can’t be built without checking the monopolistic power of corporations.
The Balanced Economy Project reported that the average profit mark-up by the world’s top 20 companies, whose market value is equivalent to the GDP of France, Germany, India, Brazil, South Africa and the United Kingdom combined, is 50% compared to 25% average for smaller firms. This gets multiplied several times in the supply chain. The tech industry is dominated by few companies and its mark-up is currently at around 75% or more, and has been as high as 1,000%, meaning they charged people for goods and services ten times as much as the cost of producing them.
The finance industry piles on the pressure on cost-of-living crisis through speculation on virtually everything whilst producing little or nothing. For example, hedge funds made £1.5bn profit by speculating on food prices by betting on the Ukraine-Russia war. In 2022, investment banks made $20bn by trading and financing commodities like oil, gas and metals. High commodity prices are a major reason for higher inflation and poverty.
In the UK, unchecked corporate profiteering is the real reason for inflation and poverty. Shell, BP, British Gas, National Grid, coal and energy companies have excelled at profiteering. Gas producers and electricity generators are expected to make £170bn “excess” profits. Research by Unite reported that FTSE 350 companies hiked their profit margins by more than 89%. Between 2019 and 2021, agribusiness corporations increased profits by 255%. Pharmaceutical companies have raised prices of vital medicines by over 10,000%. Internet and mobile phone companies operate as a cartel and every year increase prices by inflation plus 3.9%, regardless of their cost. Water companies in England enjoy a monopoly and since privatisation in 1989 have hiked prices by 40% in real terms.
Despite £75.2bn subsidy in the last 10 years, rail companies find new ways to pick people’s pockets. The companies were keen to close all ticket offices and force people to use machines at stations. Evidence shows that for many journeys ticket machines are charging double online price. Of course, not everyone can afford to go online.
The vast wealth of the corporations and their controllers has not been used to improve wages and working conditions. It has been used to fund political parties, legislators and think-tanks to demand special privileges. For example, they demand that return on wealth in the form of dividends and capital gains be taxed at lower rates than wages. Their ability to dodge taxes by shifting profits and incomes to low/no tax jurisdictions remains unchecked. As the Post Office scandal shows, their power is used to silence victims and critics.
Economic crisis management policies are devised to hurt the poor and enrich the rich. Consider the case of a person suffering from some ailment. S/he visits a physician who dusts an old book and prescribes the same medicine, regardless of the cause of the ailment. The patient may survive but is in worst condition than before and picks up more ailments.
That is the case with the government’s inflation management policy. The current bout of inflation is caused by profiteering by corporations. It is not caused by higher wages, which are lagging prices. But instead of removing cash from those flushed with it through taxes on wealth, return on investment, dividends and capital gains, the government uses the old neoliberal remedy of hiking interest rates. This hurts small businesses, raises mortgage costs, rents and prices, further depleting the spending power of the low and middle income families. Their lack of spending power erodes possibilities of building a sustainable economy. Meanwhile the rich with financial assets get richer, profiteering continues unchecked, inequalities widen and banking corporations continue to create money.
The UK economy has suffered from chronic levels of underinvestment compared to other major economies. It has fallen from 23% of GDP in the late 1980s to around 17% from 2000 onwards, compared to 20-25% in major industrialised economies. This inevitably has a knock-on effect on the rates of productivity.
In the OECD league table of investment, the UK occupies 27th place for private investment, 23rd for public investment, and 35th spot overall out of 38 countries. This is despite a plethora of subsidies and tax incentives. There are two reasons for this. Firstly, poor purchasing power of the masses is a major disincentive for investment. Secondly, the private sector prioritises short-term gains and does not have the appetite for long-term risks. That is why the state invested and launched information technology, biotechnology, aerospace and other industries. The blind faith in markets has been counterproductive.
Now any mention of borrowing to invest sends neoliberals to a cold sweat, but that is what is needed as we are on the cusp of the fourth industrial revolution. After the Second World War, the government rebuilt the economy, launched the National Health Service and the welfare state by borrowing. In 1946, public debt hit 270% of GDP . The private sector was direct beneficiary of this policy as the state bought its goods and services, and that stimulated private investment. The expanded economy provided employment and boosted tax revenues. By 1976, the public debt declined to 49% of GDP. Without restoring the investment role of the state, the UK economy is unlikely to be revived.
In order to revive the economy, the UK needs to make a decisive break from neoliberal policies. Workers’ share of GDP needs to be increased through a higher living wage and secure employment. Equitable distribution of income and wealth needs to be aided by progressive taxation. The tax perks of the rich need to be withdrawn. For example, there is no justification for taxing returns on wealth, in the form of capital gains and dividends, at a lower rate than the returns on the investment of human capital (wages). Giant corporations need to be broken-up to encourage competition and reduce their ability to exploit people and hold governments to ransom. Industries in which no effective competition is possible, such as water, rail, energy, need to be brought into public ownership. All large business entities should have employee and consumer elected directors to ensure that people’s voice is heard.
There is no invisible hand of fate and our destinies are governed by the visible hand of politics and institutions of government. People have the power to secure emancipatory change. We are many, they are few.
Prem Sikka is an Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, a Labour member of the House of Lords, and Contributing Editor at Left Foot Forward.
Image credit: Marc Barrot – Creative Commons