Daily Archive: February 9, 2013
Inequality has risen sharply since the 1990s, according to a report by the Resolution Foundation thinktank
The super-rich – the top 1% of earners – now pocket 10p in every pound of income paid in Britain, while the poorest half of the population take home only 18p of every pound between them, according to a report published this week by the Resolution Foundation thinktank, which reveals the widening gap between those at the very top and the rest of society.
Inequality has grown sharply over the past 15 years, according to Resolution's analysis: the top 1% of earners have seen their slice of the pie increase from 7% in the mid-1990s to 10% today, while the bottom half have seen their share drop from 19% to 18%.
There was a dip in top earnings between 2009-10 and 2010-2011, but Resolution's analysis suggests that may have been because highest-paid employees brought forward earnings to avoid the 50p top tax rate on earnings above £150,000, which Chancellor George Osborne has cut to 45p from this April.
Matthew Whittaker, senior economist at the thinktank, said: "If we take the longer view, we see the very wealthiest have continued to prosper while many others have not.
"The growing gap in incomes is pronounced when you look at the top 10th of households, and overwhelming when you consider the position of the top 1%. The rest of society hasn't kept up. It's the squeezed majority, not just the squeezed middle."
Resolution's calculations do not include the impact of benefits and tax credits, which top up the incomes of the lowest earners, yet show the polarisation in the UK's flexible labour market between top earners' soaraway salaries and stagnant wages for those at the bottom of the pile.
The Organisation for Economic Co-operation and Development used its annual health check of the UK economy to warn of the dangers of increasing inequality, saying: "Labour market conditions are widening the income gap between full-time employees and an increasing share of the workforce on part-time, insecure and low-wage jobs. This comes in a context where income inequality was already high and rising before the recession."
Tackling the gap between rich and poor is a growing political issue. The Labour leader, Ed Miliband, has called for a policy of "pre-distribution" to try to narrow the gap between the best and worst paid, while politicians from across the spectrum, including the mayor of London, Boris Johnson, have praised the idea of employers promising to pay the Living Wage, currently £8.55 an hour in London, and £7.45 elsewhere. The deputy prime minister, Nick Clegg, last week revived the idea of a "mansion tax" on homes worth more than £2m, or higher council tax bills for the costliest properties.
In its report, Squeezed Britain 2013, the Resolution Foundation will focus on the fortunes of middle-earners, many of whom have seen their real incomes stagnate over the past decade in the face of high inflation and weak bargaining power in the workplace.Living wageUS economic growth and recessionEconomicsRecessionHeather Stewartguardian.co.uk
The new Bank of England governor should heed Japan's efforts in trying to emerge from its lost decade
Most of us, including many bankers, now agree that the last 25 years have been a dreadful mistake. Western consumers and businesses have too much private debt, with Japan serving as an awesome warning of how that can drag an economy down for decades. There is a lot of hand-wringing over why regulation was so light-touch and why bankers were allowed to get away with so much. But those were the mistakes of a bygone world; the big question we face now is what to do next.
Last week, the governor-designate of the Bank of England, Mark Carney, and a man who was once a rival for the job, Adair Turner, both argued with one eye on Japan, where I have just spent an intriguing week, that it is time to open a debate about inflation. At the very least, declared Carney, we need to be very flexible about how inflation targets are met, keeping a weather eye on what is happening to growth and employment.
In a formidable speech, Turner went even further. The unthinkable – printing money to finance government deficits – should no longer be unthinkable, he argued. It should be one available policy tool, a way of countering deflation. In many respects, Britain's situation is even worse than Japan's in 1990 when its lost decades began. Our stock of private debt is much higher proportionally; our banks are in much worse shape; our productivity is disastrously low and falling. What's more, our loss of share of world export markets is the worst in the G20. Incomes per head are set to stagnate for 10 years, the worst in modern times. Our government, unlike the Japanese, is mulishly opposed to increasing public debt to compensate for the private sector trying to reduce its debt.
All that has stood between Britain and a Japanese-scale debacle is that at least the Bank of England has been obliged to keep inflation up rather than watch prices fall and it has been moderately imaginative about how it has done so. Nonetheless, it is crystal clear that it could, and should, have done more.
In Japan, I was simultaneously aware of what a toll two decades of deflation had levied on Japanese society, but also of the compensatory force of Japan's underlying economic strength. But gloom and pessimism still suffuse the country. Hiromasa Yonekura, the president of the Keidanren, Japan's all-powerful employers' association, told me that this lack of confidence, in his view unjustified, had become hard-wired into Japan's culture by falling prices. It affected even the birth rate and was the chief cause of Japan's rapidly ageing society. Nor is the birth rate the only sign of a society in stress. Young women's role in Japanese society is being knocked back by the fashion for coquettishness and cartoon-style prettiness, complete with singsong voices and contrived ways of walking. It is a return to suffocating traditionalism masked as fashionable faddishness. A society worried about its future becomes socially regressive.
Yet Japan's capacity to resist the malign element of deflation is very much greater than our own. It is still the third biggest economy in the world, with some fabulous companies possessing frontier technology, and going global rapidly. Hiroaki Nakanishi, the president of Hitachi, having just bought Horizon Nuclear Power from the Germans and aiming to build nuclear power stations in Britain, was worried that Britain was retreating from our global vocation. Tell your prime minister, he said, that Hitachi would consider it a disaster if Britain withdrew from the EU. I promised him that if the opportunity arose I would.
But Hitachi's commitment to frontier engineering is only one example; others are rail company Japan Central's investment in the Maglev train, which travels at over 300mph, and textile expert Toray's commitment to new carbon materials that are many times stronger than anything known to man. Japan is engaging in investment and innovation across the board and on a scale Britain can only dream of.
