Growth is back, but is not matched by rises in wages or living standards. Politicians’ answers miss the point. Here are some better onesby Oliver Kamm / December 12, 2013 / Leave a comment
Published in January 2014 issue of Prospect Magazine
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The British economy is expanding again at a respectable pace. George Osborne, the Chancellor, has sustained much criticism for policies of tight austerity to restore the public finances even while Britain was in recession. He is at least able to claim that the UK has the fastest-growing economy in the G8; ahead of his Autumn Statement he promised a “responsible recovery.” Living standards, however, are stubbornly not rising. This dichotomy is increasingly crowding out other subjects in economic debate. Ed Miliband, the Labour leader, insists that the party is “fighting for all the people of our country now facing the worst cost-of-living crisis in their lifetimes.” If Labour manages to frame the election argument so that it is about disposable incomes rather than output growth and the deficit, it will have a politically potent theme.
Yet stagnation in incomes and wages is an issue on which little serious political thinking has been done because it defies easy ideological rationalisation. It isn’t an issue specific to the management of the economy by the coalition government. It’s a phenomenon that stretches back many years.
Labour denounces wage stagnation and income inequality, but it is not the sole repository of that call. The appeal of populist movements on both wings of politics, but especially on the right (the Tea Party movement in the United States is an example), lies in large measure in the impression that households on middle incomes are losing out. While wage and income stagnation ostensibly offers an opportunity for Labour, it is at least as likely to encourage populist campaigns on the right that are driven by
protectionism and hostility to immigration. (Labour’s own defensive and increasingly illiberal rhetoric on immigration suggests that this point is not lost on the party leadership.) There is a sensible and progressive argument, founded on economic efficiency as well as equity, for more direct government intervention to raise median living standards. Unfortunately, as is still not adequately recognised by Ed Miliband and his colleagues, the state of the public finances—a legacy of Labour’s mismanagement under Gordon Brown—makes this extremely difficult.