The Coalition: Favouring Capital over Labour
Regular readers will know that I’ve been arguing for some time that the surest way to a sustainable economic recovery is through rebalanced domestic demand rather than relying on exports.
“Rebalanced domestic demand”, in practice, means two thing – a greater emphasis on investment and policies designed to lead to sustainable consumption – i.e. consumption based on decent wages not borrowing.
As the ebook put it:
In the 1920s much of Labour’s economic thinking was rooted in theories of under-consumption. The argument was that as one becomes wealthier, one tends to save a greater proportion of one’s income; so that vast disparities in wealth lead to too much saving in the economy as a whole, and not enough demand. Social liberal and liberal socialist thinkers such as J.A Hobson, E.F Wise and J. Strachey, associated with the Independent Labour Party, made the case for a more equal distribution of income not only on moral grounds, but also on economic grounds. A redistribution of the economy’s wealth towards the working class would lead to higher consumption and hence higher employment.
This insight still holds true. As we argued at the beginning of this e-book, the impact of rising inequality has been masked for the past three decades by increased borrowing by those further down the income scale. But increased personal indebtedness has proved unsustainable, and, given this difficulty, if living standards are to be maintained a solution will have to be found in greater wealth equality. Government intervention will be required – whether through increasing the minimum wage or using the power of public sector procurement to enforce a living wage – as will changes in the tax system to reduce taxes on low earners.
(Readers should feel free to substitute the “old school” reference to the “working class” with a more “next generation” category such as “squeezed middle” if they prefer.)
Browsing through the supplementary data to the OBR’s November Forecast, I came across their forecast of the “labour share” of GDP over the next few years.
Here it is – the share of GDP taken by wages over the next 5 years on a quarterly basis expressed as a percentage. Wages as a share of GDP will drop from around 68% when the Coalition took office to about 64% by the time they hopefully leave.
So, there we have it – the Conservative-Liberal government’s policies will favour capital over labour. Who’d have thought it?