Meet the new world, same as the old world (only a bit meaner and poorer)?

January 9, 2013 by
Filed under: Credit crunch, Politics 


Four years ago, as the scale of economic downturn and the probable depth and longevity of austerity hit home, there was much speculation about whether this would have a profound impact on key aspects of society: expectations, values, forms of organisation and provision.

There was a widespread view that after the excesses of the nineties and early noughties, a harsher environment might be good for us. Some on the left hoped for a turn against consumerism and the excesses of the wealthy, some on the right for a more active civil society taking the initiative from a shrinking state. There was much talk of a new economy. Peter Mandelson spoke of ‘less financial engineering more real engineering’, business gurus opined that recession is the midwife of innovation. Everyone’s favourite quote was Rahm Emanuel’s ‘never let a crisis go to waste’.

How do things look now as the economy splutters like smouldering wet twigs and austerity is trudging uphill through mud with the mountain peak lost in dark clouds? Here are the key points:

As a society we seem to have become harsher towards each other, we are less sympathetic to the poor, we continue to be obsessed by, and negative towards, immigration. It is true that we have also become intolerant of excess at the top but this is driven more by self-righteous rage than a commitment to greater social fairness.

In terms of austerity, the economic downturn means the state isn’t actually getting significantly smaller as a proportion of the economy. Even now, we are only in the early stages of the full impact of cuts in funding for services and it looks as though many public agencies have been able to preserve most services by being more focussed and efficient. Also, important parts of provision – especially schools and the NHS – are still being protected. But despite all this there are two significant and accelerating shifts. First, forms of public provision deemed to be non-essential are starting to decline and – in some areas – disappear, this includes the youth service, arts provision, libraries and leisure services and various forms of community provision. Second, significant parts of public sector provision – from employment services to health care – are being transferred to the private (and to a much lesser extent) third sector; the announcement today about probation is another important step in this process. So, while large scale examples of civil society stepping up to fill the gaps left by a retreating state or of bold innovations in service configuration (the hopes that some people had three years ago) are few and far between, more conventional expectations of cuts and contracting out are being fulfilled. Given the paucity of evidence that contacting out leads to service improvement or innovation, the public sector is getting leaner but will it be fitter?

In relation to alternative values I can see little or no sign of a shift. Indeed, opinion polls suggest concern about the environment (climate change in particular), which is often seen as the alternative pole to consumerism, has declined in the face of economic concerns. Consumer debt may be shrinking and growth in the consumption of ‘stuff’ may have stalled but this is the consequence of economic necessity not post-materialism.

As for a new economy, it is encouraging that more people want to set up their own business (although probably more are doing so as a last resort), and in a large economy there are always success stories to celebrate. But, as the Government’s frantic search for growth and its gradual reversion to a strategy of restoring state-financed or underwritten capital investment shows, there is little sign of a new ‘real ‘ economy butterfly emerging from the rotting chrysalis of the old debt-fuelled, finance dominated model.

So, two questions: first, am I missing something? Is there a pattern of change out there but I am failing to join up the dots? Second, if there isn’t any change, or any positive change, why not? Is it just too soon to see the adaptation we need?

Were the hopes that our self-inflicted misfortunes would prompt soul searching and a collective stepping up to the plate always misplaced? Would we all just love to go back to the good old days of buying piles of junk, maxing out on credit cards, being made rich by house inflation and reading assiduously (but not resentfully) about the excesses of billionaires and celebrities?

Or has the possibility of new ways of living and thinking been stymied by a lack of leadership; a Tory Party obsessed by its eccentric enemies to the right, a Labour party happy to appeal to its core and rely on negative voting and Lib Dems plesed just to survive?

The core of the RSA’s modern mission (echoing a theme running through its history) is the belief that we need, and that we can achieve, a step change in human capability. This distinguishes us from a paternalistic left which tends to think the problem is not people but the structures in which they live and an economically liberal right which is agnostic about human development, relying on the hidden hand of the market to drive innovation and turn random individual preferences into progress.

I still think the Society’s modern mission is particularly suited to these challenging times, but sometimes, on the bad days, I wonder whether it is a triumph of hope over expectation.

