'The poor will always be with us.' So says Jesus in the new testament gospels. Whilst surely true, the gap between the rich and the poor just gets bigger. A couple of recent newspaper articles explore this.
Apart from basic fairness, wealth that is not spread about is bad for the economy. If wealth is spread, everyone has more and so can spend it on goods and services to the benefit of all. Wealth in the hands of the wealthy is often ‘invested’ in non productive assets like residential property often left unoccupied. Investment in farm land became unproductive when the price of land rose so far above its economic value. This happened because individuals and companies could rollover capital gains into assets that would also qualify for agricultural property relief for Inheritance Tax. In past generations wealth was invested in new industrial plant or the privately owned transport infrastructure : the railways and canals. This led to the multiplier effect much loved by teachers of economics in times of gone by.In the course of my lifetime, beginning when the Second World War was still fresh in people's minds, I have seen the gap first almost shrink in the fifties and sixties, but then open up and in recent years accelerate alarmingly.
In Britain there has always been a gap - the rich man in his castle, the poor man at his gate. Land was key. With the growth of trade and then industrialisation different people grew rich. The traders, and this includes slave traders, and those who served them. Then the factory owners, the canal and railway entrepreneurs but especially the financiers, the bankers. All the time, those working in mills, factories and mines and the many thousands working from their dwellings became only slightly less poor when the economy boomed but destitute in slumps. The Factory Acts and the trades unions slowly improved conditions. Equally British manufacturing and trading companies enjoyed a strong market position really until the start of the First World War.
There were dark clouds on the horizon. In Germany, Krupp and other industrialists were creating a vast war machine. In the USA, the benefit of a large home market was reaping rewards in establishing an electrical industry which was all too happy to supply the former imperial power. Westinghouse set up in Manchester and British Thomson-Houston in Rugby.
In addition to the cost of many thousands of lives, the war drained the nation's coffers as it, and Empire nations, provided the astonishing quantity of arms and ammunition used on an industrial scale by the Allied nations. The same would have applied in Germany. Yet, the production of war materiel maintained employment in the waring nations and importantly for them in the USA.
In the UK, jobs had already been lost in textiles as the nation's near monopoly position slipped away. Similarly in the other old staples jobs were lost in iron and steel and shipbuilding as developing nations took up the baton. The USA already had a strong steel and shipbuilding industry which had prospered from the demands made on it during the war. Germany began to rebuild itself under the 3rd Reich. Jobs lost in the northern British towns, despite some government initiatives, were seldom replaced and these once prosperous urban areas became deserts of unemployment.
Newer industries prospered: motor vehicles, electronics, chemicals and consumer products. These industries also prospered in competitor nations. Britain had lost its lead.
The Wall Street crash triggering the Great Depression was devastating for workers on both sides of the Atlantic. Winners took advantage of their strength and position. Those who avoided the crash did well.
Preparations for a Second World War brought back employment to old and new industries alike. The aircraft industry, which had been in an hiatus after bursting onto the scene in the First World War, was busy again developing new aircraft.
When war came, once again the nation was busy, but once again the coffers were further drained. America provided arms and much more, at a price.
War left Britain exhausted yet it had to find the energy for an export drive in order to pay its way. Hard work created the nation that had never had it so good, but its wasn't everyone.
The fifites and sixties saw a move away from steam powered railways and the Clean Air Acts, both of which reduced the demand for coal. Mines shut with corresponding unemployment. The steel industry grew until the sixties, but then foreign competition triggered its decline. Shipbuilding suffered in much the same way. The aircraft industry, with the notable exception of Rolls-Royce, simply couldn't compete with the American giants.
The indigenous motor industry gave way to foreign ownership. The TV and Radio industry followed suite. The coming of North Sea Oil raised the exchange rate making exports more expensive and imports cheaper; manufacturing declined. Jobs were lost with some replaced in the low pay service sector. Coalminers and steel workers had been the aristocracy in their communities, not so warehouse, call centre or delivery workers.
Computerisation hit middle management and clerical employment.
The Thatcher revolution was predicated on inequality with rewards for hard working and ability. The reality turned out to be rather different. The Financial sector became to be seen as the saviour of the economy. Banks grew alarmingly. Deregulation led to ever more risky products and reward that was disconnected from risk. Banks allowed people to borrow beyond their ability to repay and house prices rocketed. A small number of people became very rich. The argument was put forward that this wealth would trickle down.
In 2008 the banks crashed leaving savers with losses, businesses without borrowing facilities and bankers unscathed. A number of banks merged to become even bigger. The Bank of England pumped money into the economy under the label of 'quantitative easing'. This money found its way into yet higher property prices. Austerity that followed bled the public sector, losing jobs and depleting services.
The decision to leave the EU, in effect our large home market, cost a fall in growth which in turn has resulted in lost jobs or the lack of new jobs.
Covid came as very near the last straw.
The economy and indeed the fabric of the nation is now in desperate need for repair. A parallel comes to mind of that which faced the Attlee government in 1945. Yet, as then, there are grounds for hope. We are a talented nation. There are huge challenges, not least the appetite of the UK capital markets for investment. Will Hutton has much of interest to add in his book This Time No Mistakes.
The question remains of whether growing the economy can benefit all. Aditya Chakrabortty raises questions but offers no answers. This is a complex subject and so that is hardly surprising. just to add a further layer of complexity, here is a piece exploring an alternative world view.
