Britain is still wrestling with the consequences of the crash
Published by CapX (11th June, 2017)
It used to be said that there was a Chinese curse wishing someone might live in ‘interesting times’. As we grapple with the impact of the latest electoral shock to our system, it is hard not to wonder if we in this country have been so cursed today.
Consider recent events: four in 10 voters in Britain, a nation renowned worldwide for sensible moderation and a sober strain of democracy, have just backed a party led by Jeremy Corbyn. He and his hard-Left allies offered a disturbing worldview, and the least realistic economic programme from a major political group in my lifetime. Yet such was Labour’s surge that he achieved the biggest swing for the party since Clement Attlee, with the Tories losing their majority despite winning more votes than Tony Blair ever managed.
This leaves a nation on brink of its most serious negotiations for decades stuck in political deadlock under a prime minister barely clinging to power. Just as with last year’s Brexit referendum, or the previous Scottish independence vote, the divisions scarring our society were savagely exposed at the ballot box.
Whether by luck or design, Corbyn tapped into burning resentments to forge a fresh coalition of young people, public sector workers and a disenchanted metropolitan middle-class. This was a howl of anger, just like Brexit, from people who feel the system is not working for them on pay and healthcare and housing.
Life is less fair for young people – and this is now alarming older generations too. And yes, Corbyn’s solutions might be at best simplistic and at worst destructive – but then so is the nasty habit of some on the Right of shifting blame for political failures on to foreigners.
Britain is far from alone in confronting such problems. Similar anger and divisions are seen across the Western world, with the rapid march of technology fuelling the fire. (Perhaps this explains why both Labour and the Tories offered such nostalgic platforms.) Yet many of the causes of today’s economic, political and social problems are rooted in one thing: the financial meltdown of 2008.
For four decades we were governed by people who endorsed neoliberalism, a noble effort to fuse 19th-century liberal ideals with 20th-century welfare demands. They backed globalisation, appreciating the astonishing ability of capitalism to lift people from poverty and drive prosperity. Faith in markets moved to the centre ground. And citizens led longer, healthier and wealthier lives.
But it was based on an unwritten accord: so long as everyone was getting a bit richer and seeing prospects improve for their children, inequality could soar and bankers earn vast bonuses. Plodding company bosses and cocky young City traders could earn fortunes – as long as shop workers, scientists, sailors and solicitors could also afford an extra holiday or a smarter car. The super-rich could spend millions on huge houses in Mayfair if prices rose in Maidenhead and Manchester.
This was particularly true in Britain – even during the initial Eighties boom. In 1980, the average chief executive of a FTSE firm earned 25 times more than the average employee. Last year, this figure had swelled to a grotesque 130 – a chasm that troubles even some of its biggest beneficiaries. Top public sector staff started demanding hefty pay packets and bonuses, too. And since our capital dominates more than in any other European country, the elites doing the best were heavily clustered in London.
Then came the financial meltdown, hitting Britain especially hard due to its huge financial services sector. Workers saw real wages fall for six successive years. The Coalition government, faced with a ballooning deficit, chose to cut public spending and freeze pay but bailed out rich bankers.
The expenses scandal erupted, ripping apart any remaining bond between Westminster and the wider public. Politicians looked powerless when confronted by the downsides of globalisation, such as tax-dodging billionaires and arrogant technology giants.
These issues still lie at heart of our politics – fuelling much of the resentment towards “others” (whether immigrants, liberals or rich Londoners). Days before the election, the LSE’s Centre for Economic Performance published a report showing that Britain suffered the biggest drop in average real wages of any OECD nation between 2007 and 2015 except for ravaged Greece – down more than 5 per cent.
Young workers were the worst affected, seeing sharp wage falls linked to lower hours, part-time work and the gig economy. Like it or not, there is a reason for those crowds cheering Corbyn.
Not only do real wages remain lower nearly a decade later, they are still falling in some sectors. Public sector pay and benefits are still being squeezed. Inflation, fuelled by the falling pound, is adding to the pain by eroding pay packets. People are fed up with austerity, alarmed over creaking public services. And while pensioners have been protected, the proportion of homeowners under 35 has halved this century – a stark symbol of how life has become harder for the young in our property-owning democracy.
There remains plenty of room for optimism – and for pride in the power of markets. But it is no good just railing at populism, whether from Left or Right. Nor imagining that simply preaching a frayed creed of libertarianism will convert the masses. The mood has changed, the centre of gravity moved, the electoral dynamics shifted. And a large slice of the electorate seems seduced by simplistic answers to extraordinarily complex problems.
To their credit Theresa May and her much-maligned team were trying to grapple with some of these issues in their manifesto. Yes, they made hideous mistakes, their campaign was horribly mismanaged, key policies were highly regressive and the craziness of a presidential strategy centred around a publicity-shy prime minister cruelly exposed.
But at least they showed a recognition that the political landscape has changed – which is more than can be said for some of their critics. Certainly the Tories need better leadership and smarter communication. But they also need to respond to the profound problems dating back to 2008 with far more clarity – and compassion.