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Comments

  • David Jenkins-Handy

    The sleight of hand offered by all political parties, that they can demonstrably change the direction of the economy, retain standards of living, provide systems and controls to outwit the foxiest of culprits intent on manipulating investments, or simply will be fairer (whatever that is supposed to mean) hides the fact that they are in positions of power to maintain the status quo, stop the ship from running aground and sinking, act to conserve the nation and preserve its resources (like jam). Naturally enough, conservation and conservatism go hand-in-hand and it is little wonder that politicians of every persuasion are consumate confectioners and preservers.

    Of course, it doesn’t have to be like this. We could choose to be a bit more judicious and mature in our decisions. For example, our education system is fit for the paradigm of nineteenth century industrialisation; Mr Gradgrind would be proud. This is not a reflection on the diligence and efforts of our teachers, but an observation on the interventions of government in education; do we really need a nineteenth century replacement for nineteenth-century style assessments? EBac v GCSE, a pointless controversy when the issue concerns the muddle that national testing leaves us with. Would Labour offer a more radical solution. No. When they had the opportunity they balked at the sight of the Cambridge Review and stitched together a report that was patently straight out of a Shelleyan nightmare.

    While government refuses to countenance drastic solutions to problems (hey, what if we had chosen to use all of the money that propped up the banks to pay off everyone’s mortgage… would it have been cheaper to put the money through the front door of the banks… would it have increased ordinary people’s disposable income and created other types of jobs?) and spoken a bit more heresy, we might, at least have witnessed some authentic change.

  • Chris Davies

    Hi Matthew – in response to your first question: you haven’t completely missed the pattern of change. Your next paragraph alludes to it; you just don’t take it to its conclusion.

    The essence of the problem is that we are undergoing a fundamental economic upheaval enabled by the information technology revolution. ICT has facilitated the disaggregation of production, with a consequent distribution of supply chains around the world. By tapping into a huge pool of cheap global labour, industry has been able to dramatically reduce prices at the same time as increasing the return on capital. Labour, on the other hand, has seen its share of the economy decline as domestic wages are depressed by global competition.

    Free market economic theory would tell us that this doesn’t matter in the long-run, since new jobs are created through better deployed risk capital. This will be more than enough to compensate for the transfer of work to Asia.

    The problem with this is that a) the long-run is indeed long, and b) there is no guarantee that the jobs created by the redeployment of risk capital will be as numerous as those that have been lost. In reality, such new roles that are being created are either high-skill and few in number (e.g. software development) or poorly paid and in sectors where global competition is not an issue (e.g. personal care services).

    In order to compensate for this, as a society we have adopted two strategies – consciously or unconsciously. First – as you say – we have funded a consumption bubble through cheap debt. This made us feel richer than we really were, dulling the fact that real disposable incomes were stagnating. Second, we used the welfare state to subsidise low wages through the tax credit system. This was funded partly through cheap debt as well, and partly through taxation on City profits inflated by the same easy access to cheap money.

    When this imploded in 2007-8, these social opiates became unsustainable – either immediately, as when the mortgage bubble burst in the US, or over a longer timeframe, as we are seeing with the stubbornness of our deficit. I suspect this explains the harshness you observe: the tide has gone out, exposing many people as lacking their swimwear, about which they are really quite angry.

    We are now left needing to make a fundamental, structural adjustment in our economy, but with little clarity from our leaders about what that means in practice. My suspicion is that we need to focus extremely heavily on a) upskilling the workforce and b) doing that in a way that enables them quickly to reskill themselves, since the pace of change means that the chances of an industry being the same in 20 years as today are pretty slim. We also need to think about how we relate to people who can’t meet that challenge: how far are we willing to allow them to suffer stagnating or declining wages as a result, and if the answer is not much, how do we pay for whatever support we want to provide?

    And beyond that, we need to start thinking about the next big structural wave of change, which may come in the form of massive automation. What will it mean to live in a world where maybe there is “work” for only a fraction of the population?

  • Robert Burns

    Matthew,

    yes, you are missing something and failing to join up the dots.

    There isn’t any positive change and there won’t be.

    House/property price inflation is a cancer that is rotting our economy from within. The lie that it represents some sort of ‘real’ wealth is thinly maintained by excluding it from general cost of living inflation.

    There is no reasonable link between the capital value placed on property and its utility value.

    The cost of property (whether rented or mortgaged) is insanely out of all proportion to the economic benefit that can accrue from actually occupying it.

