Is life in the UK really as bad as the numbers suggest? Yes, it is

The past 15 years have been a disappointment on a scale we could hardly have imagined writes Tim Harford in The FT 

At a time of shortages, we are certainly not short of gloomy economic forecasts. The Resolution Foundation think-tank notes that average real earnings have fallen by 7 per cent since a year ago and predicts that earnings will take four or five years to recover to the levels of January 2022. 

Yet if the forecasts are bad, it is the scene in the rear-view mirror that is truly horrifying. The British economy is in a generation-long slough of despond, a slow-burning economic catastrophe. Real household disposable income per capita has barely increased for 15 years. 

This is not normal. Since 1948, this measure of spending power reliably increased in the UK, doubling every 30 years. It was about twice as high in 1978 as in 1948 and was in touching distance of doubling again by 2008, before the financial crisis intervened. Today, it’s back at those pre-crisis levels. 

It’s worth lingering on this point because it is so extraordinary. Had the pre-crisis trend continued, the typical Brit would by now be 40 per cent richer. Instead, no progress has been made at all. No wonder the Institute for Fiscal Studies is now talking of a second lost decade. 

Go back and look for historical precedents for this, and you will not find much. In the National Institute Economic Review, economic historians Nick Crafts and Terence Mills examined the growth in labour productivity over the very long run. (This is defined as the total output of the UK economy divided by the total number of hours worked; labour productivity is closely connected to material standards of living.) They do find worse runs of performance — 1760 to 1800 was not much fun — but none within living memory. Nowhere in 260 years of data do they find a sharper shortfall from the previous trend. The past 15 years have been a disappointment on a scale that previous generations of British economists could hardly have imagined. 

The questions of how this can have happened, and what can be done to change things, can be left for another column. (Part of the problem, in any case, may have been government by newspaper columnists.) But it is worth looking for symptoms. Is life in the UK really as bad as the apocalyptically bad economic numbers suggest? Perhaps so. There are some obvious problems: widespread worry about the cost of living; strikes everywhere; the utter meltdown of the UK’s emergency healthcare. 

There are also subtler indicators of chronic economic disease. Consider the public finances. In an ideal world, governments offer their citizens low taxes, excellent public services and falling national debt. In normal circumstances, we can’t have it all. Right now, we can’t have any of it. 

We have rising taxes. At more than 37 per cent of national income, they are four percentage points higher than they’ve tended to be over the past four decades. Yet those high taxes are doing nothing to shore up public services, which have been steadily squeezed for more than a decade. (The NHS, believe it or not, has been shielded from this squeeze; if it’s bad at your local A&E, don’t think too deeply about schools, courts or social services.) Low growth puts pressure on public sector wage settlements — if the pie isn’t growing, no wonder there is such a scrap over each slice. 

One might at least hope that, with high taxes and spending constraints, debt would be low and falling. No. Debt is high, the deficit is a permanent fixture and interest payments on public debt have risen to levels not seen for 40 years. 

Many people struggle to pay for the basics. A large survey conducted by the Resolution Foundation in late November found that about a quarter of people said they couldn’t afford regular savings of £10 a month, couldn’t afford to spend small sums on themselves, couldn’t afford to replace electrical goods and couldn’t afford to switch on the heating when needed. Three years ago, only an unlucky few — between 2 and 8 per cent — described themselves as having such concerns over spending. More than 10 per cent of respondents said that at times over the previous 30 days, they’d not eaten when hungry because they didn’t have money for food. 

This is not supposed to happen in one of the world’s richest countries. But then, the UK is no longer in that club. As my colleague John Burn-Murdoch has recently shown, median incomes in the UK are well below those in places such as Norway, Switzerland or the US and well below the average of developed countries. Incomes of the poor, those at the 10th percentile, are lower in the UK than in Slovenia. 

 

If all this was happening during a deep recession, we could have hope. “One day,” we’d say to ourselves, “the business cycle will turn, businesses will start hiring again, tax revenues will increase and some of our problems will disappear of their own accord.” 

