Getting the measure of a better capitalism

Growth and relative poverty are no longer enough to tell us whether our economy is on the right trac

Today the Institute for Fiscal Studies has launched an Exocet at the Coalition's claims to be a one-nation government taking a lead on poverty reduction. Nearly all measures of poverty are set to rise over the next five to ten years and the Coalition's policies are part of the cause.

But underneath the headlines the IFS analysis serves a less likely purpose. It provides timely grounds for questioning some of the key measures we use to judge progress in our society. In particular, it raises difficult questions about our reliance on a formula that says 'GDP growth plus poverty reduction' is enough.

To understand why, we should start by looking at the IFS account of what is happening to child poverty. Over the short-term relative poverty has fallen (though it will go on to rise sharply, as will absolute poverty). This fall might seem counter-intuitive given the current squeeze on living standards. The explanation nothing to do with a positive impact from the government's welfare policies. It is because typical ('median') household incomes have faced an 'unprecedented collapse' (in the words of the IFS), lowering the bar against which relative poverty is measured. It's not that those at the bottom are doing any better, just that those in the middle are doing worse.

It is for these same definitional reasons that the IFS show it would be a bad thing for relative child poverty if we find ourselves in the lucky - and highly unlikely - position of securing faster earnings growth for those on low-to-middle incomes in future years. The result would be higher median incomes and therefore increased poverty rates. Just as perversely, it would be a good thing for child poverty if future earnings growth went overwhelmingly to the top of society - a depressing if more likely scenario - and so failed to lift median incomes.

There is nothing new about scoring debating points against a relative measure of poverty. It's not just those who disagree with it on the ideological grounds that we shouldn't care about income inequality (wrongly in my view). There are also progressive voices who think there are smarter ways of measuring these things. These concerns have a new purchase in an era when poverty appears to fall simply because the living standards of those in the middle are falling through the floor.

Nor is this the only measure of economic progress that needs probing. Take GDP growth. It used to be the case that if the growth figures were good then we could assume the living standards of the working population could take care of themselves. Now we're not so sure. In the UK growth stopped flowing into personal gain for low-to-middle income households early on in the last decade when wages started to flat-line. For ordinary families growth, it seems, doesn't signify what it used to.

The importance of this goes beyond a technocratic debate about definitions. Governments - left and right - set their course and judge their progress by a few key measures. If these are designed for the nicer world of the 1990s and early 2000s, not the nastier times we now live in, they may be less reliable guides to good policymaking then our leaders like to think. In the past 'growth plus poverty reduction' was thought to be a decent proxy for a better capitalism. Today, the route to a progressive economy requires additional bearings.

There is, of course, scope for endless debate about how to judge what a better capitalism should look like. The ONS is currently investigating a new measure of well-being - an idea with some merit - though one suspects that it was also conceived with better economic times in mind. Surely, however, a wide swath of opinion would concur that a key goal should be ensuring economic growth steadily lifts the incomes of those in the middle, not just the top, at the same time as ensuring the bottom catches up. Higher absolute living standards for the majority of families whilst closing the gap: very hard to achieve in practice, but not, you might think, all that controversial as a 21st century lodestar for government policy.

Indeed, given this goal is in tune with the regularly repeated rhetoric of party leaders, you'd have thought it might be a statement of the obvious - banal even. Yet Whitehall has a complete blind spot in relation to measures of living standards. Within the Treasury and No 10 there will be real anxiety, sometimes near crisis, preceding the announcement of weak growth numbers. DWP will be laser focussed on poverty numbers. In contrast there is entrenched ignorance, bordering on indifference, about the living standards of low-to-middle income households. Before the recession, when families knew their living standards were flat-lining, Whitehall assumed all was well - after all GDP was steadily climbing. Alarm bells weren't ringing. Those seeking to get Departments to focus on these questions were made to feel like they were speaking a foreign language.

