Years of global recession, stagnation and slow uncertain recovery prove we do not yet have the right economic model to secure the sustained, strong growth that will be vital to social and economic progress in the years ahead.
IMF research has shown that both growth and fairly shared gains are vital, with lower income inequality delivering faster and more durable economic improvements. But in too many cases action has failed to follow the evidence, with devastating consequences for working people across the world.
The UK provides a case study of just how broken this economic model is–and why it needs to be fixed. While our labour market recovery has been presented internationally as a runaway success, rising job levels are only half the story. Workers across the UK have now endured years of falling real wages, and underlying rates of pay growth remain very far below their pre-crisis trend. The last five years has been the worst period for UK living standards on historical record.
The incomes squeeze has come not only from reduced rates of pay growth. The types of jobs we are creating have also changed. More positions are self-employed, particularly in some low-paying industries. Casual, insecure jobs are booming, such as those where workers on “zero hours” have no guarantees of whether they will get any work at all. Our low-pay industries are now responsible for a larger share of employment than in the past. We are creating jobs, but not enough of the middle and higher skilled, secure positions that we need to provide opportunities for working people and their families.
The pain on pay has been accompanied by a productivity crash. Our recovery since the global recession has been the slowest on historical record and productivity trends show why–investment levels are down, our exports are weak, government spending drags down GDP, and there is ample evidence of spare capacity being wasted. The UK is shifting to the economic slow lane, and improvements in pay and profits in the years ahead desperately depend upon a new approach.
So the TUC’s response, broadly in line with the thinking of the Trade Union Advisory Committee to the OECD (TUAC), is threefold: boost demand, boost productivity and create a virtuous circle by ensuring that working people get a fair share of the gains.
Our priority needs to be sustainable growth. That means investing in the infrastructure and services that will lift GDP in the years ahead. Fiscal and monetary policy need to push in the same direction, not pull apart. We need an economy where new infrastructure, technological development and innovative research deliver gains across industries and regions, not one where housing and debt bubbles fuel an uncertain recovery.
A strong economy will also depend on a progressive approach to our growing supply-side challenges. Bank lending to firms needs to be boosted, corporate governance needs to support long-term company decision-making, and our vocational education system must stop failing so many of our young people.
But even when productivity gains come, we cannot simply assume that the proceeds will be fairly shared. History tells us that this type of shift does not just happen by itself. And it won’t without significant policy change to support stronger pay floors, extend collective bargaining and regulate our labour market to prevent a race to the bottom.
More fairly shared growth is not an optional extra–in turn better pay and conditions further boost our growth rate (as workers spend their wages and as revenues are generated to invest in the future). What’s more, if spending isn’t supported by growing real incomes, rather than rising household debt, then the next financial crisis beckons. If we don’t achieve both a strong recovery and a better balance of rewards, the risk of the economy simply running out of steam is real.
The UK’s experience holds important lessons for the rest of the world. We need an economic model built on strengthened demand, balanced growth and fairer shares of jointly generated rewards. This means new investment rather than endless spending cuts, embracing progressive economic approaches to structural challenges and crucially putting in place the policy levers to secure fairer shares.