But we are not in a deep recession. Recently unemployment has been lower than at any time since before the prime minister was born, which suggests that a dramatic cyclical uptick is unlikely. The UK economy has the accelerator to the floor yet is barely able to gain speed. That is hardly likely to improve as the Bank of England applies the brakes. 

I don’t believe the situation is hopeless. The UK has many strengths and many resources and has overcome adversity before. But if we are to solve this chronic economic problem together, we first need to acknowledge just how serious — and how stubborn — the issue has become.

There is a global debt crisis coming – and it won’t stop at Sri Lanka

Foreign capital flees poorer countries at the first sign of instability. The pandemic and Ukraine war ensure there is plenty of that around writes Jayati Ghosh in The Guardian





This January, even before Sanjana Mudalige’s salary as a sales worker in a shopping mall in Colombo, Sri Lanka, was slashed in half, she had pawned her gold jewellery to try to make ends meet. Ultimately, she quit her job, because the travel costs alone exceeded the pay. Since then, she has shifted from using gas for cooking to chopping firewood, and eats just a quarter of what she did before. Her story, reported in the Washington Post, is one of many in Sri Lanka, where people are watching their children go hungry and their elderly relations suffer for lack of medicines.

The human costs of the crisis only really captured international attention when the massive popular upsurge earlier this month, known as Aragalaya (Sinhalese for “struggle”), led to the peaceful overthrow of President Gotabaya Rajapaksa. His family had ruled Sri Lanka with an iron fist, albeit with electoral legitimacy, for more than 15 years, and is now being blamed by both national and international media for the desperate economic mess the country is in.

But blaming the Rajapaksas alone is too simple. Certainly, the aggressive majoritarianism that they unleashed, along with the alleged corruption and major economic policy disasters of recent years (such as drastic tax cuts and bans on fertiliser imports), were crucial elements of the economic debacle. But this is only part of the story. The deeper and underlying causes of the crisis in Sri Lanka are barely mentioned by most mainstream commentators, perhaps because they reveal uncomfortable truths about the way the global economy works.

This is not a crisis created by a few recent external and internal factors, it has been decades in the making. Ever since its “open economic policy” was adopted in the late 1970s, Sri Lanka has been Asia’s poster boy for neoliberal reform, much like Chile in Latin America. The strategy was the now-familiar one of making exports the basis for economic growth, supported by foreign capital inflows. This led to a significant increase in foreign currency debt, something the IMF and the Davos crowd actively encouraged. 

In the period after the 2008 global financial crisis, as low interest rates in advanced economies led to the availability of cheap credit, the Sri Lankan government relied on international sovereign bonds to finance its own spending. Between 2012 and 2020, the debt to GDP ratio doubled to around 80%, with a growing share of this in bonds. The payments due on these debts kept rising in relation to what Sri Lanka could earn from exports and the money sent back home by Sri Lankans working abroad. The disruptions caused by the pandemic and the war in Ukraine made matters much worse, by causing export earnings to fall and sharply increasing the price of essential imports including food and fuel. Foreign exchange reserves plummeted – but the government had to keep paying interest even when it could not import essential fuel.

Looked at in this light, it is clear that Sri Lanka is not alone; if anything, it’s just a harbinger of a coming storm of debt distress in what economists call the “emerging markets”. The past period of incredibly low interest rates in the advanced economies meant that more funds flowed to “emerging” and “frontier” markets from the richer world. While this found cheerleaders in the international financial institutions (IFIs), it was always a problematic process. This is because, unlike in places such as the EU and US, capital leaves low- and middle-income countries (LMICs) at the first sign of any problem.

And these countries were much more battered economically by the pandemic. Advanced economies were able to provide massive countercyclical measures – think of the UK’s furlough programme – because financial markets effectively allowed and even encouraged them to do so. By contrast, LMICs were prevented from increasing fiscal spending by much – because of those same financial markets, which threatened the possibility of credit downgrades and capital flight as government deficits grew larger. Plus they faced significant declines in export and tourism revenues and tighter balance of payments constraints. As a result, their economic recovery has been much more muted and economic conditions remain mostly dire.

