Riffing off the IPPR report the Senior Lecturer says:
Whatever growth out economy is now seeing is not of the type we have seen in the past. Returns to profit and rents are rising. Rewards for effort expended are falling. A number of consequences follow.
The error is that a fall in the labour share does not, necessarily, mean a rise in the capital share. There are 4 parts to national income, labour, capital, self-employed and subsidies to production and taxes on consumption. The second pair there have risen in recent decades. The profit share most definitely fell in the 1970s and it fell to below depreciation. That’s simply not sustainable so sustain it didn’t. The profit share is around and about the long term average these days.
And, of course, profit is not a return to effort then?
But most particularly it is now very obvious that GDP is simply not a measure of well being for most people. Whatever merit it once had for that purpose (and it was always open to question) it is now very obvious that a simple increase in GDP, which has for so long been the goal of Treasury politicians, is of no comfort to most people any more. Indeed, as the gap between divisions in society increases it is actually possible that increasing growth increases the perception of division, and so the social and consequent stresses in society, all of which more than counteract any apparent material gains achieved.
What then to do about this?
First, abandon GDP as a measure. As Charles Adam of Durham University suggested on this blog yesterday a much more useful goal for measuring economic well-being would be median wage income. It must be median and not mean wage because the mean is skewed by high pay and inequality; the median is not. And it must be wages because most do not own significant capital in this country and to exclude capital returns is, then, vital.
Excellent, the median wage in the US, Hong Kong, Singapore is higher* than that in the UK, Sweden or Denmark. Therefore the UK should move to more like US, Singapore or Hong Kong economic arrangements and less like Sweden or Denmark.
I’m fine with that but what will the others at Islington Technical College think of it?
*I think, at least, but the logic still stands, doesn’t it? If we are to measure by median wage then we must go gung ho for growth not for equality.