Wanted: a new purpose for British capitalism

How can Britain avoid going down the US path where for the last generation the majority of the gains

If this year's question is "When will growth resume?", next year's will surely be "How do we make sure that growth benefits the great majority of working people?".

For much of the 20th century, that second question would not have been necessary. The link between growth and living standards held strong -- it was the golden thread of the social contract, binding together the shared efforts of labour, capital and government in a win-win deal for all sides.

But today, across many advanced economies, that thread is badly frayed, while in others it has already severed. The US has seen a generation of flat or falling real incomes among the bottom half of earners. From 1970 to 2010 the link between economic growth and typical wages ruptured -- the "great decoupling", as Lane Kenworthy has called it. GDP continued to grow but it didn't trickle down.

In the 37 years from 1973 to 2010, the annual incomes of the bottom 90 per cent of US families rose by only 10 per cent in real terms. Median US household income was $64,000 in 2007. Had it kept pace with growth in GDP, it would have grown to $90,000. As the table below shows, the richest 1 per cent of the population has captured a truly staggering proportion of the gains from all income growth – two-thirds of the total gain during the Bush years.

 

The result of these extraordinary growth rates is that the richest 1 per cent of American society now receives over 20 per cent of total income, with the richest 10 per cent getting roughly 50 per cent of all income (see below).

Perhaps we can comfort ourselves with the notion that the US is unique? No. In Canada, median earnings have also flatlined for 30 years. In Germany real monthly incomes fell between 2000 and 2009. And in the five years that preceded the 2008-2009 recession, while UK GDP growth averaged above 2 per cent, median wages were near flat at the same time as they carried on steadily rising at the top (see below; sources: ONS, ASHE, Resolution Foundation).

 

So this can't just be put down to a momentary living standards squeeze arising from the fallout from the recession or the deficit - though that is certainly also taking place. The problem started earlier, will last longer, and runs deeper. It is a mega-trend in some, not all, advanced capitalist economies that towers over other questions of social and economic policy that dominate the daily news.

Marginal interests

In the US, unlike the UK, this issue at least shapes mainstream political debate. It is a theme that Barack Obama took up when confronting the captains of industry last week: "We can't go back to the kind of economy where gains in productivity just didn't translate into rising incomes and opportunity for the middle class." Behind the scenes, Gene Sperling, President Obama's newly appointed director of the US National Economic Council, has invoked the spirit of JFK, calling for a new "rising-tide economics" to underpin a return to an era of shared prosperity.

Fine sentiment. But there are few signs from the US, and even less in the UK of fresh thinking on how to shift the distribution of the gains from growth. The truth is that no one really knows the answer, few politicians are focused on it, and the economics profession has until recently largely ignored it.

Which brings us to the much-talked-of "growth plan" that the coalition is working on for the Budget. What are the prospects of it really tackling the problem of living standards? Bleak – at least if the past is anything to go by. When the call goes out in Whitehall for ideas on growth, the response is typically a half-hearted effort to pull together a package of incremental measures – a tweak in the tax treatment of investment, another review of red tape, a new public investment bank or fund (with few resources), a call for stronger links between universities and regional economies.

All of these are wearily familiar. Some of them may help growth at the margins. None begins to match up to the problem – nor do they directly address the issue of who gains from growth. No one in Whitehall even thinks it's their job to worry about this.

So, in addition to the usual business support measures, what would a "rising tide" economics need to consider if it is to try and ensure that growth feeds through into rising incomes and a more stable recovery?

First, there would need to be a much more ambitious drive on jobs and skills. That means employment creation, including the use of government job guarantees. There is no prospect of steadily rising real wages emerging out of a slack and detoriating jobs market; so, steady progress on the long road back to full employment – which as of today feels like a pipe dream – is a vital precondition.

But, as the pre-recession years vividly demonstrated, high employment on its own won't suffice. We also need a deliberate effort to tilt the balance to help labour secure sustainable wage growth. Once steady employment growth is re-established, this will demand a more aggressive approach to raising the minimum wage more steeply year on year; as well as government action rather than words on expanding the reach of the "living wage". And there has to be a new model of skills policy, jettisoning the old approach of pumping out an ever greater supply of paper qualifications in favour of using sticks and carrots to encourage employers to increase their demand for skilled labour.