Of course, right now you might think such talk is a luxury. We're not in a position to choose the type of growth we want - we'll take any on offer. But over the longer term we need to hold our governments to account for securing growth that leads to a rising tide of prosperity for those at the bottom as well as those in the middle. It would be a helpful start if Whitehall could get the measure of what a better capitalism might look like.

Gavin Kelly is a former Downing Street adviser to Gordon Brown and Tony Blair. He tweets @GavinJKelly1.

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Politicians: it's no longer OK to know nothing about technology

It’s bad enough to joke about not being "techy"; it's worse to write a piece of legislation from a position of ignorance. 

Earlier this week, facing down a 600-strong battalion of London’s tech sector at a mayoral hustings in Stratford, Zac Goldsmith opened his five minute pitch with his characteristic charm. “I’m not very techy!” he exclaimed. “I understand coding about as well as Swahili!”

Pointless jibe at a foreign language aside, this was an ill-chosen way to begin his address - especially considering that the rest of his speech showed he was reasonably well-briefed on the problems facing the sector, and the solutions (including improving broadband speeds and devolving skills budgets) which could help.

But the offhand reference to his own ignorance, and the implication that it would be seen as attractive by this particular audience, implies that Goldsmith, and other politicians like him, haven’t moved on since the 90s. The comment seemed designed to say: “Oh, I don't know about that - I'll leave it to the geeks like you!"

This is bad enough from a mayoral hopeful.  But on the same day, the Intelligence and Security Committee of Parliament filed its report on the Draft Investigatory Powers Bill, the legislation drafted by the Home Office which will define how and how far the government and secret services can pry into our digital communications. Throughout, there's the sense that the ISC doesn't think the MPs behind the bill had a firm grasp on the issues at hand. Words like "inconsistent" and "lacking in clarity" pop up again and again. In one section, the authors note:

"While the issues under consideration are undoubtedly complex, we are nevertheless concerned that thus far the Government has missed the opportunity to provide the clarity and assurance which is badly needed."

The report joins criticism from other directions, including those raised by Internet Service Providers last year, that the bill's writers didn't appear to know much about digital communications at all, much less the issues surrounding encryption of personal messages.

One good example: the bill calls for the collection of "internet connection records", the digital equivalent of phone call records, which show the domains visited by internet users but not their content. But it turns out these records don't exist in this form: the bill actually invented both the phrase and the concept. As one provider commented at the time, anyone in favour of their collection "do not understand how the Internet works". 

Politicians have a long and colourful history of taking on topics - even ministerial posts - in fields they know little to nothing about. This, in itself, is a problem. But politicians themselves are often the people extolling importance of technology, especially to the British economy - which makes their own lack of knowledge particularly grating. No politician would feel comfortable admitting a lack of knowledge, on, say, economics. I can’t imagine Goldsmith guffawing "Oh, the deficit?  That's all Greek to me!"  over dinner with Cameron. 

The mayoral candidates on stage at the DebateTech hustings this week were eager to agree that tech is London’s fastest growing industry, but could do little more than bleat the words “tech hub” with fear in their eyes that someone might ask them what exactly that meant. (A notable exception was Green candidate Sian Berry, who has actually worked for a tech start-up.) It was telling that all were particularly keen on improving internet speeds -  probably because this is something they do have day-to-day engagement with. Just don't ask them how to go about doing it.

The existence of organisations like Tech London Advocates, the industry group which co-organised the hustings, is important, and can go some way towards educating the future mayor on the issues the industry faces. But the technology and information sectors have been responsible for 30 per cent of job growth in the capital since 2009 - we can't afford to have a mayor who blanches at the mention of code. 

If we’re to believe the politicians themselves, with all their talk of coding camps and skills incubators and teaching the elderly to email, we need a political sphere where boasting that you're not "techy" isn’t cool or funny - it’s just kind of embarrassing. 

Barbara Speed is a technology and digital culture writer at the New Statesman and a staff writer at CityMetric.