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.

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The rise of the green mayor – Sadiq Khan and the politics of clean energy

At an event at Tate Modern, Sadiq Khan pledged to clean up London's act.

On Thursday night, deep in the bowls of Tate Modern’s turbine hall, London Mayor Sadiq Khan renewed his promise to make the capital a world leader in clean energy and air. Yet his focus was as much on people as power plants – in particular, the need for local authorities to lead where central governments will not.

Khan was there to introduce the screening of a new documentary, From the Ashes, about the demise of the American coal industry. As he noted, Britain continues to battle against the legacy of fossil fuels: “In London today we burn very little coal but we are facing new air pollution challenges brought about for different reasons." 

At a time when the world's leaders are struggling to keep international agreements on climate change afloat, what can mayors do? Khan has pledged to buy only hybrid and zero-emissions buses from next year, and is working towards London becoming a zero carbon city.

Khan has, of course, also gained heroic status for being a bête noire of climate-change-denier-in-chief Donald Trump. On the US president's withdrawal from the Paris Agreement, Khan quipped: “If only he had withdrawn from Twitter.” He had more favourable things to say about the former mayor of New York and climate change activist Michael Bloomberg, who Khan said hailed from “the second greatest city in the world.”

Yet behind his humour was a serious point. Local authorities are having to pick up where both countries' central governments are leaving a void – in improving our air and supporting renewable technology and jobs. Most concerning of all, perhaps, is the way that interest groups representing business are slashing away at the regulations which protect public health, and claiming it as a virtue.

In the UK, documents leaked to Greenpeace’s energy desk show that a government-backed initiative considered proposals for reducing EU rules on fire-safety on the very day of the Grenfell Tower fire. The director of this Red Tape Initiative, Nick Tyrone, told the Guardian that these proposals were rejected. Yet government attempts to water down other EU regulations, such as the energy efficiency directive, still stand.

In America, this blame-game is even more highly charged. Republicans have sworn to replace what they describe as Obama’s “war on coal” with a war on regulation. “I am taking historic steps to lift the restrictions on American energy, to reverse government intrusion, and to cancel job-killing regulations,” Trump announced in March. While he has vowed “to promote clean air and clear water,” he has almost simultaneously signed an order to unravel the Clean Water Rule.

This rhetoric is hurting the very people it claims to protect: miners. From the Ashes shows the many ways that the industry harms wider public health, from water contamination, to air pollution. It also makes a strong case that the American coal industry is in terminal decline, regardless of possibile interventions from government or carbon capture.

Charities like Bloomberg can only do so much to pick up the pieces. The foundation, which helped fund the film, now not only helps support job training programs in coal communities after the Trump administration pulled their funding, but in recent weeks it also promised $15m to UN efforts to tackle climate change – again to help cover Trump's withdrawal from Paris Agreement. “I'm a bit worried about how many cards we're going to have to keep adding to the end of the film”, joked Antha Williams, a Bloomberg representative at the screening, with gallows humour.

Hope also lies with local governments and mayors. The publication of the mayor’s own environment strategy is coming “soon”. Speaking in panel discussion after the film, his deputy mayor for environment and energy, Shirley Rodrigues, described the move to a cleaner future as "an inevitable transition".

Confronting the troubled legacies of our fossil fuel past will not be easy. "We have our own experiences here of our coal mining communities being devastated by the closure of their mines," said Khan. But clean air begins with clean politics; maintaining old ways at the price of health is not one any government must pay. 

'From The Ashes' will premiere on National Geograhpic in the United Kingdom at 9pm on Tuesday, June 27th.

India Bourke is an environment writer and editorial assistant at the New Statesman.

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