Can We Build A Coalition To Defeat Inequality?

Inequality in wealth and income has slowly grown over recent years until it has become a major political issue of our age. I first became aware of it a few years ago when a friend of mine recommended that I read, 'Winner Take All Politics'. This book, by Jacob S. Hacker & Paul Pierson, first published in 2010, tells the story of How Washington Made the Rich Richer – And Turned Its Back on the Middle Class, to quote its subtitle. We have learned that this is not a phenomenon restricted to America, but one that is common to the emerging countries and much of the developed world, led by the Anglo Saxon economies. The recent publication of French Economist Thomas Piketty's magisterial Capital in the Twenty-First Century has created a stir among academics and commentators that has injected new impetus into the issue. Only last weekend, the Sunday Times led with a story entitled 'Rich double their wealth in five years. Top 1,000 worth record £519bn'.

The story of inequality is not just one about income and wealth. It's also about the collapsing of social and occupational mobility that has gone along with it. As Piketty points out, growing inequality is not just about the tremendous rewards that capitalism can give to a few top CEOs and entrepreneurs. It's becoming more a story about inherited wealth. How can the son or daughter of, say a postal worker, get the same life chances as the offspring of an oligarch, particularly when public services are being cut and many people in power don't see equality of opportunity as important?

In the 1950s my father-in-law, the son of a lorry driver and living in an agricultural labourer's cottage in rural Hertfordshire, won a place to read history at Pembroke College, Cambridge. He went on to become a factory manager for Cadbury's. Have the chances of something similar happening today, some sixty years later, increased substantially? I doubt it.

In 1983, I won a place to read Economics at Cambridge from Brockley County, a comprehensive school in Lewisham. At the time, I attended what was called the Lewisham Sixth Form Centre. This was based in Ladywell on the site of what was then called Lewisham Girls' School. It took pupils from our two schools plus Roger Manwood School in Forest Hill. Also in 1983, a fellow student from this school won a place to read Science at Oxford. These three schools went on to amalgamate to form Crofton School. I don't know how many students from Crofton have won places at Oxbridge, but I suspect that 1983 was something of a high water mark.

When I was at Cambridge, I have no doubt that some found my working class demeanour and Cockney accent irritating. However, no one ever said anything to my face. I think this was because it would have reflected badly on the person doing so, such were the social norms at that time. Recently I heard a state school educated female comedian talking about her first days up at Oxford. She recounted a story of how she had gone along to a social gathering, feeling rather nervous but keen to meet new friends, only to be greeted by a cocksure, 'braying public schoolboy', who bounded up to her and in a loud voice said, 'I hear my parents paid for your education!'. I think she is around twenty years younger than me. Whereas in the 1980s the children of the well-off felt somewhat embarrassed and apologetic about what they considered to be their privileged upbringing, today they seem far less troubled by such sensibilities.

In the last few years, we have seen revolutions in Tunisia and Libya, civil war in Syria and latterly riots in Turkey. It's generally accepted that high and rising inequality played a role in igniting these uprisings. We have also seen violent demonstrations in European periphery countries like Greece and Spain, as people fought back against what they saw as the injustice of the EU's Austerity policy. In June 2011, in an article entitled Society will not suffer huge pay-offs for ever, the former editor of the Daily Mail, Max Hastings, writing in the Financial Times said:

It seems rash to assume that the majority will indefinitely acquiesce in such an extraordinary concentration of wealth, which is even more emphatic in America.

Riots came to the UK a few months later.

Shouldn't we be raising this issue again now that 3 years have passed and inequality has got worse not better? Andrew Sullivan, a prominent US conservative blogger, is doing just that. He is worried that there comes a point where inequality becomes so large that it destabilises society. He thinks they have reached that point in the US.

I think this is is an extremely positive development. This is because if sensible people on the right come to see the reduction of inequality as imperative, if only to preserve civil order, then there is the real possibility that a consensus on this issue can be built. This is vital because I don't think that those of us on the centre left are going to be able to deliver greater equality without the support of many of those on the right. After all, although it was a Labour government that created the Welfare State after WWII, it was doing it in a political environment where it was generally agreed that something of the sort needed to be done, if only to stave off communist revolution.

Is A Housing Bubble Inflating?

Many people are asking if we are experiencing a bubble in house prices in London. The problem with bubbles in asset prices is that they are only normally identified to everyone’s satisfaction after they have burst. In the run up to the bursting of the dotcom bubble at the end of the last century, many were arguing that share valuations that proved ultimately to be irrational froth, were justified on the basis that new technology had created a ‘new normal’. The Internet was seen by these people as an innovation that had created a step change into a new advanced phase of our economic progress. What actually happened at the end of 1999 was a general collapse in dotcom stocks that led to a fall in equity markets across the globe from which it took years for them to recover. The Dow Jones Industrial Average, for example, did not get back to the level it reached in December 1999 until almost the end of 2006.

Here’s my own contribution to the catalogue of London housing market anecdotes. At Christmas, I was talking to my Brother-in-law about the London property market. I said that I thought that our modest 3 bedroom Victorian terraced house in Lee a million. When I said this, I had in mind some time in the middle of this year. He was shocked, comparinGreen, South East London, was probably worth around £450,000, judging by the asking prices for similar houses in the area that were on the market. I said I thought it wouldn’t be long before its value passed halfg as he was this value to house prices in Falmouth where he lives. However, it’s what happened next that is the really shocking thing.