The half-hearted attempts at debt relief, such as the moratorium on debt servicing in the first part of the pandemic, only postponed the problem. There has been no meaningful debt restructuring at all. The IMF bewails the situation and does almost nothing, and both it and World Bank add to the problem through their own rigid insistence on repayments and the appalling system of surcharges imposed by the IMF. The G7 and “international community” have been missing in action, which is deeply irresponsible given the scale of the problem and their role in creating it.

The sad truth is that “investor sentiment” moves against poorer economies regardless of the real economic conditions in specific countries. Private credit rating agencies amplify the problem. This means that contagion is all too likely, and it will affect not just economies that are already experiencing difficulties, but a much wider range of LMICs that will face real difficulties in servicing their debts. Lebanon, Suriname and Zambia are already in formal default; Belarus is on the brink; and Egypt, Ghana and Tunisia are in severe debt distress.

Many countries with lower per-capita income and significant absolute poverty are facing stagflation. Billions of people are increasingly unable to afford a basic nutritious diet, and cannot meet basic health expenses. Material insecurity and social tensions are inevitable.

The situation can still be resolved, but it requires urgent action, especially on the part of the IFIs and G7. Speedy and systematic debt resolution actions to bring in private creditors and other creditors, such as China, are needed, as is IFIs doing their own bit to provide debt relief and ending punitive measures such as surcharges. In addition, policies to limit speculation in commodity markets and profiteering by big food and fuel companies must be put in place. Finally, the recycling of special drawing rights (SDRs) – essentially “IMF coupons” – by countries that will not use them to countries that desperately need them is vital, as is another release of SDRs equating to about $650bn to provide immediate relief.

Without these minimal measures, the post-Covid, post-Ukraine global economy is likely to be engulfed in a dystopia of debt defaults, increasing poverty and sociopolitical instability.

The G20 should be leading the world out of the coronavirus crisis – but it's gone AWOL

In March it promised to support countries in need. Since then, virtual silence. Yet this pandemic requires bold, united leadership writes Gordon Brown in The Guardian

 

The G20’s video conference meeting in Brasilia on 26 March 26. Photograph: Marcos Correa/Brazilian Presidency/AFP via Getty Images


If coronavirus crosses all boundaries, so too must the war to vanquish it. But the G20, which calls itself the world’s premier international forum for international economic cooperation and should be at the centre of waging that war, has gone awol – absent without lending – with no plan to convene, online or otherwise, at any point in the next six months.

This is not just an abdication of responsibility; it is, potentially, a death sentence for the world’s poorest people, whose healthcare requires international aid and who the richest countries depend on to prevent a second wave of the disease hitting our shores.

On 26 March, just as the full force of the pandemic was becoming clear, the G20 promised “to use all available policy tools” to support countries in need. There would be a “swift implementation” of an emergency response, it said, and its efforts would be “amplified” over the coming weeks. As the International Monetary Fund (IMF) said at the time, emerging markets and developing nations needed at least $2.5tn (£2,000bn) in support. But with new Covid-19 cases round the world running above 100,000 a day and still to peak, the vacuum left by G20 inactivity means that allocations from the IMF and the World Bank to poorer countries will remain a fraction of what is required.

And yet the economic disruption, and the decline in hours worked across the world, is now equivalent to the loss of more than 300 million full-time jobs, according to the International Labour Organization. For the first time this century, global poverty is rising, and three decades of improving living standards are now in reverse. An additional 420 million more people will fall into extreme poverty and, according to the World Food Programme, 265 million face malnutrition. Developing economies and emerging markets have none of the fiscal room for manoeuvre that richer countries enjoy, and not surprisingly more than 100 such countries have applied to the IMF for emergency support.

