The economic record reassessed
As growth begins to slip, for the first time in a decade the economic record is coming under critical scrutiny. Ten years of steady growth, inflation under control, rising incomes, low unemployment, and huge increases in public expenditure in health and education had seemed to make an unanswerable case. Neo-liberalism – the Anglo-Saxon model of flexible markets – appeared in the ascendancy. Or is it?
If the relevant indicators of economic performance over the last period for which comparative OECD figures are available (1999-2004) are taken to be growth of GDP, unemployment, consumer prices, income inequality, and balance of trade in goods and services as a percentage of GDP, the overall ranking of the UK among seven leading industrial nations is middling (3rd). The UK lies behind Sweden and Norway in 1st and 2nd positions, with the Netherlands, Germany and France (4th, 5th and 6th), and the US at the back of the pack (7th). On the key issue of competitiveness – as measured by relative unit costs in manufacturing, relative consumer prices, growth of exports of goods and services, and export-import performance – the US and UK come out 5th and sixth, while Sweden again is 1st, and Germany, France and Netherlands 2nd, 3rd and 4th, with Norway down at 7th after an ill-fated experiment with neo-liberal macroeconomic policies.
Even these figures don’t tell the full, or even the main, story. These indicators of macroeconomic performance measure essentially the means to important ends, not whether those ends have been secured. The ends are the achievement of a sufficient standard of living and economic security for all that will render society more stable and as a consequence more likely to reach a higher level of economic efficiency. As Ricardo noted nearly two centuries ago, the principal problem of political economy is how the gains from economic growth are distributed.
On that basis the neo-liberal economies, the US and UK, score far the worst and the Nordic countries, Sweden and Norway, far the best, with the central European states – the Netherlands, Germany and France – again in between. In the UK-US the richest 10% now take 15 times more of national income than the poorest 10%, whereas in Sweden-Norway it is only 6 times more. Similarly, in the US 17% are assessed as living below the poverty line (and 13% in the UK), but only 6% in Sweden and Norway. The proportion of adults lacking basic literacy skills is 21% in UK-US, but only 8% in Sweden-Norway. And the economic security index is very low in the US at 0.61 (and 0.74 in the UK), but extremely high at 0.93 in Norway and 0.98 in Sweden. Perhaps most significant of all is the social trust index. In the US only 36% say they trust ‘most people’; in the UK it is even lower, at 30%, while in Sweden and Norway it is 76%.
The story behind all these statistics is quite clear. In terms of economic performance and competitiveness, individual welfare and social well-being, the Nordic countries consistently score highest, the central European economies achieve the next best results, and the neo-liberal economies – the UK and the US – score worst. The conventional wisdom has got it spectacularly wrong.
How has that happened? Two reasons: one is that the Government denigrates the relatively stagnant Franco-German economic record whilst ignoring the highly successful Swedish-Norwegian model. The other is that Government comment is focused wholly on the macroeconomic growth criteria whilst playing down who has really benefited – overwhelmingly the rich and well-off at the expense of still one-fifth of the population below the poverty line, a high level of economic insecurity and a deeply untrusting society.
The neo-liberal case has always rested primarily on the creation of ‘flexible’ labour markets to meet the challenges of globalisation. Even in those respects however it cannot claim to have succeeded. Britain’s deteriorating competitiveness as shown by the comparative data from the OECD Economic Outlook, plus the gradual hollowing-out of large segments of British manufacturing industry (with a million jobs lost in the last decade) both suggest otherwise. Furthermore the high level of economic and social insecurity in the UK undermine the social cohesion so necessary to achieve rapid adjustment to the kind of external shocks that globalisation can bring.
The downsides moreover of the neo-liberal Anglo-Saxon model remain large. Redistribution on moral grounds has been abandoned, and redress against sharply rising inequality is confined to working tax credit, means-tested supplements to very low incomes, and the welfare-to-work programme. Labour market de-regulation has deliberately tilted the balance of power in the workplace heavily in the interests of employers. The result has been that the co-operative management of industrial relations between employers and unions as seen in Continental Europe is absent from Britain. Britain continues to have a poorly trained workforce, and the combination of skill shortages, low wages and poverty continue to produce the inter-generational cycles of social deprivation which have so marred the country in the past.
What has been so missing from debate is the evidence that the latent conflict between economic competitiveness and social cohesion can be much better resolved than it is being in Britain. New Labour merely fudges the conflict by proclaiming they are compatible, when the evidence of social breakdown is everywhere apparent. What is ignored is the far greater success of the Nordic model. Sweden matches the UK in growth, GDP per capita and low unemployment, while at the same time it has a current account surplus of $14bn compared with Britain’s $30bn deficit. Even by New Labour’s favourite neo-liberal criteria, Sweden wins: it has lower inflation, higher global competitiveness, and a better business record for creativity and research. And when it comes to quality of life, Sweden is streets ahead. Its life expectancy is much higher, its poverty level is less than half Britain’s, its illiteracy rate is a third of Britain’s, and its social mobility is far higher.
Despite a decade of continuing labour de-regulation and constantly resisting EU measures to produce a better work-life balance, many of the new jobs in Britain have been very low-wage and productivity has crucially remained very disappointing. Product market de-regulation, liberalised labour markets and low taxes have not produced the big growth returns or the breakthrough to long-term competitiveness that were promised. Worse, the Economist Intelligence Unit’s quality of life index ranks the UK bottom among the EU15 States because of its poor public services and high rates of family and social breakdown.
Neo-liberalism has clearly had its day – it’s been tried and found wanting. A major switch is now needed towards the Nordic model of capitalism which has a proven track record of success unsurpassed on either side of the Atlantic.
Published in Tribune
Photo: Gamleys