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The Great Wage Depression. How Brexit can really damage your wealth.

ECONOMISTS call it an inflexion point. For the rest of us it’s like that moment in the film Aliens when the space marines realise they are doomed unless someone seizes control from their dithering commander, who clearly doesn’t know what he’s doing. Tony Blair fancies himself as Ripley in this remake, though let’s not go there yet.

The Brexit wake-up call is the realisation that Britain faces the longest period of wages stagnation in a century – indeed in more than that, since 100 years ago Britain was in the middle of the First World War. The current decade-long incomes crash, described as “dreadful” last week by the Institute for Fiscal Studies, is actually worse than the Great Depression of the early 1930s. Wages recovered fairly rapidly after 1933.

What didn’t recover in the 1930s was unemployment, which rose to 22 per cent and was still 13 per cent in 1938. Britain’s present wage depression has coincided with what most economists call full employment (joblessness is actually around 5 per cent). Indeed, the employment rate in the UK rose to record levels even as pay fell between 2007-14 by nearly 10 per cent. That is why this really is an inflexion point: the moment you realise the world has changed and you no longer know where you are.

Through my entire life, rising living standards has been one of the great social constants. Earnings have grown on average by around 2 per cent a year. There were fluctuations and setbacks, and the wealth produced was never equally distributed. But the assumption built into the society created after the Second World War was that, broadly speaking, things would get better year on year. And they have, for the vast majority of British families who became, essentially, a broad middle class. Now it is all going into reverse.

The wage depression represents a social transformation. It is the impoverishment of the working class, the erosion of the middle class and a tearing up of the inter-generational contract. The millennials are the first generation outside wartime who will be less well off than their parents since Victorian times. And on top of all this we have Brexit.

Leaving the secure and managed free-trade zone that is the single EU market is the worst act of economic self-harm since Britain restored the Gold Standard in 1925, thus destroying many of the markets for British exports. Of course, leaving the European Union is the people’s choice in a referendum and has to be honoured. But this government is pursuing a brain-dead hard Brexit, obsessed only with cutting immigration, which will make the wage freeze immeasurably worse.

The world is now largely made up of trading blocks in which the multifarious restrictions on trade – not just tariffs on hard goods but regulatory barriers to investment and services – are being removed by complex negotiations that take place over many years. It’s taken 43 years to build the European single market, and now Britain wants to leave it. The verdict of the Office of Budget Responsibility last week was that this would add £122bn to Britain’s deficit, and damage growth and investment. Families will be more than £1000 per head worse off by 2020.

The problem with inflexion points is that no-one notices them at first. Since the financial crash, governments have been behaving as if all you need to do is cut public spending, hold down wages and let capital do the rest. The austerity that George Osborne – along with the rest of Europe – embarked upon in 2010 only accelerated the impoverishment cycle by deflating the economy.

Last week’s Autumn Statement confirmed the failure of that approach as the Chancellor Philip Hammond introduced the kind of borrowing-to-invest infrastructure programmes that Labour and the SNP have been calling for over the last six years. But it is not only too little too late: it is an act of desperation by an administration that, to put it as delicately as possible, doesn’t know its arse from its elbow.

Last week, the Brexit Secretary, David Davis, was ridiculed by MEPs in Brussels for declaring that Britain wanted to stay in the single market. What he was presumably driving at was for Britain to retain access to the single market but without the requirement for free movement. But this only confirmed that the Brexit Secretary doesn’t understand how the single market works. You can’t have tariff-free access to it if you don’t accept the rules, which include regulation of trading standards by the European Court of Justice and free movement of labour – both of which the Tories have rejected.

Rather like their ideological cousin, Donald Trump, the Brexiteers have bluffed their way into government and are now exposed as charlatans bereft of any kind of plan. They tried to conceal this by denying parliamentary scrutiny of the Article 50 process. If they have any vision it is turning Britain into a low-wage, small-state economy like Singapore. This is not what the British people thought they were voting for – the 52 per cent, that is. They thought they were voting against job losses and immigration; not for becoming second-class citizens in their own country.

There are now signs of buyer’s remorse as the UK voters begin to realise that they were played for fools. Opinion polls show a clear majority now for remaining in the single market. This has brought former prime ministers out of the woodwork, John Major and Tony Blair, who seem to be positioning themselves as possible figureheads of an anti-Brexit alliance. There is certainly a gap in the market for someone to lead a broad UK coalition against hard Brexit, of the kind that Nicola Sturgeon called for at the SNP conference in October.

The current Labour leader Jeremy Corbyn seems unable to raise his voice against Brexit even though he clearly understands the seriousness of the economic situation facing British workers. The Shadow Chancellor, John McDonnell, seems to have decided that Labour can’t speak out against Brexit for fear of losing votes to Ukip. At any rate, neither seems capable of providing national leadership in this crisis. It is ironic to say the least that a figure closely associated with globalisation and the international elite, Tony Blair, should be sounding more credible than the Labour left – but these are very strange times.

With the Liberal Democrats electorally irrelevant, there is no focus of political opposition in Westminster. It has been left to the SNP and the judges of the Supreme Court to fight for the right of the UK Parliament to be involved at all. If the former Labour prime minister is the only figure who can unite the disparate forces against hard Brexit then a lot of people may say: so be it. After all, Tony Blair won three general elections.

The alternative could be a relentless drift to the far right as victims of the Brexit wage freeze blame the aliens in their midst: migrant workers and foreigners in general. We have already seen this in America, where the white working class have turned in desperation to the alt-right. Periods of extreme economic nationalism generally end in war. Aliens is a great film, but it doesn’t end well.

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About iain2macwhirter

Writer and journalist.

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