How to restart growth

Second, there is a need to be unfashionable. That means focusing on the performance of some of the less eye-catching sectors of the economy – where so many low-to-middle-income earners actually work – rather than just showering attention on fashionable "industries of the future" as politicians of all parties like to term them.

Of course, low-carbon energy, digital and the creative sectors are absolutely vital, and the government should intervene more aggressively to secure their success in the UK. But more important to the immediate lives of much of working Britain are the high-employment, low-productivity, "pedestrian" sectors of our economy which account for roughly 25 per cent of GDP – such as retail, hospitality and personal care – where poverty wages are widespread, opportunities for progression within jobs are limited, and management is often poor.

Third, a "rising-tide" economics would involve stretching the growth agenda beyond the confines of traditional "industrial policy" into future choices on public services. Why so? Because tightly constrained public spending should be prioritised for services such childcare and elderly care that, with proper reform, could play a far greater role supporting more people, especially woman, to enter into and stay in work.

As millions of households have long figured out for themselves, when individual earnings are stagnant then the only way of lifting household living standards (without relying on increasing debt) is through more dual-earner couples, as well as helping people to stay in work for longer as they get older. Indeed, it is an irony that the single most potent pro-growth, pro-living-standards measure that the coalition has introduced to date – the abolition of the default retirement rule, which will enable far more people to continue working as they grow older if they choose to – hasn't been presented in this light.

Finally, there is a pressing need to capitalise on the new, if belated, zeitgeist among the high priests of the global economics profession concerning the toxic consequences of rising inequality. This does not stem from the usual left-leaning economists, but from leading financial gurus – including Raghuram Rajan and Ken Rogoff, both former chief economists of the IMF – who are motivated by the need to secure viable conditions for steady economic growth in a post-crisis world.

Translated into the UK context, this interest in greater economic equality very quickly runs up against the reality of our income-tax system, where the 40p rate already kicks in at a relatively low (and falling) income level and there is no appetite from any quarter for raising the 50p rate on the highest incomes. As a result, all roads point to the need for fresh and fearless thinking on taxing wealth and top-end housing – not least as wealth inequalities far exceed those in income.

As things stand, over the short term, the government will remain on the defensive about the lack of a plausible plan for restarting growth. Eventually – however slowly – growth will bounce back and that hurdle will be cleared. Yet the real economic test – indeed, the wider test for the very legitimacy of the British model of capitalism – is the far higher hurdle that follows. Will the proceeds of growth once again be widely shared, or will we go down the American path to an increasingly divisive future in which the majority of workers receive little or no gain from rising national prosperity?

Gavin Kelly is chief executive of the Resolution Foundation.

Gavin Kelly is a former adviser to Downing Street and the Treasury. He tweets @GavinJKelly1.

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Why is it called Storm Doris? The psychological impact of naming a storm

“Homes being destroyed and lives being lost shouldn’t be named after any person.”

“Oh, piss off Doris,” cried the nation in unison this morning. No, it wasn't that everyone's local cantankerous old lady had thwacked our ankles with her stick. This is a different, more aggressive Doris. Less Werther’s, more extreme weathers. Less bridge club, more bridge collapse.

This is Storm Doris.

A storm that has brought snow, rain, and furious winds up to 94mph to parts of the UK. There are severe weather warnings of wind, snow and ice across the entire country.

But the real question here is: why is it called that? And what impact does the new Met Office policy of naming storms have on us?

Why do we name storms?

Storm Doris is the latest protagonist in the Met Office’s decision to name storms, a pilot scheme introduced in winter 2015/16 now in its second year.

The scheme was introduced to draw attention to severe weather conditions in Britain, and raise awareness of how to prepare for them.

How do we name storms?

The Name our Storms initiative invites the public to suggest names for storms. You can do this by tweeting the @metoffice using the #nameourstorms hashtag and your suggestion, through its Facebook page, or by emailing them.

