Chris Johns: stagnant living standards are driving the populist wave
Self-interest might lead the elite to toss the odd bone the way of the ordinary worker
Uber is a good example of a great idea enriching a small number of people, including shareholders, but not employees
Andy Haldane, chief economist at the Bank of England, manages that almost impossible task: to enable us to put the words “economics” and “interesting” in the same sentence.
He has recently muddied the monetary waters by hinting that UK interest rates may soon have to rise. He said this at the same time as his boss, Mark Carney, argued that rates should stay exactly where they are.
It’s not clear what games the bank are playing – conspiracy theorists reckon that someone at the bank has decided that talk of higher rates is needed to stop sterling going into free-fall at the sight of the disarray currently on offer from Theresa May’s government and the very mixed signals being sent by the economy.
Away from the headlines about higher interest rates, Haldane has offered up his thoughts on the single biggest driver of popular discontent in the UK and many other economies: stagnant or falling living standards, particularly for the lower paid.
He likens the post-2008 period to the pre-reform Victorian era, a time that provoked writers such as Dickens to highlight the plight of the poor. Abject poverty amid those “dark satanic mills” led other people – economists and politicians in particular – to propose and enact a whole series of reforms to help the worse off.
While it is a bit of a stretch to argue that living conditions for low paid workers resemble those of Dickensian times, it is undoubtedly the case that something really weird is going on.
In the US and UK in particular, notwithstanding full employment, wages are stubbornly refusing to rise. So the poor and not so poor are falling behind the better off, particularly so in the case of the highest earners who are doing very nicely, thank you.
Haldane wonders whether too many employers have too much power, just like two centuries ago. Almost daily we read about wages and working conditions in companies like Amazon and Uber. The latter, in particular, is a good example of a great idea enriching a small number of people, including shareholders, but not employees.
Far from it in fact. More generally there are plenty of reasons to think that old fashioned monopoly power has made a striking comeback in the world economy. Profits have never been so high or, critically, so lowly taxed. Monopolistic industries have rarely been so favourably treated by regulators.
Just why all of this has happened – or whether it matters – is bitterly argued over. Given the rise of populism and all things Trump and Brexit, it is odd that so little credence is given to the idea that large swathes of the population are just simply cheesed off with, at best, standing still, economically speaking.
Never mind altruism, enlightened self-interest of the elite might lead them to conclude that tossing the odd bone the way of the ordinary worker might be a good idea.
More than one commentator has noted that current political conditions in several countries resemble those that preceded the French Revolution. That may be overstating the case but Brexit and Trump are revolutions of sorts. They are certainly revolting.
The rise of automation and the fall of trade unions are the two most cited drivers of persistently low wages. But we don’t really know. We do know where the money is: corporate profits. Workers and governments are getting a smaller slice of the pie than they used to.
It used to be fashionable to be fatalistic about all of this. But as this year’s Nobel prizewinner for literature noted, “the times they are a changing”. There is one obvious thing that can be changed: pay people more.
Most of the evidence about minimum wages, for example, is that small steady rises don’t cause nearly as many problems as detractors argue. When commentators huff and puff about higher minimum wages causing unemployment just point out that there is precious little evidence of this.
Then there is the thorny issue of public sector pay, a very topical matter in a domestic context. There is a good case for paying lowly-paid public sector workers more. But there doesn’t seem to be much appetite for concentrating available resources on the lowest paid.
We do need to be grown up about all of this: if public sector workers are to get more, then taxes have to rise. Those workers, in particular their union reps, have in turn to be willing to engage with notions of efficiency.
Of course, the obvious thing to tax is the pot that is currently lightly taxed, namely corporate profits. Irish taxes on higher incomes are not low in an international context.
Globally, none of this gets sorted until workers and governments get more, companies less. It really is that simple. Until then we ride the populist wave.