Early in the New Year, a house in our road that is smaller than ours, was put on the market for £500,000. Shortly afterwards two houses very similar to ours in the next street were put on the market for £600,000 each. Both were sold quickly. A month or so ago, a house around the corner from ours that was much smaller also went on the market for £600,000 and was sold. Two 3 bedroom Victorian terraces nearby have just come onto the market. For one, the estate agent is asking for offers over £700,000 and the other has a guide price of £750,000. Could it be possible that my house could have increased in value by maybe as much as £250,000, or over 50%, in about 5 months? Could such a market reasonably avoid being described as ‘overheating’? There certainly seems to be plenty of willing buyers out there, judging by the short period of time property remains on the market and the number of estate agent letters we get through our letterbox, asking if we are thinking of selling.

So it came as no surprise to me when I read that:

New figures show that there has been a 59% increase in working people claiming housing benefit since 2010.

George Eaton writing in the NewStatesman went on to say that, based on new research by the House of Commons library, the additional 386,265 working people claiming housing benefit, had added an extra £4.8bn to this particular welfare bill, pushing the total cost to the taxpayer to over £24.3bn. Remember this is not an additional cost generated by the unemployed or the supposedly work-shy and feckless. Rather, it is working people who are generating increasing welfare claims. And these figures are for the country as a whole, not just London.

These figures have to be clear evidence that pay is not rising in line with rising rents, especially in the private rented sector. Who can be surprised at this if property prices, which determine rents, are rising so rapidly?

Housing benefit is a demand led budget, or part of the government’s annually managed expenditure (AME), to use the official parlance. This means that it is not subject to any cap or restraint. The Treasury will just automatically fund the claims that are made, whatever they add up to. One wonders how big the bill will need to be, (£30bn a year, £40bn?), especially when the increase is being driven by claims made by people in work, before sensible people, regardless of political affiliation, will say something must be wrong with the system. Let’s hope this time comes soon and when it does, that there will be general agreement that part of the solution will be to build more Council housing.

Against Austerity. Been There. Seen It. And Hoping To Get The T-Shirt

During my time as Lewisham's Cabinet Member for Resources, I have taken every opportunity to make the point that the cuts that the Coalition has imposed on local government are part of an Austerity policy that isn't working. I went on about this so much that last year, after my speech on the Council's Budget, my opposite number on the Lib Dem benches, having become rather tired and emotional, pleaded with me to 'change the record'. Shouldn't I take his advice now that in the last quarter the UK economy has grown at an annualised rate of over 3%?

Well, not according to former US Treasury Secretary Larry Summers. In a recent article for the FT entitled, British austerity is no model for the rest of the world, he explains, as others have done, that in fact Austerity was abandoned some time ago. He also says that the UK's recent fast growth can be explained by the greater scope for catching up to pre-crisis levels that exists in the UK. US GDP, for example, is now well above the level it reached at the end of 2007, unlike that of the UK. He also makes the interesting point that the US economy grew at 9% a year for a number of years after the low point of the Depression in 1933. Such high growth was a reflection of the depth of the crisis from which the economy was recovering. As he puts it,

No one has ever taken the pace of the US recovery from the Depression as evidence for the austerity policies that helped to induce it.

By way of illustration, below is the chart I took from Simon Wren-Lewis' blog that I reproduced in a post I wrote back in December entitled, The Return Of Growth – The Celebration Of A Tragedy.

Here you see how far the UK economy's GDP person has fallen below its trend and therefore how much ground it needs to make up to get us back to where we started when the crisis blew up in 2008. You will also see that higher than average growth rates occurred in the UK as the economy recovered from the recessions in the 1980s and 1990s, catching up lost ground to get back to achieving trend growth. The experience of my business is instructive here. During 2009/10, we had the highest growth rate in sales ever. This was because business virtually dried up for a time in 2008/09, so as we recovered from next to nothing our sales growth looked spectacular in percentage terms, even though total volumes were well down on 2007/08 levels. Looking back, my business partner and I didn't celebrate this as a great achievement. What reasonable person would? As Simon Wren-Lewis has pointed out, if all you really want is growth, then you could just close half of the economy's productive capacity down one year, then fire it up the next. Sometimes it's not speed that matters, but total distance travelled in the right direction, as anyone who has taken a wrong turn involving a motorway will know.

In a recent article in the Guardian, the economist Ha-Joon Chang develops this theme. People talk about the 1990s being Japan's 'lost decade', as far as economic growth is concerned. But Ha-Joon points out that in Japan between 1990 and 2000, GDP per person grew by 10.5%. However, in the UK between 2007 and 2013, GDP per person fell by 6.6%. As he says,

This means that, unless the UK economy miraculously grows at around 5% a year for the next four years (factoring in population growth rate of around 0.7% a year), it is going to have a decade that is even more "lost" than Japan's 1990s.

Put another way, real wages in the UK, which saw some the the biggest falls in the OECD, have a long way to rise before they get back to the levels they were at the start of the Great Recession.

So, I have decided to stick to my guns and keep spinning that old 'Anti-Austerity' cracked record. Been there. Seen it. And I have put in a request for the T-shirt for Father's Day.