The G20’s failure to meet is all the more disgraceful because the global response to Covid-19 should this month be moving from its first phase, the rescue operation, to its second, a comprehensive recovery plan – and at its heart there should be a globally coordinated stimulus with an agreed global growth plan.

To make this recovery sustainable the “green new deal” needs to go global; and to help pay for it, a coordinated blitz is required on the estimated $7.4tn hidden untaxed in offshore havens.

As a group of 200 former leaders state in today’s letter to the G20, the poorest countries need international aid within days, not weeks or months. Debt relief is the quickest way of releasing resources. Until now, sub-Saharan Africa has been spending more on debt repayments than on health. The $80bn owed by the 76 poorest nations should be waived until at least December 2021.

But poor countries also need direct cash support. The IMF should dip into its $35bn reserves, and the development banks should announce they are prepared to raise additional money.

A second trillion can be raised by issuing – as we did in the global financial crisis – new international money (known as special drawing rights), which can be converted into dollars or local currency. To their credit, European countries like the UK, France and Germany have already lent some of this money to poorer countries and, if the IMF agreed, $500bn could be issued immediately and $500bn more by 2022.

And we must declare now that any new vaccine and cure will be made freely available to all who need it – and resist US pressure by supporting the World Health Organization in its efforts to ensure the poorest nations do not lose out. This Thursday, at the pledging conference held for the global vaccine alliance in London, donor countries should contribute the $7bn needed to help make immunisation more widely available.

No country can eliminate infectious diseases unless all countries do so. And it is because we cannot deal with the health nor the economic emergency without bringing the whole world together that Donald Trump’s latest counterproposal – to parade a few favoured leaders in Washington in September – is no substitute for a G20 summit.

His event would exclude Africa, the Middle East, Latin America and most of Asia, and would represent only 2 billion of the world’s 7 billion people. Yet the lesson of history is that, at key moments of crisis, we require bold, united leadership, and to resist initiatives that will be seen as “divide and rule”.

So, it is time for the other 19 G20 members to demand an early summit, and avert what would be the greatest global social and economic policy failure of our generation.

Are Religion and Nationalism False Subconsciousness?

Courtesy - Rawal TV - Password ep 68

Child rearing is too important to be left to the market

Zoe Williams in The Guardian

“Early years” is the most freighted term in politics, deployed to convey so much. For me, the phrase conjures an image of toddlers, hefting great boulders of public policy intention – like dutiful dwarves in fairytales. At election time, you see it dredged out to convey the following: first, this party is “family friendly”, which really means “women friendly”. Even though men are, last time I checked, intimately involved in the creation of children, and tend by modern mores to consider themselves responsible for the rest of the child’s life, the provision of care for children is an issue for a lady-voter; something to pique her interest after she’s been turned off by the conversation about defence spending and economic stability.

Also, early years – when attached to the word “intervention” – is a way of talking about deprivation without sounding as though you might do anything to tackle its structural causes, while at the same time avoiding the trap of callousness. You care, of course you care: who would blame a poverty-stricken three-year-old for failing to extend their vocabulary to match that of their peers? But your answer never relates back to the deprivation itself, rather, it suggests ways in which the state can make up the household deficit with thrifty, well-costed interventions. You have thereby established yourself as a caring, practical politician, who can meet a knotty problem head-on. It would be great if these interventions served more than a political purpose and made a difference to the children themselves, but you can’t have it all.

Last week the Nuffield foundation produced a report into the efficacy of early-years childcare and education. It found the demonstrable effects of the policy to be “modest”. Looking particularly at disadvantaged groups, it observed “some evidence that the impact of increased free entitlement on outcomes at age five was larger for children from lower socio-economic backgrounds”, but that this effect faded during primary school. The report highlights, furthermore, the fact that you can’t really reach a blanket conclusion about the influence of early years intervention, since provision varies. I want to say “varies wildly” but, to stick with the report’s sober language, it merely divaricates: state provision – especially attached to primary schools – is better.