Time after time, as I questioned company leaders about their capacity to do this, I was referred to Japan's "public interest" or "stakeholder" capitalism – committed long-term ownership, partnership with the state to drive research forward and corporate leaderships keen to find commercial responses to the giant economic and social problems of our time. It is a world foreign to our own of shareholder value maximisation and gigantic personal bonuses, where interest in social problems is seen as "anti-business". This dynamism refuses to be submerged by debt deflation; Yonekura pointed out that, while New York had built 20 skyscrapers in the last decade, Tokyo had built 50. But to unleash this dynamism, Japan has had to break out of its monetary and financial trap. The newly elected government has gone some of the way, proposing a huge Keynesian stimulus and lifting the inflation target to 2%. But, as Turner argued, Japan's stock of public debt is now even more suffocating than private debt. Japan must go further: turn it from onerous debt into free cash by in effect printing money. Done right, this would not create inflation but steady the economy. There is an intense private battle raging between the Ministry of Finance and the Bank of Japan. Either the bank starts monetising public debt, as Turner argues, or the Ministry of Finance will launch another unthinkable, unilateral reduction of Japan's public debt burden by demanding borrowers accept worse repayment terms. Plans are being laid for a managed default unless the Bank of Japan prints money.
This is what happens when societies face impossible demands. To sustain the social fabric, investment and innovation, governments have to do non-conservative things – reframe their capitalism and break conservative financial rules. Japan is now ready to do this, the Liberal Democrat party feeling that too much is at stake not to act.
Carney and Turner are pointing the way in Britain. But there is a limit to what a central bank can do by itself. What is becoming clearer by the month is that every Tory maxim – leaving the EU, belief in smaller government, a hands-off approach to capitalism, junking the welfare state – is 100% wrong. Britain needs to learn from Japan. We don't need just a radicalisation of monetary policy – we need to recast, from top to bottom, how our companies are owned, financed and managed. Otherwise, we face an economic and social calamity. The final shredding of Toryism before brutal economic truths will signal the rebirth of the British economy.InflationEconomicsJapanUS economic growth and recessionMark CarneyEconomic policyBankingWill Huttonguardian.co.uk
The Bank of England is trying to summon growth. But unless there is a change in fiscal policy, will it come?
David Cameron's problem is that, although he regards himself as the "heir to Blair", he did not have someone of the political courage and clout of Neil Kinnock to detoxify his party before he took over.
The Conservatives, especially under the chancellorship of George Osborne, are coming across as the worst of the old-fashioned, rightwing, bash-the-poor party that the likes of my late "wet" Tory friend Lord Gilmour hoped had been banished for ever.
For those of us Keynesians who think that it is not a sensible policy to cut public spending when the private sector is depressed – thereby adding to the factors inhibiting economic recovery – the present stance of the government is disturbing enough. But many of us, while we find present policies both intellectually offensive and emotionally repellent, do not suffer personally from the effects. Not so the poor and the disabled, who find their benefits being reduced in the name of austerity policies they are told are necessary because of the deficit and the supposed need to pay down the debt.
At a time like this, it is very important not to pay down the debt. It is what keeps us going, preventing an even worse depression. Unfortunately, so desperate is our beleaguered prime minister that he recently committed a classic "terminological inexactitude" by proclaiming in a party political broadcast that the government was paying down the debt when it manifestly was not.
It was perfectly fair, under the rules of love and politics, to complain that the deficit was attributable to the previous government, even though the fact is that it was largely the result of the financial crisis that afflicted most western economies, and only partly due to the specific policies of Gordon Brown. But to claim that public sector debt is falling when it is not is a step too far by a plainly rattled prime minister.
One country that was less affected than most by banking crisis was Canada. This seems to be at least one of the reasons why our chancellor was so keen to recruit its central bank governor, Mark Carney, to succeed Mervyn King at the Bank of England.
Now, regular readers may recall that I was pretty critical before Christmas of the way in which Osborne broke his own rules about the procedure for appointing King's successor. But it has to be said that Carney put up a reasonable performance in front of the Treasury select committee last week.
Given that, in the arcane world of central banking, Carney is considered "box office", I knew that there would be a queue to get into the hearing, but I did not get where I am today by queuing, so I decided to watch it all – or most of it; there are limits – on television. Carney himself took a similar view, and was 25 minutes late for his own hearing.
I say "reasonable" performance, and reasonable was the operative word, frequently used by the urbane committee chairman, Andrew Tyrie, and Carney himself. The other great theme was flexibility. When asked about his putative liking for targeting nominal gross domestic product (the sum of inflation and real growth), Carney gave the impression that he had rowed back from his earlier position, acknowledging there were measurement and operational problems with nominal GDP as a target for monetary policy.
Carney believes it is important that the public should understand what monetary authorities are up to, and it doesn't help if they are not quite sure themselves. However, in understanding his position, it is helpful to know that one thing Carney does emphasise is that, in the UK, nominal GDP is now almost 15% below what previous trends suggest it would have been in the absence of the crisis. In other words, there is ample scope for a major effort at expansionary economic policies in order to lift this beleaguered economy of ours out of depression.
Carney emerges as coming from what that great Canadian political analyst Colin Campbell describes as the school of "mainstream Bernanke". He believes in continuing with a flexible inflation target – that is, an Augustinian approach to financial virtue – and is emphatically worried, like Ben Bernanke, the US Federal Reserve chairman, about the high level of unemployment and the danger that, if unemployment persists for too long, the victims really will live up to the "unemployable" label so favoured by rightwing Neanderthals.
Now, it is all very well the Bank of England trying to stimulate growth. But certain words from Henry IV Part