When asked how to define economic success, I usually say “good work at a good wage, everywhere”. On those criteria, the UK economy is failing many people. Around ten million are in insecure work. Around double that have not had their inflation-adjusted pay rise for a decade. And differences in wages across regions of the UK are greater than at any time since the late-Victorian era.
In his fascinating essay, Roberto Unger reaches broadly the same conclusion. What is often called the foundational economy – local jobs in local communities supporting local spending – is stuck in a low skills-low productivity-low wage equilibrium.
The UK’s skills, productivity and regional problems are closely related to each other. Despite its importance to most people’s lives, the foundational economy has been hiding in plain sight and has remained out of policymakers’ minds. Only at times of national crisis, such as the pandemic, is the true value of the foundational economy, and its key workers, clear for all to see and applaud. Yet historically, such applause has been temporary.
Unger’s policy prescription for these deep-rooted problems is an institutional reformation of the UK, national in scope and ambition, but local in design and execution. This reformation would be neither state-managed nor subcontracted to the private sector. It would instead be driven by locally governed institutions, run by and on behalf of local communities and citizens. Neither of the market or the state, this might be called “community capitalism”.
Unger focuses this new institutional settlement in three areas: business, education and the constitution. On the first, UK business is bifurcated. At its best, it leads the world in innovation and productivity. But there is a long and lengthening tail of low-productivity businesses, many in the foundational economy, which have not gained access to the fruits of innovation. Technology has not trickled down from the top.
A significant part of any technological catch-up is likely to come courtesy of an improvement in management skills. Technology tends to fail not because of hardware or software, but because people lack the skills to ensure innovation and advanced practices of production trickle down to the foundational parts of the economy. On management skills, the UK lags behind Europe and Asia.
[see also: The system cannot hold]
Unger proposes localised hubs for sharing technology experience and disseminating innovation best-practice among companies, enabling local businesses to adopt and adapt. Be the Business, a not-for-profit movement launched in 2017, is working with local businesses across the UK to do just that. But this initiative is neither national in scale nor comprehensive in scope. Making good on Unger’s idea would mean taking those extra steps.
A necessary ingredient in this technological upgrade is adequate finance. Almost a century ago, the Macmillan Committee, formed by the British government after the stock market crash in 1929, reported large gaps in access to “patient”, long-term capital among UK small businesses. Yet, in the period since, the loss of local banks with local knowledge has widened those gaps. Plugging them requires a national network of local banks providing not only long-term funding to start-ups and scale-ups but business advice too.
On education, as in business, Britain is divided. Young people split 50/50 between those who do and do not go to university. The former group attracts significant graduate salaries, while the latter group’s skills have atrophied and its incomes have flatlined. The dystopian meritocratic vision set out by Michael Young over 60 years ago in The Rise of the Meritocracy (1958), of a society divided by academic qualification, has become a reality – what the Harvard philosopher Michael Sandel calls “the tyranny of merit” in his recent book of the same name.
The polarising effects of the UK’s educational model explain many of our economic, social and political divides. We need a fundamental rethink of how we educate the population that allows for the ongoing shifts in the nature of work, as AI begins to trump IQ in an increasing number of tasks. The old educational model taught young people academic skills. The new model will require a greater emphasis on vocational and interpersonal skills – those hardest for robots to replicate. Such an education will also need to offer genuine lifelong learning.
Finally, on the constitution, the UK is one of the most centralised advanced economies in the world. Its civic institutions have been in long-term decline, lacking money, responsibility and personnel, and often all three together. The UK government has a white paper on devolution planned for this year. This offers an opportunity, but one that will only be seized if the Holy Trinity of powers, people and monies are delegated locally.
Unger is right: a plan for national renewal is needed, focused squarely on the foundational economy, on making the lives of the UK’s silent majority larger as well as longer. He is also right that a network of civic institutions should form the base of the foundational economy, locally rooted and citizen-led. This is a model both old and new, neither market nor Marxist. The risks in delivering such a plan are enormous. The economic, social and political risks in not delivering it are almost certainly larger still.
Andy Haldane is chief economist at the Bank of England but is writing in his capacity as chair of the Industrial Strategy Council
This article appears in the 17 Mar 2021 issue of the New Statesman, The system cannot hold