The conclusions were that more research is needed before more money is committed; the oft-used phrase is “far from conclusive”, and there’s a reason for that. Early years interventions tinker at the edges of deprivation, while never considering what’s at its core. The seminal study on how disadvantage affects children’s educational attainment – and nobody denies that it does – is the 30 Million Word Gap, a 2003 American study that found high-income families talking more to their babies than poorer ones (a difference, by the age of three, of 30 million words). Policymakers have, on both sides of the Atlantic, fallen in love with this study, as they conceive ways in which that gap could be filled by institutions – mandatory parenting classes, graduate nursery staff, the simulation of conditions outside the home in which highly educated people talk a lot. This is accompanied by a complete myopia (I don’t want to call it deliberate; who knows what politicians do deliberately?) around what deprivation is: hunger, homelessness and poor housing, feelings of inferiority and hopelessness.

It is blindingly obvious to a teacher that a primary school cannot erode or undo the negative effect that being hungry has on a child’s ability to learn. A child with pressing housing concerns or very over-worked parents may find it difficult to concentrate. No wonder the effects of the nought to three years fade; these are real practical hurdles to a fulfilling human life. You do not need a sociologist, or a longitudinal cohort study, to find these correlations, as plain as the nose on your face.

And yet we contrive to have debates, and frame policy, around very complex secondary factors, boldly ignoring the very obvious primary ones. The reason is, I believe, moral: there is a fundamental ethical difference between believing in social mobility – opportunities for anyone, so long as they try hard enough – and believing in social parity – a decent life for people, however much they achieve, given that regardless of what happens somebody will end up at the bottom, and their welfare is as meaningful as anybody’s.

If mobility is the only goal you can accept, then to consider too deeply what being poor really feels like for a three-year-old is risky. You may end up caring about the family; you may actually end up thinking that none of them deserve to be hungry, even the ones who aren’t even children any more, and whose rubbish vocabulary is the root of the problem.

There’s a misconception even more fundamental. The Nuffield’s research is laudable, mainly for puncturing the claims about early years care that allow politicians to ignore more fundamental questions of social justice. But it is constrained by an even more fundamental misconception, which is that public policy could ever be cost-benefit analysed in this way – the infinite variegations of a human life crunched down into inputs and outputs; a toddler’s interaction monetised by the GCSEs achieved down the line. Payment-by-results culture is a necessity of any market or quasi-market system: you can’t quantify value if you’re not prepared to devise a set of measures of efficacy. But if we accept that the public sector does this best, why do we endlessly scratch around for the proofs to satisfy the market? We should work instead to the principles of cooperation: that pre-school children get the greatest benefit from universal provision, and the proof of its excellence is that everyone wants to use it.

Food banks in the UK: cowardly coalition can't face the truth about them

Conservatives cannot admit a real fear of hunger afflicts thousands

• 
• • Nick Cohen
  • The Observer, Saturday 28 December 2013 18.29 GMT

Donated food at a a food bank. Photograph: Christopher Thomond for the Guardian

I went to the Trussell Trust food bank round the corner from the Observer's offices just before Christmas. If I hadn't been reading the papers, I would have assumed it represented everything Conservatives admire. As at every other food bank, volunteers who are overwhelmingly churchgoers ran it and organised charitable donations from the public.

What could be closer to Edmund Burke's vision of the best of England that David Cameron says inspired his "big society"? You will remember that in his philippic against the French revolution, Burke said his contemporaries should reject its dangerously grandiose ambitions , and learn that "to love the little platoons we belong to in society, is the first principle (the germ, as it were) of public affections". Yet when confronted with displays of public affection – not in 1790 but in 2013 – the coalition turns its big guns on the little platoons.

It would have been easy for the government to say that it was concerned that so many had become so desperate. This was Britain, minsters might have argued, not some sun-beaten African kleptocracy. Regardless of politics, it was a matter of common decency and national pride that Britain should not be a land where hundreds of thousands cannot afford to eat. The coalition might not have meant every word or indeed any word. But it would have been in its self-interest to emit a few soothing expressions of concern, and offer a few tweaks to an inhumanely inefficient benefits system, if only to allay public concern about the rotten state of the nation.

