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 adviser to Downing Street and the Treasury. He tweets @GavinJKelly1.

Photo: Martin Whitfield
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Labour MP for East Lothian Martin Whitfield: "I started an argument and ended up winning an election"

The former primary school teacher still misses home. 

Two months ago, Martin Whitfield was a primary school teacher in Prestonpans, a small town along the coast from Edinburgh. Then he got into an argument. It was a Saturday morning shortly after the snap election had been called, and he and other members of the local Labour party began discussing a rumour that the candidate would be an outsider.

“I started an argument that this was ridiculous, we couldn’t have a candidate helicoptered in,” he recalls. He pointed out that one of the main issues with the Scottish National Party incumbent, the economist and journalist George Kerevan, was that he was seen as an outsider.

“I kept arguing for an hour and a half and people started gently moving away,” he jokes. “About two days later I was still going on, and I thought enough’s enough.” 

He called Iain Gray, the Scottish Labour veteran, who interrupted him. “He said, 'Right Martin, are you going to put up or shut up?’ So I filled in the forms.

"Then I had to have a very interesting conversation with my wife.”

One successful election campaign later, he is sitting in the airy, glass-roofed atrium of Westminster’s Portcullis House. Whitfield has silver hair, glasses, and wears a Labour-red tie with his shirt. He looks every bit the approachable primary school teacher, and sometimes he forgets he isn’t anymore. 

I ask how the school reacted to his election bid, and he begins “I have”, and then corrects himself: “There is a primary four class I had the pleasure to teach.” The children wanted to know everything from where parliament was, to his views on education and independence. He took unpaid leave to campaign. 

“Actually not teaching the children was the hardest thing,” he recalls. “During the campaign I kept bumping into them when I was door-knocking.”

Whitfield was born in Newcastle, in 1965, to Labour-supporting parents. “My entire youth was spent with people who were socialists.”

His father was involved in the Theatre Workshop, founded by the left-wing director Joan Littlewood. “We were part of a community which supported each other and found value in that support in art and in theatre,” he says. “That is hugely important to me.” 

He trained as a lawyer, but grew disillusioned with the profession and retrained as a teacher instead. He and his wife eventually settled in Prestonpans, where they started a family and he “fought like mad” to work at the local school. She works as the marketing manager for the local theatre.

He believes he won his seat – one of the first to be touted as a possible Labour win – thanks to a combination of his local profile, the party’s position on independence and its manifesto, which “played brilliantly everywhere we discussed it”. 

It offered hope, he says: “As far as my doorstep discussion in East Lothian went, some people were for and against Jeremy Corbyn, some people were for and against Kezia Dugdale, but I didn’t find anyone who was against the manifesto.”

Whitfield’s new job will mean long commutes on the East Coast line, but he considers representing the constituency a “massive, massive honour”. When I ask him about East Lothian, he can’t stop talking.

“MPs do tend to say ‘my constituency’s a microcosm’, but it really is Scotland in miniature. We have a fishing industry, crabs and lobsters, the agricultural areas – the agricultural soil is second to none.” The area was also historically home to heavy industry. 

After his first week in Westminster, Whitfield caught the train back to Scotland. “That bit when I got back into East Lothian was lovely moment,” he says. “I was home.”

Julia Rampen is the digital news editor of the New Statesman (previously editor of The Staggers, The New Statesman's online rolling politics blog). She has also been deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines. 

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