    It is suffocating business and the ability of ordinary citizens to save and to engage in consumer spending on goods and services that would create jobs and take us out of recession.

    Small businesses cannot function in this environment unless they are providing something over which they exercise a difficult to break monopoly and balances the high profit margin/low volume equation.

    Local government depends for a large proportion of its income on Council Tax and Business Rates. These are linked to the ‘market value’ of property and effectively function as stealth capital gains taxes.

    Yet everywhere we look local government is going broke – if property values represented real wealth why is this so?

    So, here are two dots for you to join up:

    Property isn’t actually worth the debt that has been attached to it and the cost of supporting this false relationship is a perpetually depressed economy.

    Hostility to immigration. The last two dots for you to join up.

    In a shrinking economy more people chasing a declining supply of jobs will drive down pay, conditions and both the financial viability and opportunity to be in employment.

    When you add the importation of foreign unemployment (that is actually what the bulk of EU immigration to this country is) to the mixture immigration is going to be a contentious issue.

    An already discredited establishment does itself no favours by denying that increasing the number of applicants for a declining supply of jobs has no effect on employment opportunity and standards of living.

    This isn’t just obtuse, it is insulting.

  • Nigel Kippax

    I offer the following contribution to the debate.

    I do believe that part of the reason we don’t appear to be moving forward as we should is that too many politicians/civil service believe the problems can be solved by breaking them down into component parts, believing that if each component shows improvement then so will the big picture. Wrong?

    Two points emerge:
    1. A much greater understanding of systems thinking is required to predict the second and third order impact of local actions.
    2. A willingness to by-pass areas of self interest and make national decisions.
    An example of this is NHS procurement. Many surveys on NHS procurement have highlighted the £millions of wasted due to local price negotiations, yet the NHS appears totally unable to address the issue because at local level it’s not seen as a problem. From the tax payers perspective, however, this is £millions that could be used elsewhere if the problem was viewed in its entirity

  • John Bensted

    Spot on about probation privatisation Matthew and widely viewed within Probation as obvious political ideology . But to take your earlier point of never wasting a good crisis It now seems you can conjure a good crisis ( appalling reoffending rates for those on Probation when the reverse is the case ) and then let the market sort a non problem . But great to see you picking up on Probation though.

  • Robert Burns

    Nigel,

    whilst I broadly agree with you it is worth pointing out that that what you are proposing flies in the face of what MT likes to promote.

    Politicians and Civil Servants are always delighted to support local ‘citizen action’ on three conditions:

    (1) It doesn’t subvert their authority;

    (2) If it is a success they can take most of the credit; and (most importantly)

    (3) If it fails they pass off all of the blame

    My main criticisms of MT’s approach are:

    (1) Social fragmentation has made solving national problems at a national level more difficult than it need be;

    (2) MT is enthralled by the notion of ‘social mobility’ – but social mobility as a reward for what?

    Being raised in the ‘right’ postcode area?

    Being sent to the ‘right’ school?

    And as a result of the preceding being ‘competitively’ accepted into the ‘right’ university?

    So that as person becomes a ‘self made’ success? Do me a favour!

    The quest for vacuous ‘social mobility’ is part of the national malaise, not a part of any solution to it.

    (3) Many institutions in this country have been comprehensively infiltrated by interest groups with no interest in the mission of the institution

    They exist in a destructive, parasitic relationship with the host institution and see it as nothing more than a vehicle for their own ends – hence mass institutional failures and loss of public credibility.

    MT’s approach would only hasten the national descent into mafia style oligarchy.

    I suppose what you are suggesting is a more objective, bureaucratic (in the constructive sense) system.

    Unfortunately the personnel needed to make that work simply don’t exist here.

  • http://ziobastone.wordpress.com/ Zio Bastone

    Is there a pattern of change? Well clearly there’s still a ‘crisis’. And that in a way is a good thing. Because even though the ruling orthodoxy of the past 30 plus years has not (yet?) been relinquished it isn’t entirely adhered to either (any longer?) even by its proponents. Which may explain all those fingers-in-the-ears expressions of true ‘belief’ amongst the Coalition, that sense of impotent bewilderment amongst New Labour. And with the future not yet owned.

    In other words there’s a gap where change could still occur. It might be for the better or (as likely) something worse. However, paradigm shifts require not just critical thinking but also a critical mass: the emergence of some new social subject. And that means ‘us’.