But the coalition is not even prepared to play the hypocrite. Iain Duncan Smith showed why he never won the VC when he was in the Scots Guards when he refused to face the Labour benches as the Commons debated food banks on 18 December. He pushed forward his deputy, one Esther McVey, a former "TV personality". All she could say was that hunger was Labour's fault for wrecking the economy. She gave no hint that her government had been in power for three years during which the number attending food banks had risen from 41,000 in 2010 to more than 500,000. Her remedy was for the coalition to help more people into work.

If she had bothered talking to the Trussell Trust, it would have told her that low-paid work is no answer. Its 1,000 or so distribution points serve working families, who have no money left for food once they have paid exorbitant rent and fuel bills.

But then no one in power wants to talk to the trust. As the Observer revealed, Chris Mould, its director, wrote to Duncan Smith asking if they could discuss cheap ways of reducing hunger: speeding up appeals against benefit cuts; or stopping the endemic little Hitlerism in job centres, which results in unjust punishments for trivial transgressions. In other words, a Christian charity, which was turning the "big society" from waffle into a practical reality, was making a civil request. Duncan Smith responded with abuse. The charity's claims to be "non-partisan" were a sham, he said. The Trussell Trust was filled with "scaremongering" media whores, desperate to keep their names in the papers. But he had their measure.

Oh, yes. "I understand that a feature of your business model must require you to continuously achieve publicity, but I'm concerned that you are now seeking to do this by making your political opposition to welfare reform overtly clear."

Ministers will not confess to making a mistake for fear of damaging their careers. But it is not only their reputations but an entire world view that is at stake. Put bluntly, the Conservatives hope to scrape the 2015 election by convincing a large enough minority that welfare scroungers are stealing their money. They cannot admit that a real fear of hunger afflicts hundreds of thousands. Hence, Lord Freud, the government's adviser on welfare reform, had to explain away food banks by saying: "There is an almost infinite demand for a free good."

My visit to the food bank showed that our leaders' ignorance has become a deliberate refusal to face a social crisis. Of course, the volunteers help working families and students as well as the unemployed and pensioners. Everyone apart from ministers knows about in-work poverty. As preposterous is the Tory notion that the banks are filled with freeloaders.

You cannot just swan in. You get nothing unless a charity or public agency has assessed your need and given you a voucher. The trust is at pains to make sure that the beggars – for hundreds of thousands of beggars is what Britain now has – receive a balanced diet. To feed a couple for five days, it gives: one medium pack of cereal, 80 teabags, a carton of milk, two cans apiece of soup, beans, tomatoes and vegetables, two portions of meat and fish, fruit, rice pudding, sugar, pasta and juice. That this is hardly a feast is confirmed by the short list of "treats", which, "when available", consist of "one bar of chocolate and one jar of jam".

Sharon Cumberbatch, who runs the centre, tells me that she is so worried that shame will deter her potential clients that she packages food in supermarket bags so no one need know its source. The clients, when I met them, reinforced her point that they were not the brazen freeloaders of Tory nightmare. They trembled when they told me how they did not know how they would make it into the new year.

Most of all, it was the volunteers who were a living reproof to a coalition that can cannot correct its errors. They not only distribute food but collect it. They stand outside supermarkets all day asking strangers to buy the tinned food they need or hand out leaflets in the streets or plead with businesses to help. Sharon Cumberbatch is unemployed but she works to help others for nothing. Her colleagues said they manned the bank because hunger in modern Britain was a sign of a country that was falling apart. Or as one volunteer, Richard Moorhead, put it to me: "I am gobsmacked that people are going hungry. I'm ashamed."

The coalition can call such attitudes political if it wants – in the broadest sense they are. But they are also patriotic, neighbourly, charitable and kind. They come from people who represent a Britain the Conservative party once claimed a kinship with, and now cannot bring itself to talk to.