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A ‘great rebalancing’?

Wed, 3rd Feb 2021
Brexit is the UK’s Trump. It’s a symptom, but a malign one that makes the original condition worse. The original disease, revealed in hyperrealistic detail by Covid, is inequality in all its forms (income, health, wealth, housing, productivity, demography). The UK today, summed up the Institute for Fiscal Studies (IFS) last year,  ‘is one of the most geographically unequal countries in the developed world’. Starkly, London and its surrounds are the only UK region  to make a positive contribution to the Treasury. Yet while London far outranks every other city in terms of productivity, income and wealth, the capital is also riven with the same jagged inequalities, due largely to sky-high housing costs and gig-economy wages. Wealthy, high-productivity London is itself massively unequal. The pattern is fractal.
All this means that the glib remedy of ‘levelling up’, first advanced in the last election and many times repeated since, raises as many questions as the presenting problem. Theresa May as premier got as far as talking about an ‘economy that benefits everyone’ – levelling up by another name – but her fragile government was too embroiled in Brexit even to define what that meant. With Brexit done, sort of, and a reliable majority, Boris Johnson is one step on, but faces a similar issue: where to start. One issue is definitional: is levelling up about places or individuals? The prescriptions are different for each.
Regional, or to use modern jargon, place-based policy in the UK has been tried since at least the 1970s, with very little result. The private sector can’t be coerced to locate to the small towns, coastal areas or run-down cities that need it most, and there’s a limit to the number of civil servants or agency staff that can be decanted there. Brexit complicates the issue for small entrepreneurial companies. Deindustrialisation is as easy (just leave it to the market) as reindustrialisation is hard – if the citizens of the old East Germany, having received massive transfers as well as all kinds of other aid from a competent and concerned national government, are still poorer than their counterparts in the west, ask yourself what hope there is for our left-behind in Stoke, Barnsley or any other brick in the once ‘Red Wall’.
If on the other hand the target is individuals, solutions are in principle more obvious. But they are paradoxically less likely to be chosen, for political reasons: they would involve reversing the austerity policies that have reduced services such as health, education, local government, and welfare to near-anorexia in the decade since the GFC and radically increase public spending.
The other evident way of addressing individual need would be to make a start on correcting the drastically out-of-whack balance between capital and labour. Labour's share of national income has been shrinking for decades on both sides of the Atlantic, and the process has speeded up since 2000. President Biden is already setting an example here, with promises to up the US minimum wage and roll back some of the inroads into workers’ rights made under Trump and before. Needless to say, this is hardly likely to go down well with far-right Tories who seem to believe, with Trumpian lack of justification, that the British labour market is vastly overregulated and that employers are champing to be liberated from red tape, neither of which is true.
But ruling out such options would leave the government with a still bigger difficulty. After at least three decades when neo-liberal dogma ruled out any economic solution other than deregulation or, in the presence of ‘market failure’, the outsourcing of provision to the private sector, UK governments have hollowed themselves out. The continuing war on the civil service is perversely Pyrrhic, undermining not only continuity but their broad capacity for independent action. As one observer described it, they have progressively ‘infantilised themselves’. Each successive regime is less capable of thinking or acting for itself and ever more dependent on Big Consultancy to supply the answers.
The dangers of this capture are evident in both the long and short term. Look no further than the repeated missteps and U-turns in handling the pandemic. The obsession with scale, centralisation and the private sector, as in the only partly effective testing and test and trace operations, comes straight out of Big Consultancy’s management 1.0 playbook, whose obsolescence is only partly disguised by a few digital trimmings. Further back, the New Public Management policies of marketisation, competition and performance management audit that have demoralised and de-professionalised public sector workers, killing initiative and trust, came from the same stable. Through ignorance, a policy aimed at shaking up public-sector management has done that but also made it less capable than befor. 
In his book The Great Transformation, describing the rise of the market economy, the great economic historian Karl Polanyi (incidentally a good friend of Peter Drucker, who helped support him during the writing of the book) argued that left to self-regulate, the free market would cut itself loose from society with profoundly destructive results, endangering capitalism itself. It needed what he called a ‘double movement’, in which a variety of countervailing legal, regulatory and institutional responses – trade unions, health and safety regulations, social security, among many others – combine to curb excesses, retether markets to society and oblige it, however imperfectly, to work for the public good.
For Polanyi, looking back from the 1940s at the turnbulent inter-war years, this was the only way capitalism could work – and the events of the last two equally volatile decades do nothing to suggest he was wrong. It's early days, but it look as if Biden shares this view. If the diagnosis is indeed correct, any UK attempt at a 'great rebancing' that tries to skirt this central reality, whatever its avowed focus, will be a sham.

 


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User comments

Douglas :: 3rd Feb 21
Re: 'infantilising themselves' - I had the good fortune of a first career in the Civil Service, a long while back. When I think of the process since, the image in my mind (which I associate with 'delayering') comes from the end of the movie 2001, as HAL gradually becomes inarticulate.
Andy Lippok :: 4th Feb 21
Oh so true, so very true. Simon! Like Douglas I've worked in the Scottish Government and have experienced this all at first hand.
Paul Reading :: 7th Feb 21
As you say Simon, where to start! We are a low wage low skill economy where an unreasonable share of household income goes to paying for a roof! Any attempt to change that would and should produce falling property prices, imperilling the vast credit industry behind our economy's heavy reliance on retail, and the disastrous buy-to-let Ponzi system, together with its vast realty and legal dependents. The number of vested interests makes change difficult to deliver - Blair didn't even try. Johnson is above all a populist and just wants to be loved, not to restructure the country upsetting his funders. A Land Value tax would be a simple solution that would cause a a complete revolution but would have too many currently wealthy losers in the short term to stand a chance. Oh dear...
Paul Reading :: 7th Feb 21
I should add for illustration that the Brighton property next to me - a small three bed terrace is a buy to let on offer today as a four double bed property priced at a little over £2K per month (six years ago "only" £1,400.00). This ensures that millenials here cannot ever have families because they can't afford a home, only a cramped and poor quality HMO.
Henning Sieverts :: 14th Feb 21
If the problems Simon describes derive from the defunct ideologies and managerial incompetence of the current government (they do!), where is the Opposition? Is there even an Opposition these days, recognising that Westminster seems to believe that its remit doesn't extend beyond England?
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