    As to Peter Mandelson, Mrs Thatcher turned the Conservatives from a non ideological ‘stupid’ party into one of ideological neoliberalism; Mandelson, Gould et al reversed what had been the traditional relationship between means and ends within what was then the Labour Party, thereby sidestepping supposedly worn out ideology, and Cameron aped that approach. With three results: that political memory was lost; power (for all main parties) became an end in itself, and statements of intent (they’ve taken the place of ideology) became the means by which to get it. And if you then factor in the influence upon today’s political players firstly of what Alex Callinicos rightly terms ‘vulgar postmodernism’, really a response to disappointment by the Left, whereby policies just mean what you want them to mean, and secondly of the absurd right wing triumphalism of Fukayama’s ‘end of history’, you reach the current dispensation more or less. A desperately unhealthy situation in which the three main political parties simultaneously disclaim ideology but remain stuck in the neoliberal birdlime for want of anything better; either through intellectual enervation (New Labour), a sort of nostalgia for a time when things were clearer (the Conservatives) or through mere survivalist expediency, as with the Liberal Democrats.

    When Mandelson spoke, initially to the IoD, of ‘less financial engineering, more real engineering’ (one of his opening sentences, not intended to be comic, was ‘As Miles [Templeman] has said, we’re coming out of recession…’) he was echoing Nassim Taleb. But to what end? Not to criticise financial engineering as a discipline. Just vapidly to suggest (typical Mandelson in how the glibly platitudinous, the sentimentally fawning and the  trimming were jumbled up together) that what we needed was fewer or smaller banks plus a bit more manufacturing. (Later he’d add the word ‘advanced’ and make it a bit more subtle.) He did not deal with the implications of Reich’s famous ‘knowledge economy’ as retweeted by Cardinal Blair nor yet with the entanglement between ‘material’ business and immaterial ‘finance’ either internationally or in our own small patch. Above all he did not address in any way the similarity with his own peculiar practice of converting real world activity into advantage earning stratagems, dishonestly repackaged for a ‘market’ of dumb ‘consumers’, as had been happening famously with subprime mortgages, or producing real world effects in order to create misleading paper gains awaiting mark to market valuations, as had been happening rather less famously with the shipping industry (the Baltic Dry Index fell by 94% in six months from its high of 11,793 in May 2008, for example; it’s currently 760) where the practice of slow and super slow steaming has since become the material, logistical equivalent of the credit crunch.

    So what to say about the present? Well we still have a situation in which party politics, where serious economic discussion is more or less non existent, is almost entirely self serving; in which house prices are still regarded as some sort of engine of growth and not as an index of ‘capital’ withdrawn and put in a place of value (as  they were in the Chinese housing bubble, currently deflating); in which Mrs Thatcher’s unhelpful image of the nation as a kind of giant householder still obtains (so no notion of MMT and how ‘money’ can also be created horizontally within the private sector as well as vertically by the various central banks); in which David Harvey’s ‘accumulation through dispossession’ still proceeds apace, and in which not only Keynes’ paradox of thrift (whereby saving during recession is like throwing good money after bad as the economy further contracts) but also the idea that the relevant fiscal multiplier might be a number greater than one (so that the government’s austerity measures become amplified, inflicting further damage within the ‘real’ economy) both remain a sort of blasphemy. And we can see the consequences everywhere: the economy shrinks rather than grows; government expenditure grows rather than shrinks; the structural deficit is either failing to fall from 4.8% in June 2010 to a projected 1.9% in June 2013 as anticipated (the current projection is for 4.3%) or may in fact be growing behind all the creative accounting and the fudge.

    And meanwhile, shamefully, the electorate is being encouraged (by politicians) to spit on the domestic disadvantaged and to shout at foreign countries, especially those in Europe. As though it were their fault.

  • Patrick C

    Matthew – I think you somewhat underplay the role of the current political climate when you say that “[a]s a society we seem to have become harsher towards each other, we are less sympathetic to the poor, we continue to be obsessed by, and negative towards, immigration.”. The political leadership you mention isn’t so much stymieing progress towards new ways of thinking and living, but is actively encouraging the current harshness in society towards the poor, immigrants, the disabled etc.

    I wonder though if this is a feature inherent in “austerity” narratives – the outcome in Europe seems mixed, though I’m not close enough to Irish politics/media to know the experience there.

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