The recovery from the most recent wave of lockdown is, at present, advancing rapidly, driven by the unlocking of the economy, and by the expectation of a brighter, vaccinated future, which has led to exceptional rises in job vacancies and employment. But the longer-term prospects for growth remain weak, and the peculiar side-effects of a year of lockdowns are likely to exacerbate some of the British economy’s worst features in the short to medium term.
The Bank of England and other financial institutions expect the £160bn estimated to have been saved by British households since the pandemic began to fuel a consumer-led and private sector-focused recovery. But there are solid reasons to doubt this will be sustainable. First, even the optimistic forecasts by Deutsche Bank suggest only 10 per cent of this hoard will be spent. This is a significant sum if it suddenly appears as consumer spending, which will make for some dramatic short-run growth figures, but it is, obviously, less than the amount of money that has been withdrawn from circulation. Second, as is increasingly being recognised, much of this cash will be spent online, rather than on the high street, and will therefore do little for flagging town and city centre economies. Post-Covid growth will look and feel different.
Third, while most of those savings are currently just sitting in bank accounts, with only a few households reporting their intention to consume them, it’s at least plausible this wall of money will start to move into different assets, pushing up prices. In the UK, we should expect to see house price inflation over the next year, regardless – or indeed in spite – of wider economic performance. Already, Land Registry data shows house prices rising at 10.2 per cent in March – a rate of growth not seen since 2007, at the peak of the pre-2008 bubble.
This will almost certainly exacerbate what has become a dire housing situation for many in the last decade. As a new report by the think tank Autonomy shows, there is a direct, mutually reinforcing relationship between insecure, poorly paid work and insecure, overpriced accommodation. Covid has worsened this situation for those in hospitality and retail in particular. The bans on evictions provided some temporary respite for service-sector workers, but many were unable to access the protection of furlough as a result of their non-standard employment contracts.
The research confirms what many of us already know and experience directly: focusing on employment conditions alone does not capture the realities of working-class life in Britain today. Property ownership, particularly of housing, is also crucial.
[see also: How Tory dominance is built on home ownership]
The idea that Labour and other centre-left parties must reassert the value of work is becoming more popular. But an emphasis on work as a good in itself is problematic in a low-growth economy: as Thomas Piketty’s Capital in the Twenty-First Century pointed out in exhaustive detail nearly eight years ago, economies in which growth is low relative to returns on wealth will be economies in which wealth comes to dominate. If future growth, as conventionally measured through GDP, faces continual barriers – such as low productivity gains from new technology, the ongoing costs of Covid-19 and future environmental calamities – the decisive factor in politics will be the ownership of wealth.
This creates a dilemma for social democratic parties and governments. Since at least the 1950s, they have tended to view the redistribution of the fruits of growth as the primary economic goal of the state – with improvements in the rate of growth an important secondary concern. But if growth is limited, redistribution becomes harder without intruding directly on wealth. And if the private sector can’t deliver growth due to rising costs and risks, direct government intervention and investment becomes increasingly important. This is close to the scenario John Maynard Keynes had in mind when he spoke, in the 1930s, of the need for the “socialisation of investment”.
This is likely to become particularly apparent as the balance of costs and risks in the world economy is reshaped by the virus. Manufacturing employment in the US and the UK is already rising fast, despite supply chain difficulties, even as key service sectors remain very depressed. This reflects both the (short-term) switch by consumers to manufactured goods during lockdown and the (longer-term) change in the relative costs and risks of much service-sector employment under Covid, as virus checks, social distancing and other bio-security measures become at least semi-permanent.
But future gains from manufacturing are likely to require the kind of heavy infrastructure investment that the digital service economy has benefited from in the last two decades or more. The switch to electric vehicles, for example, requires the provision of a new charging point infrastructure, but the anticipated growth of digitally enabled manufactured products also necessitates a hefty new communications infrastructure, centred on 5G. And advanced manufacturing itself, such as the fabrication of silicon chips, requires long-term support. In all cases, governments across the world are likely to find themselves increasingly called upon to deliver that investment and support – much as China’s “Made in China 2025” plan delivers it, or as Biden’s American Jobs Plan proposes to.
The British government offers nothing on this scale, although that won’t stop Boris Johnson and others trumpeting any manufacturing employment improvements as the result of their own brilliance, particularly in the north. In these circumstances, facing a Tory Party in workerist costume, Labour will need to take on the arguments about ownership and wealth directly.