Will Hutton is in a state of shock. Writing in the Observer he explains why:
- “I was stunned to read in a recent IMF working paper, with the hardly catchy title Income Inequality and Current Account Imbalances, that the whole – yes the whole – of the deterioration of the British current account deficit between the early 1970s and 2007 could be explained by the rise in British inequality. It is a similar, if less acute, story across the rest of the industrialised or, rather, deindustrialising west.”
But, hang on, what’s the connection between rising inequality and the balance of trade? Well, it’s like this:
- “What the IMF team shows is that as the share of national income devoted to profits and top pay rises to its current levels, so a noxious economic dynamic is created. By definition, there is less of the pie available to the mass of wage earners, whose real wages become squeezed. To sustain their living standards, they borrow, which has been easier than ever over the past 40 years as banks take advantage of financial deregulation. Overall demand thus carries on growing, but at the price of sucking in imports and ever higher personal debt levels for ordinary wage earners.”
One might add that, compared to people on ordinary incomes, the rich invest a higher share of their income, meaning that they consume a lower share. Therefore, if the share of GDP taken by the rich goes up, then a lower share of GDP will go into consumption – unless, that is, the rest of the population borrow to spend instead.
This is, of course, is exactly what did happen when, under Gordon Brown, the nation finally maxed-out its credit card. Borrowing then gave way to repayment, with predictable consequences for demand and growth.
For many on the left the only way back to growth is get back to borrowing. Will Hutton, though, is more realistic:
- “There can be no return to the world before 2008, relying as it did on abundant supplies of cheap credit. Equally, we need to grow out of recession, which needs more than continual deficit spending and ultra-cheap money or the alternative of endless austerity.”
The answer, he says, is the “economic empowerment of ordinary men and women” – so that they may spend more by earning more. But does that mean unleashing a new wave of union militancy? Apparently not:
- “It is a wonderful opportunity for trade unions to reimagine their role in western societies. One of the reasons it has been so easy to reduce their power in the Anglo-Saxon world is that they have been so unlovely, unimaginative and defensive – the reflex defenders of the incumbent, indefensible insiders' privileges and the status quo.”
In any case, the idea that militant unions can simply force up wages is nonsense. The reason why employers have been able to squeeze the British workforce is because it pays to export their jobs to other parts of world.
In a globalised economy, the only way of “making labour more powerful in its relations with capital” is to increase the demand for British workers by boosting their productivity. So, while Britain does need stronger unions, this should be stronger as in better – and, in particular, better at campaigning for, and directly providing, the education and skills that give individuals clout in the market place, not on the picket line.