Is it back to the 1970s for the UK economy? Yes, but not in the way you think | Philip Inman

BRitain is suffering a catastrophic economic shock similar to the one that rocked the economy in the 1970s, but strikes by workers who are offered wage increases below inflation are low on the list of agreements.

The UK has been hit by inflationary pressures and steadily rising wage demands, but both remain modest compared to the 1970s. Far more important are the conditions of life in the 21st century, which are very different from those of nearly five decades ago.

For starters, the 1970s was a decade of widespread union membership and relatively high benefits for out-of-work workers. In contrast, millions of retirees sought warmth around a two-bar electric fire, forced to earn a living on Europe’s lowest state pension.

It was a time of mass production, mass consumption and the public ownership of utilities and major employers in sectors such as telecom, railways, coal, steel and automobiles. Hundreds of thousands of people worked in the same industry, for the same employer. From cars to insurance, there wasn’t the variety you see today.

People of all ages and income levels consumed many of the same things, from sausages, mashed potatoes and baked beans to cathode-ray tube TVs. Today’s economy is dominated by niche production and consumption, where what you buy defines you much more than what you do to make a living.

Today, workers are largely unprotected from loss of income, so those who do not have transferable skills must bow to their employer. Strikes are sporadic and limited to relatively small groups.

This makes almost everything about inflation different. Retirees have a political weight, hence the 10% increase in the state pension next year. Meanwhile, weakened and divided workers face a massive drop in living standards.

The 1970s only resonate when the comparison is made with investment levels. Crucially, when Marc Bolan topped the charts, only paltry sums of money were spent on Britain’s long-term industrial future, and the same can be said of Stormzy’s fame over the past decade. More precisely, over the past six decades public investment has been erratic, with ups and downs during the Labor and Tory governments, leaving the private sector little confidence that it can piggyback on the tails of government spending.

A May survey by Bank of England interest-setter Jonathan Haskel and Stian Westlake of the Royal Statistical Society found that the UK failed to invest as much as its US counterparts in patents, research and software over the 2007-2019 period. – often called the “intangible economy” – had resulted in losses of £2,144 per household, or 0.5 percentage point of GDP per year.

According to the Office for National Statistics, private sector investment in the UK is more than a third lower than pre-Brexit. As a result, Britain finds itself in every crisis without the momentum that would allow vulnerable industries to protect themselves from its worst effects.

Next year, businesses with the latest kit and up-to-date processes are likely to thrive, and those that entered the recession and still used Windows 7 to process orders will be left by the wayside.

On the plus side, the UK manufacturing sector produces roughly the same value of goods today as it did 15 years ago. But the number of manufacturing companies has dwindled, as has the number of people they employ. With the auto industry on its knees and investment in the green economy focused almost entirely on wind farms, both the value and size of the manufacturing sector is likely to shrink.

There are also problems for service companies. They have relied on waves of graduates from British and European universities that washed up on their doorstep, willing to do almost any work that needed to be done.

This year, severe budget cuts will limit access to higher education. That’s a blow, because the productivity gains made in the UK before the 2008 financial crisis – productivity has fallen since then – came from a better-educated workforce.

Numerous studies have shown that graduates took jobs far below their capabilities and were technically underemployed. But employers, without lifting a finger or spending a dime, let someone do a job that was better qualified than the employee they replaced.

It’s the kind of expensive trick that can’t last long and will leave the UK with a lower workforce to match lower investment. If we’re witnessing a repeat of the 1970s, it’s the lack of investment that’s looming, not the potential for inflation-reducing wage increases.

Leave a Comment