Sebastian Chromiak is Joint Editor in Chief of TPN and an Economics and Politics student at the University of Manchester, with a keen interest in Italian Politics and neo-liberalism.
The Tories were once considered the gatekeepers of the economy and a party of financial stability, meeting inflation targets which in turn would ensure real growth in wages and the economy – or so the narrative went.
Such a view was ill-considered at best but even if it was true; in 2019 the equation holds no longer. With the news that the British economy has narrowly avoided plunging into recession in the 3rd quarter of this financial year and an election looming, it has barely indulged even the most politically engaged voter to pass comment.
The latest economic analysis by Resolution Foundation is damming for the ruling Conservative party. The Foundation has found that pay is still £3 below the levels that were seen in 2007. The belief of many in Britain that they are worse off than before the crisis, has proof in the data.
For note, the British economy grew by 0.3% in the third quarter, the slowest in almost a decade. In the past, this may well have been calamitous for an incumbent party but Brexit has re-written the laws of the game. So fixated the country has become on the polarising issue of leaving the European Union that an issue that takes such prominence in our every-day lives is hardly mentioned.
These are concerning figures and are a symptom of the fact that 5 million people are in low-paid or insecure work due to the deregulation of the labour market. This includes up to 2 million parents that don’t work enough hours to provide basic resources for themselves and their children.
I must add that I have long held the belief that we should measure economic progress by different indicators. If a) we are to achieve a green economy that doesn’t pursue profits by any means and; b) if we are to truly achieve social change, a Universal Basic Income would require that we measure different contributions to society, that weren’t necessarily contributing to GDP.
University Lecturers and Teaching Assistants are now preparing to go on strike again over pay and conditions, after the back-tracking of the Universities association on pay and pensions promises made just two years ago. This saw 5 weeks of strikes and a professor remarked to me that some of his colleagues are having to work for Deliveroo. He is now working on a 12-month rolling contract himself. Just a few years ago, a lectureship was awarded on a 3-year contract. This is shameful given that we are supposedly one of the richest countries in the world. Our basic freedoms are being restricted by overly aggressive and powerful employers, with unrestricted power over their employees and backed by a government that backs policies because of a rancid commitment to neoliberalism.
Shifting the Debt Burden
If we consider other factors the picture looks much worse; the damage Tory policies have done to welfare recipients is a primary example. The idea that these policies were economically sound is false – they were ideological. As I have written before, the Government’s economic strategy of reducing its spending has come at a severe cost to ordinary people, as the debt has been shifted onto them through credit and other mediums. Fiat money feeds our appetite and is pumped into the economy, relieving our hunger for consumption in this capitalist society.
Taxation and the Fallacy of Trickle Down Economics
Instead of initiating reforms, the Tories prioritised tax-cuts which have overwhelmingly benefited the top 20% of earners in Britain. This is based on a fallacy of trickle-down economics that has long been disproved. Regressive taxation such as VAT was increased. I also note that our middle-class pays amongst the lowest rates of tax in the western world.
Central banks have essentially followed the same ideology. They have created new money out of thin air, and invest this in safe assets with the belief that investors would then put money into riskier stocks with the belief that this would then improve the business environment. Some economists have said that they believe £15 Trillion has been pumped into the world economy over the last 10 years through the creation of fiat money.
The cash, however, has not found its way into the economy. Instead, the economy has undertaken further financialisation, where up to 60% of value-added in the world economy is made through stock trading. Since 1997, U.K. investment rates in the non-financial economy were the lowest in the OECD, a club of mostly rich countries. Finance is no longer productive, lending to manufacturers is minimal and instead, we feed the bubble.
It has created a situation where we no longer produce anything of any worth – investors simply bet on stocks in the hope of making returns. Hedge-funds are also creating a negative impact on labour markets, naturally rich in resources, they are able to attract the top talent. This causes a brain drain in other industries as the allure of bonuses and a champagne lifestyle in London diverts the brains away from other essential industries.
According to a new paper by Andrew Baker of the University of Sheffield, Gerald Epstein of the University of Massachusetts Amherst and Juan Montecino of Columbia University, an oversized City of London has inflicted a cumulative £4.5tn hit on the British economy from 1995-2015. That is worth around two-and-a-half years’ economic output, or £170,000 per British household. The City’s claims of jobs and tax benefits are washed away by much, much bigger harms.The finance curse: how the outsized power of the City of London makes Britain poorer. By Nicholas Shaxson, appeared in the Guardian earlier this year.
Rather than investing in our economy, and into re-balancing power away from the City of London, the Tories strengthened the bankers, shifting our reliance further to the South East of England. This all at a time when borrowing has never been cheaper, the ideal opportunity to revolutionise our country’s economy. On occasions, investors have caused runs on stocks in both Britain and America, if there was news that wages were set to rise because it threatens the fundamental underpinnings of the shareholder profit model.
This all amounts to a failure of government policy. A failure to protect the least well off in our society. A failure to highlight that the structure of our economy is fundamentally flawed. Though given what we know about the Tories, they are likely protecting a system that works overwhelming in favour of the richest in society. I invite you to consider as such on December 12th.