Everyone starts from their preconceptions or prejudices (e.g. immigrants, China, shareholder capitalism, socialism, globalisation, the global elites) and concludes this is why everyone is angry, why some people are left behind, why people have stagnant
Everyone starts from their preconceptions or prejudices (e.g. immigrants, China, shareholder capitalism, socialism, globalisation, the global elites) and concludes this is why everyone is angry, why some people are left behind, why people have stagnant incomes, why their community or suburb isn’t very prosperous and crime ridden. I’d argue the economics is important and a good understanding of recent economic history is not something that drives current political narratives. Blaming others for economic woes is not just a late 20th / early 21st century phenomenon. In his magisterial history of the seventeenth century, Global Crisis, Geoffrey Parker explains how an exogenous shock – in that case the so-called Little Ice Age – resulted in a series of uprisings across the globe. The people, instead of realising the climate was to blame for falling crop yields (and therefore poverty and death), instead fixed their eyes up on the elites, and the existing social structure. The result was a century of revolutions, revolts, uprisings, and wars. Fast forward to the second decade of the 21st century and a lot of people in western democracies are angry about their jobs, incomes, housing, public services, crime, poverty, and so on. Some people alive today did have good jobs, but small towns and industry have declined. Where did those people come from in the broadest sense? Well, to understand our current predicament, we need to first understand where we all our parents and grandparents came from. Growing up in the post WW2 period in the developed world was like winning the lottery: you were a member of the global 1% by accident of birth. The reason the developed world was so well off is that it had learned the secret of mass manufacturing, and it was where all the capital (in terms of machines that made things) had been deployed. Back in the 1950s and 1960s, the developed world exported manufactured products and services, while the developing world (including China) exported raw materials. This relationship was very good for workers in rich economies, as they were the bottleneck in world economic production. The producers of raw materials – say Brazil and China for iron ore, and the Middle East and Nigeria for oil – were poor, and the makers of cars were rich. This manufacturing wealth had wider social impacts that aided a feeling of wellbeing. For much of the post war period, developed countries – and their citizens – had it pretty good. Unemployment was negligible, crime low, and each generation successively richer. A German, Japanese or American father could look down on his children and feel confident that their lives would be better than his. There was social mobility through the generations. Generous welfare benefits could be afforded which did not make employing people uncompetitive because the competitors were similar running similar types of manufacturing economies. This began to change with the emergence of the so-called ‘tiger’ economies in the late 1980s and 1990s: Taiwan, South Korea, Singapore and Hong Kong. Entrepreneurs in these countries realised that they had something that the old world did not – plentiful, cheap, labour – and that buying capital goods from Germany or Japan enabled them to compete on the world stage. Where these small countries led, China and others are now following. China – which just 20 years ago was an exporter of coal, oil and various other commodities – is now a manufacturing powerhouse and commodity importer. The developed world’s core competence, turning raw materials into manufactured products, was taken away from them. This of course had impacts on where capital would now be spent and therefore jobs and wealth – and the affordability of welfare and benefits which were now a competing cost against economies without generous welfare states. But it was more complicated than that. Discontent was foaming for other reasons fuelled by stagnant GDP and rising inequality across generations. It was not just about China and others learning to manufacture ‘stuff’ we wanted to buy. The other drivers have been demographics (we are getting older and therefore healthcare is more expense), competition for resources and commodities and globalisation. Western economies continued to grow in capita GDP terms, but median income did not and the symptom of that has been widening inequality fuelling concern about the 1%. That disconnect has been rising from the early 1980s, but not necessarily because of deliberate policy actions. It’s an old adage that it is easier to share gains than losses: when everyone’s income was rising, the difference between the richest and the rest seemed a price worth paying. Across the developed world, people are discontented because the old post War consensus has been broken. We are no longer all getting richer. And worse, we have a situation where a certain segment (the elites, the 1%, etc.) have gotten richer, while many others have gotten poorer. With consumer debt at elevated levels in many places, and the cost of entry into the middle classes – a university degree – both costing more and offering less, we shou