These names are collated along with suggestions from Met Éireann and compiled into a list. These are whittled down into 21 names, according to which were most suggested – in alphabetical order and alternating between male and female names. This is done according to the US National Hurricane Naming convention, which excludes the letters Q, U, X, Y and Z because there are thought to be too few common names beginning with these letters.

They have to be human names, which is why suggestions in this list revealed by Wired – including Apocalypse, Gnasher, Megatron, In A Teacup (or Ena Tee Cup) – were rejected. The Met Office received 10,000 submissions for the 2016/17 season. According to a spokesperson, a lot of people submit their own names.

Only storms that could have a “medium” or “high” wind impact in the UK and Ireland are named. If there are more than 21 storms in a year, then the naming system starts from Alpha and goes through the Greek alphabet.

The names for this year are: Angus (19-20 Nov ’16), Barbara (23-24 Dec 2016), Conor (25-26 Dec 2016), Doris (now), Ewan, Fleur, Gabriel, Holly, Ivor, Jacqui, Kamil, Louise, Malcolm, Natalie, Oisín, Penelope, Robert, Susan, Thomas, Valerie and Wilbert.

Why does this violent storm have the name of an elderly lady?

Doris is an incongruous name for this storm, so why was it chosen? A Met Office spokesperson says they were just at that stage in their list of names, and there’s no link between the nature of the storm and its name.

But do people send cosy names for violent weather conditions on purpose? “There’s all sorts in there,” a spokesperson tells me. “People don’t try and use cosy names as such.”

What psychological impact does naming storms have on us?

We know that giving names to objects and animals immediately gives us a human connection with them. That’s why we name things we feel close to: a pet owner names their cat, a sailor names their boat, a bore names their car. We even name our virtual assistants –from Microsoft’s Clippy to Amazon’s Alexa.

This gives us a connection beyond practicality with the thing we’ve named.

Remember the response of Walter Palmer, the guy who killed Cecil the Lion? “If I had known this lion had a name and was important to the country or a study, obviously I wouldn’t have taken it,” he said. “Nobody in our hunting party knew before or after the name of this lion.”

So how does giving a storm a name change our attitude towards it?

Evidence suggests that we take it more seriously – or at least pay closer attention. A YouGov survey following the first seven named storms in the Met Office’s scheme shows that 55 per cent of the people polled took measures to prepare for wild weather after hearing that the oncoming storm had been named.

“There was an immediate acceptance of the storm names through all media,” said Gerald Fleming, Head of Forecasting at Met Éireann, the Irish metereological service. “The severe weather messages were more clearly communicated.”

But personalising a storm can backfire. A controversial US study in 2014 by PNAC (Proceedings of the National Academy of Sciences) claimed that hurricanes with female names lead to higher death tolls – the more “feminine” the name, like Belle or Cindy, the higher the death toll. This is not because female names are attached to more severe storms; it is reportedly because people take fewer steps to prepare for storms with names they perceive to be unintimidating or weak.

“In judging the intensity of a storm, people appear to be applying their beliefs about how men and women behave,” Sharon Shavitt, a co-author of the study, told the FT at the time. “This makes a female-named hurricane . . . seem gentler and less violent.”

Names have social connotations, and affect our subconscious. Naming a storm can raise awareness of it, but it can also affect our behaviour towards it.

What’s it like sharing a name with a deadly storm?

We should also spare a thought for the impact sharing a name with a notorious weather event can have on a person. Katrina Nicholson, a nurse who lives in Glasgow, says it was “horrible” when the 2005 hurricane – one of the fifth deadliest ever in the US – was given her name.

“It was horrible having something so destructive associated with my name. Homes being destroyed and lives being lost shouldn’t be named after any person,” she tells me over email. “I actually remember at the time meeting an American tourist on a boat trip in Skye and when he heard my name he immediately linked it to the storm – although he quickly felt guilty and then said it was a lovely name! I think to this day there will be many Americans who hate my name because of it.”

Anoosh Chakelian is senior writer at the New Statesman.